API Industry Outlook First Quarter 2020 - March 19, 2020 - American Petroleum Institute
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
API Industry Outlook First Quarter 2020 March 19, 2020
Key points – Q1 2020
Even before the coronavirus (COVID-19) appeared, strong U.S. oil & gas productivity plus new pipelines
enabled February 2020 production records despite low prices and less drilling activity. Implications:
➢ WTI-Brent price differentials narrowed with Permian pipeline growth – to par in March with oil near $20/Bbl
➢ EIA projects U.S. oil & natural gas production to decrease year-on-year starting in Q4 2020
Markets have responded to COVID-19 prevention measures that EIA projects will dissipate in coming
quarters, but with oil prices that could remain low due to OPEC supply increases. Implications:
➢ EIA and IEA forecasts previously assumed OPEC would increase supply cuts, rather than supply
➢ Low oil prices have corresponded with a more rapid decrease in U.S. drilling – and less expected
associated natural gas and natural gas liquids (NGL) production per EIA
Silver linings that have reinforced market resilience:
1. Low energy prices bolster household budgets and disproportionately benefit low-income households
2. New U.S. trade agreements with China, Mexico and Canada should eventually boost U.S. energy exports (EIA)
3. IMO 2020 regulatory changes since January 1 have been smooth
4. Natural gas generation rose to a record 38% of U.S. net electricity generation in 2019
www.api.org
API industry health dashboard – Q4 2019
Increase vs. Decrease vs.
Key to the graphic: prior quarter prior quarter U.S. petroleum
demand
5-year range Revenues
20.7 mb/d
minimum maximum Quarterly increase to $680 B
top of 5-year range
Quarterly highlights
Demand at the top of the 5-year range U.S. refinery Net
throughput income
Despite drilling activity at a 5-year low and having fallen in Q4
16.9 mb/d U.S. drilling $(14.6) B
2019, record oil & gas production continued due to activity
821 rigs
productivity gains and new pipeline capacity enabling drilled
but uncompleted wells to come on stream
Capital expenditures increased along with ongoing project
commitments U.S. oil & total Capital
gas production expenditures
Net income fell with fourth quarter write-offs that were in the 33.7 mb/doe Q4 2019 averages $69.0 B
middle of the 5-year range (vs. 2015 lows) Brent $63.41/bbl
WTI $56.96/bbl
NGL composite $5.36/mmbtu
* Financial compilation based on API 200 companies with shares listed on U.S. stock exchanges Henry Hub $2.40/mmbtu
sources: EIA, API MSR, Bloomberg, Baker Hughes, API Team Analysis
www.api.org
Investing for the long-haul: the industry’s capital expenditures
totaled $69 billion in Q4 and $266 billion for 2019
Capital expenditures increased by 6.0% between the third and fourth quarters, with increases in most sectors but
less in the midstream due to major pipeline completions
Capital expenditures by industry segment
Billion dollars
100
Q4 2019 change
(%q/q)
80
Total: 6.0
60
Global Integrated 18.0
40
Upstream -7.4
20
-9.6
Midstream
Downstream +31.5
Specialty Petrochemical -+41.1
Equipment, Services and EPC +8.6
0
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
* All other oil & gas industry companies
sources: Bloomberg, publicly-available company reports
www.api.org
Industry capital projects map
Across the energy value chain, an estimated 161 oil & gas-related projects are under construction
24
76
Refinery
Pipelines
expansions
$27.3 B
$20.1 B
36
14 LNG PetChem
$189 B $108 B
Refineries
11 Gas
storage 344 Billion
in estimated industry
$145 M
LNG projects under construction
Petrochemical
Gas Storage
Pipeline sources: S&P Market Intelligence, Oil & Gas Journal, American
www.api.org Chemistry Council, API Team calculations as of Feb. 1, 2020
Global economy & oil markets www.api.org
Petroleum demand uncertainties and Non-OPEC production
growth
www.api.orgAPI’s economic indicator: The API D-E-I™ - Feb. 2020
The D-E-I™ value of -0.3 for February 2020 and three-month average of -0.2 suggests a continued slowing of
industrial production
Industrial production API D-E-I™
Percentage change year-over-year (3-month average) Percentage change year-over-year (3-month average)
15 3
Recession (left axis) Industrial production (left axis) DEI (right axis)
10 2
5 1
0 0
-5 -1
-10 -2
-15 -3
-20 -4
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
sources: API Monthly Statistical Report, EIA, CME Group, Moody’s, Federal Reserve Board
www.api.orgThe U.S.-China phase one trade deal calls for
increased U.S. energy exports
China’s commitments to buy U.S.
energy exports China committed cumulatively to purchase $52.4 billion of
Billion dollars U.S. energy over two years, over and above a 2017 baseline
50 amount, including crude oil, LNG, metallurgical coal and
Crude oil Refined products LNG Coal specific refined products*
40
$33.9 B API estimates the two-year commitment could include more
than 1.0 mb/d of crude oil, 0.5 mb/d of refined products
30 and 100 LNG cargoes, but these volumes rise as prices fall
$18.5 B
20 Given EIA’s expected growth in U.S. production, export
capacity and marine logistics – including ability to utilize the
Panama Canal – at least some of China’s purchases are
10 likely not to be incremental growth of U.S. exports, but
directionally should boost U.S.-China energy trade, provide
a welcome de-escalation of trade tensions, and spur new
0 opportunities for engagement on phase two trade issues
2017 Baseline Year 1 Year 2
sources: ITC , China customs statistics * Refined products under the agreement include naphtha, methanol, petroleum coke, propane, butane and other LPGs
source: API Monthly Statistical Report (Dec. 2019)
www.api.orgGlobal economic growth has consistently required
fossil fuels
Linkages between global GDP growth and energy demand in total and for oil and natural gas have remained consistent
Global primary energy demand versus GDP*
Quadrillion Btu
750
Total primary energy
Oil 2019
Natural gas Great Financial Crisis
600 (2008-2009)
450
300
1970
150
0
15 35 55 75 95
Real GDP (Trillion 2010$) *Market exchange rate basis
www.api.org sources: EIA, IEA, Bloomberg, IMF, API Team calculationsEIA’s short-term projected changes in global oil
demand and supply
Global oil demand changes - EIA Global oil supply changes - EIA
Million barrels per day Million barrels per day
0 0.5 1 -4 -2 0 2
China’s demand OPEC expands
2019 picks up in 2021 2019 production
China 2020 OPEC 2020
2021 2021
U.S. demand U.S. supply
grows slightly contracts in 2021
U.S. U.S.
Rest of World
Rest of World demand growth Rest of Non-OPEC Non-OPEC
hampered in growth in 2020
2020
source: EIA source: EIA
www.api.orgAfter a near-term dip, EIA expects the global oil
market to rebalance by Q4 2020
EIA global supply/demand and Brent price estimates as of March 2020
Million barrels per day 2020$/Bbl
2.5 120
Supply less demand Brent crude oil prices Column1 EIA estimates
2.0
100
1.5
80
1.0
0.5 60
0.0
40
-0.5
20
-1.0
-1.5 0
2015 2016 2017 2018 2019 2020 2021
sources: EIA STEO (Mar. 2020), Bloomberg
www.api.orgU.S. oil cost effectiveness and productivity improved, but
market prices have recently fallen
BTU Analytics’ estimated breakeven prices fell among most major crude oil production areas, while EIA’s productivity
estimates rose
Oil estimated breakeven prices by production U.S. oil productivity – monthly new well
area – Feb. 2020* production per rig
Dollars per barrel ($/Bbl.)
0 20 40 60 Barrels per day oil-equivalent
3,000
Feb. 2020
Eagle Ford - West Eagle Ford
Feb. 2019 2,500
Bakken 2,000
WTI spot price Bakken
Mar. 9, 2020 1,500
Eagle Ford - East
1,000
Permian - Delaware
500
Permian
Permian - Midland 0
*Half cycle breakevens assuming 10% discount factor and play-specific costs
2015 2016 2017 2018 2019 2020
source: BTU Analytics source: EIA Drilling Productivity Report(Mar. 2020)
www.api.orgDuring initial months of IMO 2020, the refining
industry has been flexible to consumers’ benefit
IMO 2020: Maximum marine fuel
As we have suggested since 2018, the U.S. refining industry has been well sulfur content
positioned for IMO2020 Sulfur content, %
5
4
Initial months of IMO2020 implementation show the industry has flexibly been 3 Outside emissions control
2 areas (ECAs)
able to produce less residual fuel oil and more ultra-low sulfur fuel oil, with a 1 Within ECAs
muted price response and inventory adjustments 0
2005 2010 2015 2020 2025
Residual fuel oil inventories and production U.S. residual fuel oil and diesel prices
Million barrels Million barrels Dollars per gallon
50 300 4
Rest of World inventories
40 Ultra-low sulfur diesel (ULSD)
3
U.S. inventories 200
30
2
20
100 Residual fuel oil No. 6 (1% sulfur) *
U.S. production 1
10
0 0 0
2010 2013 2016 2019 2010 2013 2016 2019
sources: JODI Oil World Database, EIA sources: New York Harbor prices, CME Group and Bloomberg
www.api.orgMotor gasoline and diesel fuel prices have generally moved
with crude oil, and EIA expects limited impact from IMO 2020
Crude oil, retail gasoline and diesel fuel prices, adjusted for consumer price inflation
2020$ per gallon
4
EIA estimates
3
2
1
sources: EIA, AAA, Bloomberg, BLS
0
2015 2016 2017 2018 2019 2020
West Texas Intermediate crude oil Gasoline - U.S. average Diesel - U.S. average
www.api.orgU.S. household spending is disparate by income group
Seven spending categories account for the majority of household expenditures
The lowest 40% of households by income generally outspend their after-tax income, so every dollar matters
2018 U.S. household spending by category as a share of after-tax income
% Housing ex energy Food Transportation ex fuels Healthcare Energy Education Personal insurance Entertainment
200
175
150
125
100
75
50
25
0
Average U.S. Lowest 20% income Second 20% income Third 20% income Fourth 20% income Highest 20% income
www.api.org
household
source: BLS Consumer Expenditure SurveyLower household energy spending since 2014
has helped low-income households the most
For the average U.S. household, decreased energy prices and expenditures freed 1.6% of after-tax income for other
spending needs between 2014 and 2018
The percent of income freed up for non-energy spending was twice as high for the lowest 20% income quintile
Change in household energy spending as a share of after-tax income, 2014-2018
Average U.S.
Change in percent of after-tax income
household Lowest 20% income Second 20% income Third 20% income Fourth 20% income Highest 20% income
0
-1
-2
-3
Electricity Gasoline and motor fuels Natural gas Fuel oil
www.api.org
-4
source: BLS Consumer Expenditure SurveyNatural gas www.api.org
Global LNG prices have been below historical
levels but still generally twice those of the U.S.
Global natural gas landed prices (dollars per million Btu) – December 2019
UK
$4.66
Belgium
Canada $5.32
$6.83 Spain Korea
$4.53 $5.42 Japan
Lake Charles China $6.70
$2.21 $5.42
Mexico India
$4.60 $5.22
Argentina
$5.05
sources: U.S. FERC (Mar. 2020) and METI
www.api.orgIn 2019, U.S. LNG exports were from just six
terminals, but served global markets
2019 U.S. LNG exports by terminal
Trillion cubic feet (Tcf)
1.20
0.90
0.60
0.30
0.00
Sabine Corpus Cove Point Cameron Freeport Elba Island
Pass Christi
source: U.S. DOE
www.api.orgU.S. natural gas production growth has been
supported by cost effectiveness and productivity
BTU Analytics estimates breakeven prices among most natural gas-producing regions improved over the past year
EIA estimates Appalachia’s new well productivity slipped in Q1 2020
Natural gas estimated breakeven prices by U.S. natural gas productivity – new
production area – Feb. 2020* production per rig
Dollars per million Btu (mmBtu)
0 1 2 3 Thousand cubic feet per day nat. gas-equivalent
25,000
Feb. 2020
Haynesville
Feb. 2019
Henry Hub spot 20,000
price Mar. 9, 2020 Appalachia
Appalachia - Northeast
PA 15,000
Appalachia - Southwest Haynesville
10,000
PA
5,000
Appalachia - Ohio
0
*Half cycle breakevens assuming 10% discount factor and play-specific costs
source: BTU Analytics
2015 2016 2017 2018 2019 2020
source: EIA Drilling Productivity Report (Mar. 2020)
www.api.orgReal natural gas prices in Q1 2020 have been the
lowest on record for the quarter in 45 years
Since the advent of shale gas production, which accelerated after 2010, U.S. natural gas prices and price volatility
have fallen by about half compared with history
U.S. natural gas spot prices*
2020 dollars per million Btu
20
16
12
Lowest Q1 prices
8 on record
4
0
1976 1981 1986 1991 1996 2001 2006 2011 2016
* sources: EIA spot prices at Henry Hub (1997-Present), WSJ and Reuters (1989 to 1996), EIA wellhead (1976-1988)
www.api.orgWhere enabled by pipeline connectivity, the energy revolution
has lowered prices across the eastern United States
Dawn
In 2010, before the energy revolution, prices at most natural
Chicago
gas hubs were greater than those at Henry Hub, Louisiana Algonquin
As Pennsylvania and Ohio became major gas producers,
prices fell across the eastern U.S. except in New England,
Dominion South Point
which largely failed to expand its pipeline infrastructure
Rockies East
Natural Gas Spot Price Differences from Henry Hub Florida Z2
(annual averages)
Henry Hub
Dollars per million Btu New England: A higher premium due
1.0 to a lack of infrastructure
0.5 Paid a premium above Henry Hub 2010 2019
0.0
-0.5
Received a discount below Henry Hub
-1.0
Chicago Florida Gas Transmission Rockies Express Pipeline Dominion South Point Dawn Algonquin
Zone 2 (East) into Midwestern
source: Bloomberg
www.api.orgIn 2019, natural gas grew to a 38% percent share of
U.S. electricity generation and led gains by all sources
Natural gas achieved a record 38% share of U.S. net electricity generation in 2019
As natural gas and renewables have replaced coal in power generation since 2010, U.S. power sector CO2 emissions fell
by 22%, while the region’s SO2 and NOx emissions decreased by 71% and 40%, respectively
U.S. electricity net generation Power sector emissions by pollutant (million metric tons)
(million megawatt hours) CO2 SO2 and NOx
5,000 Renewables
2400 6
Solar
4,000 Wind
Hydroelectric
2000 4
3,000 Natural gas
Oil
2,000 Other Nuclear
1600 2
1,000
Coal
0 1200 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018
source: EIA sources: EIA Electric Power Annual (2018)
www.api.orgResources: Chief Economist’s section at www.api.org www.api.org
You can also read
