oil and gas producers in a period of low oil prices · 2017-09-19 · oil and gas producers in a...

© OECD/IEA 2016 © OECD/IEA 2016

Oil and gas producers in a period of low oil prices

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プレゼンテーションのノート

A year ago when I took the position of the Executive Director of the International Energy Agency we introduced a new strategy for the modernisation of the Agency based on three pillars: opening the doors for the key emerging countries, turning the IEA into a clean energy hub while preserving and broadening our traditional work on energy security. The theme that connects all strategic objectives is investment. Investment in the energy sector is a key priority in all major emerging countries let it be electrification in India or deep offshore development in Brazil. The transition to a clean energy system is essentially a problem of capital allocation: investment in renewables and energy efficiency will need to be ramped up to reach climate objectives while stranded assets in the legacy high carbon system need to be avoided. Investment is the lifeblood of the energy system. This is why we decided to launch a new IEA publication, World Energy Investment which for the first time takes a comprehensive view of the state of play of energy investment in the world economy. It assesses investment flows across sectors and regions. The World Energy Outlook will continue to provide a 25 years outlook on how policy influences the energy system, World Energy Investment its sister publication every year will take a granural look at how present investment activity evolves and shapes the long lifetime capital assets of the energy sector.

© OECD/IEA 2016

USD 1.8 trillion

Oil and gas is still the largest field of investment

An 8% reduction in 2015 global energy investment results from a $200 billion decline in fossil fuels, while the share of renewables, networks and efficiency expands

Oil & Gas46%

Coal 4%

Electricity Networks

14%

Energy Efficiency

12%

Biofuels and Solar Heat1%

Global Energy Investment, 2015

Renewables 17%

Power Generation

23%

Thermal Power

7%

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プレゼンテーションのノート

The investment budget of the energy industry was 1840 billion USD in 2015, an 8% decline primarily due to a reduction in oil and gas upstream spending. Despite these investment cuts, oil and gas still represents the largest single category of investment, together with coal mining almost exactly half of the total. The biggest component is upstream, but infrastructure: oil and gas pipelines and LNG facilities absorbed 160 billion of investment. Renewable electricity, especially wind solar and hydro dominate renewable investment, together with energy efficiency they represent a third of total investment, which is sufficient for a measurable slowdown of energy demand growth through efficiency investments and a rapid increase of renewables in the global energy mix, although neither is on track for a 2 degrees climate stabilisation yet. Renewables outside the electricity sector risk fallling behind with current investment activity with only solar heat in China reaching a significant scale. Investment comes from a variety of sources: large oil and gas companies and integrated utilities in emerging countries dominantly rely on their internal cash flow and return significant dividends to capital markets. The north american shale industry heavily relies on outside funding sources. The declining and increasing cost of debt contributed to an especially harsh cut of investment in the shale industry. The role of new entrants are significant in renewables: independent power producers who often rely on project financing as well as consumers directly investing into renewable energy which reached 50 billion usd in 2015. The majority of electricity network investment is undertaken by integrated utilities but unbundled network operators in Europe and the US also playing a significant role. In both cases investment is regulated and usually financed on balance sheet. Energy efficiency investment relies on policy incentives and usuallly financed by the end users themselves as well as development banks, government grants and other policy sources.

© OECD/IEA 2016

Energy efficiency and low fossil fuel prices

The three best selling vehicles in North America in 2015

Appliance standards lock in efficiency improvements despite declining electricity prices

© OECD/IEA 2016

New technologies have an asymmetric impact on oil and gas producers

Electric cars generate consumer excitement, but displaced only 0.01% of oil production last yearCurrent wind and solar investment is equivalent to over 1% of global gas

production not burned in CCGTs

© OECD/IEA 2016

The balance of oil markets tilting towards low-cost regions

North America covers almost half of the world’s decline in upstream investment, while the Middle East and Russia emerge as the most resilient regions.

Upstream investment in key regions, 2000-2016

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Upstream costs back to levels of 10 years ago, serving as key contributor to investment plunge

Lower costs accounted for just less than two-thirds of the total fall in upstream investment between 2014 and 2016

Investment Cost Indexes, 2005-2016

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© OECD/IEA 2016

Rig count in the Middle East remain close to record levels

Recent uptick in the oil price has raised the economic case for an increase in rig counts in North America and recovery in activity is tangible since June

Total rig count index, 2015-2016

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US shale leveraged business model increases investment volatility

Debt costs soared for leveraged US shale companies as oil prices fell, resulting in bankruptcies; more resilient operators, with the majority of production, now remain

Bond spreads vs. Oil prices, Jun 2014 – Aug 2016

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High yield US energy bond spreads WTI (right axis)

© OECD/IEA 2016

Russian oil upstream keeps defying expectations

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IEA OMR monthly projections for Russian oil production

© OECD/IEA 2016

Russia: large and dispersed resource base

Legacy infrastructure was built up to supply the Western regions and European exports

© OECD/IEA 2016

West Siberia remains dominant with artic offshore as a frontier resource

The bulk of Russia’s resources are in the core producing region of Western Siberia, artic offshore is on hold due to sanctions and oil prices

Conventional oil and gas resources in various Russian regions

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© OECD/IEA 2016

Arctic offshore: What a difference three years make

Arctic offshore developments are likely to be on hold in the foreseeable future

• Sanctions constrain investment and technology transfer

• But similar projects became unviable in Alaska and Canada as well

• And the IOCs are cutting capex anyway

© OECD/IEA 2016

Light tight oil in the Bazhenov

LTO development might start but will remain under its geological potential

Horizontal drilling and fracking is routinely used for EORDecent field service

industryNo anti fracking lobbyLegacy infrastructure Lack of mid size

independentsAccess to geological dataHigh end service

capabilities (pressure pumping, 3D seismic)

© OECD/IEA 2016

Investment cuts, what investment cuts?

80-90% of capital spending is Rouble based due to a large domestic service industry and focus on conventional brownfield development

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© OECD/IEA 2016

Altai pipeline (Western)• 2600 km from West Siberia to

China• Initial capacity: 30 bcm

SKV pipeline• 1830 km between Sakhalin-

Khabarovsk-Vladivostok• Full design capacity: 30 bcm• Current capacity: about 7 bcm

Power of Siberia pipeline (Estern)• 4000 km from Kovykta to Vladivostok• Construction commenced in Sept 2014• Initial capacity: 38 bcm

East Siberia: the manifest destiny?

Source: Gazprom and IEA (forthcoming)

© OECD/IEA 2016

Yamal LNG: overcoming the odds

Equity stake by Total and EPC contract with Technip maintained

CNPC + Silk Road Fund equity stakes

Multibillion Euro/RMB Chinese project financing secured

© OECD/IEA 2016

LNG investment about to fall from historical peak

Given the sharp fall of investment and increasing reluctance for new long term contracts LNG might be heading towards a new boom and bust cycle

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CapacityRight axis:

LNG terminals investment

© OECD/IEA 2016

New North American shale plays drove pipeline investment

North America oil & gas infrastructure capital spending 2010-2016

Less well-connected states and regions that concentrated boom in production led investment in new infrastructure

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CCS good news depend on oil market developments

For every single CCS project that has succeeded in real life hydrocarbon revenues played an important role

Boundary DamPetra Nova

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EOR oil pays forclean coal

Large oil and gas projects with an integrated CCS component

© OECD/IEA 2016

Oil prices and methane leakage

North American

flaring

Russia, Nigeria, Iraq Distribution

LTO slowdown enables midstream

to catch up

Investment capability,

geopolitics, and other priorities...

Investment capability of utilities

oil and gas producers in a period of low oil prices · 2017-09-19 · oil and gas producers in a...

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