YTD World Oil Consumption

Todays World Oil Consumption

World Oil Consumption Since You Arrived

Market

A precipitous fall in oil prices, continued geopolitical instability, and ongoing global climate negotiations are witness to the dynamic nature of energy markets.  In a time of great changes, understanding the implications of a shifting energy landscape is vital for investors. However, as supply and demand realign, Intrepid Drilling, along with major energy institutions foresee a return to rising and generally stable prices coupled with new and expanding markets in oil and natural gas.

The International Energy Agency projects that world energy consumption will increase 50 percent by 2040. Much of the growth in energy consumption occurs outside the Organization for Economic Cooperation and Development (OECD), where demand is driven by strong, long-term economic growth. Energy use in non-OECD countries increases by 90 percent; in OECD countries, the increase in 17 percent. Fossil fuels continue to supply almost 80 percent of world energy use through 2040, with natural gas being the fastest growing fossil fuel in the outlook. Global natural gas consumption increases by 1.7 percent per year. Crude oil consumption worldwide is forecasted to average 100 million barrels a day in 2015, about 120,000 BOPD more than its previous forecast.

Oil price forecast

2015 energy forecasts are largely optimistic as the U.S. leads in economic strengthening. Early 2015 showed WTI and Brent prices rebounding on an upward trend from six year lows.  As stated by the Energy Information Agency (EIA) in April, shale production from North Dakota alone will contract by 57,000 BOPD. Overall, the EIA shows U.S. production slipping amidst lower energy prices.  According to Baker Hughes Inc., U.S. drillers are using the fewest number of rigs since 2010.  The resulting adjustment between suppliers and consumers in the market is expected to realign and restore prices to higher levels. 

Natural gas forecast

Asia-Oceania growth in natural gas consumption, with China in the lead, is the fastest in the world. Fueled essentially by a huge demand for electricity in Asia, both as a result of urban population growth and commercial developments, EIA expects worldwide consumption of natural gas to reach 507 Bcf/day by 2040. There remains enormous global growth potential.  U.S. natural gas consumption remains roughly five times that of China, seven times that of Germany, and six and a half that of the United Kingdom. 

2015's tepid growth in China may be offset by heretofore restrictive European markets now looking to diversify energy sources away from Russian hegemony over Central European markets.  With North Sea oil reserves depleting, nuclear energy out of favor following the Fukushima disaster, and the fear of dependence on Russian (Gazprom) gas increasing daily since the eruption of the Ukrainian crisis, it is no surprise that Europe's leaders are keen to hedge against the over-exposure in order to ensure future domestic energy demand is satisfied.

Summary

A well-known Malthusian from Shell Oil and the U.S Geological Society, Dr. M. King Hubbert (1903-1989) famously predicted U.S. Crude production to peak about 1970. Then in 1972, his mathematic model adjusted the date to between 2001 and 2004. Yet, as 2014 and 2015 will testify, production potential exceeds its demand and is restricted only by price.  Currently $75/bbl shale plays and horizontal drilling are relatively expensive, but the 3rd and 4th quarters of 2015 may see Brent prices in the $70/bbl range.  Intrepid Drilling reduces exposure to commodity price swings by not carrying debt in drilling programs, and pursuing comparatively low cost, high pressure, high gravity proven reserves.  Hence, Intrepid forecasts a net profit on our current Texas and Louisiana projects at prices above $20/bbl. Short-term declines in oil and natural gas are forcing out excessive costs and making producers operate more efficiently.  Intrepid itself looks forward to drilling in the current market due to rising commodity prices and to a windfall in the form of significantly reduced drilling costs on projects due to available labor and equipment.  

Though enthusiastic, Intrepid Drilling encourages all investors to be knowledgeable of the economics and risks inherent to the energy market.

Sources:

  • United States Department of Energy (Energy Information Agency)
  • International Energy Agency (Paris, France)
  • LNG  Industry
  • Exxon Mobile
  • Barclays

 

Alternative Fuels

‚ÄčNatural Gas

The enormous reserves of natural gas in the United States have dramatically changed the global energy equation. The Potential Gas Committee (PGC) of the Colorado School of Mines recently published its report yielding the sixth consecutive record of natural gas resource assessment.  U.S. natural gas consumption in 2014 totaled 27 trillion cubic feet (Tcf), yet the total volume of U.S. natural gas recoverable with existing technology in 2,853 Tcf - more than 100 times greater.

In addition, the U.S. Energy Information Administration's Annual Energy Outlook projects increased domestic natural gas production and stable prices for decades to come.  While some continue to call for restrictions on liquefied natural gas (LNG) exports, these latest figures prove conclusively that America has an opportunity to reap historic, economic, geopolitical and environmental benefits from LNG exports, while continuing to fuel a manufacturing renaissance at home.

The markets are signaling the same message.  Royal Dutch Shell announced its intention to acquire BG Group for $70. billion, with analysts calling the move primarily a bet on robust global trade in LNG. Further, even in an environment of tepid global oil prices, companies have maintained their efforts to gain approval from the Federal Energy Regulatory Commission (FERC) for LNG export facilities.

Five American terminals currently exist to import/export LNG: Everett LNG Terminal (1971), Dominion Cove Point LNG Terminal (1972), Elba Island LNG Terminal (1978), and the Trunkline LNG Terminal (2010). However, twelve new LNG export/import terminals have been approved by the FERC, with a further 22 projects proposed (as of June,2015).  The effects of these terminals will have significant effect on global consumption due to the easing accessibility to America's LNG.  One such terminal expanding America's LNG export, the Cheniere Sabine Pass Liquefaction Terminal, currently under construction in Louisiana, has an estimated cost in excess of $18 billion and a processing capacity of 3.58 bcf/day.  This is the equivalent to 4.8% of America's daily natural gas consumption.

Domestically, EIA reports on average between 2015 and 2035 total American end-use electricity expenditures as a result of added exports, to increase between $5 billion to $10 billion (between 1 to 3%).  And, with rapidly maturing LNG markets throughout Asia and Europe, total additional natural gas revenues to producers from exports are expected to increase on an average annual basis from 2015 to 2035 between $14 billion and $32 billion.  However, should depressed energy prices negatively impact unconventional shale play natural gas production, EIA shows the greatest average annual increase in revenues over the 2015 to 2035 time period, with revenues ranging from over $19 billion to $43 billion.

Methanol

One notable example of the useful, and profitable byproducts of natural gas is methanol.  Methanol is one of the largest manufactured trading commodities after oil, and has about half the energy value of gasoline, but its high octane rating pushes this up to 70 percent.  It is a liquid at room temperature and would therefore fit right into the global gasoline infrastructure, as opposed to compressed natural gas or electricity, which require new delivery systems.  Utilizing current technologies, Methanol made from natural gas would sell for about $1 less per gallon than gasoline.

Most methanol fuel sold in America is sold as M85, a blend of 85% methanol with 15% unleaded premium gasoline. "Neat" (100%) methanol is a top contender as the near future's preferred means of storing hydrogen for fuel-cell electric vehicles, but this technology is still in the the research and development stage.

Car engines can burn methanol with a minor $200 adjustment that can be performed by any mechanic.  One would have to fill up a little more often, but the savings on fuel are significant to the average consumer - about $600 a year. One notable disadvantage is that Methanol is more corrosive than gasoline, though it is less toxic and not carcinogenic.  This is why automakers will need to change some of the materials that can withstand attack by the fuel.  Special oil additives are necessary in order to protect the engine.

The EPA granted California an exemption during the 1990's that allowed 15,000 methanol-powered cars on the road. The experiment was a success and customers were happy but natural gas prices reached $11 MMBtu in 2005 and the program was cancelled.  Almost immediately following cancellation, the fracking revolution brought down the price of natural gas.  Natural gas currently sells at roughly $3 MMBtu.

In an effort to reduce rising pollution, Asian countries have taken up Methanol development.  Japan's top four automotive companies are developing lines of methanol compatible cars.  China has a million cars and numerous burning methanol on the road and wants to expand the numbers. In recent years, Texas and Louisiana have been hit with what is being called "Methanol Mania". Chinese companies are planning to build six major processing plants to turn the Gulf Coast into the world's largest center of methanol manufacture. The preponderance of this methanol is intended for transport to China primarily as feedstock for the plastics industry, and secondarily as automotive fuel.  This will coincide with an expanded Panama Canal, which will be completed in 2016.

Today, methanol is produced in the U.S. for mostly non-fuel usage. There are eighteen U.S. methanol production plants, with a total annual capacity of over 2.6 billion gallons.  Today most of the methanol in the U.S. is produced from natural gas and coal.  New technologies utilized for the discovery, extraction, and application of natural gas are expanding existing domestic markets and generating new and highly profitable foreign opportunities.

* Institute of the Analysis of Global Security

* America's Natural Gas Alliance (ANGA)

* Energy Institute of America (EIA)

* Department of Energy

* Federal Energy Regulatory Commission (FERC)

* Fuel Freedom Association