state of the petroleum industry - microsoft...2016 sep-2016 oct-2016 nov-2016 dec-2016 us spot and...

© 2017 Energy Price Information Corp. All rights reserved. Do not reproduce or reuse without written permission.© 2017 Energy Price Information Corp. All rights reserved. Do not reproduce or reuse without written permission.

Strategic News and Fuel Price Data for Sellers and Buyers

Gary D. Bevers, President & Publisher – EPIC News+Data

State of the Petroleum Industry:Finally, We Have Some Good News!

© 2017 Energy Price Information Corp. All rights reserved. Do not reproduce or reuse without written permission.

ImplicationsofMexico’sOil&GasReformsi.e.,theBreakUp(Privatization)ofPemex?


PEMEX - National Oil Company


Vertical Integration ─ International Model

Merchant Refining

Product Distribution

Marketing Wholesale/Retail

Exploration & Production


The Petroleum Supply Chain

Margin economics

Commodity economics

Refine Blend

Store Pipe

Distribute

Retail & Commercial Markets

Explore Develop

Produce

ShipCustomer is king

Major Oil Sell off of Downstream Assets


Regulated Prices = Stable Prices

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$2.08

$3.28 $3.32 $3.36

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Low (Jan and Feb 2015) Average Jan-June 2015 High (June 2015)

Fully built-up retail prices for Magna gasoline are remarkably stable, ranging only from $3.28/g to $3.36/ in the first half of 2015

Magna gasoline, 2015 postings converted to US$/gallon, weighted avg prices to Pemex

Pemex Magna gasoline prices, 2015 postings converted to US$/gallon, fully built up prices

Source: Compiled by Trans-Energy Research Associates using Pemex


It’s all about the price

Price signs by PWM


Rule #1… Keep your sense of humor!


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US Spot and Retail gasoline prices vs Pemex Magna public price, US$/gal

US Gulf Coast conventional gasoline spot price, US$/gallon FOB Pemex Magna public price, US$/gal

US conventional gasoline, average retail price, US$/gal

Pemex Magna public price is posted above US spot and average retail prices


§ New legal framework for all hydrocarbon-related activities, including: – Surface and geophysical surveying – Exploration for and extraction of hydrocarbons– Refining, transportation, storage, marketing and sale of petroleum and

its products– Processing, compression, transportation, storage, distribution and

retail sales of natural gas– Transportation, storage, distribution and retail sales of liquefied

petroleum gas (LPG)– Pipeline transportation and storage of petrochemicals.

§ Two main principles affirmed governing the Mexican energy sector:– In place hydrocarbons within Mexico’s boundaries belong exclusively to

the state – That the exploration and production (E&P) of hydrocarbons are state

strategic activities

New Hydrocarbon Legal Regime in Mexico


§ Fuel marketing, buying and selling opportunities are no longer tightly controlled by government regulations and mandates.

§ New relationships between Mexican and U.S. fuel companies

§ New tax issues for imported supply from the U.S. § For those in Mexico, it’s about:

– Establishing an entirely new fuel buying strategy– Understanding new market risks– Expanding infrastructure and supply access– Structuring fuel deals with visible, third party benchmarks– Learning how to market the way that U.S. jobbers and

retailers do.

Cultural Change — A Big Hurdle


Oil&GasReforms:UpstreamSupply-Chain


§ Crude oil production decline rate is accelerating:– Estimate for 2017 down 36% from close of

2010§ Reforms to stabilize/reverse decline in oil

production by:– Opening the sector to international oil

companies– Pursuing high-value deepwater and

unconventional resources§ Early licensing rounds have been disappointing§ Production growth will depend largely on reform

initiatives§ Finance, operational expertise and technology

needed§ Conversion to proven reserves & production will

take time

Current State of Upstream

Mexico Crude Oil Production

Year Mb/d % Change %Total Change

2010 2961 -

-35.83

2011 2942 -0.64

2012 2912 -1.02

2013 2876 -1.24

2014 2785 -3.16

2015 2588 -7.07

2016 2200(1) -14.99

2017 1900(2) -13.63

(1) Source: U.S. DOE/EIA Estimate(2) Source: Pemex


§ Exporting crude into the U.S. Gulf Coast, has become increasingly difficult

§ Primarily due to decline in production (mostly heavy Maya)§ Lighter crudes (Isthmus and Olmeca) being displaced by

U.S. shale production

U.S. Imports of Mexican Crude Oil


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Decline in US crude imports from Mexico, kbpd

Mexico is exporting less crude to the US


Oil&GasReforms:MidstreamSupply-Chain


§ In 2015, Mexico was an exporter (1,370 mb/d) of crude oil and net importer (810 mb/d) of refined products:– Insufficient refining capacity (1,600 mb/d) to meet domestic

demand (1,930 mb/d) for refined products– Insufficient coking and desulfurization capacity needed for

heavy crudes– Operating below crude tower capacities (1,060 mb/d) due to

need for major repairs and upgrades§ Reforms permit foreign investment in refining particularly

for processing heavy crudes§ U.S. light sweet-for-Mexican heavy sour swaps would allow

greater refining efficiency while increasing lower-sulfur gasoline supply in Mexico.

Current State of Refining


§ June 2016: Domestic gasoline sales reached 838 mb/d, Pemex production was 345 mb/d

§ U.S imports, mostly via ships to Tuxpan or Salinas Cruz, make up most of the shortfall, additional 150 mb/d came from non-U.S. sources.

§ Proposed Tuxpan port & distribution facilities will allow gasoline to be sourced globally

§ Trading firm Novum Energy (Houston) has completed Mexico's first private import of diesel fuel from Texas

U.S. Refined Product Imports


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Major growth in U.S. exports of gasoline and diesel to Mexico, 1993-2016

US diesel exports to Mexico, kbpd US gasoline exports to Mexico, kbpd

Source: EIA

Mexico is importing more gasoline and diesel from the US


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Mexico Active Rigs, June 2012-April 2017

Source: Baker Hughes

The decline in Mexico’s rig count has not reversed, June 2012-April 2017


§ There are no plans to privatize State-owned, midstream assets

§ However, the midstream has faced chronic underinvestment

§ Foreign ownership may now extend or build and operate new products pipelines across the northern Mexico border

§ Inadequate transport & storage capacity has increased the risk of supply interruptions and raised the volume transported by trucks and tank cars

Current State of Transportation & Storage


§ TransCanada, Sierra Oil & Gas, & Grupo TMM looking at midstream infrastructure:– A marine loading and distribution terminal near Tuxpan,

Veracruz– A 165-mile, 100 Mb/d refined products pipeline to Tula, just

outside of Mexico City– Creation of an inland storage and distribution hub in central

Mexico.§ Howard Energy’s 2018 Dos Aguilas line, W Texas to Santa

Catarina (Monterrey)§ TransMontaigne & Magellan Midstream considering JV

pipeline from Corpus Christi to Brownsville to move product into Mexico via truck, rail or pipelines

§ Rangeland Energy’s STEPS rail terminal in Corpus Christi with an initial capacity 10 Mb/d in 2017, but scalable to 100 Mb/d of capacity to Mexico

Transportation & Storage Projects – US to Mexico


Oil&GasReforms:DownstreamSupply-Chain


§ Growing Market with Increasing Imports– GDP growth (2x) will lead to an increasing reliance on imports. – Mexico is U.S. refiners largest export market– Consumption of imports expected to increase from half to nearly 60

percent by 2020§ High Fuel-Site Volumes

– Retail fuel site count has been stagnant at 11,000 sites under PEMEX control

– Site throughputs exceed 1.3 MMgal/yr with larger markets averaging nearly 1.6 MMgal/yr

§ Pricing– Pricing reforms have been delayed or “watered down”

§ Highly Fragmented Market – Only half of PEMEX sites have convenience stores compared with 80%

in other markets– Over 5,000 franchisees operate only one or two sites with largest

operating fewer than 300 sites

Current State of Downstream


§ Foreign companies will be allowed to own fuel assets§ Companies can sell non-PEMEX branded supply § Refined product competitive rollout will be gradual § Competition to be assessed in specific markets§ Special treatment for gasoline, diesel, jet-fuel and LPG§ Automotive fuel prices will be subject to adjustment

– Domestic inflation– Regional supply access– Local competitive environment

Reform & the Downstream


§ The first steps of fundamental reform of the Mexican energy sector are in place

§ There are still many important issues that must be addressed to make reforms a success

§ The regulatory framework and its body of guidelines, directives, resolutions and norms is still pending which makes for uncertainty – Investors do not like uncertainty

§ But the biggest challenge to attracting foreign investment capital in the Upstream is the current price of crude

§ $40-$50/bbl Crude makes it difficult to get an adequate ROI so the government will have to make deals more attractive

§ Start with lower risk projects

Conclusions


Expanding Mexico’s Infrastructure is crucial


Shale Play Opportunity?


§ Risks– Regulations are not clear yet – Pricing controls arbitrary in timing and market application

§ Options exist for participation – Full ownership and operation of assets within key segments of

the supply-chain– Partnerships and joint ventures– Brand-based sales agreements.

§ New fuel sites, consolidation, and consumer concepts§ Reliable fuel supply is essential to relationships if not PEMEX

– Establishing branded supply agreements and partnerships with retailers

– Leveraging existing retail fuel brands with local retailers.– Leverage consumer choice with new sites and new offers

Downstream Strategies for US Companies


ImplicationsoftheTrumpPresidencyontheUSEconomy,theOil&GasIndustryandJobs.


Cross your fingers and Vote!


Really?


A Bull In A China Cabinet


The dogs bark but the caravan moves on…


Wishful thinking…


Van Jones: The Moment Trump Became President

CNN political commentator Van Jones said that the moment when President Donald Trump addressed Carryn Owens, the widow of slain US Navy SEAL William "Ryan" Owens, was a crucial moment.


1: a card of a suit any of whose cards will win over a card that is not of this suit —called also trump card : the suit whose cards are trumps for a particular hand —often used in plural2: a decisive overriding factor or final resource — called also trump card3: a dependable and exemplary person

Merriam-Webster Definition of Trump


§ First Energy President since Dwight D. Eisenhower§ Believes Energy sector is crucial to his Job creation goals§ Rolling back EPA regulations§ Rolling back Drilling restrictions on Federal Lands§ Opening up “protected” Federal lands for Energy

exploration§ Approved Keystone pipeline + the Dakota Access pipeline§ Increased drilling permits§ Shortened permitting and regulatory approval timelines

Gary Bevers Definition of Trump – Energy President


§ After eight years of being banished and sometimes vilified by the Obama administration, the fossil fuel industry is enjoying a remarkable resurgence as its executives and lobbyists shape President-elect Donald Trump’s policy agenda and staff his administration.

§ The oil, gas and coal industries are amassing power throughout Washington — from Foggy Bottom, where ExxonMobil chief executive Rex Tillerson is Trump’s nominee to be secretary of state, to domestic regulatory agencies including the departments of Energy and Interior as well as the Environmental Protection Agency.

The Oil & Gas industry quickly amassing power in Trump’s Washington


Trump Cabinet—Good for Oil & Gas

Scott Pruitt,Environmental Protection Agency

Rex Tillerson,Secretary of State

Rick Perry,Energy Secretary

“Trump “is rigging the Cabinet top to bottom with allies of the oil industry”Senate Minority Leader Charles E. Schumer (D-N.Y.)


§ At a rally in West Allis, Wis., Trump vowed to “eliminate all wasteful job-killing regulations.

§ On energy he vowed, we will cancel the restrictions on the production of American energy, including shale, oil, natural gas and clean beautiful coal.”

Trump On Energy - "ending the theft of prosperity."

"My action today is latest in steps to grow American jobs," Trump added, saying his order is "ending the theft of prosperity."


Trumps First 100 Days


§ American Petroleum Institute (API) President and CEO Jack Gerard said President Trump is making good on his campaign promise to create jobs and strengthen America’s economy by removing roadblocks to our nation’s energy renaissance.

§ In the first 100 days, the administration has issued five executive orders, signed six memorandums and four Congressional Review Act (CRA) resolutions, supporting U.S. energy development, production and refining. Additionally, agencies—including the Environmental Protection Agency (EPA) and Department of Interior (DOI)—have issued a number of secretarial orders, implementing the administration’s new focus on energy.

§ “President Trump issued executive orders and presidential memorandums that put the Keystone XL pipeline back on track; allowed the Dakota Access Pipeline to be completed; opened access to additional federal areas for responsible energy development; and removed duplicative regulations that hinder energy production without achieving the desired environmental, economic or consumer benefit.

API: President Trump’s 100 Days Highlights America’s Energy Renaissance


§ “We are pleased to see this administration prioritizing responsible U.S. energy development and recognizing the benefits it will bring to American consumers and businesses,” said API CEO Jack Gerard.

§ “We must particularly look to and embrace the future development of domestic sources of oil and natural gas in the eastern Gulf of Mexico.

§ The eastern Gulf is in close proximity to existing production and infrastructure, and opening it would most quickly spur investment and economic activity, which could create thousands of jobs and provide billions of dollars in government revenue.

Good for Texas Oil & Gas Industry


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U.S. Active Rigs

Huge drop, then rapid recovery, in U.S. rig count, June 2012-May 2017


Drilling and Production Efficiency is Way Up!


Low, Stable Fuel Prices.


Fuels consumption is rising…


§ ALEXANDRIA, VA – Low gas prices are driving increases in convenience store sales both at the pump and inside the store, according to the results of a survey of convenience retailers released by the National Association of Convenience Stores (NACS).

§ Retailers cited a number of reasons for their optimism. “Lower gas prices allow people to have more money to spend in our stores,” said Jamy Flory with Flory’s Corp. (Fishkill, NY).

§ Mickey Jamal with CPD Energy (New Paltz, NY) agreed, adding that the industry’s increased focus on quality foodservice programs is helping to increase sales.

§ Concerns over the Political ClimateDespite the positive news, retailers raised one major concern that could dampen sales: the political climate.

LOW GAS PRICES FUEL CONVENIENCE STORE SALES IN 2016


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US monthly spot prices: WTI crude, gasoline and diesel, June 2006-April 2017

US Gulf Coast conventional gasoline $/g US Gulf Coast ultra-low sulfur diesel $/gal WTI Crude $/b

Summer2008 price

Global recession and price collapse

Slow economic recovery

OPEC oil price war feeds oversupply, prices slump

OPEC-NOPEC production cut deal begins to strengthen

Oil price trend and volatility, 2006-2017


§ Regulatory Reforms§ Tax Reform§ Economy§ Jobs, Jobs, Jobs§ Border Security§ Supreme Court (Conservative Judges)

How will Trump Ultimately be Judged?


Illegal Immigration From Mexico Border Down 67%


“Lowest level for insured unemployment since Nov. 5, 1988…”


US Consumer Sentiment Remains Near 13 Year High


Always a leading economic indicator!


The Consumer Confidence Index hit 125.6 in March its highest level since December 2000.

The survey also found that those saying business conditions are "good" rose to 32.2 percent from 28.2 percent. Those saying business conditions are "bad" fell to 12.9 percent from 13.4 percent.

According to data from The Conference Board


§ Executives from midsize and small businesses feel dramatically better about the U.S. economy than a year ago, according to the 2017 JPMorgan Chase & Co. Business Leaders Outlook report .

§ Middle market executives are twice as optimistic – 80%, up from 39% – about the U.S. economy than they were last year. Also, 62% of small business owners are bullish about the U.S. economy, up from 43%. Both groups feel even better about their own company’s prospects.

§ “U.S. companies are gaining confidence, and they anticipate new economic support from Washington in the coming year,” said Jim Glassman, Senior Economist at JPMorgan Chase.

§ In fact, 76% of middle market executives and 61% of small businesses expect that the new administration will have a positive impact on their business. They want the government to focus first on:– Reducing regulations and– Lowering taxes

“U.S. companies are gaining confidence, and they anticipate new economic support from Washington in the coming year”


Private investment was a drag on U.S. economic growth for 2016

Energy investment fell by over 65% since the end of 2014 and reached the lowest level in over a decade last year, as companies reduced spending to limit losses and support near-term profits.


§ President Donald Trump signed a sweeping executive order Tuesday at the Environmental Protection Agency, which officials said looks to curb the federal government's enforcement of climate regulations— by putting American jobs above addressing climate change.

§ Tuesday's order initiates a review of the Clean Power Plan, rescinds the moratorium on coal mining on US federal lands and urges federal agencies to "identify all regulations, all rules, all policies ... that serve as obstacles and impediments to American energy independence," the official said. Source: CNN Politics March 29, 2017

Trump dramatically changes US approach to climate change


The Politics of Fuel – Alternative Fuels?


Coal, 14.22

Natural Gas, 28.43

Petroleum, 35.94

Nuclear, 8.42

Hydroelectric, 2.48

Geothermal, 0.23

Solar, 0.59 Wind, 2.11

Biomass, 4.76

Other, 7.45

U.S. Primary Energy Consumption by Source, 2016, Quad BTU

Coal Natural Gas Petroleum Nuclear Hydroelectric Geothermal Solar Wind Biomass

Fossil energy still dominates U.S. primary energy mix, 2016


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AEO 2017 Forecast Transport Sector Fuel Use: Gasoline, Diesel, Jet Fuel, and Other (Quad BTU)

Gasoline including ETOH Diesel on- and off-road Jet Fuel All other transport fuels incl natgas

The Good NewsGasoline & Diesel Will Continue to Dominate the US Fuel Picture

U.S. gasoline demand (including ethanol) is forecast to decline in longer term, yet transport sector will remain dominated by petroleum beyond 2050


CAFÉ Standards

2012 2013 2014 2015 2016 2017 2018Passenger Cars 33.6 34.4 35.2 36.4 38.2 39.6 41.1Light Trucks 25 25.6 26.2 27.1 28.9 29.1 29.6Combined Cars & Trucks

29.8 30.6 31.4 32.6 34.3 35.1 36.1

TABLE 2: Projected Fuel Economy Standard (mpg).


Automakers Near a Victory on Rollback of Fuel Standards


Bio Fuels — Rule #1… Keep your sense of humor!

2018

© 2017 Energy Price Information Corp. All rights reserved. Do not reproduce or reuse without written permission.© 2017 Energy Price Information Corp. All rights reserved. Do not reproduce or reuse without written permission.

Strategic News and Fuel Price Data for Sellers and Buyers

Gary D. Bevers, President & Publisher – EPIC News+Data

State of the Petroleum Industry:Finally, We Have Some Good News!

Contact — [email protected] — 832-447-1275 x10

state of the petroleum industry - microsoft...2016 sep-2016 oct-2016 nov-2016 dec-2016 us spot and...

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