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This is a comprehensive presentation on the state of the oil markets that I had done.a few years ago. While 2009 might sound rusty, it is important to understand that trends in commodities dont change ...

This is a comprehensive presentation on the state of the oil markets that I had done.a few years ago. While 2009 might sound rusty, it is important to understand that trends in commodities dont change ona dime especially oil markets. This ppt clearly shows that oil demand supply gap is growing at 5% or 4 mn bpd every year. Put otherwise we would have to discover 1 Saudi Arabia of oil every alternate year just to maintain the gap at where it is. It is like running in a running train.

Oil prices even now are quite cheap and should be priced at the marginal cost of the next most expensive barrel of oil. Without Iran tensions oil shoul dprobably be $200 in about a year

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Oil presentation Presentation Transcript

  • 1. VENTURA SECURITIES LTD. World Crude Oil Drops left in Ocean .•
  • 2. i I t -,. - [VENTURA: - . V E N T U R A SEe U R I TIE S LTD. World Oil Discoveries World Oil Discovery vs. Oil Consumption 0 "- III .Q ell "- Q) C 70 40 I 30 20 .Q o 60 j~DU 10 50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~ years Oil Discovery-Oil Discovery,5yr tvNA -Oil Consurrption,5yr tvNA Source: www.energiekrise.de/e/aspo _news/aspo/Newsletter091~ World Oil discoveries peaked in early 80s since then there has not been significant oil finds.~ 1990 marked the point in time, when world oil consumption first exceeded the oil find and since then we have been eating into the reserves.~ Today the annual consumption of oil is 30 billion barrels.
  • 3. I VENTURA V E N T U R A SEe U R I TI E S LTD. World Oil Reserves Oil Reserves Depletion Not Factoring Peak Oil~~ .a •.. :B 1200.0 400.0 800.0 600.0 I Reserves at 950 bbl Reserves at 630 bbl Ul 1000.0 200.0 Vs BP Reserves at 1250 bbl 0.0 ~ &@~~~&~h~~~~~~~~~~~~~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~- ~ 0/ # # # # ~~~y Source: Collin Cambel peak oil study o Base Case Reserves De·pletion 0 Base Case Estimate 1 _J Oil reserves actually peaked in 1980 As per our estimates the reserves of oil stand at 630 bbl, the British Petroluem Statistical Energy Review (BPSER) estimates reserves at 1258 bbl. BPSER keeps increasing annual reserves about stated discoveries. These figures are not audited by BP and taken at face value as reported by the oil producing countries. This large discrepancy in data is due to the overstating of oil reserves by OPEC countries in the 80s.
  • 4. I VENTURA V E N T U R A SEe U R I TIE S LTD. Spurious Reserves Dhabi 25 41.00? 90.00? 92.85164.6 92.21?169 47.88165 57.5168.8 55.31 1.3517.87 93Venezuela 92.85? 30.40 30.6 48.5 48.8 5889.77 1.40 Kuwait Dubai 29.7 1.44 314166 2864.23 29100 920 65.4 51162.4 65.9 417.95 63.9 11.3 1163.35 4.00? Iran 4320.3 1.44 64.48 44.11 47.1 300 91.92 095 26.1 Amount 358.08 166.57 56.30? 169.97 166.98 30.51 59 92.21 258.00?? 30.5 88.3 1.27 91.92 100.00? 5721.5 192.11 44.5 24.85 25.85 Arabia* 091.92 25.59 1 Saudi Iraq Spurious - Selected Reported Reserves (billion bbl) with Suspect IncreasesAbu Source: http://www.hubbertpeak.com/summary.htm • The spurious reserves are so defined as the countries upgraded oil reserves without any supporting evidence of new finds or upgradation to the proven category. • In the 1980s, OPEC embarked on oil production quotas which were based on the oil reserves of the producing country. The OPEC countries in order to garner a larger production quota fudged their reserves. • The extent of overstating the reserves corresponds to 10 years of oil supplies at the present rate of consumption (approx 30 bb p.a.)
  • 5. VENTURA V E N T U R A SEe U R I TI E S LTD. Typical Production Profile of an Oil well 6 0 (U a >. ~ 400 L :: 3 0 o (I"j -0 200 (U en ::J 1 0 ..c .•.... a a o 1 20 30 Y ars of production~ The point of maximum production, after which there is a decline is known as Peak Oil. .
  • 6. I VENTURA V E N T U R A SEe U R I TI E S LTD. Depletion Profile of major Oil fields Prudhoe Bay Production Profile Samotlor production Forecast to 2011 700 since 1969 250 mn bbll year .•.. 200 1 250 mln bbll year 150 ~ 600 100 50 :8 500 o c: 1000 1999 2003 2007 2011 ,9 400 E 750 g 300 n 1980 • max, production .189 bin bbl -5 200 500 e 0. 100 (5 250 o 1975 1980 1985 1990 2005 2010 2015 o .•Alaskas Prudhoe Bay Field displays the profile of constrained production: 1969 1974 1979 1984 1989 1994 1999 2004 2009buildup, followed by plateau, followed by irreversible decline.
  • 7. I VENTURA V E N T U R A SEe U R I TIE S LTD. Peak Oil Peak Oil 600 900 t c:: 500 " 400 300 35.0 .0 ~ Of, :0 800 200 700 100 World Oil Forecast :a 30.0 25.0 :a 20.0 .0 c:: 15.0 ~ :0 l 10.0 5.0 _ Base Case Reserves -5.6% Depletion -7% Depletion Rate -9% Depletion Rate ---- - --- Source: BP Yearly Statistical Analysis 2008 & Zorbaquants estimates• World Oil production plateaud in 2004-5 as the oil producing countries used EaR (e hanced oil recovery) techniquesto extract oil before the depletion profile sets in.• The peak of oil production, we believe, should occur no latter than 2010-11. It may have already set in, but cannot bepinpointed accurately due to lack of credible data. Recently Dr. Fatih Sirol, Chief Economist at lEA, remarked in aninterview that the Peak Oil would be hit in year 2010.• We have assumed 5.6% as the base case of depletion of World Oil Production, keeping in mind the presenteconomic recession. Incase of moderate growth the depletion should happen at an accelerated rate of 7% and a fullblown recovery in economic conditions would lead to a 9% depletion rate.
  • 8. I ,VENTURA V E NT U R A SEe U R IT I E S LTD. World Production Profile World Oil Production 35 2.0% 4.0% 10.0% Cl 0 •.. 0 ~3: - 0.0% .s::. 30 8.0% 6.0% -2.0% -4.0% •.• 25 III Gl ~ 20 :c .c c: 15 .2 :c 10 5 o ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ year -World Production, 5 yr MVA, LHS -% Growth, 5 year MVA, RHS Source: BP Statistical Review of World Energy, 2009• Oil production growth crashed since the early 1970s during the economic recession until themid 80s. After 1985, the production rate picked up until it peaked at 2% in 1991 (marked byarrow)• This point in time (1991-92) coincides with the peaking of oil discoveries. It is clearly noticeablethat despite increased production since then, the production rate was unable to ramp up above2%. This flat rate of growth, we believe, is due to the EaR techniques used by producingnations to sustain the oil production.
  • 9. , VENTURA V E N T U R A SEe U R I TIE S LTD. Crude Supply World Oil Supply 30.0 ~ 20.0 "- co .0 c: o .0 10.0-0 • ~ 0.0 ~ r (:..::) (:..~ (:..1:>.(:..X:J (:..fQ ~::) ~~ ~I:>. ~X:J ~fQ R,::) R,~ R,I:>. R,X:J R,fQ ~::) ~~ ~I:>. ~X:J ~fQ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ - Peak Oil Countries, 5 yr rvrv A - World Production, 5 yr rvrv A - Non Peak Oil Countries, 5 yr rvrv A -, ~~~ ===--- Source : BP Statistical Review of World Energy, 2009• The major oil producing countries peaked as early as 2001-02. However the Middle east countries were yet to peak.• Infact the production in these countries was ramped up to replace the diminishing supply from the "peaked" countries.Saudi Arabia with its prolific reserves emerged as the "swing producer."
  • 10. I I VENTURA V E N T U R A SEe U R I TIE S LTD. Peak Oil Countries .. 0.1 Country Year 1993 Peak6.09% 2004 (billion bbl) 14.0 Decline1.2 0.29% 4.34% 4.38% 2001 0.89% 0.10% 5.54% 0.3 0.2 0.1 4.1 0.9 1.4 1.1 0.4 1.15% 2000 1.46% 1991 1.45% 1999 1970 0.6 1.2 1.07% 1998 4.99% 5.02% 0.53% 2005 0.76% 0.56% Rate 2008 Production 0.9 0.6 1.2 0.8 0.0 0.2 0.3 1995 1978 2.5 0.3 0.1 0.7 0.4 Production9.3Source : BP Statistical Review of World Energy, 2009
  • 11. VENTURA V E N T U R A SEe U R IT I E S LTD. Mexican Reserves 60 • The Mexican case is a striking 50 example of how the production :c .c 40 •••••••••• ". Rate of Decline -3.7 profile declines sharply post ~ c: 30 .......... peaking. ii5 20 ............... 10 o I- • Application of EOR techniques OJOr::, OJOl,, Oj~ ~ ~ ~ OJOro OJOO OjOjr::, OjOjl" Ojet ~ ~ ~ ~ ~ OjOjro OjOjO ~r::,r::, r::,r::,l" r::,cl" r:;,r::,ro r:;,r::,O ~ ~ ~ ~ ~ ~ ~ enhances production but kills the year _~_~ __ J ultimate oil recovery in the declineSource : BP Statistical Review of World Energy, 2009 stage of production. Cantarell Oil Production 2.5 • The Cantarell oil fields in which >- " 2 nitrogen injection technique was ::!2 :c 1.5 .c utilized used to produce over c: ~ 1 2mbd per day. Today it barely E 0.5 produces 0.7 mbd o 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 yearsSource: BP Statistical Review of World Energy, 2009
  • 12. I VENTURAj V E N T U R A SEe U R I TIE S LTD. Oil Consumption of Oil Producers . Oil countries Consumption as % of Production 50% 45% • The 2 billion population of the l: 40% o u 35% :l i middle east is growing at an ~ C. 30% 25% average of 2.67% (twice that of ~ ~ 20% 15% World Population Growth) if!. 10% 50/0 0% • Saudi Arabia and Iran, the year J largest oil producers are growing Oil countries Consumption as % of Production at 3.67% and 2.75% respectively.~(J)<0 0 ~ .2 ::> l: c;; ~ " U c.. " LO <030.0% ~ •.... (J) 100.0% <0 80.0% 20.0% 60.0% 70.0% •.... 50.0% ;:::. 40.0% 10.0% LO - 150.0% + 90.0% • This explains the increasing consumption of the oil producing countries as their energy requirements increase. ••••• (J) m 0 (f) 0 0 T""" 0 U) f-.. ro ~ ~ m ~ m ~ ~ ~ ~ 0> •.... (J) •.... (J) m m m T""" T""" ,..... ,...... .,..... ..,... moo CI 0 0 m m m m m T""" N CI N year -Saudi Arabia S-Mexico -Venezuela -Iran S Source: BP Statistical Review of World Energy, 2009
  • 13. I VENTURA I V E N T U R A SEe U R I TIE S LTD. World Oil Demand World Oil Demand Growth 4.50% 4.00% ~ 3.50% ~ 3.00% [ 2.50% i in e C) 2.00% 1.50% 1.00% 0.50% ~ ~ 0.00% - -0.50% ~ RJ RJ~ RJO:> s:t RJ0 RJ(() ~ RJCO RJC?> ~:P ~, ~~ ~O:> ~ ~0 ~(() ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ years - BRIG - Developed Countries - World.. - Oil Producing Source : BP Statistical Review of World Energy, 2009• World oil consumption has closely tracked the population growth of 1.5%• The growth in the BRIG nations is the highest 3%, in line with high GDP growth.• The demand growth in the developed world has been stagnant since 2002
  • 14. I VENTURA I V E N T U R A S EC U R I TIE S LTD. Other Asia Year -1990 o North America exUS Other Asia Year· 2007 5% • US50 8% o Europe exGermany o Germany • Pacific ex Japan o Japan • China o India • Brazil • Russia o Iran • Saudi Arabia • Restof Widdle East • Venezuela • Africa Europe ex Europe ex • S. & C. America Germany 18% Germany • Other Asia 23% Source : BP Statistical Review of World Energy, 2009 •.• Comparison of Oil consumption in 1990 and 2007 reveals the following• USA has mainatined its share. Currently it consumes 18.5 mbd of which the US military consumes almost 40%• Declines are observed in Japan, Europe (ex Germany) and Russia.• China has increased 3 fold and current consumption stands at 7 mbd.
  • 15. I VENTURA V E N T U R A SEe U R I TI E S LTD. World Demand Projections World Demand Projections -00.0 .- -- 79.8 -- - - I: ---•• 90.7 __ 87.2 - - •• -85.093.4 -- •• • 84.5 •• •• -- -- 96.1 •• 1 - 94.6 97.3 --- -III J:l~ :::P 75.0 ~ 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 years -Optimistic +28D - Pessimistic -28D - Base Case • R-value of World oil consumption to GDP is .925 while that to World Population it is .0.979. • We have assumed a weighted average correlation of GDP and population for demand forecasting. • Based on our Demand Projection Model, world oil consumption should climb to 97.3 mbd with a 2 standard deviation for best case (1.0.0 mbd) and worst case (94.6 mbd) scenarios. • In full bloom economies the World per capita consumtion of oil has been .0..013 bpd (or 2 ..06 Ii) and in recessionary times it has never fallen below .0..012 bdp ( or 1.98 Ii). This clearly explains the inelastic nature of demand, non correlation of oil prices and consumption and how central oil is to human life.
  • 16. I VENTURA V E N T U R A SEe U R I TIE S LTD. Demand & Supply Price World Oil Demand vs. Supply trajectoryl:00 C. E -, .0 140.0 ~ 80.0 60.0 40.0 ~ T 20.0 0.0 100.0 120.0 t- years -Production BaseCase-Demand Bas CaseThe assumption that oil demand will be satiated by ever increasing oil suppliesis wishful thinking. Till peak oil, World GDP was driving oil production, post peakoil, oil availability will govern World growth until the world embraces alternativesources of energy.
  • 17. I VENTURA v EN T U RA SEe U R I TIE S LTD.Thank You