The Balancing Act: Perspectives of the Global and Domestic Oil Markets Frederick J. Lawrence Vice President - Economics and International Affairs

Alien Vs. Predator Demand appears to be driving Fundamentals in a Tight Market – is it Sustainable? Global Economy, Asia Growth Components & More? World demand up an estimated 2.7 Mmb/d (3.4%) US demand up 460,000 b/d (2.4%) & China demand up an estimated 860,000 b/d (16.5%) in Supply Reacts to Demand and Price but hitting Capacity limitations OPEC & Non-OPEC Potential – Market Share vs. Reserves Spare Capacity & Just in Time Behavior – narrow the gap Energy Security, Interdependence & Diversification – growing connectivity between foreign and domestic policy = INCREASED VOLATILITY & FEAR FACTOR

Where is the incremental demand coming from by region?

Demand is breaking out and were en route to 90 Mmb/d QUARTERLY AVERAGEYEARLY AVERAGE

China – Growth Spurt

China will continue to be a big part of the demand story.

Dont discount growth in the rest of Asia – especially India

UN Perspectives on Sustainability

Global Population Surge

Demand Bites

Projected Global Petroleum Demand

Proved Oil Reserves – Not Created Equal

Supply is also adapting to a new threshold but can it be maintained?

Comparative Oil Production

OPEC is building capacity and trying to manage production based on demand.

Non-OPEC has captured market share but sustainability in question.

Former Soviet Union Dominates Non-OPEC Supply Gain

Pragmatic Oil Diplomacy

Projected Source of Global Conventional Oil Supply

The Wrong Cow is Getting Fat

U.S. Energy Shares (2003)

U.S. Petroleum Balance

U.S. Petroleum Consumption

U.S. Import Sensitivity by Region (2003)

Domestic Crude Production

Where Does Our Energy Come From? 2003 Wells Drilled = Gas = CBM = Horizontal = Oil = Dry

Where is Our Energy Used?

Vermont Energy – where a woodchuck could chop wood

Producing 18 Quads of Energy Per Year Biomass

Percentage of US Congressmen from Selected States Voting for Energy Issues

Volatility at Work ( )

U.S. Oil Deficit

Refinery Situation

Demand calls shots until proven differently Market volatility looks sustainable Integrative solutions needed There will be a sequel Demand calls shots until proven differently Market volatility looks sustainable Integrative solutions needed There will be a sequel Conclusion