COVID-19 REPORT 13TH EDITION

GLOBAL OUTBREAK OVERVIEW AND ITS IMPACT ON THE ENERGY SECTOR

11 JUNE 2020

PUBLIC VERSION

MONTHLY REPORT

Executive summaryOutbreak status and outlookImpact on oil demandImpact on the oil and gas industry

Table of Contents

2

In the last two weeks since publishing the previous Covid-19 report, the pandemic has developed with disturbing ferocity in Latin America, South Asia, and Southern Africa. Daily fatalities in these regions have doubled over the last two weeks. And frighteningly, while Europe and North America went into complete lockdown after seeing similar developments, Latin America and South Asia are loosening measures rather than tightening them. This means that the growth of the pandemic is likely to accelerate further. This new wave could be far more deadly than the European and North American wave seen in March and April, as the populations in these regions are larger and lockdown measures have been less efficient.

If further measures are not implemented to control the virus, the aggregated number of infected cases will double every 12 days in Southern Africa, every 14 days in Central America, every 18 days in South America, and every 29 days in South Asia. This means that 50% of the population will have contracted the virus by the end of July in Central and South America and Southern Africa, and by early December in South Asia. If this rather alarming scenario comes to fruition, herd immunity will actually be achieved in these regions. However, it will come at a high price as the need for intensive care will far exceed available capacity.

If governments are able to control the pandemic in these regions we will likely see a deeper initial impact on these economies, as businesses will be locked down. In East Asia, Europe and North America however, we expect national economies to grow again and road fuel demand to return to 97% of previous level by august. With the recent extension of OPEC cuts, the oil market is likely to be in balance by the end of June.

Executive SummaryWorrying development in Latin America and South Asia

3

True global infection outlook, page 5

Global demand outlook, page 14

Recovery scenarios, page 13

Executive summaryOutbreak status and outlook

• Global overview

Impact on oil demandImpact on the oil and gas industry

Table of Contents

4

Global overviewThe true cumulative number of people infected globally today is likely 103 million

Number of true and reported casesCases (log scale), Current measures scenario*

*Assumes current measures remain in place during forecasting intervalSource: Rystad Energy Covid-19 research and analysis; Worldometer

1

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Estimated true cases

Aggregated Fatalities

As of 9 June, 103 million people have likely been infected with Covid-19, according to our updated model based on reported fatalities.

There were 7.2 million reported cases as of 11 May, a number which our analysis suggests represents 7% of true cases. Reported cases are still growing at about 2% per day, despite a higher base.

Registered fatalities globally were almost 410,000 as of 9 June. True fatalitities are probably higher, as the reporting of Covid-19 deaths in many places is insufficient outside of hospitals.

Many countries did loosen measures in May, and as a result we are seeing a new growth in the number of new fatalities.

Moreover, we see a record high figure of 9 million people currently in the most infectiouse stage (day 3 to 8 after onset).

5

Forecast

New Fatalities

Infectious casesReported cases

100

1,000

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0 7 14 21 28 35 42 49 56 63 70 77 84 91 98 105

US

ItalySpain

FranceChina

UK

Global overviewStill no sign of slowing spread in Brazil, India and Bangladesh

Number of reported cases, key countriesCases (log scale)

Source: Rystad Energy Covid-19 research and analysis; Worldometer

South Korea

Japan

6

For further details please see our

Covid-19 dashboard at rystadenergy.com.

Germany

Just as in our report from 13 May -four weeks ago – we see no signs of a slow down in reported cases in Brazil, Russia, India and Bangladesh. Doubling time has been reduced slightly from 8-10 days to 12-30 days. Still the virus is not under control. These countries have surpassed the largest European countries in term of reported cases.

European and East Asian countries have all flattened out completely in reported cases, while the US is still growing, albeit at a slower pace slower than before

Iran is still growing, and is currently experiencing a second wave.

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Global overviewSeveral “new” countries are seeing fast growth in new cases, despite lockdown measures

Number of reported cases, emerging high growth countriesCases (log scale)

Source: Rystad Energy Covid-19 research and analysis; Worldometer

South Sudan

7

For further details please see our

Covid-19 dashboard at rystadenergy.com.

Seven African countries currently see fast growth of new cases, with a doubling time of 8 days or less for most countries. These are Malawi, South Sudan, Mauritania, Central African Rep, Mozambique, Ethiopia and South Africa.

Similarly, seven Central and South American countries are also seeing quick growth in reported cases. Mexico and Chile already have more than 120,000 reported cases, a figure that is likely to double in ten days.

Nepal is also seeing growth in reported cases, doubling at a rate that is quicker than every eight days.

All of these countries could reach 100,000 reported cases in early August if stricter measures are not implemented.

Cental African Rep

Mauritania

Malawi

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Global overviewThe Covid-19 epicenter has now moved to Latin America and South Asia

* Here we assume that announced lockdowns was actually efficient since late May, also for South and Central America, South Asia and South AfricaSource: Rystad Energy Covid-19 model

Daily deaths per region, Effective retainment Scenario*Reported and estimated deaths (14 days rolling average)

Central America

South America

Northern America

Southern Europe

Western Europe

E. Asia

S.Asia

S.Africa

N. Europe

Dramatic lockdowns for Europe and America

No similar additional lockdownfor S.America and S.Asia

These decreases will only occur if already announced lockdowns have been efficient. Recent developments do not indicate that this has been the case.

8

Global overview Latin America and South Asia could see greater impacts than those seen in North America

* For Central America: until Mid-June, for South Africa until start of July, for South America until Mid July and for South Asia until mid AugustSource: Rystad Energy Covid-19 model

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America

Northern America

Southern Europe

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N. Europe

S.Asia

S.Africa

Daily deaths per region, assuming current social distance measures are maintained for a period* Reported and estimated deaths (14 days rolling average)

9

* Here we assume the last scenario plus a second outbreak in Southern Europe and North America plus Middle East as Central America and East Africa as South America with two months lagSource: Rystad Energy Covid-19 model

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Second wave North America and S.Europe

Global overview Second wave possible in Europe and N.America, plus peak in Middle East and East Africa

Daily deaths per region, second wave scenario*Reported and estimated deaths (14 days rolling average)

South America

Northern America

Southern Europe

Western Europe

N. Europe

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Global overview Mobility data does not explain why cases have not stopped growing

Source: Google mobility data

Central America

South America

NorthernAmerica

Southern Europe

S.Asia S.AfricaDramatic lockdown in Europe

South America: measure still strict, but not strict enough Why are cases growing so

rapidly in the south, while still lockdowns have been stricter than Europe and N.America?

No obviouse answer, but living conditions might play a role.

With loosened social distancing measures over the last weeks, we will likely see acceleration in the growth of the number of cases.

Transit station activity (buses, trains, subway, etc)Percent activity versus pre-corona levels (14 days rolling average)

11

Executive summaryOutbreak status and outlookImpact on oil demand

• Global overview• Key region focus• Aviation and jet fuel• Ground transportation and road fuels

Impact on the oil and gas industry

Table of Contents

12

13

Global overviewTwo main recovery profiles: effective retainment and mitigation scenario

Source: Rystad Energy research and analysis

Jet fuel demand levels 2020-2021 Demand scenarios Road fuel demand levels 2020-2021

Effe

ctiv

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men

t

r-shaped recovery:• Stabilizes at a new normal in 3Q20. • Follows the previous year’s trend for the rest of 2021 with

moderate growth.

Key assumptions:• Gradual opening of borders as government lockdowns loosen

in 2Q20.• Business travel is expected to recover quicker• Consumer confidence increases and short-haul and leisure

travel begins to recover

V-shaped recovery:• Demand hits bottom in April 2020, followed by a strong rebound in

June and July.• Demand impact lasts into 2021, reaching 2019 levels towards the

end of the year.

Key assumptions:• Governments loosen measures and unemployment remains at

manageable levels.• People prefer personal vehicles over public transport, with 15% to

20% of the workforce in developed countries working from home.• Heavy-duty vehicle traffic down 5-7% in 2020 and 2021.

Miti

gatio

n

U-shaped recovery:• Stabilizes at a new normal in 2Q21. • Follows the previous year’s trend for the rest of 2021 with low

growth.

Key assumptions:• Slow opening of borders with risk of a second wave; Majority

of borders closed through 3Q20. • Consumer confidence remains low with short-haul and leisure

travel slowly recovering. • Business travel is still expected to recover at a faster pace

than leisure travel.

L-shaped recovery:• Demand hits bottom in April 2020, with a weaker recovery period

where road fuel remains below 2019 levels through 2022.

Key assumptions:• Work-from-home policies continuing into 2021.• Unemployment rates cause reduced commuter demand and less

personal vehicle use.• Heavy-duty vehicle traffic heavily affected by demand shock, with

reductions of 8-12% versus pre-virus estimates in 2020-2022.

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Effective Effective retainment

Partially effective Mitigation

Medium Strong

Economic response

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Pre-virus

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Global overview Global oil demand unlikely to return to 2019 demand level until 2022-2023

Global oil demand impact analysis, changes vs pre-virus estimatesThousand barrels per day

Source: Rystad Energy research and analysis

14

-30,000

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Mitigation

Effective retainment

2019

0 = Pre-virus projection

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Absolute demand

Global overview By July, global oil demand may recover by close to 15 million bpd since the bottom in April

Source: Rystad Energy research and analysis

15

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Oil demand impact by region in the mitigation scenarioThousand barrels per day

• In our mitigation scenario, we expect total oil demand will be at 86-87 million bpd in 2020 and 93 million bpd for 2021.

• Demand impact vs. pre-virus estimates is seen at around 14 million bpd for 2020, and 8-9 million bpd for 2021.

• Total demand is expected to stay well below 2019-level out until 2022-2023.

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Absolute demand

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Oil demand impact by region in the effective retainment scenarioThousand barrels per day

• Rystad Energy’s effective retainment scenario includes an absolute oil demand of 87-88 million bpd for 2020 and 97 million bpd for 2021.

• Demand destruction is seen at 12-13 million bpd in 2020, and 5 million bpd in 2021 when compared to our pre-virus projection.

• The quickest recovery is seen in East Asia while the slowest recovery is expected from the Rest of world where we see an impact of 2.7 million bpd for 2020.

Previous

Pre-virus

2019

East Asia

North America

Europe

Rest of world

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Absolute demand

Global overviewRoad fuels down 10% for 2020, jet fuel down 41% and other fuels down 9% vs. 2019

Source: Rystad Energy research and analysis

16

Oil demand impact by fuel in the mitigation scenarioThousand barrels per day

• In our mitigation scenario, we expect total oil demand of 86-87 million bpd in 2020 and 93 million bpd for 2021.

• A slower recovery results in expected demand destruction from road fuels to be down 5.7 million bpd for 2020 and down 3.2 million bpd for 2021.

• The risk of a second wave and extended lockdowns will slows the recovery of jet fuel demand further to 3.3 million bpd in 2021.

Oil demand impact by fuel in the effective retainment scenarioThousand barrels per day

• Rystad Energy’s effective retainment scenario includes an absolute oil demand of 87-88 million bpd for 2020 and 97 million bpd for 2021.

• The majority of demand destruction comes from road fuels, which bottomed out in early April at -17 million bpd compared to our pre-virus projection.

• We expect a slower recovery for the aviation sector with a destruction in jet fuel demand of 1.4 million bpd for 2021 versus pre-virus projections.

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Road fuels

Jet fuels

Other fuels

Key region focusUS oil demand recovers in May by 1.9 million bpd vs April

Source: Rystad Energy research and analysis

17

Strong recovery in May paves the way for further activity increase during the summer, but uncertainty looms.

• US oil demand is at 18 million bpd in 2020, down 12% from 2019 levels with road fuels down 10%.

• Road traffic in the US is currently down around 20% from 2019 levels, with large state-wise differences observed. May saw large increases in activity at the start of the month, but growth flattened out more towards the end of the month.

• Despite the large impact on jet fuel demand in 2Q20, the US is still one of the largest consumers of jet fuel at 970,000 bpd due to the resilient domestic market.

• For 2021, we expect a gradual recovery with year-on-year growth approaching 7% to 8%.

0

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Absolute demand in effective retainment scenarioThousand barrels per day

-7,000-6,000-5,000-4,000-3,000-2,000-1,000

01,000

Demand impact vs. pre-virus estimates in effective retainment scenarioThousand barrels per day

PreviousPre-virus

2019

Mitigation scenario

Mitigation scenario

Road fuels

Jet fuels

Other fuels

-50%-40%-30%-20%-10%

0% Road traffic (LDV) reduction versus 2019

0

5,000

10,000

15,000 Number of flights

02,000,0004,000,0006,000,0008,000,000

10,000,000 Number of active Covid-19 cases

Key region focusIndian oil demand to reach 2019 consumption levels in early 2021

Source: Rystad Energy research and analysis

18

After strong growth signs from aviation and road traffic in May, India enters June by removing additional measures

• Indian oil demand fell around 45% in April relative to our pre-virus projections, but has been making a strong comeback in May after lockdowns were eased.

• After lockdowns were introduced at the end of March, road traffic in Indian cities plummeted, staying at around 60% below normal levels for over a month. In the past few weeks, activity has recovered, with levels now standing at 30-35% from 2019 traffic levels.

• Recent data shows a rapid increase in the number of domestic flights and we expect a doubling of jet fuel demand in June 2020 compared to May 2020.

0

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Absolute demand in effective retainment scenarioThousand barrels per day

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Thousand barrels per day

PreviousPre-virus

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Mitigation scenario

Mitigation scenario

Road fuels

Jet fuels

Other fuels

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01,000,0002,000,0003,000,0004,000,000 Number of active Covid-19 cases

-80%-60%-40%-20%

0% Road traffic (LDV) reduction versus 2019

Daily flights for the effective retainment scenario are estimated to be 50,600 for 2020, slightly up from 49,100 in the 28 May report.

The latest analysis of real-time data suggest a revision of less than 1, and is therefore not shown in the chart.

Actuals for May show a -60% y/y growth in air traffic, which is a slight recovery of 2% compared to April.

Rystad Energy expects the recovery will continue through rest of 2020 as governments are easing travel restrictions. We forecast -53% y/y impact for the effective retainment scenario.

Due to the downside risk of a second wave, the mitigation scenario exhibits an extended bottom which averages a -56% y/y impact on the number of flights for 2020.

Daily number of commercial passenger flights (passenger and cargo), monthly averageNumber of flights

Aviation and jet fuelsBottom of aviation drop is behind us as new monthly numbers suggest slight recovery

*Forecast is based on previous years growth patterns. Effective retainment and mitigation scenarios are based on different quarantine regimes for regions, airline communication and airport flight schedules.Sources: Flightradar24; OAG; Company reporting; ICF; IATA; ICAO; Rystad Energy research and analysis

19

2018

20199% 6%

-56%

-71%

2020 pre-virus projection

-69% -70%-66%

-65%-61% -58% -56% -53%

-74% -73%-71% -70% -69% -68% -66%

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Effective Retainment

MitigationScenario

Ground transportation and road fuelsGlobal road traffic poised to recover from the bottom in April

Road traffic reduction* versus normal levels, 7 March to 7 Jun7-day moving average, percent difference versus mean of traffic during same weekday in same month for 2019

*Population-weighted within each region and based on an hour-by-hour road traffic database with more than 150 countries.Source: TomTom Traffic Index; Google Maps; Baidu; Korea Expressway Corporation; Rystad Energy Global City Traffic Database

20

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7-Mar 14-Mar 21-Mar 28-Mar 4-Apr 11-Apr 18-Apr 25-Apr 2-May 9-May 16-May 23-May 30-May 6-Jun

Rystad Energy Global City Traffic Database covers road traffic in 1,500+ cities

and 150+ countries

Impact on oil demand: Global overviewSummary data table for total liquids demand after Covid-19 “effective retainment” case

*Includes Mainland China, Hong Kong and TaiwanSource: Rystad Energy research and analysis

21

MMbbl/d Change year-on-year

2020 2020 Q1 2020 2020 Q12019 2020 2021 1Q 2Q 3Q 4Q April May June 2020 2021 1Q 2Q 3Q 4Q April May June

Global 99.5 87.8 96.5 92.1 78.5 88.5 92.2 72.0 79.2 84.3 -11.8% 9.9% -7.2% -20.3% -11.6% -8.0% -26.9% -19.8% -14.2%Road 47.4 42.6 46.4 43.9 36.8 44.2 45.6 31.0 38.0 41.6 -10.1% 8.8% -6.0% -22.3% -7.8% -4.2% -34.6% -19.9% -12.3%

Aviation 7.2 4.2 6.1 6.5 2.9 3.5 4.1 2.9 2.8 3.0 -41.4% 44.2% -7.0% -59.8% -54.1% -42.7% -60.1% -60.3% -58.9%

Other 44.9 41.0 44.1 41.8 38.8 40.9 42.5 38.2 38.4 39.7 -8.8% 7.5% -8.5% -11.7% -8.5% -6.5% -13.2% -13.1% -8.7%

United States 20.5 18.1 19.6 19.7 15.6 18.1 18.9 13.9 15.8 17.0 -11.7% 8.3% -2.7% -23.4% -12.3% -8.3% -30.8% -22.0% -17.6%Road 11.2 10.1 10.7 10.7 8.6 10.6 10.7 6.9 9.0 9.9 -9.8% 6.0% -2.6% -24.7% -7.0% -4.3% -39.0% -20.5% -15.1%

Aviation 1.7 1.0 1.4 1.6 0.7 0.7 0.9 0.7 0.7 0.7 -44.2% 48.7% -2.3% -61.4% -60.6% -49.2% -62.5% -62.7% -59.1%

Other 7.5 7.0 7.4 7.4 6.3 6.8 7.3 6.4 6.1 6.4 -7.0% 6.2% -3.0% -11.8% -8.8% -4.7% -9.9% -14.3% -11.3%

China* 15.1 14.1 15.5 13.0 14.5 14.5 14.4 13.9 14.5 15.0 -6.5% 10.1% -14.0% -2.5% -3.6% -5.6% -4.1% -6.8% 3.7%Road 6.1 5.8 6.6 4.8 5.9 6.3 6.4 5.3 6.1 6.3 -4.0% 12.4% -22.4% -0.2% 1.6% 5.3% -7.7% -3.3% 10.8%

Aviation 0.9 0.7 0.9 0.9 0.5 0.7 0.7 0.5 0.5 0.6 -23.9% 30.1% -0.3% -39.6% -29.9% -24.3% -38.7% -40.3% -39.8%

Other 8.1 7.6 8.1 7.3 8.0 7.6 7.3 8.1 7.9 8.1 -6.3% 6.5% -9.1% -0.1% -4.5% -11.5% 2.3% -5.9% 3.8%

Europe 14.2 12.0 13.3 12.5 10.3 12.4 12.9 9.2 10.3 11.5 -15.4% 10.6% -11.0% -27.2% -14.8% -8.7% -36.2% -26.2% -19.0%Road 7.0 6.2 6.7 6.5 5.1 6.5 6.7 4.1 5.2 6.0 -11.5% 7.1% -4.1% -27.4% -9.5% -4.9% -42.6% -24.7% -14.6%

Aviation 1.5 0.8 1.2 1.2 0.5 0.7 0.7 0.4 0.4 0.5 -47.6% 49.3% -10.3% -69.5% -57.6% -47.9% -70.1% -72.1% -66.3%

Other 5.7 5.0 5.5 4.8 4.8 5.2 5.4 4.7 4.7 4.9 -12.0% 9.0% -19.2% -15.7% -9.4% -3.7% -19.6% -16.1% -11.0%

Executive summaryOutbreak status and outlookImpact on oil demandImpact on the oil and gas industry

• Global market outlook• US Shale deep dive• Oil market deep dive• Service sector deep dive• Gas market deep dive

Table of Contents

22

0

100

200

300

400

500

600

700

800

900

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

Offshore deepwaterOffshore shelfShale/tight oilOil sandsOther onshore

-25%

-24%

-29%

Pre-drop capex estimation

Global market outlook Global E&P investments expect to fall around 30% this year

Global InvestmentsBillion USD

Source: Rystad Energy UCube

23

Supply Segment Group Current forecast2020/2019

- 15.6 %-14.0 %-52.2 %-44.0 %-23.4 %

Forecast

Global market outlookE&P companies have already cut their 2020 guiding close to 30%

Global E&P capital investments revisionsBillion USD

Source: Company reporting; Rystad Energy research and analysis

24

325

32.2

23.4

17.39.9

6 7.9

228

0

50

100

150

200

250

300

350

2020 investmentsbefore oil crash

NOC/INOC Majors Shale-focused Globalindependent

Canada focused Others 2020 investmentsupdated

Announced CAPEX revision plans

Global market outlookGlobal FID activity to slip significantly

Total conventional greenfield investments sanctioned/ to be sanctionedBillion USD

Source: Rystad Energy UCube

25

0

50

100

150

200

250

300

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Oil Sands

Offshore shelf

Offshore deepwater

Other Onshore

Feb-20

Global market outlookLow oil prices have reduced 2025 liquid supply by more than 6 million barrels per day

Revisions in outlook for total liquids production for different supply segments Million barrels per day

*Non-core OPEC countries are defined as OPEC countries outside the Middle EastSource: Rystad Energy UCube

0

10

20

30

40

50

60

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Non-OPEC, non-tight oilTight oil

Non-core OPEC

Non-OPEC, non-tight oilTight oil

Non-core OPEC*

Tight oil

Non-core OPEC*

2.9 million bbl/d

2.7 million bbl/d

0.7 million bbl/d

After the oil-price collapse

Before the oil-price collapse

Non-OPEC, non-tight oil

26

US oil* production outlook by forecast time stampThousand barrels per day

*Crude oil and lease condensate productionSource: Rystad Energy ShaleWellCube, Rystad Energy OilMarketCube, Rystad Energy research and analysis

9,000

10,000

11,000

12,000

13,000

14,000

15,0001/26/2020 (base case)5/26/2020 (base case)

Reduction of 2.5 million bbl/d

Global market outlookLower oil price has lowered US oil production by almost 2.5 million bbl/d

27

US Shale deep dive Horizontal oil rig count, speed of decline in previous down cyclesIndexed to the value of 100 for the week when peak level of activity before the decline is reached

*Oil – Permian, Bakken, Eagle Ford, DJ Basin, SCOOP & STACK, other horizontal drilling targeting oilSource: Baker Hughes, 29 May 2020; Rystad Energy research and analysis

30

40

50

60

70

80

90

100

110

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49Weeks since peak, peak week is week 1

Peak November 2014Peak August 2015Peak January 2019Peak March 2020

28

US Shale deep dive US Land, started frac operations by standard month* Number of wells, based on satellite imagery

*Actual number of started frac operations divided by the number of days in each month and multiplied by 365.25 / 12Source: Rystad Energy ShaleWellCube

1,35

3

1,37

7

1,44

0

1,46

8

1,46

7

1,36

3

1,48

8

1,36

0

1,25

2

1,14

4

1,07

9

1,01

8 1,29

3

1,38

1

1,04

5

530

308

27

0

200

400

600

800

1,000

1,200

1,400

1,600

Identified as of June 5, 2020

Estimate for the rest of May 2020

29

Last week, Rystad Energy increased our base case oil prices, and we now expect Brent to average $41 for 2020 and $49 for 2021 (previously $34 and $44) and to near $60 per barrel as we approach the end of 4Q21.

The additional OPEC+ supply cuts for July (-2.9 million bpd) and August (-1.5 million bpd) will provide more support for the very much strained supply-demand balances, which showed peak builds in 2Q20 at the peak of Covid, but which we now expect to start drawing in 3Q20.

The latest supply cut from OPEC+ appears to be an attempt to tighten the prompt market, which will spur large stock draws and flip the oil curve into backwardation and incentivize even further stock draws.

As long as oil prices remain in the sweet spot (low enough to keep marginal supply off the market but high enough to make OPEC+ cuts worth it), we can expect continued builds, barring any supply shocks (Libya returning to market, US shale reactivating rapidly) or downside demand risks (second Covidwave, worsening macro outlook).

Following the OPEC+ announcement, Saudi Aramco seized the opportunity to use the tight market conditions to raise its monthly official selling prices (OSPs) for July by the largest amount ($5-7 to Asia) in at least 20 years.

Oil market deep diveTighter crude balances during June-August led by extended OPEC+ cuts

Source: Rystad Energy research and analysis, OilMarketCube

30

Total liquids balances and Brent base case, quarterlyImplied stock change (million bpd) USD per barrel

6468

62 63

51

32

40 4145 47

5055

6570 70

7570

65 65 65

0

10

20

30

40

50

60

70

80

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Balances (quarterly) Brent oil price (rhs)

31

Oil market deep diveFresh OPEC+ cuts for July still mean 11.2 million bpd less global supply vs. Mar-20Million barrels per day

*Crude oil and lease condensate productionSource: Rystad Energy research and analysis, OilMarketCube

86.7

86.2

71.472.6

65

70

75

80

85

90 Global oil (20 March) Global oil (latest)

Peak -12 million bpd in June

~13.5 million bpd downwards revision for July

Key revisions for Jun-20 (million bpd)• KSA: -3.8• OPEC ME (ex. KSA): -3.1• RU: -2.3• US: -2.2• CA: -1.3• BR: -0.2• NO: -0.1

~15 million bpd for June

-11.2 million bpd in July

Service sector deep dive Offshore wind expenditure to surpass upstream oil and gas in Europe in 2022Annual offshore oil & gas capex* vs. offshore wind capex**, EuropeBillion USD

Offshore wind development in Europe is expected to flourish in the coming years as countries strive to reach their ambitious 2030-targets – and large investments will be required. Commissioning activity is expected to increase towards 2025, and projects expected to be operational in 2023-2025 are already driving up capital expenditures in 2020, and will continue to do so in the coming years. At the same time, the oil market collapse has delayed several offshore oil and gas developments in Europe, putting capital expenditures in the offshore upstream market on a continued downwards trajectory through 2022. In light of the postponement of multiple final investment decisions (FIDs) and lower investments in offshore oil and gas, coupled with the increasing activity in offshore wind, Rystad Energy expects that the two markets will reach parity as soon as next year. We anticipate capital expenditures (capex) for offshore wind will surpass upstream O&G capex in Europe in 2022.

Source: Rystad Energy Offshore Wind Solutions, May 2020

32

0

10

20

30

40

50

60

2014 2015 2016 2017 2018 2019 2020 2021 2022

Offshore wind

Offshore upstream O&G

Gas market deep diveAsian prices have stabilized while the European market continues to reach new lows

• Asian spot prices have stabilized during the past few days as some new pockets of demand begin to emerge.

• Prices slightly rebounded to $2.50 per MMBtu during the few last days, before falling back to $1.92 per MMBtu this week.

• Chinese imports have rebounded in April after two months of lows. Imports in April were well above last year’s level at 5.4 MT, pushing Japan out of the top position as the largest LNG importer on a monthly basis.

• While some pockets of demand have been emerging, the global LNG trade is expected to be lower in May as this is normally the period when demand drops in the northern hemisphere, the result of warmer weather.

• TTF prices are trading below Henry Hub, meaning that exporters of US LNG cargoes are not even covering the cost of gas when selling in the European market.

Source: Rystad Energy research and analysis, AIS data, Refinitv, Bloomberg

0

2

4

6

8

10

12

14

Jun-18 Oct-18 Feb-19 Jun-19 Oct-19 Feb-20

HH

TTF

Asia oil-indexAsia

Spot

05

10152025303540

Apr-

18

Jul-1

8

Oct

-18

Jan-

19

Apr-

19

Jul-1

9

Oct

-19

Jan-

20

Apr-

20

Americas

Europe

M East

NE Asia

Other Asia

International natural gas prices**USD per million Btu

LNG imports by region*Million tonnes

NE Asia LNG importsMillion tonnes

012345678

Japan

China

SouthKorea

Taiwan

Asian prices had a slight rebound during the last days. European prices remain at a historical low.

Japanese imports are down 34% from Jan to Apr (more than average). China has overtaken Japan as largest importer this month.

33

Gas market deep dive US LNG exports down 2 Bcfd from peak in January to the latest data point in May

• Natural gas flows into US liquefaction plants have been on a declining trend since March. Flows in May have averaged 6.5 billion cubic feet per day (Bcfd) which would be equivalent to 5.7 Bcm of monthly production, down 21% from March.

• Sabine Pass has adjusted LNG production the most our of all plants, with feedgas dropping from 3.4 Bcfd in March to 2.6 Bcfdin May (-23%).

• Between 20 and 30 US LNG cargoes for June loading have been cancelled, which could be driving the lower flows into the plants.

• Demand from the power sector, on the other hand, remains strong despite the continued reduction of economic activity.

• Gas consumption for electricity generation has averaged around 25 Bcfd (708 mcm/d), which is line with the 2019 level.

• Gas consumption from the residential and commercial sector was strong at the start of May due to low temperatures.

Source: Rystad Energy research and analysis, AIS data, Refinitv, EIA

05

101520253035

8-M

ay9-

May

10-M

ay11

-May

12-M

ay13

-May

14-M

ay15

-May

16-M

ay17

-May

18-M

ay19

-May

20-M

ay21

-May

5 yr range20192020

US LNG feedgasBillion cubic feet per day, Billion cubic meters

Gas consumption for electricity generationBillion cubic feet per day

Gas for power demand remains strong despite country-wide lockdown as economics remain in favour of gas in power gen.

Gas consumption for residential/commercial useBillion cubic feet per day

0

2

4

6

8

10

Total Bcm

Average Bcf/d

0

5

10

15

20

25

308-

May

9-M

ay10

-May

11-M

ay12

-May

13-M

ay14

-May

15-M

ay16

-May

17-M

ay18

-May

19-M

ay20

-May

21-M

ay

5 yr range 2019 2020

Gas flows to LNG terminals have dropped 25% during the last five months

34

Gas market deep dive Henry Hub prices forecasted to remain below $3 per MMBtu

• The latest EIA data shows injections into underground storage have continued at a strong rate in May, with stock levels reaching 2,500 Bcf.

• Our new production outlook suggests that injections will slow down substantially after July and that stock levels will be closer to 3,600 Bcf by the end of October (-400 Bcf).

• The new forecast also shows a faster decline in stock levels during 4Q20, as production continues to decline and demand increases due to normal seasonality.

• Assuming that production from conventional and tight oil plays will be driven by liquids totaling close to 31 Bcfd, an additional 52 Bcfd is required from unconventional gas plays.

• As shown in the cost curve, these volumes can be produced at a level of around $3 per MMBtu. However, unconventional gas production can increase to 53 Bcfd, having only a marginal effect on the cost of supply, which would increase to $3.16 per MMBtu.

Source: Rystad Energy research and analysis, GasMarktCube, EIA

US underground storage levelsBillion cubic feet

US unconventional gas cost curve 2020USD per MMBtu, Million cubic feet per day

0500

10001500200025003000350040004500

Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20

5yr range2020 Actual20192020 Original Forecast2020 New Forecst

Stock levels are currently substantially above the norm. However, with the forecasted decline in production, we should see a slowdown in injections between July and November and stock levels reaching a maximum of 3,600 Bcf by the end of October.

0.00

2.00

4.00

6.00

8.00

10.00

12.00

- 10,000 20,000 30,000 40,000 50,000 60,000

52 Bcfd @$3 per MMBtu 53 Bcfd @$3.16 per MMBtu

Production required from unconventional

gas plays in December 2020 =

52 Bcfd

35

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OIL MARKET WEEKLY – Demand report, a weekly report with:• An overview of global oil demand• Oil demand impact in two COVID-19 mitigation scenarios• Impact of oil demand in aviation, ground transportation and road fuels

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