Dipartimento di Economia e Management,
Università di Ferrara
" Economia dell'Energia e dell'Ambiente.” a.a. 2019-20
Lezione 3 – appendice
LarivoluzionedelloShale-GasedilcrollodeiprezzidelPetrolio:effe9economici,poli<ciesociali
ISPIEnergyWatch
ISPIEnergyWatchOsservatorioEnergiadell’Is2tutopergliStudidiPoli2caInternazionale,Milano
TheShaleRevolu6onandtheoilslump
Presenta6onbyMassimoNicolazziwithFilippoClô,AnnaRydenandMaFeoVerda
ISPIEnergyWatch
• Introduc6on
• FeaturesoftheShaleRevolu6on
• ThevolumesoftheRevolu6on
• Impactonthegasmarket
• Impactontheoilmarket
• Aboutcrudeoil.Ren6erStates,independentproducersandthepricedilemma
• Oversupply.ThepricedropanditsaLermath
TABLEOFCONTENTS
ISPIEnergyWatch
THEMEANINGOFUNCONVENTIONAL…
Unconven<onalincludes:
• CoalBedMethane
• OilShale
• TightOil/TightGas
• ShaleOil/ShaleGas
• ExtraHeavyOil/OilSands
Introduc6on
Unconven<onalalludestoamethodofproduc6on,nottothequalityofthehydrocarbonsactuallyproduced.
ISPIEnergyWatch
• ExtraHeavyOilandOilShalearebasicallyuntapped
• MaterialvolumesofCBMareproducedmostlyinAustralia,CanadaandtheUS
• Tarsandsaccountfor56%oftheCanadianoilproduc6on‒ approximately2Mbbl/d
• Tight/shalegasaccountsforover40%oftheUSNaturalGasproduc6on‒ approximately300Bcm/year
• Tight/shaleoilUSproduc6onhassurpassed3,5Mbbl/d
…ANDITSPRODUCTIONSIGNIFICANCE
Introduc6on
ISPIEnergyWatch
• Energyintensiveproduc6onmakesTarSandstheenvironmentallymostcontroversialunconven6onalproduc6on
• Methodsofproduc6oninclude:‒ Surfacemining(openpit)‒ CHOPS(ColdHeavyOilProduc6onwithSands)‒ CSS(CyclicSteamS6mula6on)‒ SAGD(SteamAssistedGravityDrainage)
• ThanksmainlytoTarSands,Canadaranksasthethirdcountryworldwideforprovedoilreserves(over174thousandmillionbarrels)
TARSANDS
Introduc6on
ISPIEnergyWatch
• Adevelopingtechnology
• Anewproduc6onmodel
• AnAmericanstory
FeaturesoftheShalerevolu6on
THESHALEREVOLUTION:COMMONFEATURES
ISPIEnergyWatch
• Nonewinven6on:‒ afrackingprocesswaspatentedin1949‒ con6nuousprocessupgrade
• Thebreakthroughwasop6misingandcombiningfrackingtechniquesandhorizontaldrilling
• Inparallel,newtechnologicaldevelopmentstoop6misedrillingcontrolhavecontributedtoasteepreduc6onofdrilling6me
FeaturesoftheShalerevolu6on
ADEVELOPINGTECHNOLOGY
ISPIEnergyWatch
• Conven<onal(exceptforsmall/marginalfields):
‒ longterminvestmentperiod
‒ cashflowdeferredupto5/10yearsfrominvestmentincep6on
‒ stableproduc6onflowforthefirstyearswithoutfurthercapex
• Unconven<onal(shale):
‒ 6metomarket
‒ produc6onandcashflow2-3monthsfromtheinvestmentincep6on
‒ drama6cdecreaseinproduc6onflowaLerfirstyear:60%orevenmore
FeaturesoftheShalerevolu6on
THEPRODUCTIONMODEL:CONVENTIONALVS.UNCONVENTIONAL
ISPIEnergyWatch
produc<onprofile
FeaturesoftheShalerevolu6on
UNCONVENTIONALVS.CONVENTIONALPRODUCTIONMODEL
cumula<vecashflow
1 2 3 4 5 6 7 8 9 1011121314151617181920
conven<onal shale
1 2 3 4 5 6 7 8 9 1011121314151617181920
1 2 3 4 5 6 7 8 9 1011121314151617181920 1 2 3 4 5 6 7 8 9 1011121314151617181920
ISPIEnergyWatch
• Tomaintainorincreaseoverallyearlyshaleproduc6on,theproduc6oncurveofthewellsmandatesthatdrillingandinvestmentbecon<nuous
• Investmentfinancingfordrillingopera6onsisoLenprovidedthroughthehedgingoffutureproduc6on
• Thecombina6onofdrillingintensityandfinancingrequirementsmakesshaleproduc<onvolumespricesensi<veintheshortterm
• Conven<onalproduc6onvolumesarepricesensi6veonlyinthemedium/longterm,i.e.thecurrentpricemayslowreservesreplacementinvestmentbuthasnoimmediateimpactontheproduc6oncapacity
FeaturesoftheShalerevolu6on
THEPRODUCTIONMODEL:DRILLINGINTENSITY
ISPIEnergyWatch
• TheOil&GasUSIndustryhasalonghistoryandcurrentlyemploysalmost600thousandworkers
• Unconven6onaldevelopmentisdrivenbyindependentproducers,notbymajors:theIndependentPetroleumAssocia6onofAmericahasapproximately8.000associates/members
• Legalframework:privatepropertyofnaturalresourcespromoteslocalpopula6onconsensus
• Drillingintensityrequiresanadequatedrillingstock:‒ in2014,thenumberofunconven6onalwellsdrilledintheUSwascloseto5.000
‒ USandCanadahostmorethan60%oftheglobaldrillingstock,andUSalone80%ofthehydraulicfracturingHPworldwide
FeaturesoftheShalerevolu6on
ANAMERICANSTORY
ISPIEnergyWatch
• Drillingintensitycannotcoexistwithpopula6ondensity• Theregulatoryframeworkshouldbereadjusted• Unlessandun6lop6misedprac6cesandadequatedrillingcostsarein
place,produc6oncostswillremainsignificantlyhigherthanintheStates‒ Todate,upto300%inPoland
• Shalegasandshaleoilresourcesarehowever“globallyabundant”(EIA,June2013)
• Russiaranksfirstforoil,ChinaforgasandArgen6naisamajorinboth.Whetheranyofthemwillbecapabletofullyimplementthemodelisaques6onforthebeginningofthenextdecade
FeaturesoftheShalerevolu6on
ANAMERICANSTORY.EXPORTINGTHEMODEL
Environmentalissuesmaybecomealimi6ngfactoralsoforUSexpansion
ISPIEnergyWatch
• TheShaleRevolu6onmaybeassumedtohavestartedin2005:• BushEnergyAct• Presidentfearsforana6on«addictedtooil»
• Fearofoilimportdependencehelpstheintroduc6onofsomeenvironmentalflexibility:
• certainac6vi6esrelatedtofrackingareexemptedfromfederalstandards(Cheney/Halliburtonloophole)
• Theincreaseinoilprice(2001-2008)helpsdevelopingandop6misingdrillingtechniques
• ALer10yearstheoutcomeisspectacular:• Gasproduc6onhasincreasedbyalmost200Bcm/y• Liquidsproduc6onhasincreasedbymorethan4Mbbl/d
ThevolumesoftheRevolu6on
VOLUMESOFTHEUNCONVENTIONALSOURCES
ISPIEnergyWatch
0
5
10
15
20
25
2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
5
10
15
20
25
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
USOILCONSUMPTION,PRODUCTIONANDNETIMPORTS
2014figuresareprovisional–Source:elabora6ononBPeEIA
consump6onconsump6on
netimports
produc6on produc6on
USA USA+Canada
ThevolumesoftheRevolu6on
netimports
Mbbl/d Mbbl/d
ISPIEnergyWatch
USGASPRODUCTIONANDCONSUMPTION
2014figuresareprovisional–Source:elabora6ononBPandJODIgas
Bcm
ThevolumesoftheRevolu6on
0
100
200
300
400
500
600
700
800
900
1.000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
produc6onUSA consump6onUSAproduc6onUSA+Canada consump6onUSA+Canada
ISPIEnergyWatch
• “Theoilmarket,liketheocean,isagreatpool”(M.A.Adelmann)
• Thegasmarketremainsregional
• Sametechnology,differentmarkets
• Non-fungibility:‒ Oilconcentratesontransporta6on‒ Gasconcentratesonpower‒ Excep6on:petrochemicals
UNCONVENTIONALOIL/UNCONVENTIONALGAS:THESPLIT
ThevolumesoftheRevolu6on
ISPIEnergyWatch
GASPRICES2010-2015HENRYHUB,EUROPE,ASIA(JAPAN)
Source:EuropeanCommission
ThevolumesoftheRevolu6on
$/MMBtu
US(HHspot) US(Chicagocitygates) UK(NBPspot) Germany(border) Japan(LNGlanded)
2011 2012 2013 2014
ISPIEnergyWatchImpactonthegasmarket
THEGASMARKET:DOMESTICIMPACT
• Gaspowermarketsharefrom18to29%
• Upto3to1ra6opercalorificunityvs.oil(previously5to1withoilat100).Gas-to-oilpoten6allyfeasible
• Re-coupling.NaturalgasandLNGgrowingconsump6onastransporta6onfuelsresuming(marginal)compe66onwithoil
• Boos6ngenergyintensiveindustry
• Thepetrochemicalthreat:upto3to1costofproduc6ondifferen6albetweenEuropeanandUSproducedethylene.
ISPIEnergyWatch
GAS/OILCALORIFICPARITY
EnergyparityforWTI,Brent,andHenryHubnaturalgas–Source:elabora6ononEIA
-
5
10
15
20
25
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Brent(oil) WTI(oil) HenryHub(gas)$/MMBtu
Impactonthegasmarket
ISPIEnergyWatch
• NorthAmericaproduc6onsurplusandexportinfrastructurewillhavematerialimpactonlytowardsendofdecade
• Marketsharecouldreachbetween10and20%oftheLNGmarket:‒ 4-8%ofinterna6onallytradednaturalgas
• Drama6cimpactongaspricesunlikelyduetomarketshareandtransporta6oncosts
• Marketliquiditywillbeposi6velyaffected
• Exportdirec6onwillbedecidedbyregionalpricedifferen6als
THEGASMARKET:INTERNATIONALIMPACT
Impactonthegasmarket
ISPIEnergyWatch
US+CANADAESTIMATEDGASPRODUCTIONSURPLUSFORECAST
2
76 93
0
200
400
600
800
1.000
1.200
2013 2020 2025
surplus produc6on consump6on
Source:elabora6ononIEA
Bcm
Impactonthegasmarket
ISPIEnergyWatch
• Na6onaleffects:tradebalancesavingsrangingin6mefrom100toover200thousandmilliondollars
• Originofimportsredefinedonthebasisoftherefiningsysteminplace
• Sweetcrudeimportsfullysubs6tutedbyna6onalshaleproduc6on
• Nomaterialimpactonna6onalprices
Impactontheoilmarket
THEOILMARKET:DOMESTICIMPACT
ISPIEnergyWatch
• Morethan6Mbbl/ddisappearingfromthe“conven6onalmarket”since2005
• Pricestabilizingeffectduringthe2011-2013disrup6ons(Arabspringetc)
• ThereaLeroneofthemainfactorsofthecurrentslump
• USalreadyanetexporterofoilproducts(over1,5Mbbl/d)
• ExportsofcrudewillnotbesubjecttotheUSbecoming«independent»fromimportsbutwillhappenasaconsequenceoftheunfitnessoftheUSrefiningsystemforthehandlingofhugevolumesofLTO(«LightTightOil»)
THEOILMARKET:INTERNATIONALIMPACT
Impactontheoilmarket
ISPIEnergyWatch
CRUDEANDPRODUCTS:NETIMPORTS
0
2
4
6
8
10
12
14
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
MBbl
Impactontheoilmarket
Source:EIA
ISPIEnergyWatch
USOILIMPORTSBYCOUNTRYOFORIGIN
MBbl
Source:elabora6ononEIA
0
2
4
6
8
10
12
14
16
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Canada SaudiArabia Mexico Venezuela RussiaIraq Nigeria Algeria Angola total
Impactontheoilmarket
ISPIEnergyWatch
• Produc6oncostsofconven6onaloilremainlowwhencomparedtounconven6onal
• Mostconven6onalproducersrelyheavilyonoilrevenuesfortheirstatebudget,andthereforeneedtobargainasocialbreakevenpricetomaintaininternalstability
• Fallingpricesareathreattotherulingclassandcarryapoten6alfordisrup6onandsocialunrest
• Ina53,8$/bblaverage2015pricescenario,theproducerslossofincomewouldamountoverallto622thousandmilliondollars(asmodelledbyBancaIntesa)
Thepricedilemma
THEPRICEDILEMMA:THERENTIERSTATE
ISPIEnergyWatchThepricedilemma
THERENTIERSTATESBYRENTDEPENDENCE
Source:WorldBank(2012)
Totalnaturalresourcesrents(%ofGDP)
Worldaverage
0
10
20
30
40
50
60
ISPIEnergyWatchThepricedilemma
SOCIALBREAKEVENOILPRICE:COSTOFSTABILITY
Source:elabora6ononIMFandDeutscheBank
currentprices
0
20
40
60
80
100
120
140
160
180
Budgetbreakevenoilprice,for2015$/Bbl
ISPIEnergyWatch
Averageproduc6oncostsarees6matesofabsolutevalues.buttheorderofmagnitudeshouldbetakenasreliable
Thepricedilemma
ECONOMICBREAKEVENOILPRICE:COSTOFPRODUCTION
0
10
20
30
40
50
60
70
USshale Russia SaudiArabia
ISPIEnergyWatch
• Developmentoffrackingtechnologyhasmade6ghtoileconomicundercertainpriceassump6ons‒ S6llfarfromcostcompe66vewithmostoftheconven6onaloil
• ThedrillingintensitymodelreactsswiLlytomarketchanges‒ Investmentcurtailmentshaveanalmostimmediateeffecton
produc6oncapacity
• Produc6oncostsvarybetweenwells‒ Overallthemeaneconomicbreakevenshouldbeinthelow60$/bblrange
Thepricedilemma
THEPRICEDILEMMA:THEINDEPENDENTPRODUCER
ISPIEnergyWatch
• UScontribu6on.The2014increaseinUSoilproduc6onalonehassurpassedtheincreaseinglobaldemand(1,16Mbbl/dvs.0,7Mbbl/d)
• Currentforecasts(e.g.PetroleumIntelligenceWeekly)assumethesupplysurplusfor2015tobeinexcessof2Mbbl/d
• Thesurpluswillfillstoragecapacity,totheextentavailable‒ Chinaiscurrentlyimpor6ngmorethan7Mbbl/d,ofwhicharound0,5couldbeforstorage
OversupplyandtheaLermathofthepriceslump
OVERSUPPLY
ISPIEnergyWatch
• Oversupplywillnotbemet,atleastintheshortperiod,byacorrespondingdemandgrowth
• Reducingtheoffermaytakethreedifferentforms
‒ Voluntary,viareduc6onofthecurrentconven6onalflow(OPEC)
‒ Social,viadisrup6onasaconsequenceofsocialunrestwithinaproducer
‒ Economic,viaslowdownandreduc6onoftheUSproduc6on
OversupplyandtheaLermathofthepriceslump
OVERSUPPLY:OUTOFTHESLUMP
ISPIEnergyWatch
• DifficulttoimaginewithoutSaudiinvolvement
• Withoutswingproducer,allotherproducersareforcedtokeepproduc6onatmaximumlevels
‒ Theirbehaviourdoesnotimpactprices,theyareleLtochoosebetweenlowrevenues,ornorevenues
OversupplyandtheaLermathofthepriceslump
DECREASINGSUPPLY:VOLUNTARY
ISPIEnergyWatch
• Nega6veeffectsoflowpricesonna6onalbudgetslimitedonyearlybasisin2014‒ 99,54$/bblin2014vs108,64$/bblin2013
‒ For2015EIApredictsanaverageof68,08$/bbl
• Possibilityofsocialunrestanddisrup6onofproduc6oninsomeofthemostrent-addictedproducerstates
• Impactofdisrup6onsisdebatable
‒ Pastdisrup6ons,e.g.Libya,havebeenfullyamor6sedbytheavailabilityofexcesscapacity
‒ Thepresentoversupplyimpliesthatanyindividualproducer,exceptforthebigthree,isvirtuallyredundantonthemarket
OversupplyandtheaLermathofthepriceslump
DECREASINGSUPPLY:SOCIAL
ISPIEnergyWatch
• No6ght/shaledrillingforoneyearwouldreduceshaleproduc6onby60-65%andreduceoverallUSoilproduc6onbyalmost2Mbbl/d
• Averagebreakevenpricesaremisleadingwhenappliedbybasininsteadofbywell:inmatureprojectswithfullypaidinfrastructurehalfcyclebreakevencostsmayseFlebetween37and45$/bbl
• Technologicaldevelopmentappliedtoa6metomarkettechniquemays6llhaveasignificantshorttermimpactonthebreakevenbenchmark(10%ormore)
• Unlessthepricestabilizesunder60$/bbl,aslowdownoftheforecastedgrowthlooksmorelikelythanasharpdeclineincurrentproduc6on
OversupplyandtheaLermathofthepriceslump
DECREASINGSUPPLY:ECONOMIC
ISPIEnergyWatch
• Mostconven6onalproduc6oncomesfromoldfieldswithlowinvestment/produc6oncosts
• Thecreamingcurvemakesreservereplacementmoretechnicallychallengingandraisesthebenchmarkforbreakeven
• Mostkeyprojectspresentlyinthepipelinehavees6matedbreakevensignificantlyhigherthanshaleproduc6on
• GoldmanSachses6matesthata70$/bblpricewoulddelayorcancel930thousandmilliondollarsworthofupstreamplannedinvestment,represen6ngapoten6alproduc6onof2,3Mbbl/din2020and7,5inin2025
• Theoilpriceslumpmayimpairmediumtermreplacementandmateriallyswingthependulumtowardsundersupply
OversupplyandtheaLermathofthepriceslump
DECREASINGSUPPLY:NEWCONVENTIONALOIL
ISPIEnergyWatch
• Mostcurrentscenariosassumeaposi6veimpactofthepricedroponimpor6ngcountriesGDPandtradebalance
• Theextentoftheimpactremainscontroversial
• Thedifferentimpactonindividualcountrieswouldbemainlydrivenbytwofactors:
▫ Energyintensity
▫ Energytaxa6on
OversupplyandtheaLermathofthepriceslump
BENEFITSOFAPRICEDROP
ISPIEnergyWatch
• TheShaleRevolu6onhascontributedimpetustothepricedrop,andthepricedropwilllikelyslowtheShaleRevolu6on
• Theslowdowninthelongtermwillnotimplyloss,butjustdeferralofproduc6on
• Duetoshorttermpricesensi6vityandavailabledrillingstock,produc6onincreaseshouldregainspeedassoonasfavourablepricesignalshitthemarket
• Theprocessmayhoweverbedelayedandrequirehigher(riskrewarding)pricesshouldthecombina6onofthehedgingprac6ceandofthepresentpricedropresultinaseriouscrisisonthederiva6ves(junkbonds)market
Finalremarks
FINALREMARKS(1):SHALEREVOLUTIONANDPRICEDROP
ISPIEnergyWatch
• Shorttermbenefitstotheeconomiccycle(butpoten6alboosterofEuropeandefla6on)
• Inthemedium-longterm:• Riskofsocialinstabilityaffec6ngalsoneighbouringcountries• Slowdownofreservereplacementinvestmentsandpoten6alforpricevola6lity
• Poten6altemporaryslowdownofgreenpoliciesandincreaseofcarbonenergyconsump6on(beforethepricedrop,IEAforecastwasthatin2040carbonenergysourcessharewoulds6llbenolessthan74%)
Finalremarks
FINALREMARKS(2):PROSANDCONSOFTHEPRICEDROP
Needforpoliciescapableoflimi6ngthedownsizeofcheapoil.Would,amongstothers,acarbontaxhelp?
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