Special Presentation Market Watch Presentation Petrotech Johannes Benigni December 2016
Disclaimer All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements (including those depicted in graphical form) are statements of future expectations that are based on JBC Energy s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things statements expressing JBC Energy s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, objectives, outlook, probably, project, will, forecast, predict, think, seek, target, risks, goals, should and similar terms and phrases. All forwardlooking statements contained in this speech/presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers/audience should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this presentation. Neither JBC Energy nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this speech/presentation. Any persons acting on information contained in this presentation does so solely at their own risk. JBC Energy is not responsible for the accuracy of data collected from external sources and will not be held liable for any errors or omissions in facts or analysis contained in this presentation. JBC s third party sources provide data to JBC on an as-is basis and accept no responsibility and disclaim any liability relating to reliance on or use of their data by any party. Monday, December 12, 2016 www.jbcasia.com Slide 2
Products & Services Analytics 19 Market Publications Oil, Natural Gas & Alternatives Global Focus Daily, Weekly, Monthly, Quarterly & Bi-Annually www.jbcenergy.com/analytics Modelling In-House Supply, Demand, Pricing (SuDeP) Model Data by Country, by Region, by Sector Bottom Up Approach Standardised or Customised Modules www.jbcenergy.com/modelling Energy Consulting Audits Benchmarking Documentation Optimization Pricing Processes Risk Management Strategy www.jbcasia.com/consulting Studies Client Initiated Expert Led Fundamental Driven Commercially Focused Powered by SuDeP & JBC s Extensive Databases www.jbcenergy.com/studies Training Services Oil Market Fundamentals Pricing & Risk Management Oil Trading Public Courses & Single Client Options www.jbcasia.com/training Monday, 12 December 2016 www.jbcenergy.com www.jbcasia.com Slide 3
The Starting Point Global Stocks 1200 1000 800 600 400 Global Global Stocks Stocks Surplus Surplus to to Q1 Q3 14, to13 Q1 Main by 2014 Stream Products [million [million barrels] barrels] Other Products Fuel Oil Gasoil/Diesel Jet/Kero Gasoline Naphtha LPG NGL and Other Feedstocks Crude Oil Stocks Crude Oil Stocks, China Crude Oil Stocks, US Crude stocks have built by 310 million barrels, products by 120 million barrels (middle distillates by 75 million barrels) 200 0 Crude stocks have built by 240-200 million barrels, products by 120 million barrels (middle distillates -400 Source: JBC Derived Data by 45 million barrels) Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Global storage has increased by around 1 billion barrels in the past 3 years, 500 million barrels of which is crude in China. Monday, 12 December 2016 www.jbcenergy.com Slide 4
Another Wave of Fresh Supply Monthly Additions of New Crude Streams (excl. Middle East & US Shale - 3MMA) ['000 b/d] 250 200 Canada oil sands US GoM Russia Asia North Sea Brazil WAF Kashagan 150 100 50 0-50 Source: JBC Energy Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Over the next half year a big wave of new supply flows is set to enter the market, with practically all relevant streams being linked to the Atlantic Basin (see review of 99 upstream projects in Benigni on Oil Markets Report Issue 6) Monday, 12 December 2016 www.jbcenergy.com Slide 5
Another Wave of Fresh Supply 102 Liquids Supply Development 2015-2016 [million b/d] 101 100 99 98 97 China 96 95 94 93 SuDeP 2015 Project ramp-up * Effect of unplanned outages such as Canadian wildfires on annual average production ** A decline of 4.5% on crude production excluding Russia and OPEC Middle East OPEC Middle East crude Some 300,000 b/d: Additional decline in crude output due to the lower price environment on the back of shutdowns, early decommissioning, lack of field maintenance & unknown field maintenance NGLs Russia Other liquids US shale Outages* Known maintenance Global decline** Implied effect of low prices China is one of the few examples, where lower price environment sparked active shut downs 2016 Monday, 12 December 2016 www.jbcenergy.com
OPEC 36.0 35.5 35.0 OPEC Crude Production Scenarios [million b/d] H1 2017 OPEC output Old base case: 34.2 million b/d New base case: 33.2 million b/d 100% compliance: 32.9 million b/d (-1.3 million b/d) 75% compliance: 33.2 million b/d (-1 million b/d) H1 2017 implied stockchange Old base case: 1.4 million b/d New base case: 520,000 b/d 100% compliance: 170,000 b/d 75% compliance: 480,000 b/d 34.5 34.0 33.5 33.0 32.5 32.0 31.5 New base case Target production OPEC-14 100% compliance to target production levels, Libya, Nigeria, Indonesia according to JBC Energy forecasts 75% compliance to target production levels, Libya, Nigeria, Indonesia according to JBC Energy forecasts Base case prior to cut decision Source: JBC Energy, OPEC 31.0 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 OPEC has put a floor below prices but upside is a different story Monday, 12 December 2016 www.jbcenergy.com Slide 7
OPEC 3 2 OPEC Crude Production Change Y-o-y [million b/d] Other OPEC Indonesia, Iran, Libya, Nigeria OPEC-3 (Saudi Arabia, Kuwait, UAE) Total 1 0-1 Crude Supply and Y-o-y change ('000 b/d) 2016 2017 Y-o-y change Indonesia 731 704-27 Iran 3487 3757 270 Libya 388 602 214 Nigeria 1510 1833 323 SuDeP -2 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Despite efforts from OPEC 3 other OPEC players will expand production Monday, 12 December 2016 www.jbcenergy.com Slide 8
Non OPEC 3.0 2.5 Non-OPEC Crude Output Change Y-o-y by Region ['000 b/d] US Europe FSU East Asia Africa Middle East North America excl. US Central & South America Total non-opec excl. US 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5 SuDeP -2.0 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 The deal with Russia is significant but compliance remains to be seen Monday, 12 December 2016 www.jbcenergy.com Slide 9
US Shale 1.4 1.3 Upside Base case Return of US Shale on the Example of Bakken [million b/d] Previous peak production is reached by Feb-18 (in 16 months) 1.2 1.1 1.0 0.9 0.8 0.7 Source: JBC Energy, NDIC Upside assumptions: Oil prices increase to 60$/bbl as of Nov-16 and are kept constant Number of completions increase to 150 per month by Aug -17 Decline curve and initial production assumptions equal to current levels 0.6 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 US shale production can swing within a two year time period and is expected to react Monday, 12 December 2016 www.jbcenergy.com Slide 10
Balances 3.0 Implied Global Stockbuild/draw [million b/d] 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5 JBC Energy IEA OPEC EIA Source: JBC Energy, IEA, EIA, OPEC Our JBC implied stockbuild is the difference between JBC assessments of global feedstocks supply and final product demand, using a country -by-country and stream-by-stream approach. JBC Energy OPEC production estimates are used for IEA and OPEC figures as of Q4 2016. Q1 15 Q3 15 Q1 16 Q3 16 Q1 17 Q3 17 The balances remain long although at a lower level Monday, 12 December 2016 www.jbcenergy.com Slide 11
Forward Curve Impact 60 Selected CME WTI Future Curves in 2016 (first 60 months) [$/bbl] 55 50 45 40 35 30 20-Jan 11-Feb 17-Mar 08-Jun 11-Jul 02-Aug 10-Oct 21-Nov 01-Dec 25 Source: CME M1 M5 M9 M13 M17 M21 M25 M29 M33 M37 M41 M45 M49 M53 M57 The back end of the curve has come under pressure Monday, 12 December 2016 www.jbcenergy.com Slide 12
Mid-Term Perspectives & the Investment Question 120% Breakdown of Upstream Investment Cuts 100% 80% 60% Use of new technology and optimization Portfolio optimization Cost savings due to price reductions Labour costs Oilfield chemicals Engineering services Drilling services Onshore drilling & completions Base metals & other commodities 40% Energy costs Upstream budget Upstream budget 20% Offshore drilling & completions 0% Source: JBC Energy based on industry sources 2014 2016 Besides, large shares of the adjustment to upstream budgets are down to cost savings that have little bearing on short and midterm supply potential. Monday, 12 December 2016 www.jbcenergy.com Slide 13
Mid-Term Perspectives & the Investment Question Liquids Supply & Demand Growth Y -o-y, Implied Stockchange [million b/d] 3.5 3.0 2.5 Implied stockchange Supply growth Demand growth Supply growth outpacing demand growth 2.0 1.5 Supply growth weaker than demand growth 1.0 0.5 0.0-0.5-1.0-1.5 SuDeP Stockbuild continues due to the strong supply growth in 2014-2015 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Even with our conservative outlook on key suppliers upside potential, we see re-balancing not happening before 2019/20. With the effectiveness of the OPEC Non OPEC cuts obviously being one of the many wild cards. Monday, 12 December 2016 www.jbcenergy.com Slide 14
Mid-Term Perspectives & the Investment Question 3 Crude Supply Change Y-o-y and Crude Price [million b/d; $/bbl] 120.00 2 100.00 1 80.00 0 60.00-1 40.00-2 -3 SuDeP OPEC Middle East US Shale US GoM Brazil Canada oil sands North Sea WAF Asia Other Dtd Brent - right scale 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 At present we see upside potential into the $60s towards the end of the decade, with US shale likely to keep a lid on higher prices (especially in a world of slowing demand growth). Monday, 12 December 2016 www.jbcenergy.com Slide 15 20.00 0.00
Demand Challenges & Future Outlook 4 Chinese and Indian Demand Growth in a Global Context [million b/d, %] 100% 3 81% 75% 2 51% 49% 50% 40% 32% 1 25% 11% 0-1 -2 SuDeP Global Growth (excl China & India) Chinese Growth Indian Growth China Growth Share India Growth Share China + India Growth Share 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 0% -25% -50% We see global demand peaking in the late 2020s due to efficiency gains, substitution and demographic changes Monday, 12 December 2016 www.jbcenergy.com Slide 16
Demand Challenges & Future Outlook 14 12 10 8 6 4 2 0 Growth Dynamics by Product and Sector [million Title b/d] [unit] LPG Naphtha Gasoline Jet/Kero Gas Oil/Diesel Fuel Oil Other Products 14 12 10 8 6 4 2 0-2 -4-6 SuDeP 2000-10 2010-20 2020-30 -2-4 -6 Road Transportation Aviation Res/Comm Agriculture Power PetChem Industry Bunker RefFuel Other 2000-10 2010-20 2020-30 While oil demand growth is set to slow, light ends and the petchem sector should maintain large shares. Monday, 12 December 2016 www.jbcenergy.com Slide 17
Upcoming crude surplus concentrated in West of Suez Key drivers: New supply additions including Russian will mostly come into the Atlantic Basin. Asian increases in crude demand will ensure East of Suez balance is tighter, while Asian supply is set to decline further Unless the OPEC Non OPEC cut is effective, oil markets will see a deepening surplus in 2017 on a wave of new supplies. OPEC s intervention will disproportionately affect the Asian/East of Suez market Implications: Tendency to a narrower Brent/Dubai EFS spread, encouraging arbitrage (the good prospects for dirty freight costs to remain pressured will also help in this regard) A cap on crude quality spreads due to the supply side (widespread fuel oil strength should also contribute to this effect) Potentially a return to the Asian premium, which has been absent from the market since 2015 OSPs in Asia to be relatively higher (this may also be partly driven by higher US demand for Middle Eastern crude as Russian secondary feedstock and Mexican, Venezuelan sour crude exports to the US decline) Failure to clear any excess crude oil will mean discounts emerge first in the AB, which could translate into occasional advantages for refiners and maybe some upside to European refinery runs The refining system is operating close to its realistically available capacity. This together with cheap crude oil may support refining margins. Downside risks stem from a surprise comeback of Russian and Latin American refiners. The next decade will be impacted by a wave of government regulation with peak demand expected in 2027. (see Benigni on Oil Market (BoOM) March 2016)
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