The World of Energy Behind and Beyond Forecastsweb1.amchouston.com/flexshare/001/CFA/2018... · Informed comments, analysis and news • Provide definition to non-standard (spot)

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Market Reporting

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The World of Energy –Behind and Beyond Forecasts

Houston

Kristine Klavers28 February 2018

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• The Argus Media group (referred to herein as “Argus”) makes no representations or warranties or other assurance, express or implied, about the accuracy or suitability of any information in this presentation and related materials (such as handouts, other presentation documents and recordings and any other materials or information distributed at or in connection with this presentation).

• The information or opinions contained in this presentation are provided on an “as is” basis without any warranty, condition or other representation as to its accuracy, completeness, or suitability for any particular purpose and shall not confer rights or remedies upon the recipients of this presentation or any other person. Data and information contained in the presentation come from a variety of sources, some of which are third parties outside Argus’ control and some of which may not have been verified.

• All analysis and opinions, data, projections and forecasts provided may be based on assumptions that are not correct or which change, being dependent upon fundamentals and other factors and events subject to change and uncertainty; future results or values could be materially different from any forecast or estimates described in the presentation.

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1. What is an energy Price Reporting Agency?

2. Forecasting of energy fundamentals

3. Feedstocks and products’ trends and outlook

4. How do market forecasts support energy related investment decisions?

5. Concluding thoughts

About Argus

Agenda


Market Reporting

Consulting

Events


What is an energy Price Reporting Agency?

5

• Publishers of commodity market data

◦ Prices, reports and databases

◦ Informed comments, analysis and news

• Provide definition to non-standard (spot) physical markets

◦ Define the methodology of published prices and ensure it is transparent

◦ Define the basis, location, size, time period and specification of the contract being assessed or reported

• Collect, collate, clarify and verify market information

◦ Explain and justify decisions

• Operate according to best practices and IOSCO Principles

What is a Price Reporting Agency (PRA)


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• Commodity trading companies voluntarily submit pricing or transaction data to the publisher by phone, email, IM, trading platforms, etc.

• Publishers validate and organize the data and create price assessments, making sure published methodology is used.

• These price assessments are offered to the industry on a subscription basis.

• Indices are used in:

◦ Term contracts - Financial derivatives

◦ Financial reporting - Internal transfer pricing, etc.

In petroleum, about 10% of physical moves on spot, and 90% on contracts tied to published index prices

How does the PRA system work?


7

• Globally recognized energy related PRAs are:

Argus

ICIS

OPIS

Platts

• In addition, some entities are not PRAs but do provide commodity price references, such as the CME and Ice’s trading platforms, as well as Thomson Reuters, The Wall Street Journal, Bloomberg, Global View, etc.

Who are the PRAs?


8

• 800+ staff members in 21 globaloffices

• Publishes 11,000+ daily spot and forward price assessments

• Publisher of commodity prices, data and statistics, with consultancy services and conferences.

Argus Media Inc. and Argus Consulting Services


Market Reporting

Consulting

Events


Forecasting of energy fundamentals

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Forecasting is an art

Source: EIA


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• Offers more value than single, most likely forecasts.

• Gives the opportunity to pick a preference or probability, weight the various scenarios or perform stress tests by combining the forecasts with their business model.

• Provides better insights than a traditional sensitivity analysis because no single variable ever changes alone. There is significant correlation between common valuation variables.

$20$30$40

$50

$60$70$80

$90

$100

$110$120

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Light Crude Oil History and Forecast (Yearly average nominal prices)

Brent/NSD (high demand case) Brent/NSD (base case) Brent/NSD (high supply case)


HIGH DEMAND HIGH SUPPLY

Scenario based forecast

12

Our crude oil price forecast process


13

Forecast risk issue identification and development


Typical risk issues considered for crude oil

• Geopolitical event

• Production and refining process technology development

• Transportation technology development (vehicles)

• Tariffs

• Regulatory change (e.g., emissions, MARPOL VI)

• Forex

• Recession

• GDP shift and/or CPI

• Inflation

• Logistics availability

• Environmental and pandemic events

Market Reporting

Consulting

Events


Feedstocks and products trends and outlook:

- Crude production, demand, price and export- Gasoline and diesel production, demand and trade- Electric vehicles- Gas/LNG- LPG/NGLs- Petrochemicals

- Not included are biofuels, asphalt, petcoke……………

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The integrated world of energy

GAS

MethanolLNG

CRUDE

LPG

Gasoline

Jet

Diesel

Fuel Oil

Asphalt

Base oil

Petcoke

Coker

Variables Feedstock

-Demand-Quality-Price

Variables Products

-Demand (GDP)-Regulations-Technology-Price-Logistics-Alternatives

Offshore & Onshore

VGO

NGL

16

Global GDP growth underpinned by Asia-Pacific

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Africa Asia Pacific Europe FSU Middle

East

North

America

South

America

2010-2020

2020-2030

2030-2040


China and India

Source: World Bank; 10 year CAGR

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Global oil demand, supply and cumulative oversupply


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Crude oil prices


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Top global crude oil producers

Source: Argus, eia2017 data are yearly average production rates, through October


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Source: Argus, eia2017 data are average through October

US crude oil exports soar after ban lifted

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Houston export market developing rapidly


Source: Argus Media Inc.

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– Data from IEA, EIA and Argus

0.80

0.85

0.90

0.95

1.00

1.05

0

5

10

15

20

25

30

G/D ratiomn b/d

Gasoline Distillate G/D Demand Ratio

CAGRs 2000 to 2008 2009 to 2017

Gasoline 2.61% 1.80%

Distillate 0.29% 1.34%

CAGR – compound annual growth rate


Worldwide, both distillate and gasoline growth are robust

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US gasoline and blendstock export destinations


Source: Argus, eia

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US diesel export destinations


0

200

400

600

800

1,000

1,200

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

000 bpd

Latin America China & Singapore Canada Europe Other

Source: Argus, eia

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Effects of electric vehicle (EV) development

0

100

200

300

400

2010 2020 2030 2040

North Americamln

0

100

200

300

400

2010 2020 2030 2040

Europemln

0

500

1,000

1,500

2010 2020 2030 2040

Asia-Pacificmln


Source: OICA, Argus, regional associations

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New inventions need to meet scale


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Production chain and drivers

ProductsOld

S specifications

New

S specifications

Light gases

LPG

NGLs

Petrochemicals

Light

distillates

Gasoline

Naphtha

30ppm 10ppm

Medium

distillates

Kerosene/Jet fuel

Gas oil

Diesel 500ppm 15ppm

Heavy ends

Heavy fuel oils

Base Oil (II)

Feedstock

Wax

Asphalt

35,000ppm

>30 ppm

5,000ppm

<30 ppm

Crude

- Quality

- Prices

- Availability

- Medium

- Heavy

- Light


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• What is MARPOL?

◦ Marine PollutionInternational Convention for the Prevention of Pollution from Ships

• MARPOL Annex VI limits bunker fuel sulfur to 0.5% on 1 January 2020

Far reaching impacts from MARPOL bunker change


• MARPOL will likely be the most significant event in decades

◦ The shipping industry is responsible

◦ Demand for low sulfur fuels (and light/sweet crudes) will increase

◦ There will be winners and losers

◦ Gasoline and other feedstocks will also be affected

◦ MARPOL’s biggest unknown is the level of non-compliance

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Natural gas demand growth

0

200

400

600

800

1000

1200

2000 2004 2008 2012 2016 2020

Rest of World

US

Middle East

EuropeRussiaChina

Asean

India

Global natural gas demandBcm


Source: eia

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US LNG capacity under construction

0

2

4

6

8

10

12

Feb-2016 Feb-2017 Feb-2018 Feb-2019

Bcf/

d

Ramp-up timeline

Peak Baseload

Date Project Company

2016 – 2017 Sabine Pass Cheniere Energy

2018 Cove Point Dominion Energy

2018 Elba Island Kinder Morgan

2019 Freeport Freeport LNG

2019 Corpus Christi Cheniere Energy

2019 Cameron Sempra Energy

2019 Sabine Pass Cheniere Energy


Source: Argus

31

US will have third largest LNG capacity by 2019

0.0 2.0 4.0 6.0 8.0 10.0 12.0

Qatar

Australia

US

Indonesia

Nigeria

Indonesia

Algeria

Trinidad and Tobago

Russia

Papua New Guinea

Bcf/d


Source: Argus

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Nomenclature – Gas, LPG, NGL, propane, butane, etc.

— International Energy Agency

Methane (C1H4)

Ethane (C2H6)

Propane (C3H8)Butane (C4H10)Isobutane (C4H10)

Pentanes (C5H12)NaphthaNatural gasolineCondensate

Non-hydrocarbon gases such as: CO2, H2O, H2S, N2, etc.

Natural gases

NGLs

Dry gas or “natural gas”

LPG

Heavier fractions


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0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016

mn t

Refinery Production Gas Processing

— Argus Consulting

Notes: 2016 data is provisional

Global LPG production by source


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0

50

100

150

US Europe Asia-Pacific Latin America Africa

mn tT

ho

usa

nd

s2016 2017 2018

— Argus Consulting, 2017

Asia is the key center of incremental demand


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0

50

100

150

200

250

300

350

400

2010 2012 2014 2016 2018 2020 2022 2024 2026

mn t

Residential Agricultural

Industrial Commercial

Transport Refinery fuel

Petrochemical Other non-energy Consumption


Global outlook for LPG consumption by sector


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-50

0

50

100

150

200

250

300

350

400

2010 2012 2014 2016 2018 2020 2022 2024 2026

mn t Total Consumption Total Production Net Position


Global LPG structural balance, 2010-2027

The next decade will be long LPG


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Petrochemical investments continue to grow

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+15mn t 2011-2016+36mn t 2016-2021


Global ethylene capacity growth

Market Reporting

Consulting

Events


How do market forecasts support energy related investment decisions?

40

• To raise capital for new energy related investments you need:

Analysis required for investments

Investment

Technical Due Dilligence

Legal Analysis

Market Analysis


Market Reporting

Consulting

Events


Concluding thoughts

42

• PRAs own their market fundamentals data.

• Forecasting is an art:

◦ You need an experienced multifaceted expert to lead forecasts.

◦ Scenario-based forecasts are more powerful and useful than single line forecasts.

◦ Risk issue identification and development is critical.

◦ It all starts with refined product demand forecast.

• Shale exploration transformed US.

• Chinese growth shapes the world of energy.

• Refining competition has turned global, not just local.

• Alternative sources are growing and help shape our world of energy.

• Escalating global product trade will set price relationships.

• Every molecule counts!

Concluding thoughts


London

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Copyright notice Copyright © 2018 Argus Media group. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus.

Trademark notice ARGUS, the ARGUS logo, Argus publication titles, and Argus index names are trademarks of Argus Media Limited. For additional information, including details of our other trademarks, visit argusmedia.com/trademarks.

Kristine KlaversSenior Vice President, Consulting – Americas

[email protected]

+1 (713) 400-7860

Houston

www.argusmedia.com

http://blog.argusmedia.com

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The World of Energy Behind and Beyond Forecastsweb1.amchouston.com/flexshare/001/CFA/2018... · Informed comments, analysis and news • Provide definition to non-standard (spot)