Volatility Lovers: Unite! Medium and Long Term Tendencies in North American Oil & Gas Prices

Transcription

1 Volatility Lovers: Unite! Medium and Long Term Tendencies in North American Oil & Gas Prices VI Congreso, Acapulco 2014 BEG/CEE-UT, 1

2 How Oil & Gas Impacts the World 2011 Crude Oil Marketed Gas Annual Production 32 BBBL 124 TCF Est. Market Value $5 Trillion (Current USD) Global GDP $71 Trillion (Current USD) PPP GDP (TOE) $51 Trillion (2011 USD) Sources: EIA, World Bank Indicators, BP Annual Statistical Review; PPP GDP based on USD purchasing power parity output per kg oil equivalent BEG/CEE-UT, 2

3 Established Endowments Diameter of bubble is total production, 2012, BOE; U.S. was 14 MMBOE. Countries with + are mainly gas producers. BP Statistical Review and EIA, CEE analysis. BEG/CEE-UT, 3

4 Established Patterns of Use Electricity in twh, gas in TCF, BP Statistical Review and EIA, CEE analysis. BEG/CEE-UT, 4

5 Markets R Us Over confidence Illusion of truth Confirmation bias Hindsight bias Halo effect Sunk-cost fallacy Loss aversion Self-serving Lady Macbeth effect Framing Availability heuristic We think our predictions or estimates are more likely to be correct than they really are We re more likely to believe a familiar statement Tendency to favor information that confirms our beliefs Duh! principle One trait influences others as we make judgments They matter (!), because we are more afraid of incurring losses than acquiring gains, and we ll happily claim responsibility for success more often than failure, but just to be sure Out, damn spot! We have blinders and silos Predict frequency based on how easily an example comes to mind BEG/CEE-UT, 5

6 A strong demand stack scenario TCF LNG Exports 2030 = 1.0 (EIA ER = 3.5) Pipe Exports 2030 = 3.9 (EIA ER = 3.4) LNG exports CEE Pipeline exports CEE 30 Power generation CEE 25 Power 2030 = 15.9 (EIA ER = 10.1) Industrial CEE CEE assumes all possible EPA actions Industrial 2030 = 8.8 (EIA ER = 8.5) Other (Res, Comm, Trans) EIA ER Dec 2013 Total demand CEE High Case 5 Other 2030 = 10.8 (residential+ commercial 10.5) Total supply EIA ER Dec 2013 CEE analysis; EIA ER refers to EIA 2014 Early Release, Dec 2013 (reference case) BEG/CEE-UT, 6

7 300% 250% 200% 150% Volatility Returns Small changes in supplydemand balance exert large changes in price volatility. Natural gas has tended to demonstrate greater price volatility than oil. Y-Y Change Cushing, OK Monthly Avg WTI Spot Price, % Y-Y Change Henry Hub Monthly Average Spot Price, % Volatility is Dead 100% 50% 0% -50% -100% BEG/CEE-UT, 7

8 Shifting value propositions 140% 120% HH % of Oil Propane % of Oil NGL Composite % of Oil $/MMBtu 100% 80% 60% C2 (ethane) is ~20% of WTI 40% 20% 0% CEE based on EIA, NYMEX BEG/CEE-UT, 8

9 and challenging value capture $14 $12 $10 NGL Composite Frac Spread (NGL Composite-HH) Propane Frac Spread (Propane-HH) $8 $6 $/MMBtu $4 $2 $0 -$2 -$4 -$6 -$8 BEG/CEE-UT, 9

10 Resources Opportunities and Economics Vary Conventional Reservoirs Smaller volumes Relatively easy to develop Unconventional Reservoirs Larger volumes Relatively more difficult to develop (Oil Sands) Frontier resources: does the need to build scale change risk and uncertainty in ways not fully perceived by market participants? From Holditch, 2005, 'Statistical Correlations in Tight Gas Sands', American Association of Petroleum Geologists (AAPG) Hedberg Conference Proceedings. BEG/CEE-UT, 10

11 A Possible Outcome: Crude Oil $200 CEE Projection, Fall 2011 ($Nominal) $180 $160 $140 $120 EIA AEO 2014 ($ Nom) EIA AEO 2014 ($2012) Actual Spot (Annual Avg, Current YTD) 2014 average based on current CL strip As of: 6 June 2014 $/Bbl $100 $80 $60 $40 Key driver: global demand $20 Timing? $0 Based on Foss, 2011, OIES NG 58; see Foss, Gulen, Wainberg, Oil & Gas Investor, September 2013 BEG/CEE-UT, 11

12 NOCs: 2011 Total Costs with 10% Return Avg. $73/BOE BEG/CEE-UT, 12

13 NOCs: 2013 Total Costs with 10% Return Avg. $74/BOE BEG/CEE-UT, 13

14 NOCs: 2011 Total Costs with E&P CAPEX Avg. $86/BOE BEG/CEE-UT, 14

15 NOCs: 2013 Total Costs with E&P CAPEX Avg. $96/BOE BEG/CEE-UT, 15

16 A Possible Outcome: Natural Gas $12 $10 $8 CEE Projection, Fall 2011 ($Nominal) EIA AEO 2014 ($ Nom) EIA AEO 2014 ($2012) Actual Spot (Annual Avg, Current YTD) 2014 average based on current NG strip As of: 6 June 2014 $/MMBtu $6 $4 $2 $0 Timing? Key drivers: supply, infrastructure challenges; demand pull ; flat oil price and/or diminished liquids values Based on Foss, 2011, OIES NG 58; see Foss, Gulen, Wainberg, Oil & Gas Investor, September 2013 BEG/CEE-UT, 16

17 A Possible Outcome - Oil:Gas Spread Historical Oil:NG CEE Projection, Fall 2011 ($Nominal) EIA AEO 2014 Oil:NG Timing? 0 Based on Foss, 2011, OIES NG 58; see Foss, Gulen, Wainberg, Oil & Gas Investor, September 2013 BEG/CEE-UT, 17

18 The Future? 2012: 20% of Canadian supply 2012: 18% of Mexican supply 2x current NA exports by 2020? ~8-9 BCFD Map presents a possible gas flow scenario, Foss, Ch. 3 in Pricing Internationally Traded Gas, Oxford, 2012; gas trade data from EIA BEG/CEE-UT, 18