oil and gas industry review
TRANSCRIPT
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Energy Industry Trends Review
Issue 16: April 2011
EditorialTrends snapshotEconomic outlook
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EditorialIn 2011, the global gas industry seems to have reached anotherinfection point. This change is being driven simultaneously bymarket conditions and technology advances and might (someanalysts are orecasting) bring the global gas supply/demand
situation back into balance, sooner rather than later.
The global gas industry has been in a
period o sustained low demand growth
and weak prices (excepting Asia) or
a ew years. Now there are signs that
the industry is nally moving toward arecovery, with two recent developments
driving the more optimistic outlook.
The rst development is the situation
in Japan, where the earthquake and
resulting tsunami has closed around
63 percent o Japanese nuclear power
generation capacity1 and have resulted
in an increase in demand or liqueed
natural gas (LNG) (Japan has been
soaking up excess supplies in the
Asian market). Second is the growth
in demand or gas in Latin America
and the Middle East, which is being
met through LNG supplied through
foating LNG terminals (FLNG). Kuwait
and Argentina are now importing LNG
using this technology. Argentina, or
example, will have two FLNG terminals
in operation by the end o 2011 and
recently signed an agreement with
Uruguay to build a FLNG plant together,
which will supply the two nations
with 10 million cubic meters/day
(mcm/d) o natural gasscalable
to 15 mcm/dstarting in 2013.2
The combination o these two
developments is leading some
orecasters to predict that the
oversupply in the global gas market
could now end sooner than expected
possibly even in 2012. Cedigaz, the gas
market analysts, are orecasting that
LNG demand will rapidly absorb surplus
in the global gas market; eectively,
the [global] gas bubble could disappear
by the end o 2012, leading to the
return o a sellers market."3
There are, however, still some
complications to this optimistic
outlook. At the top o the list is the
continued low demand and weak gas
price situation in the United States,
which has seen a dramatic all in LNG
imports to that market, with the gas
market situation in the United States
also contributing to an oversupply
o gas in the Atlantic Basin market
generally. In addition, there is a still a
signicant amount o new LNG capacity
set to come onstream over the nextew years, and it is unlikely that all o
that capacity will be absorbed by Asian
markets. I the global economy starts
to slow down later in 2011 (as higher
oil prices aect the recovery), the
current positive outlook or the global
gas markets might end up being rather
short-lived.
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Trends snapshot
February 2011 March 2011 April 2011
Economic World real gross domestic product (GDP) growth is forecast to be about 4.5 percent in 2011 and 2012, down from 5 percent in 2010.4The recovery continues to be uneven, with poor economic data coming out of the United States, the United Kingdom and China thisquarter, indicating that the sustained period of high oil prices might be starting to slow down global economic growth. Most regions,however, are still showing some growth, indicating that even if the pace is slowing, the recovery in general is still proceeding.
Oil supply Global oil supply fell by 50,000 barrels/day (b/d) to 87.5 million b/d in April, with combined OPEC crude and natural gas liquids (NGL)supply lower by 260,000 b/d, while non-OPEC production rose by 200,000 b/d.5 Non-OPEC supply growth, however, is starting to lookincreasingly fragile, which combined with market disruptions in Libya and continued pressure on spare OPEC production capacity, mightlead to further upward pressure on the oil price.
Oil price Oil prices over the past quarter have been characterized by extreme volatility, and markets were unsettled by the sharpest fall in two yearsof the price of oil in early May. Factors such as the crisis in Libya and continued strong growth in Asia are supporting prices, but downwardtrends including slowing economic growth, a strengthening dollar and a relatively robust supply situation mean the market is seeing pricereversals both intraday and from day to day throughout this quarter.7
Oil demand Global oil demand, which averaged 87.9 million b/d in 2010 (3.3 percent or more than 2.8 million b/d year-on-year), is now projectedto reach 89.2 million b/d in 2011 (more than 1.5 percent or 1.3 million b/d versus 2010).6 There is evidence that oil demand growth isslowing, driven in particular by high oil prices hitting American consumers, as gasoline prices reaching $4 per gallon are beginning toaffect gasoline consumption in North America.
Gas supply After two earlier years of decline, the world gas supply is now 4 percent above highs attained before the 2008 recessionsupported byeconomic growth, a cold Northern Hemisphere winter and a hot summer in Asia. Some analysts are forecasting that the global gas bubblecould disappear by the end of 2012, leading to the return of a sellers market.8 Gas supply is forecast to increase by 3 percent in 2011,with a much-reduced gap between spot and long-term prices.
Gas demand Long-term prospects for gas demand remain strong and short-term demand has been tightening due to a cold winter in the NorthernHemisphere, better economic growth and the tsunami in Japan, which has tightened up LNG supply as it fills the gap left by the closure of
its nuclear capacity. However, the improvements in short-term demand are still not yet sufficient to offset the global oversupply situationin general.
M&A M&A activity continued to increase but growth was slower during the first quarter of 2011 than it was in the fourth quarter of 2010.Growth is expected to remain strong during all of 2011, driven by increasing oil prices, continued interest in shale plays, active spendingby national oil companies (NOCs) in Asia as well as restructuring by international oil companies (IOCs). With continued social and politicalunrest in the Middle East and North Africa, the NOCs and IOCs are showing renewed interest in other regions such as Russia and the Caspian.
Gas price European spot gas prices, notably the United Kingdom, are expected to tighten considerably later this year due to the ongoing situationin Japan. In the United States, the gas price remains weak to the ongoing oversupply situation there. Short-term weakening of LNGprices is expected as new capacity continues to come onstream and arbitrage opportunities with Asia are limited by high charter ratesfor LNG tankers.
Refining Global refinery crude throughputs are averaging 73.8 million b/d in the second quarter of 2011, slightly down due to the disruption inJapan and weakening gasoline demand in North America (Q1 runs were averaging 74.2 million b/d). Overall refining margins continuedto remain weak although there were some improvements in northwestern Europe and in some US regions. Concerns about falling gasolinedemand in the United States due to high gas prices might continue to affect gasoline cracking margins here.9
Rig activity Rigs under operation and utilization saw steady growth in the first quarter of 2011. North America is experiencing a significant drop in gasdrilling due to weak gas prices, and gas drilling activity has fallen to the lowest level since 1995.10 Saudi Arabias plan to increase rig activity
by nearly 30 percent is being seen by the market either as signal that it is struggling to deliver the 12.5 million b/d of capacity it has claimedis in place or that it thinks the market will need more spare capacity (due to the unrest in Libya). 11
Companies Company results for the first quarter of 2011 were strong on the back of higher oil prices, although production fell generally. For the remainderof 2011, companies are expected to continue to generate higher revenues in the backdrop of high crude prices. However, there are concernsamong analysts around falling production volumes as the oil majors seem to be focusing on value over volume as the effect of continueddivestments and geopolitical unrest start to kick in. Increased activity continues to support the oilfield services companies, and higher oil pricesare seeing the US independents switching their focus into more profitable liquid plays.
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is expected to be moderate but remain
above trend (Indias GDP growth is
projected at 8.25 percent in 2011 and
7.75 percent in 2012).
Observation
The economic recovery is broadly
moving at two speeds, but generally
in 2011, it seems to be slowing down,
which is causing concerns that the
economic recovery has once again
stalled. The IMF revision or GDP
growth to all this year is a refection
o the impact o the Japanese
earthquake and tsunami, which
aected that countrys industrial
output signicantly, and the impact
o higher oil prices, which is startingto aect large economies such as the
United States, which is already dealing
with high levels o debt.
There are appreciable dierences
among each set o countries in
advanced economies. Weak sovereign
balance sheets, high unding
requirements o banks and declining
real estate markets continue to
present major concerns, especially in
certain Eurozone economies. Also inthe Eurozone, concerns about debt
deaults continue, with the ocus
this quarter once again on Greece,
as analysts orecast that without
another rescue package, Greece will
again deault on its debt obligations
by mid-July 2011.13
In emerging economies, concerns are
centered on rising commodity prices
(driven by ood and energy prices)
and geopolitical uncertainty, as well
as overheating and booming asset
markets. Rising infation (led by high
oil prices in particular) is impacting
economic growth in emerging
economies. Recently, Goldman
Sachs lowered its own GDP growth
orecast or China rom 10 percent
to 9.4 percent, citing a recent run o
surprisingly weak data, high oil prices
and supply constraints. A Goldman
Sachs analyst note on the outlook or
China stated, This is both a sharper
and more extended slowdown than
we had previously projected."14
Global markets are waiting to see
whether the slowdown now evident in
the global economy will be temporary
or longer lasting. There are some
signs that it might be temporary;
or example, the situation in Japan
may already be improving, with data
showing Japan's actory output rose
in April 2011 as the country seems to
be starting to recover rom the eects
o the earthquake and tsunami. (The
1-percent rise in Japans output was
less than orecast, but analysts said theoutlook was brighter or the coming
months.)15 However, signs o a drop in
the oil price are harder to spot. There
are continued intraday and day-to-
day spikes in oil and other commodity
prices (exacerbated or the oil price
by continuing tensions in the Middle
East and North Arica) that continue
to dampen market condence and
weaken consumer spending, which
does not appear to be disappearing
any time soon.
Oil supplyKey trendAccording to the
International Energy Agency (IEA),
global oil supply ell by 50,000 barrels
per day (b/d) to 87.5 million b/d in
April 2011, with combined OPEC crude
and natural gas liquids (NGL) supply
lower by 260,000 b/d, while non-OPEC
production rose by 200,000 b/d).16
Non-OPEC total oil supply rose by
200,000 b/d in April to 53 million b/d
(despite eld shut-ins or technical and
political reasons in Argentina, Canada
and China) on higher production
in the North Sea, the Fdration
Syndicale Unitaire (FSU), China and
Brazil. The 2011 projection or non-
OPEC production has been adjusted
down by 100,000 b/d by the IEA to
53.7 million b/d on revised Canadian
Key trendAccording to the latest
International Monetary Fund (IMF)
World Economic Outlook report,12 the
global economy is expected to expand
by 4.5 percent in 2011 and 2012 (down
rom 5 percent in 2010). The uneveneconomic recovery continues with most
advanced economies still reporting
output ar below potential. In emerging
economies, the demand is robust and
overheating o key growth economies
is an increasing concern.
The US economy continues its uneven
recovery, with easing nancial
conditions supporting private demand
in the ace o higher commodity prices.
Though job creation in the UnitedStates is picking up momentum, it
is nowhere near to lling the gap
o the jobs destroyed during the
nancial crisis o the past ew years.
At the same time, the US Federal
Reserve continues to raise concerns
about lack o momentum in the labor
market. The more advanced European
economies real gross domestic
product (GDP) is projected to grow at
1.75 percent in 2011 and 2 percent
in 2012. Overall, real activity in theEurozone remains below its potential
level, and unemployment is still high
with debt levels in many Eurozone
countries a concern (Germany remains
an exception). Growth in Japan is
expected to slow to 1.5 percent in
2011 in the atermath o the countrys
recent earthquake and tsunami.
Emerging economies are expected
to grow at 6.5 percent in 2011 and
2012, supported by strong export
perormance, buoyant private domestic
demand and, in some cases, rapid
credit growth. Chinas GDP growth is
expected to be robust at 9.5 percent
this year and in 2012, with the drivers
o growth shiting increasingly rom
public to private demand; however,
this growth is slowing. Growth in India
Economic outlook
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prospects. Any urther growth in non-
OPEC production growth or the rest
o 2011 is likely to be driven by Brazil,
China, Colombia and Ghanabut the
projection is currently or a decline
in nonOPEC production overall or
2011. US oil independent Anadarko
Petroleum recently reported that
Ghanas giant Jubilee eld is on track
to reach peak production o 120,000
b/d by the end o summer 2011.17
In the Gul o Mexico, business is
slowly returning to normal, now that
the Bureau o Ocean Management has
started to issue new permits to drill
new deepwater wells. Nonetheless,
according to the latest U.S. Energy
Inormation Administration (EIA)
estimates, Gul o Mexico oil
production is expected to all by130,000 b/d in 2011 and by a urther
190,000 b/d in 2012, due to production
declines rom existing elds as well
as the impact o the 2010 drilling
moratorium and subsequent delay in
issuing the new drilling permits.18
OPEC production ell to 29.2 million
b/d as oil production in Libya
remains severely aected by the
countrys unrest and civil war. Despite
expectations that ellow OPECproducers would increase output to
replace lost Libyan supplies, OPECs
production remained an estimated
1.3 million b/d below the pre-crisis
level o around 30 million b/d posted
in January. Signicantly higher
production rom Nigeria, coupled with
smaller increases rom several other
countries, ailed to oset reduced
output rom Libya, Angola, Saudi
Arabia and Iraq. However, overall OPEC
supply was still at or above trend
largely due to increased output rom
Saudi Arabia since the beginning o
2011. Saudi production averaged 8.88
million b/d in the rst quarter o 2011,
which is an increase o 310,000 b/d
rom the 8.57 million b/d average in
the ourth quarter o 2010 (although
it declined slightly in April). OPEC
eective spare capacity is currently
estimated at 4.14 million b/d (April
2011). Libyan crude output is now
orecast to remain at around 200,000
b/d through the end o 2011 and, as
a result, OPECs available capacity by
year-end 2011 is estimated at 33.83
million b/d.19
Observation
Global oil supply witnessed an overall
drop in the rst quarter o 2011,
mainly due to the ongoing geopolitical
unrest in Libya, which has seen the
countrys oil production all to around
200,000 b/d in April 2011 rom pre-
crisis level o 1.6 million b/d. Going
orward, the amount o geopolitical
uncertainty is expected to increase
within the Middle East and North
Arica (MENA) region, with Yemen also
currently showing signs o signicant
unrest, which is having an impact onnon-OPEC production levels.
Despite the supply situation in MENA,
the global oil market currently looks
well-supplied, with increased output
rom Saudi Arabia supporting the
production shortall. The increase in
oil supply rom Saudi Arabia, however,
does have some implications. The
market is becoming concerned about
an over-reliance on Saudi crude,
particularly as non-OPEC crude outputseems to be slowing, thus increasing
the infuence o OPEC supply in the
market (arguably making the market
more vulnerable to urther supply
shocks). Analysts are also looking or
signs o contagion in Saudi Arabia,
rom the so-called Arab Spring,
which has seen protests disrupt the
economies o many MENA countries.
Some analysts believe that Saudi
Arabia could be bringing more oil
onto the market, but are in act
restricting output to keep the oil price
high to support domestic economic
initiatives being put in place to stave
o potential unrest in the country.
For example, in February 2011, King
Abdullah announced a $36 billion
package o social benets mostly
aimed at youth, civil servants and
the unemployed. This announcement
caused one analyst to comment, It
helps explain why, instead o the
Saudis cracking open the tap, as they
should be doing at the moment, theyre
actually being, i anything, maybe a
little bit more restrictive to keep oil
prices high, because they need it to
meet some nancial commitments.20
OPEC has chosen not to make any
changes to its oil production output
at its meeting in June 2011, ater
widespread speculation that it would
be raising its production levels by
around 1.5 million b/dwhich would
alleviate the pressure on both the
supply side and the oil price.21
Oil demandKey trendAccording to the IEA, global
oil demand, which averaged 87.9
million b/d in 2010 (a 3.3 percent or2.8 million b/d increase year-on-year),
is now projected to reach 89.2 million
b/d in 2011 (a 1.5 percent or 1.3 million
b/d increase versus the previous year).
However, global oil demand only grew
by 0.4 percent in March 2011.22
Data on oil demand suggests that
persistently high oil prices are starting
to have an impact on demand growth,
particularly in OECD (Organisation
or Economic Co-operation andDevelopment) nations. According to
the IEA, total OECD demand contracted
by 2.8 percent year-on-year in March
2011, or the rst time since February
2010, which was a signicant drop.
There is evidence that high oil prices
are hitting US consumers in particular,
with gasoline prices close to $4 per
gallon beginning to aect gasoline
consumption in North America. Japan
showed an overall decrease in oil
demand or March 2011 (although
direct crude burn rose sharply to
oset the partial loss o nuclear
power generation, the disruption
o economic activity curbed diesel
demand sharply). Nevertheless, the
Japanese economy should start to
recover toward the ourth quarter o
2011 as reconstruction gathers pace.23
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Oil demand growth in China
accelerated slightly in March (an
increase o around 10 percent year-
on-year), reversing the slowdown
observed in the previous two months,
bringing total Chinese oil demand
to 9.5 million b/d. Early reports rom
some analysts are orecasting urther
growth in Chinese oil demand, despite
some views that the Chinese economy
is slowing down, as this summer the
country looks set to experience its
worst power shortages since 2004.
This projection is likely to put urther
pressure on its industrial sector, raising
the possibility o China turning into
a net importer o diesel as people
turn to diesel generators or power
generation use.24
ObservationThe market is currently witnessing
competing trends in global oil demand.
These trends are supporting a general
view that while oil demand continues
to increase generally, it might be
slowing in some marketsnotably the
United States. However, this slowing
could be oset by the continued
growth in demand in China and other
growth economies.
The US economy continues to showan uneven recovery that is not yet
liting the economy out o recession.
Higher oil prices and rising ood costs
appear to be aecting any growth
in the countrys private sector and,
in common with most other OECD
nations, public spending in the United
States is being heavily cut back. Some
economists have cut orecasts or US
economic growth in the second quarter
o 2011 with industrial production,
consumer spending and unemployment
all still looking depressed.25 As the
US summer driving season begins,
it is being predicted that gasoline
consumption will be lower than last
year, as motorists cut back due to high
gasoline prices.
Industry observers are also highlighting
the continued oil demand growth rom
economies like China, where the threat
o electricity shortages is expected
to lead to a jump in demand or uel
such as diesel. I Chinas power supply
is tightly rationed this summer and
the Chinese turn to back-up oil-red
generators as they have in the past, oil
demand may be signicantly higher
than previous predictions. Increased
use o diesel generators has boosted
Chinese oil demand by 400,000 b/d
to 600,000 b/d in previous summers,
according to some analysts: Chinese
diesel shortages could, by themselves,
mitigate all o the weakness possibly
emanating rom the OECD due to
higher prices and still tighten global
balances urther. (Barclays Capital)26
Oil priceKey trendCrude oil prices over the
past quarter have witnessed extreme
volatility, which has also been seen
in other commodity price markets.
Markets were unsettled by early Mays
sharpest all in the price o oil in two
years, as markets reacted to news o
a slowing global economy. However,
actors such as the geopolitical crisis in
Libya and Yemen and continued strong
growth in Asia are also supportingprices on any given day. On May 5,
2011, ICE Brent or June delivery ended
the day at $110.80/barrel, alling by
$10.39, or 8.57 percent, rom $121.96
the previous day.27
As o June 1, utures oil prices or
delivery in July were $102.84/barrel or
WTI and $116.80/barrel or Brent. US
oil prices were being urther supported
by the closure o a pipeline carrying
Canadian crude to the United States
ater storm-related power outages at
the end o May.28
Observation
The volatility evident in oil price
movements is coming rom market
reactions to upward and downward
pressure on the price that is rapidly
changing intraday and day to day.
Downward pressure on the price is
coming rom reports o slower global
economic growth (notably in theUnited States), possible Eurozone debt
deaults, a strengthening dollar and
because market undamentals are
still showing strong inventories and
a generally robust supply situation
(despite the situation in Libya). Upward
pressure continues to come rom the
situation in Libya, uneven economic
recovery and growth data coming
rom the larger industrial economies
and other non-geopolitical supply
disruptions, particularly now thatOPEC has chosen not to change its
production output and alter quotas.29
In May, the market was also reacting
to the end o nancial quantitative
easing in the United States, sentiments
that commodity prices in general had
increased too ast (which led to prot
taking), with many countries showing
a rise in infationan eect that is
continuing into June. Oil consumption
also continues to be vulnerable tothe high level o retail prices in many
industrialized countries. One o the
major impacts o rising crude prices
has been the re-evaluation o uel
subsidies by various governments.
Malaysia recently announced that
it will review its uel subsidies i the
crude oil price reaches $110 to $120/
barrel.30
However, crude oil prices are expected
to continue to rise in the medium to
long term, as investors are anxious
about the continuing situation in
Libyathe eect o which will be to
tighten the supply market urther
into 2011. Underlying concerns in
oil markets are that unrest rom
the confict in Libya will widen and
eventually disrupt the fow o oil
rom key exporting countries such
as Algeria, Iran, Kuwait and Saudi
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Arabia. Analysts are now raising their
oil price orecasts or 2011 and 2012,
citing that the growth in global oil
demand will reduce global inventories
and strain OPEC's spare oil output
capacity. Goldman Sachs and Morgan
Stanley have issued revised 2011 oil
price orecasts or Brent crude. Both
banks are now orecasting Brent crude
to reach $120/barrel by the end o
2011.31
Gas supplyKey trendGlobal gas production is
expected to increase by 3 percent
in 2011, with a much reduced gap
between spot and long-term natural
gas prices. This growth will be driven
by shale gas production in North
America, while European indigenous
gas production is expected to continueto decline and will continue to be
supplemented by supplies rom Russia
and Norway, as well as increasing
amounts o LNG.32
According to Cedigaz, the volume o
global marketed gas production grew
by 7.3 percent worldwide in 2010 to
3.2 trillion cubic meters (tcm) or 310
billion cubic eet/day (bc/d). World gas
supply is currently around 4 percent
above highs attained beore the 2008recession. Economic revival in 2010,
a cold Northern Hemisphere winter
and a hot summer in Asia have all
supported the growth in gas demand.
Eectively, Cedigaz is orecasting that
the global gas bubble could disappear
by the end o 2012, leading to the
return o a sellers market.33
Gazprom has reported that its gas
exports to Europe showed a signicant
increase so ar in 2011, with gures or
May showing an even bigger year-
on-year rise. Gazprom production or
2011 is now estimated at 519 bcm
(compared to 508.6 bcm in 2010).
Gazprom is aiming to produce about
550 bcm o natural gas (a peak
reached in 2006) by 2013 and 570
bcm o gas by 2014. The company has
also increased its capital investment
or 2011 by 50 percent ($42.19 billion)
and expect this investment increase to
continue or the next two years as gas
markets continue to recover, with the
company also substantially investing in
gas storage.34
In the United States, marketed natural
gas production has been growing
steadily since 2005, primarily due to
the boom in unconventional shale
gas production. The EIA expects total
marketed production to average 1.4
bc/d (2.3 percent) higher in 2011,
compared with 2010. LNG imports
to the United States continue to all,
and although export schemes or LNG
are still being discussed, none are yet
being implemented. Analysts point
out that even i some US LNG exports
are authorized, the act remains that
the United States is still one o thehigher-cost, gas-producing regions
globally, and the industry does not
see that exporting natural gas via
LNG shipments being enough to
push US gas prices higher. Apache
CEO Roger Plank was quoted at a US
gas conerence recently as saying,
[US] gas prices will rise only when
producers respond to weak prices and
pare output.35
Globally, the gas market continues tolook well-supplied, with numerous
LNG projects continuing to support
demand, notably rom Qatar. South
America is expected to play a larger
role in gas supply through LNG exports
going orward. In June 2010, Peru
began exporting rom its 6.4 bcmper-
year LNG terminal, and in 2011 will
commence contractual deliveries to
Mexicos new Manzanillo regasication
terminal. Peru LNG shipped a total o
22 cargoes in 2010 to countries in the
Atlantic and Pacic basins including
South Korea, China and Brazil, and
reportedly shipped its rst cargo to
support gas demand in Japan in May
2011. Peru LNG is likely to continue to
ocus on shipments to Asia in 2011,
but two-thirds o its production will be
contracted to Manzanillo.36
Observation
The solid global gas supply situation
continues to be supported by
production rom US shale gas plays
and new LNG capacity coming
onstream. Longer term, the global
supply picture is expected to tighten
considerably, with the market
reverting into a sellers market. Whilethis might ease the pressure on the
competitiveness o gas supplies, or
markets like the United States it
will bring energy policy sharply back
into ocus (as exporting shale gas as
LNG looks too expensive to compete
globally). It will now be up to the US
power sector to absorb much o the
incremental supply, but how much
and how eectively it can do that will
depend on how government policy and
the price situation evolves to supportthe transition rom coal to gas or new
power generation.
According to US Federal Energy
Regulatory Commission (FERC), gas
will play a larger role in US power
production. At the same time,
however, FERC is warning against
the United States becoming overly
dependent on domestic gas reserves,
and inrastructure as bottlenecks are
starting to appear in the system. Forexample, in the Marcellus shale region,
pipeline and processing capacity is
starting to tighten, and some wells
are being started but not completed
due to a labor shortage. There are
also concerns about a pending U. S.
Environmental Protection Agency
(EPA) report on the impact o US shale
gas drilling (the nal report will be
released in 2014), which could also
slow down the US shale gas revolution.
Currently, some specic US states and
towns have temporarily banned shale
gas drilling. The United States has not
yet ollowed countries like France,
where earlier in 2011 the rst stage o
a law was passed to implement a total
ban on exploration drilling or shale
gas (as an environmental cautionary
measure). What is likely in the United
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States is that the EPA will call or new
procedures to be ollowed to support
environmental concerns about shale
gas drilling, which will certainly add
to the cost o US shale gas production
and urther limit its potential or
export.37
Gas demandKey trendAccording to the EconomicIntelligence Unit (EIU), global gas
consumption grew by nearly 4.9
percent in 2010, owing to lower
prices and strengthening industrial
production in the OECD and the
emerging world. As 2010 growth was
rom a low base (in 2009), the EIU
orecasts that global demand growth,
although remaining strong, will be
just under 3 percent this year. Natural
gas demand might strengthen as earlyas 2012, owing to higher oil prices,
eorts to reduce carbon dioxide (CO2)
emissions and the growing demand or
LNG rom Asia.38
The EIU expects an increase in gas
demand o 2 percent or the United
States in 2011, owing to better
industrial output, relatively low gas
prices and growth o natural gas
consumption in the electric power
sector. It expects more robust growthin consumption in 2012, at 2.5 percent,
as relatively low gas prices and the
availability o substantial volumes
o unconventional gas should oer
greater opportunities or industrial
users to switch rom coal to gas.39
The EIU outlook or the United States
in 2011 is more positive than the
current outlook or US gas demand by
the EIA, which is orecasting that total
US natural gas consumption will grow
by only 0.5 percent to 66.5 bc/d in
2011 (rising by 0.7 percent in 2012 to
67.0 bc/d).
The EIU expects European gas demand
to continue to grow in 20112012 at
an annual average rate o 3.1 percent,
owing to rising industrial production
(particularly in Germany) and various
government eorts to reduce CO2emissions.40 This orecast is now
likely to change with the news that
Germany will close all o it nuclear
power stations over the next decade
or so. The country has committed to a
substantial program o subsidies and
investment in wind, solar and other
renewable energy sources. Germany
plans to double its use o renewable
power generation to 35 percent by
2020 and is also likely to increase its
use o gas-red power generation.41
Gas demand in Asia and the Middle
East also continues to increase. The
EIU expects LNG demand in Japan to
urther increase ollowing the March
earthquake and tsunami. In the MENA
region, natural gas consumption is
likely to contract in the very shortterm as a result o the political unrest,
which has damaged businesses and
houses and reduced production in oil
and gas acilities. However, strong
demand rom the Gul nations over the
summer is likely to keep consumption
at just under an annual average o 7
percent in 20112012. The EIU also
orecasts Saudi Arabia to grow in
importance as a regional gas consumer,
with consumption orecast to rise to
more than 100 bcm by 2012.42
Observation
While short-term gas demand in
Europe and the United States has been
supported by colder winter weather,
demand in the market generally
(outside o the Middle East and Asia) is
expected to remain airly fat in 2011
as economic growth stalls slightly.
However, the global return to stronger
demand growth is being ast tracked
by the ongoing situation in Japan,
which is likely to see the supply/
demand balance in the global market
tightening up considerably as the year
progresses and the economic recovery
once again gathers pace. The late-
2010 IEA orecast was or global gas
supply capacity to rise above 200 bcm
in 2011, with that capacity exceeding
gas demand or a decade. This orecast,
however, is now looking increasingly
unlikely.
Many gas market analysts are now
revising their orecasts, particularly
or LNG, with Bank o America/Merrill
Lynch stating in a recent research
note, The global LNG market is
tightening rapidly. In our view, the
global gas glut is set to disappear
quickly. Bank o America/Merrill Lynch
expects Japans 2011 LNG imports to
rise 8.5 million tonnes above the 70
million tonnes it consumed in 2010,
using up large quantities o LNG at a
time when new big consumers such as
India are also increasing their use o
gas. Although the market is well-
supplied now, we worry that supply
could become a constraining actoron demand rom 2012, as there are no
major supply additions until 2015 ...
in the second hal o the decade new
export projects in Australia and the
United States could improve global
supplies.43
Longer term in Japan, there is likely
to be a rethink o the mix o primary
energy, as a result o the power
generation crisis brought about by the
earthquake and tsunami. Already inJune 2011, there is a debate beginning
about liberalizing the Japanese
electricity market (unbundling
generation and transmission
services). The Japanese government
is considering reshaping the power
grid in the hope that competition will
bring down electricity charges and
spread the use o gas and renewable
energy or power generation. While the
liberalization o the electricity sector
is likely to be very unpopular with
Japans electricity companies, it may
be the only way to eectively manage
power generation and distribution in
the earthquake-prone country. When
the earthquake struck in March, the
ragility o Japans monopolized and
nuclear-dependent power grid became
obvious. To address the situation,
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Tokyo Electric Power Company (TEPCO)
had to resort to the emergency step
o temporary rolling blackouts in the
regions covered by its service, which
included the densely populated Tokyo
area.44
It is not only energy policy that is
likely to have an eect on gas demand
growthtechnology is also playing its
part. South America and the Middle
East are expected to play a bigger
role in LNG markets going orward
as a direct result o technology
advances like foating LNG (FLNG)
ships (FLNG systems combine LNG
and cryogenic-fuid processing on a
ship with a storage system). Countries
that import higher quantities o
gas are starting to use FLNG ships
or their cost eectiveness andfexibility in managing gas demand.
Kuwait and Argentina have invested
in FLNG systems over the past ew
years. Argentina, or example, started
experiencing natural gas shortages
in 2004, when heavy government
intervention and price caps
discouraged investment in exploration
and production. Its domestic gas
production peaked in 2004 at just over
52 million cubic meters a day (mcm/d),
but dropped to about 45 mcm/d in2010. Since that time, gas demand has
increased substantially as the economy
has grown, orcing the government
to import gas. In 2011, Argentina is
set to increase LNG imports when the
Escobar FLNG plant comes onstream.
The country expects that the new 5.2-
bmc terminal will allow it to import
between 45 and 50 LNG cargoes in
2011twice as many as in 2010.45
In February 2011, Argentina signed an
agreement with Uruguay to build a
shared FLNG project that will supply
the two nations with 10 mcm/d o
natural gas starting in 2013. The plant
will be located along the Uruguayan
coast near the Arroyo Solis Grande
river.46
Gas pricesKey trendGenerally, gas prices are
recovering rom the low o previous
years, as demand starts to tighten
due to a relatively stronger economic
outlook and ollowing a harsh winter
in the Northern Hemisphere and
Japans situation, which has drawn
down excess gas in the market. Thissituation is expected to continue, with
European gas prices orecast to tighten
considerably due to the ongoing
crisis in Japan continuing to support
demand or LNG in Asia. As a result,
there may be a diversion o cargoes
into the region and away rom Europe.
In the United States, the gas prices
are expected to remain weak due to
ongoing oversupply situation in the
market.
In the United States, the Henry Hub
spot price averaged $4.25/million btu
in April 2011 (28 cents higher than the
March average) and the EIA expects
that the Henry Hub price will average
$4.24/million btu in 2011, a decline o
15 cents rom the 2010 average. The
EIA expects that the orecast decline
in production will contribute to a
tightening domestic market next year
in the United States, with the Henry
Hub price averaging $4.65/millionbtu in 2012.47
Europe could experience gas price
shocks this coming winter (2011/2012)
as increased Japanese demand or
Qatari LNG continues to tighten the
gas market. Initially, the situation in
Japan was met by spare capacity in
the rest o Asia and by Qatar; however,
the closure o another nuclear power
station in Japan is likely to tighten the
global supply market considerably i
European winter demand is strong.
Spot LNG prices were strong in March
and April, with maintenance in Qatar
and increased demand rom Japan
tightening the market. Qatars RasGas
planned a 35-day maintenance
program on RasGas plant Train 3
rom early May, which involved supply
disruptions at the 4.5-million-tonne/
year acility. Japan was estimated to
have imported a record 2.138 million
tonnes o LNG in March to supplement
its power generation. The situation
in Japan saw spot prices to Asia or
May and June delivery o LNG rise to
around $12 to $13/million btu.48
Observation
Currently the gas market continues to
be in a phase o oversupply, resulting
in stable spot gas and LNG prices. This
is a continuing consequence o the
global economic crisis and its negative
impact on industrial gas demand,
combined with the start o production
at new large gas acilities. This short-
term situation is not expected to
last, as excess capacities are likely to
disappear supported by extra demandin Asia (notably Japan), Latin America
and the Middle East. Analysts now
expect the global gas market to
tighten sooner than expected, leading
to growing competition between
Europe and Asia or access to gas
resources. This situation is already
orecast to have an impact on the
European gas market by next winter.
LNG prices generally look robust, and
have been supported by the situationin Japan, which has reduced that
countrys power generation capacity.
Japan lost the capacity o two o its
nuclear plants and several coal and
oil-red thermal plants shut ater the
earthquake and tsunami. The countrys
main power utility, TEPCO, reported
that it generated 9.6 percent less
power in March; during the period
o March 11 to 31, it generated 17
percent less power.49 Spot prices o
Japan-bound LNG have risen nearly 30
percent to just below $13/million btu
rom the beginning o 2011.
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Currently LNG prices are not rising
rapidly, as global LNG supplies
according to analysts are tight but
adequate. The general good supply
situation is refected by the act that
current Japanese LNG spot prices are
still 20 percent below LNG prices under
long-term supply contracts, which
are linked to Japans average crude oil
import price. This situation, however,
is likely to change i the gas supply/
demand situation starts to urther
tighten.50
RefningKey trendGlobal renery throughputs
averaged 74.2 million b/d in the rst
quarter o 2011, below previous IEA
estimates, with lower throughput in
OECD Europe in particular as well
as in Latin America and the MiddleEast. In Europe, planned maintenance
peaked in March, whereas a total o
620,000 barrels/day (b/d) o Japanese
rening capacity was still shut in by
end o March due to the earthquake
and tsunami. Rening margins are
generally improved in North America,
but remain weak in northwest
European markets.51
The IEA expects global oil-rening
output to rise sharply in May andJune ahead o the US summer driving
season, ater seasonal maintenance
and weak margins held back rening
activity in the rst our months o
2011. Rening margins generally
improved throughout the quarter,
notably in North America on the back
o higher product prices and recovering
demand. European margins, however,
continue to deteriorate. According to
the IEA, in northwest Europe cracking
margins ell in April and Brent margins
were negative or the month on
averagea situation not seen since
November 2009. Rening margins in
most regions remain under pressure
due to uneven demand and actors
such as increasing prices or sweet,
light crude in the wake o shortage
o Libyan supplies.52
Observation
Many reneries in the OECD region are
expected to come out o maintenance
shutdowns during second quarter o
2011, with some European reneries
expected to extend their downtime
as they are conronted with weak
margins, exacerbated by the disruption
o supply o sweet light crude romLibya. However, in the non-OECD
region, many reners are expected to
delay maintenance to take advantage
o any product supply shortall in
Japan, although there has been a sharp
decrease in demand or oil products
ater the earthquake and tsunami, with
demand alling 12 percent in April
2011 rom a year earlier.53
Some reners continue to see some
improvement in margins due to bettereconomic activity and strengthening
demand in the short term. In the
longer term, global rening margins
are expected to remain under pressure
as recovering global demand is met
by another wave o new rening
capacity construction. This new
capacity is expected to see global
rening utilization rates at around
85 percent o nameplate capacityat
least through 2015according to
energy analysts KBC. In Asia, KBCsees both China and India continuing
to add rening capacity. China is
expected to build new capacity in line
with its surging domestic demand
or transport uels and petrochemical
eedstock. Middle Eastern reners
are also expected to add rening
capacity above their domestic
requirements, with 1.6 million b/d
o rm new capacity expected by
2016 in Saudi Arabia and the United
Arab Emirates, and more than 1
million b/d o potential capacity to
be built elsewhere. With declining
export markets or surplus gasoline,
a unctioning carbon market rom
2013 (which is seeing cost rises or
heavy industry) and a swing to cleaner
marine uels in the North Sea/Baltic
corridor, both US and European
reners ace the greatest pressure
in the global scenario.54
Given this scenario, there is a
continued trend o major oil
companies selling rening assets in
OECD nations, including the United
Kingdom, France, Germany, the United
States and Australia, as companies
are restructuring their global rening
portolios to deal with the changing
outlook or oil and product demand.
This quarter Chevron announced that
it is selling its UK renery at Milord
Haven to Valero Energy or $730
million, with a urther $1 billion being
paid by Valero or the stocks o oil,
petrol and other products onsite. Shell
also announced the sale o its UK
renery at Stanlow to Essar Energy o
India, in addition to the news that it
will convert its Australia renery near
Sydney (Clyde) to product storage,
citing increasing competition romAsian reners as a primary reason.
This is the result o increased
competition rom mega-reneries in
Asia, supply and demand in our region,
and Clyde renerys small size these
reneries can provide Australian-
specied product, which wasnt
always the case in the past.55
Mergers and acquisitionsKey trendDuring the rst quarter o
2011, global merger and acquisition(M&A) activity in the oil and gas
industry continued to grow, although
at a slower pace than the previous
quarter. Overall M&A activity is
expected to remain strong through
2011driven by increasing oil
prices, continued interest in shale
reserves, active spending by NOCs
and continued restructuring by
international oil companies.
What is becoming increasingly clear
in 2011, however, is that the major
oil companies are turning into net
sellers o oil and gas assets, while
many o the NOCsparticularly those
rom Chinacontinue to spend large
amounts o capital on new assets.
While many major oil companies
have been pursuing new asset
deals in growth areas this quarter
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(notably in the Arctic), these deals
have had variable success. In March,
French major Total agreed to buy
a 12 percent stake in the Russian
gas company Novatek, and join the
Yamal LNG project in a deal worth
about $4 billion.56 BP entered into
an unsuccessul $16 billion deal with
Russian oil company Rosnet, which
would have involved a 5 percent
transer o BP ownership to Rosnet
and would have given BP a 9 percent
stake in Rosnet (with the two
companies agreeing to concentrate
on developing reserves in the Russian
Arctic). The deal came under attack by
BPs existing Russian partner, AAR, on
the grounds that it violated an existing
agreement and looks to be undoable in
its current orm.57
In contrast, many NOCs are managing
to expand their reach and are now
starting to ocus on assets in North
and South America, in contrast to a
ocus on Arica and the Middle East.
For example, in February, Sinopec bid
$5.4 billion or Encana Corporations
50-percent stake in a Canadian heavy
oil and gas project, making it one o
Chinas overall largest oil and gas
investments in North America as well
as the largest investment outside oChina that Sinopec has undertaken to
date.58 In another large deal, also in
Canada, Petrochina has again teamed
up with Encana in a $5.43 billion deal
to develop hard-to-reach natural gas
reserves in the Cutbank Ridge area o
British Colombia and Alberta.59
This Chinese NOC spending trend
shows no signs o abating. Under
Chinas new Five-Year Plan (2011
2015), which, despite having a ocus
on creating a more sustainable uture
or China, still has a considerable ocus
on investing in the exploration and
development o oil and gas (including
shale gas) and the downstream sector
or Chinas uture energy needs.
For example, under the terms o
the plan, one o Chinas largest oil
companies, CNOOC, has stated that
it plans to spend almost $160 billion
to buy oreign oil groups and invest
in new production, with the majority
o the spending to be on oshore
oil exploration. CNOOCs 2010 gas
production was 64.1 million tonnes,
which its CEO highlighted, marked
a milestone that China has become
one o the worlds largest oshore oil
producers ater the United States, the
United Kingdom and Norway.60
Observation
M&A deal activity continues to be
supported by the high oil price, but
has substantially decreased rom
the ourth quarter o 2010. Activity
remains ocused on US shale plays
and continued divestments by the
oil majors. Attention is switching to
deals or long-term rontier plays withBP and Total pursuing deals ocused
on the Russian Arctic this quarter.
BPs negative experience reveals the
diculties o conducting deals o
this nature (BPs deal involved a share
swap, which was declared illegal by its
partners in TNK). There may be many
lessons to learn rom BPs experience
including not to underestimate the
current political and market situation
in Russia, but primarily not to risk a
relationship with an existing partner.
The importance o strategic
partnerships is being played out
between the Chinese NOCs and
Canadian oil companiesnotably
Encana. The partnership between
China and one o Canadas largest oil
companies looks like a good match so
ar, with the Chinese looking or access
to new reserves and production as well
as building their technical expertise
in unconventional production. At
the same time, Canada is looking to
develop trade with China and export
its own resources to Chinese markets.
The move by the Chinese oil companies
into Canada comes soon ater the
rst signicant deal by a Chinese NOC
in the United States, when CNOOC
announced it was buying one-third
o Chesapeake Energys south Texas
shale assets or $1.1 billion at the end
o 2010.61 With the ormal backing o
Chinas current Five-Year Plan, the only
question is: where will the next large
deal by a Chinese NOC be done, with
some analysts betting on them to take
a more signicant stake in the US Gul
o Mexico. Opined Peter OMalley, head
o HSBC Resources and Energy practice
or Asia Pacic, I posit the Chinese
will acquire signicant stakes in the
Gul o Mexico in the next 12 to 24
months.62
Most would agree, particularly as
new regulations or the current
environment in the Gul o Mexico will
make lie more dicult or some o the
energy independents and operations
there more expensive, that a deal by
a Chinese NOC or a large asset theremust surely be in the cards.
Chinese oil companies continue to
be important drivers o oil and gas
M&A. In 2009 and 2010, Chinese
oil companies undertook nearly $50
billion o deals outside their borders,
roughly 5 percent o the industry total,
and 2011 looks like being another
record year or overseas acquisitions.
Increasingly in 2011, however,
the deals being done are in moretraditional oil and gas sectors, such as
the United States and Canada. Analysts
have noted this switch in M&A
strategy by the Chinese oil companies,
with analysts stating, For decades,
major players like PetroChina, Sinopec
and CNOOC ocused on building out
their operations in politically volatile
regions like Sudan, Venezuela and Iran.
Now, they are competing with the
multinational giants on their own tur,
striking partnerships and joint ventures
in the United States, Canada and Latin
America.63
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Rig activityKey trendRigs under operation and
utilization witnessed steady growth
in the rst quarter o 2011. North
America is witnessing a signicant
drop in gas drilling due to weak gas
prices, and gas drilling activity has
allen to the lowest level since 1995,
as many operators switch their ocusinto the liquid shale plays.64
According to some analysts, the US
natural gas rig count, which has been
steady or about two years, is down
100 rigs in the past six months, and
should continue to deteriorate over
the next ew years. Although the gas
rig count is expected to continue
to decline, onshore oil rig activity is
poised to grow substantially.
Deepwater drilling rig utilization is
expected to continue to increase and
analysts are closely watching Brazils
plans to build new rigs; any delay
would lead to an increase in demand
or existing rigs and considerably
tighten the deepwater rig market.
Brazil is supposedly constructing 21
new rigs or use in its deepwater
basins. Elsewhere, there is a trend
post-Macondo (reerring to the
Macondo incident in the Gul oMexico), or deepwater operators
to use newer, more technologically
capable rigs to lessen risk in response
to pending regulatory changes, which
could lead to a generally tighter
market or deepwater rigs.
Saudi Arabia reportedly has plans
to boost the countrys rig count
this year and in 2012 to 118 rigs,
rom around the current 92. This
month, Saudi Arabia increased its
oil production to around 9 million
b/d to help compensate or the
disruption o supply rom Libya. In
theory, that leaves a 3.5-million b/d
cushion to protect against any urther
supply outages on the global market.
Saudi Arabia supposedly completed
production expansion plans in 2009,
which it said took its capacity to
12.5 million b/d and stated that the
rig expansion is to maintain current
production not to increase it.65
Observation
The investment increase in the
upstream means a good year to dateor the oileld services sector, with
very buoyant activity in most regions.
The slowdown in the US gas shale
sector is being oset by a switch to
drilling in the liquid plays. This shit
means that, generally, activity in the
unconventional sector along with
the deepwater sector is driving good
growth or oileld services companies.
Conventional oil and gas areas
are also boosting oileld servicescompanies returns. While there has
been considerable disruption to oileld
services company operations generally
in the MENA region, the good news or
these companies is that Saudi Arabia
is reportedly planning to considerably
boost the countrys rig count by nearly
30 percent. The market, however, is
generally less impressed with this
news, which is being seen either as a
signal that Saudi Arabia is struggling
to deliver the 12.5 million b/d o
capacity it has claimed is in place or
that Saudi Arabia thinks the market
will need even more than its 3.5
million b/d o spare capacity. Oileld
services companies like Baker Hughes
have stated that they expect drilling
activity to pick up in both Saudi Arabia
and Iraq rom the second hal o 2011.
This increase in activity is likely to
be driven by the restart o delayed
projects in Iraq and while Saudi Arabia
looks or more services rom the
oileld services sector as it continues
to boost production to compensate
or the all in production rom Libya.
This movement generally signals a very
positive outlook or the rest o 2011 or
the oileld services sector.66
CompaniesKey trendMost oil companies
generated higher revenues and prots
on the back o increasing crude price
and improving rening perormance
this quarter. The leading majors saw
nearly $35 billion in adjusted prots
across the group during the rst
three months o 2011, thanks to highinternational oil prices (averaging more
than $95/barrel). However, all o them
saw a decline in production volumes
as many continued to divest noncore
assets and dealt with some disruptions
to their global production proles.67
Observation
The 2011 outlook appears promising as
companies are expected to continue
to generate higher revenues in the
backdrop o high crude prices. Thereare concerns among analysts regarding
alling production volumes; the
oil majors seem to be ocusing on
value over volume as the eect o
continued divestments and geopolitical
unrest in the MENA region increases.
The all in production volumes is
also being pressured by the act that
certain governments (keen to boost
their budgets decits) are starting to
tax oil company prots at a higher
rate. I oil prices start to decline, the
all in production will have a much
sharper eect.
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In the United Kingdom this quarter, or
example, the government announced
an increase in supplementary tax on
production rom 20 percent to 32
percent or all North Sea assets,68
with other countries such as the
United States considering alleviating
tax concessions or oil companies
(there is legislation pending in the US
Senate that would cut tax breaks to
the top oil producers by $21 billion
over 10 years). The US government is
indicating that the approximately $4
billion saved by closing the oil industry
tax breaks could be invested in clean
energy, which would help to ease US
dependence on oreign oil.69
Most o the major oil companies,
however, are unlikely to be too
concerned with current marketdynamics and government policies,
as they have their ocus on the
longer term. Most o the companies
are working their way through a
signicant rationalization o their
portolios as they ocus on their core
operations and uture growth rom
larger-scale projects, rather than
peripheral assets that they believe
would be o more value to other
companies. The all in production
volumes is not likely to last, and mostcompanies are using the cash rom
divestments to supplement their
capital expenditure or uture growth.
ConocoPhillips, or example, has
announced that it will sell up to
$10 billion o assets up to 2013,
and will increase its production by
2 to 3 percent a year starting in 2013
ater it completes its divestments.
The companys CEO has stated that
he expects a waterall o cash to
be ed by these divestments, with the
company estimated to spend $13.5
billion on capital projects in 2011,
increasing to $15 billion by 2015.70
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Endnotes1 Japan nuclear plant operations(Chubu agrees to shut Hamaoka),May 9, 2011, Reuters News, via Factiva, 2011 Reuters Limited.
2 "Argentina, Uruguay ink LNG
regasication pact, February 25, 2011,Dow Jones News Service, via Factiva, 2011 Dow Jones & Company, Inc.
3 Global gas rebounds, Cedigaz nds,May 11, 2011, World Gas Intelligence, Energy Intel 2011.
4 Tensions rom the two-speedrecovery unemployment, commoditiesand capital fows, InternationalMonetary Fund, World EconomicOutlook (WEO) April 2011, 2011
International Monetary Fund.
5 IEA Oil Market Report, May 12, 2011, OECD/IEA, http://omrpublic.iea.org/currentissues/high.pd.
6 Ibid.
7 Brent crude ends down $10 ascommods battered, May 5, 2011,Reuters News, via Factiva, 2011Reuters Limited.
8 Unprecedented rise in global naturalgas production: Cedigaz, April 28,2011, Agence France Presse, via Fac-tiva, Agence France-Presse, 2011.
9 IEA Oil Market Report, OECD/IEA,May 12, 2011, http://omrpublic.iea.org/currentissues/high.pd.
10 US rig counts poised to fip asdrillers seek oil, April 8, 2011, DowJones News Service, via Factiva, 2011 Dow Jones & Company, Inc.
11 Saudi plans to boost oil rigs by 28percent, March 30, 2011, Misr News,via Factiva, 2011 Misr InormationServices and Trading.
12 Tensions rom the two-speedrecovery unemployment, commoditiesand capital fows, InternationalMonetary Fund, World EconomicOutlook (WEO) April 2011, 2011International Monetary Fund.
13 Back to the drachma, May 31,2011, The Wall Street Journal Europe,via Factiva 2011, Dow Jones &Company, Inc.
14 Goldman cuts China, Asia
orecasts, May 24, 2011, The WallStreet Journal Online, via Factiva, 2011 Dow Jones & Company, Inc.
15 Japans economy begins weakrecovery rom quake, May 31, 2011,Agence France Presse, via Factiva, Agence France-Presse, 2011.
16 IEA Oil Market Report, May 12,2011, OECD/IEA, http://omrpublic.iea.org/currentissues/high.pd.
17 Anadarko Jubilee seen at peakoutput this summer, May 25, 2011,MarketWatch, via Factiva, 2011MarketWatch, Inc.
18 EIA Short-term Energy Outlook, May10, 2011, www.eia.gov/steo/contents.html.
19 IEA Oil Market Report, OECD/IEA,May 12, 2011, http://omrpublic.iea.org/omrarchive/12may11ull.pd.
20 Saudi unlikely to lit oil output
quickly, May 3, 2011, Agence FrancePresse, via Factiva, AgenceFrance-Presse, 2011.
21 OPEC to consider up to 1.5 million b/doutput hike, June 2, 2011, Reuters News,via Factiva, 2011 Reuters Limited.
22 IEA Oil Market Report, OECD/IEA,May 12, 2011, http://omrpublic.iea.org/omrarchive/12may11ull.pd.
23 Ibid.
24 China sees tight uel supplyamid ongoing power shortage,"May 30, 2011, Reuters News, viaFactiva, 2011 Reuters Limited.
25 Higher ood, oil prices weigh onUS economy," May 26, 2011, AgenceFrance Presse, via Factiva AgenceFrance-Presse, 2011.
26 US, China pull oil market inopposite directions, May 26, 2011, TheWall Street Journal Online, via Factiva, 2011 Dow Jones & Company, Inc.
27 Source Brent crude ends down
$10 as commods battered, May 5,2011, Reuters News, via Factiva, 2011 Reuters Limited.
28 Crude extends gains, ocus onUS oil industry data, June 1, 2011,Reuters News, via Factiva, 2011Reuters Limited.
29 OPEC considers hike in oil outputtarget, June 2, 2011, Reuters News,via Factiva, 2011 Reuters Limited.
30 Malaysia Min: will review uelsubsidy i crude oil tops $110/barrel,May 26, 2011, via Factiva, 2011 DowJones & Company, Inc.
31 Big banks sway over oil markets,May 26, 2011, The Wall Street JournalOnline, via Factiva, 2011 Dow Jones& Company, Inc.
32 Gas Outlook, May 16, 2011,The Economist Intelligence Unit,via Factiva, 2011 The Economist
Intelligence Unit Ltd.
33 Unprecedented rise in globalnatural gas production: Cedigaz, April28, 2011, Agence France Presse, viaFactiva, Agence France-Presse, 2011.
34 Gazprom to accelerate productionboost, June 2, 2011, The Wall StreetJournal Europe, via Factiva, 2011,Dow Jones & Company, Inc.
35 Ibid.
36 Ibid.
37 Gas increasingly edging out coalas major generation source: FERC,April 29, 2011, Inside FERCs GasMarket Report, via Factiva, 2011McGraw-Hill, Inc.
38 Gas Outlook, May 16, 2011, TheEconomist Intelligence Unit, via Factiva, 2011 The Economist Intelligence Unit Ltd.
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62 The Chinese hunt or oil intensi-es, January 4, 2011, The Wall StreetJournal Asia, via Factiva, 2011 DowJones & Company, Inc.
63 China's energy industry makes a
bold push into developed markets,"March 15, 2011, The New York Times,via Factiva, 2011 The New York TimesCompany.
64 US rig counts poised to fip asdrillers seek oil, April 8, 2011, DowJones News Service, via Factiva, 2011Dow Jones & Company, Inc.
65 Saudi plans to boost oil rigs by 28percent, March 30, 2011, Misr News,via Factiva, 2011 Misr Inormation
Services and Trading.
66 Baker Hughes sees Saudi, Iraqdrilling boost, May 18, 2011, ReutersNews, via Factiva, 2011 ReutersLimited.
67 Oil CEOs warn senators o down-side to axing industry tax breaks,"May 12, 2011, The Christian ScienceMonitor, via Factiva, 2011 ChristianScience Monitor.
68 North Sea oil tax rise unlikely to belasting blow, March 25, 2011, ReutersNews, via Factiva, 2011 ReutersLimited.
69 Oil CEOs warn senators o down-side to axing industry tax breaks,May 12, 2011, The Christian ScienceMonitor, via Factiva, 2011 ChristianScience Monitor.
70 ConocoPhillips cash fows tobuybacks, capital projects, March 23,
2011, MarketWatch, via Factiva, 2011MarketWatch, Inc.
39 Gas Outlook, May 16, 2011, TheEconomist Intelligence Unit, via Fac-tiva, 2011 The Economist IntelligenceUnit Ltd.
40 Gas Outlook, May 16, 2011, The
Economist Intelligence Unit, via Fac-tiva, 2011 The Economist IntelligenceUnit Ltd.
41 Germany reverses on nuclearpower; all plants will shut down by2022 as Berlin hunts or other energysources, May 31, 2011, InternationalHerald Tribune, via Factiva, 2011The New York Times Company.
42 Gas Outlook, May 16, 2011, TheEconomist Intelligence Unit, via Factiva,
2011 The Economist Intelligence Unit Ltd.
43 Global gas glut drying up astBoA Merrill," June 1, 2011, ReutersNews, via Factiva, 2011 ReutersLimited.
44 Japan debates electricity reormbut power companies opposed Kyodo,June 2, 2011, Kyodo News, via Factiva, 2011 Kyodo News.
45 Excelerate conrms details o
second liqueed natural gas acility inArgentina, September 20, 2010, DowJones News Service, via Factiva, 2010Dow Jones & Company, Inc.
46 Argentina, Uruguay ink LNGregasication pact, February 25, 2011,Dow Jones News Service, via Factiva, 2011 Dow Jones & Company, Inc.
47 EIA Short-term Energy Outlook, May10, 2011, www.eia.gov/emeu/steo/pub.
48 "Asian LNG prices hold steady aheado summer, May 6, 2011, Reuters News,via Factiva, 2011 Reuters Limited.49 "Japan March nuclear run rate at28-month low ater quake, April 15,2011, Reuters News, via Factiva, 2011 Reuters Limited.
50 New technology prompts shale gasboom, keeps LNG prices stable, May30, 2011, Nikkei Weekly, via Factiva, 2011 Nihon Keizai Shimbun, Inc.
51 IEA Oil Market Report, OECD/IEA,
May 12, 2011, http://omrpublic.iea.org/currentissues/high.pd.
52 Ibid.
53 Japans JX sees June crude reningdown 11 pct year-on-year, May 31,2011, Reuters News, via Factiva, 2011 Reuters Limited.
54 Consultancy KBC predicts globalrening margins under pressurethrough 2015, May 6, 2011, Hydro-
carbon Processing, HydrocarbonProcessing Inc.
55 Asia orces Shells hand onrenery, April 13, 2011, The Age, viaFactiva, 2011 Copyright John FairaxHoldings Limited.
56 Total deal positive For Novatek,March 3, 2011, Dow Jones Internation-al News, via Factiva, 2011 Dow Jones& Company, Inc.
57 BP: Rosnet deal is dead,June 9, 2011, The Wall Street JournalEurope, via Factiva, 2011 DowJones & Company, Inc.
58 Chinas biggest overseas invest-ments since 2000, February 9, 2011,Reuters News, via Factiva, 2011Reuters Limited.
59 PetroChina to invest in Canada gasproject, February 11, 2011, The WallStreet Journal Asia, via Factiva, 2011
Dow Jones & Company, Inc.
60 China plans 100 billion oilspending spree, January 6, 2011,The Daily Telegraph, via Factiva, 2011Telegraph Group Limited, London.
61 Chesapeake, CNOOC strike secondshale deal or $1.3 billion, January31, 2011, Reuters News, via Factiva, 2011 Reuters Limited.
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