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The Economics of Oil and Natural Gas
from a Global, National and State
Perspective February 8, 2017
Erica Bowman
Chief Economist
American Petroleum Institute
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 1
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 2
The Stages of U.S.
Unconventional Growth
Source: RBN Energy
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 3
Oil Markets
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 4
Crude Oil Prices & Event Timeline
What is driving
today’s prices?
Source: EIA, Thomson Reuters
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 5
-3
-2
-1
0
1
2
3
4
5
6
82
84
86
88
90
92
94
96
98
100
2010-Q1 2011-Q1 2012-Q1 2013-Q1 2014-Q1 2015-Q1 2016-Q1 2017-Q1 2018-Q1
Imp
lied
Sto
ck C
han
ge (
mill
ion
bar
rels
per
day
)
Sup
ply
& D
eman
d (
mill
ion
bar
rels
per
day
)
Global Crude Oil and Liquid Fuels Supply, Demand and Stock Change
Implied stock change (right axis) World Production World Consumption
Forecast Historical
Supply consistently starts to exceed demand
Global supply has consistently exceeded demand since
the start of 2014; the Energy Information Administration
(EIA) forecasts a return to market balance starting in the
third quarter of 2017
Source: EIA, Short-term Energy Outlook, January 2017
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 6
GDP Growth in non-OECD countries has not kept pace
with expectations.
Forecast Year:
GDP Growth in non-OECD Countries (Annual Expectations)
Source: EIA Short-term Energy Outlook, January 2017
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 7
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2014-Q1 2014-Q2 2014-Q3 2014-Q4 2015-Q1 2015-Q2 2015-Q3 2015-Q4 2016-Q1 2016-Q2 2016-Q3 2016-Q4
mill
ion
bar
rels
per
day
Y/Y Crude Oil Production Change
United States Saudi Arabia Iran Iraq Russia
In 2016 U.S. oil production declines year over year while
several OPEC members continue to increase production.
Iraq and Saudi Arabia added over 1.1 million barrels per day of production in 2015 and another
0.7 million barrels per day in 2016. In addition, Iranian production lifted to pre-sanction levels
in 2016 (+0.7 million barrels per day).
Source: EIA
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 8
-300
-200
-100
0
100
200
300
400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Mill
ion
Bar
rels
pe
r D
ay
Y/Y OECD Inventory Change
The magnitude and duration of the inventory build since
the last quarter of 2014 has been the highest and longest
in fifteen years.
Source: EIA
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 9
Most of the growth in world oil consumption occurs in non-
OECD countries, specifically in Asia.
Source: EIA, International Energy Outlook, 2016
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 10
EIA projects that oil prices will recover to $75 per barrel by
2020 across the majority of the Annual Energy Outlook 2017
cases.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 11
Colorado Oil Supply
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 12
U.S. Tight Oil Production
Oil production across U.S. tight oil plays
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 13
0
50
100
150
200
250
300
350
400
450
Tho
usa
nd
Bar
rels
pe
r D
ay
Monthly Crude Oil Production
CO WY UT MT NM
Colorado crude oil production had one of the fastest
growth rates in the U.S. between 2013 and 2015. While
production has declined from 2015 highs, production still
remains strong.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 14
-250 -200 -150 -100 -50 0 50 100
TexasNorth Dakota
WyomingCaliforniaColorado
KansasUtah
LouisianaMontana
MississippiOhio
OklahomaAlabama
Alaska SouthIllinois
ArkansasPennsylvania
MichiganNebraskaKentucky
New MexicoIndiana
South DakotaWest Virginia
AlaskaAlaska North Slope
Gulf of Mexico
Crude Oil Production Change (000 barrels/day) 2016 (through Oct) - 2015
Colorado crude oil production in 2016 was 26
thousand barrels per day less than 2015 levels.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 15
Niobrara Oil Drilling Productivity and Production
Source: EIA, Drilling Productivity Report, January 2017
Rig count has continued to
rebound since the second
quarter of 2016.
Productivity per rig continues
to increase.
Oil production is expected to
be 13 thousand barrels per
day higher in February 2017
over January 2017.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 16
Natural Gas Markets
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 17
528
1834
552
109 18
351
495 470
17 115
Coal Natural Gas Crude/PetroleumProducts
HydroelectricPower
Renewables Biofuels
Colorado Energy Profile: 2014 (Trillion Btu)
Production Consumption
Colorado is a net energy exporter mainly due to its
natural gas production.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 18
Total U.S. Dry Natural Gas Production Decreased in 2016
relative to 2015. However, EIA expects 2017 production
to return to 2015 levels by the third quarter of 2017.
60
62
64
66
68
70
72
74
76
78
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
bcf
/d
U.S. Dry Gas Production
2014 2015 2016 2017 STEO
Source: EIA, Short-term Energy Outlook, January 2017
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 19
0
1,000
2,000
3,000
4,000
5,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
bcf
U.S. Natural Gas Working Storage
2014 2015 2016 2017 STEO
The lower 2016 production and continued strong demand
pulls from the power generation sector throughout 2016
has helped to bring working natural gas storage levels
back into balance.
Source: EIA, Short-term Energy Outlook, January 2017
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 20
40
50
60
70
80
90
100
110
120
130
140
2000 2005 2010 2015 2020 2025 2030 2035 2040
Bcf
/d
U.S. Dry Natural Gas Production
Actuals
High oil and gasresource
High oil price
High economicgrowth
Reference case
Alternative assumptions cause significant differences in
U.S. natural gas production projections.
Source: EIA, Annual Energy Outlook, 2017
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 21
0
20
40
60
80
100
120
Referencecase
Higheconomic
growth
High oilprice
High oiland gas
resourceand
technology
U.S. Natural Gas Demand: 2025
0
20
40
60
80
100
120
Referencecase
Higheconomic
growth
High oilprice
High oiland gas
resourceand
technology
U.S. Natural Gas Demand: 2030
Power Gen
Industrial
LNG Exports
Pipeline Exports
Res/Comm
Natural gas demand sector growth is impacted by different
drivers.
Source: EIA, Annual Energy Outlook, 2017
The largest demand growth opportunities include industrial, LNG exports and power generation.
High oil prices will drive the most growth in LNG exports and industrial demand while high oil and gas
resources will drive the most growth in power generation.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 22
Industrial Specifics
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 23
Source: IHS, America’s New Energy Future, September 2013; EIA, Natural Gas Plant Liquids Production, January 2017
Natural gas plant liquids production exceeds
expectations.
Actual production
2013 Projection Historical
NGL Production (thousand barrels per day)
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 24
0
200
400
600
800
1000
1200
$100/bbl Oil $59/bbl Oil
Cost to Produce One Metric Ton of Ethylene ($US per metric ton)
The driver of U.S. competitiveness is the cost to
convert ethane to ethylene versus naptha to ethylene.
Source: IHS- America's new energy future report, volume 3.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 25
Petrochemicals, primary metals, nonmetallic mineral
products and paper lead the natural gas intensity
rankings.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 26
Natural Gas Trade
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 27
Source: EIA, Annual Energy Outlook 2017
Increased natural gas trade is driven by LNG export
and pipeline exports to Mexico.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 28
Global demand for LNG, oil, and global and domestic
natural gas prices impact expected future U.S. LNG export
volumes.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 29
Power Generation
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 30
20
20
19
19
20
25
29
29
25
21
20
22
21
20
18
18
21
24
27
29
26
23
20
21
23
23
23
22
24
30
34
33
30
26
24
25
25
24
24
24
26
32
37
37
31
24
22
23
0
5
10
15
20
25
30
35
40
J A N F E B M A R A P R M A Y J U N J U L A U G S E P O C T N O V D E C
BC
F/D
NAT GAS CONSUMPTION: POWER GENERATION
2013 2014 2015 2016
Source: EIA, Short-term Energy Outlook, January 2017
Natural gas consumed for power generation was the
highest on record in 2016 at 27.5 Bcf/d.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 31
Source: EIA, Electric Power Monthly
Coal-fired power generation was highest in CO, with
non-hydroelectric renewables coming in second.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 32
Colorado Natural Gas Supply
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 33
0
1000
2000
3000
4000
5000
6000
7000
8000
Mill
ion
Cu
bic
Fee
t p
er
Day
Natural Gas Production: Gross Withdrawals
CO MT NM UT WY
Colorado natural gas production in 2016 remained flat to
2015 levels.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 34
-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5
Texas
Wyoming
Arkansas
Gulf of Mexico
Utah
Kansas
California
New Mexico
Alaska
Oklahoma
Colorado
Montana
North Dakota
West Virginia
Louisiana
Pennsylvannia
Ohio
Natural Gas Production Change: Bcf/d 2016 (through Oct) - 2015
Large year over year natural gas production declines were
realized in Arkansas, Wyoming and Texas in 2016 relative
to 2015.
Source: EIA, Natural Gas Production, January 2017
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 35
Niobrara Natural Gas Drilling Productivity and Production
Source: EIA, Drilling Productivity Report, January 2017
Rig count has started to
rebound since the second
quarter of 2016.
Productivity per rig continues
to increase.
Natural gas production is
expected to be 45 million
cubic feet per day higher in
February 2017 over January
2017.
1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 36
Thank you.