Javier Díaz

Precios del Petróleo, Manager, Energy Analysis & Consulting

S&P Global Platts
la OPEP y los Mercados August 23, 2017

X Feria y Congreso International

BOLIVIA GAS & ENERGIA 2017
Key Themes in the Global Energy Markets
- As US shale production and investment continues to grow,
OPEC cuts are unlikely to meet objectives until year-end 2018.
Short-term demand has rebounded, contributing to an
increasingly less oversupplied crude and product market.
- Global bunker spec change to 0.5% S in 2020 is a game
changer
- Long-term demand growth is expected to continue to increase,
driven in by petrochemical demand. Electric vehicle growth
poses some risk to demand, but penetration is expected to be
gradual.
- The US is the primary source of incremental supply.
Continued shale growth in the long-term is needed to continue
to meet global demand, but any downside risk to US supply
could buoy global prices.

2
Short-term outlook:
OPEC, US Shale, and
Gasoline
 What are OPEC’s Objectives?

 Reduce Inventory- stocks below five year average requires

300 million barrel stock decline in first half 2017
 Higher Prices- Objective $60/Bbl Brent

Renew OPEC/Non-OPEC cuts after 6 months?

Source: S&P Global Platts PIRA 4

 OPEC inventory objectives not expected to be
met until 2018 due to persistent oversupply
Total OECD Stocks and Forecast
3200

3100
PIRA Forecast
3000
Million barrels

2900
126 Million Barrels

2800
OPEC Inventory Objective
2700

2600

2500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Max Range (2011-2015) 2015 2016 PIRA 2017

Source: S&P Global Platts PIRA 5

 OPEC Country Crude Production
MMB/D

2016 2017 2018 17 v 16 18 v 17

Algeria 1.10 1.06 1.05 -0.04 -0.01
Angola 1.74 1.67 1.76 -0.07 0.09
Ecuador 0.55 0.53 0.53 -0.02 0.00
Gabon 0.19 0.18 0.17 -0.01 -0.01
Indonesia 0.73 0.72 0.69 -0.01 -0.03
Iran 3.44 3.68 3.80 0.24 0.13
Iraq 4.44 4.54 4.67 0.10 0.14
Kuwait 2.95 2.89 2.90 -0.07 0.01
Libya 0.38 0.73 0.70 0.35 -0.03
Nigeria 1.74 1.91 2.05 0.17 0.14
Qatar 0.63 0.61 0.64 -0.02 0.03
Saudi Arabia 10.31 10.07 10.06 -0.24 -0.01
UAE 2.90 2.88 2.90 -0.02 0.02
Venezuela 2.13 1.94 1.83 -0.19 -0.11
Total OPEC 33.24 33.40 33.76 0.17 0.36
 IRR and production mix

100% 30%

90%
25%
80%

70% 20%
% of Production

IRR
60%
15%
50%
10%
40%

30% 5%

20%
0%
10%

0% -5%

Oil% Gas% NGL% IRR

July 2017 Price Assumptions: Gas=12 month forward average curve for each regional pricing point (range $2.01 - $3.11/Mcf)
Oil=12 month forward average WTI +/- differential (range $37.55 -
$46.03/barrel)
NGLs=weighted average $/barrel, 12-mo forward average Mt. Belvieu
US shale production continues to grow on low
breakeven levels for new wells
US Shale Breakeven Prices at Wellhead

Source: S&P Global Platts PIRA 8

US rig activity, spare capacity increasing, US
producers invest billions despite low prices
US Spare Capacity:
WTI Prices
Drilled-but-Uncompleted Wells and Active Rig Count
5.000$120 2.500
4.500
4.000$100
3.500
2.000

# of active rigs
3.000 $80
WTI ($/bbl)

2.500 1.500
2.000
$60
1.500
1.000 1.000
500
$40
0 500
$20

$0 0

WTI Active Rigs

Source: S&P Global Platts PIRA 9

US RIG COUNTS: 12 Month Change

53/+ 29
2/+1

0/+0 13/+12
2/+1
15/+10 21/+1
33/+20 4
24/+15
9/+4 9/+5 27/+14 3/-1
24/+14
0/+0 1/-1
11/+6 130/+66 2/+2
4/+3
9/+6

12/-1 20/+9 7/+4

46/+34 TOTAL
386/+241
25/+13 5/-1 1018
Rig Increases Dry Gas Focused Areas CHANGE
81/+45 36/-14 +550
Rig Increases Liquids-Rich/Oil Focused Areas

Rig Declines Source: S&P Global, Platts Analytics, July 2017

Active rig count: July 7, 2017 / Change in rig count from July 1, 2016
US production expected to rebound and reach
record highs by year-end, ramp in 2018
US Crude Production Forecast
11,0

10,5

10,0
MMb/d

Previous production record

9,5

9,0

8,5

8,0

Crude Oil Crude Oil - Forecast

Source: S&P Global Platts PIRA 11

Non-OPEC Supply Growth 2014-2018

3000 2700

2500 OPEC NGL/Cond.

Oil MB/D Year-on-Year Change

1780 1800
2000 Other
910 China
1500

1000 Other Western

-500 Europe
500 North Sea

0 FSU

-500 Mexico
-1000 Canada
-1500 United States
2014 2015 2016 2017 2018
 World Oil Demand Growth 2005-2018

3.2
3.500
3.000
MB/D Year-on-Year Changes

1.8
2.500 1.3 1.8
1.8
2.000 1.4 1.6
0.7 1.3
1.500 1.0 1.2 (0.3) (0.6) 1.0
1.000
500
0
-500
-1.000
-1.500
-2.000
-2.500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Ind. Atl. Basin Japan/ANZ Asia
S. America Africa/Middle East FSU/E. Eur.
Surplus expected to dwindle, return to normal by
year-end 2018, another year of oversupply
Global Commercial Stock Surplus, Forecast
700
Millon barrels, end month

600

500

400

300

200

100

Source: S&P Global Platts PIRA 14

Low crude prices to persist as US supply grows,
prices increase slightly on growing demand
Global Crude Price History and Forecast
$70
$65 Dec 2018:
$52.55/bbl
$60 2018 Avg:
Dec 2017:$50.77/bbl
$55 $47.45/bbl
$/bbl

$50
$45
$40
$35
$30

WTI Dated Brent

Source: S&P Global Platts PIRA 15

 Crude Balances Shifting from Atlantic Basin Pull
to Push to Asia
MMB/D Atlantic Basin* Crude Balance
44
Implications of A/B length:

42
 A/B crude weaker vs. Asia

40 ‒ Narrower Brent-Dubai
Length

Crude Short ‒ Helps A/B refining margins

38
 Harder to arb product from
Asia to West due refinery crude
36
cost advantage in West
Crude Production*
34
Refinery Runs

32

* Atlantic Basin includes U.S., Canada, Latin America, Europe, and Africa;
Crude includes FSU supply to West
Refining Margins Incentivizing Crude
Consumption and Product Production
USGC Crack Rotterdam Crack Singapore Crack
Margins - LLS Margins - Forties Margins - Dubai
$20 $14 $9

$18
$12 $8
$16
$7
$14 $10
$6
$12
$8
$5
$/bbl

$/bbl

$/bbl
$10
$6 $4
$8

$6 $3
$4
$4 $2
$2
$2 $1

$0 $0 $0

Source: S&P Global Platts PIRA 17

Global demand helping to balance the market,
demand expected to rebound in 2018

Global Demand Growth (Y-o-Y) by Product Type

2500 Gasoline/Naphtha Jet/Diesel/Gasoil
Fuel Oil Other Products
MB/D Year-on-Year Changes

2000 1,320 1,780 1,840 1,810

1,615
1500 1,285 1,035

1000

500

-500

-1000
2012 2013 2014 2015 2016 2017 2018

Source: S&P Global Platts PIRA 18

 United States a Growing Product Exporter
European Runs Decline
MMB/D United States MMB/D Western Europe
18 14
Demand
Runs 13
17
12

16 Product Product
Length 11
Short

10
15

9
14
8

13 7

*Demand excludes biofuels, ethane, LPG, by-products

 Product Import Requirements Remain Substantial
Into Latin America and Africa
MMB/D MMB/D Africa
Latin America
8,0 4,5
Demand
7,5 Runs 4,0

7,0 3,5

Product
Product
6,5 Short 3,0 Short

Product
6,0 Length 2,5

5,5 2,0

5,0 1,5

*Demand excludes biofuels, ethane, LPG, by-products

Globlal Bunker
Spec Change
A Game Changer for
Refining… and for Bolivia
 Bunker Fuel Spec Changes Will Force Shift from
Residual Fuels to Distillates/Blends
Global Bunker Demand, MMB/D
7

6
LNG
5
Distillates
4
Dist for
3 Blending
0.5% S
Blend
2 LS
HFO
1 High Sulfur (~3%) Residual Fuel Oil

0
1995 2000 2005 2010 2015 2020 2025

Assumes global shift implemented in 2020 with minimal cheating/lags

Source: S&P Global Platts PIRA
Middle Distillate – Fuel Oil Price Spreads
Restrained Until Approach 2020, Then Much Wider
Gasoil- HS Fuel Oil, $/Bbl
60
USG
NWE
50
Singapore

40

30

Bunker Specs
20 Shift Demand

10

0
1995 2000 2005 2010 2015 2020 2025 2030
 Refineries not investing in refinery complexity,
reduces ability to create low-sulfur fuel oil
YOY Change, MB/D
1.600 Global Refinery Conversion Capacity* Growth
1.400

1.200

1.000 HCU

800

600
FCC
400

200
Coking
0
2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

*Net of refinery closures; reflects startup delays Source: PIRA, a part of S&P Global Platts 24
Most Complex Refineries can Yield Higher Returns
with more Infrastructure from Heavy Crudes
25
USG LLS Cracking
SING DUBAI Cracking Global Refinery Margins
USG Maya Coking Coking refineries
20
Sing Bas Hvy Coking running heavy crude

15
$/bbl

10

5 Medium conversion
(cracking) refineries

Deep Conversion Margins Will Respond to Bunker Spec Change Effects

Source: PIRA, a part of S&P Global Platts 25

Light-heavy Crude Price Differentials Will Widen
With Wider Clean-Dirty Product Spreads
$/Bbl
0
Urals (CIF Med) vs. Brent

-5 Mars (30 API) vs. LLS

-10 Maya (22 API) vs. LLS

-15

-20
Canadian Heavy (22 API)
vs. Can. Lt. Sweet
-25
2000 2005 2010 2015 2020 2025
Source: PIRA, a part of S&P Global Platts 26
Global Bunker Spec Change Implications for
Operations and Price

• Global bunker spec change a major challenge

» IMO selected 2020 implementation date
» Much harder to balance product S-D in 2020 than in 2025

• Product pricing and refining margins will be greatly

affected
» Diesel stronger
» HSFO weaker
» LSFO stronger relative to HSFO
» LS VGO stronger
» LS – HS crude differentials wider (sour medium-heavy especially hurt)
» Coking refinery margins boosted, sour refinery visbreaking margins hurt

• All Inter-regional spreads wider due higher freight costs

• Middle East and East Asia bunkering centers short LS
molecules
Changing Demand
Dynamics
 Primary Energy Demand –
Growth Slowing, Renewables Leading
Annual Growth 1995-2016 2016-2040
400 Oil 1.5% 1.0%
Gas 2.5% 2.1%
Coal 2.5% -0.9%
350
Hydro 2.3% 0.7%
12%
Nuclear 0.5% 1.5%
300 Renewables 5.9% 4.8%
Total 2.1% 5% 1.1%
250
MBOE/day

16%

200
26%
150

100

50

0
1995 2005 2016 2025 2030 2035 2040
Oil Gas Coal Hydro Nuclear Renewables

Source: S&P Global Platts PIRA

Long-term demand for oil to shift to
petrochemicals
Oil Demand Growth by End-Use Sector
1,0

0,8
Annual Growth (MMb/d)

0,6

0,4

0,2

0,0

(0,2)

(0,4)
Stationary Transport - Road Transport - Air Non-Energy
1990-1995 1995-2000 2000-2005 2005-2010 2010-2015
2015-2020 2020-2025 2025-2030 2030-2035 2035-2040

Oil Demand Growth Increasingly Dominated by Non-Energy Use

Source: S&P Global Platts PIRA 30
Road Transport Fuels Growth Slows Sharply
Growth by Oil Product
1

0,8

0,6
MMBD/YR

0,4

0,2

-0,2

-0,4
Distillate Motor Gasoline Jet Fuel LPG + Ethane Residual Fuel All Other
Kerosene
1990-1995 1995-2000 2000-2005 2005-2010 2010-2015
2015-2020 2020-2025 2025-2030 2030-2035 2035-2040
Policy and technology driving long-term electric
vehicle trends
Market Price signals:
gasoline, electricity
prices, environmental
Address: Pollution, Market markets, consumer
Safety, Congestion preferences, power
Instruments: Targets, Fundamentals market value
mandates, subsidies,
special power rates, tax
policy, etc.

Policy /
Technology
Regulations

Batteries, Charging Stations,

Progress on ICE, Hybrids GPS,
Source: S&P Global Platts PIRA
Smartphones
 Conservative base-case EV penetration
assumptions lead to persistent oil demand
Electric Vehicles Electric Vehicles
Percent of Miles Travelled Percent of New Car Sales
20% 35%
18%
30%
16%
14% 25%

12%
20%
10%
8% 15%

6% 10%
4%
5%
2%
0% 0%
2010 2015 2020 2025 2030 2035 2040 2010 2015 2020 2025 2030 2035 2040
U.S. W. Europe China U.S. W. Europe China
India World India World

Source: S&P Global Platts PIRA 33

Asia expected to drive future demand growth,
risk to demand lies in economic growth

World Oil Demand Growth

3,5
Mb/d (year-on-year change)

3,0
2,5
2,0
1,5
1,0
0,5
0,0
(0,5)
(1,0)

Ind. Atl. Basin Japan/ANZ Asia S. America Africa/Middle East FSU/E. Eur.

Source: S&P Global Platts PIRA 34

Supply Growth
Driven by US Shale
 Shale production, both in the US and globally,
driving incremental crude supply
World Oil Supply Annual Supply Growth by Type
130 1,8
120 1,6
110
100 1,4
90 1,2
80 1,0
MMb/d

70

MMb/d
60 0,8
50 0,6
40 0,4
30
20 0,2
10 0,0
0 -0,2
-0,4

Shale Crude Non-Shale Crude

NGL Refinery Gain
Shale Crude Non-Shale Crude
Non-Conventional
NGL Refinery Gain
Non-Conventional
Source: S&P Global Platts PIRA 36
 US expected to export most incremental
hydrocarbon growth, impacting global markets
US Crude Exports by Destination US Net Energy Exports Change
1,2 from 2011
10,0
1,0
9,0
0,8 8,0
MMb/d

7,0
0,6
6,0

Mmboe/d
0,4 5,0

0,2 4,0
3,0
0,0
2,0
1,0
0,0
Canada Europe
South America Other Asia/Africa
Korea/Japan/China
Natural Gas NGLs Crude Oil

Source: S&P Global Platts PIRA, EIA 37

 US production to grow quickly in short-term,
growth to dwindle in the long term
US Shale Liquids Production Annual Growth - US Shale Liquids
20 1,6

1,4 Shale NGLs

18
Other
16 1,2
Bakken
14
Shale NGL 1,0 Eagle Ford

0,8 Permian
12
MMb/d

Other

MMb/d
0,6
10
Bakken 0,4
8
Eagle Ford 0,2
6
0,0
4
(0,2)
2 Permian
(0,4) Permian
0
(0,6)

Source: S&P Global Platts PIRA 38

Financial markets, access to capital pose biggest
risk to US production growth
Net Capital Inflows
$35,0

$30,0

$25,0

$20,0
USD (billions)

$15,0

$10,0

$5,0

$0,0

-$5,0

-$10,0

Net Debt Issuance Common Stock Issuance

Source: S&P Global Platts PIRA, CapIQ 39

~ 1MMb/d per year of incremental crude supply
needed to meet global demand
Supply Volumes Required to Meet Global Demand
4,0 Uncommitted Volumes

Outside U.S. Shale: China, Australia,

Mexico
3,0 Canadian Oil Sands

Outside US shale: Canada, Argentina,

Russia
MMb/d

North Sea
2,0
Offshore Canada,Alaska, other

U.S. GOM

1,0 Brazil

Caspian, China, other

Russia
0,0
U.S. shale

Source: S&P Global Platts PIRA 40

 Global production more economic, higher crude
prices are needed for supply outside the US
120 2014 Brent Equivalent Development Cost ($/Bbl)
110 2015 Brent Equivalent Development Cost ($/Bbl)
100 2016 Brent Equivalent Development Cost ($/Bbl)
>$80/Bbl
90 U.S. stripper
$65-80/Bbl wells
80 Canadian oil
$50-65/Bbl
70 N. Sea, Angola, sands
$35-50/Bbl
$/Bbl

60 GOM, Bakken
Far East,Brazil,
50 Mexico, Nigeria, E.
40 <$ 35/Bbl Ford/ Permian
Middle
30 East,Russia
20 Mandated
10 Fuels,
NGL
0
0 10 20 30 40 50 60 70 80 90 100
Global Liquids Supply, MMB/D

Source: S&P Global Platts PIRA 41

Prices
 Weak economic growth, OPEC and shale grows
beyond expectations lead to falling crude prices
Crude Price Forecast with Low Price Scenario
$150

$100
$/bbl

$50

$0

Brent (Ref) Brent(Low)

• Weaker demand growth due to weak economy and/or price, policy,
technology
• Greater-than-anticipated growth in non-OPEC supply, particularly shale
• OPEC capacity growth (including Iraq) approaching .5 to 1 MMB/D/year
• Technology improvement pushes breakeven costs down
• Ineffective OPEC

Source: S&P Global Platts PIRA 43

OPEC disruptions and under-investment, shale
disappoints poses upside to crude prices
Crude Price Forecast with High Price Scenario
$140
$120
$100
$/bbl

$80
$60
$40
$20
$0

Brent (Ref) Brent (High)

• OPEC capacity growth limited due to disruptions, under-investment
• Regulatory limits on shale, non-conventional rate of growth
• Price must move high enough to ration demand to available supply

Source: S&P Global Platts PIRA 44

Muchas Gracias!

Javier Díaz
Manager, Energy Analysis & Consulting
jdiaz@spglobal.com
Direct: +1 (720) 264-6638