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TRANSCRIPT
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Presentation to Economics for Energy Madrid January 19, 2015
Amy Myers Jaffe Executive Director
Energy and Sustainability
Energy Security
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OPEC in Disarray : Repeating Boom and Bust Cycles Characterize Oil.
• High oil prices usher in demand destruction through conservation, efficiency gains, and substitution
• High oil prices stimulate drilling innovations, which over time can lead to supply bubbles.
Source: Medlock, K.B., Amy Jaffe, “The price of crude oil: deja vu all over again?” (2013), EIA
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Research Finding: Wavelet analysis reveals key variables that create prolonged oil price discontinuities and interrupt cycle: 1. War 2. Drilling Technology breakthrough 3. Demand destruction 4. Saudi price war
3
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Insurgencies Target Oil Facilities
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university-logo
World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Technology-Driven Supply Response to Rising Prices: UK
1970 1980 1990 2000 2010
0500
1000
1500
2000
2500
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 13/30
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War’s impact can be extended as countries struggle to repair facilities damaged during prolonged conflicts.
6
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US Stimulus Hits the Energy Jackpot Twice at Once
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The United States has the opportunity to become a net oil exporting country. Future US climate, vehicle and energy policy and the industrial internet will accelerate this trend.
0
5
10
15
20
25
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
U.S. liquid fuel supply million barrels per day
Source: EIA, Annual Energy Outlook 2014 Reference case and High Resource
Consump8on
Domes8c supply
Net imports
40% 32%
Projec8ons History 2012
2005
60%
25%
2016 2040
High Resource
8
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Russia Cannot Currently Shift Europe’s Natural Gas Supply to China
• About 50% of Russia’s natural gas exports still transit Ukraine (142 bcm/yr capacity)
• Nordstream design is 55 bcm/yr but currently constrained to 35 bcm/yr by ontake limits
• TANAP (Azerbaijan) only adds 10 bcm/yr
• Europe currently has a large surplus in storage, but…
• If Europe’s weather were normal and supply remains robust, Europe will have too much gas; If Europe’s winter is mild and only half of Russian supply to Europe is disrupted (via Ukraine), inventories will be sufficient; If Europe’s winter were cold and there is a Russian supply cutoff, a serious energy shortage would ensue in Europe.
• Residential/commercial sector is 40% of total European natural gas use market.
• Long term prospects for Arctic and other upstream deals may sour over time
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Liberalization Scenarios:
Produces Lower Global Prices and
Encourages US LNG Exports
Source: Baker Institute RWGTM February 2014 10
$-‐ $1,00 $2,00 $3,00 $4,00 $5,00 $6,00 $7,00 $8,00 $9,00 $10,00 $11,00 $12,00 $13,00 $14,00 $15,00 $16,00
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
Henry Hub NBP Asia (JKM)
$/mcf
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Europe Would Become Less Reliant on Russian Exports Over Time, But Hard to Do Quickly
• Under a liberalization scenario, Russian export volumes are negatively impacted, with European market share falling. Under Russia/EU “cutoff” scenarios, additional LNG receiving capacity added in Germany, Italy. More North Sea supplies come on line.
Source: Baker Institute RWGTM February 2014 11
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Shale gas production will eventually proliferate globally, bringing down international LNG prices.
• North America accounts for the majority of shale gas. Qatar will have to discount prices to keep market share in geopolitically important countries, especially if Chinese shale can be developed.
Source: Baker Institute RWGTM February 2014 12
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Breakevens for US shale oil and gas are lower than many other regions. developments
Source: Ci8 Research
Unconven=onals are not at the top of the scale for breakeven costs. Arc=c and Mega-‐LNG projects could be most under pressure as global gas prices ease.
Johan SverdrupRumailaJubilee Area
Bina BawiZubair
China Domestic GasCampos ExpWest Qurna 1Tempa RossaPNG LNG T3
Gbaran Ubie Ph2Cepu Exp
NgamiaPerlaGoM Tiebacks Majnoon
NE Tupi
ItaipuFrancoWhales Park
CariocaLulaSapinhoa
SkrugardIara
PNG LNG T1-2Hadrian
Yamal Gas
JupiterBig Foot
Trebs TitovSandridge JVADMA
Mozambique LNG Uganda Bl.1,2,3Clair Ph 2 AbsheronVankorBl. 15/06 East
North Alexandria Hub TiberWest Qurna 2 KaskidaCLOVGhana Gas
Laggan/Tormore ZaedyusBlock 32
STL Bakken
Colombia OilChina Domestic Oil
Tanzania LNGWheatstone LNGYamal LNG
OXY Bakken APLNGPSVM
Ichthys LNGChina Domestic Oil Junin 5Prelude LNG
Bl. 31 SE Gorgon LNGJack-St Malo
DominoSTL Eagle Ford Browse LNGTengiz Exp
Bolia-ChotaKearlOPL245
Aparo-NsikoSunrise Ph 1 Usan
West Canada LNGRDS Unc Gas STL MarcellusFilanovsky
Block 61 OmanBG Haynesville QCLNGSurmont Ph 2
Fort HillsMacKay RiverDover
Abadi FLNGTerre de Grace Kashagan Ph 1
Arrow LNGCarmon Creek JoslynGLNG
0
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20
30
40
50
60
70
80
90
100
0 5 10 15 20 25 30 35 402020e Production, Mboe/d
Bre
ak
ev
en
, $
/bb
l
LNG cost pressures
Pricing-discounts pushing
unconventionals higher up the curve
(2Q writedowns)
Low-cost conventional giants (Brazil & Norway)
remain robust.
Heavy oil expectations being scaled
back
Disappointing pace in Iraq sees industry accept
political risk of Kurdistan
Field Breakeven OPEX
Marcellus (gas)
$2.50 $1.30
BarneP (gas)
$3.80 $1.60
Haynesville (gas)
$3.60 $1.30
Eagle Ford (oil)
$37 $7-‐$8
Permian (oil)
$49 $10-‐$12
Bakken (oil)
$37 $7-‐$8
Mississippian
$43 $7-‐$8
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Costs and Oil Prices Move Together • Chicken egg effect: As prices rise, more drillers expand activity, increasing
demand for equipment and rigs and raising costs. Equal and opposite effect seen when prices fall.
• It is not correct that cost increases will be permanently rising based on complexity. Cost management-technology improvement, accelerated development cycle times, and improved well productivity can all reduce costs. (source for graphic: Kenneth Medlock, The Oil Price Cycle Presentation, Baker Institute)
• Chick
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Generational shift in Attitudes Towards Automobiles and Climate Change
Younger Americans More Urban, Less Interested in Car Culture
15
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US will follow different models towards low carbon energy. Local policy is driver.
§ Smart homes and net zero energy communities fit US interest in resilience and response to extreme weather events
§ Debate beginning on new utility models, distributed energy and net metering. Resistance to “death spiral” of falling electricity demand, maintenance cost of transmission.
§ Sharing economy and millennial purchasing patterns changing the way transportation “services” (eg ride sharing), urban planning, and consumer facing household technologies will develop.
§ Expect more disruptive technologies to come out of the US
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The US Strategy for COP21
§ US negotiator Todd Stern expresses support for New Zealand proposal in October 2014, country by country “legally binding” pledges with mandatory accounting, but not an int’l binding treaty, removing distinction between developed and developing world considered desirable.
§ US-China meetings in early November focus on possible areas of agreement on climate change. US expecting to lead, not follow in global dialogue.
§ Little appetite in US Congress, Obama administration focused on policies that can be implemented by executive order.
§ US-China energy and climate dialogue focusing on clean tech collaboration and investment strategies
§ China-California collaboration on air pollution, EV strategy