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Oil—Using MarketBuilder to Inform Key Decisions

How will the changing price of crude oil by location by crude type throughout the world over the next 30 years affect your business?

Oil

As the U.S. shale oil supply grows at home and spreads around the world, long-held market fundamentals and practices are expected to change in the face of supply diversity. Global market equilibrium is being turned on its head—and every ripple in the market has implications for business. Deloitte MarketPoint helps oil buyers and producers make sense of these oil market changes. It simulates changing market fundamentals and their implications for the supply curves for the input and output commodities across world markets—the way markets actually work. This approach simulates how buyers and sellers might act in their own self-interest as competitive independent agents. This real-world, agent-based simulation method delivers a value stream analysis that extends from exploration and production through field processing, transportation, refining, distribution, and marketing.

How MarketBuilder helps you make decisions in oil

Asset ProfitabilityDiagram 1: Asset Profitability
For Illustrative Purposes

Companies typically calculate the profitability of assets they build, buy, or sell, as depicted in Diagram 1. They estimate the capital cost, operating cost, and energy efficiency of the asset (as shown at the bottom of the diagram); they specify the discount rate, book and financial parameters, and taxes and other "government takes" (top); and they project the price of the output over time (top left) and the price of the input over time (bottom left).  Then they grind them through a profit calculation (e.g., Discounted Cash Flow or DCF).

What do they find? They find that the most important determinant is the difference between the price of the product output and the price of the input. That difference is the driver of asset profitability, yet this is often the least accurate component of the analysis.

Margin CaptureDiagram 2: Margin Capture
For Illustrative Purposes

MarketBuilder models the supply curves for the input and output commodities for the required markets, treating each component as a competitive independent agent and simulating the way the real-world market works. As a result, you are able to project the price of both the input and the output by providing a justifiable price difference for each of your assets. Rather than using questionable accuracy for the key determinant of asset profitability, you calculate the profitability forward through time of new or existing assets, depicted in the shaded area of the Diagram 2, using time-tested technology and data. The diagram emphasizes that margins are not level, normalized, or annuitized—they are determined by simulating realistic market behavior forward through time. Accurate prices and the profitability of each of your assets through time are central to your strategic and asset decisions.

For what types of assets does MarketBuilder fit this analysis of output-input price difference?

  • Upstream assets—how much money you make with E&P on conventional crude oil
    • By location/basin, oil sands, and others
    • By refinery bypass alternatives like biodiesel or alcohol
  • Refining, as discussed in the foregoing diagrams

MarketBuilder, with its flexibility, sound methodology, ease of use, and time-tested accuracy, helps you to easily adjust parameters to model potential market and policy changes (e.g., shale oil cost, refinery expansion schedule, etc.) and incorporate them in your analysis.

Returning to the question: How will the changing price of crude oil by location and by crude type throughout the world over the next 30 years affect your business? MarketBuilder's World Oil model provides you with the oil supply chains from resources in the ground through shipping, through refining, product transportation, and finally consumption. With MarketBuilder's many other features, these supply chains help you to project what the price of the various qualities of crude oils and products will likely be in many different scenarios at each location throughout the world. MarketBuilder's reporting capabilities help you visualize how these prices apply to your business by asset, by business, or in aggregate, for each potential scenario you analyze.