538-130410 JW Sulphur World Symposium Doha

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Submitted 22 Feb 2010.Submitted 22 Feb 2010.

The updated presentedThe updated presentedversion can be downloadedversion can be downloaded

ostost--conference fromconference fromwww.douglaswww.douglas--westwood.comwestwood.com

John WestwoodChairman Dou las-Westwood

1

Sulphur World Symposium ,13 April 2010. Doha, Qatar



Energy Market DriversEnergy Market DriversOilOil

Sul hur Sul hur

ConclusionsConclusions

2



Energy – two linked concerns; one driver

Population growth

3

Energy supplies Global warming



Energy demand outpaces population growth

193%

95%

sources: , ,

55%

oil demand population energy

growthGlobal Growth 1965-2008

Consider oil, the fuel of transportation:

• 1 billion cars worldwide. Production ca acit 86 million .a. 2008

• Meantime China and India’s growing populations will ‘motorise’

• And cause a huge growth in oil demand and prices

4



Market drivers – long-term demand growth

40

45

US - EIA

30

35

-

China - EIA

China - DWL

20

25China (Korea model)

DWL – China + 16 Mbpd

10

15DWL – US falls by 5 Mbpd

5

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 1 8

2 0 1 9

2 0 2 0

2 0 2 1

2 0 2 2

2 0 2 3

2 0 2 4

2 0 2 5

2 0 2 6

2 0 2 7

2 0 2 8

2 0 2 9

2 0 3 0

Source: EIA 2010 AEO,

Douglas-Westwood

analysisChina and US Oil Demand to 2030 – EIA & DWLmillion barrels per day

• China will be the key driver of global oil demand growth; half of total

5

• orea mo e : consump on up . p.a., –

• If oil supply limited, China growth will tend to reduce US, EU, Japan consumption



China invests in future energy supplies

Russia: $300 bn. 300kbdCanada: $1.7bn

UK: windpower bid

USA: $2.2 bn

Venezuela: $8 bn Nigeria: 1/6th O&G reserves

Brazil: $10 bn. 160kbd

Australia: $5.2 bn Coal

Australia: 20 year LNG

January 2010:S Korea to buy

6Data: Major investments in 2009. Douglas-Westwood

‘energy securitya priority’




Sul hur Sul hur


7



They got it wrong before – will they again?

8March 1999 April 2009



Global oil & gas supplies & reserves

120 AfricaAsiaAustralasia

New RussianCompanies

Full IOC access6% Oil supplies will limit

80

r r e l s a D a y

Latin AmericaMiddle EastNorth AmericaWestern Europe

NOCs (equityaccess)

10%

20

40 M i l l i o n

B a

NOCs (limitedequity access )

78% Middle East

Source: Offshore Technology

0

19301935 1940 1945195019551960196519701975198019851990 1995 2000 2005 2010 2015 2020 2025Restricted access to oil reserves

• Oil – NOCs now control 100

120AfricaAsiaAustralasiaEastern Europe & FSULatin America

Gas to have long-term supply

80% of global reserves

• Gas – 55% of conventional 60

80

( O i l E q u i v a l e n t )

North America

Western Europe

reserves controlled by

Russia, Iran & Qatar 20

40

l i o

n B a r r e l s a D a y

Middle East

9

0

19301935194019451950195519601965197019751980198519901995200020052010201520202025

M i l



Long-term liquids supply outlook: a narrowing of views

IEA, EIA,

IOC’s

80

Douglas‐WestwoodCurrent Production Capacity

Current ProductionTotal

60

Uppsala University*

• Petroleum liquids supply –

* Only material difference between Uppsala and IEA is depletion rates

40

for 2030

• All are essentially peak oil

on fields to be discovered and developed to 2030

20

forecasts• Quiet consensus has emerged –

0Year 2030

narrow and specific

Source: various

Range of Global Oil Supply Forecasts – 2030 – All Liquids

10

• Oil supply looks unlikely to keep up with demand over time



Have 8 out of 10 oil majors have passed peak production?

2002 2003 2004 2005 2006 2007 2008

ExxonMobil 2496 2516 2571 2523 2681 2616 2404

BP 2018 2121 2531 2562 2475 2414 2410

PetroChina 2109 2119 2233 2270 2276 2312 2379

Shell 23592379

2253 2093 2030 1899 1771Petrobras 1533 1701 1661 1847 1908 1920 1996

Chevron 1897 1823 1737 1701 1759 1783 1676

ConocoPhillips 891 1237 1242 1447 1698 1644 1367

ENI 921 981 10341111

1079 1020 1026

Data: Petroleum Review, May 2009 Peak Year?

• Peak oil is a reality, not just for the majority of the producingcountries but erha s for the ma orit of the to roducers.

• Offshore is one of the few remaining places where the oil majors

can increase roduction

11



‘Big oil’ to get best IRR in deepwater?

12



The Movement Offshore – OilGrowing importance of offshore production

100

a y

Offshore DeepOffshoreOnshore (inc. Unconventional Reserves)

60

80

f o i l p e r

d

20

40

n b

a r r e l s

0

1950 1965 1980 1995 2010 2025

m i l l i o

Global Oil Production 1950-2025

u y u u : y

• Deepwater was 3% of production in 2002, 6% in 2007, 10% by 2012

13

,



Global offshore oil & gas production & spend to grow

400 AfricaAsia

300

350

i l l i o n s )

AustralasiaEastern Europe & FSULatin AmericaMiddle EastNorth America

150

200

& O p e x (

$ Western Europe

50

100 C a p e

0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

• Global Capex fell in 09 but Opex sees long term growth

• Most regions to see overall growth

• But W Euro e to decline

14



Deepwater Capex to reach new highs

$35 AfricaAsia

$25

$30

$ b i l l i o n s )

AustralasiaLatin AmericaOthersNorth America

$10

$15

p e n d i t u r e

(

$0

$5 E

• Deepwater production to grow 99%

• Future deepwater investment:

15

Source: “The World Deepwater Market Report

2009-2013” Douglas-Westwood




ConclusionsConclusions16



Global natural gas production to soar

90100

d a y

Africa

Asia

70

80

u i v a l e n t p e

Eastern Europe & FSU

Latin America

Middle East

40

5060

e l s o f o i l e

q

Western EuropeFSU FSU

20

30

i l l i o n b a r r

Middle East

0

10

1930 1937 1944 1951 1958 1965 1972 1979 1986 1993 2000 2007 2014 2021

• Production currently dominated by E Europe & Russia

Source: Energyfiles

• Middle East, Latin America, Africa & Asia to see significant growth

• Deepwater gas and LNG to be of growing importance

17

• And ‘unconventional gas’ – US shale gas, coal bed methane, etc

• But local supply issues e.g. in Europe



UK electricity demand could exceed capacity by 2017

Gas

Nuclear

Coal

eman cou excee capac y y• If existing station closure programme is implemented

• How will new ca acit im act on natural as use – the fuel of choice?

19Source: The UK Power Generation Expenditure Report 2010‐2030. Douglas‐Westwood



UK to see “a dash-for-gas”

9

10

Solar PV •>50% of 2010-17

7

8

)

omass

Hydro

Wave & Tidal

to be gas fired

5

6

x ( £ b i l l i o

Onshore Wind

Offshore Wind

WIND

3

4

C a p

Coal

Gas

NUCLEAR

1

2

COAL +CCS

• Gas plant is both available and the cheapest option• A new UK ‘dash for gas’ underway with security of supply implications

•

20

Source: The UK Power Generation Expenditure Report 2010‐2030. Douglas‐Westwood



High industry costs remain a major concern

$120200 Offshore Cost Inflation Index(CERA)

$80

$100

170

180

190

n d e x

Oil Price Actuals (Brent)

$60

140

150

160

$ / b b l

O f f h s o r e C o s t I

Brent Oil Price

Brent Oil Price(Forecast)

$20

110

120

130

$0100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

• Cost inflation has tracked oil prices closely over the past 10 years

• Costs cooled somewhat in 2009 but still remain high

inflation again

•Major challenge to manage costs over the next five years

21




asas

ConclusionsConclusions22



• sulphur crudes

• Up to 2/3 global production now sour

• Sour crude expected to grow threetimes as fast as sweet to 2020

• a or grow n na ura gasproduction underway

•

• Sulphur standards tightening in

• Increasing sulphur volumes to

23



Increasing production of sour and heavy crudes

our cru e s o w su p ur content greater than 0.5-1.0% 1.5%

1.6%33

crude –’sour and heavy crude’

1.2%

1.3%

.

31

configured refineries and

hi her refinin costs

1.0%

1.1%

30 U.S. API Gravity (left)

U.S. Sulfur Content ri ht

• Both sour and heavy crudeshave been increasing as a

0.8%

.

29

proportion of US refineryinputs for many years

Source: EIA

U.S. API Gravity and Sulphur Content (Weighted Average)of Crude Oil Input to Refineries (Degrees, Percent)

24



Sour crude increasing prominence

• Sour crude ordinarily trades at ascoun o swee cru e

• Traditionall $5-6 for US Gulf $20

25

region; $2-4 for others

•

$15

, -differential became massive,

more than $15 / barrel, >$22 at $5

$10

peak in 2008

•$0

9 9 7

9 9 8

9 9 9

0 0 0

0 0 1

0 0 2

0 0 3

0 0 4

0 0 5

0 0 6

0 0 7

0 0 8

0 0 9

0 1 0

sweet, widely-traded crudes likeWTI up one-for-one

Price Differentials: WTI minus Maya Sour, per barrelcrude oil, 1997-2010

• Less speculation in less liquid

Source: EIA

25



Sour gas

• Sour gas has an H2S proportion >4 ppm

• Historically, producers have developed the simplest, cheapest fields. Incoming decades, they will have to contend with fields containing

increasingly sour or acid gas

• ’ about 10 bcm containing more than 10% H2S and at least 20 bcm more

than 10% CO2 (Total)

• In Canada, natural gas fields with more than 35% H2S have beensuccessfull develo ed

• Several removal processes, from amine gas treating to developments in

26

Sh h Fi ld



Shah Field

• Sour gas forms half of UAE’s 214 tcf natural gas reserves; and UAE’sreserves are e arges n e wor

• Perhaps the most prominent sour gas projects is the UAE Shah Field

2

• One of few in the region open to western companies

• reserves of the onshore Shah field at a cost of more than $10 billion

• The project is slated to extract 1 Bcfd of gas to produce 570 million cfdof sales gas, and 50,000 bpd condensate

• First gas is targeted for 2013-2014

• Conoco-Phillips has yet to make a final investment decision as it

considers cost and technical challenges associated with production,

27




Sul hur Sul hur


28

Th t i ld



The post-recession world

• Technology-driven’−

expanded production

• ‘ ’

−OECD countries are unlikely to sustain oil prices much above $80

• Cost will be an im ortant driver

− If we find the oil, can we afford to lift it?

• Global oil supply will be insufficient to meet future needs− Natural gas has to take up some of the load

− High-cost biofuels will make little short-term impact

ncreas ng use o g -su p ur y rocar ons nev a e

• Sulphur standards tightening

-

• Both innovation and cost will be critical drivers in the years ahead

29



anan youyou

30

This presentation can be downloaded from www.douglasThis presentation can be downloaded from www.douglas--westwood.comwestwood.com

538-130410 JW Sulphur World Symposium Doha

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