Tanker Market

Update

September 2012

2 www.teekay.com

• Spot tanker rates have been below the long-term average since 2009

○ Aframax 2009-12 average of $14,400 / day vs. $25,700 / day long-term average

○ Suezmax 2009-12 average of $22,400 / day vs. $33,500 / day long-term average

Currently In 4th Year of Tanker Market Downturn

0

10

20

30

40

50

60

70

80

„00

0 U

SD

/ D

ay

Source: Clarksons

Aframax Spot Rates Suezmax Spot Rates

Aframax Long Term Average Suezmax Long Term Average

When will the bottom be reached and how long will the recovery take?

3 www.teekay.com

• Slowing global economy / oil demand

○ Europe in recession; US / Chinese economies slowing down

• Reduced imports for stockpiling in the non-OECD

• High oil prices – impacting on oil demand, increasing bunker costs

• Potential US / IEA stock release

• Widening Brent-Dubai oil price spread

○ Discourages long-haul Atlantic-Pacific oil movements

BUT…

• Short-term events still have the potential to create rate spikes

○ Atlantic hurricane activity, unexpected refinery outages etc.

Near Term Headwinds

4 www.teekay.com

Tanker Market Outlook For 2H-2012

• Seasonally weak summer market is upon us

○ Q3 traditionally the worst quarter for tanker rates

○ Uncertain global economy impacting oil demand

○ Potential for lower OPEC oil production as demand for stockpiling wanes

• Stronger winter market fundamentals expected in Q4-12

○ Heating demand in the northern hemisphere

○ Return of refineries from seasonal maintenance

○ Transit delays due to adverse weather conditions

Additional Factors Which Could Move the Market

Upside Downside

Atlantic hurricane season Weakening global economy

Re-opening of Atlantic refineries Potential OPEC supply cutbacks

Unplanned refinery outages –

increased product tanker demand

Non-OPEC supply outages

(N. Sea, GoM, Sudan, Syria, Yemen)

5 www.teekay.com

Expectations For 2013 Demand Have Weakened

0%

1%

2%

3%

4%

5%

6%

7%

8%

2011 2012E 2013E

% G

row

th

Tanker Demand Growth Tanker Fleet Growth

Source: Platou / Internal estimates

Demand Range Supply Range

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

MB

/ D

ay

EIA Report Date

Evolution of the EIA’s 2013 Oil Demand Growth Forecast

OECD Non-OECD Total

• Uncertainties with regards to the 2013 demand outlook have grown

• Base case view is for supply and demand to be balanced in 2013

○ Previous assumption was for demand to outstrip supply by ~1%

= Reduced Demand Estimate

6 www.teekay.com

• 20-25% decline in asset prices in 2011; further 10% in 2012-to-date

• Asset prices for older (>15 years) vessels under significant pressure

• Newbuilding prices likely to see further downward pressure in 2H-12

○ Lack of new orders putting pressure on shipyards to cut prices

○ Lower steel costs pave the way for lower prices

○ Lack of financing likely to constrain ordering

Asset Prices – Yet To Reach The Bottom

40

50

60

70

80

90

100

110

Suezmax Asset Prices

NB 5-yr

20

30

40

50

60

70

80

90

Aframax Asset Prices

NB 5-yr

Source: Clarksons Source: Clarksons

$ m

illio

ns

$ m

illio

ns

7 www.teekay.com

Aframax / LR2 Best Placed For Recovery

Favorable supply outlook to support Aframax / LR2 rates in 2013

0%2%4%6%8%10%12%14%16%18%20%

0

100

200

300

400

500

600

700

800

MR LR1 Panamax LR2 Aframax Suezmax VLCC

Ord

erb

oo

k a

s %

of

Fle

et

Ve

ss

els

Tanker Fleet & Orderbook Profile By Sector Fleet 0-14 years Fleet 15+ years

On Order O'book as % of Fleet

-60-40-20

020406080

100

2009 2010 2011 2012E 2013E 2014E

Ve

ss

els

Aframax / LR2 Fleet Growth

Deliveries Removals Net Growth

• Aframax / LR2 fleet shows virtually

no fleet growth for 2H-2012;

shrinking fleet in 2013

• Suezmax / VLCC with ~5-7% fleet

growth to come in 2013

• New round of orders has re-inflated

the MR tanker orderbook

8 www.teekay.com

• 2012 / 13 projected to be the trough in terms of tanker fleet utilization / rates

• Improvement in rates from late 2013 / 2014 due to slowing fleet growth

(sub-3% p.a.) coupled with economic recovery, improved oil demand

• Recovery will be gradual; pace of ordering must remain low

Gradual Recovery Starting Late 2013 / 2014

0%

1%

2%

3%

4%

5%

6%

7%

8%

76%

78%

80%

82%

84%

86%

88%

90%

92%

94%Fleet Utilization Tanker Demand Growth Tanker Supply Growth

9 www.teekay.com

Long-Term Crude Tanker Demand Drivers

Plenty of pent-up demand in the non-OECD… …with China the main driver of demand growth

• Future oil demand growth to come almost entirely from non-OECD

○ Increasing wealth to drive demand for transportation fuels

• China is expected to account for the majority of growth in crude imports

○ Supply sourced from Middle East and, increasingly, Atlantic Basin (long haul)

• Growth in crude trade partially offset by a decline in US seaborne imports

0

2

4

6

8

10

12

14

16

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013E

2014E

2015E

2016E

MB

/D

Source: IEA / BP

China Oil Market Fundamentals

Oil Demand

Domestic Oil Production

Refinery Capacity

Crude Imports

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

0

5

10

15

20

25

Po

pu

lati

on

(B

illi

on

s)

BB

L /

Pe

rso

n / Y

ea

r

Oil Consumption (LHS)

Population (RHS)

10 www.teekay.com

• Global refining capacity set to increase by ~8 mb/d during 2012-2016

○ ~40% of new capacity is from export-oriented facilities in India / MEG

• Older / less efficient refineries in the Atlantic Basin becoming marginalized

○ Displaced in part by long-haul product imports from the East

• Growth in long-haul product tanker trade to benefit LR2s / LR1s the most

Long-Term Product Tanker Demand Drivers

Product tanker tonne-miles set to grow… …as fleet growth slows to a 10-year low

0%

2%

4%

6%

8%

10%

12%

14%

0123456789

10

2005

2006

2007

2008

2009

2010

2011

2012E

2013E

% F

lee

t G

row

th

Mil

lio

n D

ea

dw

eig

ht

Fleet Growth* (mdwt) Fleet Growth (%)

Source: IEA / Internal

Source: Clarksons / Internal estimates

11 www.teekay.com

• Development of shale oil reserves

is having a significant impact on US

oil supply / demand dynamics.

• According to some estimates, by

2020 North America could have a

hydrocarbon surplus.

• Potentially very negative for US

seaborne crude imports (though

could lower global oil prices and

stimulate demand elsewhere)

• US has the potential to become a

major exporter of refined products.

• The US is expected to have a large

surplus of naphtha by 2015 as

NGLs push naphtha out of domestic

petrochemical markets.

Wild Card – US Tight Oil Production

US Oil Production & Canadian Imports

US Net Product Imports / Exports

Source: Citi

Source: Citi

LNG Market

Update

September 2012

13 www.teekay.com

Current Market Snapshot

• Spot / short-term shipping rates with

prompt delivery command a steep

premium (>$150,000 / day)

• Longer duration / forward starting

charters likely to earn closer to long-

term average (~$70-90,000 / day)

0

20

40

60

80

100

120

140

160

„00

0 U

SD

/ D

ay

Source: Various Broker Estimates

LNG Shipping Spot Rates

Short Term Shipping Rates Remain Firm; Depend on Duration, Start Date

• 17 new LNG carrier orders in 2012 to

date versus 50 in 2011.

• Enquiry for new tonnage has fallen in

recent weeks on concerns that the

orderbook is sufficient to meet near-

term demand (i.e. up to 2015)

Pace of LNG Vessel Orders Has Slowed

0

5

10

15

20

25

No

. V

es

se

ls

Source: Clarksons

LNG Vessel Orders

14 www.teekay.com

• Natural gas gaining market share from oil and coal due to its low cost,

abundance, and cleaner burning properties

• Demand driven by the power sector (gas displacing coal)

• Non-OECD accounts for ~85% of natural gas demand growth to 2035

“Golden Age of Gas”

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Oil Coal Natural Gas

CA

GR

(%

)

Fossil Fuel Demand Growth Outlook (2010-35)

IEA EIA BP Exxon

Average: 0.9% p.a.

Average: 1.0% p.a.

Average: 1.9% p.a.

15 www.teekay.com

• LNG is a cornerstone of China’s energy mix

• Chinese LNG imports expected to double to ~25-30 MT by 2015

• Domestic gas shortfall prompting India to turn to LNG

• India planning to double regasification capacity by end-2015

LNG Demand Primarily Driven By China & India

0

2

4

6

8

10

12

14

16

18

Current Secured by2016

MOU

Mil

lio

n T

on

ne

s

Chinese LNG Purchase Agreements

Australia Qatar Indonesia

Malaysia PNG Portfolio

0

5

10

15

20

25

30

35

40

2012 2013 2014 2015 2016

Mil

lio

n T

on

nes

Pe

r A

nn

um

Indian Regasification Capacity

Source: Thomson Reuters Source: Ambit Capital

16 www.teekay.com

• Nuclear accounted for 30% of

Japan’s electricity generation

pre-Fukushima

• Without nuclear Japan

depends on fossil fuel imports

(vulnerable to price shocks)

• Only 2 of Japan’s 50 nuclear

reactors are currently online –

no clear timeline for activation

of remaining reactors

• Backwardation in LNG

charter rates reflect the

Fukushima effect lasting

through end 2013

Japan and the “Fukushima Effect”

0

10

20

30

40

50

60

70

80

90

Mil

lio

n T

on

nes

Japanese LNG Imports

Source: Thomson Reuters

17 www.teekay.com

• Australia expected to add ~80 MTPA of LNG supply by 2020

• US is a wild card: 100+ MTPA of planned export projects, but how much will

come online?

• Requirement for additional newbuildings to move new LNG volumes

Wave of New LNG Supply From 2015

200

250

300

350

400

450

500

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mil

lio

n T

on

nes P

er

An

nu

m (

MT

PA

)

LNG Capacity Additions By Region

Others

Middle East

Canada

Other Asia

Africa

USA

Russia

Australia

Existing

170 MTPA by 2020 =

170 incremental LNG carriers

Source: Multiple Sources / Internal Estimates

18 www.teekay.com

US Exports Competitive at $5-6 Henry Hub or Lower

Source: Deutsche Bank

• US LNG export model based on

cheap domestic natural gas

prices.

• At current prices US exports are

competitive with Australia

despite longer transportation

distances.

• US LNG exports remain

competitive until the price

exceeds $5-6 / mmbtu.

• New projects on hold until US

government assesses the

impact of LNG exports on

domestic gas prices

$5.40 / mmbtu

$2.60 / mmbtu

$4.00 / mmbtu

Henry Hub Price

19 www.teekay.com

• Spot and short-term LNG trade currently make up 25% of total trade

(up from 5% in 2000)

• Trend expected to continue towards short-term / flexible volumes

Changing Nature of LNG Trade

0%

5%

10%

15%

20%

25%

30%

35%

0

10

20

30

40

50

60

70

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mil

lio

n T

on

ne

s P

er

An

nu

m

(MT

PA

)

Spot and Short-term LNG Trade

Spot LNG Trade (MTPA) % of Total Trade

Source: GIIGNL

20 www.teekay.com

• Orderbook of 76 vessels represents 20% of the fleet size

○ 32 LNGCs on order are currently uncommitted to long-term charters

• Move towards standardized size of 160-170 kcbm

○ New technologies (MEGI engine, new containment systems)

Orderbook Reflective of Strong Spot Market

0

10

20

30

40

50

60

Nu

mb

er

of

Ve

ss

els

LNG Carrier Fleet and Orderbook

Long Term Contract Short Term Contract / Uncommitted

Source: Clarksons

21 www.teekay.com

2012-2015

• Market likely to remain tight through 2013 on elevated Japanese demand

• Risk of a softening in spot / short-term charter rates once the orderbook starts

to deliver in 2013 / 14

• Bulk of new LNG liquefaction capacity comes online post-2015

2016-2020

• Significant ramp-up in LNG export volumes and therefore transportation

demand

• Estimated 100 LNGs over and above the current orderbook required to satisfy

projected demand by 2020

• Demand for floating regasification set to grow in tandem with increased LNG

export volumes and global infrastructure build-out

LNG Carrier Supply / Demand Balance

Offshore

Market Update

September 2012

23 www.teekay.com

Leading indicators for offshore

production, storage and

transportation demand

Linking Rig to Refinery

Teekay’s role in the

offshore value chain

24 www.teekay.com

Drilling Activity a Key Leading Indicator

0

20

40

60

80

100

120

0

20

40

60

80

100

$ / B

BL

Oil

Pri

ce

MO

DU

Ord

ers

MODU Orders Versus Oil Price

Jack Ups Semi-subs and Drillships Oil Price (USD)

• 81 mobile drilling unit (MODU) orders placed in 2011

○ Highest since 1980

• Growth strongest in the deepwater / ultra-deepwater drilling fleet

• Deepwater wells yielding the biggest results

○ Average discovery size in 2010 for wells >1,500m depth was 1,000+ mboe

Source: Clarksons, Douglas Westwood, BP

25 www.teekay.com

• Resurgence in North Sea

drilling activity yielding

results

○ 1.7 - 3.3 billion barrel

Johan Sverdrup find was

biggest of 2011

• New finds tend to suit an

FPSO and shuttle tanker

solution

• Enhanced Oil Recovery

leading to renewed

production in mature areas

• Move into Barents Sea

requires high-specification

shuttle tankers and FPSOs

North Sea Market – Resurgent Activity

Record high level

of exploration

*Source: Norwegian Petroleum Directorate

Norwegian Exploration Wells Drilled*

Norwegian Sea

(existing shuttle

region)

North Sea

(existing shuttle

area)

Barents Sea

(emerging

shuttle region)

26 www.teekay.com

Brazil Market – More Growth to Come

0

20

40

60

80

100

120

140

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Brazil Offshore Production Fleet Development

Installed On Order Planned

• Brazilian offshore production fleet set to double in 2011-18

○ Growth in offshore production drives demand for shuttle tankers and FPSOs

• Petrobras is aggressively increasing its production capability

• Other oil companies also have shuttle requirements in offshore Brazil

Source: IMA

27 www.teekay.com

• The number of projects which could require an FPSO has doubled in

the past five years

• Estimate of 20-28 FPSO orders per year over the next five years

depending on the global economy, oil demand and energy prices

• Operational and engineering expertise required to be successful in

the leased FPSO business creates a high barrier to entry

Strong Future Demand For FPSOs

0 50 100 150

Apr-12

End-08

End-06

141

96

68

FPSOs in the Planning Stage

0

5

10

15

20

25

30

Avg.Orders

per year

OrdersJan-Apr

2012

LowCase

BaseCase

HighCase

15

10

20

24

28

FPSO Forecast (Next 5 Years)

Avg.

Orders

per year

Orders

Jan-Apr

2012

Low

Case

Base

Case

High

Case

Source: IMA Source: IMA

(2007 – 2011) Next 5 Years

28 www.teekay.com

• Resurgence in offshore activity creating new FSO opportunities

○ Re-emergence of FSO demand in the North Sea

○ New development in S.E. Asia

• 22 projects currently considering the use of an FSO

○ 11 in Asia; 4 in North Sea

Increased Demand for FSO Solutions

0

2

4

6

8

10

12

S.E. Asia NorthSea

MED GoM Brazil Africa

11

4 3

2 1 1

Planned FSO Projects

0

2

4

6

8

10

TankerPacific

Teekay Modec TradaMaritime

MISC

7

5

4 4

3

Top Leased FSO Operators

4 Owners with 2 units

19 Owners with 1 unit