CALGARY REAL ESTATE LEASING CONFERENCE

CALGARY REAL ESTATE LEASING CONFERENCE

CALGARY REAL ESTATE
LEASING CONFERENCE
The Business of Energy
What it means for Calgary
Ø  Energy Markets Currently In
Transition
Ø  Next Energy Boom Cycle
Expected To Commence
2016 - 2017
Tuesday, June 3rd, 2014
Calgary Telus Convention Centre
Transi)on Period Economic Headwinds For Energy Crisis in Europe: §  Europe facing and slowly solving its problems (using both fiscal and monetary policies) §  Europe Economic Crisis – economies in recession (Greece & Spain) §  Weak banks – s)ll need recapitalizing-­‐ Lower Basel III capital needs §  High unemployment – 12.0% Euro Area §  Euro bailouts, forgiveness, back door support to stop exits from Euro §  Draghi emulates Bernanke/Yellin – prin)ng press “sterilizes” bond purchases §  Debt liquida)on phase con)nues §  Cyprus Banks collapse -­‐ The confisca)on of uninsured deposits – Other tax haven bank runs expected – Malta, Lichtenstein, Gibraltar and Luxembourg. 2 2 China Can’t Save The World: §  China economy slows to 7.4% vs. double digit growth §  Stock market near lows since crisis 2008/2009 §  Pollu)on issues could depress growth U.S. Economy Stagna<ng: §  Budget baales austerity versus very large annual deficits §  1% -­‐ 2% real GDP growth at best in 2014-­‐2015 3 3 CROSSCURRENTS EFFECTING OIL PRICES POSITIVE NEGATIVE Central Bank Easing Iran Sanc)ons Deple)on of Reserves Replacement Cost Rising/
Expensive New Technologies/
Expensive New Infrastructure Required to Bring on New Produc)on •  Island Sabre Raaling in Asia China/
Korea/Japan/Vietnam/ Philippines • 
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§  Japan: Senkaku Islands §  China: Diayo Islands High Inventories in U.S. China Demand Less Than Forecast Europe/Japan Economies Weak Excess OPEC Produc)on New Supplies Iraq/Return of Libya (When?) •  In 2014 Non-­‐OPEC Produc)on Growth > World Demand Growth Requiring Less OPEC Produc)on •  Iran Moving To Increase Produc)on Post Sanc)on Removal 4 World Crude Oil Supply and Demand 5 Source EIA, Schachter Asset Management WTI Crude Oil BOOM CYCLE TRANSITION +760% 6 Source: Stock Charts, May 26, 2014 S&P/TSX Energy Index BOOM CYCLE +366% 7 Source: Stock Charts, May 26, 2014 Government of Alberta Resource Revenues 8 Source: Fiscal Plan Tables 2002-­‐05 Government of Alberta Resource Revenues 9 Source: Fiscal Plan 2009-­‐12 -­‐ Revenue Outlook Government of Alberta Resource Revenues Source: 2014-­‐2015 Government Es)mates Energy, 2014 Calgary Historic Popula)on 1,600,000 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 1,000,000 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 800,000 2001 900,000 11 Source: Live in Calgary.com May 2014 World Oil Demand In 2014 12 Source: OPEC Monthly Oil Market Report, May 13, 2014 Non-­‐OPEC Oil Supply 2014 13 Source: OPEC Monthly Oil Market Report, May 13, 2014 Crude Oil Supply And Demand Outlook OPEC 2013 & 2014 14 Source: OPEC Monthly Oil Market Report, May 13, 2014 OPEC Oil Produc)on 15 Source: OPEC Monthly Oil Market Report, May 13, 2014 OPEC Crude Oil Surplus Produc)on Million barrels/day
16 Source: EIA, Short-­‐Term Energy Outlook, May 2014 Oil Supply Outlook 2013 – 2018 Call on OPEC 17 Source: OPEC World Oil Outlook 2013 Crude Oil Produc)on OPEC 1 4 2 5? 3 18 Source: Energy Economist, October 29, 2013 Light Crude Oil 5? 3 4 2 1 19 Source: Stock Charts, December 12, 2013 Infrastructure Needs 20 Source: TransCanada East Coast Energy Conference, March 14, 2013 Infrastructure Needs 850,00 b/d
by late 2017
21 Source: TransCanada East Coast Energy Conference, March 14, 2013 Infrastructure Needs §  In-­‐service = min 2014, = +585 kbpd §  In-­‐service = min 2014, = +450 kbpd 22 Source: Enbridge Inc., January 24, 2013 23 Source: Valero Energy Corp., March 20, 2013 CROSSCURRENTS EFFECTING NATURAL GAS PRICES POSITIVE •  Strong consumer and industrial demand •  Weak levels of drilling ac)vity •  Hedge book profit support gone •  Shut in high cost dry gas •  Foreign buyers involved in large West Coast LNG poten)als NEGATIVE •  New Marcellus produc)on as take-­‐away capacity increases •  LNG exports s)ll years away (2015-­‐2017) •  High cost structure •  Liquids rich plays glut produc)on •  Coal economical compe)tor >
$4/mcf power demand declining WE ARE BULLISH FOR NATURAL GAS WINTER 2014-­‐2015 24 Natural Gas Storage Changes Natural Gas Changes Per Season (Bcf) Injec<on Season Withdrawal Season 2013-­‐2014 2012-­‐2013 2011-­‐2012 2010-­‐2011 2009-­‐2010 2008-­‐2009 2007-­‐2008 2006-­‐2007 2005-­‐2006 2004-­‐2005 2003-­‐2004 2002-­‐2003 2001-­‐2002 2000-­‐2001 1999-­‐2000 HIGH LOW AVERAGE Source: EIA March 2014, SAMI November Peak/
Top March Bo]om 3,816 822 3,929 1,723 3,843 2,473 3,851 1,581 3,833 1,652 3,399 1,656 3,567 1,266 3,452 1,603 3,194 1,284 3,302 1,058 3,130 730 3,116 1,518 3,254 742 2,732 1,153 3,073 1,406 3,929 2,473 2,732 730 Annual Usage 2,994 2,206 1,370 2,270 2,181 1,743 2,301 1,849 1,910 2,244 2,400 1,598 2,512 1,579 1,667 2,994 1,370 2,054 April Low Start 822 1,723 2,473 1,581 1,652 1,656 1,266 1,603 1,284 1,058 730 1,518 742 1,153 1,406 November Maximum 3,816 3,929 3,843 3,851 3,833 3,399 3,567 3,452 3,194 3,302 3,130 3,116 3,254 2,732 Annual Injec<ons 2,093 1,456 2,262 2,199 2,177 2,133 1,964 2,168 2,136 2,572 1,612 2,374 2,101 1,326 2,572 1,326 2,041 25 U.S. Natural Gas Storage 26 Source: Schachter Asset Management Inc., May 29, 2014 U.S. Dry Gas Net Imports Pipeline + LNG Canada’s Export Volume Loss 4.5Bcf/d 27 Source: WTRG Economics, February 2014 28 > 85% 29 30 Source: BG Group, August 2012 31 Source: CAPP Natural Gas & Oil Resources on a Global Stage , November 5, 2013 32 Source: Devon Investor Presenta)on, January 2014 33 Source: Cheniere Presenta)on, January 2014 Nymex Natural Gas Price BOOM CYCLE TRANSITION TRANSITION +630% 34 Source: Stock Charts, May 26, 2014 Next Energy Boom Cycle 2016 – 2017 To ?? Energy Demand Growth •  BRIC’s •  MENA (Middle East/North Africa) •  MIST (Mexico, Indonesia, South Korea and Turkey) Infrastructure Resolved in North America •  Pipelines built •  Rail handling expanded where pipelines restricted •  LNG export capacity up and running Environmental Posi<ves •  Closure of nuclear power facili)es (Japan/Germany etc.) •  Closure of old coal fired facili)es (China/U.S. etc.) •  More use of CNG for trucks/bus fleets (North America/Europe) Oil Price Forecast 2016-­‐2017 on > US$120/b WTI Natural Gas Price Forecast 2016-­‐2017 on >$7/mcf NYMEX & AECO 35 Why Transi)on Lasts For 2-­‐3 More Years Ø Debt Overhang Needs To Be Resolved •  Live within Means •  Government Deficits End Ø Defla)on Pressure Ends •  Japan and Europe Face Pronounced Defla)on Ø Currency Wars: •  China Now Devaluing Yuan •  Japan Devalua)on >25% since 2011 36 37 Source: US Debt Clock.org, June 1, 2014 U.S. Dollar to Chinese Yuan Exchange Rate Chart Devalua)on Jul12 Jan 13 Jul13 Jan 14 May 14 38 Source: Banktruth.org/rates, May 26, 2014 Japanese Yen 26% 39 Source: Stock Charts, May 30, 2014 Shanghai Stock Exchange 40 Source: Stock Charts, May 27, 2014 41