Global Energy Markets and Domestic Energy Choices
Global Interdependence Center June 7, 2005
Jason Schenker Energy Economist 704.383.3695 jason.schenker@wachovia.com
The Global Economy: All Ships Are Rising…Almost
World GDP Based on U.S. Dollar Purchasing-Power-Parity
U.S. 21%
Non-G8 54%
Global GDP
Japan 7% Germany 4% France U.K. 3% Italy Russia 3% Canada 3% 2%
3%
REAL GDP
Bar - Compound Annual Rate, Line - Yr/Yr % Change
8%
8%
6%
6%
4%
Real U.S. GDP
4%
2%
2%
0%
0% 1st Quarter 2005 @ 3.5% Yr/Yr % Change @ 3.7%
-2% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 -2%
CHINESE REAL GDP GROWTH 16%
Year-over-Year Percent Change
14% 12% 10%
China GDP
8% 6% 4% 2%
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Chinese Real GDP Growth (Year-on-Year Rate)
12%
12%
10%
10%
8%
8% China Q/Q GDP
6%
6%
4%
4%
2%
2%
0%
99
00
01
02
03
04
0%
"REAL" U.K. GDP GROWTH Bar - Annualized Rate, Line - Yr/Yr % Change
6%
6%
1st Quarter 2005 @ 2.2% Yr/Yr % Change @ 2.8%
5%
5%
4%
4% U.K. Growth
3%
3%
2%
2%
1%
1%
0%
2000
2001
2002
2003
2004
2005
0%
Global Growth Growth is Everywhere •U.S. •China •U.K.
Although… •Germany •Japan •Italy •France
Real German GDP GROWTH Quarter-over-Quarter Change
1.5%
1.5%
1st Quarter 2005 @ 1.0%
1.0%
1.0%
German Real GDP
0.5%
0.5%
0.0%
-0.5%
0.0%
2000
2001
2002
2003
2004
2005
-0.5%
"Real" Japanese GDP Growth
Bar - Quarter-over-Quarter Annual Rate, Line - Yr/Yr % Change
6%
6%
4%
4%
2%
2% Japanese Real GDP
0% -2%
1st Quarter 2005 @ 5.3%
-4% -6%
0%
Yr/Yr % Change @ 1.2%
2000
2001
2002
2003
2004
2005
-2% -4% -6%
Growth Engenders Higher Demand
Global Oil Usage in 2004 (IEA) Africa & M.E. 10%
FSU 5%
L.A. 6%
Global Demand for Crude in 2004
North America 30%
Other Asia 10%
China 8%
Europe 20% OECD Pacific 11%
*FSU = Former Soviet Union *OECD Pacific = Aus, NZ, Japan, Korea
Global Demand in millions of barrels per day 88
88
86
86
84
84 Global IEA Demand Forecast
82
82
80
80
78
78
76
76
74
2003
2004 Source: International Energy Agency
2005
74
U.S. Total Petroleum Imports in Millions of Barrels
16
16
May 27, 2005 14 12
14
U.S. Total Imports
12
10
10
8
8
6
1999 2000 2001 2002 2003 2004 2005 6
U.S. Crude Oil Imports in Millions of Barrels
12
12
May 27, 2005 11
11
10
10
9
U.S. Crude Imports
9
8
8
7
7
6
1999 2000 2001 2002 2003 2004 2005 6
U.S. Petroleum Product Imports in Millions of Barrels
4.0
4.0
May 27, 2005 3.5
3.5
3.0
3.0
2.5
U.S. Product Imports
2.5
2.0
2.0
1.5
1.5
1.0
1999 2000 2001 2002 2003 2004 2005 1.0
Chinese Crude Oil Imports in Millions of Tons
14
14
May 27, 2005
12 10 8
12 10
Chinese Imports
8
6
6
4
4
2
2
0
1999 2000 2001 2002 2003 2004 2005 0
U. K. Petroleum Surplus/Deficits in 2004 (in millions of tonnes) 2.5 2 1.5
U.K. Total Imports
1 0.5
-1
Ap r M ay Ju n Ju l Au g Se p Oc t No v De c
M ar
Ja n
-0.5
Fe b
0
Energy Prices On The Rise
Price of Crude Oil
Price per Barrel since January 2000 $60
$60
$50
$50
$40
$40
Crude Prices Since 2000
$30
$30
$20
$10
$20
June 3, 2005 2000
2001
2002
2003
2004
2005
$10
Price of Heating Oil
Price per Contract since January 2000 $180
$180
$160
$160
$140
$140 Heating Oil Prices Since 2000
$120
$120
$100
$100
$80
$80
$60 $40
$60
June 3, 2005 2000
2001
2002
2003
2004
2005
$40
Price of Gasoline Contract Price per 100 Gallons since January 2000
$180
$180
$160
$160
$140
$140 Gasoline Prices Since 2000
$120
$120
$100
$100
$80
$80
June 3, 2005
$60 $40
2000
2001
2002
2003
2004
$60
2005
$40
U.S. Jet Fuel Price Dollars per 100 Gallon Contract (NY)
$180
$180
June 3, 2005
$160
$160
$140
$140
$120
$120
Jet Fuel Prices Since 2000
$100
$100
$80
$80
$60
$60
$40
00
01
02
03
04
05
$40
Price of Uranium
Price per Pound since January 2000 $30
$30
$25
$25
June 3, 2005 Uranium Since 2000
$20
$20
$15
$15
$10
$10
$5
2000
2001
2002
2003
2004
2005
$5
Price of Natural Gas per Million British Thermal Units (BTUs) since January 2004 $9
$8
$7
$9
Natural Gas 60-day Moving Avg 100-day Moving Avg
$8
$7
Natural Gas Prices
$6
$5
$6
June 3, 2005
$5
$4 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun $4
Price of Big Sandy Barge Coal Price per Short Ton since January 2000
$70
$70
$60
$60
$50
$50
Big Sandy Barge Coal Since 2000
$40
$40
$30
$30
June 3, 2005
$20 $10
2000
2001
2002
2003
2004
$20
2005
$10
Price of Pennsylvania Rail Coal Price per Short Ton since January 2000
$60
$60
$50
$50
Penn Rail Coal Since 2000
$40
$40
$30
$30
$20
$10
$20
June 3, 2005 2000
2001
2002
2003
2004
2005
$10
UTILITY PRODUCTION
120
110
Index, Both Series are 3 Month Moving Averages Bold Line = Electric Power Generation Thin Line = Natural Gas Distribution
100
120
110
100
Utilities
90
90
Mar 80
70
80
87
89
91
93
95
97
99
01
03
05
70
Correlations‌The Proof
Prices of Natural Gas and Crude Oil Prices Since January 2005
$60
$8.00
June 3, 2005 $7.50
$55
$7.00
NGCL
$50 $6.50 $45
$40
Natural Gas, Right Axis WTI Oil, Left Axis
Jan
Feb
Mar
Apr
May
$6.00
Jun
$5.50
Prices of Gasoline and Heating Oil Price per Gallons since January 2005
$1.80
$1.80
June 3, 2005 $1.60
$1.60
HOHU
$1.40
$1.40
$1.20
$1.00
$1.20
Gasoline Heating Oil
Jan
Feb
Mar
Apr
May
Jun
$1.00
Price of Coal vs Oil
Price per Short Ton vs Price per Barrel since January 1999 $70
$70 Big Sandy Barge Coal Sweet WTI Cushing
$60
$60
$50
$50 Crude and Coal Prices Since 1999
$40
$40
$30
$30
$20
$20
June 3, 2005
$10 $0
1999
2000
2001
2002
2003
2004
$10 2005
$0
Price of Coal vs Steel
Price per Short Ton since January 1999 $70
$700 Big Sandy Barge Coal (Left Axis) U.S. Hot Rolled Coil (Right Axis)
$60 $50
$600 $500
Steel and Coal Prices Since 1999
$40
$400
$30
$300
June 3, 2005
$20 $10
1999
2000
2001
2002
2003
2004
$200
2005
$100
But‌Higher Sulfur is Cheaper
Price of Crude Oil
Price per Barrel since January 2000 $60
$60 Sweet WTI Cushing Sour WTI Midland
$50
$40
$50
$40
Sweet- Sour
$30
$30
$20
$10
$20
June 3, 2005 2000
2001
2002
2003
2004
2005
$10
Sweet-Sour Crude Oil Spread Price per Barrel since January 2000
$10
$10
June 3, 2005 $8
$8
$6
$6
Sweet- Sour Oil Spread
$4
$4
$2
$2
$0
2000
2001
2002
2003
2004
2005
$0
Price of Sweet Crude and Sweet-Sour Crude Spread Price per Barrel since January 2000
$60
$10
June 3, 2005 $50
$8
Sweet-vsSpread
$40
$6
$30
$4
$20
$2
$10
2000
2001
2002
2003
2004
2005
$0
As for Coal…
Price of Illinois High Sulfur Coal Price per Short Ton since January 2000
$35
$35
$30
$30 High Sulfur Illinois Coal Since 2000
$25
$25
$20
$20
June 3, 2005 $15
2000
2001
2002
2003
2004
2005
$15
Price of Powder River 8800 Coal Price per Short Ton since January 2000
$14
$14
$12
$12
$10
$10
Powder River Coal Since 2000
$8
$8
$6
$6
June 3, 2005
$4 $2
2000
2001
2002
2003
2004
$4
2005
$2
140
U.S. Railroad Carloads - Coal
140
135
135
130
130
125
Rail Costs Usage have driven up Costs Crude Prices Since 2000
March 4 @ 133
120
125 120
Series is a 52 Week Moving Average
115 94 95 96 97 98 99 00 01 02 03 04 05 115
Gasoline and Diesel Prices U.S. Dept of Energy Avg. Prices
$2.60 $2.40
$2.60 $2.40
May 16, 2005
$2.20
$2.20
$2.00
Crude Prices Since 2000
$1.80 $1.60
$1.80
Unleaded Gasoline Diesel
$1.40 $1.20
$2.00
Fuel Costs
2003
2004
2005
$1.60 $1.40 $1.20
Energy is Typical Commodity Story
Price of Gold
U.S. Dollars per Troy Ounce $500
$500
$450
$450
$400
$400 Gold
$350
$350
$300
$300
$250 $200
$250
June 1, 2005 2000
2001
2002
2003
2004
2005
$200
Price of Copper
Dollars per Metric Ton: London Metals Exchange $3500
$3500
$3000
$3000
Copper
$2500
$2500
$2000
$2000
$1500
$1500
June 1, 2005 $1000
2000
2001
2002
2003
2004
2005
$1000
Price of Aluminum
Dollars per Metric Ton: London Metals Exchange $2200
$2200
June 1, 2005 $2000
$2000
Aluminum
$1800
$1800
$1600
$1600
$1400
$1400
$1200
2000
2001
2002
2003
2004
2005
$1200
Price of Nickel
U.S. Dollars per Metric Ton: London Metals Exchange $18000
$18000
$16000
$16000
$14000
$14000
$12000
$12000
Nickel
$10000
$10000
$8000
$8000
$6000
$6000
June 1, 2005
$4000 $2000
2000
2001
2002
2003
2004
$4000 2005
$2000
Price of Tin
U.S. Dollars per Metric Ton: London Metals Exchange $10000
$10000
$9000
$9000
$8000
$8000 Tin
$7000
$7000
$6000
$6000
$5000
$5000
$4000
$4000
$3000
June 1, 2005 2000
2001
2002
2003
2004
2005
$3000
Price of Lumber
Chicago Mercantile Exchange $500
$500
$450
$450
$400
$400 Lumber
$350
$350
$300
$300
$250
$250
$200 $150
$200
June 1, 2005 2000
2001
2002
2003
2004
2005
$150
The Soy Cycle
Price of Soybeans
No. 1 Yellow Soybeans: Dollars per Bushel $11
$11
$10
$10
$9
$9
$8
$8
Soy
$7
$7
$6
$6
$5
$5
June 1, 2005
$4 $3
2000
2001
2002
2003
$4 2004
2005
$3
Supplies Are Increasing
Coal Total Production Data Millions of Short Tons since January 2000
22.5
22.5
May 27, 2005
22.0
21.5
22.0
21.5
Coal Production
21.0
21.0
20.5
20.5
20.0
2000
2001
2002 2003 52 Week Moving Average
2004
2005
20.0
BAKER-HUGHES RIG COUNT 1400
Active RIGS in Operation
1400
May '05 Up 12.9 % from May '04
1200 1000
Thin Line is Monthly Lev el. @ 1,320
1200
Bold Line is 12 mo. Mov . Av g. @ 1,260
1000
Natural Gas Rigs
800 600 400
800 May '05
95 96 97 98 99 00 01 02 03 04 05
600 400
Natural Gas Storage
Reported Weekly by the DOE: in Trillions of Cubic Feet
4.0
4.0 May 27, 2005 @ 1.78 TCF
3.0
3.0 Natural Gas Inventories
2.0
2.0
1.0
1.0
20.6 % Above 5-year Average 0.0 1999 2000 2001 2002 2003 2004 2005 0.0
Supply of Oil
OPEC QUOTAS
in Millions of Barrels per Day 28
28
27
27
26
26 OPEC Quota
25
25
24
24
23
23
22
22
21
2000
2001
2002
2003
2004
2005
21
Global Oil Supply in millions of barrels per day 86
86
84
84
April @ 84.9
82
82
Global EIG Supply
80
80
78
78
76
76
74
74
72
2000
2001
2002 2003 2004 Source: Energy Intelligence Group
2005
72
Total Petroleum Inventories in millions of barrels
720
720 May 27, 2005
700 680 660 640
700 680
Total Inventories Since 1999
660 640
620
620
600
600
580
580
560
1999 2000 2001 2002 2003 2004 2005 560
Total Distillate Inventories in millions of barrels
160
160 May 27, 2005
140
120
100
80
140 Distillate Inventories Since 1999
120
100
1999 2000 2001 2002 2003 2004 2005 80
Crude Inventories in millions of barrels
360
360 May 2005
340 320
Crude Inventories Since 1999
340 320
300
300
280
280
260
1999 2000 2001 2002 2003 2004 2005 260
U.S. Gasoline Inventories Monthly Averages in Millions of Barrels
230
230 May 2005
220 210
220
Gasoline Inventories Since 1999
210
200
200
190
190
180
1999 2000 2001 2002 2003 2004 2005 180
Watch The Crack Spreads
U.S. Refinery Capacity
Reported Weekly by the DOE: 12 Week Moving Average
100%
100%
95%
95%
90%
90%
Capacity
85%
85% May 27,2005
80%
80%
75% 1999 2000 2001 2002 2003 2004 2005 75%
Gasoline and Heating Oil Crack Spreads Dollars Per Barrel Since 2003
$20
$20 Gasoline Crack Spread Heating Oil Crack Spread
$15
$15
June 3, 2005 Heating Oil and Gasoline Crack Spreads
$10
$10
$5
$0
$5
2003
2004
2005
$0
Gasoline - Oil Crack Spread Prices since 2000
$20
$20 Crack Spread 100-day Moving Avg 30-day Moving Avg
$15
$15
Gasoline Crack Spreads
$10
$10
$5
$5
June 3, 2005 $0
2000
2001
2002
2003
2004
2005
$0
Heating Oil - Crude Crack Spread Price per Barrel since January 2002
$15
$15
June 3, 2005 $10
$10
Heating Oil Crack Spreads
$5
$5
Crack Spread 100-day Moving Avg 30-day Moving Avg
$0
$-5
2002
2003 2004 Shaded Boxes Include Nov.- Feb.
2005
$0
$-5
European Demand Closes ‘ The Arb’
Transatlantic Arbitrage Price per Barrel since January 2000
$2
$2
$1
$1
$0
$0
Transatlantic Arbitrage Closed
$-1
$-1
June 3, 2005
$-2
$-3
2000
2001 2002 2003 2004 Series is a 30 Day Moving Average
$-2
2005
$-3
Price of Natural Gas per Million British Thermal Units (BTUs) since January 2004 $9
$8
$7
$9
Natural Gas 60-day Moving Avg 100-day Moving Avg
$8
$7
Natural Gas Prices
$6
$5
$4
$6
June 3, 2005
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
$5
$4
Future Energy Expectations? Risksof Higher Energy Prices
•Supply Disruption Premium (Iraq, Russia, Iran, OPEC) •Inability of U.S. to maintain Gasoline Inventories •Inability of U.S. to build Heating Oil Inventories •Increasing Global Demand (Especially non-OECD) •Price Increases are Long-Run Trends
Price of Crude Oil and Geopolitical Events Price per Barrel since January 2004
$60 $55
$60
June 3, 2005
$55
$50 $45
$50 Supply Disruption Premium
$45
$40
$40 Thin Line is 100 Day Moving Average
$35 $30
$35
Red Lines Indicate Important Geopolitical Events
$30
$25 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun $25 Events (From Left): Iraqi Transfer of Power, Olympics, U.S. Elections, Iraqi Elections, Iran OPEC Meeting
Yearly Averages of the Price of Crude Oil in Dollars per Barrel $55 $50 $45 Crude Forecast 50
$40 $35 $30 $25 $20 2002
2003
2004
2005
FORECASTS
2004
2005
2006
Sweet Crude (Cushing WTI)
$41
$50
$53
Sour Crude (Midland WTI)
$37.50
$46
$48
Brent Crude
$38
$48
$52
Natural Gas (Henry Hub)
$5.90
$6.70
$6.95
BSB Coal
$54
$62
$64
Uranium
$18
$23
$25
Forecasts
Price of Crude Oil and The Dollar Since September 11, 2001
$60
30
Crude Oil, Dollars Per Barrel
$45
60
Dollar and Oil
$30
90
Near Contract Crude, Left Axis The Dollar Index, Right Axis (Inverted) $15
2002
2003
2004
2005
120
Dollar Index, September 11, 2001 = 100
June 3, 2005
Euro and Dollar Prices per Barrel of Oil Index: September 2001 = 100 250
250
May 2005 200
200 Oil Euro Dollar
150
150
100
100 Index of Dollars per Barrel Index of Euros per Barrel
50
2000
2001
2002
2003
2004
2005
50
$ per gallon of regular unleaded U. Es S. to Gr nia ee ce Sp Sl ain ov ak Ire ia lan Au d s Po tria rtu Sw gal ed en Ge Ital rm y an N Ne or y th wa er y lan ds
Gasoline Prices in the U.S. and Europe
7 6 5 4 3 2 1 0
Gasoline Prices
The Actual and Predicted Price of Crude $60.00 $55.00 $50.00 $45.00 $40.00 Dollar Adjusted Floor Price of Crude
$35.00 $30.00 $25.00 $20.00 $15.00 9/11/01
3/11/02
9/11/02
3/11/03
Actual Price of Crude Source: Wachovia Corp.
9/11/03
3/11/04
Predicted Price of Crude
9/11/04
3/11/05
Dollar Index NYBOT Spot 80 82 84 86 88 90
Implied Crude Floor Price Near Contract NYMEX WTI $ 45.96 $ 44.59 $ 43.23 $ 41.86 $ 40.50 $ 39.13 Floor Prices
Price of Crude Oil
Price per Barrel since January 2004 $60
$60
$55
$55
$50 $45
WTI Crude Price 100-day Moving Avg 30-day Moving Avg
$50
Crude Technical
$45
$40
$40
$35
$35
$30
June 3, 2005
$30
$25 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun $25
The Impact of High Energy Prices
Year-over-Year Change in the CPI Energy Component vs. The Price of WTI Crude
30%
$60
U.S. CPI EnergyComponent, Left Axis Price of WTI Crude, Right Axis
20%
$50
10%
$40
CPI Energy
0%
$30
-10%
$20
March 2005 -20%
00
01
02
03
04
05
$10
IMPORT PRICES FOR PETROLEUM AND PETROLEUM PRODUCTS INDEX FIGURES
180 160
180
Month to Month Change = 3.1% Year to Year Increase = 43.1%
160
140
140
120
120
Import Prices
100
100
80
80
60
60
April
40 20
40 96
97
98
99
00
01
02
03
04
05
20
U.S. Trade Deficit
-350
Twelve Month Moving Sum in Billions of Dollars
-350
-400
-400
-450
-450 Negative Trade Balance
-500
-500
-550
-600
-550
-600
March 2005 @ -$652.3 B
-650
-700
-650
2001
2002
2003
2004
2005
-700
Price of Crude Oil and The Dollar Since September 11, 2001
$60
30
Crude Oil, Dollars Per Barrel
$45
60
Dollar and Oil
$30
90
Near Contract Crude, Left Axis The Dollar Index, Right Axis (Inverted) $15
2002
2003
2004
2005
120
Dollar Index, September 11, 2001 = 100
June 3, 2005
Future Energy Expectations? Risksof Lower Energy Prices
•Slower Growth Globally •SDP Falling Off (Democratic Gains in M.E.) •U.S. Inventories Continue to Build