Oil Value Chain & Markets. Global Oil Markets

Transcription

1 Oil Value Chain & Markets Global Oil Markets

2 World Oil Reserves WORLD OPEC Middle East Former Soviet Union Africa End 2006 End 2000 End 1990 End 1980 North America USA South & Central America Asia Pacific ,00 0 Billions of Barrels 1,10 0 1,20 0 1,30 0 Proved reserves with current technology and prices. Source: BP Statistical Review of World Energy OPEC includes Iran, Iraq, Kuwait, Qatar, Saudi Arabia, UAE, Algeria, Libya, Nigeria, Indonesia, Venezuela, and Angola since Global Energy Markets Trade Programme - 2 -

3 Oil Resources Russia USA Iran Iraq Kuwait UAE Nigeria Brazil Mexico Libya China Norway Algeria Great Britian Qatar Angola Australia India Global Energy Markets Trade Programme Canada Venezuela Saudi Arabia Billion Barrels <In Place>

4 Global Proven Reserves Total 1.2 Trillion Barrels Exxon/Mobil 1.0% BP 0.9% Russia NOCs 6.8% Asia NOCs 2.1% Africa NOCs 6.6% Europe NOCs 1.0% Chevron 0.9% ConocoPhillips 0.6% Shell 0.5% Investor owned oil reserves are roughly 4% of global total Latin America NOCs 9.8% Middle East NOCs 69.6% Source: BP Statistical Survey of World Energy Global Energy Markets Source: Trade BP Statistical Programme Survey,

5 World Oil Production Thousand b/ Non-OPEC OPEC Source: BP Statistical Review of World Energy Global Energy Markets Trade Programme - 5 -

6 Major oil trade movements Source: BP Statistical Review of World Energy 2007 Global Energy Markets Trade Programme - 6 -

7 Global Oil Trade EXPANDING FLOW TRENDS Source: NPC Global Energy Markets Trade Programme - 7 -

8 Supply Vulnerability Zones Bosporus Suez Canal / Sumed Panama Canal Red Sea Strait of Hormuz Strait of Malacca Source: NPC 2007 Global Energy Markets Trade Programme - 8 -

9 Derivation of Basis Risk Production Transportation Distribution End Use Basis Differential between cash/spot and nearest futures price as a result of time, product forms, quality, location Basis risk : Uncertainty as to whether differential will widen or narrow Global Energy Markets Trade Programme - 9 -

10 Balancing the Market Mean reversion is a reality if marketclearing participants exist DEMAND SUPPLY LOW Prices HIGH Global Energy Markets Trade Programme

11 Mean Reversion: Oil Price Example 91:03-06:04 86:01-06: Price Frequenc Global Energy Markets Trade Programme

12 Price Volatility and Risk Trade Offs with Competition: Open Access Example Commodity price risk flows E&P Pipelines LDCs End Users Power Capacity price risk flows Risk accepting entities Global Energy Markets Trade Programme

13 Mechanisms to Manage Price Risk Trading in futures contracts Long-term contracts Fixed-price contracts Storage for physicals hedging Ability to use alternate fuels; efficiency; conservation Allow residential customers to choose budget payment plans; energy service contracts for commercial and industrial customers Develop mechanisms for capacity risk Global Energy Markets Trade Programme

14 Global Oil Market Illustration Physical Market Specific Market Term Market Spot Deals Forward Deals Tenders Bilateral Tenders Bilateral Futures Swaps & Other OTC Formal Options Source: Oil in Asia by Paul Horsnell, 1997, Oxford Institute for Energy Studies Global Energy Markets Trade Programme

15 Source: ESAI Global Energy Markets Trade Programme

16 Crude Oil Basis Differentials Global Energy Markets Trade Programme

17 Oil and Gas Prices $18 $16 $14 U.S. Gulf Coast No 2 Diesel Low Sulfur Spot Price FOB ($/MMBtu) U.S. Gulf Coast No. 2 Heating Oil Spot Price FOB ($/MMBtu) U.S. Gulf Coast Residual Fuel Oil 1.0 % Sulfur LP Spot Price CIF ($/MMBtu) Henry Hub Monthly Average Spot Price ($/MMBtu) $/MMBtu $12 $10 $8 $6 Actual Ratio, Crude Oil:Gas Prices Oil:Natural Gas Price Ratio $4 5 $2 Rough 6:1 heat value ratio $0 0 Feb-89 Feb-90 Feb-91 Feb-92 Feb-93 Feb-94 Feb-95 Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Sources: U.S. EIA; NYMEX Global Energy Markets Trade Programme

18 Source: IEA OMR Oct 07 Global Energy Markets Trade Programme

19 Physical and Financial Oil Markets $4,000 $3,500 $Billion $3,000 $2,500 $2,000 $1,500 $1,000 Total physical crude Total futures WTI crude Low-Range Notional Total Trade Value High-Range Notional Total Trade Value $500 $- Source: ESAI Global Energy Markets Trade Programme Source: -ESAI 19 -

20 Oil & Gas Investment Hinges on Price Expectations U.S. domestic first purchase price (real $) $60 $50 $40 $30 $20 $10 What kind of business are we in??? With OPEC Without OPEC Cheap Oil Oil Crisis $0 50 Source: 53 56U.S. 59EIA Global Energy Markets Trade Programme

21 Long-term oil price trends Source: BP Statistical Review of World Energy 2005 Global Energy Markets Trade Programme

22 But mean changes over time spot Global Energy Markets Trade Programme

23 WTI versus forward curve Contango vs Backwardation Global Energy Markets Trade Programme

24 Global Energy Markets Trade Programme

25 Global Energy Markets Trade Programme

26 OPEC (Saudi Arabia) has potential 80 Share of the World (%) Production Reserves Global Energy Markets Trade Programme

27 Do Cartels Succeed in the Long Run? Nominal cartel commodity prices, U.S.$, indexed It depends on how much of the market they control and: - Group cohesion - Market anticipation vs. policy action - Data transparency Cocoa Sugar Copper Coffee Tin Oil and were OPEC influenced Sources: Industry trade publications and U.S. EIA Global Energy Markets Trade Programme

28 An Effective Cartel Requires: Minimum conditions: Narrowly defined target A good with no easy substitutes An entry cost for new producers that is very high relative to the marginal cost of cartel producers Incentives to cooperate Global Energy Markets Trade Programme

29 Source: World Energy Outlook 2007, IEA Global Energy Markets Trade Programme