Oil fundamental outlook - Energy Aspects · as the initial surplus is largely an NGLs story, with...

Medium-term oil market outlook

2 June 2019

Tale of two extremes: big early surpluses, followed by persistent undersupply

Medium-term oil balanceMb/d

Source: Energy Aspects analysis

SUMMARY (1/1)

Crude prices don’t necessarily react as may first be expected,as the initial surplus is largely an NGLs story, with crudebalances remaining tight.

Prices only dip—late 2020/early 2021—on macroeconomicweaknesses, before rallying once more (post-2021) asmarkets tighten, with Brent rallying above $80 by 2024.

Global demand growth averages roughly 1.1 mb/d between2019 and 2024, contributing a net 5.3 mb/d addition.

Theoretical EV hit to oil demand at 0.8 mb/d by 2024 is fivetimes less than impact from ‘normal’ vehicle efficiency gains.

Strong gains remain entrenched in petrochemicals andaviation sectors—supporting robust gains in jet, LPG, ethaneand naphtha.

OPEC has key role to play in the medium-term shake-out, asprojected global demand growth significantly exceeds theforecast 3.6 mb/d rise in non-OPEC supplies over 2019–2024(+2 mb/d shale, +1.2 mb/d NGLs, +0.7 mb/d oil sands).Oil flips between extremes: initially heavily oversupplied

(2020–2022), then persistent deficits (2023–2024).

3 June 2019

Ongoing, but wobbly, economic growth supports rising oil demand

UNDERLYING DRIVERS (1/1)

Global oil demand growthMb/d

Source: IMF, Energy Aspects analysis

Relatively strong (i.e. plus 3.3%) economic growth isexpected, albeit on a generally decelerating trend.

Global oil demand likely to add just over 5 mb/d, 2019–2024,an average gain of roughly 1.1 mb/d.

Global economic growth%

4 June 2019

Demand gains on average 1.1 mb/d 2019–2024, a net 5.3 mb/d addition

OIL DEMAND (1/6)

Global oil demand growthMb/d

Global oil demand by sectorMb/d


Road (+2.7 mb/d) and petchems (+2.5 mb/d) provide themajority of total demand addition (+5.3 mb/d), 2019–2024.

Global demand to test 106 mb/d by 2024. Make-up: 44%road (similar to 2019), 15% petrochemicals, 8% aviation.

5 June 2019

Road remains dominant, but momentum slows on gradual EV-encroachment

OIL DEMAND (2/6)

Road transport demandMb/d

Global EV share% of all PLDVs


2.7 mb/d gain from road transport over 2019–2024 issignificantly down on previous five-year period (3.4 mb/d).

Theoretical EV-demand ‘hit’ is 0.8 mb/d, but rapid salespenetration slower to feed through to fleet.

0%

2%

4%

6%

8%

10%

14 16 18 20 22 24

Sales Fleet

6 June 2019

But petrochemicals and aviation post the fastest gains

OIL DEMAND (3/6)

Aviation demandMb/d

Petrochemical demandMb/d


Growth in aviation sector averages 2.2% a year over 2019–2024, equivalent to net-addition of 0.8 mb/d.

Behind road, petchems is the second-largest net demandaddition (+2.5 mb/d), as growth averages 3.5% per annum.

7 June 2019

Petrochemical demand to rise strong despite threat of a war on plastics

Global petrochemical oil demandMb/d


OIL DEMAND (4/6)

Due to feedstock availability the sharpest gains are projectedin ethane and LPG—respectively forecast to rise by onaverage 4.8% and 4.6% a year—although naphtha also risesat a rapid clip, increasing by on average 2.7% a year.

Despite single use plastics accounting for 40% of currentplastics demand—roughly 25% of oil feedstock demand—thewar on plastics is not an existential threat to oil demand inthe medium term.

Current government action is largely focussed on improvingthe way waste is managed, in order to prevent pollutionrather than reduce consumption (other than piecemealefforts to ban single-use straws).

Latest UN legislation is really the start of a gradual processof building international consensus, rather than dramaticallyshifting behaviour. Furthermore, once legislation is in placethe required shifts in consumer behaviour will take time.

Credible commitments—such as the Chinese province ofHainan banning single use plastics by 2025—effectively curbgrowth after the medium term. Growth outlook deceleratesaccordingly post-24: 1.8% per annum 2024-2040.

Roughly half of projected oil demand growth in the mediumterm will come from petrochemicals.

8 June 2019

Diesel demand leads growth, on IMO 2020 supports

OIL DEMAND (5/6)

Global diesel demandMb/d

Global oil product demand growthMb/d


Diesel demand rises by 2.3 mb/d over 2019–2024, aided byrobust road freight market and a spike from IMO 2020.

Gasoline provides second-largest addition (+1.6 mb/d),followed by ethane, naphtha, jet/kerosene and LPG.

9 June 2019

India offers the fastest (large country) growth, China the biggest absolute gain

OIL DEMAND (6/6)

Indian oil demand growthMb/d

Chinese oil demand growthMb/d


Indian oil demand adds a net 1.3 mb/d between 2019 and2024, as growth averages 4.6% per year.

Chinese growth comes out at a lower 2.3% (anddecelerating), but the net gain at 1.6 mb/d exceeds India.

10 June 2019

2019–2024: Liquids growth composition biased towards unconventional

OIL SUPPLY (1/1)

Medium-term liquids growth compositionMb/d

Non-OPEC liquids growthMb/d


Predicted expansion of 5.1 mb/d between 2019 and 2024,led by shale (+2 mb/d), NGLs (+1.2 mb/d) and oil sands.

Non-OPEC supplies to expand by 3.6 mb/d, 2019-2024,significantly below demand (adding to OPEC’s importance).

2.0

1.2

0.7

0.3

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0.3

0.0 0.5 1.0 1.5 2.0 2.5

Shale

NGL

Oil Sands

Proc. Gains

Biofuels

Conventional

0.0

0.5

1.0

1.5

2.0

19 20 21 22 23 24

11 June 2019

Prices to generally trend up, despite early-forecast surplus (as its largely NGLs)

MEDIUM-TERM CONCLUSIONS FOR OIL (1/1)

Medium-term oil balanceMb/d

Crude oil prices$/barrel, nominal


After initial—liquid but not crude—oversupply, market flipsback towards being heavily undersupplied.

Prices rise on such tight conditions—in crude oil—withnotable exception of 2021, on predicted economic slowdown.

Long-term oil – balances & demand

13 June 2019

Initially oversupplied market flips back towards deficit for much of the 2020s

Long-term oil balanceMb/d


SUMMARY (1/1)

Initial oversupply is more of an NGLs than crude story, hencecrude oil prices should remain relatively resilient.

Crude prices then rebound post-2022, as oil (including NGLs)shows persistent undersupply over 2023-2027.

Oil roughly balances in 2028-2033 before testing surplusconditions once more in the mid-2030s on looming ‘peak oildemand’. Prices adjust according to such changes, i.e. flat onbalanced market and down as oil returns to oversupply.

To service these demand gains, our models show the globaloil industry bringing more than 50 mb/d of oil to the market,with shale dominating the early stages of this growth.

EVs play key role in slowing oil demand in 2030s as wepredict that the global EV fleet will rise to 128 million by2030 and 445 million by 2040, 8% and 23% of all PLDVsrespectively.

Theoretical EV demand hit in oil is 2.5 mb/d by 2030, risingtowards 8 mb/d by 2040, respectively four- and three-timesless than the impact from ‘normal’ vehicle efficiency gains.

Initially heavily oversupplied (2020-2022), but oil will flipback to deficit throughout the majority of the 2020s.

14 June 2019

Key exogenous variables continue to support rising oil demand


Global population growth%

Source: IMF, Energy Aspects analysis

Relatively strong (i.e. +3%) economic growth is expected,albeit on a decelerating trend, through 2040

UN estimates that there will be another 1.6 billion people onthe planet by 2040 (a 20% increase)

Global economic growth%

15 June 2019

Sharp expansion in Asian middle class further supports rising demand


Oil consumption per capitaBarrels per day

Source: UN, Energy Aspects analysis

Additional fillip comes from rapidly expanding middle class(+140 million a year, according to Brookings Institution)

Fuel switching and more efficient consumption reduce percapita demand in both Europe and North America


16 June 2019

Persistent supports will keep demand rising until the mid-2030s

OIL DEMAND (1/10)

Regional oil demandMb/d

Long-term global oil demand growth, by sectorMb/d


Global oil demand likely to rise through 2035 (although peakgrowth already passed), with Asia dominating momentum

The aviation and petchem sectors provide particularlypersistent support for demand, as does road until the 2030s

17 June 2019

Strong gains forecast for the road transport sector through the 2020s

OIL DEMAND (2/10)

Global road transport oil demandMb/d

Total global road transport demand, all energy sourcesBtoe


Road transport adds 5 mb/d to global oil demand, 2018-40.Diesel accounts for 58% of increase (supported by freight).

Oil share is 94% in 2018, 86% by 2030 and 68% by 2040. EVdemand hit is 2.5 mb/d by 2030 and near 8 mb/d by 2040

18 June 2019

EV demand hit delayed by gradual feed-through from sales to fleet

OIL DEMAND (3/10)

Global EV penetration, fleet and sales%

Global passenger light-duty vehicle (PLDV) fleetBillion


EV sales—optimistically—forecast to rise to 37% by 2040(led by China, 48%), but fleet penetration lags at 23%

With 0.3 billion ICE PLDVs still forecast to be added by 2030,road transport oil demand will not peak until 2030s

19 June 2019

China leads EVs, while autonomous vehicles remain a marginal issue

OIL DEMAND (4/10)

Global ePLDV fleetMillion

Self-driving demand hitMb/d


Rapid Chinese ePLDV fleet expansion sees China account forroughly a quarter of the 2.5 mb/d EV demand hit by 2030

Autonomous vehicles dent demand by deterring privateownership. Theoretical demand hit is 0.6 mb/d by 2040

20 June 2019

Asia leads road transport demand growth, while Europe and US lag

OIL DEMAND (5/10)

Regional road transport demand, all oil productsMb/d

Asian road transport demand, all oil productsMb/d


Asia leads (+7.5 mb/d), then Africa (+1.9), L. America (+1.2);offsetting declines in Europe (-2.1) and N. America (-4.4)

India dominates growth (+5.9 mb/d) fuelled by rapid uptickin vehicle ownership (and EV infrastructure is too limited)

21 June 2019

Persistent gains in aviation and petchems keep oil rising until mid-2030s

OIL DEMAND (6/10)

Global aviation demandMb/d

Global petrochemical demand, all oil productsMb/d


Aviation adds a net 3.2mb/d over 2018-2040, dominated byAsia (+2 mb/d, an average gain of 2.9% a year)

Petchems add 8.3 mb/d—average +2.3% each year—led byAsia (+3.5), North America (+2.3) and Middle East (+1.7).

22 June 2019

War on plastics only slows petrochemical demand growth

Global petrochemical oil demandMb/d


OIL DEMAND (7/10)

Petrochemical demand rises by an average 2.1% through thelong-term forecast, notably down on medium-term forecast(3.5% between 2019 and 2024) as theoretical threats—suchas a war on plastics—only gradually trim momentum.

Single-use plastics account for 40% of current plasticsdemand—roughly 25% of oil feedstock demand—but thedemand-side impacts can only be gradual, as governmentefforts/consumer-behaviour take a long time to adjust.

Reducing demand difficult alongside rapidly expandingemerging market middle class (+140 million people a year).

Government action currently focusses on pollution asopposed to restraining demand.

Chinese province of Hainan is banning single-use plastics by2025, while India has targeted ending single-use plasticconsumption by 2025.

Fourth session of UN Environment Assembly, in March,agreed global commitment to curb single-use plasticdemand. Discussion around global phase-out by 2025 wererejected.

Potential war on plastics only slows petrochemical demandgrowth. Given demographics hard to trigger decline.

23 June 2019

Diesel faces some unusual challenges

OIL DEMAND (8/10)

Global diesel demand, by sectorMb/d

Global shipping demandMb/d


Weak PLDV demand in Europe, but IMO 2020 stimulationshipping demand along with persistent gains from freight.

IMO 2020 boost for diesel, dents HSFO—could rebound withscrubbers—LNG also a long-term threat.

24 June 2019

Lighter products lead growth, many of which bypass the refinery system

OIL DEMAND (9/10)

Global demand growth, by productMb/d

Black oil demand Mb/d


Although diesel posts the biggest (+3.9 mb/d) gain, the mostrapid gains are forecast in the lighter products.

‘Black oil’ expanding by a more muted 6.6 mb/d (0.3% perannum) vs 10.8 mb/d for all oil products (0.5% a year).

25 June 2019

Emerging markets play crucial role in delaying peak oil demand

OIL DEMAND (10/10)

Regional oil demand growthMb/d

Asian demand growthMb/d


Asia dominates growth (+12.7 mb/d)—exceeding global gain(+10.8)—due to offsetting declines in Europe/North America.

India leads the long-term Asian expansion (+7 mb/d),followed by China (+4.3); Japanese demand falls (-1.5 mb/d).

26 June 2019

Oil tends towards undersupply through 2030, reversing thereafter

CONCLUSION (1/1)

Long-term oil balanceMb/d

Brent crude price$/b


After initial surplus years (2020-2022), a lack of investmentwill sees supplies struggling to keep pace with demand.

Higher prices will be required through 2030 to stimulate thenecessary investment in unconventional supplies.

Medium term supply outlook

28 June 2019

2019-2024: Liquids growth composition biased towards unconventional

INDUSTRY TRENDS (1/3)

Medium-term liquids growth compositionMb/d

Non-OPEC liquids growthMb/d


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Light supply from shale leads growth over the medium term,with conventional output broadly flat

Non-OPEC supply growth starts to fade from 2022 as USliquids growth begins to ease

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Shale

NGLs

Oil sands

Proc. gains

Biofuels

Conventional

29 June 2019

Conventional production has stagnated at 70 mb/d since 2005


Global conventional crude productionMb/d

Depletion rates%


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Global OPEC Non-OPEC

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65

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75

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After rising through the late 1990s and early 2000s,conventional production has stagnated around 70 mb/d

Depletion rates, particularly at non-OPEC fields, have beenrising steadily, implying a step-up in future decline rates

30 June 2019

Decline rates have picked up in response to elevated depletion


Offshore supply trendsMb/d

KMZ cumulative depletion%

Source: CNH, ANP, NPD, Energy Aspects

1.0

1.5

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15 16 17 18 19

Brazil Campos Norway

Mexico Angola

0%

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40%

60%

80%

81 87 93 99 05 11 17

Typically, supply plateaus or declines step-up when depletion hits 40%

For international markets ex-North America, drilling activityneeds to rise further

Depletion rates are rising. Maloob and Zaap are on the cuspof terminal decline, after which declines of 20% are feasible

31 June 2019

US shale production growth to be driven by IOCs over the medium term

MEDIUM-TERM NON-OPEC SUPPLY GROWTH (1/5)

Shale y/y growth forecastMb/d

XOP vs. WTI% out/under perform

Source: DrillingInfo, Bloomberg, Energy Aspects

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Permian Williston Eagle Ford

DJ Anadarko Others

GoM Alaska

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(15%)

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10%

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With limited growth prospects elsewhere, IOCs have movedtheir medium-term focus to US liquids production for growth

XOP has underperformed WTI in each of the past five years,with the trend progressively intensifying

32 June 2019

Russian production set for revival over the medium term


Russian drilling activity vs. production%

Russian project backlog Thousand b/d

Source: Company reports, CDU-TEK, Energy Aspects

Increased drilling metres and fiscal incentives expected tosupport Russian output over the medium term

1.2 mb/d of peak capacity additions will help to offsetdecline rates among Russian fields

Field name Operator Start Year Size

Russkoye Rosneft 2018 150

Tagul Ph. 1 Rosneft 2018 45

Taas Yunakh (Srednebotusbinskoye Phase 2) Rosneft 2018 100

Kuyumba Rosneft 2018 60

Severo Samburgskoye Gazprom Neft 2018 45

Petsovoye Gazprom Neft 2018 115

En-Yakhinskoye Gazprom Neft 2018 6

Small fields Lukoil 2018 100

Rospan (Condensates+NGLs) Rosneft 2019 125

Vladimir Filanovsky Ph3 Lukoil 2019 25

D-41 Lukoil 2019 20

Kuyumbinskoye (initial phase) Slavneft 2020 60

Redevelopment of existing assets Various 2020 250

Chayandinskoye Gazprom 2021 50

Tagul Ph.2 Rosneft 2022 45

Rakushechnoye Lukoil 2023 25

D-33 Lukoil 2023 15

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40

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Thousand metres (LHS)

Production, mb/d (RHS)

33 June 2019

Brazil: Pre-salt gains should start to offset declines in the post-salt


Pre-salt production Mb/d

Post-salt productionMb/d

Source: ANP, Energy Aspects

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The ramp-up of 11 new fields over the past year shouldsupport pre-salt growth over the coming years

The post-salt has lost almost 50% of its output over the pastfew years, although declines should moderate

34 June 2019

Canada’s supply outlook has been tempered by above-ground challenges


Canadian liquids growthMb/d

Canada’s oil sands growthMb/d

Source: Company reports, Statistics Canada, NEB, Energy Aspects

(0.2)

(0.1)

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0.1

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Delays to Line 3, Trans Mountain Expansion Project andKeystone XL have tempered our growth outlook

Oil sands will lead growth, rising by 0.7 mb/d over the nextfive years

35 June 2019

A short-term revival (Norway) and the new kid on the block (Guyana)


Norwegian medium-term crude outputMb/d

Guyana’s medium-term crude outputMb/d

Source: NPD, Company reports, Energy Aspects

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Guyana will become the latest non-OPEC producer in 2020,with supply rising to 0.5 mb/d by 2024

Norwegian output is set to rise as the giant 0.44 mb/d JohanSverdrup field starts-up later this year

36 June 2019

Iraq and Saudi Arabia to lead OPEC growth

MEDIUM-TERM OPEC SUPPLY (1/2)

Iraq and Saudi Arabia y/y crude growthMb/d

Saudi development projectsMb/d


Saudi Arabia (+0.7 mb/d) and Iraq (0.8 mb/d) will need toplay an important role in medium term balances

But with Saudi fields 39% depleted and its largest field,Ghawar, 60% depleted, intense drilling efforts are required

(0.05)

0.05

0.15

0.25

19 20 21 22 23 24

Saudi Arabia Iraq

Development Year Capacity Grade

2008-2018

Khursaniyah 2008 0.50 Arab Extra Light

Shaybah Phase 2 2008 0.25 Arab Extra Light

Nuayimm 2009 0.10 Arab Extra Light

Manifa 2013 0.90 Arab Heavy

Shaybah Phase 3 2016 0.25 Arab Extra Light

Safaniyah 2017 1.20 Arab Heavy

Zuluf GOSP 3 2018 0.30 Arab Medium

Khurais 2018 0.30 Arab Light

Total 3.80

2008-18 annual average 0.35

2019-2026

Fazran 2020 0.08 Arab Light

Dammam 1 2021 0.03 Arab Heavy

Zuluf expansion 2022 0.60 Arab Heavy

Berri expansion 2023 0.25 Arab Extra Light

Marjan expansion 2023 0.30 Arab Medium

Dammam 2 2026 0.05 Arab Heavy

Total 1.25

2019-26 annual average 0.31

37 June 2019

Geopolitics has led to steep declines in several OPEC members

MEDIUM-TERM OPEC SUPPLY (2/2)

Iranian crude and condensate production, y/y changeMb/d

Venezuelan oil productionMb/d

Note: Red – historical, blue – EA forecastsSource: Energy Aspects analysis

0

1

2

3

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Forecast

Iran has shown it can restore output quickly if sanctions areremoved, but that requires political change in Washington

Venezuela should stabilise around current levels, but onlypolitical reform can correct the chronic mismanagement

(1.5)

(1.0)

(0.5)

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0.5

1.0

10 12 14 16 18 20 22 24

Sanctions Relief Sanctions

38 June 2019

Asia to lead supply declines over the medium term

MEDIUM-TERM NON-OPEC SUPPLY DECLINES (1/1)

Asian production Mb/d

Australian liquids growthThousand b/d

Source: Company reports, Government agencies, BREE, Energy Aspects

Having fallen by almost 1 mb/d across 2015-18, Asian supplyis set to fall by another 1.2 mb/d between 2019-24

We expect Australian output to rise over the next few years,supported by condensate from LNG, but decline from 2021

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2.0

4.0

6.0

8.0

19 20 21 22 23 24

China India Indonesia

Malaysia Thailand Australia

(40)

(20)

0

20

40

60

19 20 21 22 23 24

39 June 2019

Strong US NGLs growth to create liquids over-supply over the next few years

NGLS (1/1)

US NGL productionMb/d

US NGL production growth y/yMb/d

Source: EIA, Energy Aspects

The advent of shale has driven US NGL production growth torecord highs

The onset of weaker NGL prices and global demand, andinfrastructure constraints will put the brakes on growth

EVs and the changing vehicle fleet

41 June 2019

EVs are not new but the technology has received a lot of interest recently

Global EV salesMillion


INTRODUCTION (1/1)

Thomas Edison famously championed the cause of the EV,telling his friend Henry Ford—the godfather of the internalcombustion engine (ICE)—’electricity is the thing. There areno whirring and grinding gears…no dangerous and evil-smelling gasoline and no noise’

History begged to differ, but some things have changed:environmental issues have moved up our collective agendas,and improvements have been made by the technology (stillhas a long way to go, constrained by battery chemistry)

Roughly 2 million electric passenger light-duty vehicles(ePLDVs) were sold in 2018. We define these to be all PLDVspropelled by electricity except non-plugin hybrids (which wetreat as super-efficient ICE vehicles)

To date, China has sold the most vehicles—the ChineseePLDV fleet is already roughly 2 million—followed by the USand a combined Europe, both roughly 1 million

Our base-case model depicts a dramatic uptick in EV sales—approaching 20 million by 2030 (57 million by 2040)—butthis is very dependent on certain leaps being made bybattery technology

EVs first appeared as a vehicle prospect back in 1837, yearsbefore Elon Musk was even a glimmer in his grandma’s eye

42 June 2019

Car sales to continue to rise strongly, but gasoline peaks around 2027

VEHICLE DYNAMICS (1/9)

Global PLDV sales, by country/regionMillion


Sales will rise to test 125 million a year by 2030 (154 millionby 2040); gasoline potentially peaks in mid-2030s (85million)

Sales surge on rapid Asian increases—fuelled by supportivedemographics—India up to 25 million by 2040 (China 37m)

Global PLDV salesMillion

43 June 2019

Asian vehicle sales dominate growth, led by India and China


Asian PLDV sales, by countryMillion


Asian sales rise sharply—to 87 million a year by 2040 (41million in 2018)—with EV sales rising to 37 million by 2040

Indian car sales face the sharpest jump, surging to 26 milliona year by 2040, from a very modest 8 million in 2018

Asian PLDV sales, by fuelMillion

44 June 2019

Some of the strongest gains in EVs are in North America and China


Chinese PLDV sales, by fuelMillion


Uptick in NA EV sales (to 4 million by 2040) occurs alongsidedeclining total NA PLDV sales (-3 million, 2018-2040).

Growth in Chinese car sales slows (sub 2% 2030s, 6% last 5years); EVs gain market share (27% by 2030, 48% by 2040)

North American PLDV sales, by fuelMillion

45 June 2019

Gradual feedthrough from sales to fleet slows prospective EV hit

Global EV share%



EV sales rise to test 19 million a year by 2030, 16% of allPLDVs sold worldwide

8 million forecast to be sold in China by 2030 (27% of allPLDV sales), approaching 2 million in US (11%), 3 million inEurope (18%) and 2 million in India (15%)

Despite the accumulation of many years of rising EV sales—fuelling a sizeable 128 million global EV fleet by 2030—thisstill only amounts to 8% of the global PLDV fleet

Sales are only important insofar as determining the demandimpact as the addition to the fleet. Sales are essentially theconverse of scrapping, which we estimate to be the sales ofroughly 12 years earlier

Accordingly the theoretical EV demand hit is 2.5 mb/d by2030 (four times less than that attributable to ‘normal’vehicle efficiency gains).

Though global EV sales share rises to 37% by 2040, the EVfleet penetration rises more modestly to 23%. Theoretical EVdemand hit accordingly rises to 8 mb/d, still three timessmaller than that attributable to efficiency gains

Huge pre-existing fleet of ICE vehicles limits the speed withwhich EVs gain significant market foothold

46 June 2019

EVs will remain only a marginal downside influence on oil until 2030s


Global ePLDV fleetMillion


Even with these very upbeat EV numbers the ICE fleetcontinues to increase—up by 0.3 billion by 2030 (+0.4 by2040)

Rapid Chinese ePLDV fleet expansion sees China account forroughly a quarter of the 2.5 mb/d EV demand hit in 2030

Global PLDV fleet, by fuelBillion

47 June 2019

Asia sees the quickest feedthrough, from rising EV sales through to fleet


Chinese PLDV fleet, by fuelMillion


Asian PLDV expands by 0.6 billion, 2018-2040 (EVs +0.3,gasoline +0.2, diesel +0.1). Gasoline leads pre-2030 growth

Due to government initiatives the Chinese EV fleet surges to55 million by 2030 (15%), 155m by 2040 (35%)

Asian PLDV fleet, by fuelMillion

48 June 2019

Indian EV fleet lags on an extreme lack of charging infrastructure


North American PLDV fleet, by fuelMillion


Strong fleet growth (+69m by 2030, +190 m by 2040), but EVbreakthrough delayed until 2030s (+36m by 40, +8m by 30)

Flat North American fleet (+3million by 2040), but EVs slowlyrise to 14 million by 2030 (6%) and 41 million by 2040 (17%)

Indian PLDV fleet, by fuelMillion

49 June 2019

Not forgetting trucks, buses and autonomous vehicles


Self-driving demand ‘hit’Mb/d


Slow encroachment from gas—from Chinese trucking—andelectricity—for buses (particularly in China) and light freight

Autonomous vehicles dent demand by deterring privateownership, theoretical demand hit is 0.6 mb/d by 2040

Global truck & bus fleet, by fuelMillion

50 June 2019

Oil demand from road transportation peaks around 2035

VEHICLES DYNAMICS (9/9)

Global road transport oil demandMb/d

Total global road transport demand, all energy sourcesBtoe


Adding 5 mb/d to global oil demand, 2018-2040; dieselaccounting for 58% of this increase (supported by freight)

Oil (94% 2018) but share falls (86% by 2030, 68% 2040); EVdemand ‘hit’ 2.5 mb/d by 2030 (approach 8 mb/d by 2040).

Unlocking petrochemicalsJune 2019

52 June 2019

Significant increases in olefins capacity driven by feedstock growth

Unlocking petrochemicals (1/11)

Steam cracker additionsMtpy

New PDH capacityMtpy

Source: Company reports, Energy Aspects analysis

Ethylene capacity additions will total 77.1 Mtpy from 2017-2025. US and China (23.1/ 20.4 Mtpy) are the main drivers

New PDH capacity will total 12.63 Mtpy by 2023, requiring0.59 mb/d of propane

53 June 2019

Petrochemical supply chain ends in plastics, fibres, gasoline components



Petrochemicals demand has increased at a rate of 3.25% between 2005-2019, outstripping global GDP growth of 2.7% during thesame time frame. Ultimately, the main end product has been plastics with secondary uses in fibres and gasoline blending

Ethylene Propylene Butadiene

NGLs, naphtha, crude oil, natural gas

FEEDSTOCK

MONOMERS

OLEFINS AROMATICS

Benzene Toluene Xylenes

DERIVATIVES

PolyethyleneEthylene

glycolEthylene

oxide

Gasoline blendingStyrene

Polystyrene

PolypropylenePropylene

oxideAcrylonitrile

PolybutadieneSynthetic

rubber

Octane booster

Polyurethane foam

Solvent

ParaxylenePET

Polyesters

54 June 2019

Industry has diversified from supermajors, enticed new players



Initial investments have honed in on the ethylene supply chain, although current trends have been towards specialty chemicals

IINTEGRATED PURE PLAYERS FRESH ENTRANTS

55 June 2019

Ethylene supply chain largely concentrates on plastics manufacturing



Nearly 11.4 Mtpy of new polyethylene capacity is starting up by end-2020 with about 3 Mtpy coming out of North America, largelymeant for export to Asia

ETHYLENE

LLDPE

LDPE

HDPE

PO

LYETHYLEN

E

ETHANE/ NAPHTHA

56 June 2019

Propylene supply chain lends itself toward industrial-strength plastics



Propylene has largely come out of the steam cracking or refining process. Increasingly, propane dehydrogenation units arecapitalising on cheaper propane. Polypropylene is the main derivative, comprising a third of plastics in automotive manufacturing

PROPYLENE

HoPP

CoPP

PO

LYPR

OP

YLENE

PROPANE , ETHANE, NAPHTHA

57 June 2019

Ample feedstock availability, greater integration fuels cracker mix


Steam cracker consumption by feedstock%

Steam cracker co-product output by feedstock%


Naphtha remains the dominant cracker feedstock globally(60%), although ethane’s share is creeping up (20-22%)

Lighter feedstock yields the greatest amounts of ethylene

58 June 2019

Cracker feedstock flexibility could become more attractive


Steam crackers with feedstock flexibility Flexi-crackers’ feedstock consumptionMtpy


The ability to switch from one feedstock to another tocapture cheaper outright prices enhances a unit’s margins

Nearly 52% of the world’s crackers can consume more thanone feedstock; only 9.4% have a high probability of doing so

59 June 2019

Global monomers prices are pressured by oversupply


Global ethylene prices$/t

Global benzene prices$/t

Source: Argus Media Group, Energy Aspects analysis

Global ethylene prices are being challenged by oversupplyfrom new crackers

Global benzene prices have also softened, but due to weakerglobal demand

0

400

800

1,200

1,600

14 15 16 17 18 19

US NWE Asia

60 June 2019

US ethylene cash costs are indicating LPG favourability over ethane


US ethylene cash cost margins$/t

US forward ethylene cast cost marginsc/lb


Petrochemical producers will analyse ethylene cash costmargins to determine their feedstock mix

US forward cash cost margins are increasingly pointing toLPG as the more profitable feedstock

61 June 2019

Global polyethylene prices are beginning to feel the strain from overbuild


Global polyethylene prices$/t

Asian HDPE margins by feedstock$/t


Global PE prices are now beginning to feel the strain of newcapacities as near-term demand is facing headwinds

Margins for integrated PE units are becoming increasinglyvolatile with increased feedstock competition

62 June 2019

Feedstock and operating rate decisions heavily dependent on naphtha prices


Propane-naphtha spreads$/t


The propane-naphtha spread is monitored closely andheavily influences cracker switching decisions

Breakeven levels ($150/t) for aromatics and styrenics supplychains are softening due to waning consumer sentiment

Benzene-naphtha spreads$/t

Long-term supply forecasting methodology

64 June 2019

Integrated model which flows from the short- to medium- to long-term

Short- and medium-term model process


MODEL OUTLINE (1/1)

Short-/medium-term: Monthly profile built from existingproduction, observed declines and projected additions

Long-term model process

Long-term: Annual profile built using resource depletion,allowing for growth in reserves and undiscovered resources

Well/field/basin supply

Country production

Decline New project model

Monthly conventional crude

outlook to 2024

Shale, oil sands, NGLs, biofuels,

other and processing gains

Total liquids outlook to 2024

To long-term model

Existing production from

1900

Resource estimate

DeclineUnder

development

Reserves growth

Yet-to-findTotal

conventional outlook

Other liquids

Total liquids outlook by

country to 2040

65 June 2019

Layer 1: Existing production, which governs forward decline rates

FSU Hubbert linearisationBillion barrels


CONVENTIONAL LONG-TERM FORECASTS (1/3)

Existing production curveMb/d

y = -0.0007x2 + 0.1145x - 0.1596

R² = 0.9897

0

1

2

3

4

5

0 40 80 120 160

30

34

38

42

46

50

54

24 26 28 30 32 34 36 38 40

A long history of data will provide a good fit and thereforeestimate of ultimate recoverable reserves (URR)

Existing production forecast to decline by 16 mb/d between2024-2040

66 June 2019

Layer 2 and 3: Development and reserves growth


Development production curveYears

Reserves growth production curve Mb/d


0

4

8

12

16

20

24 26 28 30 32 34 36 38 40

Development of existing reserves in Latin America (Brazil andVenezuela) will drive this curve to peak in 2027

140 billion barrels of reserves growth will add 10 mb/d toconventional supply between 2024 and 2040

0

4

8

12

24 26 28 30 32 34 36 38 40

67 June 2019

Layer 4: Yet-to-find (YtF) resource


YtF production curveMb/d

Total liquids change 2024-2040Mb/d


0

2

4

6

8

10

12

14

1 3 5 7 9 11 13 15 17 19 21 23

Model RussiaSaudi Arabia IranNorth Sea

(15.9)

(7.0)

9.5 10.7

(20)

(15)

(10)

(5)

0

5

10

15

Exist. Dev. R. growth YtF

600 billion barrels of YtF conventional resource will need tobe developed to add 12 mb/d over the long-term

Conventional crude will decline over the long-term, whichincreases the call on unconventionals

68 June 2019

Depletion rates are a leading indicator for future declines

Theoretical depletion curve%


APPENDIX: DEPLETION (1/1)

Depletion follows an exponential profile, which can only betamed by slowing production rates (increasing decline rate)

Actual Norwegian depletion curve – 1971-2018 %

After rising sharply through the downturn, Norwegian declinerates have accelerated over the past 18 months

0%

20%

40%

60%

80%

100%

1 3 5 7 9 11 13 15

Annual production rate

Annual depletion rate

0%

3%

6%

9%

12%

15%

18%

21%

71 81 91 01 11 21

Natural gas & power markets

70 June 2019

Renewables lead, followed by gas, while coal lags

CHANGING COMPOSITION OF ENERGY (1/1)

Fossil fuel demand, average growthMtoe


Renewables lead the upside (average expansion of 88 mtoe ayear over 2020-2040), followed by gas (+57 mtoe pa).

Primary energy demand, average growthMillion tonnes of oil equivalent (mtoe)

Growth in global demand for gas continues, but slows fromits pace over the past decade of 2% pa, to 1.4% pa.

Asia makes up the biggest share (56%) of gas demandgrowth in our outlook. The fuel makes increasing inroadsinto power generation globally (+0.7 btoe).

Supply of gas will be driven by US shale, shale outside NorthAmerica and Middle East supplies in the long term.

Industrial gas use is the second-biggest gainer through 2040,but at +0.17 btoe, a quarter of the growth is in power use.

Power use globally will rise at a similar pace over the nexttwo decades (1.7% pa) as witnessed in the previous 15 years.This is initially driven by the strong linkage to economicactivity, but by 2030 will increasingly be a function ofgrowing vehicle and building electrification.

Further declines in renewables costs (wind -30%, solar -50%)through 2030, along with a de-emphasis on coal, leadrenewables supply growth, which at 0.7 btoe is the biggestgainer in primary energy in that period.

71 June 2019

Gas demand growth outstrips oil, but eases off its recent pace

NATURAL GAS (1/3)

Natural gas demand by sectorBillion tonnes of oil equivalent (btoe)


Power use leads the growth in gas demand, offsettingdeclines in building consumption due to electrification

Demand growth in Asia continues to dominate as coal isdisplaced, though gas increasingly threatened by renewables

0

1

2

3

4

5

15 20 25 30 35 40

Road Shipping Industry

Power Buildings Others

Natural gas demand by regionBillion tonnes of oil equivalent (btoe)

0

1

2

3

4

5

15 20 25 30 35 40

North America Latin America

Europe FSU

Middle East Africa

Asia

72 June 2019

Supply gains are mixed further into our forecast

NATURAL GAS (2/3)

Crude oil, natural gas prices$/mmbtu


Gas prices in Asia remain higher than other regions, but areattractive when compared with oil

US supply growth continues into the next decade, followedby other shale and Middle East supply gains

Natural gas supply by countryBillion tonnes of oil equivalent (btoe)

0

1

2

3

4

5

15 20 25 30 35 40

US ChinaRussia CanadaArgentina Others

4

6

8

10

12

14

16

18

20

22

10 15 20 25 30 35 40

Brent Crude Oil Asia gas price (JKM)

73 June 2019

Industrial growth driven by Asia; power demand gains limited by renewables

NATURAL GAS (3/3)

Power demand by energy typeShare of total


Power sector gas demand sees a slight increase in marketshare, while renewables’ share nearly doubles in our forecast

Asia leads industrial demand growth, followed by Asia and,to a lesser extent, Africa

Industrial natural gas demand by regionBillion tonnes of oil equivalent (btoe)

0.0

0.2

0.4

0.6

0.8

1.0

15 20 25 30 35 40

North America Latin AmericaEurope FSUMiddle East AfricaAsia

0%

20%

40%

60%

80%

100%

15 20 25 30 35 40

Oil Gas Coal Renewable Nuclear

74 June 2019

Gas demand growth outstrips oil, but eases off its recent pace

POWER (1/4)

Power demand growth by energy use%


Power use leads the growth in gas demand, offsettingdeclines in building consumption due to electrification

Demand growth in Asia continues to dominate as coal isdisplaced, though it is increasingly threatened by renewables

Power demand by regionBillion tonnes of oil equivalent (btoe)

0

1

2

3

4

5

6

7

8

15 20 25 30 35 40

North America Latin America

Europe FSU

Middle East Africa

Asia

100

110

120

130

140

150

160

15 20 25 30 35 40

Power demand derived

from EV fleet consumption

Power demand derived

from economic growth

Source: Energy Aspects analysisNote: 2015 = base 100

75 June 2019

Electrification of vehicles drives deferred North American growth

POWER (2/4)

North American building demandMtoe


Vehicle use of electricity surges after 2025 as costs declineand fleet turnover accelerates

Much of the growth in power use in buildings is driven byvehicle charging as overall efficiency continues to increase

North American EV consumptionMtoe

0

10

20

30

40

50

60

1 6 12 17 22 27 32 37

Canada US

0

100

200

300

400

500

600

700

15 20 25 30 35 40

Power Gas

76 June 2019

Renewables share growth driven by turnover of coal, nuclear fleet in EU, US

POWER (3/4)

European power supply by fuel typeMtoe


Coal shutdowns driven by growth in gas projects and,increasingly, gains in renewables capacity in North America

With less indigenous resource, growth in gas-firedgeneration can only hold steady as nuclear, coal decline

North American power supply by fuel typeMtoe

0.0

0.2

0.4

0.6

0.8

1.0

1.2

05 10 15 20 25 30 35 40

Oil Gas Coal

Renewable Nuclear

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

05 10 15 20 25 30 35 40


77 June 2019

Asia continues to lead electricity growth, with a shift toward renewables

POWER (4/4)

Asian generation mix %


Economic activity is the primary accelerant in power use inAsia until 2030, when vehicles lead the expansion

While gas holds a relatively steady share, solar leads thegrowth in renewables generation in Asia

Power demand breakdown by use in AsiaBtoe

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

15 20 25 30 35 40

Power demand from EV fleet

Power demand from economic

growth

12% 13%

69%

42%

10%

33%

9%

0%

20%

40%

60%

80%

100%

Share 2015 Share 2040


Energy Overview

79 June 2019

Oil peaks in mid-2030s, coal earlier, but others pick up to complete the circle

Total primary energy demandBillion tonnes of oil equivalent (btoe)


SUMMARY (1/1)

+3.6 btoe (1% pa): renewables (+1.9 btoe), gas (+1.3 btoe),oil (+0.4 btoe, +10.8 mb/d), nuclear (+0.2 btoe), while coaldeclines (-0.2 btoe) – would have been more but for India.

Rapidly expanding emerging market middle class underpinspersistent demand growth, with particular weightingtowards Asia (+2.7 btoe), Middle East (0.5 btoe) and Africa.

Desire for lower emissions sees coal demand peak in 2027;oil peaks in mid-2030s, as EVs fleet share passes one-eighth.

Theoretical EV demand hit in oil is 2.5 mb/d by 2030, four-times less than the impact from vehicle efficiency gains.

Non-OPEC supplies add 3.7 mb/d, 2019-2024, (+2 shale, +1.2NGLs, +0.7 oil sands), far below +5 mb/d demand addition.

Escalating decline rates mean oil supply struggles to keeppace with demand over 2023-2030, depleting inventoriesand supporting prices, albeit with a temporary recession-related blip expected around 2021-2022.

Oil prices decline post-2030 on weak demand gains (demandfalls after mid-2030s) but scale of decline muted bypersistent strength of aviation and petrochemical sectors.

Enduring theme is electrification—many industries, buildingsand transport—particularly supporting gas and renewables.

80 June 2019

Renewables lead, followed by gas, while coal lags


Fossil fuel demand, average growthMtoe


Renewables lead the upside (average expansion of 88 mtoe ayear, 2020-2040), followed by gas (+57 mtoe pa).

In contrast, oil rises by average 17mtoe pa (-3mtoe 30-40),while coal declines by average of 13 mtoe (-32mtoe, 30-40).

Primary energy demand, average growthMillion tonnes of oil equivalent (mtoe)

81 June 2019

Increased electrification sees power dominate, boosting gas and renewables


Primary energy demand growth, main sectorsMtoe


Power’s market share to rise steadily, up to 43% by 2040(from 36% in 2018)

Power accelerates on increased electrification; petchems stillrising but decelerating on ‘war on plastic’

Primary energy demand, by sectorBtoe

82 June 2019

Asia dominates the upside


Primary energy demand, average growthBtoe


Asia leads growth at +2.7 btoe (76%), ME +0.5 btoe, Africa+0.3 btoe, LA +0.3 btoe, FSU +0.2 btoe, Europe/NA -0.2btoe

Asian demand growth averages 125mtoe per annum, MiddleEast +22 mtoe, LA +12 mtoe, Africa +11 mtoe, FSU +9 mtoe

Primary energy demand, by regionBtoe

83 June 2019

Particularly strong gains anticipated in China and increasingly India


Indian primary energy demandBtoe


0.9 btoe Chinese gain over 2018-40 is largely a renewablesstory (+0.8 btoe); gas +0.3 btoe, oil +0.2 btoe (+4.3 mb/d).

Similar absolute Indian gain (as China), but almost three-times faster—lower base—plus additional coal capacity built

Chinese primary energy demandBtoe

84 June 2019

Sharp expansion in Asian middle class supports rising demand



Source: UN, Energy Aspects analysis

Additional fillip comes from rapidly expanding middle class(+140 million a year according to Brookings Institution)

Rise in per capita oil demand is more subdued (than totalprimary energy growth) due to increased electrification

Energy consumption per capitaThousand tonnes of oil equivalent (ktoe)

85 June 2019

Flat to declining demand forecast for North America and Europe


European primary energy demandBtoe


NA roughly flattens, before inching down through 2030s.Gains 0.1 btoe in renewables/gas, offsets declines in coal/oil

European demand slips by 0.2 btoe over 2018-40 (-0.4% pa),led by sharp (2.5% pa) decline in coal and oil (-1.7% pa)

North American primary energy demandBtoe

86 June 2019

Not forgetting heightened uncertainties, particularly macroeconomic

Total primary energy demandBillion tonnes of oil equivalent (btoe)


UNCERTAINTIES/CHALLENGES (1/1)

Our macro models depict global economic growth averaging+3% p.a. through 2040—marginally below the IMF—butvarious risks could derail such a supportive macroeconomicbackdrop and accordingly further trim oil demand.

Threat of trade tensions leading to a ‘global economicmeltdown’ adds significant downside risk—though it is ourinherent belief such a self-destructive assault will notoccur—potentially trimming one-third from potentialdemand growth.

Our models assume a rapid uptick in global EV salespenetration—sales share rises to 16% of all PLDVs sold by2030 (37% by 2040)—but momentum could be either muchfaster or much slower (more likely).

If EV sales increase more rapidly—to 50% by 2030 in extremeexample and 75% by 2040—then prospective oil demandwould be much lower (3.6% below our base-case for 30, 10%lower for 40) but higher renewables, gas and nuclear providepartially offsetting support (additional power demand).

The flip side is also true, if EV sales are much lower—say 5%by 2030 and 10% by 2040, oil demand is much higher (1.2%above base-case by 2030, +5.4% by 2040).

The overall +3.6 btoe long-term primary energy demandforecast depends on supportive macroeconomic backdrop

87 June 2019

Crude oil

Oil products

Light ends, Middle distillates & Fuel oil

Global arbs and trade flows

LPG & NGLs

Natural gas

Europe, North America & Global LNG

Emissions

Macro energy

Long-term energy market outlook

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88 June 2019

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Oil fundamental outlook - Energy Aspects · as the initial surplus is largely an NGLs story, with...

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