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InterTanko - Tankers And Energy

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  • 1. Tankers And Energy Connecting The Dots InterTanko Washington Tanker Event 2003 April 9, 2003 Washington, D.C. Presented By: SIMMONS & COMPANY Matthew R. Simmons INTERNATIONAL
  • 2. The Flow Of Oil In 2001 SIMMONS & COMPANY Source: BP Statistical Review of World Energy, June 2002. INTERNATIONAL
  • 3. 2001 Inter-Area Oil Movements (‘000 barrels daily) To South And Other United Central Asia Rest Of From States Canada Mexico America Europe Africa Australasia China Japan Pacific World Unidentified Total United States -- 130 253 165 232 4 6 6 13 82 19 -- 910 Canada 1,786 -- -- 4 10 -- -- -- -- 4 -- -- 1,804 Mexico 1,424 26 -- 185 197 4 -- -- 22 20 4 -- 1,882 South And Central America 2,567 122 31 -- 281 12 -- 6 8 114 -- -- 3,143 Europe 945 582 6 45 -- 148 -- 22 2 108 88 -- 1,947 FSU 90 -- -- 143 3,668 10 -- 109 14 179 47 418 4,679 Middle East 2,775 145 23 237 3,548 831 183 689 4,211 6,405 52 -- 19,098 North America 286 72 17 86 1,961 79 -- 6 10 142 64 -- 2,724 West Africa 1,370 20 -- 227 701 30 -- 76 16 741 -- -- 3,182 East And Southern Africa -- -- -- -- -- -- -- 100 28 18 -- -- 147 Australasia 45 -- -- -- -- -- -- 20 80 285 -- -- 430 China 23 -- -- 6 4 -- 6 -- 85 174 -- -- 298 Japan 8 -- -- -- 2 4 4 23 -- 52 -- -- 94 Other Asia Pacific 193 4 4 -- 48 6 391 562 703 222 17 -- 2,151 1 Unidentified 107 47 -- -- 878 -- 25 175 10 22 -- -- 1,265 Total Imports 11,618 1,149 334 1,098 11,531 1,130 616 1,796 5,202 8,569 291 418 43,754 Source: BP Statistical Review of World Energy, June 2002. _________________________ SIMMONS & COMPANY 1 Includes changes in the quantity of oil in transit, movements not otherwise shown, unidentified military use, etc. INTERNATIONAL
  • 4. The Flow Of Natural Gas In 2001 SIMMONS & COMPANY Source: BP Statistical Review of World Energy, June 2002. INTERNATIONAL
  • 5. 2001 Inter-Area Natural Gas Movements (Billion cubic meters) Trade Movements By Pipeline Total To Imports North America 118.82 South And Central America 7.67 Europe 275.18 Middle East 4.20 Africa 1.20 Asia Pacific 4.25 Total Exports 411.32 Percent Moved By Pipeline 74% SIMMONS & COMPANY Source: BP Statistical Review of World Energy, June 2002. INTERNATIONAL
  • 6. 2001 Inter-Area Natural Gas Movements (Billion cubic meters) LNG Trade Movements Total To Imports North America 6.59 South And Central America 0.63 Europe 33.53 Asia Pacific 102.20 Total Exports 142.95 Percent Moved By Tanker 26% Source: BP Statistical Review of World Energy, June 2002. SIMMONS & COMPANY INTERNATIONAL
  • 7. Oil Movements Far Different In Last Golden Era Key Importers 1972 Key Exporters 1972 (‘000 b/d) (‘000 b/d) Western Europe 14,060 Middle East 16,950 Japan 4,780 Caribbean 3,620 United States 4,740 North America 3,475 Latin America 2,050 West Africa 1,915 Southeast Asia 1,315 U.S.S.R. 1,260 Canada 915 Southeast Asia 1,090 Other 2,235 Canada 1,085 Total 30,095 Other 700 Total 30,095 SIMMONS & COMPANY INTERNATIONAL
  • 8. Oil Movements Far Different In Last Golden Era Key Importers Key Exporters Thousands Of Barrels Per Day Thousands Of Barrels Per Day 18,000 18,000 Western Europe Middle East 16,000 16,000 Japan Caribbean 14,000 United States 14,000 North America Latin America West Africa 12,000 Southeast Asia 12,000 U.S.S.R. Canada 10,000 10,000 Southeast Asia Other Canada 8,000 8,000 Other 6,000 6,000 4,000 4,000 2,000 2,000 0 0 1972 1972 SIMMONS & COMPANY INTERNATIONAL
  • 9. Key Differences Between 1972 And 2003 n Oil demand now close to 80 million barrels per day. n “Oil movements” now close to 45 million barrels per day. n Long haul routes replaced many short hauls. n Far greater oil at sea versus pipeline movements. n Tanker economics awful for the past 3 decades. n Much of the tanker fleet is very old. SIMMONS & COMPANY INTERNATIONAL
  • 10. Biggest Shift In Flows n U.S peaked in supply - “Lower 48” now 35% of 1970 level. n Russia peaked in demand. FSU demand now 50% of peak. n North Sea cut Europe’s high dependence on imports. n Miracle of Asia made Far East key market. n Only constant: high dependence on Middle East. SIMMONS & COMPANY INTERNATIONAL
  • 11. High Percentage Of Current Fleet Needed To Keep “Oil At Sea” n Start with rough estimate of average tanker size by type. n Assume 50% is always backhaul (plus 5% “downturn”). n 100% capacity is about 900 million barrels. n 45 million barrels per day is 20 days’ supply. n When reports say there are 830 million barrels at sea, so what? SIMMONS & COMPANY INTERNATIONAL
  • 12. The Spare Capacity Of The Tanker Fleet Is Skimpy n Small tankers do not count. n VLCCs are almost all incremental needs of Middle East oil. n Future for single hull tankers is at high risk. – One more strike and “you are out”? – EU bans could extend to many other areas. n Loss of 1 million b/d from Venezuela to U.S. crude creates need for 30+ VLCCs. n 2% growth in demand creates even greater potential need. SIMMONS & COMPANY INTERNATIONAL
  • 13. Does The World Need More Tankers (Or Less)? n If all single hull tankers need replacing, the number of new orders might be too high for shipyards to handle. n If global oil supply flattens out, can existing fleet size stay constant? n What happens to tanker demand as North Sea and Latin American oil declines? n Is there a reliable “model” to guide future tanker supply and demand? SIMMONS & COMPANY INTERNATIONAL
  • 14. Future Oil Supply And Demand For Oil Is Confusing Picture n Oil demand should continue to grow (or even accelerate). – 1990 - 2002 non-FSU growth: 15.5 million b/d. – Growth from China, “Other Asia” and North America, alone, was 9.2 million b/d. – 2 billion people still use no oil. – Another 3 billion use very little oil. n Oil supply growth uncertain. – Many key non-OPEC basins in permanent decline. – Some OPEC producers also in decline. – Most OPEC producers could soon be in decline. – Adding new fields takes time and money. SIMMONS & COMPANY INTERNATIONAL
  • 15. Surge In Non-OPEC Supply “Petered Out” Change 1990 1995 2002 1995-2002 United States 8.99 8.62 8.18 (0.44) Mexico 2.98 3.07 3.69 0.62 Canada 1.97 2.40 3.03 0.63 United Kingdom 1.94 2.79 2.51 (0.28) Norway 1.72 2.69 3.30 0.61 Australia 0.71 0.64 0.71 0.07 China 2.77 2.99 3.43 0.44 Malaysia 0.64 0.82 0.78 (0.04) India 0.69 0.77 0.75 (0.02) Brazil 0.85 0.95 1.86 0.91 Other Latin America 1.60 2.11 2.13 0.02 Oman 0.71 0.86 0.85 (0.01) Egypt 0.92 0.92 0.75 (0.17) Angola 0.50 0.69 0.94 0.25 Total 26.99 30.32 32.91 SIMMONS & COMPANY INTERNATIONAL
  • 16. Even Some OPEC Producers Have Only Slight Gains Excluding Iraq/Kuwait 1995 2000 2002 Saudi Arabia 7.94 8.00 7.38 Iran 3.65 3.69 3.42 UAE 2.20 2.24 1.99 Qatar 0.41 0.63 0.64 Nigeria 1.90 2.04 1.95 Libya 1.38 1.41 1.32 Algeria 0.75 0.81 0.85 Venezuela 2.44 2.79 2.29 Indonesia 1.32 1.27 1.12 Total 21.99 22.88 20.96 SIMMONS & COMPANY INTERNATIONAL
  • 17. Could OPEC Supply Be Nearing Its Peak? n Absent a flurry of new exploration, many OPEC producers have now peaked. – Indonesia – Iran – Libya – Venezuela – Iraq n Saudi Arabia’s oil is highly concentrated in a handful of old fields. – Rising water cuts are increasingly challenging. – Tight and complex formations also a challenge. – Exploration success has been scarce. SIMMONS & COMPANY INTERNATIONAL
  • 18. FSU Has Been The Only Big Supply Surplus n FSU oil production peaked in 1987 at 12.54 million b/d. n By 1995, production had collapsed to 7.09 million b/d. n By first quarter 2003, oil production rebounded to 9.86 million b/d (+ 2.77 million b/d). n Big uncertainties surround this surplus. – Are the numbers all real? – Are the gains sustainable? – Is this just “a start”? SIMMONS & COMPANY INTERNATIONAL
  • 19. Long-term Demand Estimates Show Need For Remarkable Growth n IEA’s long-term demand shows a great growth in total energy (196 MBOE/d in 2000 to 326 MBOE/d in 2030). n Oil growth: 76 million b/d in 2000 to 124 million b/d in 2030. n Key assumptions: – People still drive cars. – This “movement” spreads beyond OECD. n Natural gas grows from 45 MBOE/d in 2000 to 91 MBOE/d (24% faster growth than oil). n Only truism: Energy demand can never exceed energy supply. SIMMONS & COMPANY INTERNATIONAL
  • 20. Natural Gas Faces Similar Uncertainty n All forecasts point to astonishing demand growth. n But 60% of current base is in decline: – U.S. – Netherlands – Russia – Indonesia – Canada – Turkmenistan – U.K. – Romania n Hard fact: 40% has to triple to make global supply balance. n Middle East natural gas is expensive (not cheap). n Most stranded gas has never seen a drill bit. SIMMONS & COMPANY INTERNATIONAL
  • 21. LNG’s Future Has To Be Rosy (But Risky) n LNG has worked because projects were “seamless.” n Spot LNG is a dangerous game. n Ingredients for real LNG projects: – Dedicated reserves to support 30-year life span. – Dedicated pipelines. – Liquefaction plant. – Dedication trains – Receiving terminal. n “All in” costs: $3 to $10 billion per 500 Bcf/day? SIMMONS & COMPANY INTERNATIONAL
  • 22. Tons Of Energy Data But Scarcity Of Accuracy n The energy industry has fabulous set of industrial data. n But most statistics are only estimates. n Some are quite accurate; some are not. n Big gaps create remarkable uncertainty. n Some of the biggest gaps: – OPEC monthly production. – No non-OECD oil inventory data. – No OECD inventory beyond “primary stock.” – No accurate supply in most regions. – Good demand is available 18 - 36 months late. SIMMONS & COMPANY INTERNATIONAL
  • 23. Bad Data Creates Bad Roads Maps “A bad road map is far more dangerous than no map at all” n Oil gluts can come “out of thin air.” n Price volatility follows rhetoric, not data. n Lack of reliable data creates short-term reality from mere perceptions. n Volatility in tanker market a perfect example. SIMMONS & COMPANY INTERNATIONAL
  • 24. The Explosion In Tanker Rates 3rd No! Explosion 2nd Explosion 1st Explosion Awful A Correction? What Was Going On? Source: Bassoe Friday Report; March 28, 2003. SIMMONS & COMPANY INTERNATIONAL
  • 25. Two “Very Different” Explanations One View Opposing View n “Soaring tanker rates n “Two back to back proof of record OPEC hurricanes lead to record oil at sea” drop in U.S. imports” n “Some unforeseen n “Low oil inventories consequences of creating spikes in oil pending oil price prices” collapse” (10/9/02) n “Lack of tanker capacity n “War premium now limiting further growth in impacting tankers” exports” SIMMONS & COMPANY INTERNATIONAL
  • 26. Economics Of Oil Are Changing Past 20 Years • $15 - $20 oil was normal. • Tanker rates to move oil de minimis. • And no part in oil value chain made real money. Today • Oil seems to like $25 - $35 range. • Tanker rates are expensive. • Many supply basins in decline. Future • Is non-OPEC oil peaking? • What does anyone really know about OPEC? • What will 2,000 new vessels cost? • What will future energy cost? • Who will pay this bill? SIMMONS & COMPANY INTERNATIONAL
  • 27. Cost Of Energy A Genuine Puzzle n “Normal prices” ($15 - $20/barrel) did not work. – Financial returns were awful for everyone. – Most OPEC economies in shambles. – Aging asset base - needs expensive overhaul or replacement. n Current energy is costly – “Big 5”: $150 billion in E&P costs to grow production by 4% or 600,000 b/d (1999 - 2002) – Most new fields now cost $15,000 to $35,000/peak bbl. n While many think oil should be $15.20/bbl, this price is far too low. SIMMONS & COMPANY INTERNATIONAL
  • 28. Energy’s Future Will Be Extremely Challenging n Oil and gas decline rates are extremely real. n Some parts of global supply have clearly peaked. n Demand must grow. n Historical energy prices got far too low. n Future energy costs must be high. n The world’s current understanding of energy is slight. SIMMONS & COMPANY INTERNATIONAL
  • 29. SIMMONS & COMPANY INTERNATIONAL Investment Bankers to the Energy Industry SIMMONS & COMPANY INTERNATIONAL

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