Energy and commodity price benchmarking and market insights

Transcription

1 Energy and commodity price benchmarking and market insights London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogota, Rio de Janeiro, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Porto and Johannesburg

2 The new US crude landscape: Managing change and uncertainty Gus Vasquez and Jay Pruett 26 September 2013

3 Agenda Recent history US domestic production Stocks at Cushing Shifting forward curve structures Canadian crude imports Managing risk with Argus forward curves How Argus curves are derived

4 Evolution of the current market

5 Gluts and disconnects Glut at Cushing put WTI in deep contango Prompt values heavily pressured Increasing flows to Cushing outnumbered outflows Cushing stocks built rapidly USGC remained connected to rest of world LLS and Mars as secondary benchmarks De-bottlenecking then moved the glut Reversed, converted and new pipelines Cushing now at much lower levels WTI flipped to backwardation USGC now beginning to disconnect

6 Shifting supply landscape The shale oil production boom reshaped markets Light imports reduced at the USGC Domestic light prices pressured by production increases LLS forward curve switched to backwardation And then had a knock on effect Sour crude markets also changing WTI recently flipped into backwardation WTI price being determined at the USGC Now future prices becoming increasingly important to decision-making Swaps and forward curves now more valuable tools

7 '000 b/d Total US crude production Source: EIA

8 barrels per day US shale production 2,800,000 2,300,000 1,800,000 1,300, , ,000 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 US Bakken (b/d) Eagle Ford (b/d) Permian Basin (b/d) Source: Manitoba Petroleum Branch, Montana Board of Oil and Gas, North Dakota Oil and Gas Division, Saskatchewan Dept. of Energy and Resources, Texas Railroad Commission.

9 mn b/d Shale oil and deepwater production forecast Deepwater Gulf of Mexico US Shale Oil Source: EIA

10 '000 b/d Cushing weekly crude stocks 55,000 50,000 45,000 40,000 35,000 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13

11 $/bl Steeper WTI backwardation in 2H Aug WTI Curve 6 Jun WTI Curve Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16

12 The changing USGC market

13 USGC fundamentals have shifted More crude is making its way to the USGC Pipeline reversals Seaway pipeline Longhorn pipeline New pipeline projects Houston-Houma pipeline Seaway twin 450,000 b/d planned start 1Q 2014 Gulf Coast Pipeline Project 700,000 b/d planned start end-2013 Crude by rail Bakken, Canadian heavy

14 LLS relationship to WTI and ICE LLS initially followed Ice Brent Increased light sweet production weighing on LLS LLS backwardated, headed to lasting discount to Ice Brent Bottleneck/glut in USGC Eagle Ford and Permian production Bakken and Canadian crude volumes This has led to rapid growth in LLS swaps A need to mark to market Physical market priced on Argus Makes sense to mark position using Argus Forward curves derived from same market data

15 LLS relationship to WTI and ICE LLS Ice Brent WTI

16 $/bl LLS in steeper backwardation June LLS Curve 30 August LLS curve

17 Argus swaps increasingly important Due to greater supplies, uncertainty and new connectivity, swaps futures open interest has increased LLS seen as benchmark for light shale crude WTI Midland seen as alternative to WTI at Cushing Following Longhorn pipe reversal With swaps usage growing Forward curves becoming more important as a tool

18 Argus crude swaps open interest (CME Clearport) 60,000 50,000 40,000 30,000 WTI Midland Total LLS 20,000 10,000 0

19 Canadian crude Increasing volumes making it down to Cushing And to the USGC Canadian production is set to continue rising Heavy Canadian could compete with LatAm grades Back out heavy USGC imports Colombia and Venezuela already diverting exports Some 100,000 b/d currently pipelined to USGC Another ~100,000 b/d between rail and barging

20 Oil sands development continues to build Over 100 projects in total Circa 40 operating commercial projects 20 projects under construction Production to rise 10pc in 2013 to 3.63mn b/d Led by surging oil sands volumes in Alberta Canadian Crude Oil Production million b/d Total Canadian Eastern Canada Western Canada Conventional Oil sands Source: CAPP

21 The WCS discount Cushing vs Hardisty 115 Maya USGC WCS Cushing WCS Hardisty $5.50 $16 $ $

22 Increased risks to consider in decision-making Difficult to predict full price extent of increased crude movements to USGC Uncertainty over potential size of USGC glut Questions remain on the possibility of crude exports Unlikely to happen But not discarded completely Role of the east and west coasts in soaking up more domestic crude still to be determined Bakken, Canadian Bakken already being backed out of east coast Eagle Ford to California

23 Uncertainty will remain at forefront

24 Argus Crude Oil Forward Curves Argus Curves defined Forward Curves are the market s current assessment of the value of a commodity for a specified delivery schedule sometime in the future Forward curves are not a current prediction of future cash or physical market settlement prices Forward Curves do not take into consideration changes in market fundamentals such as new production

25 Managing Risk - Argus Crude Oil Forward Curves Risk & Risk Analysis Internal Curve Validation Margining requirements Value at Risk (VaR) Potential Future Exposure (PFE) Monte Carlo simulations Mark to Market Mark to Market Compliance: Accounting (FASB), Dodd Frank Trading P&L; Hedging, Margining, Pre-trade analysis Asset Valuation Project planning Capex Project Finance

26 Argus Crude Oil Forward Curves What are Argus Crude Forward Curves 23 crude oil grades and trading locations over the midcontinent North Sea, Gulf Coast, and Canada 5 year term on forward curve products Daily delivered by 5:00 PM CST; as of 2:30 EST Who s it for All market participants including; producers, transporters, refiners, traders, regulatory and government agencies

27 Key Advantages Multiple Data Suppliers Wide range of data sources Brokers only have access to their pricing data Independent Non-Biased Data Provider Argus does not participate in energy markets Product Advantages No pricing gaps, prices marked within term (no stale data) User friendly excel format Ability to mark illiquid trading hubs Delivery options include: FTP data feed, API, ed Excel File, Third Party Vendor (Globalview, ZEMA, Morningstar) Published Methodology Methodology with Code of Conduct and Compliance

28 Crude oil grades and trading locations US Midcontinent: West Texas Sour (WTS): (Midland, TX) West Texas Intermediate: (Midland, TX) Bakken: (Clearbrook, MN) WCS: (Cushing, OK) Canadian: Western Canadian Select Syncrude (SYN) Edmonton C5 Light Sour Blend (LSB) Mixed Sweet Blend (MSW) Lloydminster Blend (LLB) US Gulf Coast: ASCI (Argus Sour Crude Index) Bonito Eugene Island Heavy Louisiana Sweet (HLS) Light Louisiana Sweet (LLS) LLS financial swap (E5) Mars Poseidon Southern Green Canyon (SGC) Thunder Horse Futures markets: ICE Brent Crude Oil CME NYMEX WTI Futures Futures Calendar Month Average (CMA)

29 Illiquid markets & terms When market data not available Time and/or locational spread relationships used For each illiquid location and term Argus identifies at least one liquid reference spread location/term that has a strong historical correlation Applies regression and other forms of statistical analysis and proprietary curve fitting formulas Formulaic values validated vs daily cash market changes as well as other liquid and illiquid forward markets Statistical analysis and proprietary algorithms used in the absence of market data

30 Argus Forward Curves Crude Forwards 23 Grades CRUDE OIL FORWARD CURVES - MID MARKET, $/bl close of business, 19 Jul 13 Market: FUTURES FUTURES FUTURES Physical Financial Physical Physical Physical Physical Physical Physical Physical Physical Location: Mid Continent Mid Continent North Sea Gulf Coast Gulf Coast Gulf Coast Gulf Coast Mid Continent Mid Continent Gulf Coast Gulf Coast Gulf Coast Gulf Coast Thunder Crude Oil: WTI WTI - CMA BRENT LLS LLS (E5) Mars HLS WTS WTI Midland Poseidon Eugene Island Bonito Horse Monthly Curves: Aug N/A Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Dec Calendar Blocks: Bal Yr Cal Cal Cal Cal Cal

31 Argus Forward Curves 20 Differentials to WTI CRUDE OIL FORWARD CURVES - DIFFERENTIALS VS. WTI FUTURES TRADE MONTH, $/bl close of business, 19 Jul 13 Market: FUTURES Physical Financial Physical Physical Physical Physical Physical Physical Physical Physical Physical Physical Physical Physical Physical Mid Mid Mid Location: Gulf Coast Gulf Coast Gulf Coast Gulf Coast Continent Continent Continent Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Canada Mid Mid Continent Continent Crude Oil: WTI LLS LLS (E5) Mars HLS WTS WTI Midland Poseidon Thunder Horse Eugene Island Bonito Southern Green Canyon ASCI Western Canadian Select Monthly Curves: Aug N/A N/A N/A Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Dec Calendar Blocks: Bal Yr Cal Cal Cal Cal Cal WCS Cushing Bakken

32 Argus Forward Curves 20 Differentials to Brent CRUDE OIL FORWARD CURVES - DIFFERENTIALS VS. BRENT FUTURES, $/bl close of business, 19 Jul 13 Market: FUTURES Physical Financial Physical Physical Physical Physical Physical Physical Physical Physical Physical Physical Mid Mid Location: North Sea Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Continent Continent Crude Oil: BRENT LLS LLS (E5) Mars HLS WTS WTI Midland Poseidon Thunder Horse Eugene Island Bonito Southern Green Canyon Monthly Curves: Aug-13 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Dec Calendar Blocks: Bal Yr Cal Cal Cal Cal Cal ASCI

33 Argus Forward Curves 20 Differentials to WTI CMA CRUDE OIL FORWARD CURVES - DIFFERENTIALS VS. WTI FUTURES CALENDAR MONTH AVERAGE, $/bl close of business, 19 Jul 13 Market: FUTURES Physical Financial Physical Physical Physical Physical Physical Physical Physical Physical Physical Physical Physical Physical Mid Mid Mid Mid Location: Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Gulf Coast Canada Continent Continent Continent Continent Crude Oil: WTI - CMA LLS LLS (E5) Mars HLS WTS WTI Midland Poseidon Thunder Horse Eugene Island Bonito Southern Green Canyon ASCI Western Canadian Select Monthly Curves: Aug N/A N/A Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Dec Calendar Blocks: Bal Yr Cal Cal Cal Cal Cal WCS Cushing

34 Argus Forward Curves 16 Other Crude Differentials CRUDE OIL FORWARD DIFFERENTIAL CURVES, $/bl close of business, 19 Jul 13 Crude Oil Southern Green LLS HLS Mars Eugene Island Eugene Island Bonito Thunder Horse WTI Midland HLS Poseidon Market 1 Canyon vs. vs. vs. vs. vs. vs. vs. vs. vs. vs. vs. vs. Crude Oil Southern Green Mars LLS Poseidon Mars Bonito Mars Mars Mars WTS Mars Market 2 Canyon Monthly Curves: Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Dec Calendar Blocks: Bal Yr Cal Cal Cal Cal Cal

35 Summary There is a lot of uncertainty out there Independently-produced Crude Forward curves becoming essential part of crude oil business Argus brings a wealth of experience using the same rigorous procedures as all other Argus products Argus methodologies are transparent and documented Multiple sources of market data support coverage of both liquid and illiquid markets

36 Any questions?

37 Gus Vasquez Americas Crude Editor Jay Pruett Business Development Copyright notice All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, ARGUS MEDIA, the ARGUS logo, DEWITT, FMB, FUNDALYTICS, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Limited. Visit for more information. Disclaimer All data and other information presented (the Data ) are provided on an as is basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.