Economia dell'Energia e dell'Ambiente.

[email protected]

Dipartimento di Economia e Management,

Università di Ferrara

" Economia dell'Energia e dell'Ambiente.” a.a. 2019-20

Lezione 3 – appendice

LarivoluzionedelloShale-GasedilcrollodeiprezzidelPetrolio:effe9economici,poli<ciesociali

ISPIEnergyWatch

ISPIEnergyWatchOsservatorioEnergiadell’Is2tutopergliStudidiPoli2caInternazionale,Milano

TheShaleRevolu6onandtheoilslump

Presenta6onbyMassimoNicolazziwithFilippoClô,AnnaRydenandMaFeoVerda

ISPIEnergyWatch

•  Introduc6on

•  FeaturesoftheShaleRevolu6on

•  ThevolumesoftheRevolu6on

•  Impactonthegasmarket

•  Impactontheoilmarket

•  Aboutcrudeoil.Ren6erStates,independentproducersandthepricedilemma

•  Oversupply.ThepricedropanditsaLermath

TABLEOFCONTENTS

ISPIEnergyWatch

THEMEANINGOFUNCONVENTIONAL…

Unconven<onalincludes:

•  CoalBedMethane

•  OilShale

•  TightOil/TightGas

•  ShaleOil/ShaleGas

•  ExtraHeavyOil/OilSands

Introduc6on

Unconven<onalalludestoamethodofproduc6on,nottothequalityofthehydrocarbonsactuallyproduced.

ISPIEnergyWatch

•  ExtraHeavyOilandOilShalearebasicallyuntapped

•  MaterialvolumesofCBMareproducedmostlyinAustralia,CanadaandtheUS

•  Tarsandsaccountfor56%oftheCanadianoilproduc6on‒  approximately2Mbbl/d

•  Tight/shalegasaccountsforover40%oftheUSNaturalGasproduc6on‒  approximately300Bcm/year

•  Tight/shaleoilUSproduc6onhassurpassed3,5Mbbl/d

…ANDITSPRODUCTIONSIGNIFICANCE

Introduc6on

ISPIEnergyWatch

•  Energyintensiveproduc6onmakesTarSandstheenvironmentallymostcontroversialunconven6onalproduc6on

•  Methodsofproduc6oninclude:‒  Surfacemining(openpit)‒  CHOPS(ColdHeavyOilProduc6onwithSands)‒  CSS(CyclicSteamS6mula6on)‒  SAGD(SteamAssistedGravityDrainage)

•  ThanksmainlytoTarSands,Canadaranksasthethirdcountryworldwideforprovedoilreserves(over174thousandmillionbarrels)

TARSANDS

Introduc6on

ISPIEnergyWatch

•  Adevelopingtechnology

•  Anewproduc6onmodel

•  AnAmericanstory

FeaturesoftheShalerevolu6on

THESHALEREVOLUTION:COMMONFEATURES

ISPIEnergyWatch

•  Nonewinven6on:‒  afrackingprocesswaspatentedin1949‒  con6nuousprocessupgrade

•  Thebreakthroughwasop6misingandcombiningfrackingtechniquesandhorizontaldrilling

•  Inparallel,newtechnologicaldevelopmentstoop6misedrillingcontrolhavecontributedtoasteepreduc6onofdrilling6me


ADEVELOPINGTECHNOLOGY

ISPIEnergyWatchFeaturesoftheShalerevolu6on

ADEVELOPINGTECHNOLOGY

ISPIEnergyWatch

•  Conven<onal(exceptforsmall/marginalfields):

‒  longterminvestmentperiod

‒  cashflowdeferredupto5/10yearsfrominvestmentincep6on

‒  stableproduc6onflowforthefirstyearswithoutfurthercapex

•  Unconven<onal(shale):

‒  6metomarket

‒  produc6onandcashflow2-3monthsfromtheinvestmentincep6on

‒  drama6cdecreaseinproduc6onflowaLerfirstyear:60%orevenmore


THEPRODUCTIONMODEL:CONVENTIONALVS.UNCONVENTIONAL

ISPIEnergyWatch

produc<onprofile


UNCONVENTIONALVS.CONVENTIONALPRODUCTIONMODEL

cumula<vecashflow

1 2 3 4 5 6 7 8 9 1011121314151617181920

conven<onal shale

1 2 3 4 5 6 7 8 9 1011121314151617181920

1 2 3 4 5 6 7 8 9 1011121314151617181920 1 2 3 4 5 6 7 8 9 1011121314151617181920

ISPIEnergyWatch

•  Tomaintainorincreaseoverallyearlyshaleproduc6on,theproduc6oncurveofthewellsmandatesthatdrillingandinvestmentbecon<nuous

•  Investmentfinancingfordrillingopera6onsisoLenprovidedthroughthehedgingoffutureproduc6on

•  Thecombina6onofdrillingintensityandfinancingrequirementsmakesshaleproduc<onvolumespricesensi<veintheshortterm

•  Conven<onalproduc6onvolumesarepricesensi6veonlyinthemedium/longterm,i.e.thecurrentpricemayslowreservesreplacementinvestmentbuthasnoimmediateimpactontheproduc6oncapacity


THEPRODUCTIONMODEL:DRILLINGINTENSITY

ISPIEnergyWatch

•  TheOil&GasUSIndustryhasalonghistoryandcurrentlyemploysalmost600thousandworkers

•  Unconven6onaldevelopmentisdrivenbyindependentproducers,notbymajors:theIndependentPetroleumAssocia6onofAmericahasapproximately8.000associates/members

•  Legalframework:privatepropertyofnaturalresourcespromoteslocalpopula6onconsensus

•  Drillingintensityrequiresanadequatedrillingstock:‒  in2014,thenumberofunconven6onalwellsdrilledintheUSwascloseto5.000

‒  USandCanadahostmorethan60%oftheglobaldrillingstock,andUSalone80%ofthehydraulicfracturingHPworldwide


ANAMERICANSTORY

ISPIEnergyWatch

•  Drillingintensitycannotcoexistwithpopula6ondensity•  Theregulatoryframeworkshouldbereadjusted•  Unlessandun6lop6misedprac6cesandadequatedrillingcostsarein

place,produc6oncostswillremainsignificantlyhigherthanintheStates‒  Todate,upto300%inPoland

•  Shalegasandshaleoilresourcesarehowever“globallyabundant”(EIA,June2013)

•  Russiaranksfirstforoil,ChinaforgasandArgen6naisamajorinboth.Whetheranyofthemwillbecapabletofullyimplementthemodelisaques6onforthebeginningofthenextdecade


ANAMERICANSTORY.EXPORTINGTHEMODEL

Environmentalissuesmaybecomealimi6ngfactoralsoforUSexpansion

ISPIEnergyWatch

•  TheShaleRevolu6onmaybeassumedtohavestartedin2005:•  BushEnergyAct•  Presidentfearsforana6on«addictedtooil»

•  Fearofoilimportdependencehelpstheintroduc6onofsomeenvironmentalflexibility:

•  certainac6vi6esrelatedtofrackingareexemptedfromfederalstandards(Cheney/Halliburtonloophole)

•  Theincreaseinoilprice(2001-2008)helpsdevelopingandop6misingdrillingtechniques

•  ALer10yearstheoutcomeisspectacular:•  Gasproduc6onhasincreasedbyalmost200Bcm/y•  Liquidsproduc6onhasincreasedbymorethan4Mbbl/d

ThevolumesoftheRevolu6on

VOLUMESOFTHEUNCONVENTIONALSOURCES

ISPIEnergyWatch

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

USOILCONSUMPTION,PRODUCTIONANDNETIMPORTS

2014figuresareprovisional–Source:elabora6ononBPeEIA

consump6onconsump6on

netimports

produc6on produc6on

USA USA+Canada


netimports

Mbbl/d Mbbl/d

ISPIEnergyWatch

USGASPRODUCTIONANDCONSUMPTION

2014figuresareprovisional–Source:elabora6ononBPandJODIgas

Bcm


0

100

200

300

400

500

600

700

800

900

1.000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

produc6onUSA consump6onUSAproduc6onUSA+Canada consump6onUSA+Canada

ISPIEnergyWatch

•  “Theoilmarket,liketheocean,isagreatpool”(M.A.Adelmann)

•  Thegasmarketremainsregional

•  Sametechnology,differentmarkets

•  Non-fungibility:‒  Oilconcentratesontransporta6on‒  Gasconcentratesonpower‒  Excep6on:petrochemicals

UNCONVENTIONALOIL/UNCONVENTIONALGAS:THESPLIT


ISPIEnergyWatch

GASPRICES2010-2015HENRYHUB,EUROPE,ASIA(JAPAN)

Source:EuropeanCommission


$/MMBtu

US(HHspot) US(Chicagocitygates) UK(NBPspot) Germany(border) Japan(LNGlanded)

2011 2012 2013 2014

ISPIEnergyWatchImpactonthegasmarket

THEGASMARKET:DOMESTICIMPACT

•  Gaspowermarketsharefrom18to29%

•  Upto3to1ra6opercalorificunityvs.oil(previously5to1withoilat100).Gas-to-oilpoten6allyfeasible

•  Re-coupling.NaturalgasandLNGgrowingconsump6onastransporta6onfuelsresuming(marginal)compe66onwithoil

•  Boos6ngenergyintensiveindustry

•  Thepetrochemicalthreat:upto3to1costofproduc6ondifferen6albetweenEuropeanandUSproducedethylene.

ISPIEnergyWatch

GAS/OILCALORIFICPARITY

EnergyparityforWTI,Brent,andHenryHubnaturalgas–Source:elabora6ononEIA

-

5

10

15

20

25

Jan-00

May-00

Sep-00

Jan-01

May-01

Sep-01

Jan-02

May-02

Sep-02

Jan-03

May-03

Sep-03

Jan-04

May-04

Sep-04

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Brent(oil) WTI(oil) HenryHub(gas)$/MMBtu

Impactonthegasmarket

ISPIEnergyWatch

•  NorthAmericaproduc6onsurplusandexportinfrastructurewillhavematerialimpactonlytowardsendofdecade

•  Marketsharecouldreachbetween10and20%oftheLNGmarket:‒  4-8%ofinterna6onallytradednaturalgas

•  Drama6cimpactongaspricesunlikelyduetomarketshareandtransporta6oncosts

•  Marketliquiditywillbeposi6velyaffected

•  Exportdirec6onwillbedecidedbyregionalpricedifferen6als

THEGASMARKET:INTERNATIONALIMPACT


ISPIEnergyWatch

US+CANADAESTIMATEDGASPRODUCTIONSURPLUSFORECAST

2

76 93

0

200

400

600

800

1.000

1.200

2013 2020 2025

surplus produc6on consump6on

Source:elabora6ononIEA

Bcm


ISPIEnergyWatch

LIQUEFACTIONCHAINDIAGRAMANDCOSTS

Source:EIA(2004)


ISPIEnergyWatch

•  Na6onaleffects:tradebalancesavingsrangingin6mefrom100toover200thousandmilliondollars

•  Originofimportsredefinedonthebasisoftherefiningsysteminplace

•  Sweetcrudeimportsfullysubs6tutedbyna6onalshaleproduc6on

•  Nomaterialimpactonna6onalprices

Impactontheoilmarket

THEOILMARKET:DOMESTICIMPACT

ISPIEnergyWatch

•  Morethan6Mbbl/ddisappearingfromthe“conven6onalmarket”since2005

•  Pricestabilizingeffectduringthe2011-2013disrup6ons(Arabspringetc)

•  ThereaLeroneofthemainfactorsofthecurrentslump

•  USalreadyanetexporterofoilproducts(over1,5Mbbl/d)

•  ExportsofcrudewillnotbesubjecttotheUSbecoming«independent»fromimportsbutwillhappenasaconsequenceoftheunfitnessoftheUSrefiningsystemforthehandlingofhugevolumesofLTO(«LightTightOil»)

THEOILMARKET:INTERNATIONALIMPACT


ISPIEnergyWatch

CRUDEANDPRODUCTS:NETIMPORTS

0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

MBbl


Source:EIA

ISPIEnergyWatch

USOILIMPORTSBYCOUNTRYOFORIGIN

MBbl

Source:elabora6ononEIA

0

2

4

6

8

10

12

14

16

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Canada SaudiArabia Mexico Venezuela RussiaIraq Nigeria Algeria Angola total


ISPIEnergyWatch

•  Produc6oncostsofconven6onaloilremainlowwhencomparedtounconven6onal

•  Mostconven6onalproducersrelyheavilyonoilrevenuesfortheirstatebudget,andthereforeneedtobargainasocialbreakevenpricetomaintaininternalstability

•  Fallingpricesareathreattotherulingclassandcarryapoten6alfordisrup6onandsocialunrest

•  Ina53,8$/bblaverage2015pricescenario,theproducerslossofincomewouldamountoverallto622thousandmilliondollars(asmodelledbyBancaIntesa)

Thepricedilemma

THEPRICEDILEMMA:THERENTIERSTATE

ISPIEnergyWatchThepricedilemma

THERENTIERSTATESBYRENTDEPENDENCE

Source:WorldBank(2012)

Totalnaturalresourcesrents(%ofGDP)

Worldaverage

0

10

20

30

40

50

60


SOCIALBREAKEVENOILPRICE:COSTOFSTABILITY

Source:elabora6ononIMFandDeutscheBank

currentprices

0

20

40

60

80

100

120

140

160

180

Budgetbreakevenoilprice,for2015$/Bbl

ISPIEnergyWatch

Averageproduc6oncostsarees6matesofabsolutevalues.buttheorderofmagnitudeshouldbetakenasreliable

Thepricedilemma

ECONOMICBREAKEVENOILPRICE:COSTOFPRODUCTION

0

10

20

30

40

50

60

70

USshale Russia SaudiArabia

ISPIEnergyWatch

•  Developmentoffrackingtechnologyhasmade6ghtoileconomicundercertainpriceassump6ons‒  S6llfarfromcostcompe66vewithmostoftheconven6onaloil

•  ThedrillingintensitymodelreactsswiLlytomarketchanges‒  Investmentcurtailmentshaveanalmostimmediateeffecton

produc6oncapacity

•  Produc6oncostsvarybetweenwells‒  Overallthemeaneconomicbreakevenshouldbeinthelow60$/bblrange

Thepricedilemma

THEPRICEDILEMMA:THEINDEPENDENTPRODUCER


ECONOMICBREAKEVENINUSSHALEFORMATION

Source:Ci6


TECHNOLOGYIMPROVEMENTS

Source:EIA

ISPIEnergyWatch

•  UScontribu6on.The2014increaseinUSoilproduc6onalonehassurpassedtheincreaseinglobaldemand(1,16Mbbl/dvs.0,7Mbbl/d)

•  Currentforecasts(e.g.PetroleumIntelligenceWeekly)assumethesupplysurplusfor2015tobeinexcessof2Mbbl/d

•  Thesurpluswillfillstoragecapacity,totheextentavailable‒  Chinaiscurrentlyimpor6ngmorethan7Mbbl/d,ofwhicharound0,5couldbeforstorage

OversupplyandtheaLermathofthepriceslump

OVERSUPPLY

ISPIEnergyWatch

•  Oversupplywillnotbemet,atleastintheshortperiod,byacorrespondingdemandgrowth

•  Reducingtheoffermaytakethreedifferentforms

‒  Voluntary,viareduc6onofthecurrentconven6onalflow(OPEC)

‒  Social,viadisrup6onasaconsequenceofsocialunrestwithinaproducer

‒  Economic,viaslowdownandreduc6onoftheUSproduc6on


OVERSUPPLY:OUTOFTHESLUMP

ISPIEnergyWatch

•  DifficulttoimaginewithoutSaudiinvolvement

•  Withoutswingproducer,allotherproducersareforcedtokeepproduc6onatmaximumlevels

‒  Theirbehaviourdoesnotimpactprices,theyareleLtochoosebetweenlowrevenues,ornorevenues


DECREASINGSUPPLY:VOLUNTARY

ISPIEnergyWatch

•  Nega6veeffectsoflowpricesonna6onalbudgetslimitedonyearlybasisin2014‒  99,54$/bblin2014vs108,64$/bblin2013

‒  For2015EIApredictsanaverageof68,08$/bbl

•  Possibilityofsocialunrestanddisrup6onofproduc6oninsomeofthemostrent-addictedproducerstates

•  Impactofdisrup6onsisdebatable

‒  Pastdisrup6ons,e.g.Libya,havebeenfullyamor6sedbytheavailabilityofexcesscapacity

‒  Thepresentoversupplyimpliesthatanyindividualproducer,exceptforthebigthree,isvirtuallyredundantonthemarket


DECREASINGSUPPLY:SOCIAL

ISPIEnergyWatch

•  No6ght/shaledrillingforoneyearwouldreduceshaleproduc6onby60-65%andreduceoverallUSoilproduc6onbyalmost2Mbbl/d

•  Averagebreakevenpricesaremisleadingwhenappliedbybasininsteadofbywell:inmatureprojectswithfullypaidinfrastructurehalfcyclebreakevencostsmayseFlebetween37and45$/bbl

•  Technologicaldevelopmentappliedtoa6metomarkettechniquemays6llhaveasignificantshorttermimpactonthebreakevenbenchmark(10%ormore)

•  Unlessthepricestabilizesunder60$/bbl,aslowdownoftheforecastedgrowthlooksmorelikelythanasharpdeclineincurrentproduc6on


DECREASINGSUPPLY:ECONOMIC

ISPIEnergyWatch

•  Mostconven6onalproduc6oncomesfromoldfieldswithlowinvestment/produc6oncosts

•  Thecreamingcurvemakesreservereplacementmoretechnicallychallengingandraisesthebenchmarkforbreakeven

•  Mostkeyprojectspresentlyinthepipelinehavees6matedbreakevensignificantlyhigherthanshaleproduc6on

•  GoldmanSachses6matesthata70$/bblpricewoulddelayorcancel930thousandmilliondollarsworthofupstreamplannedinvestment,represen6ngapoten6alproduc6onof2,3Mbbl/din2020and7,5inin2025

•  Theoilpriceslumpmayimpairmediumtermreplacementandmateriallyswingthependulumtowardsundersupply


DECREASINGSUPPLY:NEWCONVENTIONALOIL

ISPIEnergyWatch

•  Mostcurrentscenariosassumeaposi6veimpactofthepricedroponimpor6ngcountriesGDPandtradebalance

•  Theextentoftheimpactremainscontroversial

•  Thedifferentimpactonindividualcountrieswouldbemainlydrivenbytwofactors:

▫  Energyintensity

▫  Energytaxa6on


BENEFITSOFAPRICEDROP

ISPIEnergyWatchOversupplyandtheaLermathofthepriceslump

BENEFITSOFAPRICEDROP

Source:IMFdirect

ISPIEnergyWatch

•  TheShaleRevolu6onhascontributedimpetustothepricedrop,andthepricedropwilllikelyslowtheShaleRevolu6on

•  Theslowdowninthelongtermwillnotimplyloss,butjustdeferralofproduc6on

•  Duetoshorttermpricesensi6vityandavailabledrillingstock,produc6onincreaseshouldregainspeedassoonasfavourablepricesignalshitthemarket

•  Theprocessmayhoweverbedelayedandrequirehigher(riskrewarding)pricesshouldthecombina6onofthehedgingprac6ceandofthepresentpricedropresultinaseriouscrisisonthederiva6ves(junkbonds)market

Finalremarks

FINALREMARKS(1):SHALEREVOLUTIONANDPRICEDROP

ISPIEnergyWatch

•  Shorttermbenefitstotheeconomiccycle(butpoten6alboosterofEuropeandefla6on)

•  Inthemedium-longterm:•  Riskofsocialinstabilityaffec6ngalsoneighbouringcountries•  Slowdownofreservereplacementinvestmentsandpoten6alforpricevola6lity

•  Poten6altemporaryslowdownofgreenpoliciesandincreaseofcarbonenergyconsump6on(beforethepricedrop,IEAforecastwasthatin2040carbonenergysourcessharewoulds6llbenolessthan74%)

Finalremarks

FINALREMARKS(2):PROSANDCONSOFTHEPRICEDROP

Needforpoliciescapableoflimi6ngthedownsizeofcheapoil.Would,amongstothers,acarbontaxhelp?

ISPIEnergyWatch

H.L.Mencken

For every complex problem there is an answer

that is clear, simple, and wrong.

H.L. Mencken

Economia dell'Energia e dell'Ambiente.

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