Robert Johnston
Director, Global Energy and
Natural Resources
[email protected]
202-903-0033
Eurasia Group Energy Outlook
August 2011
Heavy oil: Key “Conversation-Starters”
•
Oil sands – finding new markets, managing CSR
•
Supply game-changers – Mexico, Venezuela
•
New players- Brazil, Colombia heavy exports on
the rise
•
Beyond the region – OPEC & Saudi Arabia
•
“Demand pull” – regional refining dynamics &
differentials
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I. CANADA OIL SANDS
FINDING NEW MARKETS &
MANAGING CSR
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Oil sands: risks shift from
environment to price realization
•
Environment: 7 of 9 tailings pond management plans under
74 have been approved
•
Land use: Lower Athabasca Regional Plan sets aside some
rich land for conservation, including existing industry leases
•
Carbon: still awaiting action from the Obama administration;
Harper moving forward this year
•
Reputation: New “ethical oil” push from government & industry
•
Upgrading: BRIK program a political hot potato; upcoming
Conservative leadership race a factor
•
Markets: this may be the largest risk—how to avoid PADD II
being “land-locked in bitumen”
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Market access:
Problems at “both ends of the pipe”
•PADD
II/Cushing have glut of both heavy
light barrels...
•“Middle
leg” of KXL needed to supply
Cushing and Wood River
•Keystone
XL will solve one, but not both
those problems once complete (2H13?)
•Outlook
for KXL approval continues to be
favorable despite delays
•KXL
key battleground in off-oil/climate
debate
•Obama
shift to “pragmatic” energy policy
•Gateway
debate heating up pre-NEB but
political support is growing
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II. UPSTREAM SURPRISES?
MEXICO, VENEZUELA
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Venezuela: Down & out but for how long?
• Chavez has sustained NOC &
interest in the Faja- but is it simply
“option value”?
•
Proven reserves expected to
310 billion barrels by 201220% recovery factor
•
Financial burden on PDVSA
intense
•
PDVSA expansion plans face
multiple hurdles- but could there
an upside surprise?
• Completion of upgraders could
upstream production boost
• Change of government not
necessarily an immediate win for
oil sector- power vacuum
Source: PDVSA
Mexican decline challenge intensifies
• Mexican production decline rate key driver for oil sands opportunity
PADD II & III; shaping light-heavy differential
• Mexican decline smaller than expected in 2010, while exports to
picked up as well
• Success stems from PEMEX’s ramp-up of the KMZ oil field and
EOR efforts in mature shallow-water fields
• Chicontopec still faces problems; earlier forecasts for 660k bpd by
now look more likely to be 100k bpd at best
• Pemex hopes new contracts will trigger 500,000bpd new production
2018
• There is an estimated 30 billion barrel potential and successes on
of maritime boundary- deepwater remains politically controversial
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Mexico exports to PADD III recover in 2010
Source: EIA
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III. NEW HEAVY OIL PLAYERS:
COLOMBIA, BRAZIL
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Colombia: EOR and heavy oil driving growth
Source: Colombia National Hydrocarbons Agency
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Brazil: Heavy oil now, pre-salt later
• Heavy oil: Brazil will add about 1.3mm bpd by 2015- mostly
medium-heavy barrels
• Lack of sufficient heavy conversion refining capacity will swing
supply to US Gulf Coast
• New capex plan sustains trajectory for upstream growth,
industrial policy focus
• Pre-salt short-term: slow implementation of the new PSA
framework
• Pre-salt medium-term: focus on developing local oil
services industry, but the government may ultimately give
Petrobras some leeway to keep production targets
• Government will introduce more competition to the framework,
through giving up on lead operator clause, as a measure of
last resort
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Brazil near-term growth will be heavier barrels
Floating production units on current delivery schedule
Petrobras operated fields
Name
Type
P‐56
Semisub
Cidade de Itajai
FPSO
P‐55
Semisub
Cidade de Sao Paulo FPSO
P‐61
TLWP
P‐63
FPSO
P‐58
FPSO
P‐62
FPSO
Cidade de Paraty
FPSO
Eight hulls
FPSO
Total Petrobras
OSX operated fields Name
Type
OSX‐1
FPSO
OSX‐2
FPSO
Total OSX
Total Petrobras and OSX
Source: Upstream Capacity (bpd)
100,000
80,000
180,000
120,000
Prod. To P‐63
150,000
180,000
180,000
120,000
150,000
1,260,000
First oil
Q2 2011
Q2 2012
Q3 2012
Q1 2013
Mid‐2013
Mid‐2013
Mid‐2014
Mid‐2014
Q1 2014
2014‐2017
Location
Marlim Sul field Trio‐Sidon area
Roncador field Guara area
Papa‐Terra field
Papa‐Terra field
Baleia Azul field
Roncador field Lula North‐East area
Lula field and Block BM‐S‐9
Capacity (bpd)
80,000
100,000
180,000
1,440,000
First oil
Q4 2011
Q3 2013
Location
Waimea area
Waimea area
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Plenty of production growth
if pre-salt framework is liberalized
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Source: EIA
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Prepared for
IV. REGIONAL REFINING
DYNAMICS & DIFFERENTIALS
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Prepared for
Big swings in differentials...
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Abundance of “light & tight” playsbut is there a “next Bakken?”
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“Logistically-constrained” PADD II barrels &
Canadian imports finding way to PADD III
Source: EIA
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Refiners processing cheap WTI barrels for
gasoline/diesel exports to LatAm & beyond
Source: EIA
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Key Latin America refining projects
Country
Project
New Capacity
Start Date
Brazil
RNEST- Abreuse
230,000
2013
Brazil
Comperj
330,000
2014-2018
Brazil
Premium I
300,000
2015
Brazil
Premium II
600,000
2016-2020
Colombia
Cartagena
65,000
2014
Colombia
Barrancabermeja
50,000
2016
Mexico
Minatitian
47,000
2011
Mexico
Hidalgo
300,000
2015
Total
1,922,000
US April 2011
product exports to
Latam&Mexico
1.1 million
barrels per day
Source: EIA
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Brazil to become net fuel exporter?
Source: Energy Planning Agency, Brazil
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V. BEYOND THE REGION:
SAUDI & OPEC SUPPLY OUTLOOK
OUTLOOK
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Macro concerns driving oil price:
Fed, FX, Mid-East, IEA
Source: EIA, EG
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Saudi output increase; IEA/SPR uncertainty
• Discord at 8 June OPEC meeting underscored irrelevance
near-term of OPEC “headlines”; Saudi/GCC responding to
demand trend; not asking OPEC permission
• IEA decision to release stocks essentially for economic
stimulus reasons raises troubling questions about future
market intervention; 2012 US elections and ‘antisentiment
• Saudi output increase will not be rescinded due to IEA
volume appears to still be ramping up into July from June
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What is the true level of OPEC spare capacity?
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Where is the OPEC spare capacity going to
come from?
•
Saudi incremental production will be heavy- Manifa
900,000bpd – Arab Heavy (28 API)
•
Manifa production geared to new Saudi Aramco
refineries at home- and in China
•
Optimistic IEA outlook on Angola- light sour growth
•
UAE picking up upstream expansion following “pause”
during financial crisis- Lower/Upper Zakum expansions
39 API)
•
But Iraq is the big-changer- enormous upside for light
barrels
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No short-term return for Libyan oil
•
Balance of resources gradually turning against Qadhafi forces
•
Wide uncertainty about timing of Qadhafi collapse; potential to drag on, but
potential for regime vulnerabilities to accelerate this (Qadhafi death, loss of
refinery)
•
None of these scenarios would lead to rapid return to pre-war oil capacity
•
Partial recovery from rebel held areas in eastern Libya is possible, but not
imminent
Source: IEA MMOTR June 2011
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Iraq: progress, but short-term bottleneck
• Paralysis of parliament makes it hard to change policy on oil;
opposition to contracts declines on 2011 revenue increase
• Initial well work-overs at Rumaila and Zubair have pushed
2.7 MBD, but limited upside until end-2011
• Completion of additional tanker loading capacity brings loading
terminal capacity to 2.6 MBPD in 2012, 4.4 MBPD in 2013
• Some increased capacity at Rumaila, Zubair, and West Qurna I
in awaiting export capacity upgrades; potential for substantial
KBPD ‘surge’ when this is completed, around Q1 2012
• Kurdish contracts issue likely to remain unresolved in near-term
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Iraqi upstream projects under development
Field name
Operators
Anticipated
maximum
production (b/d)
Developments
Majnoon
Shell,
1,800,000
West Qurna I
ExxonMobil,
Shell
Lukoil, Statoil
2,250,000
CNPC, Total,
Petronas
BP, CNPC
535,000
Petrofac awarded EPC 3/11; drilling
start 7/11
Hit 10% increase threshold 3/11;
currently ~300,000 bpd
Behind schedule; initial production
now 2012, ~150,000 bpd by 2013
EPC award expected Q3 2011
2,850,000
Reached 10% increase 12/10;
reduced due to bottleneck 2/11
ُEni,
Occidental,
Kogas
1,250,000
Reached 10% increase in 12/10;
constrained by bottleneck
West Qurna II
Halfaya
Rumaila
Zubair
1,800,000
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EOR investments deliver Russian surprise
Source: EIA
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Conclusions
•
Potential for heavy oil upside surprise in Western
may now exceed potential for downside surprise- at least
terms of market expectations
•
Refining and netback dynamics will be driven by (a) Latin
American refining capacity growth and (b) continued
destruction environment in US
•
“Decoupling” of WTI and Brent underpinned by structural
factors- Brent driven by EM growth, Middle East/West
unrest, North Sea decline
•
How much upside for light and tight oil in US (and
may be the key question
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