Crude markets year in review and the year ahead - John Coleman, CFA, CPA, Principal Analyst - Amazon AWS
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woodmac.com
Crude markets year in review and the year ahead
John Coleman, CFA, CPA, Principal Analyst
Trusted Intelligence woodmac.com
1woodmac.com
Key themes and events from 2019
Global
US trade war with China escalates; China eventually includes US crude imports on
tariff list
OPEC+ agree on extension of cuts into at least 1Q20 and aggressively remove supply
from the market, helping to balance an over supplied global market
Global markets absorb and rebound from attacks on Saudi Arabian Abqaiq processing
facility
US
Crude pipeline constraints alleviated in the Permian basin
Crude exports average ~3 million b/d, 6x 2016 levels
Capital discipline becomes a major theme in the US shale patch
2woodmac.com
2019 global fundamentals balanced by OPEC actions; liquids
demand growth slows to ~50% of 2017 growth rate
OPEC production continues to fall in 2020: impact of deeper cuts through March 2020 and
continued decline in Iran and Venezuela
Year-on-year growth in liquids supply Global liquids demand
OPEC NGLs 2020 non-OPEC supply growth now 3.5 106
2.5
finely balanced between US and
OPEC Crude non-US – both contributing close to 1
2.0 million b/d growth. Norway, Brazil 3.0 104
US
and Canada are key.
Year-on-year change (million b/d)
Non-OPEC ex-US
1.5
Global demand (million b/d)
2.5 102
1.0
2.0 100
0.5
Million b/d
1.5 98
0.0
-0.5 1.0 96
OPEC crude falls ~2 million
b/d in 2019: Iran, Venezuela,
-1.0 Angola, OPEC cuts and Saudi 0.5 94
attacks contribute to lower
-1.5 output
0.9 0.6 1.4 1.0
Production declines continue
0.0 92
-2.0 through 2021 – on basis that 2016 2017 2018 2019 2020 2021
we see continued production
restraint from OPEC
-2.5
2016 2017 2018 2019 2020 2021 Global demand change Previous outlook Global demand (RHS)
Source: Wood Mackenzie 3woodmac.com
Poor price realizations and shuttering capital markets to US focued
E&Ps force capital discipline in the shale patch
Theme of capital discipline appears poised to remain into 2020
Lower 48 horizontal rig count vs. WTI ($/bbl)
$75 WTI ($/bbl) L48 Rig Count 1100
1050
$70
Rigs down
1000
~200 or ~20%
$65 in 2019
950
900
$60
850
$55
800
$50 750
700
$45
650
$40 600
Source: Wood Mackenzie. the Argus Media group
4woodmac.com
US Lower 48 crude oil and condensate growth expected to be muted
in 2020
We maintain our view that production growth will be cut in half next year as lower rig
activity and capital discipline mantra persists
US Lower 48 crude and condensate outlook We expect operators to reset budgets in Q1
Production summary (million b/d) 2020, bolstering rig counts.
12 Yr Production Y-o-Y growth
Crude oil and lease condensate production (million b/d)
2018 8.72 +1.6
2019 9.85 +1.1
10
2020 10.33 +0.5
2021 10.78 +0.5
Vert/Other
8 Powder River
Rockies Other
Niobrara
6 California
Gulf Coast Base
Mid-Con
Bakken/Three Forks
4
Eagle Ford
Permian
Last Month
2
0
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21
Source: Wood Mackenzie 5woodmac.com
First wave of Permian greenfield pipeline capacity comes online,
sets the stage for an overbuild
Capacity coming online in 2020-2021 will provide significant excess capacity, benefiting
Permian pipe capacity vs. supply (kb/d)
Wink-to-Webster Expansion (PAA/XOM/MPLX)
Wink-to-Webster (PAA/XOM/MPLX)
Midland-to-ECHO IV
9
Midland-to-ECHO III
8
Gray Oak Pipeline
7
Existing pipeline capacity
6
Local refinery consumption
million b/d
5
Supply
4
3
2
1
0
Mar-18
Mar-16
May-16
Jul-16
Mar-17
May-17
Jul-17
May-18
Jul-18
Mar-19
May-19
Jul-19
Mar-20
May-20
Jul-20
Mar-21
May-21
Jul-21
Sep-16
Nov-16
Sep-17
Nov-17
Sep-18
Nov-18
Sep-19
Nov-19
Sep-20
Nov-20
Sep-21
Nov-21
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Source: Wood Mackenzie
6woodmac.com
Greenfield Permian pipeline capacity ramps, alleviating constraints
and pushing Corpus Christi exports higher in 4Q
The third major greenfield pipeline in this wave, Gray Oak, expected to ramp in 1Q20
Permian flows into Corpus Christi
by pipeline (kb/d)
1400
1200
Midland
1000 Cactus Cactus II EPIC
800
600
Houston
400
EPIC
Cactus II Corpus Christi 200
0
Source: Genscape, Wood Mackenzie 7woodmac.com
Increased connectivity and ramping volumes on new systems
doubles Corpus Christi export volumes in 4Q19
Trend set to continue with Corpus forecast to average ~1.8 million b/d in 2020 with
ramping Gray Oak pipeline
2019 exports by hub (kb/d)
4,000
Corpus Christi Houston Louisiana Beaumont
3,500
3,000
2,500
2,000
1,500
1,000
500
0
January February March April May June July August September October November December
Source: Port of Corpus Christi Authority, Genscape, Wood Mackenzie
8woodmac.com
Looking ahead to 2020 – key themes to watch
Capital discipline mantra from US focused producer plays out and production growth
slows materially in the Lower 48 space from prior years
Despite slowing production growth, we expect crude exports to continue to grind higher,
with Corpus Christi seeing continued volume gains from new pipeline connectivity
Supply overhang from ex-US upstream projects ramping up along with continued, albeit
moderated, US growth will weigh on international crude prices, keeping them range bound
Large Final Investment Decisions (FIDs) in the Midstream space will slow considerably on
the pipeline side as the market adjusts to over-built conditions
Offshore export terminal projects are expected to make progress with another potential
FID in 2020
9woodmac.com
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