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  • Crude Oil in Europe: Production, Trade and Refining Outlook

    Steve Cooper,

    Senior Downstream Analyst

    Wood Mackenzie, London

    StocExpo - Antwerp

    March 2013

  • www.woodmac.com

    Delivering commercial insight

    Contents

    Wood Mackenzie 2

    2

    1 European crude production outlook

    Crude oil production from near neighbours

    3 European refinery crude needs

    4 Evolving crude oil trade patterns

    5 Implications for the storage industry

    Delivering commercial insight

  • www.woodmac.com

    Delivering commercial insight

    North Sea crude / NGL production declined sharply in recent years; mid-term

    outlook is flat, with further declines post-2020

    Wood Mackenzie 3

    Delivering commercial insight

    0

    1.000

    2.000

    3.000

    4.000

    5.000

    6.000

    7.000

    2000 2005 2010 2015 2020 2025 2030'0

    00 b

    /d

    Netherlands

    Denmark

    UK

    Norway

    Source: Wood Mackenzie

    North Sea output makes up 88% of

    Europes crude / NGL production, down

    from 93% in 2000

    Norway accounts for over half of total

    European output

    Medium-term rate of decline dependent on

    new developments surrounding largest,

    mature fields

    Recent discoveries have arrested near-

    term UK decline

    UK output generally from mature fields

    with lower exploration potential than

    Norway

    0

    1.000

    2.000

    3.000

    4.000

    5.000

    6.000

    7.000

    8.000

    2000 2005 2010 2015 2020 2025 2030

    '000 b

    /d

    Netherlands

    Denmark

    UK

    Norway

    Total Europe

    Source : Wood Mackenzie

    Europe Crude Production

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    Delivering commercial insight

    Different types of crude oil are of very different quality

    Wood Mackenzie 4

    Delivering commercial insight

    63%

    44% 38%

    16%

    27%

    22%

    7%

    10%

    9%

    14% 18%

    29%

    0,03% 0,95% 1,92%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    Maya Azeri Light Brent

    Cru

    de

    Dis

    tilla

    tio

    n Y

    ield

    s

    LPG

    Naphtha

    Kerosene

    Gasoil /Diesel

    Residue

    Source: Wood Mackenzie

    -16,00

    -14,00

    -12,00

    -10,00

    -8,00

    -6,00

    -4,00

    -2,00

    0,00

    2005 2006 2007 2008 2009 2010 2011 2012

    $ / b

    arr

    el

    Differential, Maya FOB vs DatedBrent FOB, $/barrelSource: Argus

    ;

    Crude Oil Distillation (assay basis) Crude Oil Price Differential

    Light Medium Heavy

    Not all refineries can process heavier,

    more challenging crude oils

    This leads to market discounts / premia

    for different grades

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    Refinery profitability is driven by ability to convert less profitable residue into

    more valuable light products

    Wood Mackenzie 5

    Delivering commercial insight

    6%

    8%

    11%

    39%

    7%

    20%

    6%

    2%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    NWE, 2012Ref.

    Yie

    lds

    , %

    wt

    LPG

    Naphtha

    Gasoline

    Jet/Kerosene

    Diesel/Gasoil

    Fuel Oil

    Otherproducts

    Refinery Fuel& Loss

    63%

    44% 38%

    16%

    27%

    22%

    7%

    10%

    9%

    14% 18%

    29%

    0,03% 0,95% 1,92%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    Maya Azeri Light Brent

    Cru

    de

    Dis

    tilla

    tio

    n Y

    ield

    s, %

    wt

    LPG

    Naphtha

    Kerosene

    Gasoil /Diesel

    Residue

    Source: Wood Mackenzie

    Crude Oil Distillation (assay basis) Refinery Output

    Light Medium Heavy

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    Value of crude derived from value of refined products;

    residue is upgraded in order to minimise lower-value fuel oil production

    Wood Mackenzie 6

    Delivering commercial insight

    -40

    -30

    -20

    -10

    0

    10

    20

    30

    40

    199

    5

    199

    7

    199

    9

    200

    1

    200

    3

    200

    5

    200

    7

    200

    9

    201

    1

    201

    3

    201

    5

    201

    7

    201

    9

    202

    1

    202

    3

    202

    5

    Cra

    ck s

    pre

    ad

    vs B

    ren

    t $

    /bb

    l .

    Jet Diesel Gasoil

    1 wt%S FO 3.5 wt%S FO

    Source: history Argus Media , forecast Wood Mackenzie

    Value of heavy fuel oil (FO) products is

    consistently below crude oil cost

    Light products trade at a premium to crude

    oil

    Value of crude oil ultimately derived from

    value of refined products

    Supply-side: crude oil quality

    Light / Medium / Heavy

    Sweet / Sour

    Demand-side: availability of refining

    capacity to match crude quality to

    refinery processing capabilities

    Challenge for refineries is to minimise FO

    output through careful selection of crude

    oil grades (and therefore costs)

    NWE Crackspreads (Product vs Brent, FOB)

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    Delivering commercial insight

    0

    1.000

    2.000

    3.000

    4.000

    5.000

    6.000

    7.000

    8.000

    200

    0

    200

    2

    200

    4

    200

    6

    200

    8

    201

    0

    201

    2

    201

    4

    201

    6

    201

    8

    202

    0

    202

    2

    202

    4

    202

    6

    202

    8

    203

    0

    00

    0 b

    pd

    Extra light Light Medium Heavy Extra heavy

    Wood Mackenzie 7

    Delivering commercial insight

    Source: Wood Mackenzie

    European crude oil production to become heavier as output declines;

    some rebalancing of trade flows required to maintain current crude quality

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    200

    0

    200

    2

    200

    4

    200

    6

    200

    8

    201

    0

    201

    2

    201

    4

    201

    6

    201

    8

    202

    0

    202

    2

    202

    4

    202

    6

    202

    8

    203

    0

    Note: does not include forecast crude volumes / commercial adjustments of unknown quality

    Crude Oil Production, proportional Crude Oil Production, volume

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    Average sulphur content of European crude is forecast to remain largely

    unchanged

    Wood Mackenzie 8

    Source: Wood Mackenzie

    Delivering commercial insight

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    200

    0

    200

    2

    200

    4

    200

    6

    200

    8

    201

    0

    201

    2

    201

    4

    201

    6

    201

    8

    202

    0

    202

    2

    202

    4

    202

    6

    202

    8

    203

    0

    Sour Medium sweet Sweet

    0

    1.000

    2.000

    3.000

    4.000

    5.000

    6.000

    7.000

    8.000

    200

    0

    200

    2

    200

    4

    200

    6

    200

    8

    201

    0

    201

    2

    201

    4

    201

    6

    201

    8

    202

    0

    202

    2

    202

    4

    202

    6

    202

    8

    203

    0

    000 b

    pd

    Crude Oil Production, proportional Crude Oil Production, volume

    Note: does not include forecast crude volumes / commercial adjustments of unknown quality

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    Delivering commercial insight

    Contents

    Wood Mackenzie 9

    2

    1 European crude production outlook

    Crude oil production from near neighbours

    3 European refinery crude needs

    4 Evolving crude oil trade patterns

    5 Implications for the storage industry

  • www.woodmac.com

    Delivering commercial insight

    0

    5

    10

    15

    20

    25

    30

    35

    40

    200

    0

    200

    2

    200

    4

    200

    6

    200

    8

    201

    0

    201

    2

    201

    4

    201

    6

    201

    8

    202

    0

    202

    2

    202

    4

    202

    6

    202

    8

    203

    0

    mb

    /d

    Latin America Caspian FSU West Africa North Africa

    Growing production in other regions will have impact on trade flows and

    storage within Europe; incremental sour crude provided by Middle East

    Wood Mackenzie 10

    Source: Wood Mackenzie

    Delivering commercial insight

    Crude Oil Production, volume

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    Delivering commercial insight

    Wood Mackenzie 11

    Source: Wood Mackenzie

    Delivering commercial insight

    6% 4%

    46% 39%

    48% 57%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    2012 2020

    %vo

    l

    Extra Light Light Sweet Light Sour Medium Sweet Medium Sour

    Heavy Sweet Heavy Sour Extra Heavy Sweet Extra Heavy Sour

    Caspian

    86%

    73%

    12%

    24%

    2012 2020

    FSU

    16% 13%

    67% 71%

    14% 13%

    2012 2020

    West Africa

    Global analysis of crude production by quality drives assessment of future

    crude allocation, ensures regions can be supplied with appropriate crude

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    Delivering commercial insight

    Changing quality of crude will determine future trade flows into Europe; this

    will be necessary to offset declining long-term domestic supply

    Wood Mackenzie 12

    Source: Wood Mackenzie

    Delivering commercial insight

    6% 4%

    46% 39%

    48% 57%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    2012 2020

    %vo

    l

    Extra Light Light Sweet Light Sour Medium Sweet Medium Sour

    Heavy Sweet Heavy Sour Extra Heavy Sweet Extra Heavy Sour

    7% 6%

    5% 5%

    18% 30%

    62%

    59%

    8%

    2012 2020

    North Africa

    4%

    16%

    41% 21%

    37%

    39%

    16% 22%

    2012 2020

    Latin America

    5% 10%

    77% 74%

    8% 7%

    6% 6%

    2012 2020

    Middle East

  • www.woodmac.com

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    Contents

    Wood Mackenzie 13

    2

    1 European crude production outlook

    Crude oil production from near neighbours

    3 European refinery crude needs

    4 Evolving crude oil trade patterns

    5 Implications for the storage industry

  • www.woodmac.com

    Delivering commercial insight

    10

    11

    12

    13

    14

    15

    16

    17

    18

    2000

    200

    2

    200

    4

    200

    6

    200

    8

    201

    0

    201

    2

    201

    4

    201

    6

    2018

    Mb

    /d

    Series1 2007 Forecast 2012 Forecast

    Demand in Europe has fallen and will not recover to pre-recession levels

    Wood Mackenzie 14

    1.8 Mb/d

    Europe GDP forecast, 2007 and 2012 Europe Demand forecast, 2007 and 2012

    80

    90

    100

    110

    120

    130

    140

    150

    200

    0

    200

    1

    2002

    200

    3

    2004

    200

    5

    2006

    200

    7

    2008

    200

    9

    201

    0

    201

    1

    201

    2

    201

    3

    201

    4

    201

    5

    Re

    al G

    DP

    In

    de

    x (

    20

    01

    =1

    00

    )

    2007 Forecast 2012 Forecast

    Source: History IEA, Forecast Wood Mackenzie Source: Wood Mackenzie

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    Delivering commercial insight

    Refining capacity has been rationalised, but a large gap between supply and

    demand persists as do Europes large product imbalances

    Wood Mackenzie 15

    Europe Refining Capacity and Utilisation Europe Product Balances

    Source: Wood Mackenzie

    70%

    72%

    74%

    76%

    78%

    80%

    82%

    84%

    15.0

    15.5

    16.0

    16.5

    17.0

    17.5

    2006 2007 2008 2009 2010 2011 2012

    mil

    lio

    n b

    /d

    Refinery Capacity Total Demand Average Utilisation

    -1,000

    -800

    -600

    -400

    -200

    0

    200

    400

    600

    800

    1,000

    1,200

    2006 2007 2008 2009 2010 2011 2012k

    b/d

    Gasoline Diesel/Gasoil

    Deficit

    Surplus

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    Product imbalances a result of transportation fuel demand trends; refineries

    struggle to adapt due to predominance of gasoline-oriented FCC configuration

    Wood Mackenzie 16

    NWE Product Yields by Refinery Configuration

    Source: Wood Mackenzie

    6% 5% 6%

    17%

    38%

    22%

    22%

    20%

    25%

    12%

    14%

    17%

    38%

    13% 21%

    2% 10% 6%

    4% 1% 3%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    BrentFCC

    BrentHSK

    UralsHCU

    Refi

    ne

    ry Y

    ield

    s,

    %w

    t

    LPG

    Naphtha

    Gasoline

    Jet/Kerosene

    Diesel/Gasoil

    Fuel Oil

    Otherproducts

    RefineryFuel & Loss

    Note:

    HSK = Hydroskimming

    FCC = Fluid Catalytic Cracking

    European refineries are predominantly

    FCC configuration, with some HCU and

    to a lesser extent, HSK and COK.

    FCC units were designed to upgrade

    residue to maximise gasoline

    production

    Hydrocracking units produce a greater

    diesel yield. Some hydrocracking

    investments have taken place in Europe

    to increase output of diesel

    but this requires significant capital

    investment that is not presently taking

    place, given the uncertain product

    demand outlook and weak economic

    environment

    HCU = Hydrocracking

    COK = Coking

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    Contents

    Wood Mackenzie 17

    2

    1 European crude production outlook

    Crude oil production from near neighbours

    3 European refinery crude needs

    4 Evolving crude oil trade patterns

    5 Implications for the storage industry

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    Europe is well-positioned to import crude from a number of different regions.

    It therefore has considerable flexibility over selection of crude quality

    Wood Mackenzie 18

    Source: Wood Mackenzie

    Delivering commercial insight

    Latin

    America

    West

    Africa

    Middle

    East

    FSU

    Caspian

    North Africa

    Europe runs a mixed crude slate, as its

    refineries are of high complexity. It is

    neither constrained by:

    lack of upgrading capacity, nor

    significant prior capital investment in heavy

    crude processing capability that requires

    cheaper, heavier crude to generate returns.

    We assume that the current European

    crude slate is well-suited to regional

    refinery capabilities

    Therefore, reduction in European

    domestic crude supply of any given

    quality

    would be expected to result in

    substitution by imports of a similar

    quality from one of the regions shown

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    Crude slate analysis and forecast trade flows take into account a number of

    key variables, on a global basis

    Wood Mackenzie 19

    Europe Crude Slate by Source

    Source: Wood Mackenzie

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    2011 2012 2013 2014 2015 2016 2017 2018

    So

    urc

    e (

    %)

    Russia Europe Middle East

    North Africa Caspian West Africa

    Other

    Analysis based on forecast oil production

    on a field-by-field basis, forecast trade

    flows, forecast refinery throughput volumes

    Investments and announced closures /

    capacity reductions are used in determining

    future changes in crude quality requirement

    Some proportional decline in West African

    and Middle Eastern crude in Europe on

    account of increased demand for crude in

    Asia

    Increased share of Russian, North African

    and Caspian crude

    European domestic crude volumes remain

    broadly stable

    This is due to flat North Sea output, much of

    which is expected to remain in-region

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    Crude quality is not expected to change to any great extent within Europe,

    despite changes in crude source

    Wood Mackenzie 20

    Source: Wood Mackenzie

    A very limited number of refinery

    investment projects is taking place

    A small number of Med coking projects has

    increased heavy sour crude requirements

    but only very slightly

    Impact on total Europe crude slate quality

    is therefore low

    Some replacement of Middle East crude

    with Caspian crude will result in imported

    medium density grades becoming sweeter

    Europe Crude Slate by Quality

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    2011 2012 2013 2014 2015 2016 2017 2018

    Heavy Sour Heavy Sweet Medium Sweet

    Medium Sour Light Sour Light Sweet

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    Europe should be able to source the type of crude it needs, albeit from

    different places

    Wood Mackenzie 21

    Europe Crude Slate by Source

    Source: Wood Mackenzie

    0,0

    2,0

    4,0

    6,0

    8,0

    10,0

    12,0

    14,0

    2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

    So

    urc

    e (

    Mb

    /d)

    North America Latin America West Africa Caspian Middle East Russia North Africa Europe

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    Delivering commercial insight

    Near-term, European crude runs fall, with little significant change in origin;

    crude slate gets sweeter and slightly heavier

    Source: Wood Mackenzie

    Wood Mackenzie 22

    Change in Europe Crude Slate by Source, 2011-2018 Change in Europe Crude Slate by Quality, 2011-2018

    -800 -600 -400 -200 0 200 400

    kbpd

    Heavy Sour Medium Sour Light Sour

    Heavy Sweet Medium Sweet Light Sweet

    -800 -600 -400 -200 0 200 400

    kbpd

    Europe North Africa Russia

    Middle East Caspian West Africa

    Latin America North America

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    From 2018-2025, we anticipate that the decline in domestic and Russian crude

    will be compensated for by increased Caspian and Middle East imports

    Source: Wood Mackenzie

    Wood Mackenzie 23

    Change in Europe Crude Slate by Source, 2018-2025 Change in Europe Crude Slate by Quality, 2018-2025

    -800 -600 -400 -200 0 200 400 600 800

    kbpd

    Europe North Africa Russia

    Middle East Caspian West Africa

    Latin America North America

    -800 -600 -400 -200 0 200 400 600 800

    kbpd

    Heavy Sour Medium Sour Light Sour

    Heavy Sweet Medium Sweet Light Sweet

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    Contents

    Wood Mackenzie 24

    2

    1 European crude production outlook

    Crude oil production from near neighbours

    3 European refinery crude needs

    4 Evolving crude oil trade patterns

    5 Implications for the storage industry

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    Considerably lower European crude throughputs are forecast from 2013

    onwards, with correspondingly lower storage requirements

    Wood Mackenzie 25

    Source: Wood Mackenzie

    Delivering commercial insight

    Owing to European product supply / demand

    imbalances, in particular the extremely large

    gasoline surplus, it is expected that refinery

    throughputs will be much lower in the future

    While this is expressed as a decrease in

    utilisation of existing facilities, a number of

    refineries have permanently closed in Europe

    We do not see this trend changing

    Refineries that close are often converted to

    terminal storage

    There is therefore potential downward

    pressure on tank storage rates within ARA

    and Europe generally

    Additionally, lower structural crude

    throughputs will reduce strategic storage

    requirements, placing further pressure on the

    industry

    European Refinery Utilisation

    11,0

    11,2

    11,4

    11,6

    11,8

    12,0

    12,2

    12,4

    12,6

    12,8

    13,0

    2011 2012 2013 2014 2015 2016 2017 2018

    mil

    lio

    n b

    pd

    890 kbpd

    620 kbpd

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    0,0%

    5,0%

    10,0%

    15,0%

    20,0%

    25,0%

    30,0%

    2011 2013 2015 2017 2019 2021 2023 2025

    Beyond 2018, further decline in North Sea production has a noticeable impact

    on the European crude slate

    Wood Mackenzie 26

    Source: Wood Mackenzie

    Delivering commercial insight

    Proportion of Domestic Crude in European Slate

    Increased crude import requirements into

    Europe between 2018 and 2025 work out at

    820 kbpd

    This corresponds to a decrease of 7% in

    terms of domestic crude use

    The rate of North Sea decline is lower than

    has been previously anticipated,

    particularly in light of recent Norwegian

    exploration successes

    It is expected therefore that all things being

    equal, there would be increased

    requirements for crude storage in Europe

    from 2018 onwards

    820 kbpd

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    0,0%

    5,0%

    10,0%

    15,0%

    20,0%

    25,0%

    30,0%

    2011 2013 2015 2017 2019 2021 2023 2025

    820 kbpd

    11,0

    11,2

    11,4

    11,6

    11,8

    12,0

    12,2

    12,4

    12,6

    12,8

    13,0

    2011 2012 2013 2014 2015 2016 2017 2018

    mil

    lio

    n b

    pd

    Beyond 2018, further decline in North Sea production has a noticeable impact

    on the European crude slate

    Wood Mackenzie 27

    Source: Wood Mackenzie

    Delivering commercial insight

    Proportion of Domestic Crude in European Slate European Refinery Utilisation

    890 kbpd

    620 kbpd

    Post-2018, the outlook for refinery

    utilisation in Europe (and any further

    capacity rationalisation) will either add to

    or offset the additional crude import

    requirements.

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    Difficult business environment for European refining to lower European crude

    requirements; stable North Sea output restricts near-term growth in imports

    Wood Mackenzie 28

    Source: Wood Mackenzie

    Delivering commercial insight

    Low forecast refinery utilisation and possible future closures to negatively impact on

    storage rates, particularly if refinery closures continue to result in conversion to storage

    terminals.

    Increased crude import requirements into Europe between 2018 and 2025 work out at 820

    kbpd.

    North Sea output is forecast as broadly stable up until 2018.

    Europe region is flexible in its crude slate. Crude slate quality changes are forecast to be

    minimal due to variety of import options, and lack of investment in further upgrading

    capacity.

    No quality-related constraints on crude supply are expected within Europe.

    Crude quality of neighbouring regions is forecast to change, while output is set to

    generally increase.

    Europe will therefore source different quality crude from different locations, but the supply

    situation will remain stable and overall crude requirements will remain relatively low.

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    Wood Mackenzie 29

    Wood Mackenzie Disclaimer

    This presentation has been prepared by Wood Mackenzie Limited for delivery at the StocExpo

    Antwerp 2013 Conference. It has not been prepared for the benefit of any particular attendee

    and may not be relied upon by any attendee or other third party. If, notwithstanding the

    foregoing, this presentation is relied upon by any person, Wood Mackenzie Limited does not

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    The information contained in these slides may be retained by attendees. However, these

    slides and the contents of this presentation may not be disclosed to any other person or

    published by any means without Wood Mackenzie Limited's prior written permission.

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    Wood Mackenzie 30

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    Wood Mackenzie is the most comprehensive source of knowledge about the worlds energy and metals industries.

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