London School of Economics Energy Society Conference

Rethinking the Future of Energy, 14 March 2015

OIL PRICE COLLAPSE

HOW AND WHAT NEXT?
Manouchehr Takin*

* International Oil & Energy Consultant

E-mail: manouchehr@takin.co.uk

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Copyright 2015 the author Manouchehr Takin

All rights reserved. No part of this presentation may be reproduced
or transmitted in any form, or by any means without the prior
permission of the author.
Disclaimer
The author has used his best endeavours to prepare this
presentation to acceptable industry standards. All the data and
information are only from published or otherwise publicly available
sources. Every effort has been made to carry out the analyses fairly
and professionally and the reader is also encouraged to make his/her
own analyses. However, no representation or warranty is given by
the author as to the accuracy or completeness of the information
and the opinions contained in this presentation.

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EXAMINING PRICE & SUPPLY OF OIL

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PRICE OF OIL (Brent and OPEC Basket) since April 1993

Dollars per barrel
160
Brent-Forties-Oseberg 16 Apr 1993 - 28 Jan 2014 (CGES)
OPEC Basket 2 Jan 2003 - 4 March 2015 (OPEC)

140
120
100

BFO
OPEC Basket

80
60
40

02-Dec-14

20-May-13

04-Nov-11

23-Apr-10

07-Oct-08

27-Mar-07

13-Sep-05

02-Mar-04

20-Aug-02

06-Feb-01

27-Jul-99

08-Jan-98

18-Jun-96

28-Nov-94

16-Apr-93

20

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 Price of oil had been about $20 per barrel since the second half of
the 1980s
Rose between 2004 and 2008 to more than $100 (five-foldincrease)
Fell, rose and had been $110-$120 till June 2014
Five-fold-increase in world oil industry revenues led to more
exploration and development activity, utilisation of new technology
and increased supply of oil

One example: US oil production increase

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REVERSAL OF UNITED STATES CRUDE OIL PRODUCTION DECLINE

Thousand barrels per day
12,000
10,000

9,226:

10,044:
Nov 1970

December
2014

7,376:
March 1962

8,000
6,000
4,000
2,000

Source: US Dept of Energy, EIA

3,980: Sep 2008

4,737: Oct 2008
5,234: Feb 2009

Jan-2010

Jan-2000

Jan-1990

Jan-1980

Jan-1970

Jan-1960

Jan-1950

Jan-1940

Jan-1930

Jan-1920

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EXAMINING DEMAND FOR OIL

In addition to the increase in oil supply, we have
learnt to be more efficient in our use of oil & to
substitute oil with other energies

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'OIL INTENSITY INDEX OF GDP (1970=100)

120

100

80
France
Italy

60

UK

UK 1984: coal
miners strike

Canada

40

USA
Australia
Japan

20
Sources: The Conference Board and Groningen Growth and Development Centre, Total Economy
Database, January 2009; BP Statistics - in Takin: Oil & Gas Journal 7 April & 5 May 2014
2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

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'OIL INTENSITY INDEX OF GDP (1970=100)

250
Turkey

USSR

China

India

S Korea

Brazil

Egypt

200

150

100

50

Sources: The Conference Board and Groningen Growth and Development Centre, Total Economy
Database, January 2009; BP Statistics in Takin: Oil & Gas Journal 7 April & 5 May 2014
2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

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Oil/GDP RATIO FOR NET OIL EXPORTERS & NET OIL IMPORTERS
(1979=1)
1.1

1.0
0.9
0.8
0.7
0.6

Oil importing
countries

0.5

Oil exporting
countries

2017

2015

2013

2011

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

0.4

Source: CGES Oil Demand Report, February 2013, in Takin: Oil & Gas Journal 7 April & 5 May
2014

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DOWNWARD REVISION (RED) OF THE ESTIMATES OF WORLD

OIL DEMAND FOR 2020
The Year Forecast Was Made

Forecast (mbpd)

2000

114.7

2008

98.4*

-16.3
2009

94.0*

-20.7
2010

91.3

-23.4
2012

94.2
-20.5

2013

95.4
-19.3

'Oil' excludes biofuels - 2012: 1.3 mbpd, 2020: 2.1 mbpd

* initerpolated from 2015 and 2030

Source: IEA World Energy Outlook, various years (recent years - New Policy Scenarios)

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IN THE LAST FEW YEARS:

The high price of oil and the financial/economic
problems in many countries resulted in even weaker
growth of world oil demand.
Increased supply and lower than expected demand
exerted downward pressure on the price of oil.

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ANNUAL CHANGE (million barrels per day)

2011 to 2012 2012 to 2013 2013 to 2014
World oil demand

0.9

1.2

World 'oil' supply

(excluding OPEC crude
oil)

0.6

1.5

2.2

'Need' for OPEC crude

oil (residual supplier)

0.2

-0.2

-1.2

Source: OPEC Monthly Oil Market Report - February 2015

Yet there is potential for more OPEC oil: lifting of sanctions on Iran, more
field developments in Iraq, security improvement in Libya, Nigeria, ....
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Autumn 2014:
Market expectations were that OPEC will lower its
production, improve supply/demand balance and defend the
price of oil.

OPEC asked for non-OPEC producers to share the lowering of

oil supplies. Oil ministers from Saudi Arabia, Venezuela,
Russia and Mexico met but could not agree.
27 November 2014: OPEC ministers announced that they will
not lower their oil production.

Oil price weakened further.

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SOME IMPACTS OF THE OIL PRICE COLLAPSE

Generally beneficial to the world economy could boost
global growth by 0.3-0.8% (IMF estimate Dec 2014).
Reduced petrodollars & less exports by Europe, Japan, N
America - generally reduced volume of world trade.
Serious budgetary constraint and economic/social crisis for
all oil exporters, including OPEC member countries.
Fall in investment and massive staff reduction by world oil
industry crisis in oil provinces everywhere.

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SOME EXAMPLES FROM THE OIL INDUSTRY

Job losses: Schlumberger 9,000; Baker Hughes 7,000; Halliburton
5,000; Alberta (Canada) energy sector 13,000 (Sep 2014-Jan 2015);
North Sea: could be up to 15,0001
Investment cuts & project delays: UK N Sea investment will fall from
19.2 bn (2014) to 10.8 bn (2015)2, Apache rigs form 91 (3Q 2014)
to 27 (end Feb 2015); Statoil to delay developing Johan Castberg field
in the Arctic; Pemex to cut capex by $4 bn; Angola seeks $1 bn loan;
BP, Chevron, Statoil & Total to cut capex by 20%, 13%, 10% and 10%
respectively; Shell to cut $15 bn over 3 years; rigs fell 14% to 32% in
different US shale oil provinces; US exploration & production raised
$95 bn (equity), $206 bn (bonds), $574 bn (syndicated loans) from
2007 to 20143; Resolute Energy loan (10% over Libor Dec 2014)
1: Sir Ian Wood, 2: Wood Mackenzie, 3: Dealogic

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OPEC POLICY UNDER SIMILAR MARKET CONDITIONS (a)

1986: price fell from $27 to below $10, led to serious
financial problems for OPEC member countries, as well
as crisis in oil provinces around the world.
Leaders of OPEC member countries became involved.

US Vice President George Bush visited Saudi Arabia and

met the King.
OPEC decided to lower its production.

Price of oil gradually rose to nearly $20.

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OPEC POLICY UNDER SIMILAR MARKET CONDITIONS (b)

1998-99: price fell from $20 to below $10, led to serious
financial problems for OPEC member countries, as well as
crisis in oil provinces around the world.
Leaders of OPEC member countries became involved.

US Secretary of Energy Bill Richardson visited OPEC

countries and openly lobbied the oil ministers.
OPEC decided to lower its production.

It took nearly two years for the price to recover.

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WHAT COULD HAPPEN NEXT?

Pressure from within OPEC:
Venezuelan president visited other OPEC countries

Nigerian oil minister has talked about an emergency

meeting of OPEC ministers of oil
Pressure from outside OPEC:
In spite of the crisis in oil provinces, public opinion
welcomes the fall in the price of oil
Politicians are not yet ready to act

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THANK YOU FOR YOUR ATTENTION

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