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Global oil and gas trendsThe macro themesAlexey LozaCIS Oil & Gas Leader
Baku, AzerbaijanMay 2013
Page 2 Global oil and gas trendsThe macro themes
► Extreme economic uncertainty (GDP growth slowdown from 4.3% in 2010 to 2.6% in 2012)
► Unconventional resource boom► Global gas market evolution (including LNG development)► Serial geopolitical uncertainty/unrest► Price volatility (2008 – US$98 per barrel; 2009 – US$62 per barrel; 2010 – UD$80 per
barrel; 2011 – US$111 per barrel; 2012 – US$112 per barrel)► NOC/IOC dynamics:
► Internationalizing NOCs – access to supply, markets and/or technology► Partnership/joint venture model dominates► Some challenges from rising protectionism
► Arctic frontier:► Technically recoverable resources of 412 billion boe (two thirds – natural gas, more than half in
Russian territory)► High cost, high risk► Partnership to be critical
► From the depths of despair to the thrills of discovery and technology
Stormy last five years
Page 3 Global oil and gas trendsThe macro themes
► US as new Saudi Arabia?► European economy – debt, denial and demand destruction ► Middle East turmoil again► US gas renaissance sets up confrontation with gas-intensive industries ► Enormous gas potential found in offshore East Africa and East Mediterranean► Second thoughts from Canada about selling its resources ► BP’s sale of 50% share in TNK-BP to Rosneft and acquisition of 20% in Russian
national oil company► Australian LNG needs to find potential costs reductions amid growing competition from
the US and Asia► Strategic east route for Russian gas► The renaissance of coal generation in Europe► Shale gas coverage of new regions: Ukraine, South Africa and China► The agreement for the Trans-Anatolian gas pipeline (TANAP) between Azerbaijan and
Turkey► Gas hydrate in Japan – new challenge?
Top global oil and gas stories of 2012 –1Q 2013
Oil market
Page 5 Global oil and gas trendsThe macro themes
► Mixed fundamentals; uneasy global balance► Demand drifting with strong non-OPEC supply gains?► Increasing pressure on OPEC (Saudi Arabia) to curb production
► Continuing geopolitical uncertainty► Who makes room for Iraq production gains?► No progress with Iran; painfully low exports► What will happen to Venezuela?► Two Sudans – one oil?► Will North Africa re-erupt?► Danger from North Korea?
► Light tight oil has changed the global market balance ► North American infrastructure bottlenecks and opportunities (crude by rail to East and West
Coasts and the coast of Gulf of Mexico with new pipeline capacity)► Shifting global crude flows: West African crude displaced from US, moving into Asia
Global oil: recent developments, prospects and risks
Page 6 Global oil and gas trendsThe macro themes
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
F
Global oil: supply and demand
Global oil demand growth
* Purchasing Managers' Indices (PMI) are calculated by Markit based on data collected from manufacturers and service firmsSource: BP Statistical Review of World Energy 2012, Oil & Gas Journal, International Energy Agency
► While demand is being driven by the developing nations, supply from both the OPEC and non-OPEC producing regions is struggling to meet demand.
► World oil demand growth in 2013 is expected to be 0.8 mbd, slightly higher than 2012.
► The shift of oil demand from the West to the East is now rapidly accelerating.
► China and Middle East are main drivers of conversion.
► But due to the current development rates US seems to steadily increase its consumption in 2013 (PMI* in Q4 2012, 50.2; in Q1 2013, 54.6).
► OPEC spare capacity is still low, but pressures easing: expectations of 5% of global demand in 2013 (3% in 2011).
OPEC spare capacity (annual average, % of global demand)
-2.0-1.5-1.0-0.50.00.51.01.52.02.5
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
F
mbd
Advanced economies Developing economies
Page 7 Global oil and gas trendsThe macro themes
020406080
100120140
1Q 2
008
2Q 2
008
3Q 2
008
4Q 2
008
1Q 2
009
2Q 2
009
3Q 2
009
4Q 2
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1Q 2
010
2Q 2
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3Q 2
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4Q 2
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1Q 2
011
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1Q 2
013
US
$/bb
l
WTI Brent Urals
0
200,000
400,000
600,000
800,000
1,000,000
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Num
ber o
f con
tract
s
Hedge contracts Non-hedge contracts
Global oil: prices
Oil contracts dynamics
Source: Bloomberg
Commodity price dynamics
Oil prices dynamics
WTI is losing the status of market indicator
Brent price forecast
104101
9794
110 110 110 110
85
90
95
100
105
110
115
2013F 2014F 2015F 2016F
US
$/bb
l
Forward contracts Median forecast
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Brent Nickel Copper Aluminum
Page 8 Global oil and gas trendsThe macro themes
0.01.02.03.04.05.06.07.08.09.0
2011 2020F 2035F
mbd
Baseline scenarioUnconventional oil success in USTechnological achievements
► Growing global demand in spite of uncertainties and rising oil prices to record levels have supported increase in development of unconventional oil resources.
► Undiscovered resources of unconventional oil are estimated at about 50% of all undiscovered resources.
► Yet-to-find unconventional oil resources are estimated at about 40% of total.► Annual production of unconventional oil in case of the modest scenario is expected to
rise from current 1 mbd (50 mln tonnes) to 2.8 mbd (140 mln tonnes) in 2035.
Unconventional oil
Unconventional oil production, forecast
Source: IMEMO RAN
Scenario Costs per barrel
Effects on countries
Baseline scenario
US$50 + inflation North America – growth; Brazil, China, Russia –the same level
Unconventional success in US
US$30-$40 (before 2015) + inflation
North America, Jordan, Australia; Morocco –growth; Israel – start;Brazil, China, Russia –the same level
Technological achievements
US$30-$40 (before 2015) + inflation
Development in Western Europe, North America, Israel
Scenarios of unconventional oil development
Gas market
Page 10 Global oil and gas trendsThe macro themes
► Shale revolution, but with collateral damage► North American fundamentals strengthening, but could a price recovery trigger a
relapse?► Increasing politicization of the gas business
► US: environmentalism versus jobs/economic growth; is the re-industrialization dependent on continued very low gas prices?
► Europe: muddled energy policy and power politics► Asia: a historic Russia/China supply agreement (but not detailed)
► North American incubator; replicating the revolution► Chevron to Argentina, Shell to Ukraine, Shell and Eni to China► Chinese shale issues – controlled prices
► Global LNG competition to increase► China buys into Mozambique LNG► Asian NOCs signing North American off-take agreements► Hopes for an Eastern Mediterranean LNG hub dimmed by Cypriot crisis
► Successful Japan gas hydrate test – the next revolution?
Global gas: recent developments, prospects and risks
Page 11 Global oil and gas trendsThe macro themes
Global gas: supply, demand and prices
► Gas share of global energy is expected to grow (first of all, CO2emissions).
► Global gas demand is expected to grow more than twice as fast as oil demand.
► Currently there are disparate “regional” markets.
► The gas market is globalizing, and distribution areas are expanding.
► The spread between US and Europe prices remains and creates conditions for export infrastructure in the US.
Natural gas prices dynamics
Source: Bloomberg, Gazprom
2012 2030F
AfricaLatin AmericaMiddle EastEurope (2)FSU (1)North AmericaAsia/Oceania
3.2 tcm
4.8 tcm
(1) Including Baltic states(2) Excluding Baltic states
Global gas demand
0100200300400500600
1Q 2
008
2Q 2
008
3Q 2
008
4Q 2
008
1Q 2
009
2Q 2
009
3Q 2
009
4Q 2
009
1Q 2
010
2Q 2
010
3Q 2
010
4Q 2
010
1Q 2
011
2Q 2
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4Q 2
011
1Q 2
012
2Q 2
012
3Q 2
012
4Q 2
012
1Q 2
013
US
$/m
cm
Henry Hub Zeebrugge Gazprom
Page 12 Global oil and gas trendsThe macro themes
► Can North American successes be replicated elsewhere?
► International shale development has been mixed.
► The first experience outside of US is important.
► Can development of huge unconventional gas resource base offset/moderate dominance of Middle East/Russia in conventional supply?
► infrastructure and hydraulic fracturing are challenging shale gas development.
Global gas: can the “revolution” be exported?
421
331
050
100150200250300350400450
Conventional Unconventional
tcm
Eastern Europe/Eurasia Middle EastAsia Pacific North AmericaAfrica Latin AmericaOECD Europe
Global gas resources(technically recoverable resources)
Source: International Energy Agency
Page 13 Global oil and gas trendsThe macro themes
► Economic hopes are brightening for US and Asia, but European prospects don’t seem to be improving.
► Special attention should be paid to geopolitics, especially in the Middle East and North Africa.
► Continuing important US energy policy issues:► Environmental law enforcement – Environmental Protection Agency fracturing study deferred
until 2014?► Some LNG exports decisions are possible later this year, but what about crude oil exports?► Keystone XL approval is expected by this summer, but could the recent spills break down
project realization?► New fuel fund proposal – royalties to be diverted to R&D?
► What role is there for “independents” (e.g., Anadarko and Noble Energy) in megaprojects; will East Africa and possibly the East Mediterranean change the traditional “find and farm” model?
► Brazilian royalty distribution debate – could it lead to additional taxes as states look to keep current resources, and could it affect contract sanctity?
Perspectives for 2013
Page 14 Global oil and gas trendsThe macro themes
Ernst & Young’s Global Oil & Gas Center
General information 13 Global Oil & Gas Centers
Ernst & Young’s Global Oil & Gas practice consists of a network of more than 9,200 professionals with extensive experience working in the oil and gas industry. Our professionals serve a wide range of companies — independent exploration and production companies, oilfield services companies, independent refiners, major integrated corporations and national oil companies.
Our Global Oil & Gas Centers, like the professionals in our Global Oil & Gas practice, are strategically located in areas that allow us to best serve the needs of the oil and gas industry. In addition to our Houston, London, Moscow and Bahrain centers, we have satellite centers in Aberdeen, Beijing, Brisbane, Calgary, Cape Town, Perth, Rio de Janeiro, Singapore and Stavanger.
Rio de Janeiro
Houston
CalgaryLondon Moscow
Bahrain
Aberdeen
Beijing
Cape Town
Stavanger
Singapore
PerthBrisbane
Americas3,200
professionals
EMEIA4,300 professionals
Asia Pacific1,700
professionals
Page 15 Global oil and gas trendsThe macro themes
Ernst & Young’s Global Oil & Gas Center thought leadership
Global LNG:will new demand and
new supply mean new pricing?
The Norwegian oil field services analysis 2012 Arctic oil and gas
Ernst & Young’s global oil and gas
capabilities
Global oil and gas reserves study
Global oil and gas transactions review
Innovative use of helium
Global oil and gas tax guide
Page 16 Global oil and gas trendsThe macro themes
Contacts
Alexey LozaErnst & Young (CIS) B.V.Partner, CIS Oil & Gas Leader
Tel.: +7 495 641 2945Email: [email protected]
Ilgar VeliyevErnst & Young Holdings (CIS) B.V. Azerbaijan RepublicAzerbaijan Country Managing Partner
Tel.: +99412 4907020Email: [email protected]
Turgay TeymurovErnst & Young Holdings (CIS) B.V. Azerbaijan RepublicPartner, Azerbaijan ECU Leader
Tel.: +99412 4907020 Email: [email protected]
Alexey KondrashovErnst & Young (CIS) B.V.Partner, Global Oil & Gas Tax Leader
Tel.: +7 495 662 9394Email: [email protected]
Ernst & YoungAssurance | Tax | Transactions | Advisory
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