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Energy Industry Trends Review

Issue 16: April 2011

EditorialTrends snapshotEconomic outlook


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EditorialIn 2011, the global gas industry seems to have reached anotherinfection point. This change is being driven simultaneously bymarket conditions and technology advances and might (someanalysts are orecasting) bring the global gas supply/demand

situation back into balance, sooner rather than later.

The global gas industry has been in a

period o sustained low demand growth

and weak prices (excepting Asia) or

a ew years. Now there are signs that

the industry is nally moving toward arecovery, with two recent developments

driving the more optimistic outlook.

The rst development is the situation

in Japan, where the earthquake and

resulting tsunami has closed around

63 percent o Japanese nuclear power

generation capacity1 and have resulted

in an increase in demand or liqueed

natural gas (LNG) (Japan has been

soaking up excess supplies in the

Asian market). Second is the growth

in demand or gas in Latin America

and the Middle East, which is being

met through LNG supplied through

foating LNG terminals (FLNG). Kuwait

and Argentina are now importing LNG

using this technology. Argentina, or

example, will have two FLNG terminals

in operation by the end o 2011 and

recently signed an agreement with

Uruguay to build a FLNG plant together,

which will supply the two nations

with 10 million cubic meters/day

(mcm/d) o natural gasscalable

to 15 mcm/dstarting in 2013.2

The combination o these two

developments is leading some

orecasters to predict that the

oversupply in the global gas market

could now end sooner than expected

possibly even in 2012. Cedigaz, the gas

market analysts, are orecasting that

LNG demand will rapidly absorb surplus

in the global gas market; eectively,

the [global] gas bubble could disappear

by the end o 2012, leading to the

return o a sellers market."3

There are, however, still some

complications to this optimistic

outlook. At the top o the list is the

continued low demand and weak gas

price situation in the United States,

which has seen a dramatic all in LNG

imports to that market, with the gas

market situation in the United States

also contributing to an oversupply

o gas in the Atlantic Basin market

generally. In addition, there is a still a

signicant amount o new LNG capacity

set to come onstream over the nextew years, and it is unlikely that all o

that capacity will be absorbed by Asian

markets. I the global economy starts

to slow down later in 2011 (as higher

oil prices aect the recovery), the

current positive outlook or the global

gas markets might end up being rather

short-lived.


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Trends snapshot

February 2011 March 2011 April 2011

Economic World real gross domestic product (GDP) growth is forecast to be about 4.5 percent in 2011 and 2012, down from 5 percent in 2010.4The recovery continues to be uneven, with poor economic data coming out of the United States, the United Kingdom and China thisquarter, indicating that the sustained period of high oil prices might be starting to slow down global economic growth. Most regions,however, are still showing some growth, indicating that even if the pace is slowing, the recovery in general is still proceeding.

Oil supply Global oil supply fell by 50,000 barrels/day (b/d) to 87.5 million b/d in April, with combined OPEC crude and natural gas liquids (NGL)supply lower by 260,000 b/d, while non-OPEC production rose by 200,000 b/d.5 Non-OPEC supply growth, however, is starting to lookincreasingly fragile, which combined with market disruptions in Libya and continued pressure on spare OPEC production capacity, mightlead to further upward pressure on the oil price.

Oil price Oil prices over the past quarter have been characterized by extreme volatility, and markets were unsettled by the sharpest fall in two yearsof the price of oil in early May. Factors such as the crisis in Libya and continued strong growth in Asia are supporting prices, but downwardtrends including slowing economic growth, a strengthening dollar and a relatively robust supply situation mean the market is seeing pricereversals both intraday and from day to day throughout this quarter.7

Oil demand Global oil demand, which averaged 87.9 million b/d in 2010 (3.3 percent or more than 2.8 million b/d year-on-year), is now projectedto reach 89.2 million b/d in 2011 (more than 1.5 percent or 1.3 million b/d versus 2010).6 There is evidence that oil demand growth isslowing, driven in particular by high oil prices hitting American consumers, as gasoline prices reaching $4 per gallon are beginning toaffect gasoline consumption in North America.

Gas supply After two earlier years of decline, the world gas supply is now 4 percent above highs attained before the 2008 recessionsupported byeconomic growth, a cold Northern Hemisphere winter and a hot summer in Asia. Some analysts are forecasting that the global gas bubblecould disappear by the end of 2012, leading to the return of a sellers market.8 Gas supply is forecast to increase by 3 percent in 2011,with a much-reduced gap between spot and long-term prices.

Gas demand Long-term prospects for gas demand remain strong and short-term demand has been tightening due to a cold winter in the NorthernHemisphere, better economic growth and the tsunami in Japan, which has tightened up LNG supply as it fills the gap left by the closure of

its nuclear capacity. However, the improvements in short-term demand are still not yet sufficient to offset the global oversupply situationin general.

M&A M&A activity continued to increase but growth was slower during the first quarter of 2011 than it was in the fourth quarter of 2010.Growth is expected to remain strong during all of 2011, driven by increasing oil prices, continued interest in shale plays, active spendingby national oil companies (NOCs) in Asia as well as restructuring by international oil companies (IOCs). With continued social and politicalunrest in the Middle East and North Africa, the NOCs and IOCs are showing renewed interest in other regions such as Russia and the Caspian.

Gas price European spot gas prices, notably the United Kingdom, are expected to tighten considerably later this year due to the ongoing situationin Japan. In the United States, the gas price remains weak to the ongoing oversupply situation there. Short-term weakening of LNGprices is expected as new capacity continues to come onstream and arbitrage opportunities with Asia are limited by high charter ratesfor LNG tankers.

Refining Global refinery crude throughputs are averaging 73.8 million b/d in the second quarter of 2011, slightly down due to the disruption inJapan and weakening gasoline demand in North America (Q1 runs were averaging 74.2 million b/d). Overall refining margins continuedto remain weak although there were some improvements in northwestern Europe and in some US regions. Concerns about falling gasolinedemand in the United States due to high gas prices might continue to affect gasoline cracking margins here.9

Rig activity Rigs under operation and utilization saw steady growth in the first quarter of 2011. North America is experiencing a significant drop in gasdrilling due to weak gas prices, and gas drilling activity has fallen to the lowest level since 1995.10 Saudi Arabias plan to increase rig activity

by nearly 30 percent is being seen by the market either as signal that it is struggling to deliver the 12.5 million b/d of capacity it has claimedis in place or that it thinks the market will need more spare capacity (due to the unrest in Libya). 11

Companies Company results for the first quarter of 2011 were strong on the back of higher oil prices, although production fell generally. For the remainderof 2011, companies are expected to continue to generate higher revenues in the backdrop of high crude prices. However, there are concernsamong analysts around falling production volumes as the oil majors seem to be focusing on value over volume as the effect of continueddivestments and geopolitical unrest start to kick in. Increased activity continues to support the oilfield services companies, and higher oil pricesare seeing the US independents switching their focus into more profitable liquid plays.


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is expected to be moderate but remain

above trend (Indias GDP growth is

projected at 8.25 percent in 2011 and

7.75 percent in 2012).

Observation

The economic recovery is broadly

moving at two speeds, but generally

in 2011, it seems to be slowing down,

which is causing concerns that the

economic recovery has once again

stalled. The IMF revision or GDP

growth to all this year is a refection

o the impact o the Japanese

earthquake and tsunami, which

aected that countrys industrial

output signicantly, and the impact

o higher oil prices, which is startingto aect large economies such as the

United States, which is already dealing

with high levels o debt.

There are appreciable dierences

among each set o countries in

advanced economies. Weak sovereign

balance sheets, high unding

requirements o banks and declining

real estate markets continue to

present major concerns, especially in

certain Eurozone economies. Also inthe Eurozone, concerns about debt

deaults continue, with the ocus

this quarter once again on Greece,

as analysts orecast that without

another rescue package, Greece will

again deault on its debt obligations

by mid-July 2011.13

In emerging economies, concerns are

centered on rising commodity prices

(driven by ood and energy prices)

and geopolitical uncertainty, as well

as overheating and booming asset

markets. Rising infation (led by high

oil prices in particular) is impacting

economic growth in emerging

economies. Recently, Goldman

Sachs lowered its own GDP growth

orecast or China rom 10 percent

to 9.4 percent, citing a recent run o

surprisingly weak data, high oil prices

and supply constraints. A Goldman

Sachs analyst note on the outlook or

China stated, This is both a sharper

and more extended slowdown than

we had previously projected."14

Global markets are waiting to see

whether the slowdown now evident in

the global economy will be temporary

or longer lasting. There are some

signs that it might be temporary;

or example, the situation in Japan

may already be improving, with data

showing Japan's actory output rose

in April 2011 as the country seems to

be starting to recover rom the eects

o the earthquake and tsunami. (The

1-percent rise in Japans output was

less than orecast, but analysts said theoutlook was brighter or the coming

months.)15 However, signs o a drop in

the oil price are harder to spot. There

are continued intraday and day-to-

day spikes in oil and other commodity

prices (exacerbated or the oil price

by continuing tensions in the Middle

East and North Arica) that continue

to dampen market condence and

weaken consumer spending, which

does not appear to be disappearing

any time soon.

Oil supplyKey trendAccording to the

International Energy Agency (IEA),

global oil supply ell by 50,000 barrels

per day (b/d) to 87.5 million b/d in

April 2011, with combined OPEC crude

and natural gas liquids (NGL) supply

lower by 260,000 b/d, while non-OPEC

production rose by 200,000 b/d).16

Non-OPEC total oil supply rose by

200,000 b/d in April to 53 million b/d

(despite eld shut-ins or technical and

political reasons in Argentina, Canada

and China) on higher production

in the North Sea, the Fdration

Syndicale Unitaire (FSU), China and

Brazil. The 2011 projection or non-

OPEC production has been adjusted

down by 100,000 b/d by the IEA to

53.7 million b/d on revised Canadian

Key trendAccording to the latest

International Monetary Fund (IMF)

World Economic Outlook report,12 the

global economy is expected to expand

by 4.5 percent in 2011 and 2012 (down

rom 5 percent in 2010). The uneveneconomic recovery continues with most

advanced economies still reporting

output ar below potential. In emerging

economies, the demand is robust and

overheating o key growth economies

is an increasing concern.

The US economy continues its uneven

recovery, with easing nancial

conditions supporting private demand

in the ace o higher commodity prices.

Though job creation in the UnitedStates is picking up momentum, it

is nowhere near to lling the gap

o the jobs destroyed during the

nancial crisis o the past ew years.

At the same time, the US Federal

Reserve continues to raise concerns

about lack o momentum in the labor

market. The more advanced European

economies real gross domestic

product (GDP) is projected to grow at

1.75 percent in 2011 and 2 percent

in 2012. Overall, real activity in theEurozone remains below its potential

level, and unemployment is still high

with debt levels in many Eurozone

countries a concern (Germany remains

an exception). Growth in Japan is

expected to slow to 1.5 percent in

2011 in the atermath o the countrys

recent earthquake and tsunami.

Emerging economies are expected

to grow at 6.5 percent in 2011 and

2012, supported by strong export

perormance, buoyant private domestic

demand and, in some cases, rapid

credit growth. Chinas GDP growth is

expected to be robust at 9.5 percent

this year and in 2012, with the drivers

o growth shiting increasingly rom

public to private demand; however,

this growth is slowing. Growth in India

Economic outlook


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prospects. Any urther growth in non-

OPEC production growth or the rest

o 2011 is likely to be driven by Brazil,

China, Colombia and Ghanabut the

projection is currently or a decline

in nonOPEC production overall or

2011. US oil independent Anadarko

Petroleum recently reported that

Ghanas giant Jubilee eld is on track

to reach peak production o 120,000

b/d by the end o summer 2011.17

In the Gul o Mexico, business is

slowly returning to normal, now that

the Bureau o Ocean Management has

started to issue new permits to drill

new deepwater wells. Nonetheless,

according to the latest U.S. Energy

Inormation Administration (EIA)

estimates, Gul o Mexico oil

production is expected to all by130,000 b/d in 2011 and by a urther

190,000 b/d in 2012, due to production

declines rom existing elds as well

as the impact o the 2010 drilling

moratorium and subsequent delay in

issuing the new drilling permits.18

OPEC production ell to 29.2 million

b/d as oil production in Libya

remains severely aected by the

countrys unrest and civil war. Despite

expectations that ellow OPECproducers would increase output to

replace lost Libyan supplies, OPECs

production remained an estimated

1.3 million b/d below the pre-crisis

level o around 30 million b/d posted

in January. Signicantly higher

production rom Nigeria, coupled with

smaller increases rom several other

countries, ailed to oset reduced

output rom Libya, Angola, Saudi

Arabia and Iraq. However, overall OPEC

supply was still at or above trend

largely due to increased output rom

Saudi Arabia since the beginning o

2011. Saudi production averaged 8.88

million b/d in the rst quarter o 2011,

which is an increase o 310,000 b/d

rom the 8.57 million b/d average in

the ourth quarter o 2010 (although

it declined slightly in April). OPEC

eective spare capacity is currently

estimated at 4.14 million b/d (April

2011). Libyan crude output is now

orecast to remain at around 200,000

b/d through the end o 2011 and, as

a result, OPECs available capacity by

year-end 2011 is estimated at 33.83

million b/d.19

Observation

Global oil supply witnessed an overall

drop in the rst quarter o 2011,

mainly due to the ongoing geopolitical

unrest in Libya, which has seen the

countrys oil production all to around

200,000 b/d in April 2011 rom pre-

crisis level o 1.6 million b/d. Going

orward, the amount o geopolitical

uncertainty is expected to increase

within the Middle East and North

Arica (MENA) region, with Yemen also

currently showing signs o signicant

unrest, which is having an impact onnon-OPEC production levels.

Despite the supply situation in MENA,

the global oil market currently looks

well-supplied, with increased output

rom Saudi Arabia supporting the

production shortall. The increase in

oil supply rom Saudi Arabia, however,

does have some implications. The

market is becoming concerned about

an over-reliance on Saudi crude,

particularly as non-OPEC crude outputseems to be slowing, thus increasing

the infuence o OPEC supply in the

market (arguably making the market

more vulnerable to urther supply

shocks). Analysts are also looking or

signs o contagion in Saudi Arabia,

rom the so-called Arab Spring,

which has seen protests disrupt the

economies o many MENA countries.

Some analysts believe that Saudi

Arabia could be bringing more oil

onto the market, but are in act

restricting output to keep the oil price

high to support domestic economic

initiatives being put in place to stave

o potential unrest in the country.

For example, in February 2011, King

Abdullah announced a $36 billion

package o social benets mostly

aimed at youth, civil servants and

the unemployed. This announcement

caused one analyst to comment, It

helps explain why, instead o the

Saudis cracking open the tap, as they

should be doing at the moment, theyre

actually being, i anything, maybe a

little bit more restrictive to keep oil

prices high, because they need it to

meet some nancial commitments.20

OPEC has chosen not to make any

changes to its oil production output

at its meeting in June 2011, ater

widespread speculation that it would

be raising its production levels by

around 1.5 million b/dwhich would

alleviate the pressure on both the

supply side and the oil price.21

Oil demandKey trendAccording to the IEA, global

oil demand, which averaged 87.9

million b/d in 2010 (a 3.3 percent or2.8 million b/d increase year-on-year),

is now projected to reach 89.2 million

b/d in 2011 (a 1.5 percent or 1.3 million

b/d increase versus the previous year).

However, global oil demand only grew

by 0.4 percent in March 2011.22

Data on oil demand suggests that

persistently high oil prices are starting

to have an impact on demand growth,

particularly in OECD (Organisation

or Economic Co-operation andDevelopment) nations. According to

the IEA, total OECD demand contracted

by 2.8 percent year-on-year in March

2011, or the rst time since February

2010, which was a signicant drop.

There is evidence that high oil prices

are hitting US consumers in particular,

with gasoline prices close to $4 per

gallon beginning to aect gasoline

consumption in North America. Japan

showed an overall decrease in oil

demand or March 2011 (although

direct crude burn rose sharply to

oset the partial loss o nuclear

power generation, the disruption

o economic activity curbed diesel

demand sharply). Nevertheless, the

Japanese economy should start to

recover toward the ourth quarter o

2011 as reconstruction gathers pace.23


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Oil demand growth in China

accelerated slightly in March (an

increase o around 10 percent year-

on-year), reversing the slowdown

observed in the previous two months,

bringing total Chinese oil demand

to 9.5 million b/d. Early reports rom

some analysts are orecasting urther

growth in Chinese oil demand, despite

some views that the Chinese economy

is slowing down, as this summer the

country looks set to experience its

worst power shortages since 2004.

This projection is likely to put urther

pressure on its industrial sector, raising

the possibility o China turning into

a net importer o diesel as people

turn to diesel generators or power

generation use.24

ObservationThe market is currently witnessing

competing trends in global oil demand.

These trends are supporting a general

view that while oil demand continues

to increase generally, it might be

slowing in some marketsnotably the

United States. However, this slowing

could be oset by the continued

growth in demand in China and other

growth economies.

The US economy continues to showan uneven recovery that is not yet

liting the economy out o recession.

Higher oil prices and rising ood costs

appear to be aecting any growth

in the countrys private sector and,

in common with most other OECD

nations, public spending in the United

States is being heavily cut back. Some

economists have cut orecasts or US

economic growth in the second quarter

o 2011 with industrial production,

consumer spending and unemployment

all still looking depressed.25 As the

US summer driving season begins,

it is being predicted that gasoline

consumption will be lower than last

year, as motorists cut back due to high

gasoline prices.

Industry observers are also highlighting

the continued oil demand growth rom

economies like China, where the threat

o electricity shortages is expected

to lead to a jump in demand or uel

such as diesel. I Chinas power supply

is tightly rationed this summer and

the Chinese turn to back-up oil-red

generators as they have in the past, oil

demand may be signicantly higher

than previous predictions. Increased

use o diesel generators has boosted

Chinese oil demand by 400,000 b/d

to 600,000 b/d in previous summers,

according to some analysts: Chinese

diesel shortages could, by themselves,

mitigate all o the weakness possibly

emanating rom the OECD due to

higher prices and still tighten global

balances urther. (Barclays Capital)26

Oil priceKey trendCrude oil prices over the

past quarter have witnessed extreme

volatility, which has also been seen

in other commodity price markets.

Markets were unsettled by early Mays

sharpest all in the price o oil in two

years, as markets reacted to news o

a slowing global economy. However,

actors such as the geopolitical crisis in

Libya and Yemen and continued strong

growth in Asia are also supportingprices on any given day. On May 5,

2011, ICE Brent or June delivery ended

the day at $110.80/barrel, alling by

$10.39, or 8.57 percent, rom $121.96

the previous day.27

As o June 1, utures oil prices or

delivery in July were $102.84/barrel or

WTI and $116.80/barrel or Brent. US

oil prices were being urther supported

by the closure o a pipeline carrying

Canadian crude to the United States

ater storm-related power outages at

the end o May.28

Observation

The volatility evident in oil price

movements is coming rom market

reactions to upward and downward

pressure on the price that is rapidly

changing intraday and day to day.

Downward pressure on the price is

coming rom reports o slower global

economic growth (notably in theUnited States), possible Eurozone debt

deaults, a strengthening dollar and

because market undamentals are

still showing strong inventories and

a generally robust supply situation

(despite the situation in Libya). Upward

pressure continues to come rom the

situation in Libya, uneven economic

recovery and growth data coming

rom the larger industrial economies

and other non-geopolitical supply

disruptions, particularly now thatOPEC has chosen not to change its

production output and alter quotas.29

In May, the market was also reacting

to the end o nancial quantitative

easing in the United States, sentiments

that commodity prices in general had

increased too ast (which led to prot

taking), with many countries showing

a rise in infationan eect that is

continuing into June. Oil consumption

also continues to be vulnerable tothe high level o retail prices in many

industrialized countries. One o the

major impacts o rising crude prices

has been the re-evaluation o uel

subsidies by various governments.

Malaysia recently announced that

it will review its uel subsidies i the

crude oil price reaches $110 to $120/

barrel.30

However, crude oil prices are expected

to continue to rise in the medium to

long term, as investors are anxious

about the continuing situation in

Libyathe eect o which will be to

tighten the supply market urther

into 2011. Underlying concerns in

oil markets are that unrest rom

the confict in Libya will widen and

eventually disrupt the fow o oil

rom key exporting countries such

as Algeria, Iran, Kuwait and Saudi


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Arabia. Analysts are now raising their

oil price orecasts or 2011 and 2012,

citing that the growth in global oil

demand will reduce global inventories

and strain OPEC's spare oil output

capacity. Goldman Sachs and Morgan

Stanley have issued revised 2011 oil

price orecasts or Brent crude. Both

banks are now orecasting Brent crude

to reach $120/barrel by the end o

2011.31

Gas supplyKey trendGlobal gas production is

expected to increase by 3 percent

in 2011, with a much reduced gap

between spot and long-term natural

gas prices. This growth will be driven

by shale gas production in North

America, while European indigenous

gas production is expected to continueto decline and will continue to be

supplemented by supplies rom Russia

and Norway, as well as increasing

amounts o LNG.32

According to Cedigaz, the volume o

global marketed gas production grew

by 7.3 percent worldwide in 2010 to

3.2 trillion cubic meters (tcm) or 310

billion cubic eet/day (bc/d). World gas

supply is currently around 4 percent

above highs attained beore the 2008recession. Economic revival in 2010,

a cold Northern Hemisphere winter

and a hot summer in Asia have all

supported the growth in gas demand.

Eectively, Cedigaz is orecasting that

the global gas bubble could disappear

by the end o 2012, leading to the

return o a sellers market.33

Gazprom has reported that its gas

exports to Europe showed a signicant

increase so ar in 2011, with gures or

May showing an even bigger year-

on-year rise. Gazprom production or

2011 is now estimated at 519 bcm

(compared to 508.6 bcm in 2010).

Gazprom is aiming to produce about

550 bcm o natural gas (a peak

reached in 2006) by 2013 and 570

bcm o gas by 2014. The company has

also increased its capital investment

or 2011 by 50 percent ($42.19 billion)

and expect this investment increase to

continue or the next two years as gas

markets continue to recover, with the

company also substantially investing in

gas storage.34

In the United States, marketed natural

gas production has been growing

steadily since 2005, primarily due to

the boom in unconventional shale

gas production. The EIA expects total

marketed production to average 1.4

bc/d (2.3 percent) higher in 2011,

compared with 2010. LNG imports

to the United States continue to all,

and although export schemes or LNG

are still being discussed, none are yet

being implemented. Analysts point

out that even i some US LNG exports

are authorized, the act remains that

the United States is still one o thehigher-cost, gas-producing regions

globally, and the industry does not

see that exporting natural gas via

LNG shipments being enough to

push US gas prices higher. Apache

CEO Roger Plank was quoted at a US

gas conerence recently as saying,

[US] gas prices will rise only when

producers respond to weak prices and

pare output.35

Globally, the gas market continues tolook well-supplied, with numerous

LNG projects continuing to support

demand, notably rom Qatar. South

America is expected to play a larger

role in gas supply through LNG exports

going orward. In June 2010, Peru

began exporting rom its 6.4 bcmper-

year LNG terminal, and in 2011 will

commence contractual deliveries to

Mexicos new Manzanillo regasication

terminal. Peru LNG shipped a total o

22 cargoes in 2010 to countries in the

Atlantic and Pacic basins including

South Korea, China and Brazil, and

reportedly shipped its rst cargo to

support gas demand in Japan in May

2011. Peru LNG is likely to continue to

ocus on shipments to Asia in 2011,

but two-thirds o its production will be

contracted to Manzanillo.36

Observation

The solid global gas supply situation

continues to be supported by

production rom US shale gas plays

and new LNG capacity coming

onstream. Longer term, the global

supply picture is expected to tighten

considerably, with the market

reverting into a sellers market. Whilethis might ease the pressure on the

competitiveness o gas supplies, or

markets like the United States it

will bring energy policy sharply back

into ocus (as exporting shale gas as

LNG looks too expensive to compete

globally). It will now be up to the US

power sector to absorb much o the

incremental supply, but how much

and how eectively it can do that will

depend on how government policy and

the price situation evolves to supportthe transition rom coal to gas or new

power generation.

According to US Federal Energy

Regulatory Commission (FERC), gas

will play a larger role in US power

production. At the same time,

however, FERC is warning against

the United States becoming overly

dependent on domestic gas reserves,

and inrastructure as bottlenecks are

starting to appear in the system. Forexample, in the Marcellus shale region,

pipeline and processing capacity is

starting to tighten, and some wells

are being started but not completed

due to a labor shortage. There are

also concerns about a pending U. S.

Environmental Protection Agency

(EPA) report on the impact o US shale

gas drilling (the nal report will be

released in 2014), which could also

slow down the US shale gas revolution.

Currently, some specic US states and

towns have temporarily banned shale

gas drilling. The United States has not

yet ollowed countries like France,

where earlier in 2011 the rst stage o

a law was passed to implement a total

ban on exploration drilling or shale

gas (as an environmental cautionary

measure). What is likely in the United


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8

States is that the EPA will call or new

procedures to be ollowed to support

environmental concerns about shale

gas drilling, which will certainly add

to the cost o US shale gas production

and urther limit its potential or

export.37

Gas demandKey trendAccording to the EconomicIntelligence Unit (EIU), global gas

consumption grew by nearly 4.9

percent in 2010, owing to lower

prices and strengthening industrial

production in the OECD and the

emerging world. As 2010 growth was

rom a low base (in 2009), the EIU

orecasts that global demand growth,

although remaining strong, will be

just under 3 percent this year. Natural

gas demand might strengthen as earlyas 2012, owing to higher oil prices,

eorts to reduce carbon dioxide (CO2)

emissions and the growing demand or

LNG rom Asia.38

The EIU expects an increase in gas

demand o 2 percent or the United

States in 2011, owing to better

industrial output, relatively low gas

prices and growth o natural gas

consumption in the electric power

sector. It expects more robust growthin consumption in 2012, at 2.5 percent,

as relatively low gas prices and the

availability o substantial volumes

o unconventional gas should oer

greater opportunities or industrial

users to switch rom coal to gas.39

The EIU outlook or the United States

in 2011 is more positive than the

current outlook or US gas demand by

the EIA, which is orecasting that total

US natural gas consumption will grow

by only 0.5 percent to 66.5 bc/d in

2011 (rising by 0.7 percent in 2012 to

67.0 bc/d).

The EIU expects European gas demand

to continue to grow in 20112012 at

an annual average rate o 3.1 percent,

owing to rising industrial production

(particularly in Germany) and various

government eorts to reduce CO2emissions.40 This orecast is now

likely to change with the news that

Germany will close all o it nuclear

power stations over the next decade

or so. The country has committed to a

substantial program o subsidies and

investment in wind, solar and other

renewable energy sources. Germany

plans to double its use o renewable

power generation to 35 percent by

2020 and is also likely to increase its

use o gas-red power generation.41

Gas demand in Asia and the Middle

East also continues to increase. The

EIU expects LNG demand in Japan to

urther increase ollowing the March

earthquake and tsunami. In the MENA

region, natural gas consumption is

likely to contract in the very shortterm as a result o the political unrest,

which has damaged businesses and

houses and reduced production in oil

and gas acilities. However, strong

demand rom the Gul nations over the

summer is likely to keep consumption

at just under an annual average o 7

percent in 20112012. The EIU also

orecasts Saudi Arabia to grow in

importance as a regional gas consumer,

with consumption orecast to rise to

more than 100 bcm by 2012.42

Observation

While short-term gas demand in

Europe and the United States has been

supported by colder winter weather,

demand in the market generally

(outside o the Middle East and Asia) is

expected to remain airly fat in 2011

as economic growth stalls slightly.

However, the global return to stronger

demand growth is being ast tracked

by the ongoing situation in Japan,

which is likely to see the supply/

demand balance in the global market

tightening up considerably as the year

progresses and the economic recovery

once again gathers pace. The late-

2010 IEA orecast was or global gas

supply capacity to rise above 200 bcm

in 2011, with that capacity exceeding

gas demand or a decade. This orecast,

however, is now looking increasingly

unlikely.

Many gas market analysts are now

revising their orecasts, particularly

or LNG, with Bank o America/Merrill

Lynch stating in a recent research

note, The global LNG market is

tightening rapidly. In our view, the

global gas glut is set to disappear

quickly. Bank o America/Merrill Lynch

expects Japans 2011 LNG imports to

rise 8.5 million tonnes above the 70

million tonnes it consumed in 2010,

using up large quantities o LNG at a

time when new big consumers such as

India are also increasing their use o

gas. Although the market is well-

supplied now, we worry that supply

could become a constraining actoron demand rom 2012, as there are no

major supply additions until 2015 ...

in the second hal o the decade new

export projects in Australia and the

United States could improve global

supplies.43

Longer term in Japan, there is likely

to be a rethink o the mix o primary

energy, as a result o the power

generation crisis brought about by the

earthquake and tsunami. Already inJune 2011, there is a debate beginning

about liberalizing the Japanese

electricity market (unbundling

generation and transmission

services). The Japanese government

is considering reshaping the power

grid in the hope that competition will

bring down electricity charges and

spread the use o gas and renewable

energy or power generation. While the

liberalization o the electricity sector

is likely to be very unpopular with

Japans electricity companies, it may

be the only way to eectively manage

power generation and distribution in

the earthquake-prone country. When

the earthquake struck in March, the

ragility o Japans monopolized and

nuclear-dependent power grid became

obvious. To address the situation,


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99

Tokyo Electric Power Company (TEPCO)

had to resort to the emergency step

o temporary rolling blackouts in the

regions covered by its service, which

included the densely populated Tokyo

area.44

It is not only energy policy that is

likely to have an eect on gas demand

growthtechnology is also playing its

part. South America and the Middle

East are expected to play a bigger

role in LNG markets going orward

as a direct result o technology

advances like foating LNG (FLNG)

ships (FLNG systems combine LNG

and cryogenic-fuid processing on a

ship with a storage system). Countries

that import higher quantities o

gas are starting to use FLNG ships

or their cost eectiveness andfexibility in managing gas demand.

Kuwait and Argentina have invested

in FLNG systems over the past ew

years. Argentina, or example, started

experiencing natural gas shortages

in 2004, when heavy government

intervention and price caps

discouraged investment in exploration

and production. Its domestic gas

production peaked in 2004 at just over

52 million cubic meters a day (mcm/d),

but dropped to about 45 mcm/d in2010. Since that time, gas demand has

increased substantially as the economy

has grown, orcing the government

to import gas. In 2011, Argentina is

set to increase LNG imports when the

Escobar FLNG plant comes onstream.

The country expects that the new 5.2-

bmc terminal will allow it to import

between 45 and 50 LNG cargoes in

2011twice as many as in 2010.45

In February 2011, Argentina signed an

agreement with Uruguay to build a

shared FLNG project that will supply

the two nations with 10 mcm/d o

natural gas starting in 2013. The plant

will be located along the Uruguayan

coast near the Arroyo Solis Grande

river.46

Gas pricesKey trendGenerally, gas prices are

recovering rom the low o previous

years, as demand starts to tighten

due to a relatively stronger economic

outlook and ollowing a harsh winter

in the Northern Hemisphere and

Japans situation, which has drawn

down excess gas in the market. Thissituation is expected to continue, with

European gas prices orecast to tighten

considerably due to the ongoing

crisis in Japan continuing to support

demand or LNG in Asia. As a result,

there may be a diversion o cargoes

into the region and away rom Europe.

In the United States, the gas prices

are expected to remain weak due to

ongoing oversupply situation in the

market.

In the United States, the Henry Hub

spot price averaged $4.25/million btu

in April 2011 (28 cents higher than the

March average) and the EIA expects

that the Henry Hub price will average

$4.24/million btu in 2011, a decline o

15 cents rom the 2010 average. The

EIA expects that the orecast decline

in production will contribute to a

tightening domestic market next year

in the United States, with the Henry

Hub price averaging $4.65/millionbtu in 2012.47

Europe could experience gas price

shocks this coming winter (2011/2012)

as increased Japanese demand or

Qatari LNG continues to tighten the

gas market. Initially, the situation in

Japan was met by spare capacity in

the rest o Asia and by Qatar; however,

the closure o another nuclear power

station in Japan is likely to tighten the

global supply market considerably i

European winter demand is strong.

Spot LNG prices were strong in March

and April, with maintenance in Qatar

and increased demand rom Japan

tightening the market. Qatars RasGas

planned a 35-day maintenance

program on RasGas plant Train 3

rom early May, which involved supply

disruptions at the 4.5-million-tonne/

year acility. Japan was estimated to

have imported a record 2.138 million

tonnes o LNG in March to supplement

its power generation. The situation

in Japan saw spot prices to Asia or

May and June delivery o LNG rise to

around $12 to $13/million btu.48

Observation

Currently the gas market continues to

be in a phase o oversupply, resulting

in stable spot gas and LNG prices. This

is a continuing consequence o the

global economic crisis and its negative

impact on industrial gas demand,

combined with the start o production

at new large gas acilities. This short-

term situation is not expected to

last, as excess capacities are likely to

disappear supported by extra demandin Asia (notably Japan), Latin America

and the Middle East. Analysts now

expect the global gas market to

tighten sooner than expected, leading

to growing competition between

Europe and Asia or access to gas

resources. This situation is already

orecast to have an impact on the

European gas market by next winter.

LNG prices generally look robust, and

have been supported by the situationin Japan, which has reduced that

countrys power generation capacity.

Japan lost the capacity o two o its

nuclear plants and several coal and

oil-red thermal plants shut ater the

earthquake and tsunami. The countrys

main power utility, TEPCO, reported

that it generated 9.6 percent less

power in March; during the period

o March 11 to 31, it generated 17

percent less power.49 Spot prices o

Japan-bound LNG have risen nearly 30

percent to just below $13/million btu

rom the beginning o 2011.


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10

Currently LNG prices are not rising

rapidly, as global LNG supplies

according to analysts are tight but

adequate. The general good supply

situation is refected by the act that

current Japanese LNG spot prices are

still 20 percent below LNG prices under

long-term supply contracts, which

are linked to Japans average crude oil

import price. This situation, however,

is likely to change i the gas supply/

demand situation starts to urther

tighten.50

RefningKey trendGlobal renery throughputs

averaged 74.2 million b/d in the rst

quarter o 2011, below previous IEA

estimates, with lower throughput in

OECD Europe in particular as well

as in Latin America and the MiddleEast. In Europe, planned maintenance

peaked in March, whereas a total o

620,000 barrels/day (b/d) o Japanese

rening capacity was still shut in by

end o March due to the earthquake

and tsunami. Rening margins are

generally improved in North America,

but remain weak in northwest

European markets.51

The IEA expects global oil-rening

output to rise sharply in May andJune ahead o the US summer driving

season, ater seasonal maintenance

and weak margins held back rening

activity in the rst our months o

2011. Rening margins generally

improved throughout the quarter,

notably in North America on the back

o higher product prices and recovering

demand. European margins, however,

continue to deteriorate. According to

the IEA, in northwest Europe cracking

margins ell in April and Brent margins

were negative or the month on

averagea situation not seen since

November 2009. Rening margins in

most regions remain under pressure

due to uneven demand and actors

such as increasing prices or sweet,

light crude in the wake o shortage

o Libyan supplies.52

Observation

Many reneries in the OECD region are

expected to come out o maintenance

shutdowns during second quarter o

2011, with some European reneries

expected to extend their downtime

as they are conronted with weak

margins, exacerbated by the disruption

o supply o sweet light crude romLibya. However, in the non-OECD

region, many reners are expected to

delay maintenance to take advantage

o any product supply shortall in

Japan, although there has been a sharp

decrease in demand or oil products

ater the earthquake and tsunami, with

demand alling 12 percent in April

2011 rom a year earlier.53

Some reners continue to see some

improvement in margins due to bettereconomic activity and strengthening

demand in the short term. In the

longer term, global rening margins

are expected to remain under pressure

as recovering global demand is met

by another wave o new rening

capacity construction. This new

capacity is expected to see global

rening utilization rates at around

85 percent o nameplate capacityat

least through 2015according to

energy analysts KBC. In Asia, KBCsees both China and India continuing

to add rening capacity. China is

expected to build new capacity in line

with its surging domestic demand

or transport uels and petrochemical

eedstock. Middle Eastern reners

are also expected to add rening

capacity above their domestic

requirements, with 1.6 million b/d

o rm new capacity expected by

2016 in Saudi Arabia and the United

Arab Emirates, and more than 1

million b/d o potential capacity to

be built elsewhere. With declining

export markets or surplus gasoline,

a unctioning carbon market rom

2013 (which is seeing cost rises or

heavy industry) and a swing to cleaner

marine uels in the North Sea/Baltic

corridor, both US and European

reners ace the greatest pressure

in the global scenario.54

Given this scenario, there is a

continued trend o major oil

companies selling rening assets in

OECD nations, including the United

Kingdom, France, Germany, the United

States and Australia, as companies

are restructuring their global rening

portolios to deal with the changing

outlook or oil and product demand.

This quarter Chevron announced that

it is selling its UK renery at Milord

Haven to Valero Energy or $730

million, with a urther $1 billion being

paid by Valero or the stocks o oil,

petrol and other products onsite. Shell

also announced the sale o its UK

renery at Stanlow to Essar Energy o

India, in addition to the news that it

will convert its Australia renery near

Sydney (Clyde) to product storage,

citing increasing competition romAsian reners as a primary reason.

This is the result o increased

competition rom mega-reneries in

Asia, supply and demand in our region,

and Clyde renerys small size these

reneries can provide Australian-

specied product, which wasnt

always the case in the past.55

Mergers and acquisitionsKey trendDuring the rst quarter o

2011, global merger and acquisition(M&A) activity in the oil and gas

industry continued to grow, although

at a slower pace than the previous

quarter. Overall M&A activity is

expected to remain strong through

2011driven by increasing oil

prices, continued interest in shale

reserves, active spending by NOCs

and continued restructuring by

international oil companies.

What is becoming increasingly clear

in 2011, however, is that the major

oil companies are turning into net

sellers o oil and gas assets, while

many o the NOCsparticularly those

rom Chinacontinue to spend large

amounts o capital on new assets.

While many major oil companies

have been pursuing new asset

deals in growth areas this quarter


11/16

11

(notably in the Arctic), these deals

have had variable success. In March,

French major Total agreed to buy

a 12 percent stake in the Russian

gas company Novatek, and join the

Yamal LNG project in a deal worth

about $4 billion.56 BP entered into

an unsuccessul $16 billion deal with

Russian oil company Rosnet, which

would have involved a 5 percent

transer o BP ownership to Rosnet

and would have given BP a 9 percent

stake in Rosnet (with the two

companies agreeing to concentrate

on developing reserves in the Russian

Arctic). The deal came under attack by

BPs existing Russian partner, AAR, on

the grounds that it violated an existing

agreement and looks to be undoable in

its current orm.57

In contrast, many NOCs are managing

to expand their reach and are now

starting to ocus on assets in North

and South America, in contrast to a

ocus on Arica and the Middle East.

For example, in February, Sinopec bid

$5.4 billion or Encana Corporations

50-percent stake in a Canadian heavy

oil and gas project, making it one o

Chinas overall largest oil and gas

investments in North America as well

as the largest investment outside oChina that Sinopec has undertaken to

date.58 In another large deal, also in

Canada, Petrochina has again teamed

up with Encana in a $5.43 billion deal

to develop hard-to-reach natural gas

reserves in the Cutbank Ridge area o

British Colombia and Alberta.59

This Chinese NOC spending trend

shows no signs o abating. Under

Chinas new Five-Year Plan (2011

2015), which, despite having a ocus

on creating a more sustainable uture

or China, still has a considerable ocus

on investing in the exploration and

development o oil and gas (including

shale gas) and the downstream sector

or Chinas uture energy needs.

For example, under the terms o

the plan, one o Chinas largest oil

companies, CNOOC, has stated that

it plans to spend almost $160 billion

to buy oreign oil groups and invest

in new production, with the majority

o the spending to be on oshore

oil exploration. CNOOCs 2010 gas

production was 64.1 million tonnes,

which its CEO highlighted, marked

a milestone that China has become

one o the worlds largest oshore oil

producers ater the United States, the

United Kingdom and Norway.60

Observation

M&A deal activity continues to be

supported by the high oil price, but

has substantially decreased rom

the ourth quarter o 2010. Activity

remains ocused on US shale plays

and continued divestments by the

oil majors. Attention is switching to

deals or long-term rontier plays withBP and Total pursuing deals ocused

on the Russian Arctic this quarter.

BPs negative experience reveals the

diculties o conducting deals o

this nature (BPs deal involved a share

swap, which was declared illegal by its

partners in TNK). There may be many

lessons to learn rom BPs experience

including not to underestimate the

current political and market situation

in Russia, but primarily not to risk a

relationship with an existing partner.

The importance o strategic

partnerships is being played out

between the Chinese NOCs and

Canadian oil companiesnotably

Encana. The partnership between

China and one o Canadas largest oil

companies looks like a good match so

ar, with the Chinese looking or access

to new reserves and production as well

as building their technical expertise

in unconventional production. At

the same time, Canada is looking to

develop trade with China and export

its own resources to Chinese markets.

The move by the Chinese oil companies

into Canada comes soon ater the

rst signicant deal by a Chinese NOC

in the United States, when CNOOC

announced it was buying one-third

o Chesapeake Energys south Texas

shale assets or $1.1 billion at the end

o 2010.61 With the ormal backing o

Chinas current Five-Year Plan, the only

question is: where will the next large

deal by a Chinese NOC be done, with

some analysts betting on them to take

a more signicant stake in the US Gul

o Mexico. Opined Peter OMalley, head

o HSBC Resources and Energy practice

or Asia Pacic, I posit the Chinese

will acquire signicant stakes in the

Gul o Mexico in the next 12 to 24

months.62

Most would agree, particularly as

new regulations or the current

environment in the Gul o Mexico will

make lie more dicult or some o the

energy independents and operations

there more expensive, that a deal by

a Chinese NOC or a large asset theremust surely be in the cards.

Chinese oil companies continue to

be important drivers o oil and gas

M&A. In 2009 and 2010, Chinese

oil companies undertook nearly $50

billion o deals outside their borders,

roughly 5 percent o the industry total,

and 2011 looks like being another

record year or overseas acquisitions.

Increasingly in 2011, however,

the deals being done are in moretraditional oil and gas sectors, such as

the United States and Canada. Analysts

have noted this switch in M&A

strategy by the Chinese oil companies,

with analysts stating, For decades,

major players like PetroChina, Sinopec

and CNOOC ocused on building out

their operations in politically volatile

regions like Sudan, Venezuela and Iran.

Now, they are competing with the

multinational giants on their own tur,

striking partnerships and joint ventures

in the United States, Canada and Latin

America.63


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12

Rig activityKey trendRigs under operation and

utilization witnessed steady growth

in the rst quarter o 2011. North

America is witnessing a signicant

drop in gas drilling due to weak gas

prices, and gas drilling activity has

allen to the lowest level since 1995,

as many operators switch their ocusinto the liquid shale plays.64

According to some analysts, the US

natural gas rig count, which has been

steady or about two years, is down

100 rigs in the past six months, and

should continue to deteriorate over

the next ew years. Although the gas

rig count is expected to continue

to decline, onshore oil rig activity is

poised to grow substantially.

Deepwater drilling rig utilization is

expected to continue to increase and

analysts are closely watching Brazils

plans to build new rigs; any delay

would lead to an increase in demand

or existing rigs and considerably

tighten the deepwater rig market.

Brazil is supposedly constructing 21

new rigs or use in its deepwater

basins. Elsewhere, there is a trend

post-Macondo (reerring to the

Macondo incident in the Gul oMexico), or deepwater operators

to use newer, more technologically

capable rigs to lessen risk in response

to pending regulatory changes, which

could lead to a generally tighter

market or deepwater rigs.

Saudi Arabia reportedly has plans

to boost the countrys rig count

this year and in 2012 to 118 rigs,

rom around the current 92. This

month, Saudi Arabia increased its

oil production to around 9 million

b/d to help compensate or the

disruption o supply rom Libya. In

theory, that leaves a 3.5-million b/d

cushion to protect against any urther

supply outages on the global market.

Saudi Arabia supposedly completed

production expansion plans in 2009,

which it said took its capacity to

12.5 million b/d and stated that the

rig expansion is to maintain current

production not to increase it.65

Observation

The investment increase in the

upstream means a good year to dateor the oileld services sector, with

very buoyant activity in most regions.

The slowdown in the US gas shale

sector is being oset by a switch to

drilling in the liquid plays. This shit

means that, generally, activity in the

unconventional sector along with

the deepwater sector is driving good

growth or oileld services companies.

Conventional oil and gas areas

are also boosting oileld servicescompanies returns. While there has

been considerable disruption to oileld

services company operations generally

in the MENA region, the good news or

these companies is that Saudi Arabia

is reportedly planning to considerably

boost the countrys rig count by nearly

30 percent. The market, however, is

generally less impressed with this

news, which is being seen either as a

signal that Saudi Arabia is struggling

to deliver the 12.5 million b/d o

capacity it has claimed is in place or

that Saudi Arabia thinks the market

will need even more than its 3.5

million b/d o spare capacity. Oileld

services companies like Baker Hughes

have stated that they expect drilling

activity to pick up in both Saudi Arabia

and Iraq rom the second hal o 2011.

This increase in activity is likely to

be driven by the restart o delayed

projects in Iraq and while Saudi Arabia

looks or more services rom the

oileld services sector as it continues

to boost production to compensate

or the all in production rom Libya.

This movement generally signals a very

positive outlook or the rest o 2011 or

the oileld services sector.66

CompaniesKey trendMost oil companies

generated higher revenues and prots

on the back o increasing crude price

and improving rening perormance

this quarter. The leading majors saw

nearly $35 billion in adjusted prots

across the group during the rst

three months o 2011, thanks to highinternational oil prices (averaging more

than $95/barrel). However, all o them

saw a decline in production volumes

as many continued to divest noncore

assets and dealt with some disruptions

to their global production proles.67

Observation

The 2011 outlook appears promising as

companies are expected to continue

to generate higher revenues in the

backdrop o high crude prices. Thereare concerns among analysts regarding

alling production volumes; the

oil majors seem to be ocusing on

value over volume as the eect o

continued divestments and geopolitical

unrest in the MENA region increases.

The all in production volumes is

also being pressured by the act that

certain governments (keen to boost

their budgets decits) are starting to

tax oil company prots at a higher

rate. I oil prices start to decline, the

all in production will have a much

sharper eect.


13/16

13

In the United Kingdom this quarter, or

example, the government announced

an increase in supplementary tax on

production rom 20 percent to 32

percent or all North Sea assets,68

with other countries such as the

United States considering alleviating

tax concessions or oil companies

(there is legislation pending in the US

Senate that would cut tax breaks to

the top oil producers by $21 billion

over 10 years). The US government is

indicating that the approximately $4

billion saved by closing the oil industry

tax breaks could be invested in clean

energy, which would help to ease US

dependence on oreign oil.69

Most o the major oil companies,

however, are unlikely to be too

concerned with current marketdynamics and government policies,

as they have their ocus on the

longer term. Most o the companies

are working their way through a

signicant rationalization o their

portolios as they ocus on their core

operations and uture growth rom

larger-scale projects, rather than

peripheral assets that they believe

would be o more value to other

companies. The all in production

volumes is not likely to last, and mostcompanies are using the cash rom

divestments to supplement their

capital expenditure or uture growth.

ConocoPhillips, or example, has

announced that it will sell up to

$10 billion o assets up to 2013,

and will increase its production by

2 to 3 percent a year starting in 2013

ater it completes its divestments.

The companys CEO has stated that

he expects a waterall o cash to

be ed by these divestments, with the

company estimated to spend $13.5

billion on capital projects in 2011,

increasing to $15 billion by 2015.70


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1414

Endnotes1 Japan nuclear plant operations(Chubu agrees to shut Hamaoka),May 9, 2011, Reuters News, via Factiva, 2011 Reuters Limited.

2 "Argentina, Uruguay ink LNG

regasication pact, February 25, 2011,Dow Jones News Service, via Factiva, 2011 Dow Jones & Company, Inc.

3 Global gas rebounds, Cedigaz nds,May 11, 2011, World Gas Intelligence, Energy Intel 2011.

4 Tensions rom the two-speedrecovery unemployment, commoditiesand capital fows, InternationalMonetary Fund, World EconomicOutlook (WEO) April 2011, 2011

International Monetary Fund.

5 IEA Oil Market Report, May 12, 2011, OECD/IEA, http://omrpublic.iea.org/currentissues/high.pd.

6 Ibid.

7 Brent crude ends down $10 ascommods battered, May 5, 2011,Reuters News, via Factiva, 2011Reuters Limited.

8 Unprecedented rise in global naturalgas production: Cedigaz, April 28,2011, Agence France Presse, via Fac-tiva, Agence France-Presse, 2011.

9 IEA Oil Market Report, OECD/IEA,May 12, 2011, http://omrpublic.iea.org/currentissues/high.pd.

10 US rig counts poised to fip asdrillers seek oil, April 8, 2011, DowJones News Service, via Factiva, 2011 Dow Jones & Company, Inc.

11 Saudi plans to boost oil rigs by 28percent, March 30, 2011, Misr News,via Factiva, 2011 Misr InormationServices and Trading.

12 Tensions rom the two-speedrecovery unemployment, commoditiesand capital fows, InternationalMonetary Fund, World EconomicOutlook (WEO) April 2011, 2011International Monetary Fund.

13 Back to the drachma, May 31,2011, The Wall Street Journal Europe,via Factiva 2011, Dow Jones &Company, Inc.

14 Goldman cuts China, Asia

orecasts, May 24, 2011, The WallStreet Journal Online, via Factiva, 2011 Dow Jones & Company, Inc.

15 Japans economy begins weakrecovery rom quake, May 31, 2011,Agence France Presse, via Factiva, Agence France-Presse, 2011.

16 IEA Oil Market Report, May 12,2011, OECD/IEA, http://omrpublic.iea.org/currentissues/high.pd.

17 Anadarko Jubilee seen at peakoutput this summer, May 25, 2011,MarketWatch, via Factiva, 2011MarketWatch, Inc.

18 EIA Short-term Energy Outlook, May10, 2011, www.eia.gov/steo/contents.html.

19 IEA Oil Market Report, OECD/IEA,May 12, 2011, http://omrpublic.iea.org/omrarchive/12may11ull.pd.

20 Saudi unlikely to lit oil output

quickly, May 3, 2011, Agence FrancePresse, via Factiva, AgenceFrance-Presse, 2011.

21 OPEC to consider up to 1.5 million b/doutput hike, June 2, 2011, Reuters News,via Factiva, 2011 Reuters Limited.

22 IEA Oil Market Report, OECD/IEA,May 12, 2011, http://omrpublic.iea.org/omrarchive/12may11ull.pd.

23 Ibid.

24 China sees tight uel supplyamid ongoing power shortage,"May 30, 2011, Reuters News, viaFactiva, 2011 Reuters Limited.

25 Higher ood, oil prices weigh onUS economy," May 26, 2011, AgenceFrance Presse, via Factiva AgenceFrance-Presse, 2011.

26 US, China pull oil market inopposite directions, May 26, 2011, TheWall Street Journal Online, via Factiva, 2011 Dow Jones & Company, Inc.

27 Source Brent crude ends down

$10 as commods battered, May 5,2011, Reuters News, via Factiva, 2011 Reuters Limited.

28 Crude extends gains, ocus onUS oil industry data, June 1, 2011,Reuters News, via Factiva, 2011Reuters Limited.

29 OPEC considers hike in oil outputtarget, June 2, 2011, Reuters News,via Factiva, 2011 Reuters Limited.

30 Malaysia Min: will review uelsubsidy i crude oil tops $110/barrel,May 26, 2011, via Factiva, 2011 DowJones & Company, Inc.

31 Big banks sway over oil markets,May 26, 2011, The Wall Street JournalOnline, via Factiva, 2011 Dow Jones& Company, Inc.

32 Gas Outlook, May 16, 2011,The Economist Intelligence Unit,via Factiva, 2011 The Economist

Intelligence Unit Ltd.

33 Unprecedented rise in globalnatural gas production: Cedigaz, April28, 2011, Agence France Presse, viaFactiva, Agence France-Presse, 2011.

34 Gazprom to accelerate productionboost, June 2, 2011, The Wall StreetJournal Europe, via Factiva, 2011,Dow Jones & Company, Inc.

35 Ibid.

36 Ibid.

37 Gas increasingly edging out coalas major generation source: FERC,April 29, 2011, Inside FERCs GasMarket Report, via Factiva, 2011McGraw-Hill, Inc.

38 Gas Outlook, May 16, 2011, TheEconomist Intelligence Unit, via Factiva, 2011 The Economist Intelligence Unit Ltd.


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1515

62 The Chinese hunt or oil intensi-es, January 4, 2011, The Wall StreetJournal Asia, via Factiva, 2011 DowJones & Company, Inc.

63 China's energy industry makes a

bold push into developed markets,"March 15, 2011, The New York Times,via Factiva, 2011 The New York TimesCompany.

64 US rig counts poised to fip asdrillers seek oil, April 8, 2011, DowJones News Service, via Factiva, 2011Dow Jones & Company, Inc.

65 Saudi plans to boost oil rigs by 28percent, March 30, 2011, Misr News,via Factiva, 2011 Misr Inormation

Services and Trading.

66 Baker Hughes sees Saudi, Iraqdrilling boost, May 18, 2011, ReutersNews, via Factiva, 2011 ReutersLimited.

67 Oil CEOs warn senators o down-side to axing industry tax breaks,"May 12, 2011, The Christian ScienceMonitor, via Factiva, 2011 ChristianScience Monitor.

68 North Sea oil tax rise unlikely to belasting blow, March 25, 2011, ReutersNews, via Factiva, 2011 ReutersLimited.

69 Oil CEOs warn senators o down-side to axing industry tax breaks,May 12, 2011, The Christian ScienceMonitor, via Factiva, 2011 ChristianScience Monitor.

70 ConocoPhillips cash fows tobuybacks, capital projects, March 23,

2011, MarketWatch, via Factiva, 2011MarketWatch, Inc.

39 Gas Outlook, May 16, 2011, TheEconomist Intelligence Unit, via Fac-tiva, 2011 The Economist IntelligenceUnit Ltd.

40 Gas Outlook, May 16, 2011, The

Economist Intelligence Unit, via Fac-tiva, 2011 The Economist IntelligenceUnit Ltd.

41 Germany reverses on nuclearpower; all plants will shut down by2022 as Berlin hunts or other energysources, May 31, 2011, InternationalHerald Tribune, via Factiva, 2011The New York Times Company.

42 Gas Outlook, May 16, 2011, TheEconomist Intelligence Unit, via Factiva,

2011 The Economist Intelligence Unit Ltd.

43 Global gas glut drying up astBoA Merrill," June 1, 2011, ReutersNews, via Factiva, 2011 ReutersLimited.

44 Japan debates electricity reormbut power companies opposed Kyodo,June 2, 2011, Kyodo News, via Factiva, 2011 Kyodo News.

45 Excelerate conrms details o

second liqueed natural gas acility inArgentina, September 20, 2010, DowJones News Service, via Factiva, 2010Dow Jones & Company, Inc.

46 Argentina, Uruguay ink LNGregasication pact, February 25, 2011,Dow Jones News Service, via Factiva, 2011 Dow Jones & Company, Inc.

47 EIA Short-term Energy Outlook, May10, 2011, www.eia.gov/emeu/steo/pub.

48 "Asian LNG prices hold steady aheado summer, May 6, 2011, Reuters News,via Factiva, 2011 Reuters Limited.49 "Japan March nuclear run rate at28-month low ater quake, April 15,2011, Reuters News, via Factiva, 2011 Reuters Limited.

50 New technology prompts shale gasboom, keeps LNG prices stable, May30, 2011, Nikkei Weekly, via Factiva, 2011 Nihon Keizai Shimbun, Inc.

51 IEA Oil Market Report, OECD/IEA,

May 12, 2011, http://omrpublic.iea.org/currentissues/high.pd.

52 Ibid.

53 Japans JX sees June crude reningdown 11 pct year-on-year, May 31,2011, Reuters News, via Factiva, 2011 Reuters Limited.

54 Consultancy KBC predicts globalrening margins under pressurethrough 2015, May 6, 2011, Hydro-

carbon Processing, HydrocarbonProcessing Inc.

55 Asia orces Shells hand onrenery, April 13, 2011, The Age, viaFactiva, 2011 Copyright John FairaxHoldings Limited.

56 Total deal positive For Novatek,March 3, 2011, Dow Jones Internation-al News, via Factiva, 2011 Dow Jones& Company, Inc.

57 BP: Rosnet deal is dead,June 9, 2011, The Wall Street JournalEurope, via Factiva, 2011 DowJones & Company, Inc.

58 Chinas biggest overseas invest-ments since 2000, February 9, 2011,Reuters News, via Factiva, 2011Reuters Limited.

59 PetroChina to invest in Canada gasproject, February 11, 2011, The WallStreet Journal Asia, via Factiva, 2011

Dow Jones & Company, Inc.

60 China plans 100 billion oilspending spree, January 6, 2011,The Daily Telegraph, via Factiva, 2011Telegraph Group Limited, London.

61 Chesapeake, CNOOC strike secondshale deal or $1.3 billion, January31, 2011, Reuters News, via Factiva, 2011 Reuters Limited.


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