1. 1 Petroleum and Natural Gas Situation John C. Felmy Chief Economist and Director Statistics Department American Petroleum Institute Felmyj@api.org www.api.org www.gasolineandyou.org www.naturalgasfacts.org www.api.org www.naturalgasfacts.org

2. 2 What is needed in a National Energy Policy? Conservation and energy efficiency are important but are insufficient alone. Renewable energy is an important but small source of energy. Until it’s cost is reduced, it will continue to be a small source. Even with improved efficiency and more renewable energy, we will still need more conventional energy – oil, coal, natural gas and nuclear. Robustness, Redundancy and Diversity

3. 3 EIA Forecast of Winter Fuel Costs – October 2004

4. 4 NOAA Winter Outlook

5. 5 Déjà vu, All Over Again 2003 Early 2003 Cold winter Venezuela shutdown Nigerian strikes Iraq High crude oil prices California MTBE ban transition start Summer 2003 Blackout Pipeline problems Strong demand Japanese nuclear outages 2004 OPEC cuts Cold winter Japanese nuclear outages Venezuela uncertainty Iraq uncertainty Nigerian uncertainty Terrorist attacks Norwegian Strikes Yukos Strong economic growth Dollar depreciation High crude oil prices High natural gas prices Lower sulfur gasoline California finishes MTBE ban transition Mississippi river accident Refinery outages Strong gasoline demand NY/CT MTBE bans Hurricanes

6. 6 Crude oil futures prices - NYMEX

7. 7 Gasoline - Retail

8. 8 Gasoline and crude oil prices

9. 9 Crude oil and gasoline prices – from lows to highs

10. 10 Diesel and crude oil prices

11. 11 Natural gas prices have been above year ago levels

12. 12 NYMEX propane futures prices are at or near record levels

13. 13 NYMEX heating oil prices are at record levels

14. 14 NYMEX coal prices

15. 15 OPEC Capacity - EIA Table 3a. OPEC Oil Production (Thousand Barrels per Day) (Energy Information Administration\Short-Term Energy Outlook -- July 2004) Table 3a. OPEC Oil Production (Thousand Barrels per Day) (Energy Information Administration\Short-Term Energy Outlook -- July 2004)

16. 16 EIA Crude Oil Forecast Table 3a. OPEC Oil Production (Thousand Barrels per Day) (Energy Information Administration\Short-Term Energy Outlook -- July 2004) Table 3a. OPEC Oil Production (Thousand Barrels per Day) (Energy Information Administration\Short-Term Energy Outlook -- July 2004)

17. 17 EIA Natural Gas Forecast Table 3a. OPEC Oil Production (Thousand Barrels per Day) (Energy Information Administration\Short-Term Energy Outlook -- July 2004) Table 3a. OPEC Oil Production (Thousand Barrels per Day) (Energy Information Administration\Short-Term Energy Outlook -- July 2004)

18. 18 U.S. Energy Consumption Shares – 2003 - EIA

19. 19 U.S. Energy Consumption Shares – 2003 - EIA

20. 20 U.S. Energy Consumption Shares – 2003 - EIA

21. 21 U.S. Energy Consumption Shares – 2025 - EIA

22. 22 U.S. Residential Energy Consumption Shares – 2003 - EIA

23. 23 U.S. Industrial Energy Consumption Shares – 2003 - EIA

24. 24 U.S. Electricity Energy Consumption Shares – 2003 - EIA

25. 25 Transportation Fuel Shares – 2003 - EIA

26. 26 Petroleum Product Use Shares – 2003 - EIA

27. 27 Petroleum Product Usage – 2003 - EIA

28. 28 Petroleum Product Shares – 2003 - EIA

29. 29 Natural Gas Shares – 2003 - EIA

30. 30 136.5 9.0 6.6% 8.5 6.2% 31.7 23.2% 32.2 23.6% 55.0 40.3% 2025 39.298.1Total 47.56.1 6.2% Other Share 7.18.0 8.1% Nuclear Share 40.422.6 23.0% Coal Share 42.122.7 23.1% Natural Gas Share 41.938.7 39.5% Petroleum Share Percent Change 2003Fuel U.S. Energy Consumption – Quadrillion Btus AEO 2004 - EIA

31. 31 EIA Forecast to 2003 to 2025 Real Gross Domestic Product is projected to increase by 92 percent Population is projected to increase by 19 percent Renewable energy supply is projected to increase by 50 percent Energy efficiency (output per unit of energy) is projected to improve by 27 percent Net petroleum imports are projected to increase, providing 70 percent of U.S. demand in 2025. Growth in petroleum demand is led by transportation, where efficiency improvements are more than offset by growing travel demand and petroleum’s market share increases slightly. Crude oil production falls by 19 percent. Imports of crude oil grow by 65 percent. Petroleum product imports increase by 80 percent. Refinery capacity expands from 16.8 to 21.8 million barrels per day Refinery utilization is projected to increase from 91 to 95 percent

32. 32 622.9 50.4 8.1% 30.4 4.9% 140.2 22.5% 156.5 25.1% 245.3 39.4% 2025 54.2403.9Total 56.532.2 8.0% Other Share 15.226.4 6.5% Nuclear Share 46.295.9 23.7% Coal Share 68.193.1 23.1% Natural Gas Share 56.7156.5 38.7% Petroleum Share Percent Change 2001Fuel World Energy Consumption – Quadrillion Btus - EIA

33. 33 World Energy Demand Total EnergyOther EnergySolar & Wind Hydro Nuclear Biomass, MSW Solar & Wind Oil Gas Coal Other 1.7 1.2 2.9 1.8 Growth Rate 2000-2020, % Solar Wind MBDOE Growth Rate 2000-2020, % 1.3 0.2 2.4 14.0 10.4 Source: ExxonMobil

34. 34 Forecast demand growth ROW LA Other Asia Pacific OECD Source: ExxonMobil

35. 35 Massive supply growth needed Source: ExxonMobil Non-OPEC Crude Undeveloped / Undiscovered NGL / Other Non-OPEC Crude Developed Non-OPEC Total 44 Non-OPEC Crude NGL/ Condensate Other OPEC Crude

36. Latin America 3.5 2.0 FSU & Eastern Europe 3.1 6.8 Europe 7.2 10.6 Middle East Asia Pacific US/Canada 2000 2010 2020 Africa 5.3 8.1 Net Imports, MBD Net Exports, MBD 13.6 12.6 10.6 12.1 30.1 12.3 2000 2010 2020 8.8 7.2 2000 2010 2020 4.1 2000 2010 2020 6.2 2000 2010 2020 18.2 World Oil Balance: 2000 - 2020 21.8 34.5 27.2 18.5 Source: ExxonMobil

37. 37 Technology Can be expected to adapt over several generations Markets work – they provide flexibility and discipline Attempts to replace oil prematurely are likely to be costly “Running out” is not likely

38. 38 Developing additional supply will be challenging Non-OPEC production shifting to new challenging frontiers Gulf OPEC needs to double capacity Capital needs are enormous

39. 39 Policy Promotion of free investment and trade is essential Accurate depiction of impact of resource development is key Opposition to oil development is a serious threat

40. 40 One Word Hydrates

41. 41 First – Do No Harm!

42. 42 Global Change – What is really happening?

43. 43 History

44. 44 Carbon vs Solar

45. 45 Second quarter 2004 industry profits were below average

46. 46 Industry profits in perspective

47. 47 Industry concentration