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Demand DevelopmentsDemand Developments
World Petroleum CongressWorld Petroleum Congress
© OECD/IEA - 2007
Demand DevelopmentsDemand Developments
© OECD/IEA - 2008
Oil Industry & Markets Division
Madrid, July 1, 2008
MEDIUMMEDIUMTERMTERM
Are “Speculators” to Blame?
S1
Price
A
Investors enter the market:• Price increases from P1 to P2
• A stock build (A – B) is necessaryto balance the market in D1P2
B
Stock build
© OECD/IEA
2008
Oil Oil Market Market ReportReport
P1
QuantityQ1
D1
MEDIUMMEDIUMTERMTERM
If not stocks, then demand…
S1
Price If there is no stock build andsupply remains unchanged, theprice increase from P1 to P2 isdriven by an increase in demand:shift from D1 to D2P2
© OECD/IEA
2008
Oil Oil Market Market ReportReport
P1
QuantityQ1
D1
D2
MEDIUMMEDIUMTERMTERM
If not demand, then supply…
S1
Price
If there is no stock build anddemand remains unchanged, theprice increase from P1 to P2 isdriven by an reduction in supply:shift from S1 to S2
P2
S2
© OECD/IEA
2008
Oil Oil Market Market ReportReport
P1
QuantityQ2
D1
Q1
MEDIUMMEDIUMTERMTERM
More oil, same price, no buyers
S1Price
If more supply is offered, then ithas to be discounted to clear
S2
© OECD/IEA
2008
Oil Oil Market Market ReportReport
P1
QuantityQ2
D1
Q1
MEDIUMMEDIUMTERMTERM
The big picture: it’s a question of balanceGDP & Oil Demand per Capita, 2007
OECD
World
Non-OECD-
2
4
6
8
10
12
14
16
18
- 5 10 15 20 25 30
Oil
Dem
and
per
Cap
ita
(bb
ls)
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Backdrop of supply constraintsIn most developing countries, oil demand per capita is much lower than in the OECD
OECD: 15.2 bbls per inhabitant (2007)Non-OECD: 2.5 bblsWorld: 4.8 bbls
This correlates with lower GDP per capitaOECD: $27,400 per inhabitant (2007, at 1995 prices)Non-OECD: $1,800World: $6,400
If supply is constrained, demand has to fall in the OECD
- 5 10 15 20 25 30
GDP per Capita (US$1,000, 1995 PPP)
MEDIUMMEDIUMTERMTERM
Weak dollar causing flight to safety?ICE Brent by Currency (Jan 06 = 100)
100
150
200
250
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Due to dollar’s weakening and global economic downturn, there may be some price effect from investors moving into commodities
50Jan 06 Jul 06 Jan 07 Jul 07 Jan 08
US Dollars Euros
Source: Plat ts
MEDIUMMEDIUMTERMTERM
Refining imbalance adding to tightness
US Gulf Coast Upgrading Margins(Coking - Cracking Margin)
5
10
15
20
$/bbl
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Widening imbalance between light and heavy ends of barrel (-> as seen in upgrading margins) is tightening marketMany simpler refineries cannot run profitably under these conditions
0
5
Jan 06 Jul 06 Jan 07 Jul 07 Jan 08Mars
MEDIUMMEDIUMTERMTERM
Spare capacity still low by historical standardsStrong demand growth, upstream bottlenecks, low refining flexibility, producer policy, lower inventory cover, geopolitics, speculative money and tight spare capacity all contribute to higher prices
60
70
80
90
100
US$/Bbl
5
6
7
8
mb/dOPEC 'Effective' Spare Capacity Dated Brent
© OECD/IEA
2008
Oil Oil Market Market ReportReport
0
10
20
30
40
50
Jan/00 Jan/01 Jan/02 Jan/03 Jan/04 Jan/05 Jan/06 Jan/07 Jan/08
0
1
2
3
4
•Spare capacity is not a perfect barometer of prices• will it be released to the market?• is it marketable?
•Low spare capacity: lasting desire to hold more stock
MEDIUMMEDIUMTERMTERM
Refinery tightness can have an impact
3 mb/dcrude
3 mb/ddiesel
$60/bbl
© OECD/IEA
2008
Oil Oil Market Market ReportReport
If there is ample refinery capacity, the balance between crude and refined product supply is pretty smooth
$60/bbl $60/bbl
MEDIUMMEDIUMTERMTERM
Refinery tightness can have an impact
3 mb/dcrude
3 mb/ddiesel
$60/bbl
Demand rises but supply cannot increaseSo price rises
© OECD/IEA
2008
Oil Oil Market Market ReportReport
If there is refinery tightness, then value of output rises and refiners would be prepared to pay more for crude
$60/bbl $60/bbl
Price of refinery output rises so refiners willing to pay more for crude
MEDIUMMEDIUMTERMTERM
Refinery tightness= more crude oil useLack of upgrading boosts crude demand & negates spare capacity
Increasing signs of producers integrating downstream?
Barrels of Crude needed to product one barrel of gasoline
5.92
1.680
12
3
4
56
7
USGC Maya Coking NWE Brent Hydroskimming
bbl
© OECD/IEA
2008
Oil Oil Market Market ReportReport
1
NWE Brent Refining Margins
-8
-6
-4
-2
0
2
4
6
8
10
1995 1997 1999 2001 2003 2005 2007
$/bbl
Hydroskimming Upgrading (Cracking - Hydroskimming)
MEDIUMMEDIUMTERMTERM
DEMAND
© OECD/IEA
2008
Oil Oil Market Market ReportReport
MEDIUMMEDIUMTERMTERM
Record prices – record oil burden?
World: Oil Burden & Price
2%
3%
4%
5%
6%
7%
8%
inal
Oil
Exp
end
itu
res
as %
o
f N
om
inal
GD
P
35
45
55
65
75
85
95
105
115
$/bbl
2008 f'cast
1st oil shock
2nd oil shock 3rd oil
shock?
© OECD/IEA
2008
Oil Oil Market Market ReportReport
If prices remain at current levels, the global “oil burden” (nominal oil expenditures as % of nominal GDP) may reach the levels seen in the 1980sDespite increasing energy efficiency, this situation could well herald a third oil shock
0%
1%
2%
1971 1976 1981 1986 1991 1996 2001 2006
No
min
15
25
35
Oil Burden WTI (real, 2007 base)
MEDIUMMEDIUMTERMTERM
Mature vs emerging economies
In mature countries, economic activity – albeit important – is no longer the main driver
OECD Oil Demand Growth vs. GDP Growth
-1%
0%
1%
2%
3%
4%
5%
OECD Real GDP Growth OECD Oil Demand Growth
© OECD/IEA
2008
Oil Oil Market Market ReportReport
The GDP-oil demand relationship holds essentially in non-OCDE countries
-1%1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Non-OECD Oil Demand Growth vs. GDP Growth
0%
1%
2%
3%
4%
5%
6%
7%
8%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Non-OECD Real GDP Grow th Non-OECD Oil Demand Growth
MEDIUMMEDIUMTERMTERM
What about prices?
Global Oil Demand Growth vs. Oil Prices
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
30
35
40
45
50
55
60
65$/bbl
Global Oil Demand Growth
Real Brent (2005 US$/bbl)
© OECD/IEA
2008
Oil Oil Market Market ReportReport
After a time-lag, rising oil prices have an effect on overall
demand patterns
This has been quite noticeable since 2005
Yet demand keeps on growing, albeit modestly
0.0%
0.5%
1.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 200720
25
30
MEDIUMMEDIUMTERMTERM
The big picture
Average Global Demand Growth 1998-2003/2003-2008/2008-2013thousand barrels per day
6
-19-3287
102
-21
14120 62
308389
North America
Middle East
Europe FSU
678 673
Asia
© OECD/IEA
2008
Oil Oil Market Market ReportReport
(mb/d)
1998-2003 1.07 1.4%2003-2008 1.45 1.8%2008-2013 1.45 1.6%
Avg Global Demand Growth
238 218
-32
129
308
66 8656
Latin America Africa
590
MEDIUMMEDIUMTERMTERM
Demand has changed…
The barrel is gradually “lightening” – higher demand for transportation fuels, lower for heating and fuel oil
World: Total Oil Product Demand byType of Product, 1996
53%
22%
25%
TransportationFuels
Heating & FuelOil
Other Products
© OECD/IEA
2008
Oil Oil Market Market ReportReport
This is occurring in bothOECD and non-OECD countries – environmental concerns and arbitrage pricing factors at play
48% of demand growth in middle distillates
World: Total Oil Product Demand byType of Product, 2007
58%
15%
27%
TransportationFuels
Heating & FuelOil
Other Products
MEDIUMMEDIUMTERMTERM
Developing countries and transportOECD vs. Non-OECD Cumulative Oil Demand Growth by Use
1997-2013
5
10
15
20
25
30mb/d
Non-OECD - Other
Non-OECD - Transportation
OECD - Other
OECD - Transportation
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Usage shift: transportation fuels will account for the bulk of oil demand
Geographical shift: oil demand growth will come from non-OECD countries
(5)
-
1997 1999 2001 2003 2005 2007 2009 2011 2013
Vehicle Ownership, 2005
-
200
400
600
800
1,000
- 10 20 30 40 50 60GDP per Capita (1,000 US$)
Singapore
Luxembourg
Italy
Germany France
Qatar
US
IndiaChinaV
ehic
les
per
1,0
00 in
hab
.
MEDIUMMEDIUMTERMTERM
Parity by 2015 – but it won’t stop there
OECD countries will still
account for the bulk of
global oil demand in the
medium-term…
World: Total Oil Product Demand by Region, 1996
63.9%
36.1%
OECD Non-OECD
© OECD/IEA
2008
Oil Oil Market Market ReportReport
…yet several key non-OECD
regions, particularly in Asia
and the Middle East, are
catching up fast –developing
countries will overtake the
OECD by around 2015
OECD Non-OECD
World: Total Oil Product Demand by Region, 2013
51.3% 48.7%
OECD Non-OECD
MEDIUMMEDIUMTERMTERM
SUPPLY
© OECD/IEA
2008
Oil Oil Market Market ReportReport
MEDIUMMEDIUMTERMTERM
Supply Growth Looks Front End Loaded
0.5
1.0
1.5
2.0
2.5
3.0
mb/d World Supply Capacity Growth
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Underlying forecast is 2.6 mb/d lower than last year for 2012OPEC crude & liquids drive 2008-2010 growthLull in 2011/2012 on project slippage and mature field declineBut fledgling signs of recovery from 2013?
-0.5
0.0
2008 2009 2010 2011 2012 2013
OPEC Capacity Growth OPEC NGLs Growth
Biofuels Growth Non-OPEC Growth (excl. Biofuels)
MEDIUMMEDIUMTERMTERM
Mature Field Decline an Ever-Present
-20.0
-10.0
0.0
10.0
20.0
30.0
mb/dSteeper Global Decline Assumed in 2008
2007 forecast 2007-2012 2008 forecast 2008-2013
4% implied
5% implied
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Global net decline seen around 5% pa for 2008-2013Implies that over 3.5mb/d of new start-ups needed every year just to stand stillOECD facing mature field decline >10% pa, but no sign that aggregate non-OPEC rate accelerating in past decade
-30.0
-20.0
Gross Additions
Net Change
Implied Decline
Gross Additions
Net Change
Implied Decline
OPEC Non-OPEC
5% implied
MEDIUMMEDIUMTERMTERM
Key Projects are Slipping & Getting Costlier
0%50%100%150%200%250%300%350%
0200400600800
10001200
loc
me
un
e
on
lve
alia rip
um
nti
s
ade
etc hil
flo
r
TL
lyn
FK ga
rse
gan
Cost (%)Volume (mb)Impact of Upstream Project Delays
Lost Volume Cost Over-run
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Non-exhaustive look at key recent project announcements suggests average 1 mb/d loss due to slippageA doubling of investment costs……and 12-15 months slippage on average
Gal
o
Ym
Nep
tun
Ho
rizo
n
Vo
lv
Dal
ia
Ban
yu U
rip
Up
per
Zak
hu
m
Atl
anti
Fra
d
Man
gal
a et
Sh
ah, A
sab
, Sah
i
Paz
flo
Pea
rl G
TL
Josl
yn
AF
K
Bo
ng
Th
un
der
Ho
rs
Kas
hag
a
MEDIUMMEDIUMTERMTERM
Non-OPEC Output: Headed for a dip in 2010-2012
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
mb/dIncremental Non-OPEC Production
Australia
China
Azerbaijan
US ethanol & NGL
Kazakhstan
US GOM
Brazil
Canada
Key Non-OPEC Increments 2008-2013
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Net increase of 1.2 mb/d expected for 2008-2013Total masks a weak OECD picture….…and the fact that gas liquids, non-conventionals and biofuels are drivers of growth, not crude
-0.6
-0.4
-0.2
2007 2008 2009 2010 2011 2012 2013
OECD Non-OECDProc. Gain/Oth. Biofuels Total Non-OPEC -1.0 -0.5 0.0 0.5 1.0 1.5
Mexico
UK
US other crude
Norway
Oth Europe
mb/d
MEDIUMMEDIUMTERMTERM
Non-OPEC crude in decline…until 2013
15.0
20.0
25.0
30.0
35.0
40.0
mb/d Non-OPEC Crude Supply
0.0
0.5
1.0
1.5
mb/dSource of Incremental Non-OPEC Oil 2001-2013
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Non-OPEC growth is despite, not because of, crude oilOECD decline outstrips modest non-OECD crude growthBut can crude growth re-emerge from mid-decade onwards if major discoveries in Russia, Caspian, US GOM, Brazil & China are tapped?
10.0
15.0
2000 2002 2004 2006 2008 2010 2012
Non OECD crude OECD crude
-0.5
2001 2003 2005 2007 2009 2011 2013
Non-OPEC CrudeNon-OPEC NGL, Non-Conv. & Proc. GainOPEC NGL, etc.Biofuels
MEDIUMMEDIUMTERMTERM
Saudi Arabia drives OPEC crude growth
-0.3
0.0
0.3
0.6
0.9
1.2mb/d
Expected Increments in OPEC Capacity
Saudi Arabia, 1.78
Incremental OPEC Capacity, 2008-2013, mb/d+2.5 mb/d
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Strong 2009/2010 capacity growth driven by Saudi lighter/ sweeter crude additions, plus initial Iraqi recoveryLater phase growth comes from Saudi Arab Heavy additions plus Nigerian deepwater
-0.6
-0.3
2007 2008 2009 2010 2011 2012 2013Saudi Arabia Iraq IranOther MEG Nigeria AngolaOther OPEC Total OPEC
Iraq, 0.41
Nigeria, 0.29
UAE, 0.27
MEDIUMMEDIUMTERMTERM
OPEC Gas Liquids: A forgotten source of growth
0
2
4
6
8
10
12
0
1
2
3
4
5
6
7
8
2003 2005 2007 2009 2011 2013
kb/d per bcmmb/d OPEC Gas Liquids Output
NGL Condensate
GTL liquids to gas ratio
0
1
2
3
4
5
6
7
8
2003 2005 2007 2009 2011
mb/d OPEC Gas Liquids Output
Others Iran NigeriaQatar UAE Algeria
© OECD/IEA
2008
Oil Oil Market Market ReportReport 2013 supply reaches 7.2 mb/d
7% pa growth looks strong....but matches 2003-2008 levels
Iran, 398
Kuwait, 177
Qatar, 417
Saudi Arabia, 560
UAE, 313
Nigeria, 249
Incremental OPEC NGL 2008-2013, kb/dTotal = +2.1 mb/d
GTL liquids to gas ratio Qatar UAE AlgeriaSaudi Arabia
MEDIUMMEDIUMTERMTERM
BIOFUELS
© OECD/IEA
2008
Oil Oil Market Market ReportReport
MEDIUMMEDIUMTERMTERM
Strong growth in Biofuels output
Biofuels Output
0.0
0.5
1.0
1.5
2.0mb/d
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Biofuels supply maintains strong growth seen in previous forecasts: from 1.35 mb/d in 2008 ► 1.95 mb/d by 2013 (in volumetric terms)
0.02000 2002 2004 2006 2008 2010 2012
US Ethanol OECD EUR EthanolBrazil Ethanol Asia EthanolOther Ethanol OECD EUR BiodieselOther Biodiesel
MEDIUMMEDIUMTERMTERM
Growth potential even higher
Biofuels Output & Potential Capacity
0.00.51.01.52.02.53.03.5mb/d
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Potential supply capacity much higher: 3.3 mb/d by 2013 (were all announced projects to come online!)But, due to downside risks, have capped output in 2010 for all countries bar Brazil!
0.02007 2008 2009 2010 2011 2012 2013
US Ethanol OECD EUR EthanolBrazil Ethanol Asia EthanolOther Ethanol OECD EUR BiodieselOther Biodiesel Potential Capacity
MEDIUMMEDIUMTERMTERM
Biofuels contribute to supply growthSource of Incremental Non-OPEC
Supply Growth 2008-2013
0.0
0.2
0.4
0.6
0.8
mb/d
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Biofuels contribute 50% of (faltering) non-OPEC supply growth in 2008-2013Lion’s share of this is fuel ethanol
-0.2
0.0
2008 2009 2010 2011 2012 2013
Non-OPEC (excl. Biofuels) Biofuels
MEDIUMMEDIUMTERMTERM
REFINING AND PRODUCT SUPPLY
© OECD/IEA
2008
Oil Oil Market Market ReportReport
MEDIUMMEDIUMTERMTERM
Refining Industry: Significant Growth Ahead
0.5
1.0
1.5
2.0
2.5mb/d Crude Distillation Capacity Additions
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Growth peaks in 2009, before dropping to a trough in 2011. Middle East projects revive growth thereafterOECD regions account for only 20% of the increase; largely in North AmericaSignificant slippage as costs soar
0.0
2008 2009 2010 2011 2012 2013
OECD ChinaOther Asia Middle EastOther Non-OECD
MEDIUMMEDIUMTERMTERM
Middle East and Asia Dominate Growth
OECD N America
OECD Europe
OECD Pacific
Middle East
Non-OECD Europe
Latin America
Distribution of Crude Distillation Capacity Additions
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Increased capacity is largely dependant on projects in:Middle East – Mega projects e.g Al Zour, Ras Tanura etc.
China – Continued expansion from CNPC & Sinopec
Other Asia – Jamnagar refinery expansion in 2009
Other Asia
China
FSU
Africa
MEDIUMMEDIUMTERMTERM
Product supply: tensions persist
Difficulty keeping up with rapid growth in distillate demand48% of gobal demand growth in distillate
Gasoline to move into surplus in the Atlantic BasinTrend towards more fuel efficient cars could accelerate that trendBiofuels part of that balance
Petchems to absorb NGL increase
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Petchems to absorb NGL increaseFuel oil to tighten through upgrading additions
Wide current fuel oil discounts reflect surplusIncreasing fuel oil demand from Middle East for power generation
Tighter fuel oil supplies at same time Middle East and Europe looking for more gas
No refining limits on producing more fuel oilBut will need more crude runs or fuel efficiency elsewhere
MEDIUMMEDIUMTERMTERM
What the next five years hold in store
High prices reflect strong non-OECD growth and poor non-OPEC supply performance
No obvious sign speculators behind high pricesstocks normal to low, distillates very tightProducers operating close to flat out
Opposing trends in supply and demand to 2013Demand growth weak, then picks up
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Demand growth weak, then picks up• Led by non-OECD
Bunching of projects bolsters 2009 spare capacity, but then dips
• Ongoing slippage, cost inflation, service sector constraints• Non-OPEC crude supplies to continue to contract• More oil beyond 2013 – Saudi, Khashaghan, Tupi
More investment needed
Refining investment continues apace• Struggles to keep up with distillate demand• Fuel oil to tighten, competition with other fuels
MEDIUMMEDIUMTERMTERM
Q & A
Thank You
© OECD/IEA
2008
Oil Oil Market Market ReportReport
Q & A