OPEC+10 production restraint reversed supplydemand. allowed inventories to fall. Supply growth is outside OPEC. New dynamic: rapidresponse

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2 OPEC+10 production restraint reversed supplydemand imbalance, allowed inventories to fall. Supply growth is outside OPEC. New dynamic: rapidresponse shale. Source: Midyear Forecast, OGJ, July 2

3 Small stock builds indicate market balance; non-opec supply growth exceeding demand growth pressures OPEC IEA EIA OPEC 2018 Vs Vs Vs Demand Non-OPEC supply OPEC NGL Call on OPEC crude OPEC Crude 32.3* * Stock change & balance *Calculated: IEA and OPEC, YTD average for month. +0.3*

4 Non-OPEC supply still grows faster than demand; expectations of oversupply indicated by stock build IEA EIA OPEC 2019 Vs Vs Vs Demand Non-OPEC supply OPEC NGL 7.0 NC Call on OPEC crude OPEC 32.3* NC * NC Crude Stock change & balance +0.7* *Current-month calculated values for IEA, OPEC.

5 Supply Geopolitical disruption Trade war Demand IMO 2020 Debottlenecking (Permian, Appalachia, Alberta) Politics and regulation LNG infrastructure buildout

6 Friendly Unfriendly Saudi Arabia Economic restructuring More options than in 2016 Aramco IPO delayed Russian flirtation Turkey! Iraq Syria Yemen?? Iran Russia Lebanon? Turkey UAE Egypt Libya Turkey Qatar Saudi Arabia, UAE, Bahrain, Egypt

7 Saudi Arabia Russia Priority: Aramco IPO to fund redevelopment Aramco IPO delayed (indefinitely?) New funding: oil-price elevation, foreign sovereign investment, sheikh shakedown, possible Aramco buy of state s 70% of SABIC Economy dependent on oil revenue Oil revenue not enough to prevent austerity measures, which have provoked demonstrations; sanctions toughen; oilrevenue dependency deepens Military: Yemen Yemen worse Military: Ukraine Ukraine worse Flashpoint: Iran Saudi Arabia s nemesis, Russia s ally. New options would enable Saud Arabia to use production accord as lever in geopolitical showdown with Russia over Iran. Khashoggi effect?

8 International Maritime Organization regulation effective Jan. 1, 2020 Lowers sulfur limit in marine bunker fuel to 0.5 wt % from 3.5 wt % Lower limits already apply in four emission control areas (ECAs) What happens to ~3.4 million b/d of high-sulfur fuel oil? Source: Ken Cowell et al., Muse, Stancil & Co., in OGJ, July 2, 2018 What happens to sweet-sour price spreads?

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10 Shale (green) dominates US production East (dark green) dominates shale output Source: US Energy Information Administration, 2018 Annual Energy Outlook

11 Source: US Energy Information Administration, 2018 Annual Energy Outlook

12 Shale dominates global gas production growth Delays in second wave of LNG supply might tighten markets in early 2020s Source: CEDIGAZ Medium and Long Term Natural Gas Outlook 2018

13 Gas, renewables grow fastest long term; petroleum and other liquids growth continues in reference cases US Energy Information Administration OPEC Source: EIA International Energy Outlook 2018 Source: OPEC World Oil Outlook 2018

14 Demand growth by product Demand growth by sector Naphtha, Ethane/LPG +5.5 MMbd Petrochemicals +4.5 MMbd Source: OPEC World Oil Outlook 2018

15 New Policies Scenario* Sustainable Development Scenario** Oil, gas both up in 2040 Gas up, oil down in 2040 *Existing policies and expected results of announced policies. Source: IEA World Energy Outlook 2017 **Integrated policies to achieve international goals for climate change, air quality, and universal access to modern energy.

16 New Policies Scenario Sustainable Development Scenario Industry & petrochem Total oil Industry & petrochem Total oil Source: IEA World Energy Outlook 2017

17 Electric vehicles, Generation fuel, (TW-hr) Sustainable Development Scenario New Policy Scenario Source: IEA World Energy Outlook 2017

18 Chemical feedstock share of oil demand grows in both scenarios Feedstock demand: RTS vs. CTS* Oil demand for feedstock: RTS vs. CTS* *RTS=Reference Technology Scenario, aligned with New Policy Scenario in WEO 2017 *CTS=Clean Technology Scenario, aligned with Sustainable Development Scenario in WEO2017 Source: IEA, The Future of Petrochemicals, October 2018.

19 Feedstock costs have fallen in most areas, 2010 vs *HVC = high value chemicals (light olefins and aromatics). Source: IEA, The Future of Petrochemicals, October 2018

20 *RTS = reference technology scenario. Source: IEA, The Future of Petrochemicals, October 2018

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22 BOB TIPPEE, EDITOR, OIL & GAS JOURNAL 1455 W. LOOP S., SUITE 400 HOUSTON, TX OGJ ONLINE: OIL & GAS COMMUNITY: