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Energy Industry Trends Review

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Economic<br />

Oil supply<br />

Oil price<br />

4<br />

August 2011 September 2011 October 2011<br />

Global gross domestic product (GDP) growth will moderate to around 4 percent through 2012, from more than 5 percent in 2010. Real GDP in the<br />

advanced economies is projected to expand at a slow pace of about 1.5 percent in 2011 and 2 percent in 2012, due to continuing financial market<br />

volatility and sovereign debt challenges for some EU countries. China’s GDP growth is forecast lower for 2012 at 9 percent, largely due to a decline<br />

in manufacturing and rising inflation. Japan’s GDP is forecast to recover in 2012 to show 2.3 percent growth. 5<br />

Global oil supply rose by 1 million b/d to 89.3 million b/d in October 2011 from September, driven by recovering non-Organization of Petroleum<br />

Exporting Countries (OPEC) output. OPEC supply is well above year-ago levels, due to the political situation in Libya. A recovery in the<br />

non-OPEC output and some improvement in Libya and Angola supported the increase with a continued strong supply outlook for the Americas. 6<br />

Oil demand Global oil demand is expected to rise to 89.2 million b/d in 2011 and reach 90.5 million b/d in 2012. Some of the demand boost stems from<br />

temporary factors such as seasonal heating oil tank filling, while oil-fired power generation in Japan is providing an upside to demand, as utilities<br />

switch to oil as well as gas for power generation. There are, however, increasing concerns of a slowdown in demand due to the economic situation<br />

in the Eurozone and the United States. 7<br />

Gas supply<br />

Oil prices over the past quarter have been characterized by extreme volatility and futures price movements are currently showing 95 percent correlation<br />

with financial market movements since July. The Eurozone debt crisis and return of Libyan crude exports has led to some easing in crude prices, with some<br />

analysts now revising 2012 crude forecasts on the back of expected demand slowdowns. 8<br />

Global gas production is expected to continue to increase and meet future demand with further exploration and development of unconventional gas<br />

notably in the United States, which is now progressing with its plans to export liquefied natural gas (LNG). Gas production is due to resume from Libya<br />

to Europe in fourth quarter 2011 which, along with high levels of gas in storage, indicate a very strong supply situation here. Gas supplies in Japan still<br />

remain tight.<br />

Gas demand Short-term gas demand continues to vary significantly by region, with significant demand still evident in Asia, notably Japan and Russia, but with<br />

Europe and North America still showing weaker demand due to milder autumn weather conditions and the continuing weak economic outlook.<br />

Longer-term demand for natural gas will continue to grow (from 3.1 trillion cubic meters [tcm] in 2009 to 4.75 tcm in 2035); an increase of<br />

55 percent. 9<br />

Gas price<br />

Refining<br />

M&A<br />

Gas prices for most markets are expected to increase next year over 2011, due to better demand. The US market remains an exception due to the<br />

continued robust supply situation and weak demand. Prices are under pressure in Europe as Libya gas exports are due to restart. LNG prices<br />

remain high in Asia, notably Japan, where they are almost at parity with oil prices.<br />

Global refinery crude runs were averaging 75.5 million b/d in third quarter 2011. Global refinery crude estimates for fourth quarter 2011 have<br />

been revised lower for most regions due to shutdowns and seasonal maintenance in Europe, disruptions to refinery operations and unscheduled<br />

stoppage in Asia as well as seasonal maintenance in the United States. Recent refining margins have showed some recovery in the third quarter<br />

due to an outage at Shell’s refinery in Singapore, which temporarily tightened the market. 10<br />

Oil price and market volatility has led to a decline in oil and gas merger and acquisition (M&A) activity, now at its lowest level since 2008. North<br />

America continues to be the focus of the largest deals, with focus on the unconventional oil and gas sector still strong. A US pipeline deal for the<br />

Seaway pipeline will lead to a planned flow reversal and signals the end of the US Midwest supply glut and coming back into line with the WTI<br />

and Brent crude oil price differentials.<br />

Rig activity The rig market continues to look buoyant as the continued high oil price drives upstream activity. The number of oil rigs in the United States exceeded<br />

2,000 as of the beginning of November 2011, and US drilling activity has finally surpassed pre-crisis highs in October. There is a trend of US producers<br />

starting to bring in-house some rig and key servicing, such as pressure pumping. 11<br />

Companies Higher oil and gas prices once again contributed to higher profits for the integrated oil majors during the third quarter of 2011, even though asset sales,<br />

geopolitical problems and maintenance turnarounds led to another decline in production. Oilfield services companies continue to show strong profits<br />

supported by high levels of upstream activity, though some independents are struggling with individual issues and exposure to poor US natural gas prices.

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