A brief overview of the global oil and gas markets

1. THE OIL & GAS WORLD
A GLOBAL INDUSTRY &
MARKET OVERVIEW
Aalok Patwardhan

2. Contents
 Black Gold – A brief history & evolution
 Global Energy scenario
 Oil Industry Scenario
 Oil & Gas Markets
 Setting up a new Oil &/or Gas field
 India Highlights – Energy Scenario
 Challenges & Opportunities
 Learning tools
 Unit Guide

3. Oil is Energy, Energy is
Wealth & Wealth is
everything!
Oil is Energy, Energy is Life &
Life most definitely is
everything!

4. ‘Black Gold’
A brief history and key events in its evolution
https://www.youtube.com/watch?v=ZyQhJEi8fh
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5. Key events in recent history
 1951 to 1959 Nationalisation of the Iranian oil industry & OPEC
formation
 1973 First oil price shock - Arab boycott of oil supplies to USA
because of Arab Israeli war; price rises from US$ 2.50 to US$ 10 per
bbl
 1973 to 79 Nationalisation of the Iraqi, Kuwaiti & Saudi Arabian oil
industries
 1979 Second oil price shock - Iranian revolution; price rises from
US$ 12 to US$ 30 per bbl
 1991 Third oil shock - Gulf War (Kuwait); price rises from US$ 15 to
US$ 35
 1999 Agreement between Saudi Arabia, Mexico and Venezuela
 2003 Iraqi war; price rises from US$ 30 to US$ 70
 2006 Oil Price crosses US $ 100
2008 Oil Price peaks at US $ 147

6. Global Energy Scenario
How much is consumed?
Where is it consumed?
Demand – Increasing thirst for energy
http://www.bp.com/en/global/corporate/about-bp/
energy-economics/statistical-review-of-world-energy/
2013-in-review.html

7. Primary energy world consumption
(mtoe)

8. Regional Energy consumption
(mtoe)

9. Primary energy consumption per capita
(toe)

10. Energy – Demand Growth

11. Energy – Demand Growth

12. Oil Industry Scenario
Top Producers & global reserves
Production trends
Top Consumers & consumption patterns

13. Top Oil Producers (bpd)

14. Oil Producing regions (bpd)

15. Proven Oil Reserves %
distribution
1993
2003
2013

16. Global Oil Reserves
Gross global (proven) reserves stand at
approximately 1.7 trillion barrels*
* - excluding Shale Oil estimates

17. OPEC – What is it?
Organization of Petroleum Exporting Countries (OPEC)
 Mission:
 to coordinate and unify the petroleum policies of its Member Countries
and ensure the stabilization of oil markets in order to secure an
efficient, economic and regular supply of petroleum to consumers, a
steady income to producers and a fair return on capital for those
investing in the petroleum industry.
Key Facts:
 is a permanent, intergovernmental Organization, created at the
Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait,
Saudi Arabia and Venezuela. Comprising of 12 Member Countries with
HQ in Vienna, Austria
 80% of world production of the world's proved oil reserves are located
in OPEC Member Countries, with the bulk in the Middle East
 OPEC's oil reserves currently stand at well above 1,190 billion barrels
(1.2 trillion barrels).

18. OPEC Oil Reserves – 2012

19. Oil Production – future trends

20. Oil Top 10 Consumers (mtoe)

21. Global Oil Production vs.
Consumption
Production (87
mbpd)
Consumption (91
mbpd)

22. Oil & Gas Markets
Global Price Trends
Trade Flows
Big Players
Market Highlights

23. Today’s Oil Price

24. Global Oil Prices – 1861 to
2014

25. Gas Prices – 2013 ($ per
MMBTU)

26. Global Oil trade flows 2013(m
tonnes)

27. Global Gas trade flows
2013(bcm)

28. The big players in Oil & Gas
The top 10
global players
control almost
60% of the
total daily oil
supply

29. Highlights
 https://www.youtube.com/watch?v=p74Dgpr1EB0
 Brent crude oil spot prices averaged $87/bbl in
October. Since July 2014, Prices have dropped by
over 25%
 The global oil supply forecast for 2015 is 92.9 mbpd.
 Saudi Arabia's production is still projected to decline
in 2015 below its current level of 9.5 million bbl/d to
avoid further downward pressure on oil prices.
 Global oil prices are expected to hold at <$100/bbl in
the short term. However in the long term, demand
pressures and supply challenges will lead to a price
increase to over $120/bbl.

30. What happens when
a source of Oil & Gas
is discovered? How
is it set up?

31. Business Model – Process
The Operator finds a place to drill a well (Prospecting conducted by specialists)
Somehow the Operator finds a spot he thinks is likely to produce oil or gas.
The Operator Leases the Land (Through auctions, bids conducted by local government)
The Operator locates the Owners of the Land and arranges to Lease the Land for
purposes of drilling a well. This arrangement may require the Operator to pay the
Owners a monthly fee, plus an arrangement is made to pay them a percentage of the
proceeds of the revenue generated when the well starts producing oil or gas.
Formation of Partnership (Legal process, registration, incorporation)
Since the cost of drilling a well is quite expensive, the Operator decides to raise some
money from Investors to help defray the costs. For e.g. the Operator projects the well
will cost $300,000 to drill. He decides to solicit 30 Investors at $10,000 each.

32. Business Model – Process
Investors & Financing the operation (Banks, Big Oil Majors etc.)
Each Investor can send his entire $10,000, or it might be constructed such that each
Investor sends $5,000 and will be billed the remainder as expenses are acquired.
Commencement of Drilling & extraction operations (Operator & Downstream partner)
As the Operator begins to drill the well, he begins to accrue Expenses - Invoices are sent
to the Operator. These Expenses need to be Billed to each Investor for his fair share.
Production from Well - Begins to Produce Oil or Gas (Downstream Partner/Purchaser)
Now that the Well is producing oil or gas, the Operator begins to sell the product to a
Purchaser. The Purchaser send the Operator a Run Check periodically (fixed). This revenue
needs to be disbursed to each Investor for his fair share.

33. Business Model – Process
The new Producing Well (Asset) has multiple owners
> Royalty Owner - the folks that Own the Mineral Rights to the Land - usually
does not pay expenses but receives Revenue (State/National Oil Company,
Public Utility, Local Government etc.)
> Over Ride Owner (Investor) - does not own the Mineral Rights - usually
does not pay expenses but receives Revenue (Statutory body, Ministry,
State/National Oil Company etc.)
> Working Interest Owner - Pays Expenses and Receives Revenue from sale to
retailors, buyers etc. (Well Operator – BP, Chevron, Total etc.

34. India highlights
Primary Energy overview 2013

35. India – Energy highlights (2013)
 In 2013, the share of India’s energy consumption met
by domestic sources fell to just below 59%, the lowest
on record
 India’s primary energy consumption increased by
4.1% in 2013, lower than in 2012, but in line with
slowing economic growth. India accounted for 4.7% of
the world’s consumption.
 Coal (54.5% of total consumption) remains the
dominant fuel and its share was the highest since
1993. Oil (29.5%) remained the second largest fuel,
with natural gas (7.8%) and non-fossil fuels (8.3%) far
behind.

36. India – Energy highlights (2013)
 Consumption growth was led by hydro (14.3%) followed by
renewables (8.3%) and then by coal (7.6%) - which still
provided the largest increment in volume terms. Oil grew
by a modest 1.2%, and nuclear by a very marginal 0.8%.
Natural gas (-12.2%) declined for a third consecutive year.
 Over the last decade, coal consumption has more than
doubled. Oil consumption has grown by 50.5%, nuclear by
83.6%, hydro by 90.3%, natural gas by 74.2%, and
renewables by a factor of 8.7.
 CO2 emissions from energy use increased by 4.4% in
2013, lower than the ten-year average, taking India’s share
of the world’s total to 5.5%. The increase was primarily
due to rising coal use.

37. India – Energy highlights (2013)
 The stagnant production growth of coal (0.1%), oil
(+0.1%) and nuclear (0.8%), failed to offset the decline
in natural gas output (-16.3%).
 Natural gas production declined for the third consecutive
year, while hydro, nuclear and renewables were at their
highest levels ever.
 Coal (65.3% of total energy production) remained the
dominant fuel produced, followed by oil (12%) and
natural gas (8.6%). Non-fossil fuels combined made up
14.1%.
 India produced 5.9% of the total global coal output, the
5th highest in the world, and consumed 8.5% of the
world’s total (3rd highest in the world).

38. India – Energy highlights (2013)
 Refinery throughput reached a historical high of 4.5
Mb/d in 2013, an increase of 3.7%, and taking India’s
share in the world to 5.8%.
 India’s energy production declined by 0.2%. India’s
production is 2.8% of the world’s total.
 India’s net energy imports increased by 10.9%, taking
the share of domestic consumption met by imports to
over 40%.

39. India – Energy snapshot

40. India – Oil & Gas
Oil: Consumption * Change y-o-y
%
2013 % global
share
Thousand barrels daily 2013 2012 of total
US 18,887 2.0% 19.9%
China 10,756 3.8% 12.1%
India 3,727 1.2% 4.2%
Total World 91,331 1.4% 100.0%
Natural Gas: Consumption* Change 2013
Y-o-Y % share
Billion cubic metres 2013 2012 of total
US 737.2 2.4% 22.2%
China 161.6 10.8% 4.8%
India 51.4 -12.2% 1.5%
Total World 3,348 1.4% 100.0%
India accounts for 4.2
% of World Oil
Consumption & 1.01 %
of World Oil
Production
India accounts for 1.5
% of World Gas
Consumption
& 1.0 % of World Gas
Production

41. Challenges & Opportunities
Characteristics & Challenges
Alternate & Renewable Energy
What’s next?

42. Characteristics & Challenges
 Large oil price increases can have more adverse
consequences on world economy. There is a
nonlinear relationship between oil prices and
economic outcomes, where large upward price
increases have a disproportionately negative
impact.
 High prices leads to a ‘wealth shift’ from consumer
economies to producing economies & low prices
have a reverse ‘wealth shift’ effect.
 Steep decline in prices leads to a reduced
production & stifling of investment in production,
technology as well as R&D.

43. Characteristics & Challenges
 Characterized by ever increasing demand and
simultaneously depleting reserves (supply).
 Capital recovery (ROI) is extremely long and
commencement of recovery is dependent on price
variation.
 Operating Margin is completely dependent on
variable Market prices and fixed operating costs.
Operator is unlikely to extend/expand/explore in
the event of a price drop.

44. Alternate & Renewable Energy
 High prices in Oil ensure a high operating
margin for the major companies. This margin
then funds further investment and research in
Alternate fuel & energy.
 Lower prices in Oil leads to an almost
complete shut down of investment in Alternate
Energy. This is a paradoxical relationship and
will define the future energy scenario of the
world.

45. What’s next? Oil & Gas
 Global Production (fossil fuels) will steadily
grow at roughly 1% over the next 25 years to
120 mbpd; or approximately 696 trillion BTUs.
 Global consumption will grow at slightly over
1% pa over the next 25 years to reach 240+
quadrillion BTUs.
Note
1 million barrels = 5.8 trillion BTU (approximately)
1 quadrillion = 1000 trillion = 10^6 billion = 10^9 million

46. What’s Next? Oil & Gas
 Natural Gas demand likely to increase in all
regions and across all sectors. This will be
led by greatest growth in production Shale
Gas, growing at (6.5% p.a.), providing nearly
half of the growth in global gas.
 Global demand for natural gas will grow by
1.9% p.a.

47. Learning tools

48. Learning tools
 Shale Oil Extraction
https://www.youtube.com/watch?v=x7wfx9IHtj
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 Oil & Gas – Geo Energy Politics
https://www.youtube.com/watch?v=3HF1E11E
mYg
 Further reading on subject
www.bp.com
www.eia.gov

49. Unit Conversion guide

50. Units in Energy - Guide