2013-02-02 16:11:35 - Fast Market Research recommends "United States Oil & Gas Report Q1 2013" from Business Monitor International, now available
BMI View: We have increased our oil production forecasts this quarter to reflect the rapid advances that E&P in the US is making. We believe that following the Presidential election, policy will remain broadly supportive to drilling. This will be most pertinent in relation to drilling in the Gulf of Mexico, in addition to policy on unconventionals, especially shale gas and liquids production. Energy production in the US has progressed significantly in the past five years, and it is highly unlikely that the next administration will not want to continue this. Therefore, we expect that supportive policy environment towards E&P will help keep a lid on West Texas Intermediate prices, as new supplies will continue entering the market in the
years to come.
The main trends and developments we highlight in the US oil and gas sector are:
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* We have increased our forecasts for US liquids production this quarter, starting from 2012 onwards. Our forecasts err on the side of caution, seeing a moderation in liquids production growth in the coming years, as base effects subside.
* According to our forecasts, the boom in US unconventional liquids production is set to combine with higher output from the Gulf of Mexico (GoM) to push total liquids supply (crude oil, natural gas liquids, other liquids and refinery gains) to 11.7mn b/d in 2013. By 2016, we anticipate that total liquids output will have hit 12.6mn b/d.
* Oil demand growth is set to remain muted despite the slow recovery in the macro-economy (BMI's latest forecasts point to average real GDP growth of 2.0% in 2012, rising to 2.1% in 2013). We estimate a fall in consumption of 1.15% and muted growth of 0.2% in 2012 and 2013, respectively. Demand growth will remain below trend over the course of the forecast period (to 2021) as the US energy market reduces its energy intensity. We expect total oil demand of 18.6mn b/d in 2012 and 18.86mn b/d by 2016.
* The shale gas revolution in the US saw total output soar 6.3% in 2011, to approximately 651bn cubic metres (bcm). However, this unconventional boom has created a supply glut, forcing prices down to 10-year lows. Gas producers have therefore started shutting in non-associated wells and are endeavouring to channel capital expenditure (capex) towards liquids-rich plays where possible. We therefore estimate the fall in gas production growth in 2012 to accelerate over 2013. We forecast gas production to moderate to 0.3% growth for 2013 and reach 677bcm, up from our revised estimate of 675bcm in 2012.
* Sluggish economic growth will see most gas demand growth come from the power sector, and increasingly from petrochemicals as well, where low gas prices are pushing utilities away from coal-fired generation. Indeed, in April 2012, monthly coal and natural gas generation were equal for the first time since the agency started compiling data in 1950. We expect the rise in natural gas-fired generation to drive an increase in consumption from 714.10bcm in 2013, to 720bcm by 2017.
* Changing dynamics in the US gas market have drastically reduced the US's import burden. We expect the total oil and gas net import bill to hit US$316bn in 2012, falling to just US$228bn by 2016 and US$210bn in 2021.
* The most dramatic shift is taking place in the natural gas market where surging production is reducing the import burden dramatically. We expect net imports of 51.31bcm in 2012, falling to just 4.27bcm by 2021. Perhaps in light of this collapse, the US Federal Energy Regulatory Commission (FERC) granted a landmark export permit to Chenier Energy for its Sabine Pass facility on April 17 2012. The plant, which has now received a final investment decision (FID) and the green light to begin construction, is set to begin operations by 2016/2017 with exports totalling 16mn tonnes per annum (tpa), or approximately 22.08bcm. This has now been factored into our forecasts and we expect net LNG imports to fall from 6.05bcm in 2012, to just 4.37bcm in 2015. From 2016, the US should become a net-exporter of LNG with the approval of further export facilities a major upside risk to our forecasts.
* There has been a great deal of activity in the US midstream segment as operators react to changing North American supply dynamics. We expect further midstream consolidation to occur - particularly in crude oil and natural gas liquids (NGL) processing, transportation and storage surrounding emerging tight oil and shale plays.
* In the downstream segment, US refiners on the east coast have been suffering due to high feedstock prices and falling gasoline demand. The Marcus Hook facility remains shut, reducing total refinery capacity by 178,000b/d. However, the future is brighter for the 335,000b/d Philadelphia refinery after the facility was acquired by the Carlyle Group. The 185,000b/d Trainer facility was also rescued by a white knight when it was acquired by Delta Airlines in Q212. We therefore anticipate total US refinery capacity will fall by just 178,000b/d to 17.60mn b/d in 2012, before recovering to 17.79mn b/d by 2016.
At the time of writing, we assume an OPEC basket oil price for 2012 of US$107.1/bbl, falling to US$99.10/bbl in 2013.
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