Transcript CASCA Consulting, L.L.C.

Caspian Oil & Gas
- Challenges and Opportunities International Institute for
Caspian Studies Tehran, May 24, 2004
Franz B. Ehrhardt, CEO, CASCA Consulting, L.L.C.
CASCA Consulting, L.L.C.
Or ... how to best employ the energy assets
of the Region to achieve significant
sustainable economic growths and to
support reliable regional stability!
July 16, 2015
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2
Thinking Frame Work …
Presented Issues are:
1) Repetitions and validations of accepted wisdom, facts, and
situations
2) Accepted .. but viewed from different perspectives
3) New and unconventional views, aspects, and approaches
… and they are the views of a Conceptual Strategist, Futurist,
Lateral Thinker, and Student of History
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Agenda
I.
Geographic Definition
II. Part I - The Bigger Picture
•
•
•
Demand Growth – Spike or Continuous
Supply – Fact or Fiction
Price Level – Blip or Real
III. Part II - The Caspian Scenario
•
•
•
•
•
•
The Fundamentals of the Assets
Economic Development - Value Chain Issues
Market Links
Export Routes
Environmental Issues
Refining Issues
IV. Conclusions
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Geographic Definition
How to define “Caspian Region”?
 Many interpretations, many views, many differing concepts about
the term “Caspian Region”
 For this presentation, geographic history, trade relations over
millennia, energy production, transit, and use, and many other
factors have been utilized to propose a multi-beneficial notional
“union”
 A core model for discussion was found in the Economic
Development Organization* to which Georgia, Armenia, and the
Russian areas bordering the Caspian Sea have been added.
*Turkey, Azerbaijan, Iran, Kazakhstan, Turkmenistan,
Uzbekistan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan.
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Geographic Definition
 Examples of other “Unions” that were created out of turmoil,
ashes, and economic needs for mutual benefit and stability:
 European Union
454 MM People
 United States
285 MM People
 “Caspian Energy Impact Union”*
350 MM People
* Benefactors from Oil & Gas Production, Energy Product Transit,
Product Value Upgrades, and Energy Supply Security
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Definition of
“Region” (E.C.O.+)
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Part I
The Bigger Energy
Picture
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Demand Growth –
Spike or Continuous?
Some Issues to be Considered:
• Between 1980 and 2000 the world population grew by 1.5 billion,
as many we had in total in 1890
• 2.0 billion (1/3) out of 6.0 billion people still live without any form
of modern energy
• Global demand slowdown in the 90ies was caused by the collapse
of the Soviet Union, the rest of the world continued to grow at
previous paces
• The recovery of the FSU started to add to global demand
expansion again from mid 1990 onwards
• China’s energy demand is rapidly growing
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Demand Growth –
Spike or Continuous?
Some Issues to be Considered:
• Car ownership in China went from .7 mm to 7.0 mm in 11 years,
motorcycles from 15 mm – 90 mm in 10 years
• China now consumes 1.7 BOE per person, India .7, Iran 14.2, Japan
32.8, Europe 50.9, USA 64.3
– (US uses 25% of world energy but produces also 33% of global
GDP)
• Only 12% of the world population use 50% of the energy
• Prevailing accelerated economic and industrial development in the
countries of the advancing world will generate significant additional
demand beyond their historic growth rates
• Without the FSU, over 10 years the global demand increased by 10 mm
BOE/day … where do we find the next 10 mm BOE/day, or even more?
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Demand Growth –
Spike or Continuous?
Gas – Just one example of a dilemma …
UK Supply & Demand All Import Projects
UK Gas
demand High
Million Standard Cubic Meters per Day
700
600
OL Size Fields
Ormen Lange
Exxon LNG
Isle of Grain
Gazprom Northern
European Pipeline
Gasunie BBL
UK Pipe
(Ormen Lange)
Interconnector
Expansion (Phase 2)
Interconnector
Expansion (Phase 1)
Vesterled
Interconnector
WOS
UK Discoveries & YTF
Potentially Commercial
Under Development
Shut In
UK Prod
500
400
300
200
100
0
2003 2004
July 16, 2015
UK Gas
demand Low
2005
2006 2007 2008
2009 2010
2011 2012
2013 2014 2015 2016 2017 2018 2019 2020
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Supply Security
– Fact or Fiction?
Some Issues to be considered:
• Recent booking scandals have placed prevailing reserve
estimates into question .. many more downward corrections
expected
• Major challenge to accuracy of Saudi Aramco data
• Almost all major fields are in decline
• Only two Super Giant fields have been found since 1975
• A few large fields have been found, none lately
• Almost all new oil fields have short peak production and rather
rapid declines
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Supply Security
- Fact or Fiction
Some Issues to be considered:
• No more major frontier region left, except the 2 presently cost- and riskprohibitive Polar Regions
• Large incidents of field mismanagement negatively impacts field life
• Non-conventional crude, like tar sands, shale oil, and super-heavy
Orinoco, may become more viable with crude prices above 40$
• Recent crude oil price levels are contradicting conventional wisdom .. Do
we need new wisdom?
• Uncertainty if the OPEC production reserve of 3.0 mm bdp (almost all
Saudi) can actually be activated on short notice
… there may be much less recoverable oil & gas than we think! Was Hubbert
right?
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Supply Security
– Fact or Fiction?
The Orman Lange Bookings Story
Company
BP
Norsk Hydro
Shell (old)
Exxon Mobil
Statoil
Shell (new)
Equity Res.
(%)
10.34
242
18.07 422
17.04
398
7.23
169
10.84
253
17.04
398
B’king
Share
202
336
256
56
63
90
%
83.7
79.6
64.3
32.9
25.0
22.6
- Furthermore ... The steep slope structure poses tremendous
challenges to drilling placing commercial viability even further in
question
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Supply Security – Fact or Fiction?
New System Required … One Option:
13 Data Point System per Field (Simmons Proposal)
•
•
•
•
•
Annual Production for each of last five years
Annual average number of producing wells (each year)
Current estimate for original oil & gas in place
Current estimate for ultimate oil & gas recovery
Cumulative oil & gas production
Points #
1-5
6-10
11
12
13
– Only 2 of these points are estimates, 11 are simply facts
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Price Level – Blip or Real?
• Published numbers suggest 2.0 MM bpd crude production over
demand .. where does it go?
• Granted, financial traders impact prices .. still, where is the crude?
• Risk premiums can only last so long ..
• Unless China’s economic machine develops major problems, global
demand has no way than to go up .. probably faster than new
production
• Reportedly, Saudi Arabia has up to 3.0 MM bpd “in reserve” .. is it all
there? And how soon available? Is it the crude the world needs?
• There might be a price correction down, but the fundamentals
indicate a strong probability for a sustained climb over the longer
term
• By the way .. the situation for gas is not much different!
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Part II - The Caspian Scenario
The Caspian Scenario
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The Fundamentals of the Assets
• Key Energy Producing Region, significant reserves
• Considerable share of the reserves in land-locked locations
posing transportation challenges and impacting well-head
netback prices
• Various rotes of sustained conflict, political instability, and
unresolved disputes
• Challenging investment, business, and bureaucratic
environment
• Inadequate state of sustainable and integrated economic
development
• Insufficient regional collaboration frame work to jointly drive the
effective conversion of energy assets into a strong competitive
position
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Value Chain Issues
- Economic Development
• Historically, the highest added values are generated by the
processors of imported raw materials into finished products
• Raw material exporters usually do not enjoy a sustainable
strengthening of their composite economic base
• Therefore, far more internalization of direct and indirect value
upgrading along the energy value chain should be a national priority
for all countries of the Caspian Region
• Those countries have abundant low cost (net back) energy,
especially gas, other raw materials, sufficient labor resources, and
plenty of land to develop a competitive industrial base for inland
consumption, contract processing, and, even more important, for
export of the finished products
• Many countries have already been very successful with this model,
even without a similar energy base, … China, Korea, Japan, Taiwan,
India, etc.
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Value Chain Issues
- Economic Development
Crude Oil
Production
Pipelines
Shipping
Refining
(Export)
Bottom
Upgrading
Refining
(Operating
Efficiencies)
PetroChemical
Plastics, etc.
Retail
Marketing
Commercial
Marketing
Production
Pipelines
Conversion to
LNG
LNG
Transportation
Distribution
Gas
Processing
Power
Generation
Gas-to-Liquids
Secondary, i.e.:
Fertilizer
Industrial
Use
Gas
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Favorable Logistics
to Major Markets
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Major Crude Routes
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Export Routes
– Crude Oil
The (non-political) Potential of the Iran Buy-Sell Hub
- Baku-Ceyhan Pipeline versus Iran Hub (or future pipeline) • Simplified preference calculation formula for Caspian crude
producer/shipper:
– FOB selling price minus all transportation and transfer
expenses (including losses), and time/value factor (working
capital) = netback price at the wellhead for each of the options
• Since the Iranian swap fee is not based on actual cost, Iran has
the strategic advantage to optimize the volume of swaps by
offering the economically most attractive option
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Gas Export Routes
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Export Routes - Gas
One more word on Gas …
– Look at netback value of gas exported as LNG to determine
alternative uses
– 25% consumed by the time it is liquefied, another 10% to ship
and re-gasify (Qatar example, quoted by Simmons
International)
– Pipeline Gas uses only 4 – 8 % of wellhead gas
– Strategic long term option … much longer pipelines to serve
high volume locked-in markets
• e.g.: 1950’s Soviet Gas to Western Germany
– For example, an Iran – Pakistan – India pipeline offers much
better economics then LNG, and Pakistan and India alone can
easily take the majority of available gas
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Innovative Export Option ..
Just economics!
– Why not a Common Carrier Pipeline?
– Energy-independent Infrastructure Company (Consortium,
i.e.: Japanese, Korean, etc.)
– Independent Promoter like Worldbank
– Energy-based Economic Development Corridor, “Right-of
way” development
– Free Trade Zone Manufacturing and Industrial Hub Centers*
* Thailand, Eastern Seashore – Sri Ratcha; Dubai, Jebel Ali; Malaysia, Penang, etc, etc.
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Environmental Issues
• Well documented significant regional challenges, mainly resulting
from long periods of neglect, especially Caspian Sea .. Today, just a
few specific energy linked issues
• Adequate availability of potable water is rapidly becoming a global
top priority equal in significance as energy security
• The adequate domestic energy sources of the Caspian Region will
favor affirmative action in high energy-intensive water purification
processes.
• The abundant availability of regional gas could be utilized as clean
burning transportation fuel (CNG) for for trucks, buses, and taxis as
successfully demonstrated in other countries
• Essential – A region-wide and concerted introduction of regulatory
standards and laws and the linked application of existing practices
and technologies for a stepped reduction of oil & gas-related
emissions into the water, air, and soil
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Regional Issues - Refining
• Conversion and operational efficiency of regional refineries is
substantially below global best practices
• Wide gaps between actual production versus name plate capacity
(low utilization rates)
• High share of un-economic bottom (heavy ends)
• Insufficient refinery and petrochemical plant capacity to take
advantage of upgrading the crude oil value chain (export
refineries and plants)
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Regional Issues
- Refining
Example: Value of a gap closure between prevailing
operational practices and global best practices - No/minimal
CAPEX case CASH OPEX REDUCTION:
$ MM (per year)
Energy Costs
Non-Energy
Total
5- 8
14 - 19
19 - 27
Yield Improvements & Capacity Creep
16 - 20
Improve Uptime
(Reduce lost profit opportunities):
13 - 19
- Reduce Scheduled Rate Reductions & Downtime
- Reduce Unscheduled Rate Reductions & Downtime
TOTAL IMPROVEMENT OPPORTUNITIES
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Conclusion
• The Caspian Region has a tremendous potential to transform into
a strong major economic entity effectively employing the
combined energy assets to achieve that objective.
• Critical steps towards this state would include:
– Creating a win-win situation with all desired investment and
cooperation partners
– Engage those international partners in the economic and
infrastructure development in the countries of the Region
– Pursue affirmative and pragmatic engagement for close
cooperation with all major economic powers for mutual
benefit
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Conclusion
– Allow mutually beneficial economic cooperation to proceed in spite of
possible ideological differences
– Maximize the internalization of the energy value chain upgrades to
strengthen economic growth and to create full employment
– Pursue the enhancement of pipeline grids (Gas & Crude)
– Grow mutually beneficial crude oil swaps
– Promote value adding upgrade processing inside the Region
– Pursue any visionary cross-boundary cooperative initiatives that
provide commercial enhancements while limiting political
implications
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Conclusion
– Target highest wellhead netback values through innovative
approaches but not through inflexible formulas
– Rigorous pursuit of options that create sustainable competitive
advantages
– Develop strategic concepts to participate in the “out-sourcing”
trends of highly industrialized countries
– Create a transparent regulatory, legal, and administrative investment
and operating environment that is competitive with other key growth
regions
– Foster regional cooperation to effectively resolve the environmental
challenges and secure international support
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Thank you very
much for listening
Innovative Energy Perspectives
Helping to Create a Sustainable
Competitive Advantage
July 16, 2015
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