# Presentation: 786799

## International Oil and Gas Outlook

**International Oil and Gas Outlook**
**NEMS/AEO Conference - March 27, 2001**

**	****Near-term Forecast Impacted by:**
**	****Slowing global economy**
**	****More drilling and project completions**
**	****Improving inventory and storage positions**
**	**
**	****Positive Longer-term Commodity Outlook**
**	****Oil and gas prices settle above historic norms**
**	****2001-2002 Price Outlook**
**	****Oil Price:  $24.50 WTI in 2001, $21.50 in 2002**
**	****US Gas:  $4.25 in 2001, $3.50 in 2002**
**	****Refining Margins:  $3.07 in 2001, $2.47 in 2002**** **

**Adam Sieminski    (410) 895-3347**
**adam.sieminski@db.com**

## Oil Prices 1983-2001  

- ...OPEC overshoots in 2000

## A New Trading Range for U.S. Natural Gas?...wellhead through the roof in late 2000

- Very high prices are not sustainable but prices are likely to settle much higher than average prices in the 1990s

## Average World Refining Margins...outstanding 2000; lower -- but still strong -- 2001

- Source:  Petroleum Argus, Deutsche Bank

## Oil Sector Snapshot...our rationale for lower oil prices in 2001-2002with long-term prices settling above historic averages

- Global economic slowdown likely to shrink oil demand growth in 2001 ...demand rises only 1.3 mmb/d with world GDP up about 3%
- Non-OPEC supply up 1.2 mmb/d in 2001                                    ...prices and deepwater (Russia, Mexico, North Sea, Brazil and others)
- Wellhead capacity utilization high now but production expanding                      ...OPEC cohesion likely to be tested in mid-2001
- Low inventories fostered upward price volatility in 2000                       ...forecast recovery to normal levels should help ease prices
- One-time events could act as “spoilers” to the outlook                   ...Iraq exports;  Middle-East tensions;  weather;  U.S. policy shifts

## World GDP Forecasts for 2001 Are Falling...slowdown in the U.S. threatens non-OECD Asiaand presents a major downside risk to oil demand 

## Oil Demand and Real GDP from 1995-2000	...global yearly average was 3.8% real GDP and 1.8% oil

- -8%

- -4%

- 0%

- 4%

- 8%

- 12%

- -2%

- 0%

- 2%

- 4%

- 6%

- 8%

- 10%

- Annual % Change in GDP

- Annual % Change in Oil

- Source: IEA; IMF; Deutsche Bank estimates

- FSU

- Mid-

- East

- Lat Am

- Other

- Asia

**Oil Demand and Real GDP from 1995-2000**	...global yearly average was 3.8% real GDP and 1.8% oil

**Every 1% of world GDP growth =   0.4 mmb/d annual growth in oil use**

## Non-OPEC Production Grows Strongly in 2000...but political risk is rising in 2001-2005

## Russian Crude Oil Production	...the long winter appears to have ended in late 1999

## Rebound in Drilling Points to Future Rise in Supply...active drilling rigs 1997-2001

## Oil Prices: the OPEC Basket...a bounce up from OPEC cuts and Iraq worries

## OPEC Production Rising and Falling...quotas may have to be lowered again in 2Q 2001and raised in 4Q 2001

## Iraq's Weekly Oil Exports...high volatility related to disputes with the U.N.a major upside risk for the oil markets in 2001

- Iraq's oil exports averaged about 2.0 mmb/d in 1999 and 1.9 mmb/d in 2000.   We believe sustainable export capacity is over 2 mmb/d.
- Exports may climb as spare parts arrive under the oil-for-food program

## A Recent Warm Winter Trend?

- ...followed by a reversion to cold?

- Source:  NCDC, Deutsche Banc Alex. Brown

*The Economist *Magazine, November 18-24, 2000

## OPEC's Market Share	...after brief setback in 1999-2001, rising again	

## OECD Inventories Remain Key to Next Move in Prices...base case forecast puts stocks back into the normal range

- Source:  IEA; Deutsche Banc Alex. Brown estimates

## Implied Stock Change for 2001 Suggests Lower Prices...will OPEC cut fast enough in 2Q 2001?

## Natural Gas Sector Snapshot...fundamentals are better than at any time in recent past and confirm higher level of long-term price strength

**Reserve Additions Have Been Replacing Production**                    ...but decline treadmill accelerated as revisions beat discoveries
**Natural Gas Demand Focus Has Been on Electricity**                                ...growth in independent power production is huge
**Demand Is Being Impacted by High Prices and Low GDP        **...utilities and industrial users are under siege
**Tight Supply/Demand Balance Reflected in Storage Position**               ...has increased upside price volatility but may correct sooner than generally expected as demand subsides

## U.S. Gas Production versus Reserve Additions...total reserve additions replacing production

## U.S. Gas Reserve Revisions and Adjustments...upward trend with higher prices and improved technology

## U.S. Gas Reserve Discoveries...downtrend from 1980 to early 1990s reversed in 1993?

## U.S. Gas Demand and Supply ...supply up and demand under pressure in 2001

## Incremental Natural Gas Demand for Electricity Generation...some planned additions must get shelved in 2001-2003

## Industrial Natural Gas Use (Ex Non-Utility Generators)...trend over last the last 12 months is sharply down

## Shares of U.S. Industrial Gas Demand...chemicals, metals, food and paper

## Total U.S. Natural Gas Storage...below normal but demand drop leads to improved outlook

- Source:  AGA; Deutsche Bank estimates

## Global Natural Gas Demand Accelerating...European and Asian consumer fuel of choice

## Liquefied Natural Gas (LNG) Trade...higher prices create strong incentives for growth

**Liquefied Natural Gas (LNG) Trade**...higher prices create strong incentives for growth

- From:
- Mid-East
- Malaysia/Brunei
- Indonesia
- To:
- Japan
- Korea
- 125 vessel fleet
- Many new entrants
- Spot market developing

- About 5% of global supply

## Capacity of U.S. LNG Regasification Terminals

**Adds (bcf)**

**Total (bcf)**

**Timeframe**

- Everett, MA

- 0.79

- 3.6

- 1.8

- 5.4

- 2003

- Cove Point, MD

- 0.75

- 6.8

- 2.5

- 9.3

- 2002

- Elba Island, GA

- 0.54

- 4.0

- 4.0

- 2002

- Lake Charles, LA

- 0.70

- 6.3

- 1.2

- 7.5

- 2003/4

**Total**

**2.8**

**20.7**

**5.5**

**26.2**

- Source:

-   El Paso Merchant Energy and Wood Mackenzie Consultants

**2001 Storage **

**Capacity (bcf)**

**Potential **

**Sendout **

**Capacity **

**(bcf/d)**

## U.S. Energy Policy Set to Shift...more emphasis on supply and less on environment

- Clinton
- emphasize gas use
- bash “big oil”
- no ANWR (Alaska)
- swap US SPR
- tight fuel specifications
- broad trade sanctions support
- Bush
- open up federal lands
- de-emphasize Kyoto
- SPR for emergencies only
- eliminate “boutique” fuels
- reduce unilateral sanctions
- shore up US-Arab relations
- Saudis, 3rd Army, 5th Fleet

## Always Read the Fine Print...forecasting is a tough business

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