Energy Markets in Transition: Key Challenges Ahead
Prepared for 42nd Japan Cooperation Center for Petroleum International Symposium (JCCP)

25 January 2024
OIL

This material contains confidential and privileged information intended solely for the recipient. The dissemination, distribution, or copying by any means whatsoever without FGE’s prior writtenconsent is strictly prohibited.

Oil Markets

The Bottom Line on Near-Term Oil Demand: Despite economic worries, it’sstrong!
• Demand grew by 2.6 mmb/d y-o-y in 2023, before slowing to 1.6 mmb/d in 2024.
• Note that a “normal” global recession could knock 1-3 mmb/d off our demand outlook.
• Context is key: The Great Recession of 2008/09 reduced demand by 3.5 mmb/d at its peak, while COVID-19 caused
the loss of 22 mmb/d at its peak.
• Bottom line: The COVID recovery is helping drive demand growth into 2024, but the impact varies across products.
Most COVID recovery is done in 2023.

3

Global oil demand recently driven by services, not by manufacturing and trade
Y-o-Y Change in Global Mobility1-Driven Oil Demand,
mmb/d and Global Services PMIY-o-Y Change in Global Industry2-Driven Oil Demand,
mmb/d and Global Manufacturing PMI

3.557

3.056

55655

455

2.5545432.05353

1.525252

1.051
51

0.5

150

50

00.0-0.5

48

Jul-21

Jan-22
Demand Growth

449

49

Jul-22

Jan-23

Jul-23Services PMI - RHA-148

Jul-21

Jan-22
Demand GrowthJul-22

Jan-23

Jul-23

Manufacturing PMI - RHA

Source: FGE, S&P Global

Source: FGE, S&P Global

1Gasoline and jet/kerosene

2Petrochemical feedstocks, diesel and fuel oilThousands

FGE’s China Take: What’s in store for 2024 and beyond?
China Y-o-Y Demand Growth by Product, mmb/d

China Y-o-Y Demand Growth by Sector (2023-2024),
kb/d

1.6

700

1.2

600
500

0.8

400
0.4

300
0.0

200-0.4

100-0.8

2022

2023

2024

LPG
DieselNaphtha
Fuel Oil

Gasoline
Others2025

Jet/KeroTotal
Source: FGE

50Mobility
2023

Industry
2024

Petchem/Consumer
2025
Source: FGE

Oil’s Future: It’s far from overGlobal Total Oil Demand, mmb/d
115
110
105
1009590
2019

2022

2025

2028

2031

2034

2037

2040

2034

2037

2040

Global Gasoline and Diesel Demand, mmb/d
3028262422201920222025

20282031
Diesel6Gasoline

Two Eras: New energy impact on oil demand–mostly EVs
New Energy Impact on Oil Demand 2021-2035, mmb/d

New Energy Impact on Oil Demand 2035-2050, mmb/d

776

655

44

3

3

2

2

1

10Roadtransport
electrification

Plastics
recycling

Road biofuels

SAF

Marinebiofuels

Natural gas in Alternativeroadmarine fuelstransport
Source: FGE

70
Road transport
electrification

Plastics
recycling

SAF

Alternative
marine fuels

Natural gas in Marine biofuelsroad transport
Source: FGEOPEC’s Challenge Ahead: Managing its spare capacity
OPEC+ Spare Capacity, mmb/d7

65•

and kill off demand.

4•
3

Now some in OPEC are less worried about US shale and are more focused onmonetizing oil resources before demand peaks.

2

1

0
Jul-22Oct-22

Saudi Arabia

Jan-23
UAE

Apr-23
Iraq

Jul-23Oct-23
KuwaitJan-24
RussiaApr-24
Other
Source: FGE

8Before, some in OPEC worried that high prices would cause US shale to boom

•Maintaining US$75-US$80/bbl+ is achievable in 2024, but will be challenging.

•With ample spare capacity, OPEC cohesion will be closely monitored.

Russian capacity ahead: Despite western sanctions, capacity will rise
Russia: Upstream Historical Output and Future Capacity, mmb/d
14131211•

1098762018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050
Crude

Condensate

NGLs

Pre-FID/Exploration Projects
Source: FGE

9We see Russian crude and condensate capacity
increasing until 2027-2029. We do not see theexit of Western oil companies having a major
impact on Moscow’s ability to finance new E&Pprojects. Moreover, Russia has been focusing onimport substitution of foreign technology forseveral years now.

Iranian crude exports push higher…getting close to max output
Iran Crude Oil Exports (Excluding Condensate), mmb/d

Iran Crude Production (excl. Condensate and NGLs), mmb/d

1.6

4.0

Only 200-300 kb/d upside at best

3.5

3.0

1.2

2.5

2.0

0.8

1.5

1.0

0.4

0.5

0.0
Oct-20Feb-21

Jun-21
China

Oct-21

Feb-22India

Jun-22Oct-22

Feb-23Jun-23Oct-23Jan-19Jan-20Jan-21

Jan-22

Jan-23Jan-24

OthersSource: FGE

100.0
Jan-18Source: FGE

US Production Surprises: Company guidance now more useful than rig count
US Crude Output Comparison, mmb/d
14.0
13.8

• Earlier in the shale boom, producers focused almost entirely on growth,

13.6

not returns.
13.4

13.0

o It seems a bit crazy in retrospect, but top management wasresponding to incentives at the time…high growth = higher shareprice.

12.8• Incentives have shifted, and management now focuses on returning cash

13.2

to shareholders as well as growth.

12.6• Shale growth is slower, but it is certainly not dead. Despite cost/labor

12.4

pressures, rates of return are attractive, and production is rising.

12.2
12.0
3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 4Q 2023 1Q 2024 2Q 2024 3Q 2024 4Q 2024
Guidance Range

History

FGE Outlook

IEA Outlook

EIA Outlook

EIA @ Aug 2023
Source: FGE

11• We find that company guidance provides the best near-term indicator offuture US production.

The Bottom Line: OPEC+ must work at it to keep oil around US$80/bbl+
OECD Company Stocks (mmb) vs Brent Outlook (RHA - US$/bbl)
3,250

110

3,150
100
3,050
90

2,950
2,850

80

2,750
70
2,650
60
2,550
2,450

50

Jan-21

Apr-21

Jul-21

OECD Company Stocks

Oct-21

Jan-22

Apr-22

Jul-22Oct-22

Jan-23

ICE Brent CFDs & Futures @ Jan-24 (RHA)

Apr-23

Jul-23Oct-23Jan-24*Platts Dated Brent (History) (RHA)

Apr-24

Jul-24Oct-24

FGE Current Forecast
Source: Platts*, ICE, FGE

Updated: 9 January 2024
12Middle East refinery yields and plans vary substantially
Al-Zour

Duqm
5%

3%
23%

26%
44%
57%
14%
10%

Jizan

19%

Karbala

3%
1%

22%

20%JizanLPG

NaphthaGasoline

3%0%
22%20%
Jet/Kero50%

Gasoil/Diesel

Fuel Oil

19%39%
17%

50%
14%
Source: FGE

13China quota policy remains a trade-off between economic revival and refining
consolidation
China’s Transport Fuels Export Quotas by Refiner, mmt

China Transport Fuel Export Quota Comparison, mmt

870

760

650

540
430
320
2
27.99

101

20.10

29.50

21.60

13.00

19.00

2023

2024

00
CNPC

Sinopec

CNOOC

2023 First Batch

Sinochem

ZPCOthers

20172018

2019First Batch

2024 First Batch
Source: FGE

2020

2021

2022Remaining Batches
Source: FGE
Note: Remaining quotas for 2024 are based on FGE’s forecast• Chinese quota policy remains a trade-off between economic revival and refining consolidation.
• Gasoline: Surplus managed by continuous declines in NOC yields–shifts towards petrochemicals.
• Gasoil: Big uncertainty–depends on how high Chinese teapots can run. Crude import quotas are allocated with better flexibility than ever.
14

18.99
13.00

A new cycle ahead?...When will petchems finally improve?
Global Ethylene Capacity versus Implied Utilisation, mmt and %25092%90%
20088%
15086%

84%

10082%
5080%

078%
2019

2020

Cracker

2021

2022

CTO/MTO

2023

2024

2025

Implied Utilisation RHA
Source: FGE

15

Asia: No new grassroots refineries expected beyond 2028 for now
Asia 'Firm and Likely' CDU Capacity Grassroots
Additions, kb/d

Key Grassroots Refinery Additions (2023-2033)

800

Country

Operator

Refinery Site

Size (kb/d)

Year

China

Local Yulong

Shandong

430

2025

India

HRRL

Barmer

181

2025

400

China

Norinco / Saudi Aramco /Panjin Xincheng

Liaoning, Panjin

323

2026

300

India

CPCL

Nagapattinam182

2027

Malaysia

Pengerang Energy Complex Pengerang

150

2027

BruneiHengyi Petrochemical

280

2028

700
600
500

2001000
2023* 2024

Brunei

2025

2026

China

2027

2028

India

2029

2030

Malaysia

2031

2032

2033

Mongolia

Source: FGE*2023 data are for the rest of the year i.e. Aug-Dec 2023

16

Pulau Muara Besar(PMB)

Source: FGE
Note: The capacity for Pengerang Energy Complex is for a condensate splitter

Asia: Several CDU expansion projects will materialize by 2027
Asia 'Firm and Likely' CDU Capacity Expansions, kb/d

Key CDU Refinery Expansions (2023-2033)

800

Country

Operator

Refinery Site

Size (kb/d)

Year

China

Local Hebei Xinhai
ChemicalHebei

172

2023

Indonesia

PT Pertamina

Balikpapan

100

2024

400

China

CNOOC / Local Ningbo
Daxie (formerly known asLiwan)

Zhejiang

129

2024

300

ThailandThaioil

Sriracha

125

2025

200

China

Sinopec Zhenhai Phase 2Expansion Project

Zhenhai

258

2025

India

IOCL

Barauni, Gujarat,
Mathura

208

2025

India

Numaligarh Refinery Ltd.

Numaligarh

91

2025

India

IOCL

Panipat

200

2027

700
600
500

10002023* 2024
China

2025

2026
India

2027

2028

2029

Indonesia

2030

2031

2032

2033

ThailandSource: FGE*2023 data are for the rest of the year, i.e., Aug-Dec 2023

17

Source: FGE

Asia: Refinery closures in 2020-2030
2020*: Osaka, ENEOS – 115 kb/d
2022*: Negishi, ENEOS – 120 kb/d2022^: Wakayama, ENEOS – 7 kb/d2020 and 2021*: Shandong, various – 349 kb/d
2022*: Shandong, Yongxin Energy Group – 75 kb/d2022*: Shandong, Kelida Petrochemical – 32 kb/d

CHINA

2022*: Shandong, Haike Dongying – 47 kb/dFirm and Likely

2022*: Shandong, various – 26 kb/dJAPANFirm and Likely

2023*: Wakayama, ENEOS – 120 kb/d
2024: Yamaguchi, Idemitsu – 120 kb/d
2026: Various – 108 kb/d2028: Various – 118 kb/d2030: Various – 129 kb/d

2024: Shandong, various – 86 kb/d
2025: Shandong, various – 129 kb/d

PHILIPPINESSINGAPORE

2021^: Pulau Bukom, Shell – 215 kb/d

AUSTRALIA

2021*:
Kwinana, BP – 149 kb/d
Altona, ExxonMobil – 90 kb/d

* Closed^ Shell and ENEOS downsized the Pulau Bukom and Wakayama refineries, respectively

182020*: Tabangao, Shell – 110 kb/d

NEW
ZEALAND

2022*: Refining New Zealand – 135 kb/dCommercial vehicles electrification potential

High Electrification Potential

Medium Electrification Potential• Urban delivery cycles are the ideal duty

• Likely to have payload concerns, howevercycle for battery electric powertrain.

• Range not a concern as duty cycles usuallyare below 100 miles/day and urban traffic
allows for regen breaking.

• Long overnight garage times are suitablefor charging.
19

many of these use the volume limits butnot weight limits.

• Range is not a concern with duty cycles
below 150 miles/day.

• Charging overnight a possibility.

Low Electrification Potential• Dutycycleselectrification.

maynotallowfor• The vehicle may need to do two or threedriver shifts per day with little garage timeat the depot available for charging.

• Payload/range trade-off.
Image sources: Ford, Volvo, Scania

Airline industry’s long-term net-zero plans
IATA Net-Zero 2050 Plan

CO2 Emissions from Global Jet Fuel, mmtpa
1,600

3%

1,400

19%

1,200
1,000
800
600

13%

400

65%

20002000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

2050 Target from 2021Business as Usual CO2 Emissions
CORSIA Baseline emissions: 2019 level for 2021-2023, 85% of 2019 baseline starting 2024
Source: FGE, IATA

SAF

New technologies

Carbon offsets

Infrastructure/Operations
Source: FGE, IATA

• In 2009, the global aviation industry set a goal of halving its CO2 emissions by 2050 compared with 2005 levels.
• In 2021, the airline members of the International Air Transport Association (IATA) approved a resolution to achieve net zero carbon emissions by 2050.
• About two-thirds of the emissions reduction is expected to come from sustainable aviation fuels (SAF), while around one-fifth of the emissions will still beoffset.
20

Gas/LNG Markets

LNG market undergoes boom and bust cycles with the current tight market only
beginning to rebalance in 2026
Global LNG Supply vs Demand, mt
800
From mid-2030s
New supply needed

2027 to early2030s
Long market

700•

Tight 2H 2021-2025: A tight European gas
market pulls LNG from global markets. Supply
growth dries up due to an earlier slowdown inFIDs, while Asian demand continues to grow.

•Long from 2027 to the early 2030s: A wave ofsupply hits the market. Europe continues to soakup LNG to phase out coal, while lower prices
attract Asian players back into the market. Sometime will be needed to absorb the new LNG
supply.

•Tight from mid-2030s?: New FIDs will beneeded to fill a growing supply-demand gap post2035.

600
500

2H 2021-2025
Tight market

Demand (High/Low)
Likely400

Under Construction
Operating300

Demand (Base)
200
1000
2010

22

2015

2020

2025

2030

2035

2040

Source: FGE LNG ODS

LNG demand sees strong growth until the late-2040s as gas underpins thetransition away from coal
Global LNG Demand by Region, mt800
Forecast700
Americas600500LNG demand remains resilient despite theenergy transition. Practical considerations suchas security and reliability of supply reinforce theimportance of natural gas.

•Asia remains the heart of the LNG market anddrives strong demand growth. Developing
Asian economies begin to shun coal, further
supporting LNG demand.

Africa400Middle East300

Europe200
Asia10002010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049
Source: FGE LNG ODS23•Thank YouIf you have any questions regarding this presentation, please contact us at
FGE@fgenergy.com or +44 (0) 20 7726 9570 (London) | +65 6222 0045 (Singapore)*Prices in this report marked with the source Platts are sourced from S&P Global Platts, © 2024 S&P Global Inc. All rights reserved.

This material contains confidential and privileged information intended solely for the recipient. The dissemination, distribution, or copying by any means whatsoever without FGE’s prior written consent is strictly prohibited.
Head Office: FGE House, 133 Aldersgate Street, London, EC1A 4JA United Kingdom. Asian Head Office: 8 Eu Tong Sen Street, #20-89/90 The Central, Singapore 059818
Copyright © FGE 2024

London | Singapore | Tokyo | Dubai | Honolulu | Houston | Beijingwww.fgenergy.com