40th IAEE International Conference 19 June 2017, Singapore Keisuke Sadamori Director Energy Markets & Security

Oil Market

2Q17 stock draw estimate reduced. In 2H17 could see draw >1 mb/d. Stagnant prices reflect lack of stock draws – so far 2Q17 stock draw estimate reduced. In 2H17 could see draw >1 mb/d.

US shale oil average cost … and is now resilient at much lower prices US shale oil average cost $/b 80 70 60 50 40 30 20 2008 2009 2010 2011 2012 2013 2014 2015 2016 US shale oil has benefitted from enormous cost savings & technological improvements

Output set to expand by nearly 0.7 mb/d in 2017 and 1.5 mb/d in 2018 Non-OPEC’s return to growth accelerates into 2018 Output set to expand by nearly 0.7 mb/d in 2017 and 1.5 mb/d in 2018

Call on OPEC crude and stock change World oil market grows tighter from 2020 Call on OPEC crude and stock change 40 38 36 mb/d 34 32 30 28 2014 2015 2016 2017 2018 2019 2020 2021 2022 Call on OPEC + stock change OPEC Crude Capacity Call on OPEC rises and spare capacity shrinks without further upstream investment. Less than 2% in 2022 versus 3.7% in 2008 when prices rose sharply.

Global electric car fleet Electric mobility is breaking records, but policy support remains critical Global electric car fleet The global electric car fleet reached 2 million units in circulation last year, but sales growth went from 70% in 2015 to 40% in 2016, suggesting an increasing risk of falling off track

demand for passenger cars; growth elsewhere pushes total demand higher No peak yet in sight, but a slowdown in growth for oil demand Change in oil demand by sector in main scenario, 2015-2040 -3 3 6 mb/d Power generation Buildings Passenger cars Maritime Freight Aviation Petrochemicals The global car fleet doubles, but efficiency gains, biofuels & electric cars reduce demand for passenger cars; growth elsewhere pushes total demand higher

Upstream investment is down, but far from out, in the energy transition Global oil demand in 2 °C scenario & decline in current supply sources mb/d 100 80 Oil demand in 2 °C scenario 60 Production from current sources 40 20 2015 2030 2040 Production from today’s fields declines much faster than the fall in oil demand in a 2 degree scenario, leaving a gap that needs to be filled with new investments

Gas Market

Share of LNG in global gas trade A 2nd natural gas revolution is changing the gas security equation Share of LNG in global gas trade 2000 525 bcm 2015 695 bcm 2040 1 150 bcm LNG 53% Pipeline Pipeline LNG 40% Pipeline LNG 26% A wave of new LNG supply, led by Australia and the US will improve the ability of the system to react to potential demand or supply shocks, but security of gas supply cannot be taken for granted

Share of wind and solar in total electricity generation Renewables are growing throughout the world, but new challenges are emerging Share of wind and solar in total electricity generation % of wind and solar in 2016 Spain was the early champion of renewable integration, managing integration with little interconnection. The new line with France provides additional flexibility

Demand for flexible LNG volumes Demand for flexible LNG volumes remains above pre-Fukushima levels Demand for flexible LNG volumes Demand for flexible LNG volumes peaked in 2013 at around 20% of global LNG trade; new buyers are offsetting some of the slack left by Japan

Uncontracted volumes by exporter Qatar plays a pivotal role in LNG security Uncontracted volumes by exporter Qatar provides more than half of global uncontracted LNG volumes; Flexibility comes from uncontracted LNG, diversions, re-loads & contracts with open destinations

But LNG contract structures are becoming less rigid – increasing market efficiency 60 % 16 17 40 % 11 Fixed Flexible Contracts with flexible destinations & shorter terms are becoming more common; buyers will accept longer contracts in exchange for increased destination flexibility

Incremental liquefaction capacity under construction Lack of investments risk tightening the market next decade Incremental liquefaction capacity under construction By the early 2020’s the current wave of new production additions will run out. New investments needed to avoid future market tightness.