“ Understanding the Oil Business” Or “ Economics of Crude Oil” Bilal Ilahi PSO nov. 2010
BILAL ILAHI Educational Qualification: 1977: Masters in Business Administration .(U.S.A). 1973: B Com. Punjab University (Hailey College).
Work Experience: 2006-Present: Business Consultant & Trainer. 1991-2005: Self-Employed. CEO, Granada Textile Mills (19, 000 spindles ). 1988-1991: Self-Employed. CEO, METROCON (Construction Firm). 1980-1988: Self-Employed. Owned and managed motels/hotels in U.S.A. 1978-1980: Officer, BCCI.
Teaching Experience: 2002- Present: Taught MBA, EMBA , BBA , classes at LUMS, Beacon house Business School / Curtin University Lahore, Government College University Lahore & ICBS Lahore, as part of their visiting faculty. Also on the visiting faculty of The Civil Services Academy and NIPA.
Corporate Training Experience: 2007-Present: Conducted Seminars and Workshops for Institute of Chartered Accountant’s of Pakistan, MCB, Bank of Punjab, UBL, Bank Alfalah, ABL, NBP, HBL, NIBAF and PSO. Other: Global markets analyst for CNBC Pakistan, Business Plus, Dawn TV, Aaj TV etc.
Crude Oil Price 1. Supply. 2. Demand. GASOLINE / PETROL PRICES Demand for Cars 1. China,& the world based on GDP growth. 2. Peak Pollution in 2015 ie. Global warming.
Hydro-carbons: Release their energy when burnt e.g. Crude Oil + Natural Gas .
Bio-fuels: Ethanol + Bio-diesel
Alternative fuels: Ethanol + Bio-diesel + tar sands
Renewable Energy: Hydro-electric + Solar + Wind + Hydrogen fuel-cell.
World Energy Consumption 0.7 1.9 Korea 0.5 2.5 Canada 1 2.6 U.K 0.9 2.9 France 16.6 3.1 India 1.3 3.9 Germany 2.1 5.8 Japan 2.5 7.0 Russia 21.2 9.9 China 4.6 25.0 U.S.A % of World Population % of Energy Consumed Country
Increase in the price of oil (64 % in ’07) contributes to global inflation .
Eg. increased petrol & transport cost & higher prices of 4,000 bye-products like plastics , polyester, PET bottles, bitumen, coal-tar etc.
Decoupling from CRUDE OIL (and emphasizing alternate sources) is long term plan and impossible without economic slump and mass unemployment. Future of “internal combustion engine”. Crude Oil is a one time resource and therefore a depleting resource.
Arrival of worlds PRODUCTION PEAK…..88 mn. bpd. Beginning of the final energy crisis ?
Slack in production capacity provided by mostly Saudi Arabia.
Exploration / Finding Costs . . (to develop oil fields) Vary substantially by region. Range from $5.26/barrel in the Middle East . .. to $63.71/barrel for U.S. offshore.
Drilling / Production Method Primary methods . .. Natural lift , based on natural pressure eg Mid-East sufficient over long period. .. Artificial lift , by mechanical pumps. Secondary methods. .. Water flood , ie injection of water Tertiary methods. .. Injecting steam , carbon dioxide etc.
In USA : Primary methods =40% of production. Secondary methods = 50%. .. Tertiary methods = 10%
Drilling costs are different in different areas 2006.
Africa = $ 4 per barrel
USA = $ 7 per barrel
- Canada = $ 8 per barrel
Off-shore drilling (On Continental Shelf ) Compliant Towers . With piled foundation. For depths of 1,500-3,000 ft. Semi-submersible Platforms . Floating with buoyant legs + cable anchors. Can be moved. For depths of 600-6,000 ft. Jack-up Platforms. Can be jacked up above sea using legs. For low depths. Floating production systems / Drillships.
Internationally the price of oil is set in US dollars per barrel, by the forces of demand and supply.
The most important oil market is NYMEX (New York Mercantile Exchange).
Demand Factors Oil demand is dependent on: 1.Global economic growth. 2. Falling $. Makes oil more attractive for holders of appreciating currencies like Euro. Hence demand goes up. 3.Changes in technology ie. solar power.
CHOKE POINTS Oil consumption occurs mainly in the industrialized west 0il production takes place largely in the middle east. Huge oil volume traded internationally By pipe line 40% - transcontinental By tankers 60% - intercontinental (3500 tankers)
Choke point is a geographical feature. Same as a bottle neck. They are narrow and theoretically can be blocked. Threat comes from hostile governments, terrorist groups, and piracy Effects of closing of choke points are increased costs because of transit time increase and tankers capacity tie up.
An oil refinery is a large industrial site usually the size of a large village. Its job is to turn crude oil into a whole range of useful substances.
An oil refinery is an industrial process plant where crude oil is processed and refined into petroleum products , such as gasoline , diesel fuel , asphalt base , heating oil , kerosine , and liquefied petroleum gas .
Desalter Unit (washes out salt from the crude oil before it goes into the atmospheric distillation unit)
Atmospheric Distillation Unit (distills crude oil into fractions)
Vacuum Distillation Unit (further distills residual bottoms after atmospheric distillation)
Naphtha Hydrotreater Unit (desulfurizes naphtha from atmospheric distillation. Must hydro treat the naphtha before sending to a Catalytic Reformer Unit.)
In 2008 oil prices impacted both by supply- demand mismatch and speculation . Experts feel beyond $100,in 2008, it was not demand but speculation. Oil touched $147 in July ‘08. In 2009 and 2010 oil price determined by demand and falling US $. ………………………………………………
Between 2004 and 2005 crude oil prices going up To control petrol prices in USA, US government brought down Taxes . Oil companies brought down distribution and marketing costs by creating efficiencies. Pakistan….Government ? ………….Companies?