Impact of Low Oil Price on Energy Security

Transcription

1 The 3 rd APEC Oil and Gas Security Network Forum Irkutsk, Russia, 29 June 2017 Impact of Low Oil Price on Energy Security Izham Shukor Researcher, APERC

2 Background and objective of the study Background Objectives Economic/financial damage Problems related to these losses Responses to these issues Effects on world energy markets Survey target Oil producing countries Oil majors 2

3 Economic damage (1) (1) OPEC main producing countries Value of petroleum exports (billion dollars) Saudi Arabia na na Budget deficit na na Republic of Iran na na UAE na na (Sources) OPEC Annual Report 2016, SAMA A sharp decline in oil revenues in 2015 In Saudi Arabia, a fiscal deficit has occurred since

4 Economic damage (2) (2) Main oil majors Change in final profit of the oil majors Profit amount ($mn) Oil price ($/bl) 35, ,000 25, , , ,000 5, ,000-10, (estimate) BP R/D Shell ExxonMobil WTI(NYMEX Futures Prices) (Source) Earnings report of each company (results up to 3 rd quarter of FY2016 plus estimates) All companies declined sharply in 2015 Especially remarkable was the decrease in upstream revenue 4

5 Economic measures (1) (1) OPEC main producing countries Reduction of subsidies Saudi Arabia Iran UAE Fuel, Fringe benefit Fuel, Cash benefit New taxes Cigarette, VAT Hike in VAT Sale of state-owned assets Post-petroleum policy Vision 2030 Introduction of foreign investment Organizational reform and integration Reduction in operating costs IPO Saudi Aramco - The 6 th five year dev. plan Oil and gas development Fuel, Water, Electricity Corporation Tax, VAT Solar Power Oil and gas development ADNOC group, SWF - NDF ADNOC group 5

6 Economic measures (2) (2) Main oil majors Improvement of downstream profit Minimum investment Create efficiency by partnership BP R/D Shell ExxonMobil Layoffs, Improving refining cost, Shifting to premium brand Awaiting decisions In mid & downstream Layoffs, Strategic partnership, Exchange of assets Downstream first BG group, Total, Gazprom Layoffs Long-term perspective Acquisition of InterOil 6

7 Countermeasures and problematic issues (1) (1) OPEC main producing countries Securing revenue Controlling expenditure Countermeasures Dipping into SWF, Liquidating assets Borrowing from banks & int l financial markets Introducing new taxes Inviting foreign investment into the domestic stock market Reducing and abolishing subsidies Reducing operating costs and employees Problems SWF is not expected to increase total assets Downgrades of creditworthiness Leads to an economic downturn and public outcry Influenced by overseas economic circumstances Increases public burden and dissatisfaction Leads to accidents, less knowledgable employees 7

8 Countermeasures and problematic issues (2) (1) OPEC main producing countries (continued) Diversifying the economy Securing supply chain Promoting oil development Transitioning from oil to other forms of energy Countermeasures Partial privatization of state oil company Package deal, Joint reserves Using foreign investment Using incentives for foreign investors Adopting renewable energy Promoting export of gas and electricity Problems Long time to reach the goal Difficulty of financing, Sales promotion New Participants, Financial conditions Decrease in income, Less continuity Cost of alternative energy sources Infrastructure 8

9 Countermeasures and problematic issues (3) (2) Main oil majors Combating deteriorating profitability Improving profitability Countermeasures Liquidating assets Layoffs Cancelling and postponing investment Reducing operating cost through partnership Reducing manufacturing costs through technical development Problems Risk of reduction, delay or cancellation of development plan Risk of excessive worker reduction Increase uncertainty of future profits Difficulty of continuing win-win relationship R&D development expenses under a difficult business environment 9

10 Impact on global energy markets Maintaining revenues: Who adjusts oil prices? OPEC s lack of cohesion since end of 2014 Lack of cooperation between OPEC and non-opec members Cutting costs: Difficulty in predicting future oil market What is break-even price of shale oil? Crude oil prices react to exchange rates and speculation Delaying investment: Potential for future supply shortages Low oil prices lead to increasing oil demand Declines in oil development investment can lead to supply shortages 10

11 Implications for energy security Supply interruptions can happen at any time Importance of government stockpiles and private-sector stockpiles Creation of flexible arrangements with other countries Establishment of diversified energy portfolios, not dependent solely on oil Introduction of renewable energy in power generation Measures to prevent global warming biofuels, electric vehicles Energy conservation reduces energy usage Encourage consumers to reduce energy use Support improving energy efficiency of equipment and devices 11

12 Thank you for your kind attention