Agriculture is the key to the end-game and...

1

Jeffrey Currie Goldman Sachs International 44-(0)207-774-6112 [email protected]

Globalization in commodity demand, but fragmentation in commodity investment

The Goldman Sachs Group, Inc.

March 2008

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Goldman Sachs Global Investment Research 2

Agriculture is the key to the end-game and will likely be a strong performer in 2008

Q: Which country/region is the largest agriculture producer?

a) Brazil

b) EU-27

c) USA

d) Russia

2


World has experienced one of the largest wealth transfers on record, if not the largest

Q: How much capital was transferred between the energy consumingcountries and the energy producing countries from 2002 to now due to the surge in energy prices?

a) $0.5 trn

b) $1.0 trn

c) $1.5 trn

d) $3.0 trn


An energy and agriculture shortages are not far off and in some cases already here

Q: What share of the world’s population experienced an energy shortage in the 1970s?

a) 15%

b) 25%

c) 50%

d) 75%

3


More people experienced an agriculture crisis in the 1960s and 1970s

A: Only 14% of the world’s population experienced an energy crisis during the 1970s while vast parts of the eastern hemisphere experienced famine over a similar time period.


Wealth transfers to energy producing countries have quickly climbed to almost $3 trillion

-

500

1,000

1,500

2,000

2,500

3,000

2001 2002 2003 2004 2005 2006 2007

US Western Europe Japan Korea India China

Cumulative oil and gas wealth transfers in billion $

Source: International Energy Agency (IEA) and Goldman Sachs Commodities Research.

4


This wealth transfer has built up as net savings in the oil producing countries

Global net savings by region

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

1200

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: IMF WEO data, Goldman Sachs Credit Strategy Research calculations

United States

Euro Area

Oil Exporters

Developing Asia ex China

Japan

China

$ bi

llions


Agriculture exporters will likely help the rebalancing of capital flows

Commodities net long by region, in million $

Source: IEA, US Department of Energy (DOE), US Department of Agriculture (USDA), Food and Agriculture Organization of the United Nations (FAO), World Bureau of Metal Statistics (WBMS) and Goldman Sachs Commodities Research.

Rank Rank1 GCC 507,131 Chile 35,302 Brazil 23,559 1 GCC 502,276 EU-27 + Switzerland (504,711)2 Russia 166,494 Russia 28,709 United States 20,739 2 Russia 193,434 United States (330,144)3 Norway 88,685 Canada 25,642 Argentina 8,389 3 Norway 99,433 Japan (154,913)4 Algeria 62,980 Australia 12,431 Indonesia 7,856 4 Canada 84,307 Korea (89,088)5 Nigeria 59,811 Norway 11,202 Malaysia 7,559 5 Algeria 60,602 China (85,486)6 Mexico 55,569 Caspian region 8,872 Australia 7,176 6 Nigeria 58,560 Taiwan (47,252)7 Canada 53,448 Peru 6,810 Canada 5,217 7 Mexico 50,037 India (32,402)8 Venezuela 46,695 Zambia 6,395 Vietnam 3,287 8 Total Caspian 47,739 Total Eastern (30,896)9 Libya 42,056 GCC 2,663 Caspian region 3,228 9 Venezuela 47,140 Turkey (29,024)

10 Angola 36,251 Phillipines 2,103 New Zealand 2,752 10 Libya 41,617 Thailand (14,817)11 Caspian region 35,639 India 1,802 India 2,250 11 Angola 36,251 South Africa (7,252)12 Malaysia 14,286 Iceland 1,631 Thailand 2,233 12 Brazil 30,689 Pakistan (7,061)13 Indonesia 12,075 Mozambique 1,461 Colombia 964 13 Chile 28,379 Croatia (5,261)14 Ecuador 9,947 New Zealand 1,369 Eastern Europe 721 14 Indonesia 20,256 Cuba (4,072)15 Equatorial Guinea 9,451 Venezuela 1,105 Uganda 451 15 Australia 19,243 Morocco (3,739)16 Vietnam 8,829 Brazil 978 Ecuador 221 16 Malaysia 18,051 Bangladesh (3,388)17 Colombia 7,211 Cuba 961 Ivory Coast 111 17 Argentina 15,220 Hong Kong (2,155)18 Argentina 6,655 Colombia 859 Zambia 75 18 Vietnam 11,190 Singapore (1,195)19 Brazil 6,152 Mexico 539 Cambodia 38 19 Ecuador 10,168 Ghana (799)20 Congo 6,003 Eastern Europe 441 20 Equatorial Guinea 9,451 Mongolia (35)

Total commodities

Top exporters Top importers

Top Commodities exporters by sector

Energy Metals Agriculture

5

Defining the supply problem


Oil sector returns have increased but policy constraints limit investments

Percent

Source: Goldman Sachs Research.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007EReal CROCI 40 years average

Revenge of the old "political" economy": policy contraints prevent efficient allocation of resources

Revenge of the old economy: poor returns in the oil sector lead investments to flow somewhere else

6


The industry has exhausted spare capacity, ending an exploitation phase and beginning a new investment phase

20

30

40

50

60

70

80

90

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05

Global production capacity

Global output

Source: International Energy Agency (IEA), DOE, and Goldman Sachs Commodities Research.

million b/d

Global oil production and capacity Global refining capacity

million b/d

20

30

40

50

60

70

80

90

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05

Global Refining Capacity

World Petroleum Supply

World Petroleum Demand


Historically, the energy market has gone in and out of investment phases

US data in real 2000 log $

Source: US Bureau of Economic Analysis and Goldman Sachs Commodities Research.

11.0

11.5

12.0

12.5

13.0

13.5

1901 1908 1915 1922 1929 1936 1943 1950 1957 1964 1971 1978 1985 1992 1999 20067.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5Investment

PhaseInvestment

PhaseInvestment

PhaseExploitation

PhaseExploitation

PhaseExploitation

PhaseExploitation

Phase

Net Energy investment(right axis)

Net Energy Capital Stock(left axis)

7


Prices rise in investment phases as costs increase

Log of real prices in $/bbl

Source: Pennwell.

0

1

2

3

4

5

6

7

1925 1933 1941 1949 1957 1965 1973 1981 1989 1997 2005

Investment Phase

Investment Phase

Exploitation Phase

Exploitation Phase

Exploitation Phase

Investment Phase


The rise in marginal costs has pushed up long-dated oil prices…

$/bbl

Source: Goldman Sachs Commodities Research.

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

E

33240 33971 34701 35432 36162 36893 37623 38354 39084

Long-dated oil prices

Marginal costs

Marginal cost is defined as the average of the highest cost (or bottom quartile) producers

8


There is more than 4.0 million b/d of extremely high-cost oil production

$/bbl (vertical axis); thousand b/d (horizontal axis)

Source: Goldman Sachs Equity Research.

0.00

20.00

40.00

60.00

80.00

100.00

120.00

0 4,000 8,000 12,000 16,000 20,000 24,000 28,000 32,000 36,000

2006 2005 2004 2003

Required oil prices shifted upwards dramatically after 2003

It would now require 4 mb/d of extra low-cost spare capacity to sustainably push long-dated oil prices below $70/bbl


Oil demand growth is decelerating except in commodities producer economies

Trend annual growth

Source: International Energy Agency (IEA) and Goldman Sachs Commodities Research.

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Low Growth Consumers Producers High growth consumers

Oil demand from advanced economies as well as from high growth consumers, such as India and China, is decelerating

Only demand from commodities producing countries is accelerating

9

The link to agriculture prices


Robbing Peter to pay Paul – different commodities can be used to meet old demand needs


Tranportation Generation Materials Food Externalities

The Core Markets

WTI Henry Hub Natural Gas Aluminum Wheat Carbon ETSUSGC Fuel Oil 3% Chicago City Gate Copper KC Wheat Nitrogen NOxNYHB RBOB AECO Canada Zinc Corn Sulfur SOxNYHB Diesel Rockies Basin Nickel SoybeansDated Brent San Juan Basin Gold Soy OilICE Brent Socal City Gate Platinum Soy MealRotterdam Unleaded Appalachia Coal Paladium CoffeeRotterdam Fuel Oil 3.5% US Nuclear Polyethylene CocoaDubai US Hydro Polyproplyene CottonSingapore Gasoil UK NBP Sugar

Rotterdam Coal Palm OilEuropean NuclearEuropean HydroNew Castle Coal

The Arbitraged Markets

USGC Gasoline Fuel EthanolRotterdam ULSD European LNG BiodieselUSGC ULSD Houston Ship ChannelNYHB Fuel Oil 1% New York City GateRotterdam Gasoil Zeebrugge Belgium EU-ETSRotterdam Fuel Oil 1% Zeebrugge BelgiumSingapore 180cst Asian LNGButane Ethane EthyleneNaphtha Propane Propylene

Uranium Copper OreRotterdam Coal EU-ETS

10


Source: FAO, USDA and Goldman Sachs Commodities Research.

Food demand is stable, feed demand is rising, and fuel demand is exploding

-10

10

30

50

70

90

110

130

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

Food (grains)

Feed (protein)

Fuel (biofuel)

Indices of per capita consumption, 2006=100


Source: USDA and Goldman Sachs Commodities Research.

Food, feed and fuel use has led to an increase in the trend demand growth for agricultural commodities

Billion metric tons

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

2006 - 2015: 2.6%

Food demand

Feed demand

Fuel demand

1979-1988: 1.5%

1988-1997: 1.6%

1997-2006: 1.9%

11


Source: FAO, USDA and Goldman Sachs Commodities Research.

Strong demand will require a substantial increase in acreage, which has been virtually unchanged for decades

Index 1960 = 100

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

Acreage

Yield

Demand

Forecast

In the past, demand growth has been met through yield growth. However, the strong demand growth ahead will create a need for substantial acreage expansion.

Demand I: Food demand driven by population growth, feed demand by rising wealth in emerging markets

12


Population growth is the key driver for food demand

Per capita demand growth for food grains has decelerated since the 1980sPer capita consumption of wheat, rice and corn, kg

Total demand growth for wheat has decelerated in line with slowing population growthPercentage change year over year

130

135

140

145

150

155

160

165

170

175

180

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

Reduction in world famine resulted in phenomenal growth in per capita grain consumption in the 1960s and 70s.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 050.5%

0.7%

0.9%

1.1%

1.3%

1.5%

1.7%

1.9%

2.1%

2.3%

2.8% p.a. growth (1967-1982)

1.9% p.a. growth (1983-1995)

1.0% p.a. growth (1996-2006)

Population growth (right axis)

Wheat demand growth (left axis)



Source: FAO and Goldman Sachs Commodities Research.

China, India and Brazil have strong protein consumption growth potential

Vertical axis: protein consumption per capita, kg; Horizontal axis: real GDP per capita, 2000 $

0

10

20

30

40

50

60

0 5000 10000 15000 20000 25000 30000

China (1961-2003) China 2040 projectionIndia (1961-2003) India 2050 ProjectionBrazil (1961-2003) Brazil 2045 projectionJapan (1961-2003) Korea (1961-2003)

13


The leverage of the meat market to the grains market is significant, particularly cattle

Source: Chicago Mercantile Exchange (CME), USDA and Goldman Sachs Commodities Research.

Cattle Hog Chicken FishGrains requried per gram of animal weight gain 8.3 3.1 2.0 1.5

Beef Pork Poultry Fish

Protein yield per gram of meat 0.17 0.14 0.18 0.20

Fat yield per gram of meat 0.23 0.35 0.15 0.03

Energy yield per gram of meat (kcal) 2.78 3.76 2.13 1.16

Beef Pork Poultry Fish

Grains required per kcal of energy provision to human 2.99 0.82 0.94 1.29

Feed Efficiency (gram)

Meat Efficiency (gram)

Feed to Meat Ratio


Feed demand benefits the corn and soybean markets the most, particularly soybeans


Million metric tons

0

20

40

60

80

100

120

140

160

180

200

220

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

soybean feed

cereal feed

mostly soybean feed

EU

Rest of world

US

China

Brazil


Million metric tons of beef, pork and poultry production

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

Rest of World

EU

US

Brazil

A majority of meat production is now located in countries that practice corn and soybean meal feed

Soybean feed countries are taking over meat export market share from wheat feed countries

14

Demand II: Government policies drive fuel demand


Non-conventional resources are becoming a large part of the global energy mix

Thousand b/d

Source: DOE, IEA, Goldman Sachs Commodities Research. Note: 2030 forecasts are from DOE and IEA.

2006 2015 2030*

Synthetic Crude Oils 1,308 2,600 5,550Oil Sands (Tar Sands in Canada) 660 1,900 3,000Extra Heavy Oil (Orinoco Belt in Venezuela) 648 700 2,500Shale Oil 0 0 50

Renewable Fuels 846 2,225 3,500Ethanol 733 1,650 3,000Biodiesel 113 575 500

Synthetic Fuels 233 535 2,950Coal-to-Liquids (CTL) 160 210 1,800Gas-to-Liquids (GTL) 73 325 1,100Biomass-to-Liquids (BTL) 0 0 50

Total Alternative Fuels 2,387 5,360 12,000 As a share of global market 2.8% 5.5% 10.6%

* 2030 forecasts are from DOE and IEA

15


We expect global biofuel output to more than double in the next few years …

Source: USDA and Goldman Sachs Commodities Research estimates.

Billion gallons

0

5

10

15

20

25

30

35

1995 1997 1999 2001 2003 2005 2007E 2009E 2011E 2013E 2015E

Grain-based ethanol

Sugar-based ethanol

Oilseed biodiesel


… dramatically increasing the need for land given the preference for indigenous feedstocks

Source: USDA and Goldman Sachs Commodities Research estimates.

Million hectares

0

20

40

60

80

100

120

1995 1997 1999 2001 2003 2005 2007E 2009E 2011E 2013E 2015E

Grain-based ethanol

Sugar-based ethanol

Oilseed biodiesel

16



Sugarcane and jatropha are the most efficient biofuel feedstocks

Land Use Energy Use Countries Production(gal/acre) (output/input) w/o Subsidy w/ Subsidy Using the Input By Product

Sugar-based EthanolSugar Cane 734 8.3 $35 n/a Brazil, Lat. America Raw Sugar, PowerSugar Beets 715 1.5 $103 $25 France Raw Sugar

Grain-based EthanolCorn 394 1.4 $81 $60 US, Canada, China DDGS FeedSorghum 374 $79 n/a India Animal FeedWheat 243 1.1 $145 $56 Europe DGGS Feed

BiodieselPalm Oil 508 2.0 $149 n/a Malaysia, Indonesia Glycerine, FertilizerJatropha 364 2.0 $50 n/a Africa, India Glycerine, FertilizerRapeseed 145 2.5 $190 $114 Europe Glycerine, MealSoybean 60 2.8 $144 $102 US Glycerine, Meal

Next GenerationCellulosic Ethanol* 1150 4.0 $305 $284 N. America, Europe Energy

* These estimates are based on the DOE pilot programs, the economics of a true commercial scale cellulosic plant are not yet know, but could differ from these projections.

Breakeven prices, Jan 2008 ($/bbl)Commodity Input


Biofuel-efficient crops, however, are concentrated in the southern hemisphere and protectionist trade barriers prevent global flows


. .. .

US: aiming to produce 7.5 billion gallons of biofuels by 2010. Current biodiesel tax relief of US$1.00/gallon. Ethanol tax relief of US$0.51/gallon. Import tariffs of US$54/gallon on ethanol. Major feedstock is corn. Further tax reductions on flex-fuel vehicles.

Europe: Targeting biofuels to be 10% of transport fuels by 2020. Tax relief ranges from €0.29/litre – 0.65/litre. Major product is biodiesel. Major feedstock is rapeseed.

Brazil: Mandatory blending of 20% ethanol in all transport gasoline. No tax relief. Major feedstock is sugar cane. Mandatory 2% biodieselblending will take effect on Jan 1 2008 and 5% blending in 2013. Guaranteed Government purchase of biodiesel from family run facilities. Exports commencing to Venezuela, Sweden. R&D JV with Japan.

Philippines: 5% of ethanol blending within 2 years of the Biofuel Act that became effective in Oct 2006 and 10% within 4 years. 1% of biodiesel blending within 3 months of the Act and 2% within 2 years. Major feedstock is coconut oil for biodiesel and sugarcane for ethanol.

France: Targeting 10% biofuels by 2010. Tax relief of €0.09/litre for biodiesel and €0.21/litre for ethanol. Import tariffs of 6.5% of purchase price. Major feedstocks are rapeseed and wheat (cereal crops).

Germany: €0.27/litre tax relief for biodiesel. Mandatory blending system 2006/07 for biofuels. Major feedstocks are rapeseed oil, cereal crops. Import tariffs of €0.19/litre for ethanol imported into the EU.

India: Mandatory blending of 5% Jatropha oil in biodiesel increasing to 20% blend by 2020. BP currently running a 8,000ha trial on Jatropha performance.

UK: Compulsory blending of 5% biofuels by 2010. Current tax relief of £0.20/litre, likely to increase in 2008. Major feedstocks are rapeseed, wheat.

Canada: 5% biofuels by 2010. Current ethanol subsidies between C$0.015/litre -0.03/litre depending on blend percentage. Tax relief and additional incentives by province. Mostly ethanol.

China/Japan: targeting 15 million tonnes of ethanol production and 5 million tonnes of biodiesel production by 2020. Limited agricultural resources in Japan to generate significant biofuels production, but the country is in talks to import biofuels from Brazil and Philippines.

Jatropha production

Sugarcane production

17

Cheapest commodity on the screen Us natural gas


NYMEX natural gas prices have remained significantly below gas prices elsewhere in the world…

$/mmBtu

Source: NYMEX, ICE and Goldman Sachs Commodities Research.

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Aug-02 Feb-03 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07

Japanese LNG Cocktail

UK NBP

1% NYHB residual fuel oil

NYMEX natural gas

Continental Europe natural gas

18


…keeping US LNG imports are at record-low levels

LNG sendouts into the US pipeline grid in mmcf/d

Source: Company data.

500

1000

1500

2000

2500

3000

3500

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2008 2007 2006 2005

US LNG imports have remained at record-low levels, given the low US netbacks relative to the rest of the world


LNG flows have also been restricted by increased demand out of Asia

7

8

9

10

11

12

13

14

15

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2007 2006 2005 2004

Bcf/d

Source: IEA.

19


A diversion of US LNG cargoes to Europe in the summer could significantly impact the US balance

0

500

1000

1500

2000

2500

3000

3500

4000

Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-085-year average GS inventory path

We expect US inventories to finish winter at 1414 Bcf

Assuming NYMEX prices are high enough to attract the LNG cargoes we have embedde in our forecast, inventories may get to a comfortable 3530 Bcf by the end of October.

However, if Europe and Asia bid higher than the US for LNG, US inventories may approach the 5-year average, at 3320 Bcf at the end of the summer

Bcf

Source: US Department of Energy (DOE) and Goldman Sachs Commodities Research.


We expect Canadian exports to the UnitedStates to decline significantly in 2008 relative to 2007

Bcf/d

Source: DOE and Goldman Sachs Commodities Research.

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2008E 2007 2007E 2006 2005 2004

20


The US weather-adjusted balance has remained tighter than the 5-year average, indicating strength in non-weather demand

Bcf/week

Source: DOE and Goldman Sachs Commodities Research.

-200

-150

-100

-50

0

50

100

150

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec5yr Average 2008 2007 2006 2005


Strength in the oil complex will likely lend further support to NYMEX natural gas prices

$/mmBtu

Source: NYMEX and Goldman Sachs Commodities Research.

5.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

13.00

14.00

15.00

Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08

GS 1% residual fuel oil price forecast

GS natural gas price forecast

Natural gas forward curve

21


Long-dated natural gas prices look unsustainably cheap, especially given increased focus on carbon emissions

$/mmBtu

Source: NYMEX, Heren and Goldman Sachs Commodities Research.

6.00

7.00

8.00

9.00

10.00

11.00

12.00

13.00

14.00

15.00

16.00

Cal09 Cal10 Cal11 Cal12 Cal13 Cal14 Cal15

NYMEX natural gas 1% NYHB FO WTIUK NB Zeebrugge Continental Europe


Natural gas tends to flow from the continent to the UK when NBP is higher relative to fuel oil

Bcf/d (left axis); Log(NBP/FO) (right axis)

Source: Interconnector, Heren and Goldman Sachs Commodities Research.

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

Jan-00 Sep-00 May-01 Jan-02 Sep-02 May-03 Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

IC (left axis) Log(NBP/FO) prices (right axis)

22


Russia has served as a swing supplier to the NWE market…

Russian exports to NW Europe in Bcf/d

Source: IEA.

2.0

3.0

4.0

5.0

6.0

7.0

Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

Interconnector pipeline linking the UK market to the European continent began commercial operation, reducing the need for Russian

production to balance the market

Russia substantially reduced flows to NWE during the 2006 autumn and 2007 spring,when the Atlantic Basin

became oversupplied


We do not expect global LNG markets to face a significant surplus before 2009 and likely beyond given the likelihood of start-up delays

17

19

21

23

25

27

29

31

33

Dec-07 Jul-08 Feb-09 Sep-09

Global LNG supply Global LNG demand

Bcf/d

Source: Company data and Goldman Sachs Commodities Research.

23


High liquefaction project costs will potentially impact price floors as LNG becomes increasingly important as a global source of natural gas

$/mmBtu

Source: IEA.

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Tangguh Snohvit Brass LNG Pluto LNG

Under construction(Development started before

recent cost inflation)

Capex recently revised up substantially

Still to be sanctioned(Additional upside cost pressure

is likely)


REG AC

I, Jeffrey Currie, hereby certify that all of the views expressed in this report accurately reflect my personal views, which have not been influenced by considerations of the firm's business or client relationships.

24

DisclosuresMarch 7, 2008


Disclosures

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universeRating Distribution

Buy Hold Sell

29% 58% 13%

Investment Banking Relationships

Buy Hold Sell

39% 30% 26%Global

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25


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26


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Recently, WTI timespreads have been driven primarily by changes in speculative positions…

1st-60th month timespread in $/bbl (left axis); million barrels (right axis)

Source: NYMEX, CFTC and Goldman Sachs Commodities Research.

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

Jan 07 Mar 07 May 07 Jul 07 Sep 07 Nov 07 Jan 08-30

20

70

120

170

220

270

Net Speculative Length (right axis)

Long-dated time spreads (left axis)

27


… while long-dated WTI prices have climbed to $85/bbl, reflecting ongoing strucural support for prices


4/bbl

65.00

70.00

75.00

80.00

85.00

90.00

95.00

100.00

Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08 Feb 08

WTI front month

WTI 5-year forward

While WTI spot prices have traded range-bound since the end of October 2007, long-dated WTI prices have continued to increase


However, physical crude oil prices have been firm, suggesting support from current oil fundamentals

Spreads over WTI NYMEX front month in $/bbl

Source: Platts and Goldman Sachs Commodities Research.

-9.00

-7.00

-5.00

-3.00

-1.00

1.00

3.00

5.00

7.00

9.00

Nov 07 Dec 07 Jan 08 Feb 08

Dated Brent

Takula

Lousiana Light Sweet

Tapis

28


OECD petroleum inventories built sharply in January, mainly in the United States

-20,000

-15,000

-10,000

-5,000

-

5,000

10,000

15,000

20,000

25,000

OECD US EUROPE JAPAN

Jan-07 Jan 10-y averageSource: Platts and Goldman Sachs Commodities Research.


OECD petroleum inventories built sharply in January, mainly in the United States

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Finland France Germany Greece Italy Netherlands Spain0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

January gasoil stock build Percent of European Import from RussiaSource: IEA, Euroil, PAJ and Goldman Sachs Commodities Research.

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