Presentation on theme: "The McGraw-Hill Companies. About Platts A division of The McGraw-Hill Companies (NYSE: MHP) World's leading provider of energy information. With over."— Presentation transcript:
The McGraw-Hill Companies
About Platts A division of The McGraw-Hill Companies (NYSE: MHP) World's leading provider of energy information. With over 10,000 customers across 150 countries, 600 employees in 17 offices around the world, and nearly a century of business experience, Platts is the most recognized and respected information company in the energy industry. Our real-time news, price reports, analytical services and conferences are essential to enabling Governments to operate with transparency and efficiency. Traders, Risk Managers, Analysts, and Executive Management depend on Platts to help them make better, faster, more effective decisions.
Platts Global Coverage Washington London Bonn Moscow Hong Kong Singapore Sydney Dubai Paris Buenos Aires Guangzhou Calgary Mexico City Boston Beijing Boulder Houston Tokyo New York
News & Pricing Transactions Assessments Market Reports Breaking news Platts is a specialist energy publisher founded by Warren Platt nearly 100 years ago, and owned by publisher McGraw-Hill Impartial and independent
Platts Price Discovery Platts publishes more than 8,000 indexes and assessments each day Platts assesses actual market levels We use highly structured methodologies to determine accurate and precise market values Commodities have implicit values, even when not traded and prices can be discovered through a process of market examination and analysis Transparency, consistency and verification
A few observations… Gasoline prices have been low! …because gasoline has been the “runt of the litter” Structural changes may be making that permanent But refiners are adaptable…how fast will they adapt? US has become a decent-sized exporter as a result of some of these changes
But misunderstandings linger.. The three-headed monster: keep your eye on all three heads! Gasoline prices need to “catch up.” Or do they? “Normal” catch-up may be on a new standard.
Gasoline to crude: big change
Why did diesel surge? Long-time consumption trends, particularly in Europe The configuration of refineries was always to make more gasoline The Bolivian and Argentina gas messes New sulfur rules in the US and Europe But companies react…ingenuity and greed triumph, eventually
Ramping it up…
Returning to normalcy?
The ethanol impact Ethanol having an enormous impact on the relative price of gasoline Despite the controversy, mandates for it are set to grow Iowa: first in the nation caucus But…McCain has never been an ethanol backer US tariff is simply sending Brazilian material elsewhere…with US bearing the transportation costs. Currently 6.6% of US gasoline consumption Showing up in conventional markets.
More common misunderstandings.. The curve predicts prices Prices are a function of percentages. Speculators pulling out of the market led the price down BUT…if speculators were at fault, where were the inventories? More likely: the diesel-driven surge ended because of softer demand, refiner reaction
Things you will hear this election… “ The US has no energy policy.” The US has an energy policy that has been largely bipartisan. Minimal taxation of gasoline Restricted drilling. Limits on nuclear power Turn food into fuel Cleaning up the fuel pool This constitutes “a policy,” because there are clear choices being made.
The coming gas revolution Transformative technologies might be in hydrocarbons The shale plays: Barnett, Haynesville, Marcellus…. Aubrey McLendon, the Pied Piper of shale natural gas: Retrofit 25,000 gas stations at a cost of $400,000 per station. Fill up at $2.50/gallon [equivalent], which is $20/Mcf. Current price: less than $9/Mcf.
More McLendon… Told the House Select Committee on Energy Independence and Global Warming that US gas producers could increase production by by 5% annually for the next 10 years, providing enough natural gas to fuel 10% of America's cars and generate enough power to prevent the building of any new coal-fired generation plants.
Natural gas as an alternative The same characteristics as oil Lower CO2 intensity Lower emissions on almost everything Suddenly…an abundant supply? And that’s without expanded offshore drilling Can wind/solar/biomass compete against this?
What alternatives face, or “Why I decided to love oil as an energy source.” Tremendously dense Easily stored Easily transported As a result: invisible to society at large Even at these prices, still beats all alternates.
Could research have beaten this curve?
The broad factors…mostly bullish World supply remains constrained: Mexico, Russia, and expected declines The return of nationalism: Chavez and Putin Repeated failure of non-OPEC targets to be reached: IEA projected 4Q ’08 at 51.8 last Dec; most recent, 51.3 The controversy over Saudi Arabia/Ghawar The rising demand giants Commodity bull markets often run years
Ominous warning: John Hess "An oil crisis is coming." When looking at the tight squeeze in the supply/demand balance, "it's hard to see any relief in sight." Hess said in the opening session. Growth in oil demand is "unrelenting" and the world needs "a sense of urgency, or the consequences will be severe."
REAL demand destruction Late 1997: IEA estimates ’98 demand will be 75.6 million b/d By April ’99, IEA estimated world demand plunged to 73.8 million b/d Supply went from 75.6 million b/d to 75.3 million b/d 4Q ’97 to 4Q ’98 Result: Lowest real crude price ever
Current demand destruction nowhere near as much Outright, no demand destruction at all 4Q ’07: 87.2 Projected 4Q ’09: 89 million b/d…up 1.8 million b/d Supply strains to keep up: Non-OPEC…49.7 rising to 50.6 Asking OPEC to produce by 4Q million b/d Latest Platts estimate: million b/d
Shorter-term: downward pressure That OPEC output is higher than the “call” for both fourth quarter and first quarter 2009 Fourth quarter call: 31.3 million b/d First quarter call: 30.3 million b/d OPEC meeting: “we’ll be good boys!” Main players concerned with demand destruction
What to watch for.. Upside potential: Non-OPEC output continues to disappoint Mexico’s train wreck gets even worse Venezuela joins in on the highway to hell The whispers about Saudi production turn out to be true Can Iraq save the day? Downside potential: demand retreats further…but that might mean the economy isn’t too hot!
What to watch for, con’t… Does natural gas pull down the price of oil? The big breakthrough: oil shale, at the Mahogany play