API Industry OutlookSecond Quarter 2020
June 18, 2020
www.api.org
API industry health dashboard Q1 2020
Q1 2020 averagesBrent $50.00/bblWTI $45.34/bblNGL composite $4.50/mmbtuHenry Hub $1.89/mmbtu
Revenues
$580 B
Net
income
$(101) B
Capital
expenditures
$57 B
U.S. oil & total
gas production
33.8 mb/doe
U.S. drilling
activity
785 rigs
U.S. refinery
throughput
16.5 mb/d
U.S. petroleum
demand
19.7 mb/d
* Financial compilation based on API 200 companies with shares listed on U.S. stock exchanges. sources: EIA, API MSR, Bloomberg, Baker Hughes, API Team Analysis
Where we are currently
➢ Macroeconomy. After a record shock, third-party consensus
expectations are for a rebound to 4.4% y/y growth in 2021
➢ Oil markets – Historic demand and supply changes
• Low prices can be painful for industry, but beneficial to
consumers and oil & gas competitiveness
• Oil demand fell by record amounts with the global pandemic, but
appeared to bottom out in April and recover in May
• Historically large supply responses occurred in global oil prices,
U.S. drilling activity and production
➢ U.S. natural gas. Dedicated natural gas drilling now
represents 90% of U.S. gas drilling and supported a record
38.9% market share in electricity generation
Key drivers and uncertainties
➢ Pace of global economic and pandemic recovery
➢ Inflation/deflation, debt, foreign exchange rates
➢ Industry financial strength
➢ U.S. oil & gas well productivity
➢ Global gas market evolution
➢ International trade
Key points5-year range Quarterly increase
Quarterly decrease
www.api.org
0
20
40
60
80
100
Mar-19 Jun-19 Sep-19 Dec-19 Mar-20
Equipment, Services and EPC
Downstream
Midstream
Global Integrated
Specialty Petrochemical
The industry invested $57.8 billion in Q1 2020, down from an average of $67.2 billion per quarter in 2019, due to market conditions
Most global integrated companies invested steadily through Q1 2020 but recently announced capex reductions
Upstream companies made the largest reductions in their capital expenditure
Capital expenditures by industry segment
* All other oil & gas industry companies sources: Bloomberg, publicly-available company reports
Billion dollars
Q1 2020 change
(%y/y)
Total: -11.3
+1.0
-21.1
-12.6
-10.5
Upstream
-17.9-29.0
Headlines – Q2 2020
www.api.org
72 pipeline projects and 11.3 MBDOE of additional planned capacity may face liquidity, permitting and
construction delays
sources: S&P Market Intelligence, Oil & Gas Journal, EIA, API Team calculations
Permian Highway
$2.0 billion
0.9 MBDOE
Cheniere MIDSHIP
$1.5 billion
0.5 MBDOE
Mountain Valley
$5.0 billion
0.9 MBDOE
Atlantic Coast
$5.1 billion
0.7 MBDOE
Penn East
$1.0 billion
0.5 MBDOE
EPIC
Ingleside
Airbuckle
Enbridge Line 3
Mariner
Other
Cheniere MIDSHIP
Cheyenne1
Cheyenne2
Lockridge
Sabine
Sierrita
Mainline
Delaware
Other
Mountain Valley
Permian Highway
Trans Cameron
Supply Header
Atlantic Coast
Golden Pass
Capline
0
1
2
3
4
2020 2020 2021 2021 2022 2023
2.90
2.57
0.68
1.14
Other
0.3
3.74Oil
Natural gas
Million barrels per day oil-equivalent
O&G pipeline project capacity additions
EPIC
$2.5 billion
0.6 MBDOE Ingleside
$400 million
0.6 MBDOE
Airbuckle
$1.4 billion
0.4 MBDOE
Enbridge L3
$2.9 billion
0.4 MBDOE
Mariner East
$2.5 billion
0.3 MBDOE
What’s at stake? U.S. pipeline project map
2020 oil 2020 gas
OilNatural gas
2021 oil 2021gas
www.api.org
Global economy & oil markets
www.api.org
Deflation is the prime global concern due to unprecedented shocks spurring zero interest rates and $8+ trillion in stimulus
Headlines – Q2 2020
www.api.org
Global GDP growth could rebound strongly to 4.4% in 2021, according to third-party consensus estimates
Historical global real GDP growth averaged 3.0% per year (1970-2019) but can be volatile and cyclical
The third-party consensus expects growth of 4.4% in 2021, a rebound following a contraction of 4.0% in 2020
Global GDP growth, 1970-2019* Global GDP outlook*
y/y%
-2
0
2
4
6
1970 1980 1990 2000 2010
Average
1970-2019
sources: IMF, Bloomberg * Market exchange rate basis
-6
-4
-2
0
2
4
6
2019 2020 2021 2022-2040
y/y%
Average
1970-2019
Third-party
consensus range
June 2020
sources: IMF, Bloomberg * Market exchange rate basis
www.api.org
The U.S. dollar remained a global safe haven and reached its strongest foreign exchange rate in April 2020
Many factors contribute to oil prices, but a strong U.S. dollar tended to correlate with low oil prices over the last decade
Oil prices fell by record amounts in Q2 2020, largely due to the same underlying macroeconomic factors
U.S. broad dollar index and Brent crude oil prices, 2009-2020
0
50
100
150
85 90 95 100 105 110 115 120 125
U.S. Federal Reserve broad dollar index (2006=100)
Brent crude oil (2020 constant dollars per barrel)
Q2 2020
Weaker U.S. dollar Stronger U.S. dollar
-30
-25
-20
-15
-10
-5
0
5
Phili
ppin
es
Chin
a
Jap
an
Euro
Ind
ia
Arg
entina
Sin
gap
ore
Ma
laysia
S. K
ore
a
Tha
iland
Sw
ed
en
Ca
nad
a
U.K
.
Ind
on
esia
Austr
alia
South
Afr
ica
Bra
zil
Russia
Me
xic
o
sources: Federal Reserve Board, Bloomberg, U.S. BLS
Currency performance versus U.S. dollarBars are max depreciation in Q1 2020; points are changes year-to-date through June 5
Commodity-linked
Others
June 5 year-to-date
%
sources: Bloomberg, Federal Reserve, IMF
www.api.org
0
10
20
30
Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20
Rest of World Africa Canada MexicoLatin America Europe Japan S. KoreaRest of Asia China
0
10
20
30
Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20
Other ChemicalsHydrocarbon gas liquids (HGLs) Refined productsCrude oil LNG
U.S. energy trade has remained resilient
In Q1 2020, U.S. energy exports rose 8.5% y/y, but flattened in March versus year-ago levels as COVID-19 emerged
Crude oil and liquefied natural gas (LNG) have primarily driven U.S. energy trade gains
Trade with China has been relatively small, but may increase under the U.S.-China trade agreement
U.S. monthly exports of energy goods
Billion 2020 dollars
U.S. select energy exports by country/region
Billion 2020 dollars
sources: U.S. Census Bureau sources: U.S. Census Bureau
www.api.org
Global oil supply responded strongly to price market signals, with May bringing the largest decreases in drilling on record since 1975
With recent low oil prices, the U.S. drilling activity fell the most globally per Baker Hughes
U.S. drilling activity fell by 64% year-to-date to a record low 284 rigs as of June 5
Global rig count by region U.S. rig count by state as of June 5
source: Baker Hughes
0
500
1,000
1,500
2,000
2,500
Jan-19 May-19 Sep-19 Jan-20 May-20
Global rig count of 1,176 for May
2020, lowest since April 1999
1
United States
Middle East
Latin America
Europe
Africa
source: Baker Hughes
Asia Pacific
www.api.org
EIA projects U.S. production to decline, offset by other Non-OPEC nations and OPEC to global markets
Global oil demand fell faster than supply, and EIA expects relatively faster demand recovery after Q2 2020
0
25
50
75
100
2010 2012 2014 2016 2018 2020
2018
OECD (Developed
economiies)
Non-OECD(Emerging
economies)
Million barrels per day
sources:: EIA
Global crude oil and liquids consumptionEIA
estimates
0
25
50
75
100
2010 2012 2014 2016 2018 2020
Other Non-OPEC
OPEC
United States
Million barrels per day
Global crude oil and liquids production
source: EIA
EIA
estimates
www.api.org
After the immediate demand shock, EIA expects the global oil market to rebalance by Q3 2020
0
25
50
75
100
125
-10
-8
-6
-4
-2
0
2
4
6
8
10
2015 2016 2017 2018 2019 2020 2021
Supply less demand Brent crude oil prices Column1
2020$/Bbl
sources: EIA STEO (June 2020), Bloomberg
EIA global supply/demand and Brent price estimates as of June 2020
EIA estimates
Million barrels per day
www.api.org
0 20 40 60
Permian -Midland
Permian -Delaware
Eagle Ford -East
Bakken
Eagle Ford -West
WTI spot price
June 9, 2020
*Half cycle breakevens assuming 10% discount factor and play-specific costs source: BTU Analytics
Dollars per barrel ($/Bbl.)
U.S. oil well productivity –
new production per rig
0
500
1,000
1,500
2,000
2,500
3,000
2016 2017 2018 2019 2020
Eagle Ford
Bakken
source: EIA Drilling Productivity Report(Mar. 2020)
Barrels per day oil-equivalent
Permian
Apr. 2020Apr. 2019
Oil estimated breakeven
prices – April 2020*
0
200
400
600
800
1000
2016 2017 2018 2019 2020
Drilling rigs
Oil-directed drilling activity
source: Baker Hughes
Permian
All other
Eagle FordBakken
U.S. oil drilling requires at least $40 per barrel in most basins per Btu Analytics, so drilling slowed despite solid productivity
BTU Analytics estimates breakeven prices exceeded recent oil prices in most producing regions
EIA reported solid oil well productivity, but with the oil price drop drilling fell by the most on record to 206 rigs as of June 5
Steep YTD declines
www.api.org
0
100
200
300
400
500
0
200
400
600
800
1000
Jan-19 May-19 Sep-19 Jan-20 May-20
Crude oil storage building paused after an unprecedented increase due to the COVID-19 demand impact
Strategic Petroleum Reserve leasing of 23 million barrels of storage capacity and also procuring 15.0 million barrels
since April helped alleviate energy market concerns
A potential upside to consumers is that strong inventories could cushion the market through the hurricane season
U.S. inventories by petroleum product U.S. crude oil stocks by PADD
source: EIA, API Team Analysis
Jet Fuel
Million barrels
COVID-19 crisis
PADD 1
PADD 2
PADD 3
PADD 4PADD 5
Million barrels
source: EIA, API Team Analysis
Distillates
Motor Gasoline
Crude Oil
Jan-19 May-19 Sep-19 Jan-20 May-20
Rapid
Cushing build
Gulf coast storage fill
www.api.org
Motor gasoline and diesel fuel prices have generally moved with crude oil, and EIA expects limited impact from IMO 2020
0
1
2
3
4
2015 2016 2017 2018 2019 2020 2021
West Texas Intermediate crude oil Gasoline - U.S. average Diesel - U.S. average
2020$ per gallon
Crude oil, retail gasoline and diesel fuel prices, adjusted for consumer price inflation
sources: EIA, AAA, Bloomberg, BLS
EIA estimates
www.api.org
Natural gas
www.api.org
Global natural gas prices decreased to record lows in April 2020
Mexico$1.80
UK$1.65
Spain$1.75
India$2.05
Korea$2.25 Japan
$3.00
Belgium$2.20
Argentina$2.05
China$2.25
Lake Charles$1.47
sources: U.S. FERC (June 2020) and METI
Canada$1.40
www.api.org
With a rise in productivity, nearly 90% of U.S. natural gas drilling is concentrated in Appalachia and the Haynesville
BTU Analytics estimates breakeven prices in Appalachia and the Haynesville formation were competitive at recent prices
EIA reported record gas well productivity, and with recent market events Appalachia and the Haynesville rose to account for
nearly 90% of U.S. natural gas drilling activity
0
5,000
10,000
15,000
20,000
25,000
2016 2017 2018 2019 2020
Appalachia
Thousand cubic feet per day nat. gas-equivalent0 1 2 3
Appalachia -Ohio
Appalachia -Southwest PA
Appalachia -Northeast PA
Haynesville
Natural gas well productivity –
production per rig
source: EIA Drilling Productivity Report
Henry Hub
spot price
June 9, 2020
Natural gas estimated
breakeven prices – April 2020*
*Half cycle breakevens assuming 10% discount factor and play-specific costs source: BTU Analytics
Dollars per million Btu (mmBtu)
Haynesville
Apr. 2020
Apr. 2019
0
50
100
150
200
250
2016 2017 2018 2019 2020
Drilling rigs
Natural gas-directed
drilling activity
source: Baker Hughes
Appalachia
Haynesville
All other
www.api.org
In a reversal of recent trends, EIA expects natural gas production and demand to decline
EIA reports U.S. natural gas production declined beginning in November 2019 and does not project a rise before 2021
EIA separately expects natural gas consumption to decline in 2020 and again in 2021
0
25
50
75
100
2010 2012 2014 2016 2018 2020
Residential & Commercial
Electricity generation
Billion cubic feet per day (Bcf/d)
Industrial
EIA estimates
Transportation
Dry gas production
Net imports
Net exports
Natural dry gas production and consumption by segment
source: EIA
www.api.org
Natural Gas continued to gain share in power generation, and EIA expects low wholesale and retail prices
EIA expects natural gas’ share of electricity generation to reach 38.9% in 2020; prices at Henry Hub to remain below
$3.00 per million Btu through 2021; as well as lower retail margins above Henry Hub
U.S. natural gas prices
source: EIA source: EIA
0
2
4
6
8
10
12
14
2016 2017 2018 2019 2020 2021
U.S. electricity generation share by source
0%
25%
50%
75%
100%
2016 2017 2018 2019 2020 2021
Natural Gas
Wind
Coal
Hydroelectric
Solar
Nuclear
Dollars per million Btu (2020$/mmBtu)EIA estimates EIA estimates
Henry Hub (wholesale)
Industrial
Commercial
Residential
www.api.org
API economics resources available at www.api.org
API Industry OutlookSecond Quarter 2020
June 18, 2020