Can We Survive in a Low Oil Prices Environment? Antonio Della Pelle

MENA Insights Series Singapore, 25 June 2015

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1. Oil Market 2. Oil, Taxes, Subsidies 3. The black gold hidden “other” stories 4. What is the needed Oil Price for the

world to survive? 5. Who benefits from low oil prices? 6. Conclusions

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ENERDATA INTRO

Contents

About Enerdata

Founded in 1991 by Bertrand Château

Bruno Lapillonne

The founders had the passion on energy market drives and helping governments in creating the most appropriate energy related policies. The very initial project was building a Global Forecast Model (POLES) that would help the French Government in assessing the supply/demand and prices of the different energies.

Enerdata have been very successful in the last 25 years in advising the Governments and energy industry key players including oil and gas companies, investment banks, electricity utilities and equipment manufacturers.

Since November 2013, Enerdata Singapore have been growing substantially and got significant projects both on strategic advisory and recognition of expertise. Enerdata Pte Ltd leverage its in-house data, information and model with its in-house consulting expertise and partnership with other Companies to complement the areas of expertise.

Antonio Della Pelle

MENA Insights Series - Oil Market - Enerdata June 2015 4

Information services

Modelling and

Forecasting

Enerdata manage and update the largest energy database existing at world level

• 300 different sources • 186 countries • More than 1000 annual

time series

POLES is a global energy forecast and simulation model for the energy sector covering all countries/regions • Complete accounting of energy supply

and demand of all energy sources, associated technologies and greenhouse gases emissions

• Developed for over 20 years

Enerdata Energy Research and Consulting

Consulting

More than 20 world recognized energy consultants providing advisory services to major Oil & Gas companies, electric utilities, equipment companies, banks and public organizations on

• Business Strategy • Feasibility Study • Market Study

MENA Insights Series - Oil Market - Enerdata June 2015 5

A sample of our clients

Oil & Gas/Power Utilities/Equipment/Consulting & Banking

6

7

Government & Research Institutions

A sample of our clients

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1. Oil Market 2. Oil, Taxes, Subsidies 3. The black gold hidden “other” stories 4. What is the needed Oil Price for the

world to survive? 5. Who benefits from low oil prices? 6. Conclusions

Contents

Oil’s share will continue to decline and fossil fuel remain above 70% of supply

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• Gas gains share steadily. By 2040 all the fossil fuel shares are clustering around 23-25%, and for the first time since the Industrial Revolution there is no single major dominant fuel.

• Taken together, fossil fuels lose share but they are still the dominant form of energy in 2040 with a share of 71%, compared to 82% in 2012.

Source: Enerdata POLES Model

MENA Insights Series - Oil Market - Enerdata June 2015

0

10

20

30

40%

Renewables

Hydro

Nuclear

Gas

2000 2010 2020 2030 2040

CoalOil

World Oil Consumption by Sectors

MENA Insights Series - Oil Market - Enerdata June 2015

Household 5

Transport 55

Industry 7

Energy 14Non-energy uses

14Agriculture 3

Services 2

EnergyIndustryTransportHouseholdServicesAgricultureNon-energy uses

Non-energy uses: This covers products used in the petrochemical industry (e.g. naphta), for the production of ammonia (natural gas), for electrodes (carbon), and all other products used for their physical-chemical properties (bitumen, paraffin, motor oils, etc....).It is divided into chemical and others.

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OPEC reserves are 81% of the world oil reserves

MENA Insights Series - Oil Market - Enerdata June 2015 11

Shale gas and tight oil play significant role in new energy form

12 MENA Insights Series - Oil Market - Enerdata June 2015

3,000,000

4,000,000

5,000,000

kbl/day

2000 2005 2010 2012 2015 2020 2025 2030 2035 2040

Shale oil

Heavy oil

Deepwater and artic oil

Conventional oil

1,500,000

3,500,000

5,500,000

bcm/day

2000 2005 2010 2012 2015 2020 2025 2030 2035 2040

Shale gas

Deepwater and artic gas

Conventional gas

Source: Enerdata POLES model (baseline scenario)

What are the reserves of shale oil

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* Advanced Resources International, Inc. (ARI)

Source: EIA

MENA Insights Series - Oil Market - Enerdata June 2015

Oil Production costs

MENA Insights Series - Oil Market - Enerdata June 2015 14

Source: EIA

Source: Scotiabank Equity Research

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Source: KBC

MENA Insights Series - Oil Market - Enerdata June 2015

The consequences of not proper energy policies and Public Relations skills created the perfect environment to kill the oil price

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1. Oil Market 2. Oil, Taxes, Subsidies 3. The black gold hidden “other” stories 4. What is the needed Oil Price for the

world to survive? 5. Who benefits from low oil prices? 6. Conclusions

Contents

Taxes on Oil are big revenues for many countries

Source:OECD/EEA

MENA Insights Series - Oil Market - Enerdata June 2015 17

Why Oil Prices goes down and petrol station products price don’t go down?

Source: OPEC

MENA Insights Series - Oil Market - Enerdata June 2015 18

Singapore case: - The petrol excise duty in Singapore is set at a rate of $0.56 per litre for 92- and

95-octane petrol, and $0.64 per litre for petrol rated 97-octane and above. - As with all other products, there is the additional seven per cent GST charge.

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1. Oil Market 2. Oil, Taxes, Subsidies 3. The black gold hidden “other” stories 4. What is the needed Oil Price for the

world to survive? 5. Who benefits from low oil prices? 6. Conclusions

Contents

South China Sea - territorial claims China and several Southeast Asian nations are currently embroiled in a territorial and maritime dispute in the South China Sea over an area that includes a cluster of resource-rich islands and important trade routes. Malaysia claims three islands in the Spratlys. The Philippines claims eight islands in the Spratlys and significant portions of the South China Sea. Vietnam, Taiwan, and China each claims much of the South China Sea, as well as all of the Spratly and Paracel island groups. Recent headlines: • Japan Gets Involved In South China Sea Territorial

Dispute: Tokyo Offers Maritime Support To Philippines, Vietnam

• Beijing Angry over ASEAN Chief's Comments on South China Sea

• China Balks At Pentagon’s Report Warning Of Aggressive Behaviour In South China Sea

• Chinese authorities to withdraw the HYSY-981 oil rig a month early from Vietnamese-claimed waters

• India backs PH in China sea row • China Challenges ASEAN with Land Fills in South China

Sea • Satellite images show Vietnam reclaiming land in South

China Sea • Philippines, Japan Hold Naval Drills in South China Sea • Singapore, Malaysia and Indonesia could extend joint

patrols in South China Sea

MENA Insights Series - Oil Market - Enerdata June 2015 20

South China Sea – Energy Resources very important but above all trade routes could be affected

South China Sea Territorial Claims: China, Vietnam, Philippines, Indonesia, Malaysia, Taiwan and Brunei Importance: Oil and Gas Resources: - Approximately 11 bbl oil - 200 tcf of natural gas (2P) Trade Route: - 33% of Crude Oil trade - 50% of LNG trade pass through South

China Sea

MENA Insights Series - Oil Market - Enerdata June 2015 21

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1. Oil Market 2. Oil, Taxes, Subsidies 3. The black gold hidden “other” stories 4. What is the needed Oil Price for the

world to survive? 5. Who benefits from low oil prices? 6. Conclusions

Contents

0 20 40 60 80

%GDP

Congo 71Kuwait 54

Libya 52Equatorial Guinea 51

Saudi Arabia 46Iraq 45

Gabon 44Angola 42

Oman 37Azerbaijan 36

Venezuela 27Chad 26

Brunei 25Kazakhstan 25Iran 22UAE 22

Turkmenistan 21Bahrain 19Ecuador 19

Algeria 17Nigeria 15Yemen 15

Russian 14Qatar 12

Trinidad & Tobago

11

Norway 9Colombia 8

Egypt 8Cameroon 8Vietnam 8Mexico 7

Malaysia 6Ghana 6Bolivia 5

Country GDP% dependence on Oil Revenues

Source: Enerdata - Global Energy Data

Asian

War-risk Nations

European

MENA Insights Series - Oil Market - Enerdata June 2015 23

Breakeven oil price

MENA Insights Series - Oil Market - Enerdata June 2015 24

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1. Oil Market 2. Oil, Taxes, Subsidies 3. The black gold hidden “other” stories 4. What is the needed Oil Price for the

world to survive? 5. Who benefits from low oil prices? 6. Conclusions

Contents

Refinery margins benefitting from the low oil price

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Source: KBC

MENA Insights Series - Oil Market - Enerdata June 2015

Air Transportation has not seen an increase of demand at Singapore and at the same time airline profits soared due to the lower fule costs

MENA Insights Series - Oil Market - Enerdata June 2015

Airline Profitability Improves with Falling Oil Prices Airlines are expected to post a collective global net profit in 2014 of some $19.9 billion (up from the $18.0 billion projected in June). This looks set to rise to $25.0 billion in 2015. The International Air Transport Association predicts air fare decline of 5.1 percent or more in 2015.

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Currency vs oil price

MENA Insights Series - Oil Market - Enerdata June 2015

Source: XE.com

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June 2014 : 1 USD = 1.25 SGD

June 2015 : 1 USD = 1.34 SGD

S Curves (Asia) LNG Prices Started in Japanese LNG contracts Buyers wanted security of supply and also protection against very high prices Sellers wanted protection against low prices

0

5

10

15

20

25

0 10 20 30 40 50 60 70 80 90 100 110

LNG

Pric

e ($

/Mm

btu)

Oil Price ($/bbl)

Oil Parity S Curve

Slope = 0.07

Slope = 0.07

Applicable Range = 20 $/bbl to 120 $/bbl

Slope = 0.1485

S-Curve Formula (Japanese): P(LNG)=0.07*JCC+B1 20<JCC<50 P(LNG)=0.1485*JCC+B2 50<JCC<90 P(LNG)=0.07*JCC+B3 90<JCC<120 Typical oil index price formula (Chinese, Korean): P(LNG)=A*JCC+B JCC: Japan Crude Cocktail is calculated based on a time-lag of 3-9months

MENA Insights Series - Oil Market - Enerdata June 2015 29

Capex investment cut

MENA Insights Series - Oil Market - Enerdata June 2015

-11% -14% -13%$34bn $30bn $20bn

(-$15bn over 3yrs)

-20% (-35%) -13% -10%$13.5bn ($11.5bn) $35bn $23.4bn

E&P:-30%

<$2bn

Legends: Y-o-y change (%) Current year Capex

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-18.3% (2nd cut) -58% -31% -4%$9bn $500mn $12bn $2.5bnE&P:

-11%$3bn

-10% -37% -10% -12%$13.8bn $4.4bn $18bn $22bn

Oil Companies reducing E&P Capex will affect the Singapore Offshore industry especially on lack of new orders

MENA Insights Series - Oil Market - Enerdata June 2015

Oil linked Industry in a pill: • Refining sector underperforming • Petrochemical and Chemicals sectors over performing • Marine & Offshore soon to reach the under performing zone due to the reduction of new contracts

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INDEX OF INDUSTRIAL PRODUCTION 2015

2011 2012 2013 2014 I II III IV I II III IV I TOTAL MANUFACTURING Petroleum 100.0 99.4 93.5 85.6 93.3 95.2 96.6 88.9 84.6 91.3 92.7 73.6 93.9 Petrochemicals 100.0 103.6 108.3 122.6 101.8 103.4 118.4 109.4 123.3 124.3 130.7 112.2 118.2 Specialty Chemicals 100.0 97.3 98.4 103.9 98.1 99.6 96.0 99.8 101.8 109.4 103.9 100.4 109.4 Others 100.0 94.5 93.8 97.0 91.3 92.3 97.3 94.2 94.0 95.9 99.2 98.8 93.6 Marine & Offshore Engineering 100.0 113.0 120.6 126.4 99.2 112.7 125.0 145.6 116.2 119.8 128.5 141.0 108.1

2013 2014

Source: MTI

-100

-80

-60

-40

-20

0

20

40

60

80

100

-800

-600

-400

-200

0

200

400

600

800

China India Japan Malaysia Myanmar Indonesia Singapore SouthKorea

Thailand Vietnam Philippines Asia

Trade Integration and Energy Independence

Trade Integration - Oil Trade Integration - Gas Trade Integration - Coal Energy Independence Rate (RHS)

Asian economies depend on energy trade and hence are exposed to risks of fuel price variations

MENA Insights Series - Oil Market - Enerdata June 2015 32

Trade Integration: The integration rate corresponds to the external trade balance (namely the difference between energy imports and exports) divided by the primary consumption. A value of 100% would mean that the country imports the totality of its energy consumption, while a very negative value means that the country exports significant volumes of energy compared to its own consumption. Energy Independence: The energy independence rate corresponds to the coverage of primary energy consumption by total domestic primary production (including biomass).

Singapore has highest level of trade integration which means that the country is more exposed to price variations as compared to its neighbors. Also the country has only 2.2% energy independence

Traders maximizing volumes to off-set the lower oil price

MENA Insights Series - Oil Market - Enerdata June 2015

Oil trade in a pill: • On Million dollars value substantial decline due mainly to the oil price • On Volume value substantial increase due to high speculation of buying low and selling high

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Source: MTI

EXTERNAL TRADE 2015

2011 2012 2013 2014 I II III IV I II III IV I

TOTAL TRADE AT CURRENT PRICES Oil 103,953.8 106,814.4 106,476.0 106,986.4 25,504.8 25,229.5 28,843.0 26,898.8 28,103.0 28,852.6 27,885.0 22,145.8 18,359.1 TOTAL TRADE AT 2012 PRICES Oil 106,415.3 106,814.4 112,620.3 120,731.2 26,291.5 27,426.6 30,285.7 28,616.5 29,492.2 30,697.6 30,843.9 29,697.5 31,331.3

2013 2014

Million Dollars

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1. Oil Market 2. Oil, Taxes, Subsidies 3. The black gold hidden “other” stories 4. What is the needed Oil Price for the

world to survive? 5. Who benefits from low oil prices? 6. Conclusions

Contents

Conclusions

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Oil will continue to be synonymous of news

Overall there are more winners than losers so do we need to go back at $100 level?

If the world can survive at $60 per barrel then can we invest in alternative fuels & renewables instead of going after expensive unconventional oils? Who tells this to Exxon CEO?

Future Oil Price

Alternative Fuel

Where there is oil there is interest

Geopolitics & Security will still drive the oil market prices and sentiment can be a new demand or supply factor. Security

MENA Insights Series - Oil Market - Enerdata June 2015

Thank you for your attention !

www.enerdata.net Contact:

Antonio Della Pelle Managing Director antonio.dellapelle@enerdata.net

Phone: +65 6225 5367 Mobile: +65 8363 2885 143 Cecil Street, #03-01 GB Building, Singapore 069542