kelleher (1)

Agenda

October 2010

D O L L A R S A N D D I S T I L L A T E S D R I V E C R U D E

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Source: JP Morgan Energy Strategy, Bloomberg

After the Liquidity CycleAfter the Liquidity Cycle Gold $/trozGold $/troz

US Dollar and Crude Oil Correlation to ResumeUS Dollar and Crude Oil Correlation to Resume

QE and high liquidity risk inflation short term, but will add supply when rates rise

Gold prices are a good barometer of interest rates, liquidity and inflation risk

QE risks weakening the US dollar, adding a further stimulus to North American and Emerging Market growth

Linking of Fed policy to price levels, rather than growth a key change in policy – could spark inflationary expectations and cause money to flow into commodities

Low interest rates enable the oil market to hold high levels of inventory – currently a stabilizing feature, but could become a driver of rising prices

Oil Price is Cheap When Measured in GoldOil Price is Cheap When Measured in Gold

1.1

1.2

1.3

1.4

1.5

1.6

1.7

0

20

40

60

80

100

120

140

160

Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10

$/bbl

Brent Crude USD/EUR

$/EU


00.020.040.060.08

0.10.120.140.16

1983 1988 1993 1998 2003 2008

Bbl / troz

Oil priced in Gold


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New World: Disruptions will transmit across the forward price curve

New World: Disruptions will transmit across the forward price curve

Base case price forecast: Potential for major disruptions from all directions

Source: JPMorgan Energy Strategy

■ Prior to the 2004-2008 price run-up and subsequent collapse, the forward curve was anchored around $20/bbl

■ $20/bbl was thought to be the marginal cost of supply

■ Short-term disruptions had minimal impact on long-term price views

■ OPEC sought to manage market through inventories

Event/shock (US$ Impact) Front Back (Dec 2012)

Global economic shock (+ or -) +20/-30 +10/-15

Iraqi collapse or shock +30/-5 +15/-5

Iran turmoil +40 +20

China take-off or collapse +15/-20 +15/-15

Substantial interfuel substitution -5 -10

Substantial change to costs +5/-5 +10/-20

Unknown supply disruption +5 to +50 +0 to +30

Other? ? ?

Old World: Forward price solidly anchored

Old World: Forward price solidly anchored

■ Over 2004-2008 worries about long-term supply escalated

■ In 2008-2009 there was concern about the duration of the recession

■ In both cases, long-term concerns directly impacted short-term prices

■ The past year has seen a period of relative stability with the market poised at $70-80/bbl

■ Is this the calm realistic?

■ Will prices ratchet up again as we saw over 2004-2008?

In US$/bbl

$-

$20

$40

$60

$80

$100

$120

$140

'99 '01 '03 '05 '07 '09 '11


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Oil-linked Asia provides the highest value for LNG

Oil-linked Asia provides the highest value for LNG

Flexible LNG seeks to push into high value market for oil substitutes

Global Gas Prices: What will Qatar do with its flexible volumes? Global Gas Prices: What will Qatar do with its flexible volumes?

■ Asian LNG imports grew by close to 30 percent in August versus the same period last year

■ Korea was up over 80% yoy

■ Demand was weak in 2009 due to the crisis, but new LNG supply is pushing into the Asian market

■ Spot LNG is certainly competitive with oil...sellers seek to place flexible LNG in high value niche markets in place of oil (e.g., India, Kuwait)

Source: JPMorgan Energy Strategy, Bloomberg

Source: JP Morgan

■ A huge question is what Qatar will do with over 30 MTPA of “flexible” LNG initially targeted at the US and UK which is now ramping up

■ This has important implications for the oil market as it is 740 kbd of oil equivalent

■ Will it push into low value markets to compete with coal, or will it get pulled into Asia as a substitute for oil?

■ The Middle East is the latest region to emerge as a surprise LNG importer...replacing oil

$3-5/MMBtu $3-8/MMBtu $9-13/MMBtu

Competing Fuels US$/MMBtu (approx)

US Natural Gas 4

UK Natural Gas 7

Asia Spot LNG (Japan) 9

Asia Long Term LNG (Recent) 12

LSWR FOB Indonesia 12.50

Fuel Oil 180CST FOB Singapore 11.50

Naphtha CFR Japan 16

Minas Crude Oil 15

Push into Asia

How will Qatar adjust to new market realities?

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Global Demand Growth Profile and Forecasts by Region, 2009-2011

Global Demand Growth Profile and Forecasts by Region, 2009-2011

Oil demand is robust, poised to move into supply deficit

■ OPEC output has stabilised at 29.1 mbd, even assuming rising OPEC supplies, a market deficit is seen

■ Still see trend GDP growth ■ Receding risks of double-dip recession■ But Eurozone problems show they have

not gone away

2009 2010 2011

World Oil BalanceWorld Oil Balance

■ World oil demand growth to moderate to 1.6 mbd in 2011

■ Still seen above trend, driven by Emerging Market demand

■ China imports easing■ But signs it is drawing on

stocks

■ Structural risks: ■ Natural gas substitution■ Efficiency


-883

461

44

OECD North America1631

-1218

2272

Global

82

211 263

Latin America59

157 119

Africa

-911

-99

87

Europe 285166

281

Middle-East

-252

75 80

FSU

521

1182

757

Asia Pacific

-6.0

-4.0

-2.0

+0.0

+2.0

+4.0

+6.0

+8.0

+10.0

82.0

84.0

86.0

88.0

90.0

92.0

Jan 08 Jan 09 Jan 10 Jan 11

Stock Change To Balance Total Product Demand Supply


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US Port TrafficUS Port Traffic

Source: JP Morgan Energy Strategy, Port Authority Long Beach and LA

Rising oil demand reflects infrastructure strains, comfort with high prices

Global Air Traffic IndicatorsGlobal Air Traffic Indicators World oil demand is coming in stronger than economic growth indicators suggest

Robust demand from Emerging Market economies due to growth straining infrastructure - much in the same way as 2004 and 2008

Signs that initial conservation response to high prices is waning – not surprising considering oil prices have averaged $75 bbl for five years now

Subsidies being removed in emerging markets, but likely to be re-imposed if prices rise

300

350

400

450

500

550

600

650

700

750

800

2002 2003 2004 2005 2006 2007 2008 2009 2010

Total Loaded Inbound

-30

-20

-10

0

10

20

30

40

2003 2004 2005 2006 2007 2008 2009 2010

Miles Index

Freight Traffic

Passenger Traffic

Source: JP Morgan Energy Strategy, IATA

Vehicle Fuel Consumption and Oil PricesVehicle Fuel Consumption and Oil Prices

Source: JP Morgan Energy Strategy, US Bureau of Transport, EIA

0

40

80

120

20.5

21.0

21.5

22.0$ bblMPG

Average Miles Per Gallon Crude Oil Prices $/bbl

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Distillate will provide the marginal demand barrel in 2010

Dramatic divergence in product demand growth trends between Emerging Markets and OECD post recession

Light ends have driven the market higher, led by the petrochemical sector Decline in light ends reflects weaker gasoline demand

and end of petchem restocking Maybe too bearish

Middle distillate demand (gasoil, diesel, jet and kerosene) has shown signs of improvements in the past few months Strong gasoil/diesel cracks and is good news for

complex refiners

OECD Product Demand Year-on-Year ChangeOECD Product Demand Year-on-Year Change

Global Product Demand Year-on-Year ChangeGlobal Product Demand Year-on-Year ChangeNon-OECD Product Demand Year-on-Year ChangeNon-OECD Product Demand Year-on-Year Change

-4

-2

0

2

4

Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10

mbd

Light Ends Middle Distillate Fuel Oil

-4

-2

0

2


mbd

Light Ends Middle Distillate Fuel Oil

-2

-1

0

1

2

3


mbdLight Ends Middle Distillate Fuel Oil

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In an industry running at 93% capacity there is little margin for error

There is a need to find 3-4 mbd of new oil every year just to stand still

But we have been doing that for the past decade When we are less successful or demand surges, prices spike When we are marginally better, there is a downward bias to prices

Future project analysis only provides clarity for the next 3-4 years

Reality is there are plenty of hydrocarbons around

The real questions are the price to produce them and the price to curtail demand

A major concern is that even with the highest level of spare capacity for a decade, the industry is running at 96% of capacity There is little margin for error

International Energy Agency ConcernInternational Energy Agency ConcernPeak Oil ProjectionPeak Oil Projection

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Source: JP Morgan Energy Strategy, JODI, IEA

Growth in Emerging MarketsGrowth in Emerging MarketsIndexed Global Oil Demand GrowthIndexed Global Oil Demand Growth

Percent Share of Global Oil Demand Percent Share of Global Oil Demand

Meeting emerging market growth will be a challenge

EM economies pull more oil for every extra dollar earned than mature economies.

EM’s have been the driver of oil demand for much of the last decade, but now that they make up nearly half the world oil economy

Forecast of Chinese demand for 2010 is up 10.4%, plus another 5.3% in 2011. It will surpass the US as the worlds largest consumer by 2020

Demand growth for 2011 from India and Brazil with yoy increases of 4.4% and 4.8%, respectively.

OECD62%China/India/

Brazil12%

Other Non-OECD

26%

2001 Average

OECD50%

China/India/Brazil20%

Other Non-OECD

30%

2013 Forecast

0

50

100

150

200

250

OECD China/India/Brazil Other Non-OECD

0

5

10

15

20

25

30

2000 2004 2008 2012 2016 2020 2024 2028

Mln

Barr

els

per D

ay

Chinese Oil Demand …

Chinese Oil Demand GrowthChinese Oil Demand Growth


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Per country Revisions (% and Vol) to 2010 Supply-ex FSU

Per country Revisions (% and Vol) to 2010 Supply-ex FSU

High price and better equipment availability allows production to grow

Over the past year, 2010 non-OPEC supply projections by the International Energy Agency have been revised up by 770 kbd

Russia and Azerbaijan were two major FSU forecasting issues, which cancelled each other out

Russia higher to new projects Azerbaijan to ongoing project delay

Supply revised higher in 41 countries, lower in 23

Decline (and forecasting error) has not gone away

Number of countries with revisionsNumber of countries with revisions Russia and USA alone present upside risk to 2011 forecast non-OPEC supply growth of 0.5 mbd

Corporate guidance suggests Russian output growth of 350 kbd, JPM forecast 80 kbd

US growth could be revised up on: lower drilling impact to Gulf of Mexico Rapid shale oil development

Strong pace of development in West Africa

Iraq, Brazil provide two-way risks

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Prompt WTI PricePrompt WTI Price OPEC uncomfortable with prices below $70 bbl, but would only act if prices dipped below $65 bbl

The time taken to gather a response could see prices dip to $55

Saudi budget needs $70 to balance – with social spending growing rapidly, Saudi will be comfortable if prices rise gradually

Outside of a significant downward price shift, OPEC is not likely to change current quotas. Additional output from Iraq/Nigeria. Still concerned about high prices

High geopolitical risks over next six months

Attacks on Iraqi northern pipeline have been stepped up during political impasse

Nigerian elections risk positioning by Niger Delta rebels

Iranian sanctions seem to be having economic effect, but international patience wearing thin

Venezuelan elections already causing surge in diesel demand as president seeks to avert rolling blackouts.

Geopolitical flashpointsGeopolitical flashpoints

OPEC will let oil prices swing between $55 and $100 per barrel

30

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50

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70

80

90

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10

WTI

10 day MAV20d MAV



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Post-Summer Runs and MarginsPost-Summer Runs and Margins NYMEX product cracksNYMEX product cracks

Refinery Crude Runs

Refining runs are being supported by the bottom half of the barrel

US refining runs have remained high despite impending maintenance

Diesel and fuel oil demand for power generation has been higher than years prior

Diesel demand forecast has been adjusted up by 150 kbd globally. Fuel oil adjusted up by a similar amount – more significant effect due to smaller pool

Surge in demand is reflected in prompt cracks rising to above $15/bbl for ULSD in Europe, its highest level since late June

Northern hemisphere winter heating demand could keep inventories tight in coming months

Market will be reluctant to draw inventory prior to 1Q11

Source: JP Morgan Energy Strategy, EIA

US Refinery crude runsUS Refinery crude runs

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

J F M A M J J A S O N D

2010 2009 2008 2007

-15

-10

-5

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15

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Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10

$/bblHeat Crack Gas Crack Fuel Oil Crack

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Material upward revisions to supply estimates suggest market less tight than previously thought

Crude market tightness still seen peaking in July/August

Thereafter seasonal maintenance points to renewed build., before year-end ramp-up in runs start the next draw

Crude Market BalanceCrude Market Balance

Global crude demand peaked in the summer: winter rebound seen in 4Q10

Crude Market Balance

69.0

70.0

71.0

72.0

73.0

74.0

Jan-08 Jan-09 Jan-10

mb/d

-300

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Stock Change (rhs) Crude Demand Crude Supply

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World product supply potential points to distillate-led tightness

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

LPG Naphtha Gasoline Jet/kero Gasoil/Diesel Fuel Oil

mbd

2009 2010 2011 2012 2013

Tighter Fuel Oil to Pressure Upgrading MarginsTighter Fuel Oil to Pressure Upgrading Margins

■ Robust economic growth in Emerging Market economies, Asia in particular, underpins distillate-led demand growth

■ By contrast rising supplies of ethanol and NGL volumes will pressure gasoline cracks

Continued robust naphtha demand growth provides some support to light distillate markets

■ A similar picture of rising supplies (OPEC NGL volumes) is evident in LPG markets

■ By contrast diesel/gasoil markets look set to tighten despite distillate-focused upgrading investment

Source: JP Morgan Energy Strategy

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OECD Commercial Crude Inventories and Floating StorageOECD Commercial Crude Inventories and Floating Storage

Reported Crude Stocks have fallen by 10% from early 2009 peak

OECD land-based crude stocks and global floating crude storage has

fallen by over 100 mb since the peak in April 2009

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10

In mbFloating OECD Land-based

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Medium-term risks to near-term prices

Spare capacity starts to fall sharply from 2011

Pace of economic growth and Iraqi oil field development are the real uncertainties as we move forward

Financial stresses and unemployment could drive efficiencies, but policy and high prices will be more effective and permanent

Electric vehicles are unlikely to have a significant impact on demand until post 2015 at best

Price forecast assumes OPEC will try to moderate increases but will the market rise much faster, to prevent a supply crunch happening?

1Q10 2Q10 3Q10 4Q10 2010 2011 2012 2013

Nymex WTI Crude ($/bbl) 78.88 78.05 76.00 81.00 78.50 82.50 92.50 102.50

JPMorgan Medium Term Crude Oil Price ForecastJPMorgan Medium Term Crude Oil Price Forecast

All Forecasts are period averages. Actual to date prices for 1Q10 and 2Q10 are as of July 30, 2010

0

1

2

3

4

5

6

7

75

80

85

90

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2009 2010 2011 2012 2013 2014 2015

mbdmbd

Supply Capacity (LHS) Demand(LHS) OPEC Spare Capacity (RHS)

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J.P. Morgan – Global Refinery Analysis Model

J.P. Morgan’s Global Refinery Analysis Model (GRAM) is a bottom-up analysis of existing refinery capacity and confirmed investment projects

The analysis covers more than one thousand individual new units adding to the existing 750 detailed refineries in the model

Regional crude slates and volumes are forecast based on typical regional consumption patterns and forecast changes to crude quality

NGL supply volumes are assumed to be a substitute for crude in the global crude market Implications for the residue balance in particular Supply analysis assumes OPEC will maximize production of non-quotas barrels ahead of crude

The GRAM uses 50 crude assays to analyze output from the initial distillation of the crude. The model then runs these outputs through secondary processing units and aggregates the output into seven finished product categories

Model assumes that most capital intensive units are filled first i.e. cokers are filled before visbreakers

The impact of the new capacity additions are shown through a comparison of total product supply of these seven product categories against JP Morgan’s detailed product demand model

Regional and global product market balances are then calculated including other sources of supply including NGLs and biofuels

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Global Refining Capacity Growth 2010-2014 (mbd)

Global Refining Capacity Growth 2010-2014 (mbd)

Regional refining capacity growth: the Americas; EMEA; Asia-Pacific

2.3

1.9

3.0

1.61.5

1.7

CDU Upgrading

Global refining industry set for substantial growth in 2010-2014 period

Growth is led by regional champions China in Asia Saudi Arabia in the Middle East The US and Brazil in the Americas

Ongoing investment in upgrading capacity will Further boost the supply of light clean products Continue to tighten fuel oil markets Puts upgrading margins under pressure

Regional variations will become critical to refinery profitability

European and Japanese refineries faces the greatest pressure to close capacity

Falling regional demand keeps profit generation under intense pressure

Rising biofuels supplies globally will further undermine potential returns

Source: JP Morgan Energy Strategy, Wood Mackenzie

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Global Upgrading Capacity Growth Profile 2010-2014Global Upgrading Capacity Growth Profile 2010-2014

Regional upgrading capacity growth: the Americas; EMEA; Asia-Pacific


Global Crude Distillation Capacity Growth 2010-2014Global Crude Distillation Capacity Growth 2010-2014


■ Asia Pacific and Middle East lead CDU capacity increase

Driven by supply security concerns in China, India

OPEC expansions driven by:■ Energy security■ Desire to maximize revenue from the barrel■ Market control

■ Brazil, Mexico and the US bolster the Americas

■ Upgrading capacity additions concentrated in next three years

-

0.5

1.0

1.5

2010 2012 2014

-

0.5

1.0

2010 2012 2014

-

0.5

1.0

2010 2012 2014

-

0.5

1.0

2010 2012 2014

-

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1.0

2010 2012 2014-

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1.0

2010 2012 2014

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Oil market outlook : Conclusions

Linking of Fed policy to price levels, rather than growth a key change in policy – could spark inflationary expectations and cause money to flow into commodities

Low interest rates enable the oil market to hold high levels of inventory – currently a stabilizing feature, but could become a driver of rising prices

The recent decision to allow output to drift higher and lower stock levels adds weight to extreme views on higher underlying decline rates and lower spare capacity

World oil demand growth of 2.2mbd will moderate to 1.6 mbd in 2011

Still seen above trend, driven by Emerging Market demand and healthy EM GDP growth.

Light ends have driven the market higher, led by the petrochemical sector

Middle distillate demand (gasoil, diesel, jet and kerosene) has overtaken gasoline/naphtha as transportation gain become the dominant feature of world oil demand growth.

A major concern for the industry and OPEC is that even with 6mbd of spare, the industry is running at 93% of capacity; suggesting there is little margin for error

OPEC output has stabilised at 29.1 mbd, and upcoming OPEC meeting is unlikely to see any departure from current script.

The market seems happy to anchor prices in the $80-100/bbl long-term, but is this rational? Supply and demand shocks could quickly force a re-appraisal of long-term equilibrium prices if circumstance change.

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North American capacity expansion driven by the US

US refiners continue to adapt to rising supplies of heavy sour crude/bitumen from Canada, rising Shale Oil production and the Middle East’s increasingly sour crude slate

Nearly 75% of US capacity additions relate to projects to increase the ability to process heavy sour crude

Key projects include: Motiva Port Arthur—325 kbd new crude

capacity in 2012 Marathon Garyville—180 kbd new

crude capacity on stream in 2010

Projects involve substantial expansion of upgrading units

However, these investment decisions, while still robust in term of potential economics ignore the changing landscape of the US crude market—notably the rise of better quality oil from the emerging shale oil plays

US Coking Capacity Growth ProjectsUS Coking Capacity Growth Projects


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World product supply potential points to distillate-led tightness

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5


mbd

2009 2010 2011 2012 2013

Tighter Fuel Oil to Pressure Upgrading MarginsTighter Fuel Oil to Pressure Upgrading Margins

■ Robust economic growth in Emerging Market economies, Asia in particular, underpins distillate-led demand growth

■ By contrast rising supplies of ethanol and NGL volumes will pressure gasoline cracks

Continued robust naphtha demand growth provides some support to light distillate markets

■ A similar picture of rising supplies (OPEC NGL volumes) is evident in LPG markets

■ By contrast diesel/gasoil markets look set to tighten despite distillate-focused upgrading investment


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North American supply potential — gasoline imports to diminish

North American Gasoline Market to Become More BalancedNorth American Gasoline Market to Become More Balanced

■ Regional gasoline import requirement diminishes due to falling demand (despite Mexico)

■ Rising ethanol supplies help rebalance market

■ Current diesel exports are eroded by strong economic growth supporting diesel demand

■ However we have assumed US refiners do not radically alter their operating mode – i.e. they remain focused on max gasoline

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4


mbd

2009 2010 2011 2012 2013


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Global Fuel Oil Supply and Demand BalanceGlobal Fuel Oil Supply and Demand Balance

Source: J.P. Morgan Energy Strategy

Upgrading capacity to tighten the fuel oil balance in the coming years

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

2009 2010 2011 2012 2013

mbd

With the move towards cleaner/lower sulfur fuels, demand for the bottom cut of the barrel has continued to trend lower over the years despite strength in other product groups

However, we expect the fuel oil balance to tighten considerably over the next several years as the current refinery buildout cycle is expected to add a considerable amount of upgrading capacity Much of the new refining capacity (the bulk in non-OECD Asia) is expected to be rather sophisticated, with

the ability to reprocess much of the fuel oil produced into more desirable (and higher priced) middle and light end products

In Europe and North America, the inability to build new greenfield refineries has led to additions of secondary units to existing infrastructure to produce a lighter product slate, reducing fuel oil yields

European supply potential — gasoline exports remain a threat to region

Diesel-Biased Demand Leaves Region Vulnerable to RationalizationDiesel-Biased Demand Leaves Region Vulnerable to Rationalization

■ Despite lower crude run assumptions, declining regional demand leaves European refineries exposed to competition from rising Asian export volumes (particularly from India)

■ In contrast to North America, Europe’s product balance moves more out of line with demand

■ Capacity rationalization remains a real risk given low complexity many regional refineries

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4


mbd

2009 2010 2011 2012 2013


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Conclusions: global refining and product supply

Refiners globally are over-investing in new capacity, and particularly upgrading capacity This is the area that has provided strong returns over the past 20 years, but by virtue of overinvestment will

provide less of a competitive advantage in the future World refinery capacity and upgrading expansions to constrain refining margins for the next five years

Upgrading capacity to keep fuel oil margins tight and narrow differentials between light/sweet, and heavy/sour crude oil prices

Bulk of new capacity taking place in Asia and Middle East—the area of greatest demand growth

Low clean freight rates to open up wider scope for product trade when Asia becomes over-supplied

Refining profitability is therefore likely to be strongly influenced by location factors—particularly access to low cost crudes

Atlantic Basin crude supplies to be tightened by ongoing draw from Asia, Russian preference for supplies via ESPO pipeline, ongoing decline in North Sea

US refiners continue to adapt to rising supplies of heavy sour crude/bitumen from Canada, rising shale oil production and the Middle East’s increasingly sour crude slate

Significant investment in additional coking capacity will allow refiners to run heavier crude slates—positioning themselves to capture lower cost feedstock’s on the Gulf Coast and potentially the US Midwest

But many of these investment plans were signed off before the recent surge in shale oil production

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Agenda

October 2010

J . P . M O R G A N G L O B A L C O M M O D I T I E S G R O U P

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26

J.P. Morgan Global Commodities – Growth Story

J.P. Morgan has made significant investments in building out and diversifying our Global Commodities platform and capabilities - organically and through strategic acquisitions, such as RBS Sempra

J.P. Morgan's Global Commodities Group offers clients a comprehensive set of market making, structuring, risk management, financing and warehousing capabilities across the full spectrum of commodity asset classes

Investing in our platformInvesting in our platform

Key transactions accelerate J.P. Morgan’s growthKey transactions accelerate J.P. Morgan’s growth

J.P. Morgan corporate focus on developing market leading energy trading platform

J.P. Morgan expands energy trading platform organically

Co-founded the New York Mercantile Exchange’s Green Exchange

Acquired Bear Energy as part of J.P. Morgan’s acquisition of Bear Stearns

Acquired ClimateCare, a leading originator of carbon offsets

Acquired UBS Commodities Canada Ltd and UBS AG’s global agricultural business

Acquired EcoSecurities Group plc, a global leader in the carbon credit market

Completed acquisition of RBS Sempra’s metals, oil, coal, plastics, agricultural, and concentrates; non-U.S. emissions, European power and gas and investor products assets from the Royal Bank of Scotland and Sempra Energy in July

Completed acquisition of RBS Sempra’s North America natural gas and power trading portfolios in October

2005-2006 2006 2008 2009 2010

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Commodity risk expertise is interlinked with firm wide capabilitiesCommodity risk expertise is interlinked with firm wide capabilities

J.P. Morgan Global Commodities Group

Corporate Risk Management: J.P. Morgan provides risk management solutions for clients hedging commodities exposure - clients covered include consumers, producers, refiners and traders of metals, energy and agriculture/softs

Market Intelligence: J.P. Morgan affords clients a wide view of the commodity markets given J.P. Morgan’s diverse client base and distributes industry leading research in all commodities

Commodity Related Financing: J.P. Morgan provides corporate finance solutions for clients seeking to buy or sell commodity assets or to leverage assets as collateral for financing transactions

Leverage of J.P. Morgan’s internal resources (Research, Lending, Equity and Debt Underwriting): J.P. Morgan’s clients have access to J.P. Morgan’s complete platform Up to date on latest industry and product trends

Strong customer relationships: J.P. Morgan works closely with customers to design the most appropriate solution in the futures, cash, and over-the-counter commodities markets

Commodity leader: J.P. Morgan is at the leading edge of product development and risk management in the Commodity and Currency product space

Risk transfer: J.P. Morgan takes significant principal risk, publishes leading research, and works on a global structure to ensure that our customers get the best service available

J.P. Morgan’s vast ability to take risk:

Long-dated risk: J.P. Morgan can take on commodity risk beyond normal market tenors

Outsized Risk : J.P. Morgan has strong market risk lines so can warehouse sizable positions

Exotic risk: J.P. Morgan has the ability to trade products that many other banks do not

Correlation risk: J.P. Morgan has a large correlation book and has the ability to trade exotic correlation

J.P. Morgan stands outJ.P. Morgan stands out

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J.P. Morgan Covers Commodities Across the Supply Chain

Futures & OptionsGlobal CommoditiesResearch

OTC Metals, Energy and Ags

Warehousing Risk

Structured Products

Long Dated Contracts

Listed Futures and Options

Specialist Trading Desks

Global Clearing Solutions

Electronic Trading

Metals, Bulk Commodities

Energy and Power

Grains and Agricultural

Technical Analysis

Energy and Power

Coal

Electricity

Natural Gas

Gasoline

Crude Oil

NGLs

Transportation

Freight

Base Metals

Steel

Nickel

Zinc

Tin

Copper

Aluminium

Lead

Aluminium Alloy

NASAAC

Precious Metals

Gold

Silver

Platinum

Palladium

Agricultural

Cattle

Dairy

Grains

Soybeans

Wheat

Corn

Softs

Coffee

Sugar

Cotton

Weather

Temperature

Precipitation

Wind

Hurricanes

Sunshine

Crop Yields

Environmental Markets

Carbon allowances and offsets (e.g., RGGI; EUAs; CERs; VERs)

Sulphur Dioxide

Nitrogen Oxides

Renewable Energy Credits

Plastics

Ethylene

Polyethylene

Polypropylene

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J.P. Morgan – Oil Trading

Global Oil Trading Headcount by Location – 24 hour coverageGlobal Oil Trading Headcount by Location – 24 hour coverage

Houston 4

Stamford 12

Calgary 6

New York 13

London 18

Geneva/ Zug 5

Singapore 16

In addition, there are over 20 waterborne and pipeline logistics experts spread across these locations

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Global Footprint

Worldwide LocationsWorldwide Locations

Chicago

Mumbai

Singapore*

Sydney

TokyoHouston*

Calgary

JPM GCG Only Center

Combined Location

RBS-S Only Center

Stamford

Seoul

Beijing

Shanghai

Geneva

Hong Kong

* Major hub

** Expected in 2nd half of 2010

ZugSao Paulo** Dubai

Johannesburg**

Istanbul

Liverpool

Oxford

London*

From metals and energy to environmental and agricultural commodities, our nearly 2,000 professionals in more than 10 countries operate at the center of the commodity markets. In addition to our office locations, our Henry Bath warehousing franchise operates more than 100 individual warehouses locations in 11 countries

Italy

Germany

Madrid

Washington DC

Maryland

Oslo

HollandNew York*

Stockholm

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J.P. Morgan’s Global Oil Physical Asset Overview

Houston

New York

Calgary

London

Geneva/ Zug

SingaporeTime Chartered Vessels

Storage Facilities

J.P. Morgan can provide physical off take, delivery, storage, shipping and blending solutions across most petroleum products, enabled by strong trading, operational, and functional support expertise

Unique market position because much of the physical activity cannot be achieved in the financial market (e.g., float a ship without a sale, unmatched physical longs and shorts in different market areas, trade non-hub locations)

Participate in both wet and dry freight

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Select Oil Team Members

Jeff Frase,

Managing Director

Jeff Frase joined J.P. Morgan and the GCG management team in October 2008 as the head of Global Oil Trading, based in New York. He joins us from Lehman Brothers, where he ran Global Oil Trading for one year. Prior to Lehman, Jeff was a part of Goldman Sachs' Commodities franchise for 17 years, where he had most recently been head of Global Crude Oil and Derivatives trading.

Ken Krug,

Executive Director

Ken Krug joined J.P. Morgan in July 2010 and will run the North American physical crude oil trading business. Prior to joining, he spent four years at Goldman Sachs running the North American physical crude oil business. Ken also started the Canadian physical crude oil trading business during his time at Goldman. In addition, Ken has worked in the refining space doing supply and trading at Suncor Energy.

Dean Bristow,

Executive Director

Dean Bristow joined J.P. Morgan in 2010 with the acquisition of Sempra. He has spent the past year at Sempra running the Canadian Crude Oil book, trading Canadian physical grades, and managing the physical storage portfolio. Previously at Sempra, Dean managed business development for North America physical oil and the Canadian wellhead business. Dean has over 21 years in the energy business.

Kirk Kinnear,

Executive Director

Kirk Kinnear joined J.P. Morgan in 2010 with the acquisition of Sempra. He has over 30 years experience in oil trading with Phibro Energy, Hess Energy Trading and Sempra. Kirk was responsible for supplying crude to refineries in the mid-continent with Farmland, and the US Gulf Coast with Phibro USA. He has worked on the trans-Alaska Pipeline and has experience as a lease crude buyer in the Mid-Continent and the Rockies. Kirk currently serves as Secretary on the Board of Directors and NYMEX Foundation.

Jay Miller,

Executive Director

Jay Miller joined J.P. Morgan in 2010 with the acquisition of Sempra. He has been in the oil industry since 1975 and began his career trading at ConocoPhillips. Jay helped start the crude oil trading group at Drexel, Burnham, Lambert until the energy trading operations were sold to Sempra Energy. Jay has spent most of his career managing domestic crude oil trading operations and has extensive experience on both the physical and financial side of the business. Jay is also a member of the Board of Directors of the New York Mercantile Exchange.

David Scholten,

Executive Director

David Scholten joined J.P. Morgan in 2010 with the acquisition of Sempra. He joined Sempra in 2005 as domestic crude oil trader. Prior to that, David was with Shell Trading US Co where he held various positions as a domestic crude oil trader. Before trading, David spent 8 years in refining as a chemical engineer with Star Enterprise.

Ira Eisenstein,

Executive Director

Ira Eisenstein joined J.P. Morgan in April 2008 as a crude oil trader. Ira started his career as a trader at Phibro Energy and also worked in the tanker industry. Prior to joining J.P. Morgan, Ira was an Executive Director responsible for crude oil trading at Morgan Stanley for 17 years.

Andy Kelleher,

Managing Director

Andy Kelleher joined J.P.Morgan in August 2009 as the head of North American Products, bringing with him 30 years of extensive experience trading physical crude and products. His previous roles include President of ConocoPhillips Supply and Trading, Vice President of Tosco Supply and Trading, Phillips Petroleum Company, Sunoco Supply and Trading, and The Marc Rich Trading Company.

Greg Hebrank,

Executive Director

Greg Hebrank joined J.P. Morgan in 2010 with the acquisition of Sempra. At Sempra, Greg managed North American light products trading (gasoline, ethanol, distillates, jet) for the past 6 years. Prior to Sempra, Greg worked for BP, Koch, Shell and El Paso Corporation in light products trading.

Max Strongin,

Executive Director

Max Strongin joined J.P. Morgan in 2010 with the acquisition of Sempra. Max joined the Sempra fuel oil desk in 2002 and traded financial fuel oil. Max is currently an Executive Director at J.P. Morgan trading financial and physical fuel oil based in Stamford.

Dean Craig,

Executive Director

Dean Craig joined J.P. Morgan in 2010 with the acquisition of Sempra. He has been with Sempra for five years, and currently runs the physical Natural Gas Liquids book. Dean has traded Natural Gas Liquids for 10 years. Prior to that, Dean traded refined products including unleaded gasoline, jet, and distillate for 8 years. In total, Dean has been in the trading business for 20 years.

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J.P. Morgan named “Derivatives House of the Year” by EnergyRisk

Energy Risk’s Derivatives House of the YearEnergy Risk’s Derivatives House of the Year

J.P. Morgan won EnergyRisk’s Derivatives House of the Year in June, 2010

The magazine highlighted “a year of innovation in which it executed a number of ground-breaking deals” as key components of J.P. Morgan’s industry dominance

“Organic growth and a raft of acquisitions” have led to a “growing foothold” in the commodities industry Bear Energy ClimateCare UBS Canadian energy and global agriculture businesses EcoSecurities Sempra global metals and oil businesses

"What's starting to change are clients' views of J.P. Morgan. We didn't just flip a switch and one day it happened. We have been deliberate in our growth strategy. We are now in parts of the world that hadn't been a major focus for our commodities team, such as Central and Latin America, the Middle East, Africa and Asia. Over the course of the past few years, our focus in energy and other commodities has really been extending beyond financial and flow products to more physical and structured transactions.“

-Mike Camacho, Global Head of Commodity SalesEnergyRisk; June, 2010

Recognized ProductsRecognized Products

Several structured transactions, in particular, showcased J.P. Morgan’s ever-growing leadership in commodities Strategic fuel hedge programme for the Republic of Panama Rainfall-contingent power hedge for a South American-based

utility company

Expansion of price-making capabilities throughout Asia Tokyo Commodity Exchange Japanese crude cocktail Regional crudes Agriculture products Regional coal Regional Power

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