Transcript Beyond the Gas Pump

Beyond The Gas Pump
Energy From Oil & Gas
Oil at $100 a barrel
Historical Energy Use
by Type of Fuel (%)
70
60
50
Wood
Coal
Oil & Gas
Nuclear
Hydro Other
% Of Total 40
Usage 30
20
10
0
1850
1900
1950
2000
SPE 77506 – World Energy Beyond 2050, Arlie Skov
Significant Global Energy
Events
1970
OPEC Sets 55 percent Minimum Tax Rate (1970)
U.S. Institutes Price Controls (1971)
Arab Oil Embargo Against U.S. (1973)
1983
EPCA Authorizes Strategic Petroleum Reserve (1975)
Windfall Profits Tax (1980)
Iran/Iraq War – Oil Prices Doubled (1978-1980)
World Oil Glut - $29 BBL Oil – U.S. Synfuels Shutdown (1983)
Chernobyl Nuclear Accident (1986)
Alaska’s Prudhoe Bay Production Peaks (1988)
Iraq Invades Kuwait – Prices Soar ($36 BBL) (1990)
Clean Air Act – Changes Gasoline & Diesel Fuels (1990)
U.S. Imports More Oil & Refined Product Than It Produces (1993)
Asian Financial Crisis – Oil Prices Plummet (1997-1998)
German Government/Utilities Agree to Phase Out of Nuclear Power (2000)
2001
U.S. Petroleum Consumption – All Time High (19.7 Million BPD) (2001)
Terrorist Attacks on the U.S. (2001)
Recent Global Energy Events
2004
Foreign Oil Dependence Rises to 65 percent (2004)
Northeast Blackout Leaves 50 Million People in the Dark
Natural Gas Prices Triple from 1990 Levels
Oil Passes $50/Barrel
Gasoline Exceeds $3/Gallon
Hurricanes Damage Oil/Gas Rigs
2005
Venezuela Moves to Nationalize Resources
Oil Breaks $75/Barrel
Nigeria Kidnaps Oil Workers
Experts State Oil Production May Have Peaked
Iran Threatens Nuclear Capabilities
Chad Orders Chevron to Leave
BP Forced to Repair Pipeline Leaks
China Extends Credit to Oil Nations
Iran, Russia, Others Discuss Gas OPEC
Texas Utilities Cancel 8 of 11 Coal Plants
Oil Breaks $83/Barrel
2007

$100.00 bbl OIL FEB. 2008
U.S Energy Supply Sources
Canada
17%
Other
OPEC
27%
M exico
15%
Other No
OPEC
14%
Saudi
Arabia
13%
Venezuela
14%
World Energy Supply
Natural gas
20.9%
Nuclear
6.5%
Waste
0.2%
Coal
25.1%
Renewable
13.1%
Oil
34.3%
Renewable Energy
Wood 35%, Hydro, Wind 45%& Grain
15%
2%
11%
81%
6%
Coal
Oil
Nuclear
Renewables
Distribution of proved (oil)
reserves 1986, 1996 and 2006
Just Over The Horizon…
Forecasting Oil & Gas Supply
WSJ 7-10-07, “The industrialized world’s
energy watchdog added to rising concerns in
some quarters that oil and natural gas
production won’t keep up with the world’s
growing thirst for energy in coming years,
highlighting worries over supplies and
prices.” (Referencing the recently published
International Energy Agency “Oil Market
Report” )
A Significant Challenge
A SURGE: The surge in demand is expected to
arise from rapid economic growth in such fastdeveloping countries as China and India, as well
as mounting consumption in the U.S., the
world's biggest energy market.”
– Comments from the National Petroleum Council’s
Draft Report, “Facing Hard Truths about Energy”,
Bhushan Bahree, The Wall Street Journal 7-17-07
“Our Energy Future”
Significant Issues of Interest/Importance
Enhancing The World’s Standard of Living
Alternative Fuels / Sources & Economics
Environmental Impact Issues
Consumption - Improving Energy Efficiency
Fueling The World’s Economic Growth
Supply Challenge – Fueling Economic Growth
Geo-politics
Commodities – Price & Value
Commodity Savy?? NYMEX Closing Prices 2/16/2008
– West Texas Intermediate Crude ($/bbl)
– Natural Gas ($/Mcf)
Oil = $99.15/bbl
Gas = $6.38/mcf
Volumes
– 1 Barrel = 42 gallons = 672 cups
– 1 Mcf = 1000 Std. Cubic Feet @ Standard Temp (60F), Pressure (1atm)
Just for fun!
–
–
–
–
Grande Latte @ $3.50 (est. = 2 cups)
1 Barrel “Latte” = 672/2 *$3.50 = $1176
1 Barrel of WTI = $99.15, 1 cup of WTI = $0.14
Energy contained in 1 cup of crude oil?
Assume avg. Car Mileage 25 mpg... Equivalent of 1.6 miles/cup
Chemical Composition of
Hydrocarbons
Crude Oil
84-87%
11-14%
0.06-2%
0.1-2%
0.1-2%
Natural Gas
65 – 80%
Carbon
1-25%
Hydrogen
0-0.2%
Sulfur
1-15%
Nitrogen
0%
Oxygen
Petroleum Products
A Barrel of Crude Oil Provides:
One Barrel =
42 gallons
Gasoline - 19.5 gallons
Fuel Oil - 9.2 gallons
Jet Fuel - 4.1 gallons
Asphalt - 2.3 gallons
Kerosene - 0.2 gallons
Lubricants - 0.5 gallons
Petrochemicals,
other products - 6.2 gallons
American Petroleum Institute,
2008
Petroleum Products
Raw Natural Gas Components - Example
100
90
80
Methane
Ethane
Propane
Normal Butane
Isobutane
Natural Gasoline
Carbon Dioxide
70
60
50
40
30
20
10
0
% Composition
Source: Midstream Primer:
Oil & Gas Investor, July 2007
Petrochemical Products
More Than 3,000 Products
•Detergents - Cosmetics
•Fertilizers - Weed Killers
•Medicine - Antiseptics - Anesthetics
•Plastics - Synthetic Fibers
•Synthetic Rubber
•Rust Preventatives
•Liquid Petroleum Gas
American Petroleum Institute,
2008
Historical Oil Prices – 2007 $
Real Oil Prices*
Source:BP
Why High Oil Prices?
Driven by:
–
–
–
–
–
OPEC behaviour post 1999
Strong demand growth 2004
Low spare capacity
Geopolitics
Energy as a financial commodity
6
World Oil Consumption Growth
OPEC Spare Capacity
3
ROW
FSU
China
Million b/d
Mb/d
2.5
2
1.5
4
2
1
0.5
0
1995
0
2001
2002
2003
2004
1998
2001
2004
2005 Est
Source:BP
OPEC Production
Saudi Arabia
Iran
UAE
DEC 2005
Production
Kuwait
Nigeria
SPARE
Venezuela
CAPACITY
Libya
Algeria
Indonesia
Qatar
MILLIONS OF BARRELS
PER DAY
1
Note: Figures exclude Iraq
2
3
4
5
6
7
8
9
10
Source: International Energy Agency
Natural Gas Prices
SOURCE: Historical through 1998 - Oil & Gas Journal Energy Database
1999 - Present - Wall Street Journal
$16.00
$14.00
$12.00
$10.00
Natural Gas
Spot Price Henry Hub
$/MMBTU
$8.00
$6.00
$4.00
$7.88
6/8/07
$2.00
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
$Year
Supply & Demand
Airline tickets
Stocks
Real Estate
I-Phone
In a free market – commodity prices are driven
by the balance between supply and demand –
For hydrocarbon fuels (oil and gas) the price
equation is becoming evermore dominated by
“supply” related challenges.
Oil & Gas Supply
– Where did my last gallon of gas come from?
– OPEC
The politics of oil
Control by NOC’s
– Geopolitics
US
– Exploration
– Refinery Capacity
Weather
World Energy Consumption
BP Statistical Review of World Energy – December 2007
Oil Consumption
BP Statistical Review of World Energy – Jan. 2008
Major oil trade movements
BP Statistical Review of World Energy – Jan 2008
Proved oil reserves at end 2006
BP Statistical Review of World Energy Dec. 2007
Remaining Oil??
BP Statistical Review of World Energy Dec. 2007
Proved Natural Gas Reserves
BP Statistical Review of World Energy – Dec. 2007
Proved Coal Reserves 2006
BP Statistical Review of World Energy –Dec. 2007
Demand Challenge
One Example - Fuel Economy
Overall fuel economy for cars and light trucks
peaked at 22.1 mpg in 1987. Fell to 20.8 mpg in
2004. Avg. weight of vehicles has increased
from 3200 lbs. to 4066 lbs.
Federal tax on gasoline = 18.4 cents/gallon
State tax varies (New York 60.8 to Alaska 26.4)
About 70% of new vehicles purchased in US
have 6 cylinders +
89% of vehicles in Europe have 4 cylinders or
less (average fuel economy is 35 mpg)
Wall Street Journal – “Fuel Economy Back in The Saddle”
A Sampling of
What’s “Cool” About Oil & Gas
Technology (eg. Deepwater – Jack)
Co2 Flooding – Increasing Recoverable Oil
Meeting the world’s needs
Supplies
Efficiency
Environment
Career Opportunities
Houston Chronicle Jan 2008
Oil production by area
Oil consumption by area
Oil product consumption – by
region
OECD total commercial oil
stocks
Implications for U.S. and World
Livestock, Poultry & Food Costs
• U.S. supplies 2/3 of world corn exports, 2025% of wheat & 35-40% of cotton exports
• Cost of livestock & poultry feed will increase
• Large increase in variability of feed & food
costs
• Food aid impacts?
• Accelerated ag expansion into areas with
fragile eco systems
• Shift livestock industries from U.S. to South
America?
• Rural employment implications in U.S.
Ethanol Economics – new plants
U. of Minn. 2007 costs
• $0.10/gal. increase in ethanol price
raises break-even Corn price $0.28/bu.
• $1.00/bu. rise in corn price increases
cost/gal. $0.36/gal.
Impact of Higher Crude Oil
Price
Increased crude oil price by $10/barrel over the
projection
Margins on ethanol plants increase
New incentive to invest in added capacity for ethanol
production
Eventually, a new equilibrium reached where there is
no incentive to invest in or exit the ethanol industry
Will demand for ethanol be enough?
– E-10 market will saturate around 15 billion gallons
– Drop in ethanol price will eventually encourage increase in
demand for the flex-fuel cars
Projected Ethanol Production
million gallons
1500
1000
500
0
2006
2007
2008
2009
2010
China
2011
2012
EU
India
2013
2014
2015
2016
Projected Brazilian Ethanol
Production
million gallons
8000
7000
6000
5000
4000
2006
2007
2008
2009
2010
2011
Brazil
2012
2013
2014
2015
2016
Wholesale Gasoline and Ethanol
Prices
US$/gallon
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1.00
2006
2008
2010
Unleaded Gasoline
2012
Ethanol
2014
2016
Projected U.S. Ethanol Production
billion gallons
16
14
12
10
8
6
4
2
0
2006
2008
2010
2012
2014
2016
Major Countries with Ethanol Fuels
• U.S. – likely production of 14-15 bil. gal.
from corn in 3.5-5 years
• Brazil –89 new ethanol plants to be built,
2007-2011
– 2% biodiesel mandate by 2008 & 5% by 2013
• EU-27 – 5.75% of motor fuel to be renewable
• by 2010, 10% in 2020
• Canada – 5% ethanol mandate by 2010, 2%
biodiesel by 2012
Biodiesel– Competition for crop land
International Impacts
• U.S. ethanol plants under construction to
use 58 mil. tons of corn (doubling use)
– 3.5 times the volume of Japan imports of
U.S. corn
– 130% of 2006 EU corn crop
– 70% of global corn exports
• Strong negative impacts on animal & ag.
• Higher food costs ahead
• Major risk-management challenges in Ag.
& bioenergy
Total 11,693 mil. Bu.
Dec 12, 2007
State Avg. Ethanol Rack Prices
Iowa:
2.13
Ill.:
2.21
Ks.:
2.34
Minn.:
2.15
Mo.:
2.34
N. Dk.:
2.23
Nebr.:
2.35
S. Dk.:
2.27
Wisc.:
2.21
Need for Both Ethanol and
Animal Agriculture
• 100 million gallon ethanol plant
– 37 million bushels of corn
– 80 workers directly employed
• 37 million bu corn
Farrow-finish
Or Wean-finish
Or Beef feedlot
Direct jobs
800
242
278
Source: Dr. John Lawrence, Head of ISU Beef Center
Projected U.S. Biodiesel Production
million gallons
800
700
600
500
400
300
200
100
0
2006 2007
2008 2009
2010
2011 2012 2013 2014
Scenario
Baseline
2015 2016
U.S. Meat, Egg, and Dairy Price
Changes
Baseline
Scenario
Percentage
Change
Beef Retail Price
($/pound)
4.52
4.62
2.2%
Pork Retail Price
($/pound)
3.30
3.35
1.5%
Broiler Retail
Price
($/pound)
1.96
2.00
2.0%
Turkey Retail
Price
($/pound)
1.26
1.30
3.2%
Egg Retail Price
($/dozen)
1.63
1.68
3.1%
Farm to Retail Food Price Spread
Food
Eggs
Beef
Chicken
Milk
Pork
Orange Juice
Farm Value Food
Farm Value
Share of
Share of
Retail Food
Retail Food
Price
Price
53
Canned Corn
22
49
48
34
31
33
Sugar
Wheat Flour
Bread
Corn Flakes
Corn Syrup
27
19
5
4
3
Proved Reserves
North America
So. & Cen. America
Europe & Eurasia
Middle East
Africa
Asia Pacific
5.0%
8.6
12.0
61.5
9.7
3.4
What Would You Do If You
Were Asked To Comment
on What Does All This
Mean?
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Farmer, Military, Automobile Industry,
Appliances, Real Estate, Accountant,
Marketing, CEO, Homemaker,
Concerned Citizen.