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A New World Oil Order Emerging in 2016 and Beyond?

Dr. Fereidun Fesharaki, Chairman

February 18, 2016

Sydney, Australia

This presentation material contains confidential and privileged information intended solely for the recipient. The dissemination, distribution, or copying by any means whatsoever without FGE’s prior written consent is strictly prohibited.

Australian Institute of Energy

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The US as an Energy Superpower

OPEC size addition to oil production

Largest producer of condensates worldwide

Largest refinedproducts exporter

worldwide

Top LPG exporter in the world

Emerging majorpetrochemical exporter

Amongst top 3 LNG exporters in the world

Emerging ethaneexporter

Major coal exporter

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Oil Price Outlook: Three Critical Legs

Oil Price

Short Term: Supply/Demand

OPEC/SaudiStrategy

Long Term: Where will the market “hang

its hat”?

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Evolution of Market Surplus: 2015 vs. 2014

0.53

1.74

1.15

1.01

0.74

1.68

-0.2

0.3

0.8

1.3

1.8

2.3

2.8

2014 Surplus OPEC OutputGrowth

US ProductionChange

Other Non-OPECOutput

Demand Growth 2015 Surplus

mm

b/d

Oil Market Surplus (2015 vs. 2014)

Reducing Surplus

Increasing Surplus

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Evolution of Market Surplus: 2016 vs. 2015Demand growth revised up 150 kb/d, non-OPEC supply decline now greater due to lower prices, also, less growth from non-Middle East OPEC members.

1.74

0.88

1.00

0.42

0.07

1.37

-0.2

0.3

0.8

1.3

1.8

2.3

2.8

2015 Surplus OPEC OutputGrowth

US ProductionChange

Other Non-OPECOutput

Demand Growth 2016 Surplus

mm

b/d

Oil Market Surplus (2016 vs. 2015)

Reducing Surplus

Increasing Surplus

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Evolution of Market Surplus: 2017 vs. 2016Other non-OPEC recovers slightly, but US still down. Market becomes balanced in 2017

0.88

-0.01

0.48

0.180.11

1.43

-0.2

0.3

0.8

1.3

1.8

2.3

2.8

2016 Surplus OPEC OutputGrowth

US ProductionChange

Other Non-OPECOutput

Demand Growth 2017 Surplus

mm

b/d

Oil Market Surplus (2017 vs. 2016)

Reducing SurplusIncreasing Surplus

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FGE Long-Term Price ForecastAmong the many variables affecting crude prices, four key scenarios drive our price outlook range:

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140Base Case(US$/bbl Nominal) – Most Likely Path

Dated Brent (Nominal)

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OPEC Reacts: OPEC Cuts But Then Problems Return

OPEC Reacts

Base Case

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140Political Outages: Low-Cost Producers Stay

Constrained

High Case Base Case

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140Lower for Longer: Politically Shut-in Supplies Return

Low Case Base Case

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Short-Term Global Oil Demand Growth

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2013 2014 2015 2016

mm

b/d

Global Oil Demand Growth

Other products

Rest of the world middledistillates

Asia middle distillates

Atlantic Basin middledistillates

Rest of the world gasoline

China & India gasoline

Atlantic Basin gasoline

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Global Oil Demand Mid-Term Outlook: Gasoline StaysStrong on Robust Auto Fleet Growth

-500

0

500

1,000

1,500

2,000

kb/d

North America Latin America

Europe Africa

FSU Middle East

China Other Non-OECD Asia

OECD Asia

-500

0

500

1,000

1,500

2,000

kb/d

LPG Naphtha Gasoline Jet/Kerosene

Gasoil/Diesel Fuel Oil Other

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Refining: Are the Good Times Coming Back?

• Best margins in many years. Why?

• Lower crude prices help refining margins.

• No new refining projects in China…for the first time…but exports surging!

• No new refining projects in India…for the first time.

• No new export refining projects in the Middle East till end decade (except for condensate splitters).

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East of Suez Net CDU Capacity vs. Demand Growth

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500

1,000

1,500

2,000

2,500

kb/d

EoS CDU Capacity vs. Demand Growth

Incremental CDU Capacity Incremental Products Demand

Note: Data for 2015-2020 is based on Firm & Likely CDU additions–weighted for risk of delays (base case)

Incremental CDU Capacity > Incremental Products Demand Incremental CDU Capacity <

Incremental Products Demand

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Asia’s LNG Demand Continues to Dwarf Other Regions

Domestic gas production in Argentina/Brazil?

Global LNG Demand by Region

Reform of subsidized gas prices?

Growing LNG needs as domestic supplies cannot keep up with

elevated economic growth

Declining domestic production requires

increasing LNG imports

Note: The above units are in mmt of LNG

177 220311

2016 2020 2030

Asia

4364

92

2016 2020 2030

Europe

813

29

2016 2020 2030

Middle East

25

39 36

2016 2020 2030

Americas

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Asia is Potentially Over-Supplied for Several Years From 2017

Source: FGE estimates

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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

mm

t

Asia's Potential LNG Supply/Demand

Asian LNG supply Contracted supplies from Middle East into AsiaContracted supplies from Russia, Africa, Canada etc.* Uncontracted/flexible supplies from Middle EastUS Contracts Sold to Asian Buyers Asian LNG demand

* Excludes portfolio volumesNote: Only SPAs and equity volumes are taken into consideration under contracted supplies

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US$

/mm

Btu

Japan Gas Price Forecasts

Japan spot Japan long-term contract price

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Asia Long-Term and Spot LNG Price OutlookJapanese Contract Prices Vary With Oil Prices, While Spot Prices Remain Suppressed This Decade

Note: The above prices are in 2016 real terms

Spot prices remain disconnected from oil-linked pricing this decade as the market remains over-supplied due to new liquefaction project startups.

From 2022, market becomes less over-supplied, due to a lack of liquefaction FIDs, resulting in gradually closer correlation between spot and contract prices.

Both prices rise to around US$10.5/mmBtu by 2025 as oil price rises, giving a reasonable return to the next tranche of LNG supply.

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For Buyers and Sellers to Meet, LNG Price Levels and Contractual Flexibilities Need to be Adjusted

Pricing Adjustments

• Lower price expectations

• Balance between slope and constant

• Re-emergence of ‘S’-curve

• More regular price review (~5 years)

• Increased acceptance of hybrid pricing

Non-Pricing Adjustments

• Destination flexibility

• Volume flexibility (higher DQT)

• Buyers’ equity investments

• Buyers given more risk protection

• Sellers manage LNG quality issues

• Sellers manage credit issues

• Potential alliances within buyers/sellers

• More multi-duration sales contracts

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1,200

1,400

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

mm

t

Global Liquefaction Capacity and LNG Demand

Speculative

Possible

Planned

Under Construction

Operating

World LNG Demand

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Massive Pre-FID LNG Supplies are Planned Post-2019

Source: FGE Online Data Service (ODS)

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Global LNG Supply and Demand Many Planned Projects in Australia and Canada May Not Happen Until After 2025

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mm

t

Global LNG Supply/Demand Balance

Operating Under Construction Under Construction - Australia

Planned/Possible Planned/Possible - Australia Planned/Possible - Canada

Speculative Global LNG Demand Asian LNG Demand

Source: FGE estimates

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Unsold US LNG~32-40 mmt

Uncommitted Qatari LNG~30-43 mmt

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“4 Chains” Weigh Down the LNG MarketPotentially >100 mmt of LNG Unsold From Existing and Under Construction Projects

Buyers Performing Below Contract Levels*~3-4 mmt

*Only for high priced contracts (slope >15%)**Uncommitted volumes, equity offtake, and potential volumes re-entering market from ‘middle-men’ buyersNote: Range of volumes presented span across the 2020-2025 timeframe

Australian LNG Looking for a Home**~25-32 mmt

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A Prolonged Loose Asian Market till 2028? – Something’s Gotta Give!

*In operation and under construction projects**Including selected contracts with slopes of 15% or above from Asian and Middle Eastern supplies.†Assuming buyers take minimum volumes for contracts with slopes of 15% or above.

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t

4 Chains Pulling Down the LNG Market

Australian Marketable Volumes from Existing Contracts/Equity* Australian Uncontracted Supply*Estimated Marketable Volumes from High Slope Contracts** US Uncontracted & Marketable Supply (UC Projects)Qatar Uncontracted & Flexible Supply Asian Uncontracted Demand (Existing Markets) AU Adjusted†

Source: FGE estimates

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