Oil & Gas Market Outlook

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Oil & Gas Market Outlook

IMFORMED Oilfield Minerals & Markets ForumJune 11, 2019

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Outline

4 About ADI Analytics

4 2019 Oil & Gas Outlook


ADI Analytics is a consulting firm serving oil and gas, energy, and chemical companies with passion, expertise, and rigor

Oil

Gas

NGLs

Coal

Biomass

Gathering & Processing

Pipelines

LNG

Logistics

Power generation

Refining

Fuels

Lubes

Syngas

Renewables

Automotive

Transmission

Plastics

Specialty chemicals

Base chemicals

Operating companies

Equipment manufacturers

Service providers Investors GovernmentTraders

Markets TechnologyOperations Finance PolicyOrganization


Our value proposition—expertise, analytics, and flexible, cost-effective services—is designed to help clients succeed

Lead with frontline industry expertise

Drive with data and proprietary analytics

Support clients flexibly and cost-effectively


ADI’s acquisition of CMR brings clients expertise, experience, and an integrated view of the hydrocarbon value chain

ADI is a management consulting firm specializing in oil and gas, power, chemicals, and industrials. It has completed 300+ projects for 100+

clients since 2009.

www.adi-analytics.com

ADI acquired key assets of Chemical Market Resources (CMR) in 2017.

Since 1990, CMR has provided market research and management consulting

services through 500+ projects for 200+ clients in petrochemicals,

chemicals, plastics, and polymers.

www.adi-cmr.com

Midstream and LNG

Upstream oil and gas

Refining and fuels

Chemicals / petrochem.

Distributors / resellers

Fabricators / convertors

Brand owners /

end-users

http://www.cmrhoutex.com/


Fortune 500 and mid-sized companies, start-ups, investors, and governments have hired us to shape decisions globally


Our consulting offerings help businesses grow, address uncertainty, improve operations, and strengthen functions

Consulting

Analytics

Research

Address uncertainty

4 Price forecasts

4 Scenario planning

4 Regulatory analysis

4 Technology assessment

Optimize operations

4 Cost benchmarking

4 Supply chain analysis

4 Operational excellence

4 Tech Commercialization

Strengthen functions

4 Workflow design

4 Sustainability strategy

4 Best practices gathering

4 Innovation / R&D strategy

Grow businesses

4 Market research

4 Strategic planning

4 Opportunity analysis

4 Competitive intelligence


Since 2009, ADI has served 100+ clients through 300+ consulting projects in oil and gas, energy, and chemicals

SHALE GAS / TIGHT OIL / UNCONVENTIONAL RESOURCES4 Sized waste disposal strategies in shale basins for E&P firm4 Estimated economic benefits of shale gas for a state agency4 Analyzed resource and players in Argentina shale for investor4 Analyzed resource and players in US shale basins for investors

4 Designed fit-for-purpose operational model for new shale gas BU4 Conducted scenario planning on fracking regulations for E&P firm4 Developed shale gas JV plan and identified partners for Asian E&P 4 Identified operational and innovation gaps in Marcellus shale for PE

COAL / MINING4 Valued Australian mine for coal major4 Assessed coal monetization for EPC firm4 Led ops improvement for Asian coal miner4 Studied polygeneration with IGCC for DOE4 Sized Asian met coal demand for US miner4 Evaluated rare earth substitutes for VC firm

POWER / ELECTRICITY4 Assessed 6 CCS techs for coal fleet owner4 Profiled demand response market for utility4 Benchmarked energy storage techs for VC4 Analyzed smart grid standard for India govt4 Modeled coal / gas economics for end user4 Forecasted gas demand for power for NOC

RENEWABLE POWER / CLEANTECH4 Benchmarked battery techs for PE firm4 Assessed green building techs for NIST4 Sized US offshore wind market for EPC4 Developed India strategy for solar player4 Studied geothermal supply chain for DOE4 Modeled LCOE of all renewables for DOE

OILFIELD SERVICES4 Forecasted OCTG pricing for vendor 4 Evaluated new drilling tech for US DOE4 Sized “green” drilling fluids for OFS player4 Sized oil spill market for new tech start-up4 Led oilfield tanks due diligence for PE firm4 Surveyed sourcing trends for proppant firm

UPSTREAM / E&P4 Listed ops excellence ideas for NOC4 Audited upgrader for oil sands producer4 Sized Australian CBM for new EOR firm4 Studied energized fracs use for tech firm4 Designed R&D strategy for oil / gas major4 Planned CSR / HSE / GA strategy for E&P

MIDSTREAM / LNG / GAS MONETIZATION4 Reviewed floating LNG tech for NOC4 Benchmarked large / small GTL for VC4 Sized pipeline coatings market for VC firm4 Analyzed gas monetization plans for major4 Ranked 15 NA LNG projects for Japan firm4 Forecasted Asian LNG demand for licensor

DOWNSTREAM / FUELS / REFINING4 Led licensor selection plan for refiner4 Valued 20 refineries for Asian investor4 Forecasted fuel regulations for licensor4 Sized catalyst market for chemical major4 Analyzed sustainability indices for refiner4 Reviewed asphalt / bitumen trends for user

BIOFUELS / ALTERNATIVE ENERGY4 Optimized ethanol blending for refiner4 Estimated LCAs of biofuels for start-up4 Benchmarked power trains for automaker4 Framed bio-oil pricing strategy for start-up4 Assessed LNG as diesel substitute for VC4 Benchmarked 20 biofuel techs for oil major

CHEMICALS / MATERIALS4 Forecasted butadiene supply for lube firm4 Screened C4-5 investments for Asian firm4 Estimated NGL supply for Canadian major4 Studied carbon black market for tire maker4 Identified white spaces in sulfur for US firm4 Modeled ammonia/methanol IRRs for NOC


Clients can also monitor markets and accelerate decisions by subscribing to our research services and industry reports

North America Natural Gas Research Service

Focus Areas

4 LNG capacity4 Power / electricity4 Fuels (GTL, MTG)4 Price sets/linkages 4 Gas supply/demand 4 Methanol / chemicals4 Transport (CNG/LNG)

Key Analytics

4 Technology appraisals4 Review firm strategies 4 Project profiles, returns4 Supply, demand, pricing 4 Costs, economics, IRRs4 Competitive landscapes4 Regulatory/policy watch

Deliverables

4 Biweekly briefs4 Quarterly calls4 Annual summary4 Data spreadsheets4 Expert team access4 Subscriber workshops

Subscriber Benefits

4 Quick, cost-effective 4 Rigorous, fact-based4 Enable decision focus4 Independent expertise4 Collaborative, actionable

Refueling North America with LNG

Prospects for bio-based chemicals

Options for gas monetization

Innovation needs in shale gas

Economics of CO2utilization

Small-scale LNG opportunities

Technologies to reduce gas flaring

Ranking LNG export projects

Strategic outlook for biofuels

Monetizing natural gas liquids (NGLs)

Multi-Client Reports


Finally, ADI’s expert team offers creative and insightful thought leadership in oil and gas, energy, and chemicals

Blog Viewpoints Media Citations Events

Weekly updates and hundreds of insightful posts on oil and gas, energy, and chemicals

ADI experts have presented at ~75 panel sessions, conferences, and company board meetings globally

ADI’s been quoted in Wall Street Journal, Bloomberg, NPR, and news and trade media around the world

Our flagship event, the ADIForum, is held annually in Houston, TX


Outline

4 About ADI Analytics

4 2019 Oil & Gas Outlook


Key messages

U.S. natural gas will continue to be cheap

and is helping commoditize LNG

markets

… But the M&A market has slowed down

creating opportunities for oil majors

Supply-demand fundamentals point to an oil price in the $70s

There is considerable opportunity to export U.S. oil and gas but

renewables are a real threat

Oil and gas capital spending will rise but the industry is getting

more cost efficient

Private equity seems to be continuing unabated

…

1 3

2

5

46


Key messages


1


5.05.3 5.5 5.7

6.5

7.5

8.89.4

8.89.4

10.7

2008 9 10 11 12 13 14 15 16 17 18

55 57 5863

66 6671

74 73 74

81

2008 9 10 11 12 13 14 15 16 17 18

Unconventional oil, gas, and NGL production continues to grow rapidly repositioning the U.S. as a major energy producer

Natural Gas(Billion Cubic Feet Per Day)

NGL(Million Barrels Per Day)

1.81.9

2.12.2

2.42.6

3.0

3.33.5

3.84.1

2008 9 10 11 12 13 14 15 16 17 18

Crude Oil(Million Barrels Per Day)


Unconventionals will continue to drive U.S. oil and gas production but growth may slow after a blockbuster 2018

U.S. Natural Gas Production Forecast(Billion Cubic Feet Per Day)

U.S. Crude Oil Production Forecast(Million Barrels Per Day)

9297

58

81

94

103

2010 2018 2020 2023

13.113.9

5.5

10.7

14.5

17.8

2010 2018 2020 2023

High

Low

High

LowGrowth yoy

9.5%

Growth yoy15.1%


0.2

0.2

0.2

0.3

0.30.3

0.3

0.2

0.2

0.3

0.3

2008 9 10 11 12 13 14 15 16 17 18

A significant chunk of U.S. oil and gas production is being exported tying the industry’s fortunes to global markets

2.62.93.1

4.14.44.34.1

4.9

6.4

8.79.2

2008 9 10 11 12 13 14 15 16 17 18

Natural Gas(BCFD)

Crude Oil(Million BPD)

0.00.00.00.00.00.1

0.2

0.50.5

1.0

1.9

2008 9 10 11 12 13 14 15 16 17 18

0.20.2

0.3

0.5

0.7

1.0

1.2

1.4

1.6

2008 9 10 11 12 13 14 15 16 17 18

1.61.8

2.0

2.52.62.72.72.8

3.0

3.33.4

2008 9 10 11 12 13 14 15 16 17 18

NGL(Million BPD)

Coal(Million TPD)

Refined Products(Million BPD)


Light tight oil production in the U.S. has risen significantly and future growth will continue to come from the Permian basin

U.S. Light Tight Oil Production by Basin(Million Barrels Per Day)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 20230.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Permian

Projected

Other plays


Breakeven costs continue to be competitive for most U.S. shale production

U.S. Breakeven Prices in Best Oil Plays(Includes D&C, LOE, taxes, transportation, price differentials, and SG&A, USD Per Barrel)

$0

$25

$50

$75

$100

DJBasin

PermianDelaware NM

PermianDelaware TX

Eagle Ford PermianMidland

Bakken SCOOP/STACK

Breakeven range


New oil supply growth will follow breakeven costs which are most competitive now for OPEC and U.S. unconventionals

$0

$25

$50

$75

$100

0 25 50 75 100

Crude Oil Supply Curve Including Brownfield Expansions

Onshore –Middle East

Offshore –Shallow

Heavy Oil –Latin America

Onshore Russia

Onshore –Rest of

the world

Offshore -Deep-water

Offshore –Ultra-deepwater

Onshore Light tight oil

Heavy Oil –Canada

Arctic

Million Barrels of Oil Per Day

Oil Price, $/bbl


However, the dramatic decline in upstream capex has reduced the number of new FIDs hurting supply capacity growth

Global Oil & Gas Upstream Capital Spend(USD Billion Per Year)

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

Dramatic decline in

upstream capex


Oil prices have risen but so has volatility clouding forecasts but supply-demand fundamentals warrant a price in the $70s

$0

$25

$50

$75

$100

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

WTI Spot and Forecast Prices(USD Per Barrel)

ForecastSpot prices


Global economic growth is forecasted to slow slightly across both advanced and emerging economies …

Source: OECD

3.7%3.5% 3.5%

2018 2019 2020

World GDP Growth Rate(Percentage)

3.8% 3.7% 3.7%

2018 2019 2020

G-20 Advanced GDP Growth(Percentage)

5.2%5.0%

5.2%

2,018 2,019 2,020

G-20 Emerging GDP Growth(Percentage)


… Impacting oil demand whose robust growth in recent years helping mitigate the effects of the oil price collapse of 2014

$0

$25

$50

$75

$100

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

WTI (USD / bbl)

Worldwide Oil Demand Change and WTI Price(Million Barrels Per Day / USD Per Barrel)

Demand Change(mmbpd)

Oil Price(USD/bbl)


Key messages



marketsSupply-demand

fundamentals point to an oil price in the $70s

1

2


Gas supply has grown significantly with most of the growth coming from Marcellus and that will continue

U.S. Dry Shale Production by Basin(Billion Cubic Feet Per Day)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 20230

25

50

75

Marcellus

Other

Projected


A significant fraction of natural gas production growth is now coming from associated gas and is linked to oil economics

U.S. Total Gas Production(Billion Cubic Feet Per Day)

0.0

25.0

50.0

75.0

100.0

2015 2016 2017 2018 2019 2020 2021 2022 2023

Associated gas

Other gas

Permian will drive growth in associated natural gas

production


Given this background, we anticipate sustained production and …

-$9

-$6

-$3

$0

$3

$6

$9

500 1000 1500 2000

U.S. Natural Gas Supply Curve(USD Per Million Cubic Feet)

Trillion cubic feet


… Supply of cheap natural gas at prices below $4 per Mcf through the next few decades

-$9

-$6

-$3

$0

$3

$6

$9

500 1000 1500 2000

U.S. Natural Gas Supply Curve(USD Per Million Cubic Feet)

Trillion cubic feet

Total demand through 2030 and 2040


Natural gas prices will continue to grow moderately as seen recently but will likely stay below or around $3.50 per Mcf

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Henry Hub Spot and Forecast Prices(USD Per Million Btu)

ForecastSpot prices


Natural gas demand has grown primarily in the power sector followed by industrials in comparison to other segments

13.113.413.913.313.212.012.913.413.113.112.9

11.413.413.9

12.611.912.112.7

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Residential Natural Gas Demand(Billion Cubic Feet Per Day)

Commercial Natural Gas Demand(Billion Cubic Feet Per Day)

Industrial Natural Gas Demand(Billion Cubic Feet Per Day)

Natural Gas Demand for Power(Billion Cubic Feet Per Day)

8.3 8.6 8.7 8.6 8.2 7.8 8.3 8.6 8.5 8.5 8.6 7.9 9.0 9.5 9.2 8.3 8.7 9.1

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

20.120.619.619.918.117.918.218.3

16.918.719.219.820.420.920.621.221.822.8

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

14.615.514.115.016.117.0

18.718.318.820.220.8

25.022.422.3

26.327.425.4

30.0

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

5.0%

2.5%

-0.4% 0.9%


Natural gas exports via pipelines and LNG will after a long time account for the bulk of demand growth until 2023

U.S. Natural Gas Utilization Growth(Billion Cubic Feet Per Day, 2018-23)

81.0

97.1

2018demand incl

exports

Exports -LNG

Exports -Pipeline -Mexico

Exports -Pipeline -Canada

Industrial Power Res, comm,and transp

2023demand incl

exports


U.S. LNG capacity is very competitively positioned on the supply curve relative to other projects

Capital Cost of LNG Capacity

0 10 20 30 40 50 60 70 80 90 100

Supply Cost,$/mtpa

QatarU.S. Mozambique Yamal

Canada

Australia


North American supply has helped weaken LNG’s price linkage with oil but other factors cannot be ignored

$0

$5

$10

$15

$20

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Natural gas, US Natural gas, Europe Liquefied natural gas, Japan

Natural gas and LNG Prices (USD Per Million Btu)

Warmer weather has led to a significant

fall in LNG prices


Key messages






more cost efficient

1 3

2


Growth in oil and gas capital spending should pick up but at a slower pace and will be more broad based than in the past

Global Oil & Gas Capital Spend(USD Billion Per Year)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Up-stream

Down-stream

Mid-stream

LNG


Learnings from unconventionals are now finding their way across the oil and gas value chain, e.g., offshore oil and gas

Offshore Opex Optimization and Value Realization(USD per barrel)

Opex in 2016 Technical Support Pipeline logistics Production services Opex in 2018

§ Automation§ Manpower

de-intensification§ Process

simplification§ Digital

dashboards§ Agile and

scrums

§ Shared pipelines

§ Big data maintenance

§ Optimized transport schedules

§ Machine learning

§ Predictive maintenance

§ Lower staffing

Pipeline logistics

Production services

Technical support

Opex optimization initiatives


Key messages






more cost efficient


…

1 3

2

4


2… 08 09 10 11 12 13 14 15 16 17 18 19 20

Global PE Fundraising(USD Billion)

Further, energy-focused PE fundraising is robust and PE funds are having a record year in a world awash with capital

PE Capital Raised for U.S. Energy(USD Billion)

2… 08 09 10 11 12 13 14 15 16 17 18 19 20

PE firms have more than $1 trillion to

invest today


Key messages

Key insights from ADI research

U.S. producers with OPEC are best

positioned suppliers of oil with oil prices likely

determined by the pace of drilling in the

U.S.

Natural gas demand growth will be eclipsed by pipeline and LNG

exports, which will after a long time surpass power and industrial

demand growth

Natural gas supply will continue to be

abundant and cheap driven by declining well costs and rising share

of price-inelastic associated gas

Although expectations are high, U.S.

producers are unlikely to show restraint

especially as oil prices touch $60

Oil growth will be supported by emerging

markets but carbon limits and infrastructure

limits will drive both fuel and crude exports

1 3

2

5

4


2014 Q2 Q3 Q4 2015 Q2 Q3 Q4 2016 Q2 Q3 Q4 2017 Q2 Q3 Q4 2018 Q2 Q3 Q4

Permian Bakken Mississippian Lime Niobrara Marcellus UticaHaynesville Barnett CBM Eagle Ford SCOOP Midcontinent Unc.Powder River Unc. Other Multiple Conventional Total

Permian has been the focus of multiple acquisitions over the past few years but M&A activity is slowing down quite a bit

Source: Drilling Info

U.S. Quarterly Deal Value by Play Table(USD Billion)


Key messages



markets







more cost efficient


…

1 3

2

5

46


$0.00

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

$0.18

$0.20

2010 11 12 13 14 15 16 17 18 19

Renewable power project auctions have witnessed prices that are at par or better than gas-fired power generation

Onshore Wind Auction Prices(USD/kWh)

Solar PV Auction Prices(USD/kWh)

$0.00

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

$0.18

$0.20

2010 11 12 13 14 15 16 17 18 19 20

Gas combined cycle

Gas combined cycle


Key messages



markets







more cost efficient


…

1 3

2

5

46


Save the date!Wednesday, January 15, 2020

Houston, Texaswww.adi-forum.com

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Oil & Gas Market Outlook

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