U.S. Ambassador’s Speakers Series Rio de Janeiro 10 March 2016 Geopolitics of Energy: Where do we go from here? Edward C. Chow Senior Fellow

| Crude oil prices

Revenge of the Oil Price Cycle

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world liquid fuels consumption million barrels per day annual change million barrels per day Center for Strategic and International Studies | State of the oil markets February 17, 2016 EIA forecasts global liquids consumption growth at 1.3 million bbl/d in 2016 and 1.5 million bbl/d in 2017 Source: EIA, Short-Term Energy Outlook, February

World supply and demand million barrels per day implied stock change million barrels per day Center for Strategic and International Studies | State of the oil markets February 17, 2016 Global supply has consistently exceeded demand since the start of 2014; EIA forecasts a return to market balance in the second half of 2017 Source: EIA, Short-Term Energy Outlook, February2016 6

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American Innovation: R&D and Entrepreneurship

Unconventional Oil and Gas Revolution: Why the U.S.? Basic research and development Known geology and data availability Pricing liberalization Mineral rights ownership Stable tax regime and regulatory environment Large number of independent producers Competitive equipment and services sector Availability of investment funds Existing infrastructure

Shale resources is the dominant source of U.S. natural gas 13 U.S. dry natural gas production trillion cubic feet Source: EIA, Annual Energy Outlook 2015 Reference case Tight gas Coalbed methane Other lower 48 onshore Shale gas Alaska Lower 48 offshore ProjectionsHistory 2013 billion cubic feet per day

Combination of increased tight oil production and higher fuel efficiency drive projected decline in oil imports 14 Note: “Other” includes refinery gain, biofuels production, all stock withdrawals, and other domestic sources of liquid fuels Source: EIA, Annual Energy Outlook 2015 Reference case ProjectionsHistory Natural gas plant liquids Other crude oil production (excluding tight) Net petroleum and other liquids imports 17% 22% 12% 27% 17% 14% 33% 2013 Other 23% Tight oil production 21% 14% U.S. liquid fuels supply million barrels per day 21% 14% % 12% 29% 2040

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Source: IEA WEO U.S. Energy Independence?

Center for Strategic and International Studies | State of the oil markets February 17, 2016 Source: EIA, Short-Term Energy Outlook and Drilling Productivity Report, February 2016; International Energy Agency Crude supply trends outside the United States (red areas below) are key to future oil market balance: geopolitical developments, exporter decisions, and the timing and magnitude of supply effects stemming from reduced investment all matter 18 REST OF WORLD = 72.84

Middle East and North Africa Still Critical to Global Oil Supply Source: EIA Data Crude Oil Proved Reserves (Billion Barrels)

| Iranian Energy: Size of the Prize -4 th largest proven oil reserves; 2 nd largest natural gas reserves; -Under-explored with opportunity for optimization ; -Expected to require $150+ billion of investment by 2020 with new “attractive” terms; -Broad market opportunities; convenient shipping routes and shared borders with 15 nations, plus longer haul 20

| Risks are Inherent in Oil and Gas Geologic, technical, engineering Market, commodity price Policy and regulatory Cyclical Business Price elasticity Capital intensive Barriers to entry Long lead times Managing risks is the key to success 21

| National Objectives Maximize value for resource owner Tax revenue Health, Safety and Environment Energy access Development and Employment Policy Tools Laws and regulations Market competition Role of private sector and foreign investors 22

Challenge of Resource Curse or Governance? Venezuela Nigeria Iraq Iran Libya Algeria Russia Balancing risks/reward and interests

Shifting Landscape Volatile international environment continues Pricing uncertainty impacts country risks Unconventional/shale story in the U.S. is transformative Unclear whether transferable internationally Future depends on policy, including in U.S. Challenges still considerable, including climate considerations Middle Eastern supplies remain critical to global markets U.S. is heading towards 90% energy self-sufficiency but still part of a global market Foreign and defense policy implications unclear Sanctions have become foreign policy tool of choice