Oil and Natural Gas Demand:Will we see them peak?

USAEE – Houston Chapter

Nov. 9, 2017

Helen Currie, PhD

Chief Economist

Cautionary Statement

The following presentation includes forward-looking statements. These statements relate to future events, such as anticipated revenues, earnings, business strategies, competitive position or other aspects of our operations, operating results or the industries or markets in which we operate or participate in general. Actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that may prove to be incorrect and are difficult to predict such as our ability to complete the sale of our announced dispositions on the timeline currently anticipated, if at all; the possibility that regulatory approvals for our announced dispositions will not be received on a timely basis, if at all, or that such approvals may require modification to the terms of of our announced dispositions or our remaining business; business disruptions during or following the sale of our announced dispositions, including the diversion of management time and attention; our ability to liquidate the common stock issued to us by Cenovus Energy Inc. as part of our sale of assets in western Canada at prices we deem acceptable, or at all; the ability to deploy net proceeds from our announced dispositions in the manner and timeframe we currently anticipate, if at all; operational hazards and drilling risks; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gas development projects; unsuccessful exploratory activities; unexpected cost increases or technical difficulties in constructing, maintaining or modifying company facilities; international monetary conditions and exchange controls; potential liability for remedial actions under existing or future environmental regulations or from pending or future litigation; limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets; general domestic and international economic and political conditions, and changes in tax, environmental and other laws applicable to ConocoPhillips’ business; and other economic, business, competitive and/or regulatory factors affecting ConocoPhillips’ business generally as set forth in ConocoPhillips’ filings with the Securities and Exchange Commission (SEC). We caution you not to place undue reliance on our forward-looking statements, which are only as of the date of this presentation or as otherwise indicated, and we expressly disclaim any responsibility for updating such information

2

• Explore for, produce, transport and market hydrocarbons, including crude oil, natural gas, natural gas liquids (NGL), liquefied natural gas (LNG) and bitumen

• Operations and activities in 17 countries

• Exploration in 12 countries

• Production in 11 countries

• 12,200 employees worldwide

• Six operating segments

• Alaska

• Lower 48

• Canada

• Europe and North Africa

• Asia Pacific and Middle East

• Other International

Company Profile As of June 30, 2017

17COUNTRIES WITH OPERATIONS AND ACTIVITIES

HOUSTON, TXCOMPANY HEADQUARTERS

COPNYSE TICKER

12,200EMPLOYEES WORLDWIDE

3 Information in this presentation does not reflect the impacts of the Canadian transaction announced on March 29, 2017, or the San Juan Basin transaction announced on April 13, 2017.

Highly Differentiated, Diverse Portfolio As of Q2-2017

4

1 Largest independent E&P by production and proved reserves. Full year 2017 estimated production is on a pro-forma basis as if announced transactions were completed on Jan. 1, 2017 and excludes Libya.2 Cost of Supply (CoS) is the Brent equivalent price that generates a 10 percent return on a point forward and fully-burdened basis. Resources are post announced transactions.3Assumes closing Barnett and Panhandle transaction.4Burden = capital infrastructure + foreign exchange + price-related inflation + G&A.

<$50/BBL Cost of Supply Resource3

(Fully Burdened)

5

Headlines and Forecasts: What’s Different This Time?

August 2017

Peak Global Oil Demand Forecasts by Source

2015 2020 2025 2030 2035 2040 2045 2050

U.S. EIA

Chevron

Statoil - Rivalry

IEA - Current Policies

OPEC - Reference

ExxonMobil

IEA - New Policies

Shell - Oceans

Total

BP

Shell - Mountains

Statoil - Reform

OPEC - Low

Statoil - Renewal

DNV GL

Rethink X

Carbon Tracker

IEA - 450

Unless on 2 degree carbon trajectory, most forecasts peak beyond 2030 or don’t peak at all during their forecast period

6

Severe carbon constraint Forecast ends before it peaks so peak is unknown but is beyond the time shownAll other

50

55

60

65

70

75

80

85

90

95

100

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

World Liquids Consumption (MMBD) Determinants

• Energy demand

• Income

• Price of oil, refined products

• Prices of complements

• Prices of substitutes

• Tastes/Preferences

7

What Determines Oil Demand?

Source: Demand data from U.S. EIA

World Need for Affordable, Efficient Energy May Extend Oil’s Life Longer

8

0

1

2

3

4

5

6

7

8

9

10

1990 2000 2010 2020 2030 2040 2050

World Population (Billions)

2016:3 Bln people cook or heat home with biomass1.2 Bln (16%) have no access to electricity

Next 25 years:+2.3 Bln people

World Population (Billions) and Per Capita Income* by Region

*Per capita GDP in Real 2010 PPP$

0

2

4

6

8

10

2015 2050

China, $54k

India, $26k

Rest of Asia, $43k

Africa, $7k

Europe, $57k

Latin America, $27k

N.America, $78k

$14k

$6k

$13k

$5k

$33k

$13k

$51k

Source: U.N. population estimates; IHS-Markit GDP forecast; Energy Demand from IEA WEO 2016

22

10

36

28

0

20

40

60

80

100

120

Current Policies Case Central Case

IEA Energy Demand Growth 2015-2040 (MMBOED)

Biomass

Hydro

Other Renewables

Nuclear

Gas

Oil

Coal

Income

9 Source: Oxford Economics

$0

$20

$40

$60

$80

$100

$120

$0

$10

$20

$30

$40

$50

$60

$70USChinaEMEUWorld

GDP in trillion real 2010 $, PPP

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

USChinaEMEUWorld

GDP per Capita, real 2010 $, PPP

Low Oil Prices Incentivize Oil Demand As Observed in the U.S.

1.0

1.5

2.0

2.5

3.0

3.5

4.07.0

7.5

8.0

8.5

9.0

2000 2003 2006 2009 2012 2015 2018

$/G

allo

n (

Inve

rse

Scal

e)

Bill

ion

Mile

s/D

ay

VMT Increases in a Lower Price Environment

VMT (left axis)

Gasoline Prices (right axis)

Source: Wards Auto (2000-2016), Goldman Sachs (2017)

10

35%

40%

45%

50%

55%

60%

65%

2000 2004 2008 2012 2016

New

Car

Sal

es

Continued Shift in U.S. to SUVs/Light Trucks

% SUV/Light Trucks

% Cars

Source: EIA, STEO

Low prices Low prices

• Transportation oil use increases during periods of low oil prices

• Shift to larger vehicles offsets fuel efficiency improvements

• Stronger growth in vehicle miles traveled

20

21

22

23

24

25

26

Oct

-07

Jun

-08

Feb

-09

Oct

-09

Jun

-10

Feb

-11

Oct

-11

Jun

-12

Feb

-13

Oct

-13

Jun

-14

Feb

-15

Oct

-15

Jun

-16

Feb

-17

Mile

s/G

allo

n

Source: University of Michigan Transportation Research Institute

Flat efficiency

Weighted Fuel Economy of New U.S. Passenger Vehicle Sales

0

10

20

30

40

50

60

70

80

90

100

110

120

2015 New Policies 2040 Current Policies 2040

World Oil Demand by Sector (MMBD)

Passenger

Freight

Maritime

Aviation

PetchemFeedstock

Process Heat

Buildings

Power

Other

Substitutes Not Obvious in Some Oil Demand Sectors

(5) 0 5 10 15 20

New Policies

Passenger

Freigh

t

Maritim

e

Aviatio

n

Pe

tche

mFee

dsto

ck

Pro

cess H

eat

Buildings

Oth

er

Passe

nge

r

Po

we

r

Bu

ildin

gs

Source: International Energy Agency, 2016 World Energy Outlook, New Policies scenario, Other includes biofuels

Transp

ortatio

nIn

du

stry

54%

18%

28%

56%

21%

24

All O

ther

94

108

11

58%

20%

23%

121

(5) 0 5 10 15 20 25 30

Current Policies

Passenger

Freight

Maritim

e

Aviatio

n

Pe

tche

mFee

dsto

ck

Pro

cess Heat

Buildings

Oth

er

Passen

ger

Freigh

t

Po

wer

Bu

ildin

gs

Demand Growth by Sector (2015-2040, MMBD)

Net growth of 27 MMBD or

28%

Net growth of 14 MMBD or

14%

Petroleum Fuels Offer Efficient Energy Delivery

12 Source: Energy density values from EIA, U. of Calgary, WIkipedia

0.0

0.5

1.0

1.5

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4

Ener

gy p

er u

nit

Vo

lum

e

Coal

Jet/KeroDiesel

Gasoline

LPG

LNG

Methanol

Ethanol

Wood

Lithium ion battery Natural gas

Energy per unit Weight

Energy Density per Unit Weight vs Volume(Data scaled relative to gasoline)

Electric Vehicles will Increase but May Remain Small Part of Fleet

0%

10%

20%

30%

40%

50%

60%

0

10

20

30

40

50

60

70

2015 2020 2025 2030 2035 2040

ROW

Europe

China

US

% of Global Sales (right axis)

Mill

ion

Car

s

Morgan Stanley Estimates EV’s Could Reach 50% of New Sales by 2040

Global Annual Sales of EV (PHEV/BEV) By Region

China is largest single market.Gov’t policies incentivize this.

13

Source: Morgan Stanley

Deployment Scenarios for the Stock of Electric Cars to 2040

0

200

400

600

800

1000

1200

0

75

150

225

300

375

450

525

600

2010 2015 2016 2020 2025 2030 2035 2040

IEA 2 °C

IEA Beyond 2 °C

IEA New Policies

Paris Declaration

ExxonMobil

OPEC

BNEF

Morgan Stanley

BP

PIRA Base

Electric Vehicle Initiative

Goldman Sachs Base est.

GS Hyper est.

Carbon Tracker (Strong EV)

Million EV in Vehicle Stock

Source: IEA, OPEC, BNEF, Goldman Sachs, Morgan Stanley, PIRA and Various Oil Companies

Carbon Tracker (right axis)

Car

bo

n T

rack

er A

xis

BAIC, 14%

Daimler, 20%

VW, 25%JAC, …

Honda, 40%

Volvo, 74%

Geely, 90%

Tesla, 100%

Porsche, 50%

ExxonMobil, 9%BP, 10%

OPEC, 12%Total SA, …

Statoil, 30%

0%

20%

40%

60%

80%

100%

2015 2020 2025 2030 2035 2040

Oil

Auto

Views of EV Sales by Industry

14

EV S

ales

Sh

are

Source: Bloomberg New Energy Finance

Comparison of Electric Vehicles Adoption ForecastsAutomakers vs. Oil Companies

Auto and Oil Industry Views

• The auto industry sees greater EV sales growth sooner than the oil industry

• Global auto industry investing in new EV models

• Ford plans 13 hybrids and BEVs by 2022

• Daimler targets EVs of 15-20% of sales by 2025

• VW plans electrics for all models by 2030

Are EV Projections Out of Sync With Reality?

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Electric and Plug-in Hybrid Vehicle Sales as a % of Total Car Sales

Deutsche Bank

PwCFrost & SullivanBNEF

IEARoland Berger

BCG

Deloitte

Actual

15

Source: J.P. Morgan Asset Management, Deutsche Bank, PwC, BNEF, Roland & Berger, BCG, Deloitte, IEA and Frost & Sullivan; 2016 actual is an estimate from Morgan Stanley

Previous forecasts for EV sales have been overstated

Average

• Forecasters historically overstated the rate of EV penetration

• Technology change and consumer preferences are extremely difficult to forecast

• Several factors make EV penetration more plausible today

• Gov’t bans on fossil fuel cars• Automakers plans• Lower battery cost

Thomas Edison, 1913

U.S. Global

Government Drivers of EV Penetration

Source: ICCT, EPA, NHTSA, EU, Bloomberg New Energy Finance. Note: Fuel economy targets have been normalized to the NEDC testing procedure. U.S. targets are for passenger cars only.

16

Key Drivers• Challenge of meeting more stringent fuel efficiency and air emissions

regulations, although currently uncertain in the U.S.

• Meeting CO2 targets in Europe, particularly in light of “diesel gate”

• For China:• Reduction of local air emissions• Enhancing domestic energy security• Industrial policy to develop domestic battery and EV industries

19.3 22 23.5 24.327.5 28 28

0.30.5 2

7

0

5

10

15

20

25

30

35

40

2012 2013 2014 2015 2016 2020 2025

Internal Combustion Engine New Energy VehicleSource: China Automotive Information Net, Bloomberg New Energy Finance

20

25

30

35

40

45

50

55

60

2000 2005 2010 2015 2020 2025

Fuel Economy Regulations

U.S. 55EU 57

China 48

Achieved fuel consumption Future Standard

0%

5%

10%

15%

20%

2016 2019 2022 2025

BEV PHEV

Source: Bloomberg New Energy Finance. Note: Based on 78 gCO2/km target in 2025

China’s Vehicle Sales According to Recent 2025 Plan

Share of EV’s Needed to Meet EU CO2 Emission Targets

Mile

s p

er g

allo

nM

illio

ns

of

Veh

icle

s So

ld

At risk?

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$/k

Wh

Battery Pack Cost Projections

Historical*

Goldman Sachs

Tesla

GM

Nissan

BYD

BNEF

Battery Costs Have Dropped Sharply But Are Not Yet Competitive

Source: IEA Global EV Outlook BNEF, EIA, Car Manufacturers, Goldman Sachs and Wood Mackenzie

17

$100/kWh threshold where competitive with ICE

Battery costs have declined significantly but are not expected to be competitive with the internal combustion engine (ICE) before 2020

0

200

400

600

800

1000

1200

1400

0

200

400

600

800

1000

2014 2018 2022 2026 2030

Manganese

Nickel

Cobalt

Lithium

L-I Battery Demand (right axis)

Source: BNEF

Tho

usa

nd

To

nn

es

GW

h

Rising Demand for Metals in Lithium-ion Batteries

10,000

20,000

30,000

40,000

50,000

60,000

70,000

$/T

on

ne

Source: Bloomberg

Cobalt price increases have pushed up battery costs by ~7%

Vehicle Miles Traveled Moderates EV Impact on Oil Demand

Source: Morgan Stanley "Electric Cars and Oil: Shared/Autonomous EVs Not Too Bad For Gasoline Demand?", May 29, 2017

18

Bull Case, 37

Bear Case, 12

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2016 2035 2040

Tota

l Veh

icle

s (B

illio

ns)

Global Fleet Growth Increases VMT

BNEF

BP

ExxonMobil

OPEC

Morgan Stanley

Source: Morgan Stanley “One Billion BEVs by 2050?", May 5, 2017 and BNEF “Comparison of Long-Term EV Adoption Forecasts”, July 15, 2017

2015 Demand

Change in VMT

MPG of ICE

Owned EV

Shared EV

2040 Demand

Differences in views on fleet growth result in different views on VMT

VMT Growth Offsets Decline in Global Gasoline Demand by 2040 Due to Efficiency Increase and EVs

Autonomous Driving: Could Self-Driving Cars Could Increase Energy Use?

Increased Consumption

• More miles traveled (VMT) due to lower cost and greater convenience

• New user groups (e.g., young, old, infirm, etc.)

• Increased features and higher highway speeds

• Switch away from mass transit to robo-taxis

Reduced Consumption

• Greater likelihood of electrifying robo-taxi fleets

• Efficiency improvement (eco-driving, platooning, right-sizing vehicle for purpose)

• Car sharing / carpooling reduces VMT

• Supports mass transit by fixing the “last mile” problem

19

1 Source: “Help or hindrance? The travel, energy and carbon impacts of highly automated vehicles” Z. Wadud, D. MacKenzie, P. Leiby ; Car and Driver

Down 45% Up 100%

Only moderate automation

Efficiency gains capturedand high gov’t intervention limiting driving

High automation

Increased travel and lowgov’t intervention limiting driving

Range in possible impact on energy use:1

Impacts on Oil Demand

20

0

5

10

15

20

25

2015 2020 2025 2030 2035 2040 2045 2050

BP

BNEF

PIRA

GS IEA New Policies

IEA 2 Degrees

Oil Displaced by Electric Vehicles (MMBD)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

World Oil Demand Growth (YoY, MMBD)

Range of Forecasts

Long Term Market Growth of Global Natural Gas

21

Source: U.S. EIA IEO 2017, IEA WEO 2016, Shell New Lenses Scenarios, ExxonMobil Outlook for Energy 2017, Statoil Energy Perspectives 2017, Carbon Tracker Expect the Unexpected 2017

(50)

0

50

100

150

200

250

3002025 2040

Global Natural Gas Demand Growth:Average Growth of 1.6% per year to 2025 and 1.2% from 2025 to 2040

BC

FD G

row

th o

ver

20

16

• All available forecasts have global gas demand growth through 2025, and most have growth through 2040.

• Weak or no growth by 2040 is associated with following the 2 degree GHG trajectory.

• Governments may not choose natural gas as a vehicle for decarbonization

• The scenario with the highest demand growth (Shell Mountains) is driven by the sharp rise in affordable supplies of shale and tight gas.

Costs declines for renewables are slowing down

Renewables’ Improving Cost Competitiveness

$169

$148

$92 $95 $95

$81$77

$62

$101 $99

$50 $48 $45$37 $32 $32

2009 2010 2011 2012 2013 2014 2015 2016

$394

$270

$166$149

$104$86

$70$61

$323

$226

$148

$101$91

$72$58

$49

2009 2010 2011 2012 2013 2014 2015 2016

Decelerating improvement

Source: Lazard’s Levelized Cost of Energy Analysis – V. 10.0., December 2016; Does not include Transmission, Subsidies, or Intermittance.

Wind ($/MWh) Utility-Scale Solar PV ($/MWh)

66% Decrease in 7 Yrs.

85% Decrease in 7 Yrs.

Leveling off

22

Gas combined cycle has the lowest unsubsidized cost of energy unless CO2 prices are very high

Levelized Cost of Power Generation including Externalities

23

Source: EIA, “AEO2017 Levelized Costs, for plants in 2022,” COP for natural gas price.*System integration cost include costs of managing intermittency and transmission costs. These costs and Air Quality/GHG from UT’s Center for Energy Economics Competitiveness of U.S. Renewable-Generation Resources

0 50 100 150 200 250

Adv. CombinedCycle Gas

($3.50 gas)

Wind30% CF

Solar PV30% CF

Adv. Nuclear

Adv. Coalwith CCS

Levelized Cost of Power Including Air Quality & GHG ($/MWh)

Capital Cost Fixed O&M Variable O&M + Fuel Transmission System Integration

Non-GHG EmissionsCO2 –$20/Ton

CO2 -$62/Ton

CO2 – $88/Ton

Impact ofU.S. Production & Investment Tax Credits

• Many levelized cost assessments exclude system integration costs for renewables:

• Back-up conventional power & storage costs to manage intermittency

• Additional transmission and grid costs• Shut-in of publicly supported surplus

renewable capacity • “Stranded costs” for non-renewable

generation capacity made surplus by subsidized renewables

• Levelized cost assessments also exclude environmental externalities.

• At $3.50 gas with system integration costs at 30% renewables penetration:

• ~$77/ton CO2 price needed for unsubsidized wind to compete with gas

• ~$107/ton CO2 price needed for unsubsidized PV to compete with gas

Financial Stability of Renewable Projects

24

Every time the Production Tax Credit (PTC) was allowed by Congress to expire at the end of the year, and not renewed quickly, wind-capacity additions fell significantly the next year:

(1999-2000, 2001-02, 2004-04, 2013-13)

0

2

4

6

8

10

12

14

16

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

An

nu

al C

apac

ity

Ad

dit

ion

s G

W

Wind Capacity Additions

Source: Bloomberg, UT’s Center for Energy Economics Competitiveness of U.S. Renewable-Generation Resources

Oil, Gas, Coal, $116 B

Renewables, $20 B

Coal, $28 B

Exploration & Production, $61 B

Midstream, $0.3 B

Oil & Gas Services, $25 B

Refining & Marketing, $2 B

Renewable Project Development, $0.5 B

Renewable Energy Equipment, $19 B

US Energy Bankruptcies since 2014

34%

85%

3%

~0%

6%

~0%

8%

86%

Renewable Energy Equipment

Renewable Energy Project Development

Biofuels

Refining & Marketing

Oil & Gas Services

Midstream

Exploration & Production

Coal

Liabilities in Bankruptcy since 2014 as a ratio to 2014 Market Capitalization (US companies)

Oil, Gas, & Coal 5%

Source: Bloomberg

Greater % bankruptcies of renewables

Summary

• The risk of global oil demand peaking before the 2040’s

is lessened by (1) the lengthy time it takes to turn over

the vehicle fleet, (2) rising incomes and mobility in

developing countries and (3) growth in freight

transport, air travel and petrochemicals.

o A peak by the 2040’s probably requires a combination of

high EV penetration, weak economic growth, and

substantial fuel efficiency improvement across the

transportation and other sectors.

• Global natural gas demand is likely to be more robust

than oil demand

o The 2 degree Carbon Scenario or strong renewables

penetration in power generation could reduce the rate of

growth in gas demand.

25