CVX is one of the largest major integrated oil companies in the world and has many businesses including upstream, midstream and downstream petroleum operations including: exploring and producing crude oil, transporting crude via pipelines, railcars, and marine vessels, and refining crude oil into petroleum products such as gasoline, commodity petrochemicals, and plastics for industrial use, as well as natural gas storage and natural gas to liquids projects. The company's revenue is split about 70% downstream and 30% upstream, with 41% from the US and 59% internationally.
Demand for Crude Oil
The United States is currently the world's third largest producer of oil. In the latest report from the Energy Information Association the 2015 forecast represents the higher annual average level of oil production since 1972. The recent development of the oil shale fields in North Dakota, Texas and Western Canada has changed the equation when it comes to Americas dependence on overseas oil production. While oil production is booming in the US, demand for oil is decreasing internationally. Weaker growth in China and the recessionary conditions in Europe underline the slowing global economy. Lower oil prices in the US means higher prices in other countries which helps the dollar to strengthen. A stronger dollar can reduce overseas demand for US exports. The graph below shows that US demand for crude oil has increased 2.42% while global demand has increased 0.67 % year to date.
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A N A L Y S I S
Chevron
Exchange: NYSE | Ticker: CVX | Sector: Energy
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Rail transportation of crude oil has increased as the pipeline falls short. While most crude oil is still transported by pipelines, rail transportation has been gaining ground. According to the Association of American Railroads, the United States rail system transported 407,642 cars of crude oil in 2013, up from 9,500 cars in 2008.
Demand for Gasoline
Average gas and diesel prices at the pump have fallen to their lowest levels in October in over four years. After the end of the so-called summer driving season, demand tails off, and prices typically drop after Labor Day. As supply has increased, demand also has decreased. Even though the U.S. Energy Information Administration predicted this month that Americans will consume 2 billion more gallons of gasoline this year than previously expected due to the economy picking up steam, global demand overall has been weak as the EU is growing at a zero or slightly negative rates, the U.S. is very slow and Japan is contracting.
Demand is expected to fall in the US another 15% between 2014 and 2025. Global petroleum and liquid consumption may rise by 1.4% this year based on EIA data. Much of the increase depends on growth in China and other developing economies. Chinas economic and petroleum consumption growth has been tempered relative to levels prior to 2012. Fall 2014
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Demand for Petrochemicals
According to Chevron technology marketing, the petrochemical industry represents a value of about $3 trillion in economic output with most of the demand coming from Asia especially China and India, the Middle East and Latin America. Demand for petrochemicals which has become an indispensable part of the manufacturing and consuming is expected to grow 3.8% in 2014, although the recent price of oil s resulted in a decline in the price petrochemicals. The United States have gained market share in petrochemical production of liquefied petroleum liquid as Asian petroleum firms who traditionally used naphtha are now switching liquefied petroleum gas. The demand in liquefied petroleum liquid has been spurred by rising supply of oil production from the United States driving the price of naphtha and liquefied petroleum gas below the price offered by Asian petroleum firm usual suppliers located mostly in the Middle East. Asia now accounts for more than a quarter of all United States liquefied petroleum gas exports and is expected to grow.
Energy Consumption Growth by Region
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Consumption by Fuel
Among fossil fuels, gas is the fastest growing (1.9% p.a.) and the only one to grow more rapidly than total energy. Oil (0.8% p.a.) shows the slowest growth, with coal (1.1% p.a.) only slightly ahead.
In that final decade, gas is the largest single contributor to growth; but non-fossil fuels in aggregate contribute even more than gas, accounting for 39% of the growth in energy in that period.
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Global demand for natural gas will is projected to grow by 1.9% p.a. over the outlook period, reaching 497 Bcf/d by 2035, with non-OECD growth (2.7% p.a.) outpacing the OECD (1% p.a.).
In the OECD, gas is expected to overtake oil as the dominant fuel by 2031, reaching a share of 31% in primary energy by 2035. But in the non-OECD, gas is projected to remain in third place, behind coal and oil, with a 24% share of primary energy by 2035.
The fastest growing sector is transport (7.3% p.a.), but this is from a small base. In volume terms the largest growth comes from industry (71 Bcf/d, 1.9% p.a.) and power (63 Bcf/d, 1.9% p.a.).
Global gas supply is expected to grow by 1.9% p.a. or 172 Bcf/d over the outlook period, reaching a total of 497 Bcf/d by 2035. Shale gas is the fastest growing source of supply (6.5% p.a.), providing nearly half of the growth in global gas. Fall 2014
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Gas supply growth is projected to be concentrated in the non-OECD (126 Bcf/d or 2.1% p.a.) accounting for 73% of global growth. Almost 80% of non-OECD growth is from non-shale sources. OECD supply growth (1.5% p.a.) comes exclusively from shale gas (5.1% p.a.), which is projected to provide nearly half of OECD gas production by 2035.
Shale gas supply is dominated by North America, which accounts for 99% of shale gas supply, expected to last until 2016 and for 70% by 2035. However, shale gas growth outside North America should accelerate, and by 2027 will overtake North American growth. China is the most promising country for shale growth outside North America, accounting for 13% of world shale gas growth; together, China and North America will account for 81% of shale gas by 2035.
Trends
US domestic gas production has been revitalized by the shale gas revolution. US shale gas output by 2029 will exceed the highest level ever achieved by conventional gas production in the US. By 2035, shale gas production will be just short of US total gas output in 2012.
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Page 7 Chevron NYSE: CVX DISCLAIMER This report is prepared strictly for educational purposes and should not be used as an actual investment guide. The forward looking statements contained within are simply the authors opinions. TUIA STATEMENT Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for his tireless dedication to educating students in real-world principles of economics and business, the William C. Dunkelberg (WCD) Owl Fund will ensure that future generations of students have exposure to a challenging, practical learning experience. Managed by Fox School of Business graduate and undergraduate students with oversight from its Board of Directors, the WCD Owl Funds goals are threefold: Provide students with hands-on investment management experience Enable students to work in a team-based setting in consultation with investment professionals. Connect student participants with nationally recognized money managers and financial institutions
Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costs and partial scholarships for student participants.