API Industry Outlook First Quarter 2021 - R. Dean Foreman, Ph.D - American Petroleum Institute
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API Industry Outlook First Quarter 2021 R. Dean Foreman, Ph.D. March 18, 2021
Key points 5-year range Quarterly increase
Quarterly decrease
U.S. petroleum
Strong global economic rebound broadly expected this year and in 2022 demand
18.7 mb/d Revenues
o Led by emerging markets, 3rd party consensus estimates for global real $486 B
GDP growth have risen to 4.7% y/y in 2021 and 4.0% y/y in 2022
Record global oil demand growth could stretch supply – EIA projects
record two-year demand growth of +5.3 mb/d in 2021 and +3.8 mb/d in 2022 –
and new global highs by Q4 2022 U.S. refinery Net
throughput income
o OPEC & Russia could redeploy 4.6 mb/d of capacity by Q4 2022 per EIA 14.4 mb/d U.S. drilling
activity $(15) B
o The U.S. could add 3.0 mb/d of liquids production for a record-high of 20.8 311 rigs
mb/d by Q4 2022 per EIA
Natural gas – Strong productivity helped sustain production despite
historically low drilling activity U.S. oil & gas Capital
o U.S. solid (regionally disparate) winter demand; record natural gas exports production expenditures
31.2 mb/doe Q4 2020 averages $42 B
o Natural gas remains integral to planned U.S. power generation capacity Brent $44.62/bbl
additions, but global coal-fired power additions could outpace it WTI $42.57/bbl
NGL composite $5.19/mmBtu
Henry Hub $2.48/mmBtu
• Financial compilation based on API 200 companies with shares listed on
U.S. stock exchanges.
sources: EIA; API Monthly Statistical Report; Bloomberg and company
reports; Baker Hughes; API Team analysis
Industry capital expenditures remained historically low in Q4 2020, and the
backlog of U.S. projects under construction has fallen by $50 billion y/y
The industry invested $42.1 billion in Q4 2020, compared with $70.5 billion in the same quarter one year ago
Across the energy value chain, API is monitoring 77 oil & gas-related projects currently under construction worth $194 billion
Capital expenditures by industry segment $194 billion in current U.S. energy
Billion dollars (2021$)
infrastructure investments
140
120
Downstream and Petrochemcial
Equipment & Services
Midstream
Global integrated
194 billion
in estimated industry projects
Upstream 7 LNG
$84 B under construction (February 2021,
100 down from $344 billion in Q1 2020)
80
23 17 Refinery 21
60 PetChem expansions Pipelines
$69 B $18 B $23 B
40
20 9 Gas
storage sources: S&P Market Intelligence; Oil &
0 $119 M Gas Journal; American Chemistry Council;
API Team calculations as of Feb. 2021
2008 2011 2014 2017 2020
* All other oil & gas industry companies
sources: Bloomberg; publicly-available company reports; BLS
Global Economy
Global real GDP outlook Real GDP growth (percentage points, year-on-year)
World OECD Non-OECD
6
Led by emerging markets, 3rd
party consensus estimates are 3 Avg.
for global real GDP growth of 4.7% y/y in 2021 and 4.0% y/y 0 2000-2020
in 2022 -3
-6 2019 2020 2021 2022
Europe Russia / Caspian Every region is expected to grow in 2021
5
5 0 and 2022, but China and the rest of
0 -5 China Developing Asia Pacific economies have
5 U.S. -5 Dev. AP
Middle East 10
ex-China remained on a greater scale with relatively
0 5 5
Africa 0 10 mild 2020 recessions and strong resumed
-5 5 0 5
Latin America -5 growth
& Caribbean 0 0
-5 -5 China could overtake the U.S. as the
5
0 world’s largest economy by 2028 per
-5 Bloomberg
sources: IMF; Bloomberg * Market exchange rate basis
Recent U.S. dollar depreciation has correlated with increased oil prices
Global oil prices have historically been inversely correlated with the U.S. dollar’s broad foreign exchange value
Three quarters after the onset of the Great Financial Crisis in 2008, the U.S. dollar appreciated, and oil prices fell. By
contrast with the 2020 COVID-19 recession, the U.S. dollar depreciated, and oil prices rose
Two perspectives on Brent crude oil spot prices and the U.S. dollar’s foreign exchange value
Index (Jan 2006=100) Dollars per barrel (2021$) Dollars per barrel (2021$)
130 FRB broad nominal dollar index 160 175 Q2 2008
Real Brent crude oil spot price 140 150
120
120
125
110 100
100
80 Q1 2009 Q1 2021
100 75
60
40 50
90
20 25
Q2 2020
80 0 0
2006 2008 2010 2012 2014 2016 2018 2020 80 85 90 95 100 105 110 115 120 125
Nominal dollar broad index (Jan. 2006=100)
sources: Federal Reserve Board; Bloomberg; U.S. Bureau of Labor Statistics
What we’re watching now
Although uncertainties on the path of global recovery remain, natural gas and oil demand is generally expected to be led by
emerging markets. Central Bank Digital Currencies may present a credible thread to the U.S. dollar’s global status
Policy Support and Vaccines Ready, steady, go? Results of the 3rd Oil Market Report, February 2021
Expected to Lift Activity BIS survey on central bank digital currency
• A stronger starting point for the 2021-2022 • The Bahamas launched the first “live” CBDC in • IEA expects world oil demand growth of 5.4
forecast with vaccinations and adapted activities Q1 2021, and central banks collectively mb/d in 2021 with a more favorable economic
representing a fifth of the world’s population are outlook and stronger oil demand in the second
• Softening in early 2021 is expected to give way likely to issue a central bank digital currency half of the year
to rising momentum beginning in Q2 2021 (CBDC) in the next three years --- a transparent
and stable version of blockchain-based • Global oil supply rose by 0.6 mb/d in January
• Fiscal policy support set to boost activity in and was set to fall in February as Saudi Arabia cut
some countries, but most are expected to cryptocurrency
experience lower deficits in 2021 • In emerging market and developing economies, • Global implied stock draws rose 2.24 mb/d in
financial inclusion and payments efficiency 4Q20 from 1.56 mb/d in 3Q20, and IEA expects
• Supportive financial conditions. Major central higher stock draws over the second half of 2021
banks are assumed to maintain their current objectives motivate the shift towards CBDCs
International Energy Agency, February 2021
policy rate settings throughout the forecast
horizon to the end of 2022 C. Boar and A. Wehrli, Bank of International Settlements, Jan. 2021
International Monetary Fund, January 2021Oil Markets
Global oil demand recovery in 2021 and 2022 could become the largest two-
year increase on record since 1950
EIA projects global oil demand was 96.7 mb/d in February - within 1.0% of its February 2020 level of 97.7 mb/d – and could rise by a total of 9.1
mb/d this and next year (5.3 mb/d in 2021 and 3.8 mb/d in 2022)
Global oil demand
Million barrels per day
120
EIA estimates
100 Double-dip recession,
front-wheel drive and 2022
CAFE standards 2021
80 (1980-1982) 2020
Great Financial COVID-19
60 Crisis (2008-2009) recession
40
20
0
1950 1960 1970 1980 1990 2000 2010 2020
*Market exchange rate basis Real GDP (Trillion 2010$)
sources: IEA; EIA; BloombergGlobal oil demand could set a new record-high by the end of 2022 per EIA
EIA projects global oil demand of 102.4 mb/d in Q4 2022, with similar increases (Q1 2021 to Q4 2022) by developed (+3.4 mb/d) and emerging
economies (+3.9 mb/d)
For global supply by Q4 2022, EIA projects OPEC and Russian & Caspian producers to redeploy 4.7 mb/d of spare capacity, while U.S. production
could rise by 1.7 mb/d by Q4 2021 and add another 1.4 mb/d to reach a new high for U.S. liquids production of 20.8 mb/d in Q4 2022
Global oil demand EIA Global oil supply EIA
Million barrels per day estimates Million barrels per day
estimates
100 100
Russia & Caspian
75 Non-OECD 75
(Emerging economies) OPEC
50 50
United States
25 OECD 25
(Developed economies) Other Non-OPEC
0 0
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022
source: EIA STEO (March 2021)Strong sustained U.S. oil well productivity has kept downward pressure
on estimated breakeven prices
EIA reported solid well productivity even as companies have begun to re-deploy rigs and crews that were idled
BTU Analytics estimated breakeven prices were below recent market prices among major U.S. oil producing basins
U.S. oil well productivity – new production per rig Oil estimated breakeven prices*
Million barrels per day oil-equivalent Dollars per barrel ($/Bbl.)
4 0 20 40 60
WTI month-ahead
Bakken Permian futures price
Bakken Feb. 2021
Eagle Ford DJ Niobrara Feb. 2020 Mar. 16, 2021
3
Eagle Ford - West
2 Eagle Ford - East
DJ Niobrara
1
Permian - Delaware
0 Permian - Midland
2016 2017 2018 2019 2020 2021
*Half cycle breakevens assuming 10% discount factor. sources: BTU Analytics; CME Group
source: EIA Drilling Productivity ReportEIA projects U.S. liquid fuels consumption could return to its 2019 levels by
the second half of 2021
Indicators of industrial and chemical production, daily flights and mobility statistics, and vehicle miles traveled tracking show broad recovery from
Q2 2020 lows, but ongoing year-on-year declines as of Q1 2021
EIA projects Q2 2021 total consumption for refined products to reach that of pre-COVID levels, with the strongest recoveries in motor and jet fuels
Refined product key U.S. demand indicators, As of March 2021 YoY U.S. liquid fuel consumption by fuel
Million barrels per day
25
EIA estimates
20
Other (naphtha/gasoil; HGLs)
Passenger VMT Truck VMT Total Flights Manufacturing
Residual fuel oil
15
-10% +6% -13% +20% 10
Jet fuel
Distillates/diesel fuel
Apple Mobility DAT Spot Loads TSA Passengers Chemicals
+5% +72% -56% +3% 5 Motor gasoline
0
source: U.S. Federal Highway Administration; FlightRadar24; ISM PMI; ACC; TSA; Apple; DAT 2016 2018 2020 2022
sources: EIA; API MSRU.S. refinery capacity utilization could recover gradually, but U.S. crude oil
trade is projected to revert to net imports in Q2 2021 per EIA
EIA expects refinery capacity, domestic demand and refined product exports to re-strengthen over the next year, but lower U.S. drilling and
production could set back U.S. crude oil exports
U.S. liquid fuel consumption and refinery throughput U.S. petroleum net trade
Refinery crude Million barrels per day
Million barrels per day distillation unit %
capacity utilization 6 EIA estimates
25 EIA estimates 100
rate 4 Refined products
20 2
75 Net exports
0
15 Total petroleum Net imports
50 -2
10 U.S. liquid fuel
Total U.S. liquid fuel -4
consumption
consumption 25 -6
5
-8
Crude oil
0 0 -10
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022
sources: EIA; API MSR sources: EIA; API MSRNatural Gas
Natural gas market recovery in Asia Pacific and Europe has keyed record trade
and U.S. liquefied natural gas (LNG) exports
Asia and Europe have consistently led in LNG imports, while the U.S. has emerged as an exporter with new infrastructure
Following weakness in mid-2020, robust global growth LNG trade and record U.S. exports appeared in Q1 2021
Dutch
TTF
UK NBP
Japan
Henry Hub Korea
Marker
Regional gas hub pricing Global LNG trade by region
$2021 per mmBtu, monthly Billion cubic meters
16 UK Benchmark (NBP) 600
Asia Pacific Europe North Am Latin Am Middle East
Dutch Benchmark (TTF)
14 Asian Benchmark (JKM) 400
Q1 Asian cold snap
Imports
Henry Hub
12
200
10
8 0
Exports
6
-200
4
2 -400
0 -600
2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021
sources: Bloomberg; Quandl; EIA sources: API Team analysis; BP; IEA; ICIS; EIARecent natural gas futures prices have exceeded estimated breakeven
prices among top producing regions
Dedicated drilling for dry gas sustained solid productivity gains per EIA
Estimated natural gas breakeven prices moved in different directions by producing region but generally remained below
recent natural gas futures prices
Natural gas well productivity –production per rig Natural gas estimated breakeven prices
Dollars per million Btu (mmBtu)
Million cubic feet per day nat. gas-equivalent 0 1 2 3
35
Feb 2021
30 Haynesville
Feb. 2020
25 Appalachia
20 Appalachia - Northeast PA
15
Haynesville
10 Appalachia - Southwest PA
5
Henry Hub month-
0 Appalachia - Ohio ahead futures price
2016 2017 2018 2019 2020 2021 Mar. 16, 2021
source: EIA Drilling Productivity Report
*Half cycle breakevens assuming 10%
discount factor and play-specific costs
sources: BTU Analytics; CME GroupU.S. natural gas exports could grow while supply and demand recede from 2019
highs per EIA, despite cold winter seasonality
Q1 2021 brought a polar vortex and polarizing effects on gas demand for power by region, with large gains/losses as power competed with other fuels
COVID-driven 2020 declines in demand and dry gas production could be extend into 2021 before broadly recovering per EIA
U.S. power sector gas consumption U.S. natural gas consumption and production
Year-to-date through March 1st, y/y% by sector, Trillion cubic feet
ISO-NE
+9.7% 40 Dry natural gas EIA estimates
production
ISO-NY
Northwest +17.3%
SWP Net Exports
-3.8% 30
-21.5%
MISO Electric
PJM Power
CAISO -20.5%
+4.2% 20
+4.2%
Southwest Industrial
-23.2% Southeast
-9.8% 10
ERCOT
+2.7% Res /
Comm
0
2020 2021 2022 2023 2024
sources: EIA Hourly Grid Monitor; FERC sources: EIA AEO 2021While the U.S. is poised to add 190 GW of gas and renewable power through
2024, global coal capacity is expected to increase by over 200 GW
Natural gas has remained competitive in the mix of U.S. electricity capacity additions with a 30% share through 2024
By comparison, 209 GW of added coal capacity could come online by 2024 in emerging per the Global Energy Monitor estimates
Global coal capacity additions vs. U.S. net generation capacity changes
Gigawatts
80 Indonesia Coal Natural Gas Wind & Solar Other Additions
Other Global coal additions by 2024
60
India
+209 GW
40
20 China
0
U.S. natural gas and renewables
-20
Retirements
+190 GW
-40
2020 2021 2022 2023 2024
sources: Global Energy Monitor; IEA WEO 2020; EIA AEO 2021
Projects listed as under construction or permittedAPI economics resources available at www.api.org
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