Oil Market in Transition: Implications and Outlook for Colombia
II ACP Congress
Jason Bordoff
September 29, 2016
Bogota, Colombia
Colombia’s Oil Sector Turnaround a Success Story
Oil Production in Colombia
Million barrels per day
1,2
1,0
•  Oil production in steady decline
before 2003
0,8
•  Global oil and gas investment
was drying up
0,6
•  Worsening domestic security
situation deterred investment
•  Foreign direct investment
declined from $1.4B in 2000 to
$300M in 2003
0,4
0,2
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0,0
2
Regulatory Reforms of 2003 Helped Turn Oil Outlook Around
Oil Production in Colombia
Million barrels per day
1,2
1,0
•  Ecopetrol’s transition from a
state owned company to an
independent integrated entity
•  Creation of the an independent
regulatory agency
•  Shift from production sharing
contracts to a concession-based
regime
The results:
0,8
0,6
0,4
0,2
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0,0
•  Production up from 530 kbpd in
2005 to 1 mbpd in 2015
•  From 2009 to 2012, signed
contracts rose 50%
•  Exploration area rose 800%
3
Production Outlook Have Been Revised Down Since 2014
Oil Production Outlook in Colombia
Million barrels per day
1,2
1,0
0,8
0,6
0,4
0,2
0,0
2014
2015
2016
2017
IEA (Jun 2014)
2018
2019
IEA (Feb 2016)
2020
2021
2022
2023
2024
2025
Wood MacKenzie (Aug 2016)
Source: EIA, Baker Hughes
4
US Shale Has Taken a Hit, But Still Been Resilient
US Crude Oil Production and Oil-Directed Rig Count
Million barrels per day, number of rotary rigs drilling
Projection
10
8
1.800
1.600
US Crude Oil Production - LHS
1.400
US Oil Rig Count - RHS
1.200
6
1.000
800
4
600
400
2
200
0
Jan-08
0
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
•  US output down 1.2M b/d from 2015 peak; on pace to decline ~1.3M b/d by the end of Q3 ’16
•  How sustainable are productivity and efficiency gains? How will access to capital influence
production? What price does it take to turn shale back on?
Source: EIA, Baker Hughes
Source: EIA, Baker Hughes
5
Shale Is No Longer High-Cost Production
Cost Curve for Incremental Oil Production Volumes Through 2025
Breakeven in $ per barrels, cumulative peak production in thousand barrels per day
•  Average shale breakevens
down from of $80 in 2014
to $55 in 2016
•  Goldman Sachs expects
shale productivity gains to
continue at 3%-10% per
year through 2020
•  Shale breakevens can fall
below $50 by 2020
•  Flatter cost curve means
production can be added
at the bottom (i.e. by lowcost OPEC producers)
without much downward
pressure on prices
Source: Goldman Sachs
6
Material Shale Growth Requires Higher Oil Price Than Today’s
Cumulative North American Tight Liquids Production Growth
in Various WTI Price Scenarios
Million barrels per day
•  Despite improving productivity, US shale
needs $60+ oil price to grow materially
•  Permian is an exceptional resource, but
other major plays are declining (shale
has steep base decline rates)
•  Capital access will be key to future
production scenarios (independents
historically outspent cash-flow)
Source: Barclays Research
7
Large Production Declines In Some Producers....
Brent Spot Price
$ per barrel
Change of Crude Oil Production in Selected Producers
Aug 2016 vs. Nov 2014, million barrels per day
140
-0,80
120
US
-0,43
100
Nigeria
-0,41
80
Libya
-0,35
China
-0,30
60
Venezuela
-0,26
40
Kazakhstan
-0,21
20
Mexico
-0,15
Source: EIA
Sep-16
May-16
Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
Jan-14
0
-1,2
-1,0
-0,8
-0,6
-0,4
-0,2
Colombia
0,0
Source: IEA
8
... But Large Production Gains in Others
Brent Spot Price
$ per barrel
Change of Crude Oil Production in Selected Producers
Aug 2016 vs. Nov 2014, million barrels per day
140
1,09
Saudi Arabia*
120
0,97
Iraq
100
Iran
80
UAE
60
Kuwait*
0,26
40
Brazil
0,25
0,83
0,33
0,16
Azerbaijan
20
Canada
Source: EIA
Sep-16
May-16
Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
Jan-14
0
* Kuwait and Saudi Arabia exclude
Neutral Zone production
0,09
0,0
0,2
0,4
0,6
0,8
1,0
1,2
Source: IEA
9
Economies of Major Oil Producers Hit Hard By Oil Price Fall
Venezuela
UAE
•  OPEC: oil export revenues
dropped from $1.2 trillion in 2012
to $500B in 2015, projected to
drop to $320B in 2016 (IEA)
Saudi Arabia
Russia
Norway
Nigeria
Mexico
Kazakhstan
Colombia
Canada
Brazil
Angola
Real GDP Growth in Selected Oil Producing Countries
Oct 2014 vs. Latest (Apr 2016) IMF Forecast, % change
10,0
8,0
6,0
4,0
2,0
0,0
-2,0
IMF Forecast for 2015 (Oct 2014)
-4,0
IMF Forecast for 2016 (Oct 2014)
-6,0
IMF Estimate for 2015 (Latest - Apr 2016)
-8,0
IMF Forecast for 2016 (Latest - Apr 2016)
-10,0
Current Account Balance in Selected Oil Producing Countries
% of GDP
Algeria
Angola
40
Azerbaijan
30
Iraq
20
Kazakhstan
10
Nigeria
Qatar
0
Saudi Arabia
-10
UAE
-20
Venezuela
2010 2011 2012 2013 2014 2015 2016 2017
•  Nigeria: GDP outlook pulled
down by nearly 5 p.p. by oil price
collapse
•  Venezuela: GDP drop of 6% in
‘15 and at least 8% in ‘16
•  Russia: GDP dropped 3.8% in
’15 due to sanctions and oil price
•  Saudi Arabia: GDP growth
slowing, reserves down by $182B
in Jul ‘16 vs. Aug ‘14 peak
Source: IMF
10
New Ways to Grow Colombia’s Oil and Gas Sector
Technically Recoverable Shale Oil
Resources in South America (million barrels)
Argentina
27,000
Venezuela
13,400
Colombia
6,800
Brazil
5,300
Paraguay
3,700
Chile
2,300
Bolivia
600
Uruguay
600
Source: EIA, Advanced Resources International
11
Turnaround in US Natural Gas Outlook
AEO 2005 US Net Natural Gas Imports
Trillion cubic feet
AEO 2016 US Net Natural Gas Imports
Trillion cubic feet
10
2,00
9
1,00
Net Pipeline Imports
0,00
Net LNG Imports
-6,00
1
-7,00
0
-8,00
2024
2
2022
-5,00
2020
3
2018
-4,00
2016
4
2014
-3,00
2012
5
2010
-2,00
2008
6
2006
-1,00
2004
7
2002
Net Pipeline Imports
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
8
Net LNG Imports
Source: EIA Annual Energy Outlook 2005 and 2016
12
Oil Import Dependence Dropped From 60% to 25%
US Net Oil Import Dependence
Net import of crude oil and petroleum products divided by total consumption of crude oil and petroleum products
80%
2005-2006 average: 60%
70%
60%
50%
40%
30%
20%
Jun 2016: 25%
10%
ene-2016
ene-2015
ene-2014
ene-2013
ene-2012
ene-2011
ene-2010
ene-2009
ene-2008
ene-2007
ene-2006
ene-2005
ene-2004
ene-2003
ene-2002
ene-2001
ene-2000
ene-1999
ene-1998
ene-1997
ene-1996
ene-1995
ene-1994
ene-1993
ene-1992
ene-1991
ene-1990
0%
Source: EIA
13
may-16
mar-16
ene-16
nov-15
sep-15
jul-15
may-15
mar-15
ene-15
nov-14
sep-14
jul-14
may-14
mar-14
ene-14
nov-13
sep-13
jul-13
may-13
mar-13
ene-13
nov-12
sep-12
jul-12
may-12
mar-12
ene-12
US Crude Exports Rose Sharply After Export Ban Lifting
US Crude Oil Exports
Thousand barrels per day
700
600
500
400
300
200
100
0
Source: EIA
14
Low Oil Prices Not as Much of Boon to US as Previously
Estimated Cumulative Effect of a 10% Oil Price Shock on GDP
Percent change in GDP; quarters after shock
0
1
2
3
4
5
6
7
0
-0,1
1% Net Import Share
2% Net Import Share
-0,2
-0,3
-0,4
-0,5
-0,6
8
•  Some boost to consumer spending
from lower fuel prices, but higher
savings muted GDP impact
•  Net benefit is smaller because the US
is now a major oil producer—sharp
drop in energy sector investment and
employment proved a significant drag
on GDP
•  Lower net imports means less benefit
from oil price falls—more consumer
benefit comes at the expense of
domestic producer revenue
•  IMF: lower oil prices not as big
stimulus if interest rates are in the
zero bound
-0,7
Source: White House Council of Economic Advisers
15
Shale Production Is Controversial
16
For more information contact
Jason Bordoff
Thank you!
Professor of Professional Practice in International and Public Affairs
Founding Director, Center on Global Energy Policy
Columbia University
[email protected]
(212) 851-0193