1. PRICING & PURCHASING SUMMIT
WASHINGTON DC | NOVEMBER
PRICING & PURCHASING SUMMIT

2. Global Oil Market Outlook
11, November 2014
Jim Burkhard
Vice-President, Oil Markets and Energy Scenarios

3. World oil supply growth has come mostly from North America since 2008
Pricing & Purchasing Summit / November 2014
World oil supply growth has come mostly from North America since 2008
United States total
US tight oil only
Saudi Arabia
Tight oil
Source: IHS Energy. Note: Figures do not include OPEC condensate and OPEC/non-OPEC NGLs.

4. Pricing & Purchasing Summit / November 2014
Non-OPEC crude supply United States will continue to drive historically-strong growth
2014

5. Oil prices and US tight oil investment
Pricing & Purchasing Summit / November 2014
Oil prices and US tight oil investment
Impact of US tight oil investments at different WTI price levels
© 2014 IHS
Source: IHS
GREEN ZONE
Most projects
move forward
RED ZONE
WTI $80+
Severe spending slowdown;
only very best projects
advance
$70-$80
$50-$60
CAUTIONARY ZONE
Most capacity additions resilient at 70+ WTI, but some
cancelled/postponed

6. Pricing & Purchasing Summit / November 2014
Non-OPEC liquids supply growth to outpace world oil demand growth in 2014 and 2015
Notes: Liquids supply includes crude oil, condensate, and natural gas liquids (NGLs). Liquids demand includes all refined products, blended biofuels, synthetic fuels, as well as liquefied petroleum gases (LPGs) and ethane. Source: IHS

7. September 2014 production: 800,000 bd
Pricing & Purchasing Summit / November 2014
ISIL’s territorial ambitions
September 2014 production: 800,000 bd

8. September 2014 production: 800,000 bd
Pricing & Purchasing Summit / November 2014
Libyan production: Key variable that could push prices up or down
September 2014 production: 800,000 bd

9. Pricing & Purchasing Summit / November 2014
Conventional resources move along a continuum of permeability into unconventional resources
Continuum of increasingly difficult rocks (decreasing permeability)
Low-permeability carbonates
Porous/permeable sandstone and carbonate
Mixed sandstone & fine-grained material
Rock type
Chalk
Shale
Tightly cemented or muddy sandstone
Permeability
>1,000 millidarcies (mD) <0.01 mD
Porosity
>30% <1%
Fracture completions in vertical wells
Long-reach horizontal wells +/- multistage hydraulic fracturing
Long-reach horizontals + multistage hydraulic fracturing
Completion practices
Drill and complete
Waterflood

10. Pricing & Purchasing Summit / November 2014
Application of horizontal drilling in the Delaware Sandstone in the US state of New Mexico has raised production significantly
Horizontal wells
Vertical wells

11. North American Natural Gas Prices
11, November 2014
Mary Barcella
Director, North American Natural Gas

12. Unconventional gas has led to rapid production growth and lower prices
Pricing & Purchasing Summit / November 2014
Unconventional gas has led to rapid production growth and lower prices

13. Greater production has resulted in lower, less volatile prices
Pricing & Purchasing Summit / November 2014
Greater production has resulted in lower, less volatile prices

14. Price determination for North American natural gas
Pricing & Purchasing Summit / November 2014
Price determination for North American natural gas
Market Fundamentals
Production
Infrastructure
Storage
Potential Disruptors
Weather
Coal Supply
Regional bottlenecks

15. No sign of a slowdown in production
Pricing & Purchasing Summit / November 2014
No sign of a slowdown in production
Unconventional development has opened up a massive North American resource base estimated well in excess of 3,000 Tcf that can be developed at less than $6.00 per million Btu (MMBtu)
Increasing EURs and development of new unconventional plays is increasing resource base that is commercial at below $4.00/MMBtu
Marcellus and Utica are expected to grow to 25-30% of North American supply completely changing pipeline flows and basis relationships
Significant investment in infrastructure will be required to connect growing supply to growing demand
Cost of development has been falling due to productivity improvements
Massive hydraulic fracturing could drive another wave of productivity improvements

16. Pricing & Purchasing Summit / November 2014
Infrastructure additions in the Marcellus each year have been accompanied by production increases

17. Pricing & Purchasing Summit / November 2014
Gas storage inventories have almost regained the five-year average after being seriously depleted last winter

18. Pricing & Purchasing Summit / November 2014
A cold winter could increase price toward $5; a mild winter could reduce price to the low-$3s

19. Abnormal weather would add some price volatility this winter
Pricing & Purchasing Summit / November 2014
Abnormal weather would add some price volatility this winter

20. Pricing & Purchasing Summit / November 2014
Coal prices put a floor under gas prices owing to gas/coal competition in electric dispatch. Difficulties with coal supply could raise the price floor

21. Pricing & Purchasing Summit / November 2014
Delivery constraints can cause localized price spikes in peak demand periods

22. Pricing & Purchasing Summit / November 2014
Bottom Line
Assuming normal weather, expect gas prices to range between $ and $3.90 next year, with a 2015 average of $3.73.
A cold winter could temporarily increase the March average price to nearly $5, with higher regional spikes on very cold days. A mild winter could drop the March average price to the low $3’s.

23. Thank You!
Questions?