global energy & petrochemicals outlook · world primary energy demand growth by fuel type...

Indian Petrochem 2019 Mumbai, 14 November 2019

Vandana Hari

Founder & CEO

Global Energy & Petrochemicals Outlook

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About Us

Global oil markets macro-analysis – Timely, Credible, Succinct

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• Recap of major overnight oil market developments

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Demographics, Economics and Energy Demand

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World population to hit 9 billion in 2040; denser urban areas

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World population growth, 1996-2018 vs 2018-2040

China

India

Mideast & Africa

Rest of the world

OECD

India

Mideast & Africa

Rest of the world

China

OECD

Regions with fastest rates of urbanisation

China

World avg

Other Asia

Mideast & Africa

India

Source: OPEC World Oil Outlook, 2019

2018 total: 7.7 billion

2040 total: 9.2 billion

Asia to take growing share of global economy

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Distribution of global economy: Rise of China, India

Ind

ia

Rest of the world

OECD

India

China


China Rest of the world

Oth

er A

sia

Oth

er A

sia

OEC

D A

sia

Oce

ania

OEC

D A

sia

Oce

ania

OECD Europe

OECD Europe

OECD Americas

OECD Americas

• Global economy expected to DOUBLE between 2018 and 2040

• China, India, rest of Asia expected to be biggest centres of economic growth

• Globally, 1 billion people lack access to electricity, 3 billion lack access to clean cooking fuels. Much of the energy poverty is concentrated in Asia

World primary energy demand growth by fuel type

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Mil boe/d 2020-2030 2030-2040


Volumetric growth

• Demand growth in China, India will outpace global average of 1% per annum

• Total global primary energy demand expected to rise by 25% between 2018-2040 to 358 mil boe/day

• Gas use to grow the fastest (in volume), reaching 25% of primary energy share by 2040

OPEC sees dramatic drop in rate of oil demand growth

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Average annual oil demand growth, 2018-2040 • Global oil demand seen rising from 101 mil b/d in 2020 to 110 mil b/d in 2040

• Annual demand growth to shrink from 1.1 mil b/d at present to just 130,000 b/d by 2040

• Main causes of decelerating demand: - Displacement by gas, renewables,

cleaner fuel alternatives - Technology-driven efficiency gains - EVs, alternative-fuelled vehicles


Petchems to underpin rise in oil demand over next 20 years

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Oil demand growth by sector, 2018-2040

• Petrochemical sector seen as leading source of incremental oil demand to 2040 (+4 million b/d)

• Road transportation and aviation the other big contributors

• Oil demand in road transportation may plateau sometime between 2030 and 2040

2040

2040


A world of lighter, sweeter crude … but may switch again?

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Global crude oil* quality swings, longer-term

• Consensus on global crude slate becoming lighter, sweeter on the back of US shale boom, OPEC output cuts

• But OPEC sees trend reversing again around middle of next decade

• Expected post-2025 decline in output from US, Canada, Asia-Pacific, Caspian to increase share of OPEC’s heavier, more sulphurous crude

2040


*Includes condensates, synthetic crude

◦API gravity % Sulphur

Ethane demand growth strongest among petchem feedstocks

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Short-term changes in petchems feedstock demand • LPG, ethane to record largest demand

increase among oil products, driven by petrochemical and residential sectors

• Marks a shift from gasoil/diesel leading the pack, historically

• Naphtha is expected to remain the prime petrochemical feedstock

• New ethane-based capacity in US, but mostly naphtha-based in Asia, Middle East

2040


Oil Markets Outlook

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Brent range-bound around $60: Will it break out?

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Source: ICE, CME

30

40

50

60

70

80

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$/bbl

Brent WTI

2019 Jan-Oct average

WTI ~$57 Brent ~$65

Brent 4-year high $86

Brent 16-month low $50

$60

2018 average

WTI ~$65 Brent ~$72

…Hinges on which way US-China trade war goes

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Source: ICE, CME

30

40

50

60

70

80

90

$/bbl

Brent WTI

Economic gloom over trade tensions

Growing optimism over trade deal

10 May: Trade talks collapse

1 Dec: Trump, Xi agree 90-day truce

Jan 2019: Trade talks resume

29 Jun: Trump, Xi agree to resume trade talks

China signals likely rollback in tariffs

11 Oct: Plan for “phase-one” trade deal

Jul 2018: Start of tit-for-tat import tariffs

$60-70

Phased resolution

$50-60

Impasse

Demand concerns: The biggest drag on oil

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• Global economic growth has been decelerating

• Manufacturing contraction across the globe; consumer sentiment cooling

• World trade growth to slow to 3-year low of 2.6% in 2019: IMF

0

1

2

3

4

5

IMF: 3 consecutive downgrades in global GDP growth forecast

2019 2020From global ”synchronized growth” in 2017 … to a “synchronized slowdown” in 2019.

Source: IMF. The “S” and “F” represent Spring and Fall World Economic Outlook Forecasts each year

Easy money has boosted stock markets but not crude prices

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2300

2400

2500

2600

2700

2800

2900

3000

3100

3200

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40

50

60

70

80

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$/bbl S&P 500 (rhs) WTI (lhs) Brent (lhs)

Divergence since June 2019

Source: ICE, CME, Yahoo Finance

Global oil demand growth forecasts downgraded since Feb

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Source: International Energy Agency, OPEC, US Energy Information Administration, Vanda Insights

1.52 1.51

1.45 1.41 1.38 1.41 1.42

1.38 1.37

1.34 1.30

1.19 1.12

1.06 1.00

0.93

0.0

0.4

0.8

1.2

1.6

2.0

Mil b/d The slippery slope of oil demand: Changes in 2019 projections

IEA EIA OPEC Avg

Month of forecast

Non-OPEC oil supply growth outpaces rise in demand

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Source: International Energy Agency

• Strong rise in non-OPEC oil supply, led by tight oil from US shale

• Continuing gap puts pressure on OPEC/non-OPEC alliance to keep tight reins on oil output

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1

2

3

Annual growth in mil b/d

Non-OPEC output Global demand

Major areas of oil supply growth and decline

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2019 2020 (e)

• US 1.6 1.3

• Canada 0.1 0.1

• Brazil 0.2 0.3

• Norway - 0.4

2019 2020 (e)

• Iran 1.1 ?

• Venezuela 0.5 ?

• Saudi Arabia 0.3 ?

• Mexico 0.2 0.03

Annual jump (in mil b/d)

Annual slump (in mil b/d)

Source: International Energy Agency, OPEC. Non-OPEC volumes include condensate and NGLs. OPEC volumes are only crude.

OPEC output didn’t really drop – until this year!

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25

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30

31

32

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"Core" OPEC production in million b/d

2016 avg: 31.5 2017 avg: 31.4

2018 avg: 31.2

2019 Jan-Sep avg: 29.3

Vanda Insights analysis:

• OPEC agreed to cut output by 1.2 mil b/d from Jan 2017 and by 0.8 mil b/d from Jan 2019

• But actual reduction in 2017 and 2018 was much smaller

• First REAL CUT – of nearly 2 mil b/d on year – has happened only in 2019

Source: Vanda Insights analysis based on OPEC monthly reports

The picture of oil demand: Few bright spots

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37 Asia-Pacific

30.5

31.0

31.5

32.0

32.5 Americas

14.5

15.0

15.5

Europe

4.0

4.5

5.0FSU

8.0

8.5

Middle East

3.5

4.0

4.5Africa


China, India biggest drivers of oil demand growth

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-0.5

0.0

0.5

1.0

1.5

Mil b/d

ROW

Middle East

India

China

IEA outlook over next 5 years

Source: International Energy Agency 2019 annual report

• Chinese economy and oil demand growth have been slowing, now amplified by trade war

• China still remains the biggest contributor to demand growth: Up 6% on year over Jan-Sep

• Indian oil demand rose 2% over Jan-Sep (vs annual growth of 4.5% for full-year 2018)

Downstream: Asia dominates refining capacity additions

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Distillation capacity additions from existing projects

Source: OPEC

2024: 0.4 mil b/d 2023: 0.8 mil b/d 2022: 1.4 mil b/d 2021: 1.7 mil b/d 2020: 1.6 mil b/d 2019: 2.0 mil b/d

Global total • Global capacity creep cools

off after 2021

• Asia ex-China and Middle East to surpass China in additions from 2020

• Latin America continues to lag in adding downstream capacity

OPEC worries about oil stocks, ghost of 2015-2017 glut

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• OECD oil stocks rose for the fifth straight month in August 2019

• Closing in on the 3 billion barrel figure last seen during the 2015-2017 overhang

• IEA projects >1 mil b/d build in stocks through first-half 2020

Producer alliance is girding for tough times…

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Non-OPEC liquids supply outlook 2018-2040

Peak in 2026

…But only till the end of next decade

• Sees non-OPEC oil supply peaking around 2026

• Sees demand for OPEC liquids (crude + NGLs) rising from 34 mil b/d in 2020 to 44 mil b/d in 2040

Source: OPEC World Oil Outlook 2019

Conventional crude

Biofuels

Other liquids (ex-Biofuels)

Tight oil (crude + NGLs)

Conventional NGLs

Speculators raising bullish bets on crude since Oct

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Source: US Commodity Futures Trading Commission, CME, ICE

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1,000

$/bbl Mil bbl Spec length in WTI (lhs)

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15

30

45

60

75

90

-20

80

180

280

380

480

580

$/bbl Mil bbl Spec length in Brent (lhs) Brent (rhs)

Deeper OPEC+ cuts in 2020 far from certain

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• US-China trade deal likely to support Brent above $60 psychological mark

• Russia, important non-OPEC ally, has been dovish since late 2018

• Saudi Arabia needs to manage optics around Aramco IPO with oil buyers

• Saudi Arabia cutting more than it needs to, complicating the maths

• Tough to impose deeper cuts without 100% compliance with current quotas

US shale boom drives crude, product exports higher

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Source: US Energy Information Administration

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Mil b/d Crude exports Finished petroleum product exports NGLs exports Crude production

Petchem feedstocks: Cracks under pressure, ethylene volatile

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Source: S&P Global Platts (naphtha, ethylene, propylene, benzene), ICE (Brent)

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200

400

600

800

1000

1200

1400

1600

1800

$/mt

Ethylene CFR NE Asia

Propylene Poly Grade CFRChina

Benzene FOB KoreaMarker

Naphtha C+F Japan

ICE Brent front-month

0

2.5

5

7.5

10

12.5

15

Big question on future trajectory of US oil output

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OPEC outlook on US tight oil supply

Peak in 2027: 11.8 mil b/d

Source: OPEC World Oil Outlook 2019

Peak in 2032: 14.5 mil b/d

US EIA projection

Source: EIA Annual Energy Outlook 2019

Near-term uncertainty too, as shale succumbs to price pressure

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600

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850

900

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80WTI in $/bbl (lhs) Oil rig count (rhs)

300

350

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450

500

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50

60

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80WTI in $/bbl (lhs) Frac fleet count (rhs)

• US shale producers have laid off 23% of oil rigs since start of 2019

• Fracturing fleet count has dropped 28% from recent high of April 2019

• Shale producers under pressure to increase cash flow, have exhausted “sweet spots”, face well interference issues, challenges of limited access to capital and credit

Source: Baker Hughes, Primary Vision, CME

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9

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US crude production in million b/d

US output growth decelerating, but by how much?

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2018: 10.99 mil b/d

2019: 12.26 mil b/d

2020: 13.17 mil b/d

Source: US EIA. 2019 and 2020 are the latest projections

+1.6 mil b/d

+1.3 mil b/d

+0.91 mil b/d

2017: 9.35 mil b/d

?

The future ain’t what it used to be

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For now it’s all about:

• Trade war

• Trade war

• Trade war

• Rising Middle East tensions

In early 2019, we were focusing on:

• US sanctions against Venezuela, implications of civil war or regime change

• US sanctions against Iran, fate of 6-month waivers granted on crude exports in Nov

• US-China trade war: Resumption of talks promising, but no guarantees

• Will US launch a trade war with Europe?

global energy & petrochemicals outlook · world primary energy demand growth by fuel type...

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