3.17.14 dancy smu conference presentation pipeline
TRANSCRIPT
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Major Trends & Opportunities in the
Energy Sector
Joseph R. Dancy SMU’s Dedman School of Law & Cox School of Business
Manager, LSGI Venture Fund L.P.
LSGI Advisors Inc.
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Crude Oil Global Demand Growth is Relentless
• International Energy Agency forecasts demand will grow roughly 1.4 million barrels per day in 2014
• Global market of roughly 91 million barrels per day
• Global demand in 2014 will again set records
LSGI Advisors Inc.
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Demand Growth is Persistent
LSGI Advisors Inc.
• Both developed & developing economies driving growth
• Crude oil use correlates closely with economic growth
• Global demand grew in 15 of the last 17 years
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U.S. Crude Production is Booming!
• Massive production increases centered on two states: Texas and N. Dakota
• U.S. production increased roughly by 1 million barrels per day in 2012 and 2013
• IEA forecasts non-OPEC production growth of 1.7 million barrels per day in 2014 LSGI Advisors Inc.
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Transportation Issues Abound
LSGI Advisors Inc.
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Production Sustainability Issues • Decline curve for unconventional
wells is very steep, question of total reserves and deliverability
• All liquids are not equal: Natural gas liquids heating content 60-70% that of crude oil, limits on refinery feedstock
• IEA Study: Finding & developmental cost for unconventional shale plays are relatively high impacting return on investment
LSGI Advisors Inc.
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Supply Gains are Costly
• IEA Report: Capital expenditures increased from $250 billion in 2000 to $700 billion in 2012, production and reserve gains disappointing
LSGI Advisors Inc.
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Arab Spring now the Arab Winter
• Iran • Libya • Syria • Nigeria • Yemen • Egypt • Sudan • Venezuela • Iraq (?)
LSGI Advisors Inc.
Production & Export Issues in:
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Oil Prices have been Stable
LSGI Advisors Inc.
• Brent crude oil trading range in 2013 was narrowest since 2006
• Supply gains from unconventional resources offsetting production interruptions in N. Africa, Middle East, and OPEC
2013
We expect more of the same in 2014
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Natural Gas This winter has been brutal!
LSGI Advisors Inc.
Massive Draws!
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Storage Inventory Plummets
LSGI Advisors Inc.
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Record 2014 Refill Forecast
LSGI Advisors Inc.
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But Injections May Fall Short
LSGI Advisors Inc.
Five year average end of season storage
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Will Storage Meet Increased Demand?
LSGI Advisors Inc.
Previous record draws
2014 Estimates
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Prices are Trending Upward
LSGI Advisors Inc.
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Storage Refill Issues
LSGI Advisors Inc.
• Infrastructure to transport • Infrastructure to process • Well & field deliverability • Tech & efficiency improvements • Peaker plant demand • Gas to coal switching • Gas price needed to fill storage
We expect higher natural gas prices, possibly surprisingly so, this summer and fall
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An Energy Revolution! . . . and the Equity Market Yawns
LSGI Advisors Inc.
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LSGI Advisors Inc.
Stock Selection May be the Key
Companies growing production and reserves, located in politically secure areas of the world, should do very well
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LSGI Advisors Inc.
Presented to: The Pipeline Opportunities Conference
Houston, Texas March 25, 2014