Oil, Shale Gas and NGL Markets: What Does the Future Hold? · OECD total oil industry stocks Notes:...

Confidential. © 2018 IHS Markit®. All Rights Reserved.Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

Oil, Shale Gas and NGL Markets:

What Does the Future Hold?13 September 2018 | Chengdu, China

Premasish Das

Executive Director, Research & Analysis, IHS Markit

[email protected]

Confidential. © 2018 IHS Markit®. All Rights Reserved.

Crude Oil Markets

2


Market’s focus shifts from too much supply to… Not enough?

2,400

2,500

2,600

2,700

2,800

2,900

3,000

3,100

3,200

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

OECD total oil industry stocks

Notes: Total oil industry stocks include crude, refined product, NGL, and feedstocks. Data are monthly, through April 2018.

Source: IHS Markit © 2018 IHS Markit

Mil

lio

n b

arr

els

Total

stocks

5-year

average

-2.4

-2.0

-1.6

-1.2

-0.8

-0.4

0.0

0.4

0.8

1.2

1.6

2.0

2.4

92

93

94

95

96

97

98

99

100

101

102

103

104

Q1

15

Q2

15

Q3

15

Q4

15

Q1

16

Q2

16

Q3

16

Q4

16

Q1

17

Q2

17

Q3

17

Q4

17

Q1

18

Q2

18

Q3

18

Q4

18

Q1

19

Q2

19

Q3

19

Q4

19

Implied change in global liquids inventories (right-hand side)

Demand (left-hand side)

Production (left-hand side)

World oil (liquids) demand and production, and implied change in global

liquids inventories


Mil

lio

n b

arr

els

per

day

Outlook

Millio

n b

arre

ls p

er d

ay

3


Anticipated major supply disruptions from Iran and ongoing supply shortfalls from

Venezuela could stifle the market

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

History Current outlook

Iran crude production


Mil

lio

n b

arr

els

per

day

Impact of

transatlantic

sanctions

targeting Iran’s

oil exports

In first half 2018, Iran

exported about 2.1 MMb/d of

crude, and consumed about

1.7 MMb/d domestically.

0.0

0.5

1.0

1.5

2.0

2.5

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

Venezeula monthly crude oil production


Mil

lio

n b

arr

els

per

day

Outlook

4


More supply required from the Gulf 3 and Russia would make spare capacity

cushion thinner at time of rising supply risks

Gulf-3

Russia

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 Dec-18 May-19 Oct-19

Gulf-3 and Russia crude oil production compared with October 2016

Notes: Gulf-3 are Saudi Arabia, Kuwait, and UAE.


Mil

lio

n b

arr

els

per

day

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

Gulf-3 indicative spare crude production capacity

Notes: Gulf-3 includes Saudi Arabia, UAE, and Kuwait.


Mil

lio

n b

arr

els

per

day

Spare capacity declined in 1H 2016 as the

Gulf-3 ramped up oil output. Spare capacity

increased in 1Q 2017 as the Gulf-3 cut

output as part of the Vienna Alliance

production restrain deal.

5


Oil demand growth to remain robust but downward pressure exists from high oil

prices and trade war

Global liquids demand growth (MMb/d)

2017 2018 2019

OECD 0.5 0.4 0.4

Non-OECD 1.4 1.2 1.1

Total world 1.9 1.6 1.5

Changes in oil (liquids) demand by region (volume change from previous year in million barrels per day)

© 2018 IHS Markit

Notes: Mexico is included in Latin America.

Data in table may not add up due to rounding.

Source: IHS Markit

(0.20)

(0.10)

0.00

0.10

0.20

0.30

0.40

0.50

2017 2018 2019

North America

(0.20)

(0.10)

0.00

0.10

0.20

0.30

0.40

0.50

2017 2018 2019

Latin America

(0.20)

0.00

0.20

0.40

2017 2018 2019

Europe

(0.20)

(0.10)

0.00

0.10

0.20

0.30

0.40

0.50

2017 2018 2019

Middle East

(0.20)

(0.10)

0.00

0.10

0.20

0.30

0.40

0.50

2017 2018 2019

Africa

(0.20)

(0.10)

0.00

0.10

0.20

0.30

0.40

0.50

2017 2018 2019

Eurasia

(0.20)

(0.10)

0.00

0.10

0.20

0.30

0.40

0.50

2017 2018 2019

India

(0.20)

(0.10)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

2017 2018 2019

China

(0.20)

(0.10)

0.00

0.10

0.20

0.30

0.40

0.50

2017 2018 2019

Non-OECD Asia ex. China & India

(0.20)

0.00

0.20

0.40

2017 2018 2019

OECD Asia Pacific

6


Strong US shale growth all but certain led by strong growth from Permian basin

8.7

9.4

8.8

9.4

10.7

11.9

7.0

8.0

9.0

10.0

11.0

12.0

13.0

2014 2015 2016 2017 2018 2019

History Outlook

Monthly US crude oil production

Source: US EIA (history); IHS Markit (outlook) © 2018 IHS Markit

Mil

lio

n b

arr

els

per

day

Square markers are annual average production for

each year.

7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

Bakken Permian Eagle Ford

Niobrara / Wattenberg SCOOP/STACK

US tight oil production by play

Source: IHS Markit, EIA © 2018 IHS Markit

Mil

lio

n b

arr

els

per

day

Outlook


Global conventional base production average aggregate decline rate of

~2.5% requires new tranches of supply

0

10

20

30

40

50

60

70

80

90

100

2000 2005 2010 2015 2020 2025 2030 2035 2040

Base Sanctioned Unsanctioned Tight Oil YTF

Global crude & condensate production by development


MM

b/d

8


Key messages

• Rising supply risks from Iran and Venezuela will keep the oil market on the edge amid shrinking

spare capacity. While US production will continue to rise alleviating some of the concerns, looming

logistical constraints could tame the growth in the 2019.

• Prospects for world oil demand growth remain bright for now – but trade wars and higher oil prices

and currency depreciations in the emerging markets are big downside risks.

• As over 40 MMb/d of new supply needed to meet long term demand offsetting global declines, oil

price should be high enough to incentivize investments in marginal high cost crude oil production.

9


Shale Gas and NGL Markets

10


Permian will be the dominant play for crude oil; and non-associated gas production

will increase in Marcellus and Utica

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2001 2005 2009 2013 2017 2021 2025

Permian

Wattenberg

Niobrara

SCOOP/STACK

Powder RiverBasin

Eagle Ford

Barnett

Bakken

Other

US crude oil production


Th

ou

san

d b

/d

0

20

40

60

80

100

120

2001 2005 2009 2013 2017 2021 2025

Utica

Marcellus

Permian

SCOOP/STACK

Eagle Ford

Bakken

Wattenberg

Niobrara

Barnett

Haynesville

Other

US natural gas production


Bcf/

d


Increasing crude oil and gas production from Permian, Eagle Ford and Marcellus

plays will boost NGL production from the US

0

1

2

3

4

5

6

7

2000 2005 2010 2015 2020 2025

Chart Title

Other gas sourced Bakken Barnett Niobrara

Woodford SCOOP/STACK Eagle Ford Permian

Utica Marcellus

NGL production from key shale gas and tight oil plays


Mil

lio

n b

/d

0

1

2

3

4

5

6

7

2000 2005 2010 2015 2020 2025

Ethane Propane Normal Butane Isobutane Natural Gasoline

US NGL production by product


Mil

lio

n b

/d

12


Volume and pace of ethane exports to China will depend on US export terminal

capacity and the cracker build up in China

0.0

0.5

1.0

1.5

2.0

2.5

2000 2005 2010 2015 2020 2025

PADD 3 PADD 2 PADD 1

US ethane chemical demand


Mil

lio

n b

/d

0

100

200

300

400

500

600

2010 2012 2014 2016 2018 2020 2022 2024

Canada Norway UK Sweden India Brazil Mexico China

US ethane exports by destination


Th

ou

san

d b

/d

13

1st Wave 2nd Wave


Long list of ethane crackers are being planned, but how many will come?

14

No. CompanyEthylene/

KTAConsume Ethane/KTA Status

1 Juneng Heavy Industry 2,000 2,600 EIA

2 Bohai Chemical 1,000 1,300 FS

3 Nanshan Group 2,000 2,600 EIA

4 Yangmei Hengyuan 1,500 2,000 FS

5 Satellite PC 2,500 3,250 EIA

6 SP Chemicals 650 270 Constructing

7 Guangxi Invest./Huayi 1,000 1,300 FS

8Guanghui/

Tongkun2,000 2,600 FS

9 Fujian Yuantai 2,000 2,600 FS

10 Fujian Yongrong 1,500 1,950 FS

TOTAL 16,150 20,470


More supply availability from the United States and the Middle East will be cleared

as petrochemicals feedstock in Asia

3 3 59

1421

2529

3035 34

32

35

36

3836

2322 22

22

27

29

2727

0

10

20

30

40

50

60

70

80

90

100

2010 2011 2012 2013 2014 2015 2016 2017

US ME Others

Global LPG trade by source

Source: IHS Markit

Mil

lio

n to

ns

© 2018 IHS Markit

-60

-50

-40

-30

-20

-10

0

10

20

30

40

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Price-sensitive demand

Chemical demand

Base surplus/(deficit) excl. chemical demand

Net surplus/(deficit)

Asia and Middle East price-sensitive LPG demand


MM

t p

er

year

15


Increased condensate production in Canada could lead to exports of US natural

gasoline to Asia

0

100

200

300

400

500

600

700

2000 2005 2010 2015 2020 2025

Refinery Chemical Other Exports

US natural gasoline demand and exports


Th

ou

san

d b

arr

els

per

day

0

200

400

600

2014 2016 2018 2020 2022 2024

Q3 2017 Q3 2016

Western Canada condensate supply

Th

ou

san

d B

arr

els

Per

Day


16

200 kbd of Canadian condensate could

displace 7 MTA of US natural gasoline


Key messages

• Rapidly rising associated gas production from Permian, coupled with increasing non-associated

production from Marcellus and Utica will keep Henry Hub prices in check.

• Ethane availability from the US would rise despite rising domestic demand from ethane-based

ethylene capacity but it is quite uncertain how many of ethane crackers would be built in China.

• Dramatic increases in US exports have resulted in major changes in global LPG trade flows and

Asia becoming the global “demand sink”.

17


Thank you

18

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Oil, Shale Gas and NGL Markets: What Does the Future Hold? · OECD total oil industry stocks Notes:...

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