© OECD/IEA 2015 © OECD/IEA 2015

The Norwegian Ministry of Petroleum and Energy

Oslo, 17 February 2015

© OECD/IEA 2015

Oil price plunge triggers market reset

Historical Brent crude oil prices IEA import price assumptions

20

40

60

80

100

120

140

160

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

USD/

bbl

Brent

100

55 62

67 70 71 73

108 102

98 95 93 91 87

40

50

60

70

80

90

100

110

120

2014 2015 2016 2017 2018 2019 2020

USD/

bbl

MT February 2015 MT June 2014

• 60% drop in crude oil prices June 2014 - early January 2015

• Partial rebound since then, but market does not expect full recovery

• From backwardation to contango

• Is the age of triple-digit oil prices over?

© OECD/IEA 2015

IMF backpedals on economic recovery

3.0%

3.2%

3.4%

3.6%

3.8%

4.0%

4.2%

2014 2015 2016 2017 2018 2019 2020

MTOMR 2015 IMF Jan-15 IMF Oct-14 IMF Jul-14

2015 economic growth revised from 4% to 3.8% and again to 3.5% over a six-month period

© OECD/IEA 2015

Business as unusual

The market response to lower prices is asymmetrical Supply has become more price-elastic, demand less so

- 1

0

1

2

3

4

5

6

7

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

mb/d

Implied OPEC spare

capacity

World demand growth

World supply capacity

growth

© OECD/IEA 2015

Supply

© OECD/IEA 2015

Slowing supply growth

Global capacity growth cut to annual average 860 kb/d through 2020,

down from 1.4 mb/d in 2008-14

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2014 2015 2016 2017 2018 2019 2020

mb/d

OPEC crude capacity OPEC NGLsNon-OPEC World

© OECD/IEA 2015

Non-OPEC growth drops from record high

Non-OPEC supply grows by 3.4 mb/d to 60 mb/d by 2020

Annual growth slows to average 560 kb/d vs 1.9 mb/d in 2014

Annual non-OPEC supply growth

-1500

-1000

-500

0

500

1000

1500

2000

2500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

kb/d

PG and biofuels

Other Asia

China

Middle East

Africa

Latin America

Other Europe

FSU

OECD Pacific

OECD Europe

OECD Americas

Total

© OECD/IEA 2015

US, Brazil and Canada top sources of growth

- 600

- 400

- 200

0

200

400

600

800

1 000

kb/d

Not shown: US supply to grow 2.2 mb/d

Main growth sources remain the same as before the price drop

© OECD/IEA 2015

Low price cuts mid-term non-OPEC growth expectations by 2.8 mb/d

-800 -600 -400 -200 0

Other FSU

China

Non-OPEC Middle East

Colombia

Norway

Non-OPEC Africa

Canada

US

Russia

Change in 6-year growth outlook (kb/d)

© OECD/IEA 2015

Diverging supply paths

US production growth slows in 2015-17, then rebounds

Russian output contracts by 560 kb/d by 2020

Change in US liquids production Change in Russian liquids production

0.0

0.5

1.0

1.5

2.0

2009 2011 2013 2015 2017 2019

mb/d

Feb 2015 3Q2014

-0.20

-0.10

0.00

0.10

0.20

0.30

2009 2011 2013 2015 2017 2019mb/d

Feb 2015 3Q2014

© OECD/IEA 2015

North America remains backbone of non-OPEC growth

0

2

4

6

8

10

12

14

2008 2010 2012 2014 2016 2018 2020

mb/d

LTO Gulf of Mexico NGLs Other liquids Other crude and cond.

US production nears 14 mb/d, Canada 5.0 mb/d by 2020

Most of US output is LTO and NGL by the start of next decade

Bitumen, synthetics make up 60% of Canada’s production by 2020

US total oil production Canada total oil production

0

1

2

3

4

5

6

2013 2014 2015 2016 2017 2018 2019 2020

mb/d

NGLs Alberta L&M Bitumen Synthetics Other

© OECD/IEA 2015

0%

20%

40%

60%

80%

100%

2014 2015 2016 2017 2018 2019 2020

USD/b

below 40

USD/b

40-60

USD/b

60-80

USD/b

80-100

USD/b

above

100

US LTO and shale-play condensate breakevens rise

About 41% of US LTO and shale condensate breakeven prices at $50/bbl or lower in 2014

Depletion of sweet spots to offset efficiency gains and lower costs

Source: Rystad Energy

© OECD/IEA 2015

Brazil hit by project delays, low prices

Supply swung back into growth in 2H14

Petrobras debt and legal problems raise hurdles

-300

-200

-100

0

100

200

300

400

2010 2012 2014 2016 2018 2020

kb/d

Campos Santos Other

Brazil total 2014 forecast

© OECD/IEA 2015

Russia biggest casualty of price fall

Ruble collapse partially offsets drop in dollar prices

Tax regime blunts impact on companies; government takes biggest hit

Greenfield startups delayed

Sanctions hit Arctic and LTO

9.50

9.75

10.00

10.25

10.50

10.75

11.00

11.25

2014 2015 2016 2017 2018 2019 2020

mb/d

Current data June 2014

© OECD/IEA 2015

North Sea suffers setback

Price slump delays projects, production contracts through 2020

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2012 2013 2014 2015 2016 2017 2018 2019 2020

Thou

sand

s

mb/d

UK Norway Other Ann. Change (rhs)

© OECD/IEA 2015

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

3.0

2014 2015 2016 2017 2018 2019 2020

mb/d

Current data June 2014

Low price delays impact of Mexican

reform

Growth expected to kick in in 2018-20

© OECD/IEA 2015

Caspian growth elusive

Production gains post-2017 after Kashagan comes online

Limited success in stemming rapid declines in Azerbaijan’s ACG fields

1.0

1.2

1.4

1.6

1.8

2.0

2014 2015 2016 2017 2018 2019 2020

mb/d

600

650

700

750

800

850

900

2014 2015 2016 2017 2018 2019 2020kb

/d

Kazakhstan total oil production Azerbaijan total oil production

© OECD/IEA 2015

0

1

2

3

4

5

2007 2009 2011 2013 2015 2017 2019

mb/d

Daqing Shengli Changqinq Other

China’s production holds steady on EOR

Legacy fields, especially Daqing and Changqing,

see EOR benefits through 2020

© OECD/IEA 2015

Biofuels production inches higher

Biofuel consumption is mandate-driven

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2013 2014 2015 2016 2017 2018 2019 2020

mb/d

Volumetric

United States biofuels Brazil biofuels

OECD Europe biofuels Rest of the world biofuels

0%

1%

2%

3%

4%

0.0

0.5

1.0

1.5

2.0

2013 2014 2015 2016 2017 2018 2019 2020

mb/d

of o

il equivalent

Adjusted for energy content

World Biofuels, energy adjusted

As % of global road transport fuel demand

© OECD/IEA 2015

Price drop curbs OPEC crude capacity growth

Growth expectations reduced to 200 kb/d annually,

vs 350 kb/d prior to the price drop

34

35

36

37

2014 2015 2016 2017 2018 2019 2020

mb/d

Current data June 2014

© OECD/IEA 2015

OPEC wins back some market share

Share of total supply inches back up,

but not the share of global capacity

© OECD/IEA 2015

OPEC growth hinges on Iraq

Price drop, ISIL add to Iraq institutional and infrastructure constraints

Total Iraq growth estimated at 1.1 mb/d in 2014-2020; elevated risks

Low prices can be double-edged

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

2014 2015 2016 2017 2018 2019 2020

mb/d

Iraq Rest of OPEC OPEC

© OECD/IEA 2015

UAE to post notable growth

Abu Dhabi, IOCs press ahead with expansion plans Upper Zakum due to add 250 kb/d by 2017

Stakes in giant onshore Adco concession being awarded

2.7

2.8

2.9

3.0

3.1

3.2

3.3

2014 2015 2016 2017 2018 2019 2020

mb/d

-40

-20

0

20

40

60

80

2014 2015 2016 2017 2018 2019 2020kb

/dOffshore growth Onshore growth Total

© OECD/IEA 2015

Nigerian capacity to contract

Low oil price further delays costly deep-water projects

Investment already set back by long-running deadlock over Petroleum Industry Bill

© OECD/IEA 2015

Libya: OPEC’s wildcard

Militants target energy industry

0.0

0.5

1.0

1.5

2.0

2010 2012 2014 2016 2018 2020

mb/d

© OECD/IEA 2015

Battle for market share just starting

How will OPEC make room for expanding Iraq and an Iran freed from sanctions?

© OECD/IEA 2015

Demand

© OECD/IEA 2015

Mixed demand response

Low price dampens outlook for oil exporters

Oil importers enjoy benefits but …

… weak economic recovery, subsidy cuts, forex, fuel-switching provide offset

-600 -400 -200 0 200 400 600 800 1000

US

India

Latin America

Africa

Middle East

FSU

kb/d

Revised demand growth prospects 2014-2019

© OECD/IEA 2015

Currency weakness dampens price effect in many countries

Domestically-priced Brent crude indices, 2008-14

0

20

40

60

80

100

120

140

160

180

Jan2008 Jul2008 Jan2009 Jul2009 Jan2010 Jul2010 Jan2011 Jul2011 Jan2012 Jul2012 Jan2013 Jul2013 Jan2014 Jul2014

US

Europe

Russia

China

© OECD/IEA 2015

Modest demand growth still foreseen

+1.2% per annum, 2014-20

Below pre-Great Recession trend (1.9%, 2001-07)

Net gain of 6.6mb/d, nearly 1 mb/d above supply capacity growth

-2.5%

-1.5%

-0.5%

0.5%

1.5%

2.5%

3.5%

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

mb/d

Other NonOECD

NonOECD Asia

OECD

World Growth Rate

© OECD/IEA 2015

Eastward pull unabated

1998-06

2006-14

2014-20

1998-06 1 352 1.7%

2006-14 853 1.0%

2014-20 1 104 1.2% © OECD/IEA, 2015

This map is w ithout prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

Average global demand growth

(kb/d)

36

-296-79

34 103 23

345

-1

158 180 255 227

76 121 142

Americas

Africa

Middle East

Europe

FSU

680 672633

Asia/Pacific

© OECD/IEA 2015

OECD share of demand continues to decline

Non-OECD demand overtook OECD in 2014

OECD declines further overall

Non-OECD continues to grow, but at slower rate

40%

45%

50%

55%

60%

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

mb/d

Other non-OECD

Middle East

Former Soviet Union

Other Asia

China

OECD

OECD share

© OECD/IEA 2015

Middle Eastern demand growth expectations reduced by turmoil, price

Still key growth area at 2.6% gains per annum, or 1.4 mb/d total over 2014-20

War and unrest take toll

Lower price cuts exporter-country GDP

Countries with low buffers harder hit

Subsidy reductions

Change to prior demand forecast

© OECD/IEA 2015

China shifting gears

+2.6% per annum, 2014-20

Slower stage of economic growth, IMF foresees sub-7% GDP trend

Focus shifts from oil-intensive exports to consumer sector

Diesel less dominant

-0,4

-0,2

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

mb/d

LPG

Naphtha

Motor gasoline

Jet and kerosene

Gasoil/diesel

Residual fuel

Other products

© OECD/IEA 2015

Indian demand seen gaining momentum

+3.4% per annum, 2014-20

Growing confidence in economy

‘Worst’ of subsidy cuts has passed

-0.1

0.0

0.1

0.2

0.3

0.4

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

mb/d

Other products

Residual fuel

Gasoil/diesel

Jet and kerosene

Motor gasoline

Naphtha

LPG

© OECD/IEA 2015

OECD Asian demand contracts further

Non-OECD Asia Oceania -0.6% per annum, 2014-20

Ongoing power-sector switching, out-of-oil

Weak macroeconomic momentum and heady efficiency gains

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

mb/d

Other products

Residual fuel

Gasoil/diesel

Jet and kerosene

Motor gasoline

Naphtha

LPG

© OECD/IEA 2015

European demand outlook weak on slow rebound

-0.7% per annum, 2014-20

Persistent macroeconomic weakness curbs demand

Deflation concerns

Efficiency gains

0

2

4

6

8

10

12

14

16

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

mb/d

Other products

Residual fuel

Gasoil/diesel

Jet and kerosene

Motor gasoline

Naphtha

LPG

© OECD/IEA 2015

US bucks the OECD demand trend

+0.3% per annum, 2014-20

Supported by robust macroeconomic backdrop

Efficiency gains trim gasoline and jet/kerosene

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

mb/d

Other products

Residual fuel

Gasoil/diesel

Jet and kerosene

Motor gasoline

Naphtha

LPG

© OECD/IEA 2015

Lower prices at the pump lift US gasoline demand outlook

Efficiency gains still cuts use

© OECD/IEA 2015

Marine Bunkers

© OECD/IEA 2015

Emission rules catch up with marine sector

0.1% sulphur-content cap in ECAs effective 1 January 2015

Elsewhere 3.5% cap since 2012, to be cut to 0.5% in 2020 or 2025

Uncertainty on timing

© OECD/IEA 2015

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

mb/d

Gasoil

Residual Fuel Oil

Bunker fuel mix to undergo step change

As the global cap is implemented, 3 options available to ship owners: gasoil, scrubbers, LNG

Up to 2.2 mb/d could switch from fuel oil to marine gasoil:

Marine gasoil notionally set to rise to 3.1 mb/d

Residual fuel oil set to decrease to 1 mb/d

Oil-based marine fuel consumption in international navigation

© OECD/IEA 2015

Oil Trade and Refining

© OECD/IEA 2015

Crude trade has peaked

Crude trade peaked at 36 mb in 2012 and declined swiftly over 2012-2014 on lower US import needs, higher Middle East runs

Declines expected to moderate and partially reverse in the medium term

33.0

33.5

34.0

34.5

35.0

35.5

36.0

2006 2008 2010 2012 2014 2016 2018 2020

mb/d

Inter-regional crude trade

© OECD/IEA 2015

World crude markets fragmenting

Crude trade will continue to shift eastwards

Crude Exports in 2020 and Growth in 2014-20 for Key Trade Routes1

(million barrels per day)

0.2

(+0.1)

0.4 0.2

(+0.1) 2.0 (+0.2)

(-0.5) 4.2(-0.6)

3.8

1.4 (+0.6)

1.5 (+0.1)

-0.2

1.5

1.7 (+0.5)

(-0.3)

0.6(+0.4)

Red number in brackets denotes growth in period 2014-20 0.71Excludes Intra-Regional Trade (+0.1)2 Includes Chile3 Includes Israel

5.5

(+0.1)

Other Asia

China

OECD Europe

1.4(-0.1)

1.1 (+0.3)

OECD Asia

Oceania3

0.5 (-0.1)

0.5(+0.1)

3.6 (-0.5)

OECDAmericas2

© OECD/IEA 2015

Non-OECD crude imports expected to overtake the OECD in 2020

Later than previously expected following:

Impact of low prices on North American and North Sea production

Slowing non-OECD demand growth

-1 500

-1 000

- 500

0

500

1 000

1 500

2014 2015 2016 2017 2018 2019 2020

kb/d

Africa FSU Latin America Middle East OECD Europe OECD Americas OECD Asia Oceania Other Asia Other Europe China

-2 000

-1 500

-1 000

- 500

0

500

1 000

2014 2015 2016 2017 2018 2019 2020kb

/d

Regional crude exports, yearly change Regional crude imports, yearly change

© OECD/IEA 2015

Middle Eastern producers compete for market share in Asia

-0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80

China

Oth Asia

OECD Eur

Africa

FSU

Oth Eur

L. America

OECD Am

OECD AO

mb/d

Middle East export growth, 2014-20

End in sight for the “Asian premium”?

© OECD/IEA 2015

Russia’s “pivot to Asia”

-0.60 -0.40 -0.20 0.00 0.20 0.40

China

Oth Asia

Oth Eur

Mid East

L. America

OECD Am

Africa

OECD AO

OECD Eur

mb/d

Rosneft supply deals with CNPC, Sinopec, Essar, PetroVietnam

European crude demand attrition

FSU export growth, 2014-20

© OECD/IEA 2015

Refining surplus lingers despite scaling back

New capacity of 6.4 mb/d by 2020, led by non-OECD Asia, Middle East

Brief margin respite in 2014 on shutdowns

-1 000

- 500

0

500

1 000

1 500

2 000

2014 2015 2016 2017 2018 2019 2020

kb/d

OECD Americas

OECD Europe

OECD Asia Oceania

China

Other Asia

Middle East

Other non-OECD

Total Net

Global crude distillation capacity additions

© OECD/IEA 2015

Non-OECD accounts for 90% of growth

Non-OECD Asia adds 42% of total, or 2.7 mb/d of crude distillation capacity

Middle East expands capacity by a further 1.7 mb/d, taking total capacity to 10.3 mb/d at the end of the decade

OECD

10%

China

24%

Other Asia

18%

Middle East

26%

Latin America

8%

Others

14%

© OECD/IEA 2015

Non-OECD expansions front-loaded

Projects planned during boom years are now being completed – strong growth in 2014 despite weak product demand

Expansions slow at the end of the forecast period, but many projects could be revived if conditions allow

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2014 2015 2016 2017 2018 2019 2020

mb/d

China

Other Asia

Middle East

FSU

Latin America

Africa

Non- OECD refinery capacity additions

© OECD/IEA 2015

Lower surplus capacity props up margins

Surplus global refining capacity hit 6-year low ~3 mb in 2014 as OECD refinery closures offset new non-OECD capacity

Refinery margins gets significant boost from mid-year

New capacity puts system under renewed pressure from 2015 onward

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2006 2008 2010 2012 2014 2016 2018 2020

mb/d

Global surplus refinery capacity Simple refining margins

-8

-6

-4

-2

0

2

4

6

8

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

$/bb

l

Med Urals NWE Brent NWE Urals Singapore Dubai

© OECD/IEA 2015

More OECD closures in the cards

Total of 4.8 mb/d of capacity shut in OECD since 2008

Additional 450 kb/d announced in Asia Oceania through 2017

More shutdowns likely to be announced

0

200

400

600

800

1 000

1 200

1 400

2008 2010 2012 2014 2016

mb/d

Americas Europe Asia Oceania

50%

60%

70%

80%

90%

100%

2007 2009 2011 2013 2015 2017 2019

Americas Europe Asia Oceania

OECD refinery closures OECD refinery utilisation rates

© OECD/IEA 2015

Light distillate surplus emerge

Product supply balances: naphtha / gasoline Regional balances in 2014 and 2020 (kb/d)

OECD Americas turning naphtha/gasoline net exporter

European excess persist despite refinery shutdowns

© OECD/IEA 2015

Looming diesel wall

Middle distillate supply/demand balance Fuel oil supply/demand balance

30.0

32.0

34.0

36.0

38.0

40.0

2012 2020

mb/d

Refinery Supply Demand

5.0

6.0

7.0

8.0

9.0

10.0

2012 2020mb/d

Refinery Supply Demand

Further refinery investments are required to produce the necessary gasoil

Higher middle distillate demand will increase distillate cracks and shipping costs

Adjustments in midstream infrastructure required

© OECD/IEA 2015

Europe’s middle distillate import dependence

Product supply balances: gasoil / kerosene Regional balances in 2014 and 2020 (kb/d)

Asia set to become a middle distillate net-importer China to become a gasoil exporter?

© OECD/IEA 2015

Fuel oil challenges

Fuel oil tightens ahead of 2020, as refiners upgrade but then become massively oversupplied on marine shift

Global fuel oil demand remains remarkably stable through 2019

Product supply balances: fuel oil Regional balances in 2014 and 2020 (kb/d)

https://www.iea.org/oilmarketreport/