OG Market

MEDIUM-TERM
OIL&GAS
MARKETS
2010
Please note that this PDF is
subject to specific restrictions
that limit its use and
distribution. The terms and
conditions are available at
www.iea.org/about/
copyright.asp
MEDIUM-TERM
OIL&GAS
MARKETS
2010
Critical questions persist over the key oil and gas market
drivers likely to prevail in coming years. Are economic and
energy demand outlooks clearer than in mid-2009? In oil
markets, have we seen a genuine structural shift in demand
patterns? Will a nascent recovery in upstream spending
evident in 2010 be sustained? How long will current levels
of OPEC spare capacity persist? And for the gas market, will
demand recover from its collapse in 2009? How long will
the gas glut last? Will unconventional gas revolutionise gas
markets outside North America? And how are China, Russia
and the Middle East changing their approach to gas use?
The new combined IEA publication, Medium-Term Oil and Gas
Markets 2010, tries to answer these questions, presenting
a comprehensive, annual outlook for oil and gas market
fundamentals for the next few years. The detailed oil market
analysis develops two oil demand scenarios, given the
ongoing uncertainties about the path of economic recovery
after the worldwide slow-down in 2008/2009. Market balances
are generated on a bottom-up basis, derived from detailed
analysis of upstream investment projects, oil field decline
rates, product-by-product demand trends, and refinery
investment and operations. The gas market analysis provides a
broader overview, assessing prices, unconventional gas, future
demand developments, LNG markets as well as investment in
all parts of the gas value chain and regional trends. It focuses
on key producers, including Russia, the Caspian region, the
Middle East and rising LNG exporters like Australia, and looks
at the implications for global gas markets.
500
MEDIUM-TERM
OIL&GAS
MARKETS
OECD/IEA, 2010
2010
INTERNATIONAL ENERGY AGENCY

The International Energy Agency (IEA), an autonomous agency, was established in
November1974. Its mandate is two-fold: to promote energy security amongst its member
countries through collective response to physical disruptions in oil supply and to advise member
countries on sound energy policy.
The IEA carries out a comprehensive programme of energy co-operation among 28 advanced
economies, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports.
The Agency aims to:
n Secure member countries access to reliable and ample supplies of all forms of energy; in particular,
through maintaining effective emergency response capabilities in case of oil supply disruptions.
n Promote sustainable energy policies that spur economic growth and environmental protection
in a global context particularly in terms of reducing greenhouse-gas emissions that contribute
to climate change.
n Improve transparency of international markets through collection and analysis of
energy data.
n Support global collaboration on energy technology to secure future energy supplies
and mitigate their environmental impact, including through improved energy
efficiency and development and deployment of low-carbon technologies.
n Find solutions to global energy challenges through engagement
and dialogue with non-member countries, industry,
international organisations and other stakeholders.
OECD/IEA, 2010
International Energy Agency
OECD/IEA, 2010
9 rue de la Fdration
75739 Paris Cedex 15, France
IEA member countries:

Australia
Austria
Belgium
Canada
Czech Republic
Denmark
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Japan
Korea (Republic of)
Luxembourg
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
Please note that this publication

is subject to specific restrictions
that limit its use and distribution.
The terms and conditions are available
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The European Commission

also participates in
the work of the IEA.
F OREWORD
FOREWORD
Forthefirsttime,theIEAispresentingacombinedpublicationthatsetsouttoanalyserecentand
futuretrendsinoilandgasmarkets.Werecognisethatthesemarketsaredifferent,butthereare
areas of convergence. Both, for example, are currently affected by uncertainty about the
sustainabilityofOECDeconomicrecovery,togetherwiththemoreconsensualexpectationsforsharp
growthinemergingcountries.
Forthenextfewyears,theoilmarketismarkedbymorecomfortablesparecapacitythanenvisaged
lastyearandthedurationofthecurrentgasglutissettolastbeyond2013,atleastinsomeregions.
Yet we shouldnt be complacent. Developing new supplies of oil and gas is in general a longterm
undertaking. Global oil demand is expected to grow by 2% this year and the gas market is
characterisedbyastrongasymmetryasdemandmightpickupagain,especiallyinthepowersector,
muchmorerapidlythanadditionalsupplies.Outputfrommatureoilandgasfieldscontinuestoshow
aninexorabledecline,whileproductiongrowthisincreasinglyconcentratedinafewcountries,often
distant from consuming regions. Recent tragic events in the US Gulf of Mexico highlight the
difficultiescompaniesandregulatorsfaceinsafelyaccessingmoredifficultsourcesofhydrocarbons.
ThisiswhytheIEAurgesallstakeholderstoencouragesound,safeinvestmentalongthesupplychain
toensurethesecurityofoilandgassupplybeyondamorecomfortableshortandmediumterm.
Consumingregionsalsobeararesponsibilitytoencourageenergyefficiencyinordertosmooththe
transition towards a lowcarbon economy. In our mediumterm oil forecast, we present two
scenarios depending on the growth of the global economy. These scenarios are also based on
different assumptions in terms of energy efficiency progress. For the longer term, governments
shouldstrivetoencourageathirdscenario:onewherestrongeconomicgrowthispossiblewithout
excessivetighteningofthesupply/demandbalance.Thisrequiresamoresystematicencouragement
ofmeasurestoboostenergyefficiency,acrossallenergyforms,startingnow.
This report brings together our mediumterm overviews of oil and gas markets. Such an approach
highlightsthesignificant,andongoing,progressinoildatatransparencyoverrecentyears,andthe
lackofsimilarprogressingasdata.Muchmoreneedstobedoneinthefieldofoildata,notablyfor
thedevelopingcountrieswhichwillsoonaccountforover50%oftheglobalmarket.Butthereisa
clear need also for improved breadth, accuracy and timeliness of statistical data on gas markets.
These markets are playing an increasing role in energy policy and in the transition towards a low
carboneconomy.Aswehavelearntfromoilmarkets,highquality,timelydataarealsoessentialto
managinganyemergencythatmayarise,andholdsthepotentialtoreducemarketvolatilityborneof
uncertainty.ThepartnersintheJointOilDataInitiativehaverecentlydecidedtoextendtheirwork
toimprovethequality,coverageandtimelinessofdataongasmarkets.Weurgeallstakeholdersto
contributetothisbolddataendeavour.
OECD/IEA, 2010
Despite all their differences, we are seeing increasing interaction between oil, gas and power
markets.Ithoughtitwouldbeusefultoallowourreaderstomaketheirownjudgementsaboutthe
convergenceofoilandgasmarketsbypresentingtheupdatesofourmediumtermanalysesforboth
together.Wehopethisneweffortwillhelpprovidemoretransparencyandunderstandingofcurrent
andfuturemarkettrendsatatimeofsuchgreatuncertainty.
ThisreportispublishedundermyauthorityasExecutiveDirectoroftheIEA.
M EDIUM T ERM O ILAND G AS M ARKETS 2010
ta b l e o f co n t e n t s
Part
OIL
Part
Gas
Part
GAS SUPPLEMENT
OECD/IEA, 2010
Included on CD or available in PDF format
Foreword
Executive Summary
Overview
Oil Pricing
Demand
Supply
Biofuels
Crude Trade
Refining and Product Supply
Tables
Overview
Recent Global Market Trends
Short-Term Demand Forecasts
Market Trends in the LNG Business
Unconventional Gas
Prices and Trading Developments
Investments Overview
Investments in Production
Investment in LNG
Investments in Pipelines and Regasification Terminals
Gas for Power

Security of Supply and Transparency
Investments in Storage
North America
Latin America
Europe
OECD/IEA, 2010
Asia
Appendices
T ABLEOF C ONTENTS
TABLE OF CONTENTS
PART 1: OIL
OVERVIEW.......................................................................................1 9
Plusachange......................................................................................................................19
OilPricing..................................................................................................................................21
Demand....................................................................................................................................22
Supply.......................................................................................................................................23
Biofuels.....................................................................................................................................24
CrudeTrade..............................................................................................................................25
RefiningandProductSupply....................................................................................................25
OILPRICING.....................................................................................2 7
MethodologyforCalculatingtheIEAAverageImportPrice..................................................28
OilPriceVolatility:Causes,ImpactsandPotentialRemedies............................................................29
FinancialMarketRegulation....................................................................................................31
TheUSTakestheLead...........................................................................................................32
DivergentEuropeanApproaches...........................................................................................34
AsianMovestoClearing........................................................................................................34
TheRoleofInternationalOrganisations...............................................................................35
DEMAND..........................................................................................3 6
OECD/IEA, 2010
Summary..................................................................................................................................36
GlobalOverview.......................................................................................................................38
OilDemandSensitivity:CaughtBetweenIncomeandEfficiency............................................42
OECDNorthAmerica................................................................................................................44
EvaporatingUSGasolineDemand?.......................................................................................46
OECDEurope............................................................................................................................47
OECDPacific.............................................................................................................................48
EnergySubsidies:GettingthePriceRight................................................................................49
Asia...........................................................................................................................................50
MiddleEast...............................................................................................................................52
StaringattheCrystalBall:NewTransportationTrends..........................................................54
LatinAmerica............................................................................................................................57
EthylenesBoomingTimesAhead............................................................................................58
FormerSovietUnion................................................................................................................60
T ABLEOF C ONTENTS
SUPPLY............................................................................................6 2
Summary..................................................................................................................................62
NonOPECSupplyOverview.....................................................................................................63
ABrighterOutlook....................................................................................................................63
DissectingtheChanges:MoreUpstreamProjectsandSlowerDeclineRates.........................65
RevisionstoForecast................................................................................................................66
SustainedSpendingandAccesstoReservesWillDriveFutureProspects...............................67
SourcesofNonOPECSupplyGrowth......................................................................................69
TheEvolutionofCrudeOilProductionbyQuality...................................................................70
RegionalBreakdown................................................................................................................71
NorthAmerica.......................................................................................................................71
PotentialImplicationsofUSGulfOilSpill..............................................................................72
OECDEurope..........................................................................................................................73
OECDPacific...........................................................................................................................74
FormerSovietUnion(FSU).....................................................................................................74
Asia........................................................................................................................................75
LatinAmerica.........................................................................................................................76
MiddleEast............................................................................................................................76
Africa.....................................................................................................................................77
NaturalGasLiquidsCornerstoneofGlobalOilSupplyGrowth............................................77
WhatareNGLs?.....................................................................................................................78
RealisingInvestmentintheNGLValueChain.......................................................................78
TrendsinNaturalGasProductionandImplicationsforNGLSupply.....................................79
GlobalNGLSupplyOutlook...................................................................................................79
OPECCrudeOilCapacityOutlook............................................................................................81
MiddleEastProducersStaytheCourse.................................................................................83
ReversalofFortuneforOPECsAfricanProducers................................................................86
IraqiEffortstoBoostCapacityFaceHeadwinds....................................................................87
MixedOutlookforOPECsLatinAmericanProducers...........................................................89
OECD/IEA, 2010
BIOFUELS.........................................................................................9 1
Summary..................................................................................................................................91
BiofuelsProductionProspectsImprove,ThoughHurdlesRemain..........................................92
KeyRevisionstotheSupplyOutlook........................................................................................94
RegionalOutlookandPolicies..................................................................................................95
OECDNorthAmerica.............................................................................................................95
LatinAmerica.........................................................................................................................96
OECDEurope..........................................................................................................................97
AsiaPacific............................................................................................................................98
SecondGenerationBiofuelsHoldPromise,ButCapacityRemainsLow.................................99
T ABLEOF C ONTENTS
CRUDETRADE. ................................................................................101
Summary................................................................................................................................101
OverviewandMethodology...................................................................................................101
RegionalTrade........................................................................................................................102
REFININGANDPRODUCTSUPPLY....................................................105
Summary................................................................................................................................105
RefineryInvestmentOverview...............................................................................................106
RefiningMarginsTrendingHigher.........................................................................................107
RefineryUtilisationandGlobalThroughputs.........................................................................107
ProductSupplyBalances........................................................................................................108
ProductsSupplyModellingSeekingthePressurePoints....................................................109
RegionalDevelopments.........................................................................................................112
NorthAmerica.....................................................................................................................112
USRefinersPrepareforIncreasedCanadianSupplies.........................................................113
OECDEurope........................................................................................................................114
OECDPacific.........................................................................................................................115
JapanTalkingRefineryConsolidation,MajorReductionsYettoCome............................116
China....................................................................................................................................117
OtherAsia............................................................................................................................118
IndiasDownstreamPetroleumSector................................................................................120
LatinAmerica.......................................................................................................................121
MiddleEast..........................................................................................................................122
SaudiArabiasMegaProjectsSlipAgain?...........................................................................123
Africa...................................................................................................................................125
ChinaInvestingalsointheAfricanDownstream..............................................................125
FormerSovietUnion............................................................................................................126
TABLES. ..........................................................................................127
PART2:GAS
OVERVIEW.....................................................................................141
OECD/IEA, 2010
RECENTGLOBALMARKETTRENDS...................................................145
Summary................................................................................................................................145
TheWorstDeclineEver..........................................................................................................146
OECDDemandTrends.........................................................................................................146
T ABLEOF C ONTENTS
SeasonallyAdjustedDemandTrends..................................................................................147
NonOECDDemandTrends..................................................................................................153
SupplyTrends:theBoomandtheBust.................................................................................154
TheGasGlut........................................................................................................................154
OilVersusGasDrilling.........................................................................................................155
OECDRegions......................................................................................................................156
NonOECDRegions..............................................................................................................158
AreGasMarketsGlobalising?................................................................................................158
SHORTTERMDEMANDFORECASTS. .................................................161
Summary................................................................................................................................161
Methodology..........................................................................................................................162
ShortTermGasDemandForecastsbySector.......................................................................163
Residential/CommercialSector...........................................................................................164
Industry................................................................................................................................164
PowerGenerationSector.....................................................................................................165
Others..................................................................................................................................167
OECD/IEA, 2010
MARKETTRENDSINTHELNGBUSINESS...........................................168
Summary................................................................................................................................168
StrongerLNGGrowthBuoyedbyLiquefactionExpansion....................................................168
CurrentExpansionofLiquefactionanditsConsequences.....................................................170
QatargasandRasGasMegaTrains,Qatar.........................................................................171
SakhalinII,Russia................................................................................................................173
Tangguh,Indonesia.............................................................................................................173
YemenLNG,Yemen.............................................................................................................173
PeruLNG,Peru.....................................................................................................................174
Pluto,WesternAustralia.....................................................................................................174
AngolaLNG,Angola.............................................................................................................174
SkikdaandGassiTouil,Algeria............................................................................................175
SluggishPerformanceofExistingLNGPlants.........................................................................175
BontangandArun,Indonesia..............................................................................................175
NigeriaLNG,Nigeria............................................................................................................176
MalaysiaLNG,Malaysia......................................................................................................176
NorthWestShelf(NWS),WesternAustralia.......................................................................177
FloodofNewTerminals.........................................................................................................177
TerminalsinEuropeNotablyintheUnitedKingdom,ItalyandFrance...........................177
NewTerminalsinChina.......................................................................................................178
LatinAmericaExpands........................................................................................................178
MiddleEastEmerges...........................................................................................................179
T ABLEOF C ONTENTS
PortfolioLNGPlayersareThriving.........................................................................................179
SupermajorsandInternationalOilandGasCompanies(IOGCs)........................................179
AsianUtilityBuyersandTradingHouses.............................................................................180
UNCONVENTIONALGAS..................................................................181
Summary................................................................................................................................181
UnconventionalGasTypes..................................................................................................182
ASlowEvolution.....................................................................................................................182
WhatPriceisNeededforUnconventionalGas?....................................................................184
UnconventionalGasOutsidetheUS,aDreamoraReality?.................................................184
LimitedStudiesonthePotential..........................................................................................185
PopulationDensity...............................................................................................................186
EnvironmentalConcerns......................................................................................................186
GasGrid...............................................................................................................................187
LandownersAcceptance.....................................................................................................187
AccesstoTechnology...........................................................................................................187
UnconventionalGasDevelopmentsOutsideNorthAmerica................................................187
Australia..............................................................................................................................188
China....................................................................................................................................188
India.....................................................................................................................................189
Indonesia.............................................................................................................................190
Europe:AnEvolutionRatherThanaRevolution................................................................190
OtherRegionsHaveStilltoAppearontheRadarScreen....................................................192
UnconventionalGasGlobalPlayers.......................................................................................193
TheNewPrize......................................................................................................................193
WhatistheRationale?........................................................................................................194
PRICESANDTRADINGDEVELOPMENTS............................................195
Summary................................................................................................................................195
TwoDifferentPriceSystems:isa$5/MBtuGapSustainable?...............................................195
GasPriceEvolution:aLookBackat200810......................................................................196
RegionalPriceEvolution.........................................................................................................203
ContinentalEuropeanSpotPrice.........................................................................................203
NorthAmericanPrices.........................................................................................................203
AsianPriceDevelopments...................................................................................................204
EuropeanMarketDevelopment.............................................................................................205
OECD/IEA, 2010
INVESTMENTSOVERVIEW...............................................................214
10
T ABLEOF C ONTENTS
INVESTMENTSINPRODUCTION.......................................................217
Summary................................................................................................................................217
Introduction............................................................................................................................218
DomesticMarketObligations(DMO)..................................................................................218
Russia......................................................................................................................................219
TheYear2009:TheOutcome.............................................................................................220
LongTermEnergyStrategyto2030:TakingintoAccounttheNewSigns?.......................223
NewProjects........................................................................................................................227
TheCaspianRegion................................................................................................................230
Turkmenistan.......................................................................................................................230
Azerbaijan............................................................................................................................233
MiddleEastandNorthAfrica.................................................................................................234
SaudiArabia........................................................................................................................234
UnitedArabEmirates..........................................................................................................235
Iran.......................................................................................................................................236
Oman...................................................................................................................................237
INVESTMENTINLNG.......................................................................238
Summary................................................................................................................................238
PacificAdvancestwoMajorProjects:GorgonandPapuaNewGuinea................................240
Gorgon,WesternAustralia..................................................................................................240
PNG,PapuaNewGuinea.....................................................................................................241
CBMtoLNGRaceisHeatingUpinAustralianStateofQueensland..................................242
WesternAustralianRaceisalsoHot...................................................................................244
Indonesia:DomesticMarketVersusExports......................................................................245
UncertaintyContinuesintheAtlantic....................................................................................246
ShtokmanandYamalLNG,Russia.......................................................................................246
Nigeria.................................................................................................................................247
EquatorialGuinea................................................................................................................248
Cameroon............................................................................................................................248
Venezuela............................................................................................................................248
IranandIraqAreYettoEmergeintheMiddleEast..............................................................249
Iran.......................................................................................................................................249
Iraq.......................................................................................................................................249
NorthAmericanLNGExports?...............................................................................................250
OECD/IEA, 2010
INVESTMENTSINPIPELINESANDREGASIFICATIONTERMINALS.........251
Summary................................................................................................................................251
GlobalTrends.........................................................................................................................251
Europe....................................................................................................................................256
11
T ABLEOF C ONTENTS
OnePipelineAdvances........................................................................................................257
NorthAmerica........................................................................................................................261
AMultitudeofLNGTerminalsisThereRoomorNeedforOthers?..................................262
SouthAmerica........................................................................................................................262
NewLNGTerminalsanyHopeforaRegionalLNGMarket?............................................262
PipelineProjectsMostlyonHold......................................................................................264
MiddleEastAfrica..................................................................................................................264
ASmallRevolutionLNGImportProjects..........................................................................264
PipelineDevelopmentsSmallInterconnectionsMoveForward.......................................264
Asia.........................................................................................................................................265
PipelineProjects:MostlyLookingWest...............................................................................265
LNGRegasificationTerminals:TwoMajorPlayersontheRise...........................................267
SoutheastAsia........................................................................................................................267
PipelineDevelopment..........................................................................................................267
RegasificationTerminals.....................................................................................................268
PART 3: GAS SUPPLEMENT

GASFORPOWER
SECURITYOFSUPPLYANDTRANSPARENCY
INVESTMENTSINSTORAGE
NORTHAMERICA
LATINAMERICA
EUROPE
ASIA
APPENDICES
OECD/IEA, 2010
12
E XECUTIVE S UMMARY
EXECUTIVE SUMMARY
Oilandgasmarketsarestartingtoshowimportantsignsofrecovery,buttheimpactoftherecession
hasbeendifferentonthetwoenergysources.Gasdemandfellbymorethan3%in2009,doublethe
pace of decline seen for oil. This highlights the use of oil primarily as a transport fuel, where
consumption is relatively inelastic. Gas on the other hand, as a major industrial and power
generationfuel,wasfullyexposedtothedeclineinindustrialproductionseenintherecession.But
commontobothoilandgasisthedichotomybetweenOECDandnonOECDmarkets,withcontinuing
growth in nonOECD regions, notably China, India and the Middle East, contrasting with weaker
demandinOECDandFSUcountries.Lastyearsmediumtermoutlooksforoilandgasmarketswere
writtenamidapparentlycontradictoryconcerns.Inthemidstofchronicuncertaintyaboutprospects
for the global economy, virtually at the nadir of the recession, there were nonetheless serious
questionsabouttheadequacyofupstreamoilinvestmenttomeetananticipatedeventualrebound
inoildemandgrowth.Whileupstreamgasconcernsweremoremuted,owingtothesurgeinNorth
American unconventional gas output, and the massive expansion of LNG liquefaction plants,
uncertainty about the timing and extent of mediumterm investments throughout the value chain
werestillpresent.
A year later, many uncertainties persist. Regulation of commodity futures markets is still clearly on
policymarkersradarandoperationalregulationinthephysicalmarketforbothgasandoilcouldbe
overhauled,dependingonresultsoftheenquiryintotheGulfofMexicodisaster.TheEuropeandebt
crisishascreatedadditionaluncertaintyovertheresilienceoftheeconomicrecoverythereandfurther
afield.Questionspersisttooovertheimpactofstimuluswithdrawalandpotentialoverheatinginthe
Chineseeconomy.
Demand
OECD/IEA, 2010
Althougheconomicrecoveryhasbecomereentrenched,insharpcontrasttolastyearsbackdrop,
concerns persistaboutitsstrengthanddurability. Asaresult,twooildemandscenarios areagain
presented. Using May 2010 OMR data as our starting point, we have developed two contrasting
views on economic growth, with the lower variant also tempered by weaker assumed efficiency
gains. Common features however are the predominance of both the nonOECD countries and the
transportationsectorindrivingdemandgrowth.InthehigherGDPandefficiencygainscase(thebase
caseforouranalysis),oildemandgrowsbyanaverageof1.2mb/dannually(1.4%),reachingcloseto
92mb/dby2015.Oildemandrecoverstoprecrisis2007levelsagainby2010.ThispresupposesGDP
growtharound4.5%peryearfrom2010onwards(inlinewithrecentIMFprojections)andareduction
inoiluseintensityof3%annually,nearthelevelseeninthelastfiveyears.
But many voices still envisage a weaker path for global economic growth, amid world trade
imbalancesandtheweakeningimpactonactivityofaggressivefiscalconsolidation.Thissuggestsa
lower GDP and efficiency gains case. Here, global GDP grows by a weaker 3% annually, while the
progressinoiluseefficiencyisslowedbytheweakerinvestmentenvironment,pushinganticipated
reductionsinoiluseintensitybacktothe15yearaverage,near2%peryear.Inthiscase,annualoil
demandgrowthaverages840kb/d(1.0%),takingtotalglobaldemandto90mb/dby2015,withthe
reattainmentof2007demandlevelsdeferredto2011.
13
E XECUTIVE S UMMARY
Thisyearfor thefirst time,wehavemodelled OECDgasdemandinto the mediumterm, usingthe

samehighcaseGDPassumptionsasfortheoilmarketprojections,notwithstandingthatgasdataare
generallylesscomprehensivethanforoil.WeseeOECDdemandreturningto2008levelsbyaround
2012,butwithlargeregionalvariations,withEuropeespeciallyweak,givenitssharpdeclinein2009
(nearly6%)andongoingconcernsaboutitsrecovery.OECDEuropedoesnotreturntodemandlevels
seeninearly2008untilafter2013.ThepowersectorisakeysourceofuncertaintyinOECDdemand,
butalsoinsomenonOECDregions,includingtheMiddleEast.OECDNorthAmericaandPacificgas
demand is recovering, and can be expected to surpass 2008 levels as early as 2012, as industrial
production recovers, and gas remains the fuel of choice in the power sector. Asian demand is
growing strongly; Chinese gas demand doubling between 2007 and 2015 now looks conservative.
Hencegasmarketsseemlikelytotightenmorequicklyinthemediumterminsomeregions,notably
thePacific,incomparisontoEuropeorNorthAmerica.
Supply
OECD/IEA, 2010
Some of last years concerns about mediumterm oil supply prospects have eased, with baseline
globalsupplycapacitynowestimatedcloseto91mb/d,around0.9mb/dhigherthananticipatedin
the June 2009 MTOMR. Stronger crude prices, lower costs and a renewed uptick in spending have
helpedfacilitatethisupturn.Newprojectscheduleshavebeenadvanced,andimplieddeclinefrom
baseload fields looks to have eased slightly (albeit remaining a constant drain on global supplies).
NonOPECsupplycontinuestogrowthroughtheoutlook,concentratedontheAmericas,theCaspian
andbiofuelswhichoffsetmaturefielddecline,notablyintheOECDcountries.HoweverOPECcrude
and natural gas liquids generate the bulk of expected net growth in production capacity of over
5mb/d through 2015. Notwithstanding perpetual supplyside risks, the degree to which OPEC is
requiredtocontrolsparecapacityovertheoutlookthereforedependslargelyonthetypeofGDP/oil
demandpicturethatemerges.
In gas, the notable expansion of North American gas output has continued apace despite subdued
gas prices, adding more than 100 bcm of gas to world output, and making the United States the
worldslargestgasproducerin2009,andalargevirtualgasexporter,asLNGsuppliesdestinedfor
that market are diverted to other consumers. The development of unconventional gas in North
Americaisofglobalsignificance.Manycountriesareseekingtoemulatethissuccess,althoughthe
timehorizonsforthissuggestmajorcontributionsbefore2020areunlikely,forexample,inEurope.
However, a number of LNG projects based on coal bed methane are advancing towards final
investment decisions (FID) in Australia, and China may also be well placed to take advantage of
unconventional gas. While LNG capacity has continued to expand, output is lagging, as some
upstreamsuppliesareconstrainedandtechnicalproblemsplaguenewplants.ButLNGoutputcan
beexpectedtoincreasebyaround120bcmby2013,anear50%increaseover2008.
Notwithstanding these positive developments, extended project lead times are still with us, even
moresonowthatabriefspelloffallingupstreamcostsin2009seemstohavelevelledoff.Moreover,
ongoinggeopoliticalandinvestmentrisksincountriessuchasRussia,NigeriaandIraqaffectbothoil
and gas, and the potential for further deepwater project delays after the recent Gulf of Mexico
disaster,suggestthatadegreeofsupplyforecastconservatismremainsinorder.
14
E XECUTIVE S UMMARY
Of course, depletion from existing fields is an issue in gas just as for oil. Decline rates, estimated at
between 5% and 7.5% per year, mean that nearly half of the worlds gas production needs to be
replaced between now and 2030. Gas output is declining in many OECD countries, and imports from
more distant, and harder to develop sources, are inevitable. Investments have to be made right
through the gas value chain in a timely way, including long distance pipelines and storage facilities.
Indeed these segments of the gas market are most likely to be affected by the current uncertainty.
Moreover, supply-side risks abound in both oil and gas. Firstly, there is an ever-present threat of
geopolitical disruption surrounding a number of key OPEC oil producers. Secondly, the potential for
the recent Deepwater Horizon disaster in the US Gulf of Mexico to delay substantial deepwater
developments which underpin much of expected oil and gas supply growth. Efforts to improve
safety and environmental standards will understandably be redoubled after the tragedy. Should the
impact of those measures be widespread delays to deepwater projects, anything between 100 kb/d
and 800 kb/d of new 2015 oil supply currently included in our outlook might be deferred. For gas,
domestic market obligations have emerged as a key trend in producing regions, with governments
reserving volumes for their own customers.
Exhausting the resource base is not the issue, but instead the ability of the oil and gas industry to
respond quickly enough with adequate investment. This will be the case especially if demand should
recover more quickly than envisaged here, either through a more broad-based recovery, or in the
case of gas, more rapid expansion of gas-fired power generation, which has become the favoured
option in many regions. So in the higher GDP base case, and in spite of an assumed ongoing
improvement in oil use intensity, effective OPEC spare crude capacity begins to decline again from
next year. Although the estimated 2015 level of 3.5 mb/d remains more comfortable than prevailed
for much of 2002-2008, the declining trend itself, to well below 5% of global demand, suggests more
nervous markets could re-emerge after a prolonged spell of relative price stability in the last year.
Lower economic growth, or perhaps more importantly, a sustained impetus to improve oil and gas
end-use efficiency and diversify transportation and electricity energy sources, could maintain oil
spare capacity closer to recent levels, and prolong the period of comfortable gas supplies. In both
cases however, the call on producers outside OECD will increase.
Prices
Against this backdrop, prices in the two energy commodities have followed different paths. Crude oil
prices soared from the trough of $35/bbl in February 2009 to reach $85/bbl in May 2010. In contrast,
gas prices have remained subdued, falling to levels at or below one-third of oil prices on an energy
content basis over the last year. For oil, comparatively benign prompt market fundamentals
following the economic recession look to have been over-ridden by other factors, with crude oil
prices having remained within a steady range at a historically high $65-$85/bbl. The macro-economy,
currency swings and expectations about longer-term market fundamentals have all helped shape
recent oil price trends, over and above the influence of more tradional physical drivers.
However, uncertainties within the physical oil market also persist. Reliable demand and stocks data
are lacking for the non-OECD portion of the market that will soon surpass 50% of global demand.
Fears of potential renewed supply tightness are offsetting downside demand risks from economic
market uncertainty. A common feature for both the physical and financial markets for oil is the
M EDIUM -T ERM O IL AND G AS M ARKETS 2010
15
E XECUTIVE S UMMARY
OECD/IEA, 2010
relative paucity of reliable, timely, marketwide data and information. Achieving sustainable price
stability needs greater visibility for the prompt market, allied to greater clarity about market
prospectsandpolicymeasuresforthefuture.
Someofthesecommentsapplyequallytogas.AlittlelessthanhalfofOECDgasdemandispriced
directlyoffoil,withvaryingtimelagsandlinkages.In2009,thesemarkets,includingJapan,Korea,
and most of continental Europe saw prices averaging about $9/MBtu. In North America and the
UnitedKingdom,pricesaveragedlessthanhalfthislevel,onanenergybasisaroundonethirdthatof
oil.Unsurprisingly,thisdichotomyhasledtogasbuyers,especiallyinEurope,seekingaccesstolower
pricedspotgas,andplacedenormouspressureonlongtermtakeorpaycontracts.Forthemoment,
both these features of the continental market, longterm contracts and oil indexation, remain,
althoughproducershavemadesignificantconcessionstobuyers.Again,andarguablyevenmoreso
thanforoil,dataisarealissue,particularlyforcountriesoutsidetheOECD,whichalreadyaccount
formorethanhalfofglobalgasuse.EvenwithintheOECD,uptodategasdataaresadlydeficient.
Anumberofpartiesareworkingtorectifythis,includingindustrybodies.TheIEAisactivelyworking
to improve this situation with initiatives such as the recently released European gas map, which
shows monthly crossborder gas flows in Europe. Much more remains to be done, however, if
marketsarenottobesubjectedtounnecessaryuncertaintyandvolatility.
Theindividualoverviewsofoilandgasmarketsatthebeginningofthetwosectionswillprovidea
moredetailedsummaryofouranalysisforbothmarkets.
16
Part
OIL
Overview
Oil Pricing
Demand
Supply
Biofuels
Crude Trade
OECD/IEA, 2010
Tables
OECD/IEA, 2010
P ART 1: O IL O VERVIEW
OVERVIEW
Plus a change
Last years MTOMR was written amid unprecedented uncertainty about prospects for the global
economy,andseriousconcernsabouttheadequacyofupstreaminvestmenttomeetananticipated
reboundinoildemandgrowth.ThatreportalsohighlightedafairlydireoutlookforOECDoilrefiners,
andanongoingdebateoverthekeydriversofcrudepricesfundamentalandfinancial.
Global Balance Summary (Base Case)

(million barrels per day)
2009
2010
2011
2012
2013
2014
GDP Growth Assumption (% per year)
-0.83
4.13
4.27
4.40
4.47
4.51
2015
4.52
Global Demand
84.77
86.39
87.69
88.87
89.98
90.99
91.93
Non-OPEC Supply
51.52
52.22
52.60
52.44
52.11
52.51
52.50
OPEC NGLs, etc.
4.66
5.40
6.25
6.64
6.89
7.11
7.24
Global Supply excluding OPEC Crude
56.18
57.62
58.86
59.08
59.01
59.63
59.74
OPEC Crude Capacity
34.85
35.59
35.36
35.23
35.51
36.51
36.78
Call on OPEC Crude + Stock Ch.
28.59
28.76
28.83
29.79
30.97
31.37
32.19
Implied OPEC Spare Capacity1
6.26
6.83
6.53
5.44
4.54
5.15
4.60
Effective OPEC Spare Capacity2
5.26
5.83
5.53
4.44
3.54
4.15
3.60
6.2%
6.8%
6.3%
5.0%
3.9%
4.6%
3.9%
as percentage of global demand

Changes since December 2009 MTOMR
Global Demand
-0.09
0.06
0.18
0.21
0.18
0.13
Non-OPEC Supply
0.25
0.58
0.47
0.32
0.42
1.16
OPEC NGLs, etc.
-0.23
-0.20
-0.28
-0.09
-0.01
-0.07
0.05
0.30
0.38
0.31
0.35
0.93
OPEC Crude Capacity
0.03
-0.07
-0.01
0.04
-0.25
-0.39
-0.15
-0.24
-0.20
-0.10
-0.17
-0.80
0.18
0.17
0.19
0.14
-0.07
0.41

1
Implied OPEC Spare Capacity
OECD/IEA, 2010
1 OPEC Capacity minus 'Call on Opec + Stock Ch.'
2 Historically effective OPEC spare capacity averages 1 mb/d below notional spare capacity.
Oneyearon,manyuncertaintiespersist,evenifsomeclarityhasreemergedconcerningtheeconomy,
the supplyside and structural shifts in demand. Regulation of commodity futures markets remains
centre stage, and OECD refining margins, though better than a year ago, remain weak by historical
standards. Uncertainty continues over the resilience of a particularly fragile European economy,
although a broader economic recovery is underway, something that last years projections lacked.
Questions persist too over
Medium-Term Oil Market Balance (Base Case)
mb/d
the impact of stimulus mb/d
8.0
4.0
withdrawal and potential
6.0
3.0
overheating in the Chinese
4.0
economy. For this reason, 2.0
2.0
weagainruntwooildemand 1.0
cases based on different 0.0
0.0
economic
expectations -1.0
-2.0
through 2015, albeit the
-4.0
-2.0
more optimistic outlook
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
showing 4.4% economic
Effective OPEC Spare Capacity (RHS)
World Demand Growth
World Supply Capacity Growth
growth for 20102015 now
19
serves as this years base case. Crucially however, there are signs that an impetus for structural
improvements in oil use efficiency has become embedded, under a proviso of continued
economicrecovery.
Thisyear,aslast,weseeanupstreamsectorfacingdifficuliesexpandingoilsupplyrapidly,notleast
as an estimated 3.1mb/d of capacity is lost each year due to mature field decline. But last years
widespread concerns over collapsing investment and accelerating decline now look a little jaded.
Baseline supply has been revised significantly higher, and around 5.5mb/d of net supply growth is
expectedby2015,eventhoughthisstilllagsdemandgrowthinthebasecasescenario.However,the
industry performed better than expected in 2009, even if renewed supply risks are evident.
Physically,Iraq,Russia,NigeriaandVenezuelaarecapableofhigheroutputvolumesthanweshow
here.Butextendedprojectleadtimesarestillwithus,evenmoresonowthatabriefspelloffalling
upstream costs seems to have levelled off. Moreover, ongoing geopolitical and investment risks in
theabovecountries,andthepotentialforfurtherdeepwaterprojectdelaysaftertherecentGulfof
Mexicodisaster,suggestthatadegreeofsupplyforecastcautionremainsinorder.
Runningoutofoilisnottheissue,rathertheabilityoftheindustrytomobiliseinvestmentquickly
enough to meet the higher of our two demand profiles. So in the base case, and in spite of an
assumed 3% annual reduction in oil use intensity, effective OPEC spare capacity begins to decline
againfrom2011.AbroadbasedriseinexpectedOPECcapacityin2014pushessparecapacityback
above 4mb/d again, before it dips toward 3.5mb/d in 2015. That level remains much more
comfortable than prevailed for much of 20022008, noting also that spare capacity alone does not
determine market sentiment. But the declining trend itself, to levels below 5% of global demand,
suggestsmorejitterymarketsahead,afteraprolongedspellofrelativepricestabilityinthelastyear.
Global Balance Summary (Lower GDP Case)

2009
2010
2011
2012
2013
2014
GDP Growth Assumption (% per year)
-0.83
3.23
2.87
2.95
2.98
2.99
2.98
Global Demand
84.77
86.11
86.62
87.22
87.96
88.83
89.82
Non-OPEC Supply
51.52
52.22
52.60
52.44
52.11
52.51
52.50
OPEC NGLs, etc.
4.66
5.40
6.25
6.64
6.89
7.11
7.24
56.18
57.62
58.86
59.08
59.01
59.63
59.74
OPEC Crude Capacity
34.85
35.59
35.36
35.23
35.51
36.51
36.78
28.59
28.48
27.76
28.14
28.96
29.20
30.07
Implied OPEC Spare Capacity
6.26
7.11
7.60
7.10
6.55
7.32
6.71
Effective OPEC Spare Capacity2
5.26
6.11
6.60
6.10
5.55
6.32
5.71
6.2%
7.1%
7.6%
7.0%
6.3%
7.1%
6.4%

1
as percentage of global demand
2015
Changes since December 2009 MTOMR

Global Demand
-0.09
0.16
0.19
0.47
1.02
1.80
Non-OPEC Supply
0.25
0.58
0.47
0.32
0.42
1.16
OPEC NGLs, etc.
-0.23
-0.20
-0.28
-0.09
-0.01
-0.07
0.05
0.30
0.38
0.31
0.35
0.93
OPEC Crude Capacity
0.03
-0.07
-0.01
0.04
-0.25
-0.39
-0.15
-0.52
-1.27
-1.75
-2.19
-2.97
0.18
0.44
1.26
1.79
1.94
2.57

Implied OPEC Spare Capacity1
1 OPEC Capacity minus 'Call on Opec + Stock Ch.'
2 Historically effective OPEC spare capacity averages 1 mb/d below notional spare capacity.
OECD/IEA, 2010
20
Onceagainhowever,echoingourthoughtsoflastyear,1mb/dplusofannualoildemandgrowthis
by no means inevitable. Lower economic growth (or alternatively high growth allied to an
accelerated impetus to
Medium-Term Oil Market Balance (Lower GDP Case)
mb/d
mb/d
improve oil use efficiency
4.0
8.0
anddiversifytransportation
3.0
6.0
fuel
supplies)
could
2.0
4.0
maintain spare capacity
1.0
2.0
closer to recent levels of
0.0
0.0
between 56mb/d, while
still generating a slow but
-1.0
-2.0
steady annual rise in
-2.0
-4.0
demand for OPEC crude.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Effective OPEC Spare Capacity (RHS)
World Demand Growth
With producers having
World Supply Capacity Growth
enjoyed prices within their
preferred range of $65$85/bbl for much of the last year, despite spare capacity remaining at
recessioninducedlevels,suchaprospectneednotbeundulyalarmingforproducers.
As always, projections like these raise as many questions as they answer. Shifts in assumed oil
intensityordeclineratescouldgeneratemarkedlydifferentoutcomes.Policychangeregardingend
user price subsidies, access to hydrocarbon reserves and oil product quality could also transform
these deliberately simplified scenarios. With a revamp of financial market regulation underway, so
toocouldincomingregulationwereittosharplycurbliquidityincommodityfuturesmarketsandthe
abilityofproducersandconsumerstohedgefutureinvestment,evenifthisnowlookslesslikely.
Bydefinition,afiveyearoutlooktakestheworldasitis,examininghowplannedinvestmentsmatch
expected demand under the prevailing policy framework. We know that several outcomes are
possible,andthatsustainedinvestmentandactivelymoderateddemandgrowthcanaverttighteroil
markets,makingincreasedvolatilityfarfromcertainforthemediumterm.Thedieislargelycastin
terms of the policies which will impact upon market fundamentals to 2015, but the importance of
clear policy guidelines for the period after that is clear. Extending the recent period of relative
market stability requires ongoing efforts to maximise safe and sustainable investment, to broaden
accesstocapitalandenergyresources,andtopromoteoiluseefficiencyandmarkettransparency.
Oil Pricing
Inthe12monthssincetheJune2009MTOMR,debatehascontinuedovertherelativecontributions
of several oil price drivers. At first glance, benign oil market fundamentals following the economic
recession look to have been overridden by other factors, with crude oil prices having remained
within a remarkably steady range at an historically high $65$85/bbl. Perceptions on the path of
economic recovery, equity markets, open interest in commodity futures, fluctuations in the dollar
and, more recently, concerns about possible contagion from sovereign debt issues within the
Eurozonehaveallactedtoaugmentthemoretradionaldriversofprices.
OECD/IEA, 2010
However,uncertaintieswithinthephysicaloilmarketalsopersist,notleastconcerningthetruepace
ofdemandgrowthinemergingcountries.Reliabledemandandstocksdataaredifficulttocomeby
for a portion of the market that will soon surpass 50% of global consumption. Amid uncertainties
abouttheinteractionsbetweenmarketcontangoandsupplytothepromptmarket,andwithcurrent
levels of OPEC spare capacity arguably only comfortable compared to recent history, fears of
potential renewed supply tightness are offsetting downside demand risks deriving from renewed
21
economic market uncertainty. Whether this uneasy truce for price volatility holds is open to
question,amidongoinginelasticityonboththesupplyanddemandsidesofthemarket.However,a
commonfeatureforboththephysicalandfinancialmarketsforoilistherelativepaucityofreliable,
timely, marketwide data and information. Achieving sustainable price stability will partly rest on
improvements in visibility for the prompt market, allied to greater clarity about market prospects
andpolicymeasuresforthefuture.
Fornowatleast,aperiodofrelativepricestabilityprevails.Thisisreflectedbyafuturesstripthat,
although clearly shifted higher since our last two mediumterm projections, nonetheless shows a
gentle nominal price escalation through middecade, with prices rising from $77/bbl to $86/bbl.
Based on the futures strip around midApril, this price assumption (not a forecast) underpins the
modelling of oil supply and demand through mid
'IEA Average Import Price'
$/bbl
decadeundertakenforthisreport.InthelowerGDP
Assumption (nominal)
110
case,pricesofcoursecouldweaken.Howeverthisis
97.19
100
reflected implicitly via an assumption of slower
85.63
82.89 84.15
90
improvements in oil intensity, rather than through
79.41 81.20
76.56
81.82
80
anexplicitchangeinthepricestripemployed.
80.42
77.17 78.69
70
57.54
71.50
75.06
56.34
60
67.21 68.58
Concernsaboutapotentialreturntogreatermarket
63.41 65.33
59.81
50
volatility remain however. These, together with the
54.62
40
47.33
fallout from the global financial crisis, are also
2008 2009 2010 2011 2012 2013 2014 2015
promptingregulatorychangesincommodityfutures
Apr 2010
Apr 2009
Nov 2009
markets. While proposals vary internationally, with
tighter energy commodity position limits one area of divergence, common features nonetheless
exist.NewregulatoryproposalsattempttoshedmorelightontobilateralOTCmarketsinparticular,
andtocurbriskswithintheglobalfinancialsystem.Morecentralclearingofstandardisedproductsis
likely, alongside reporting of trades to a central repository and increasing collateral. In the end, a
desire for globally harmonised standards may temper the more radical proposals for market
intervention, ensuring that market liquidity, price discovery and the ability of physical players to
hedgeriskismaintained.
Demand
Aseconomicuncertaintyhaspersistedbeyondthe2008/2009recession,thisyearsprojectionsagain
include two oil demand scenarios. Using May 2010 OMR data as our starting point, we have
developedtwocontrastingviewsoneconomicgrowth,withalowervariantalsotemperedbyweaker
efficiency gains. In the higher GDP and efficiency gains case (the base case for our analysis), oil
demandgrowsbyanaverageof1.2mb/dannually(1.4%),reachingjustshyof92mb/dby2015.This
presupposes GDP growth of nearly 4.5% per year from 2010 onwards (in line with the IMF) and a
reductioninoiluseintensityof3%annually,closetothe20042009average.
OECD/IEA, 2010
Thepossibilityofweakerglobaleconomicgrowth,amidcontinuedworldtradeimbalancesandthe
challengesoffiscalconsolidationandspirallingOECDnationsovereigndebt,generatesalowerGDP
and efficiency gains scenario. Here, global GDP grows by a more muted 3% annually, while the
impetusforaggressiveoiluseefficiencygainsisdilutedbyaweakerinvestmentenvironmentand,by
implication,weakerenergyprices.Thispushesanticipatedreductionsinoiluseintensitybacktothe
15yearaverage,near2%peryear.Inthiscase,annualoildemandgrowthaverages840kb/d(1.0%),
takingtotalglobaldemandto90mb/dby2015.
22
m b/d
Global Oil Demand:

GDP & Efficiency Sensitivity
92
88
86
93
Oil Demand (mb/d)
90
Base GDP & 3% Avg. Yearly

Efficiency Gains
Low er GDP & 2% Avg. Yearly
Efficiency Gains
91
89
2008 2009 2010 2011 2012 2013 2014 2015
-1.5%, 92.6
Low er
Case
-3.0%, 91.9
-2.0%, 89.8
Base
Case
-3.5%, 89.7
-2.5%, 87.7
-4.0%, 87.5
87
85
84
Oil Demand Sensitivity: Avg. Intensity

Change vs. Demand, 2010-15
-3.0%, 85.7
-1%
-2%
Low er GDP
-4.5%, 85.4
-3%
Oil Intensity (%)
-4%
-5%
Base GDP
These are merely working assumptions, and global 2015 demand could conceivably lie anywhere
within a broad range, depending on the combination of economic growth and intensity reductions
that materialises. The implementation of new initiatives involves long lead times, meaning that
efficiencygainsinexcessofthoseassumedhereareunlikelytomaterialiseby2015.Thatsaid,North
America is introducing ambitious fuel economy standards from 2012, while vehicle manufacturers,
under pressure from stagnating OECD markets, are turning towards innovative new fuel
technologies. While unlikely to make huge market inroads before later in the decade, these
transformationaltechnologiesholdthepotentialtorevitalisecarmakersfortunesintheOECD,while
alsohelpingthembreakintomorelucrativenonOECDmarketsandcurbthosemarketsotherwise
huge latent oil demand growth potential. In the end, the lower global demand profile could be
achievedwerehigherGDPgrowthtobeaccompaniedbyfasterreductionsinoilintensity,ofaround
3.5% per year. Accelerating efficiency gains to that level would be difficult by 2015, but it does
illustratethepotentialforthelongertermifenlightenedpolicychoicesarepursuedtoday.
OECD/IEA, 2010
The transport sector and the nonOECD again provide the impetus for demand growth in the next
five years. In OECD markets, modest increases in transport fuel demand fail to offset ongoing
structural decline in oil use in industry and power generation, exacerbated by potentially weak
natural gas prices. OECD oil demand likely peaked in 2005 and falls by between 300400kb/d
annually through 2015. In contrast, nonOECD demand grows by between 11.5mb/d per year,
drivenbynonOECDAsia,theMiddleEastandLatinAmerica.Risingpopulationswithinacriticaloil
demandtakeoffzoneof$3000$4000percapitaincome,plusananticipatedpersistenceofend
user price subsidies, sustains oil demand growth in the face of relatively high crude oil prices. The
report highlights ongoing work on the subsidy issue, and the stark statistic that 70% of expected
growthinMiddleEastOPECcrudecapacitystandstobeabsorbedbyregionaldemandgrowthamid
ongoing subsidies. As nonOECD demand reaches 52% of the world total by 2015, so the need for
betterdataonemergingmarketdemandandinventorycomesintoeversharperfocus.
Supply
Higher prices, lower costs and fledgling signs of increased upstream spending have eased some of
last years concerns about mediumterm oil supply prospects. 2009 itself turned out stronger than
anticipated, with estimates of total production capacity now close to 91mb/d, around 0.9mb/d
higherthanintheJune2009reportand0.1mb/daboveourDecemberupdate.NonOPECoutputin
particularsurviviedlower2009spendingbetterthananticipated,andisrevisedhigher,togrowfrom
51.5mb/d to 52.5mb/d by 2015. Latin America, the Canadian oil sands, the Caspian region and
biofuels generate most of the growth, offsetting continued decline from the North Sea, the US
andMexico.
23
Thestrongerbaselinederivesinpartfromhighernewprojectsupply,butalsolowerobservedlevels
of decline at existing fields. The net decline proxy for nonOPEC baseline oil supply now stands at
closerto5.1%annuallythanthenear5.8%whichwederivedlastyear,aftermonitoringdeclineat
mature fields over the course of 2008/2009. Of course, fieldspecific data are patchy, and our
projections for total nonOPEC supply in 2015 would swing sharply subject to a relatively narrow
variationinassumeddeclinerates.Inaddition,evenwithmorebenigndeclinerateassumptionsthis
mb/d
year,theglobalcapacitybasestill
World Oil Supply Capacity Growth
2.5
loses around 3.1mb/d each year
2.0
to mature field decline. The
1.5
investment challenge to offset
1.0
this and meet global demand
0.5
growthremainsformidable.
0.0
-0.5
That said, the global oil supply
-1.0
outlook is raised by an average
2009
2010
2011
2012
2013
2014
2015
0.3mb/d each year for the
OPEC Crude Capacity Growth
OPEC NGLs Growth
Global Biofuels Growth
Non-OPEC Growth (ex Biofuels)
forecast period, with total
Total Net Change
production
capacity
now
expectedtorisefrom91.0mb/din2009to96.5mb/din2015.Supplygrowthderivesprimarilyfrom
newOPECinvestments,bothcrudeoilandNGL.OPECcrudecapacityrisesbyanet1.9mb/dfrom
20092015,to36.8mb/d,withnotableincrementsfromIraq(+1.0mb/dafterthesigningofaraft
of new contracts with IOCs) and from Saudi Arabia, Angola and the UAE. OPEC NGLs also rise by
2.6mb/dby2015to7.2mb/d,playingakeyroleinthelighter/sweeterfeedstockslateanticipated
for20092012,evenifglobalsuppliesthenbecomeheavieronceagain.Anextensivereviewofglobal
NGLs and condensate industry drivers highlights that gas liquids could account for nearly 60% of
incrementalsupplythrough2015,withtheaddedimpetusforOPECproducersthatthisproduction
streamisunconstrainedbyoutputquotas.
However,supplysiderisksabound.Firstly,thereisaneverpresentthreatofgeopoliticaldisruption
surrounding a number of key OPEC producers. Secondly, the potential for the recent Deepwater
Horizon disaster in the US Gulf of Mexico to delay substantial deepwater developments which
underpin much of expected supply growth. Efforts to improve safety and environmental standards
will understandably be redoubled after the tragedy. Should the impact of those measures be
widespread delays to deepwater projects, anything between 300kb/d and 800kb/d of new 2015
supplycurrentlyincludedinouroutlookmightbedeferred.
Biofuels
OECD/IEA, 2010
Biofuelsproductionisexpectedtorisesharplyin2010andtoseecontinuedgrowththereafter,with
output increasing from 1.6mb/d in 2009 to 2.4mb/d in 2015. As such, biofuels remain a marginal
source of fuel supply overall, but nonetheless an important offset, together with NGLs and non
conventional oils, for the decline expected in conventional crude oil output from nonOPEC in the
forecastperiod.
By 2015,around 5.7% of gasoline demand on an energy content basis will be met by ethanol, and
1.5%ofgaspoilbybiodiesel.Theeconomiccrisiscurtailedgrowth,butdidnotcompletelyderailit,as
2009supplyroseby140kb/d.Indeed,baselinerevisionsgenerate2009/2010supplylevelsthatare
24
some 45kb/d higher than in the December update, largely on the basis of upgrades to North
Americanestimates.Industryrationalisationbroughtaboutbyeconomiccrisis,loweroilpricesand
highsugarpriceshasresultedinabiofuelssectornowsomewhatstrongerandprimedforrenewed
growth,evenifquestionssurroundingenvironmentalsustainabilityandlanduseforfirstgeneration
supplies,andlocalisedovercapacity,persist.
mb/d
Global Biofuels Supply - Annual
Growth
0.30
On average, forecast production comes in around
135kb/d higher than Decembers equivalent, with
0.25
North America, followed distantly by Latin America
0.20
and Europe, generating the bulk of this upgrade.
0.15
Asian project economics, on the other hand, now
0.10
lookmoretenuous.Asinpreviousyears,theUSand
0.05
Brazil dominate absolute production (together 75%
0.00
of world supply) and provide 75% of the growth
2009 2010 2011 2012 2013 2014 2015
expectedfor20092015.
Jun 10 Forecast
Dec 09 Forecast
Secondgenerationbiofuelactivityshouldincrease,notablywithaUScellulosicbiofuelmandatefrom
2010 onwards. Current plans imply global potential at 150kb/d in 2015, with 55% from cellulosic
ethanol and 45% from secondgeneration biodiesel. Yet, challenging economics may keep actual
productionwellbelowthis,andbreakevenpricesnear$120/bblcrudemayberequiredforcellulosic
ethanolandbiomasstoliquids(BTL)tocompeteeffectivelywithfossilfuelsinthelongerterm.
Crude Trade
OECD/IEA, 2010
International crude oil trade is expected to increase by 3.2mb/d from recessionaffected lows in
2009 and attain 36.5mb/d by 2015. Trade is expected to become more long haul, something that
may gradually ease shortterm pressures on the international tanker industry brought about by
vesseloversupply.TheMiddleEastislikelytoretainitspredominantmarketshare,witharound48%
of crude exports, while Africa and Latin America boost their shares of international crude trade,
partlyattheexpenseoftheFSU.AllincrementalsuppliesfromtheMiddleEastheadtowardsAsia.
BoththeFSUandLatinAmericaalsoincreasinglytargetgrowthmarketsinAsiaduringtheoutlook,as
key export infrastructure projects are brought to fruition. Not surprisingly given declining demand,
trade into the OECD countries diminishes, to the tune of 900kb/d by 2015, although declining
domesticproductionseesOECDEuropeimportsincrease.Aselsewhereinthisreport,expectations
for China are impressive, with crude imports increasing by 2.7mb/d to 6.4mb/d in 2015, having
seeminglybeeninsulatedfromtheglobalrecession,increasingby600kb/din2009alone.

Reneweddemandgrowth,focusedinthenonOECDmarkets,lookstohavetrumpedlaggingrefining
marginstobolsterexpectedrefinerycapacityadditionsforthe20092015period.Wenowenvisage
net growth of 9.0mb/d in global distillation capacity, alongside 7.0mb/d of new upgrading and
8.2mb/d of desulphurisation capacity through the outlook period, based on firmly committed
projects.TheoutlookincludesamodestfirstwaveofcapacityclosureswithintheOECD,evenifmore
may be required before OECD refiners can overcome depressed operating rates and suboptimal
economics. Worldwide, surplus refining capacity could reach 7.0mb/d by 2015 in the absence of
furtherclosures.
25
Givenexpectedtrendsindemandgrowth,lesscompetitiveOECDcapacitywillbepressuredbynew
highcomplexity facilities and strategic units being built in China, Other Asia, the Middle East and
LatinAmerica,eventhoughsomeretrenchmentinMiddleEasternexpansionplanshasbeenevident.
China has plans to boost capacity by at least 3.3mb/d by 2015, and the other three regions
mentionedcollectivelyaddnearly4mb/d.
kb/d
10.0
Cumulative CDU Expansions
Refinery Utilisation Rates

95%
7.5
90%
5.0
85%
2.5
80%
0.0
75%
2010 2011
OECD
Other Asia
Latin America
2012
2013 2014 2015

China
Middle East
Other Non OECD
70%
1Q06
1Q08
OECD
1Q10
1Q12
Non-OECD
1Q14
World
OECD/IEA, 2010
Furtherunderminingsomeofthemorevulnerabledownstreamfacilitieswillbethesizeableportion
offuturedemandthatwillbemetfromrisingsuppliesofbiofuels,gasliquidsandnonconventional
oil, derived from outside the refining system. Moreover, a lighter, sweeter feedstock slate until
2011/2012couldundermineupgradingmargins,placingsomeofthelessstrategicallyorientednew
crackinginvestmentsinto doubt.Longerterm,incentivesforupgradingmayimproveasthesupply
barrelturnsheavierandsoureragain,amidrisingsuppliesfromCanada,VenezuelaandColombia.
Weaker fuel oil demand and the ultimately heavier crude oil slate eradicate a key feature of last
yearsprojectionstighteningfueloilmarkets.However,ourmodellingoflikelyproductssupplyfor
lightendsandmiddledistillatesstillsuggestafundamentalimbalancehere,withasharptightening
inmarketsformiddledistillatespossibleovertheforecastperiod,andatendencytowardssurplusin
gasoline. Further hydrocracking investment, over and above firm plans, will be required to help
resolvethispotentialimbalance.
26
P ART 1: O IL O IL P RICING
OIL PRICING
Benchmarkoilfutures,whiletrendinghigher,havenonethelesstradedinarelativelynarrowrangeof
$6585/bbl since last Junes MediumTerm Oil Market Report (MTOMR). They have been
underpinned variously by prompt physical fundamentals, shifting market sentiment on the pace of
theglobaleconomicrecoveryandtheebbandflowininternationalfinancialmarkets.BothWTIand
Brenthavehoveredwithina$20/bblpricebandformuchofthepastyear,averagingaround$75/bbl
sinceJune2009.Thatcompareswiththevolatileswingsthatservedasthebackdroptolastyears
report,afterpricespeakedatahighofnear$150/bblinJuly2008andfelltoalowofaround$35/bbl
inFebruary2009.
Since the financial crisis broke in mid2008 a multitude of ever changing macroeconomic
developments has underpinned financial and oil market direction, at times exerting a
disproportionateinfluenceonoilprices.Ashiftinmarketpsychologyawayfromamyopicfocuson
shorttermfundamentalsandmicrofinancialpositionsonthefuturesmarket,towardsalongerterm
viewappearstohavehadsomethingofastabilisingimpactonpricemovementsthispastyear.
$/bbl
Crude Futures
Front Month Close
100
90
NYMEX WTI vs S&P 500
US$/bbl
90
Index
1300
1200
80
80
70
60
50
70
40
So urce: P latts
30
Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10
NYMEX WTI
ICE Brent
40
1100
1000
60
900
50
800
So urce: P latts
700
30
Jan 09Apr 09Jul 09 Oct 09Jan 10Apr 10
600
NYMEX WTI
S&P 500 (RHS)
In the wake of the global economic recession, equity and other macrofinancial markets have
emergedascriticalbarometersforfutureoildemandgrowth.Perceptionsoverthepaceofdemand
recoveryandthesustainabilityofgrowthinChinaandemergingmarketsinparticularhaveplayeda
keyroleinleadingoilpricesbothhigherandlower.Oilpricemovestotheupsidemoreoftenthan
not have been accompanied by a multitude of positive macroeconomic developments and bullish
financial markets. Swings to the upside frequently defied conventional market thinking, especially
giventhehealthycushionofoilstocksandspareproductioncapacityoverthepast12months.
OECD/IEA, 2010
That said, OECD stocks represent only a partial picture

of market flexibility, meaning that over time, their
diagnostic value as regards price might be expected to
diminish.Someanalysts,moreover,havepointedtothe
increaseduseofarbitrageforprofitassuggestingthat
shifts into storage can themselves withdraw oil from
the prompt market and therefore push prices higher.
Notwithstandingthishypothesis,prevailingweaknessin
OECD oil demand, and persistent high levels of oil
inventoriesbothonshoreandheldatsealikelyexerted
$/bbl
0
Crude Futures
Forward Spreads
-5
-10
-15
-20
So urce: P latts
-25
Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10
WTI M1-M12
Brent M1-M12
27
downwardpressureonpromptpricesrelativetoforwardmarketsatvariouspointsthroughoutthe
year. The market contango (whereby prompt prices trade at a discount to forward prices) for WTI
M1M12 contracts in 2009 averaged $8.52/bbl compared with $5.28/bbl through endMay 2010.
Afterwideningto$10/bblatend2009,theM1M12contangohassteadilynarrowedthroughmuch
of 2010, to just over $2/bbl at endMarch, which the broader market interpreted as a signal that
stronger demand was finally starting to make a dent in the global stock overhang. However, the
narrowing of the contango reversed course in early
NYMEX WTI vs US Dollar Index
April,inpartduetoacombinationofreducedrefiner
US$/bbl
Index
demand during seasonal maintenance as well as
90
70
rising stock levels at the pivotal Cushing, Oklahoma
80
75
storageterminals.
70
60
80
Indeed, volatility returned to the market with a
50
vengeanceinMay,inlargepartduetotheEurozone
85
40
debt crisis and fears that broadening budgetary
So urce: ICE, P latts
30
90
pressures will undermine global economic recovery
Jan 09Apr 09 Jul 09 Oct 09 Jan 10Apr 10
and anticipated growth in oil demand. The collapse
NYMEX WTI
of the Euro has also triggered a disconnect in the
US Dollar Index (inversed RHS)
NYMEX WTI inverse relationship with the US Dollar
Index, evident through much of 2009. Oil prices broke through the upper and lower limits of their
erstwhile range in May. Benchmark prices plummeted by just over $18/bbl by 20 May before
partiallyrecoveringtoaround$74/bblattheendofMay,backwithinthe$6585/bblrangeseenfor
muchofthepastyear.
Globaleconomicissues,especiallyEUfiscalproblems,andbroaderfinancialmarketactivitylookset
toremainkeyinfluencesonoilpricevolatilityintheshortandlongerterm.Thesefactorshavenot
supplanted a more traditional focus on supply and demand. Indeed, the inelasticity of both supply
and demand to price remains arguably the key longstanding contributor to market volatility, off
whichinvestorsentimentbothbullishandbearishtendstofeed.
Increasingly, linkages between the physical and paper markets will need to be studied to better
understandcurrentandfuturepricedynamics.AjointIEA/IEEJworkshopinTokyoinFebruary2010
touched upon some of these issues, (see Oil Price Volatility: Causes, Impacts and Potential
Remedies)andwillbefollowedbyfurtherworkbytheIEAandothersinmonthstocome.
Methodology for Calculating the IEA Average Import Price
OECD/IEA, 2010
A relatively narrow price range is also seen in the

priceassumptionemployedfortheforecastperiod
intheMTOGM.TheIEAdoesnotforecastoilprices,
but deploys oil price assumptions for use in our
forecasting models. The MTOGM price assumption
is broadly generated by using a combination of
historicalNYMEXfuturespricesforthelight,sweet
crude contract (WTI) and the forward price curve,
which is then benchmarked against the average
crudeoilimportpricesforIEAmembercountries.
28
'IEA Average Import Price'

Assumption (nominal)
$/bbl
110
100
97.19
90
76.56
80
70
57.54
60
56.34
59.81
50
40
85.63
82.89 84.15
79.41 81.20
81.82
78.69 80.42
75.06 77.17
71.50
67.21 68.58
63.41 65.33
54.62
47.33
2008 2009 2010 2011 2012 2013 2014 2015

Apr 2010
Apr 2009
Nov 2009
For this years MTOGM projections, an average of the last three months' WTI futures strips for
respectivedeliveryyearwasused.ThiswasthenconvertedtoanIEAaverageimportpriceonthe
basisofthe5.2%discounttocrudefuturesevidentinthelastfiveyears.Thisgeneratesapriceprofile
approaching$85/bblforthelatteryearsoftheforecastperiod,$17$22/bblhigherthantheprofile
employedinlastJunesreportandaround$4/bblhigherthantheassumptionintheDecember2009
mediumtermupdate.
Oil Price Volatility: Causes, Impacts and Potential Remedies

Risingcrudeoilpricesthroughmid2008,andtheirsubsequentcollapseandthenrecovery,havefocused
attentionontheissueofpriceformation.Anongoingdebatehaspolarisedaroundtherelativerolesof
fundamentals and financial market speculation in determining crude oil price levels. This polarity,
however,mayunintentionallymisleadfinancialregulatorsandpolicymakers.WhiletheIEAviewisthat
fundamentals are the main determinant of oil prices over time, clearly other factors ranging from
macroeconomic developments, equity and other derivative markets to government policies and
geopoliticaleventscanalsoplayaroleininfluencingoilpricelevelsintheshortterm.
The IEA held the third in a series of workshops on oil price formation in February2010 in Tokyo.
PartneredwiththeInstituteofEnergyEconomicsJapan(IEEJ),withthesupportofJapansMinistryof
Economy,TradeandIndustry(METI)thisyearsworkshopfocusedonthecauses,impactsandpotential
remediesforoilpricevolatilityandinvolvedover80participantsfromindustry,government,research
bodies,financialinstitutions,regulators,commodityexchangesandinternationalorganisations.
A wide crosssection of views was aired on the many drivers influencing oil prices, the impact of
volatility and measures to combat excessive volatility, even if the latter was impossible to quantify.
Therewasnearunanimousconsensusthatattemptstoidentifyandmanageafairpricefailtograsp
theimportantrolemarketsplayinimprovingtransparencyandpricediscovery.Simplifyingthedebate
between the speculation camp on one side, and fundamentals proponents on the other, may be
unhelpful and overly simplistic. If the multiple drivers of price changes are difficult to identify, then
policy prescriptions to reduce volatility risk targeting the wrong culprits. Assigning precise price
impactsderivedfromspeculationwasseentobeinconclusive,evenfutile.
While entrenched views on the role of speculation and fundamentals were evident, a majority of
expertstendedtoviewspeculatorsasplayingasecondaryrolerelativetofundamentals,atleastover
longerperiodsoftime.Almostallspeakersappearedtoagreethatspeculationitselfisnotabadthing,
and is indeed necessary in well functioning markets, providing liquidity, allowing physical market
participants to hedge risks and facilitating price discovery. The question is rather whether excessive
speculationcausedthesurgeinpricestotheirmid2008peakandcontinuestodistortpricelevelstoday.
OECD/IEA, 2010
Proponents of the speculative view acknowledged that todays fundamentals and perceptions of
tomorrowsfundamentalsarekeyinsettingpriceexpectations.However,theyseetheshiftofoilfrom
beingapurelyphysicalcommoditytobecomingalsoafinancialassethasembeddedanexcessivedegree
of volatility. For others, the social damage caused by high volatility in food and energy prices,
particularly when the economic recovery is still fragile, means that position limits in energy futures
markets are required. The size of these markets is poorly understood (leading some to call for
mandatory data reporting), but may be around ten times the size of the physical market. Highly
leveragedfinancialmarketswereseenbysomeasaccentuatingvolatility.Passiveindexinvestorswere
singledoutbyproponentsofthespeculativeviewasbeingdifferentfromtraditionalspeculators,since
theyarenotshorttermbuyersandsellers,butratherbuy,holdandrollcommodities.
29
(continued)
Most participants across the spectrum acknowledged the key fundamental drivers of prices rapid,
emerging market demand growth driven by subsidised prices and rising incomes, constraints on the
abilitytoexpandsupplyand,moregenerally,thepriceinelasticityofbothsupplyanddemand.Alackof
visibility on both emerging market supply and demand prospects was also seen as contributing to
potentiallyalarmistviewsaboutfuturemarketbalances.
Proponentsofthephysicalmarketviewarguedmultiparticipantmarketsaremorelikelytoreflecttrue
valuesothequestionwaswhetherthemarketcaneverbesaidtoprovidethewrongprice.Priceis
oneofthefewaccurate,prompt,realtimedatapointsthatwehave.Themarketitself,sotheargument
runs,ismorelikelytosendrationalsignalstoparticipantsthananyattempttoartificiallycontrolprices.
DataandMoreData
Fromafundamentalpointofview,thekeytopricestabilityandmarkettransparencyisbetterdataon
the current state of the market covering upstream, downstream, inventories and demand, most
notablyfornonOECDcountriestominimisemarketuncertainties.
Demandside uncertainty now is perhaps as great as it has ever been. Expectations for 2010 demand
growth were said to range from 0.8mb/d to 2.5mb/d. Suggestions to minimise this uncertainty
includedforecastingagenciesprovidingmoredetailontheassumptionsanduncertaintiesthatunderpin
projections. Indeed, a common theme throughout the forum was that forecasts are inherently
uncertain,andperceivedwisdomaboutfuturefeastorfamineoftengetsoverturnedbygamechanging
developments,whichanalystsfailtospotinadvance.
More generally, speakers saw domestic price subsidies in emerging markets playing a key role in
dampening price feedthrough to consumers, and effectively increasing volatility in international
markets. This has also blunted the traditional view of rising oil prices inevitably having an immediate
adverse impact on global economic growth. Although some signs of wage inflation in China due to
increasedpriceswereidentified,thethemeoftheglobaleconomysabilitytobetterwithstandsharply
higherpriceswasalsohighlighted.
Improved transparency in the refining sector would also help, given refined products markets have
frequentlybeenadriverofrisingcrudepricesintimeoftightness,especiallydieselmarketsin2008.The
downstream component is often overlooked, but at its root is relatively straightforward. A mismatch
betweencrudeslate,refiningcomplexityandproductsdemandcaninflatecrudeoildemand,something
thatlikelycontributedtohighercrudepricesin2007/2008.
AlthoughtheimportanceofOECDinventoriesasameasureofphysicalmarketflexibilityisdiminishing,
as nonOECD demand begins to predominate, these, alongside OPEC spare capacity, are seen as key
shockabsorbers for the system. Seemingly abundant current spare capacity of around 6mb/d was
nonethelessseenasbeingarelativelynarrowmargin,bothincomparisonwithotherindustriesandwith
historicallevels.Somepointedoutthata5%capacitymarginmaybeatippingpointforoilmarkets,
noting that spare capacity was consistently below this level for much of 20032008. The fact that IEA
member governments also control strategic stocks for use in a supply disruption was identified as a
potentiallycalmingfeatureformarkets,andonethatisperhapsnothighlightedfrequentlyenough.
MovingtheDebateForward
OECD/IEA, 2010
Whileviewsvariedovertherelativecontributionoffundamentalorspeculativefactorsinshapingthe
price environment, a consensus emerged that a combination of prompt physical fundamentals,
expectationsforthefutureandacomplexweboffinancialandeconomicdriversunderpinshiftsinoil
prices.Solidstatisticalcorrelationsfrequentlyprovetobetransient,highlightingtheobservationthat
30
(continued)
pricedriversarebothmanifoldandtendtoebbandflowinimportanceovertime.Moreanalysisonhow
macroeconomic shifts, including equity and currency fluctuations, affect commodity prices, and vice
versa, as well as better data on supply and demand fundamentals, futures trading positions and
derivative transactions may be more valuable in assessing how to improve market functioning than
merelycontinuingthepolariseddebateovertheroleofspeculatorsversusfundamentals.
Creating more favourable conditions for investment and ensuring that price signals are efficiently
passed through to producers and consumers will be equally if not more important than judicious
financial regulation in promoting greater stability. A number of key issues were identified which can
underpinfuturepolicyactionaimedathelpingmarketsfunctionbetter:
Firstly, volatility is inescapable, and can never be eradicated. But volatility can adversely affect
investment planning and importdependent emerging countries. It can be limited via better
functioningmarketsandimprovedvisibilityoncurrentandexpectedfuturemarketfundamentals;
Acombinationofpromptphysicalfundamentals,expectationsforthefutureandacomplexwebof
financial and economic drivers tend to underpin shifts in oil prices. The uncertainties inherent in
forecasts,andalternativeoutcomesneedtobemoreclearlyacknowledgedbyforecasters;
Theissueofdatatransparencyisparamountforimprovedunderstandingofmarketdynamics.Better
dataondemand,supplyandstocksarekey,notablyforemergingmarketspoisedtoaccountforover
50%ofglobaldemandbymiddecade(notleastAsia);
Equallyimportantisgreatervisibilityonparticipationinfinancialmarkets.Recentmovestoenhance
reportingrequirementsbytheCFTCandotherregulatorsshouldcontinue,possiblyextendingtoOTC
derivativesmarkets.Planstoincreasefinancialmarketoversightcanplayacriticalroleinimproving
marketfunctionbuteffortstoregulatecommodityfuturesmarketsmusttakeintoaccountliquidity
andriskmanagement,whichcouldbeimpairedifincomingregulationistooheavyhanded;
Finally,welldefinedandmoreconsistentinternationallongtermpolicysignalsarerequiredinareas
such as promoting access to reserves and investment, the shift towards market pricing and
environmental and oil use efficiency targets. A clearer policy framework can help both consumers
andproducersmakeoptimalinvestmentdecisionsforthefuture.
Financial Market Regulation

The financial crisis has prompted global efforts to improve the regulatory framework and proposed
changesaffectalsocommoditymarkets.Newlegislativeproposalstargetderivativetradinginbilateral
overthecounter(OTC)markets,whichincludealsooilswaps,andattempttoimposepositionlimits
on futures market energy contracts to prevent market manipulation. Acommon regulatory push
underaG20umbrellaappearstobeevidentacrossmanyofthemainmarketstoensurethemaximum
useofclearing,migrationtoexchangesandmorestringentreportingrequirements.
Derivativesarefinancialinstrumentswhosevalueisderivedfromthevalue ofanunderlyingasset.
Theyincludefutures,optionsandswaps.Derivativescanbeusedeitherto:
Hedgeexposuretothephysicalassetitself;
Makespeculativeprofitsifpricesoftheunderlyingassetmoveinanexpecteddirection;
OECD/IEA, 2010
Gainfinancialexposuretoanunderlyingassetwheretradeintheassetisrestricted;or
Secureanoptiontobuyorsellanunderlyingassetifpriceshitaspecificlevel.
31
Derivatives can be standardised and traded on exchanges, or privately negotiated between two
parties as OTC derivatives. According to the International Swaps and Derivatives Association,
derivativesareusedtomanageriskbythemajorityofthelargestcompaniesintheworld,atleast
halfofmediumsizedfirmsandmanysmallbusinesses.
AnadvantageofOTCderivativesistheabilitytotailorthecontractstohedgepreciserisksacompany
faces due to fluctuations in commodity and other markets. Their disadvantage is a greater level of
counterparty, liquidity and operational risk. Counterparty risk (if one party were to fail to meet its
financial obligations) is significant and could threaten the stability of the financial system if the
defaulting counterparty is a large financial institution. The crisis emphasised also other potential
issues,suchaslackoftransparencyandlowercapitalrequirementsincomparisonwithtradinginthe
underlyingasset.Newregulationaimstomitigateunintendedconsequencesofderivativerisks.
Policy makers proposals for extensive regulatory overhaul in the OTC derivative markets reflect a
commitment to a lower risk financial system from G20 leaders. According to the G20 statement
followingthemeetinginPittsburghinSeptember2009,theywouldliketoseeallstandardisedOTC
derivatives contracts traded on exchanges or electronic trading platforms and cleared through
central counterparties by end2012 at the latest. In general, G20 regulatory proposals set out the
followingkeyitemsforregulationofOTCderivatives:
Clearing of trades through an intermediary company with sufficient capital, such as clearing
houses,orcentralcounterparties(CCPs)toeliminatecounterpartyrisk;
StandardisationofOTCderivativecontractsandtradingonexchangestoeliminateoperationalrisk;
CapitalrequirementsforbankstobalancetheirOTCexposure;
ReportingofOTCderivativecontractstoqualifiedtraderepositoriestoincreasetransparency;
Regulation of market participants, greater oversight of exchanges, clearing counterparties and
electronictradingplatformsandregistrationofcreditratingagencies;
Noncentrallyclearedcontractsshouldbesubjecttohighercapitalrequirementsand;
OECD/IEA, 2010
Harmonisationofaccountingstandards.
The US Takes the Lead

USOTCderivativesarelargelyexemptfromtheexistingregulatoryframework.Threelegislativetexts
proposinganewframeworkforOTCderivativeshavebeencirculatinginrecentmonths:aproposal
fromtheObamaadministration,theWallStreetReformandConsumerProtectionActpassedinthe
HouseofRepresentativesinDecember2009andadraftfromtheSenatesBankingandAgriculture
committees approved in May2010. The texts diverge in places and are likely to be reconciled in a
single rule. The final bill would clarify clearing requirements, exchange trading, trade reporting,
regulationofmarketparticipants,capitalandmarginrequirementsandpositionlimits.
ThebillpassedbytheHouseofRepresentativesexpandstheauthorityoftheCommoditiesFutures
Trading Commission (CFTC) to establish position limits on energy commodities (now limited to
agricultural commodities). The CFTC itself came under pressure to strengthen its oversight of the
markets after excessive speculation was blamed for much of the record increase in energy prices
in2008. As part of its effort to increase market transparency, the CFTC released three years' of
historical Disaggregated Commitments of Traders (DCoT) data. The new format was designed to
32
OECD/IEA, 2010
better highlight the role of investment banks and

'000
Net Positions in WTI Futures
index traders, among others, in commodity contracts
Source: CFTC
markets. Critics pointed out that the new DCoT 300
200
reportdoesnotfullycaptureinformationaboutthe 100
0
swap dealers counterparties. That counterparty
mightbeaspeculativetrader,likeanindexfund,or -100
-200
alternatively a traditional commercial user -300
11-May-10 18-May-10 11-May-10 18-May-10
managingriskarisingfromphysicalmarketactivity.
CoT
DCoT
DespiteanearlierCFTCreportthatconcludedthere
Producer/Com m
Sw ap Dealer/Com m
Money Mng/Non-com m
Other/Non-Com m
was no clear correlation between speculative
Non Reportable
positions and rising oil prices, the agency unveiled
in January2010 a proposal to limit the amount of US energy futures contracts that hedge funds,
investmentbanksandothernonphysicalparticipantscancontrol.Thepositioncapswouldaffectthe
WTI,heatingoil,RBOBgasolineandnaturalgasfuturescontracts.
Thesuggestedrulesetsaggregatelimitsbythenumberofoutstandingcontracts.Companiescould
hold 10% of the first 25000 contracts of open interest for all trading months combined and then
2.5% of open interest beyond this threshold. The new rule would allow exemptions to companies
usingthefuturescontractstohedgetheircommercialrisks.Alimitedriskmanagementexemption,
where limits are capped at two times the normal limits, would also be granted to swap dealers
offsettingtheirpositionsunderwrittenontheOTCmarkets.
Initially,theproposalwasviewedasbenignsincelimitswerethoughthighenoughnottodiverttrades
eithertoOTCmarketsoroutsidetheUS.TheCFTCsaidtheybelievedonlytencompaniestradingin
thecrudemarket(ofatotalaround320)wouldbeaffectedandthatthesewouldbeabletoaskfor
exemptions.Intheheatingoilandgasolinemarkets,theCFTCestimatedthatcapswouldhavebeen
imposedon16tradersineachmarketoverthepasttwoyears(ofaround160and200,respectively).
During the CFTC public comment period on its draft for position limits, the majority of responses
supported the regulatory bill. In general, the endusers and producers welcomed the proposal,
claiming limits are necessary to curb volatility, with some even saying the rule is too generous in
termsoflimitlevelsandexemptions.However,severalexpressedconcernsthatpositioncapsmight
constrainhedgingactivityofenergycompaniesthatengageinswaptrading.
Ontheotherhand,representativesofthefinancialindustry(banks,tradersandexchanges)criticised
the limited risk management exemptions for swap dealers, which they believe in effect limit
speculativeactivityandbyimplicationhedging.Somebelievethattheintroductionofpositionlimits
mightshifttradestotheOTCmarketoroutsidetheUStocountrieswithlessstrictlegislation.Critical
comments also indicated that limits could have greater impact on smaller heating oil and gasoline
markets,orthattheymightdrivepartiestotakephysicalmarketrisktoavoidregulatoryexposure.In
addition, the Intercontinental Exchange (ICE) expressed concerns that limits would hurt new or
smaller exchanges trying to compete with large players, because it would limit positions not only
acrossexchangesbutalsoonindividualexchangesbasedonopeninterestseeninthepreviousyear.
Asitisnotalwayspossibletoseparatehedgesandspeculativetradesandsincetheagencyitselfdid
not identify any evidence of excessive speculation, many recommended the CFTC wait until the
finalisationoffinancialreformbyUSlegislativebodiesbeforeproposingafinalrule.
33
Divergent European Approaches

IntheEU,thefirstlegislativeproposaldetailinganewregulationtocontrolderivativetradingshould
be published in June2010. Legislative changes in the EU require approval from member states
ministersandtheEuropeanParliamenttobecomelaw.Theproposalthereforewillneedtomaintain
abalancebetweenthecallsofmainlandEuropeforgreaterregulatoryoversightandthemoreliberal
UKapproach.Meanwhile,theEuropeanCommissionsetintermediarytargetsto:
Reduceoperationalriskthroughgreaterstandardisation;
Curbcounterpartyriskby promoting thetradingon exchangesorthroughcentralisedplatforms
likeCCPs,improvingcollateralisationandraisingcapitalchargesforbilaterallyclearedcontracts;
Increase transparency through wider use of trade repositories and record retention of all
transactionsnotclearedbyaCCPintraderepositories;and
OECD/IEA, 2010
EnhancemarketintegrityandoversightbyallowingregulatorstosetpositionlimitsintheMarkets
in Financial Instruments Directive (MiFID) and by clarifying and extending the scope of market
manipulationassetoutintheMarketAbuseDirective(MAD)toderivatives.
The draft, prepared by the DirectorateGeneral for Internal Market and Services, will likely contain
mandatory clearing of standardised derivatives, requirements for CCPs and trade repositories,
reportingofderivativetradesandprobablyalsolimitsonindividualderivativetradesbyspeculators.
The European Union's Committee of European Securities Regulators (CESR) plans to improve the
MiFID for equity markets, investor protection and trade reporting and mandatory reporting of off
exchangederivativestransactions.
The UK Financial Services Authority (FSA) said in December2009 it is considering greater

standardisationofOTCcontracts,CCPclearingandmorerobustcollateralisationandcapitalisationof
transactions not cleared through CCP to manage counterparty risk, high standards for CCPs and
registration of relevant OTC derivative trades in a trade repository. However, it does not plan to
followitsUScounterpartbyimposingpositionlimits,asitconsidersthemoutsideitscurrentremit.
Asian Moves to Clearing

The OTC derivative market in Asia is small in proportion to western markets, but according to the
Bank for International Settlements (BIS), the traded volumes are rising fast. Japan, Korea, China,
HongKong,Taiwan,SingaporeandIndiaareallcommittedtosetupclearingoperationsfortheOTC
markets,partlyasapreventativemeasureincaseofmarketarbitrage.
'000
Japan faces declining trading contracts Trading Volume on Tokyo Commodity Exchange
volumes in commodity markets, 5,000
So urce: To kyo Co mmo dity Exchange
especially decreasing speculative 4,000
trading, something that could
threaten price discovery and the 3,000
hedging functions of the market. 2,000
Lower activity in commodity 1,000
markets is due to excessive and
0
aggressive marketing of Futures
Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10
CommissionMerchants(FCM),the
Gasoline
Kerosene
Crude Oil
Gas Oil
34
brokers, directed towards inappropriate investors. The regulators therefore focus on measures to
achieve balanced market participation by hedgers and speculators, tighter regulation of the FCMs
and higher standards of conduct, rather than position limits. Preexisting position limits in Japan
weredeemedverystrictforcertaincommoditiesandweresubsequentlydiluted.
InrelationtotheregulationoftheOTCmarkets,JapanismovingforwardtocontrolOTCderivatives
transactions and to strengthen the transparency of the markets in line with G20 pledges. The
FinancialServicesAgencypresentedalegislativeproposalinMarch2010thatintroducedmandatory
CCPclearing,datastorageoftradeinformationandreportingrequirements.
In other parts of Asia, India permits OTC derivative trades where at least one counterparty is a
regulatedentity.TheReserveBankofIndiaistaskedwithsupervisionandintermediaryfunctionsasa
reportingplatformandCCPforOTCtrading.ChinahassetuptheShanghaiClearingHousetoprovide
CCP clearing for OTC derivatives and Hong Kong seeks to improve its legal framework for OTC
derivatives as the regulation in place is fairly fragmented and covers only specific types of
derivatives.TheSingaporeexchangealreadyclearsOTCoil,freightandothercommodityderivatives
andplanstoexpandclearingtoOTCforeignexchangeratesandinterestratesproducts.
The Role of International Organisations
OECD/IEA, 2010
Consistentregulationacrossjurisdictionsisseenbysomeascriticaltoensureefficientfunctioningof
themarketsandtopreventregulatoryarbitrage.BesidestheOTCderivativesregulation,theseriesof
highleveltalksamongG20countriesdiscussedmeasurestorebuildtrustinthefinancialsystemby
strengthening transparency and accountability, enhancing sound regulation, promoting integrity in
financialmarketsandreinforcinginternationalcooperation.TheG20groupthereforeestablisheda
FinancialStabilityBoard(FSB)thatistaskedtoproposereformstoreachsettargetsforthederivative
markets, to classify standardised derivative products, protect against market manipulation and
regularlyevaluatetheimplementationofG20pledgesmadeinSeptember2009.
Toachievethetasks,theFSBcoordinatesaworkinggroupconsistingoftheCommitteeonPayment
and Settlement Systems (CPSS) of BIS, the International Organisation of Securities Commissions
(IOSCO) and the International Association of Supervisors (IAIS) aiming to review existing regulation
andmakerecommendationstoimproveregulationofOTCderivativestradingbyOctober2010.
Meanwhile, the Basel committee on Banking Supervision (BCBS) of BIS is working on new rules on
capital and liquidity requirements to mitigate counterparty risk. It plans to create incentives for
banks to use CCPs for derivatives clearings by increasing capital requirements for any bilateral
agreement.Inaddition,legislationtoharmoniseaccountingstandardsisbeingprepared.
ThenewregulatoryproposalsattempttoshedmorelightontotheOTCmarketandpreventpotential
negative consequences on the global financial system. Policy makers worldwide differ on various
partsoftheproposals.All,forexample,requirecentralclearingofstandardisedproducts,reporting
ofalltradestoacentralrepositoryorincreasingcollateralisationofbilateralOTCtrades.However,
controversial elements need to be carefully negotiated before any globally harmonised legislation
willbepossibleandtoensurethenewpoliciesdonotrestrainthebasicfunctionsoftertiarymarkets,
suchasliquidity,pricediscovery,efficiencyandrisksharing.
35
P ART 1: O IL D EMAND
DEMAND
Summary
Global oil product demand is projected to increase by 1.4% or 1.2mb/d per year on average
between 2009 and 2015, from 84.8mb/d to 91.9mb/d. This prognosis is based on the
InternationalMonetaryFundseconomicforecasts(WorldEconomicOutlook,April2010),which
seeglobaleconomicactivityexpandingby3.6%peryear,andassumesworldwideefficiencygains
of 3% per year. By contrast, under an alternative, Lower GDP case, with economic growth
averaging2.5%andefficiencygainsof2%peryear,oildemandwouldgrowby1.0%or840kb/d
peryearonaverageto89.8mb/dby2015,adifferenceof2.1mb/dversusthebasecase.
Oil Demand Sensitivity

(millio n barrels per day)
2009
2010
2011
Base GDP & 3% Avg. Yearly Efficiency Gains

Global GDP (y-o-y chg) -0.8%
4.1%
4.3%
OECD
45.5
45.4
45.2
Non-OECD
39.3
40.9
42.5
World
84.8
86.4
87.7
Low er GDP & 2% Avg. Yearly Efficiency Gains
Global GDP (y-o-y chg) -0.8%
3.2%
2.9%
OECD
45.5
45.4
44.9
Non-OECD
39.3
40.7
41.7
World
84.8
86.1
86.6
Low er vs. Base
Global GDP (% points)
0.00
-0.90
-1.40
OECD
0.00
-0.07
-0.29
Non-OECD
0.00
-0.21
-0.79
World
0.00
-0.28
-1.07
OECD/IEA, 2010
36
2012
2013
2014
2015
Avg. Yearly Grow th, Avg. Yearly Grow th,

2009-2015
2010-2015
%
m b/d
m b/d
4.4%
44.9
44.0
88.9
4.5%
44.5
45.5
90.0
4.5%
44.1
46.9
91.0
4.5%
43.7
48.2
91.9
3.6%
-0.7%
3.5%
1.4%
-0.29
1.48
1.19
4.4%
-0.8%
3.3%
1.3%
-0.34
1.45
1.11
2.9%
44.4
42.8
87.2
3.0%
44.0
43.9
88.0
3.0%
43.7
45.2
88.8
3.0%
43.4
46.5
89.8
2.5%
-0.8%
2.8%
1.0%
-0.35
1.19
0.84
3.0%
-0.9%
2.7%
0.8%
-0.40
1.14
0.74
-1.45
-0.42
-1.23
-1.65
-1.49
-0.47
-1.54
-2.02
-1.52
-0.44
-1.72
-2.17
-1.54
-0.36
-1.76
-2.11
-1.2
-0.1
-0.6
-0.4
-0.06
-0.29
-0.35
-1.4
-0.1
-0.7
-0.4
-0.06
-0.31
-0.37
Oildemandisnotonlyhighlysensitivetoeconomicconditions,butalsotoefficiencymandates
andtechnologicalchange.GDPgrowthgreatlyinfluencesthepaceofoildemandexpansion,as
witnessedintherecentglobalrecession.Moreinterestingly,efficiencygains(orthedeclineinoil
intensity)couldhaveagreatereffect.SeekingtorefineouranalysisandgobeyondapurelyGDP
based sensitivity, we have also assessed the effect of different oil intensities. Curbing average
GDPgrowthbyathirdwouldslashglobaloildemandbyover6mb/dby2015ifthedeclineinoil
intensityremainedat3%peryearunderbothcases,onlyslightlyhigherthanintherecentsix
year period. However, adopting a 2% yearly oil intensity decline under the lower case, in line
withthe15yearaverage,offsetsthefallinoildemandbytwothirds.Subduedeconomicactivity
over the medium term could indeed slow down efficiency initiatives marketbased or
governmentmandatedthusmoderatingtheincomeeffectonoildemand. Moreover,alesser
declineinoilintensityimplicitlyentailsaweakeroilprice.
Inbothcases,nonOECDcountrieswilldriveglobaloildemandgrowth,whileconsumptionwill
declineintheOECD.Underthebasecase,nonOECDoildemandisexpectedtoincreaseby3.5%
on average per year over 20092015, from 39.3mb/d to 48.2mb/d, equivalent to almost
+1.5mb/dperyear.Bycontrast,OECDdemandisprojectedtofallannuallyby0.7%or290kb/d
on average, from 45.5mb/d in 2009 to 43.7mb/d in 2015. Under the lower case, oil demand
wouldgrowbyonly2.8%peryearinthenonOECD,reflectingtheareashighenergyintensity,
andwoulddeclineslightlyfasterintheOECD(0.8%).NonOECDAsiawillremainthedominant
forcebehindglobaloildemand,moredistantlyfollowedbytheMiddleEastandLatinAmerica.
By2015,emergingeconomieswillaccountforoverhalfofglobaloildemand.
OECD vs. Non-OECD Cumulative Oil Demand Growth

1997-2015
m b/d
25
OECD
World: Total Oil Product Demand by Region,

2015
Non-OECD
20
15
10
52.4%
47.6%
5
(5)
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
OECD
Non-OECD
AcommonthemeinbothOECDandnonOECDcountriesisthepreeminenceoftransportation
fuels.InnonOECDcountries,demandforgasolineanddistillates(jetfuel/keroseneandgasoil)
willaccompanytheriseinburningfuels(heatingandresidualfueloils)andindustrialfeedstocks
(LPG, naphtha and other products) consumption. By contrast, growth in transportation fuel
demand in the OECD will be modest and insufficient to offset the structural decline in both
burningandindustrialfuels.Vehiclefleetsarereachingsaturationpoint,thuslimitingthescope
forexpansion,whileefficiencymoves(notablyinNorthAmerica)andolderpopulationswhotend
to drive less (Europe and the Pacific) are set to significantly curb demand. Meanwhile, most
OECD energy intensive industries have relocated to emerging areas, while other sources of
energy natural gas, nuclear and renewables are overtaking oil for heating or power
generation.Inthelongerterm,theadoptionofnew,disruptivetechnologieshybridorelectric
vehicles,biojet,etc.maybringfurther,significantchangesforoiluseintransportation.
Global Cumulative Oil Demand Growth by Product

2008-2015
m b/d
World: Total Oil Product Demand by

Type of Product, 2015
6
Gasoline
Distillates
LPG & Naphtha
Fuel Oil
Other
Total
5
4
3
2
1
10%
Transportation
Fuels
61%
Heating & Fuel
Oil
(1)
(2)
29%
Other Products
(3)
2008
OECD/IEA, 2010
2009
2010
2011
2012
2013
2014
2015
Overall, the current prognosis shows marginal differences versus our last mediumterm
assessment. Compared with the December 2009 mediumterm update, the current global oil
37
demand forecast is only 130kb/d higher by

2014. However, upward revisions in the non
OECD (+850kb/d) offset downward
adjustments in the OECD (730kb/d). In the
OECD,thepaceofdeclineinNorthAmericais
expected to be steeper, following a
reassessment of efficiency trends in the
transportation sector in both the US and
Canada.InthenonOECD,meanwhile,baseline
revisions following the submissionof finalised
2008 data and a reappraisal of Chinese
prospectsyieldastrongerdemandprognosis.
Global Oil Demand: Difference vs. Previous

MTOMR
kb/d
1,000
800
600
400
200
(200)
(400)
(600)
(800)
2009
2010
OECD
2011
2012
2013
Non-OECD
2014
WORLD
A customary warning is that this outlook presents several downside and upside risks, which
couldsignificantlyaltertheevolutionofglobaloildemand.Theseinclude:1)thestrengthand
sustainability of the ongoing global economic recovery; 2) the volatility of commodity prices,
particularly oil and its direct substitutes, such as natural gas; 3) the degree to which price
subsidiespersistinlargenonOECDcountries;4)accelerateddevelopmentsinenergyefficiency
and alternative technologies; 5) behavioural changes, notably in OECD countries; 6) deviation
fromnormalweatherconditions,definedasatenyearaverageofobservedtemperatures;and
7)revisionstodataresultingfromgreatertransparencyandbetterreporting.
Global Overview
Globaloilproductdemandisexpectedtoincreaseby7.1mb/dbetween2009(84.8mb/d)and2015
(91.9mb/d),equivalenttoanaverageyearlygrowthof1.4%or1.2mb/d.Thepillarsofthisoutlook
are threefold: 1) the set of economic assumptions provided by the International Monetary Fund
(WorldEconomicOutlook,April2010);2)assumedefficiencygainsof+3%peryearonaverageover
theforecastperiod;and3)anoilpricepath,derivedfromforwardpricecurvesasoflateApril/early
May,whichseesabroadlystablelevelof$76/bblinrealtermsonaverage.
Global Oil Demand (2009-2015)

Africa
2009 1Q10 2Q10 3Q10 4Q10 2010

3.2
3.2
3.3
3.2
3.3
3.3
2011
3.4
2012
3.5
2013
3.6
2014
3.7
2015
3.8
Americas
29.3
28.9
29.4
29.6
29.3
29.6
29.6
29.9
29.8
29.7
29.8
29.9
30.0
30.1
30.2
Asia/Pacific
25.7
25.9
25.9
27.0
26.1
27.3
26.8
26.3
27.3
26.9
27.6
28.2
28.8
29.4
29.9
Europe
15.7
15.0
15.2
15.1
15.2
14.8
14.9
15.3
15.3
15.1
15.1
15.0
14.9
14.8
14.7
FSU
3.9
3.8
4.0
3.9
3.9
4.1
3.9
4.1
4.1
4.1
4.2
4.3
4.3
4.4
4.4
Middle East
6.5
7.1
7.6
7.0
7.1
6.9
7.4
7.9
7.2
7.4
7.7
8.0
8.3
8.6
8.9
84.3 83.9 85.1

-3.3 -2.7 -0.6
-2.8 -2.3 -0.5
-0.21 -0.18 -0.17
85.7
0.8
0.7
0.18
84.8 85.9
-1.4
2.0
-1.2
1.7
-0.09 -0.22
85.9
2.3
1.9
0.25
86.7
1.8
1.6
0.01
87.0
1.5
1.3
0.19
86.4
1.9
1.6
0.06
87.7
1.5
1.3
0.18
88.9
1.3
1.2
0.21
90.0
1.2
1.1
0.18
91.0
1.1
1.0
0.13
91.9
1.0
0.9
World
Annual Chg (%)
Annual Chg (mb/d)
Changes from last MTOMR (mb/d)
OECD/IEA, 2010
1Q09 2Q09 3Q09 4Q09

3.2
3.2
3.1
3.1
Atfirstglance,theFundsvisionofglobaleconomicactivityaveraging3.6%peryearoverthe2009
2015 period (from 0.8% in 2009 to 4.4% over 20102015) would suggest that the 20082009
recessionisgenuinelyover.Twocaveats,however,areinorder.First,therecoveryhasbeenledby
emerging economies, which proved overall to be surprisingly resilient. Not only did nonOECD
economiesasawholecontinuetogrowin2009(+2.6%),buttheyarealsoexpectedtoincreaseat
38
6.6% per year on average from 2009 to 2015. By contrast, OECD countries bore the brunt of the
financial and economic turmoil (collectively contracting by 3.4% in 2009), and should expand at
roughly a third as fast (+2.4%) as emerging areas. More interestingly, according to the IMF
projections, by 2015 the share of global wealth will tilt in favour of nonOECD countries (50.2%
versus49.8%fortheOECD)forthefirsttimeinthemodernera.
Second, as much as the ongoing recovery would appear to conform to a pronounced Vshaped
bounce, the risk of an Lshaped or even Wshaped trajectory remains. Greeces financial travails
andtheresultingturmoilintheEurozonehavemadeclearthattheeconomicrecoveryisatriskof
drowninginanoceanofpublicdebt.AlthoughattentioniscurrentlyfocusingontheunfoldingGreek
dramaanditspotentialrepercussionsonother
Key Assumptions: GDP Growth & Oil Price
Mediterranean countries, other large OECD
$105
8%
economiesandnotonlyinEuropefacethe
6%
$95
increasinglypressingchallengeofachievingan
4%
$85
orderly fiscal consolidation in the next few
2%
$75
years without jeopardising longterm
0%
$65
economic growth (but arguably at the risk of -2%
$55
subduedshorttomediumtermperformance). -4%
2008 2009 2010 2011 2012 2013 2014 2015
Asifitwerenotenough,thischallengeistobe
Real WTI, 2008 $ (RHS)
World: Real GDP
overcome amid excessive spare capacity in
OECD: Real GDP
Non-OECD: Real GDP
many industries, a highly indebted private
sector and persistent global imbalances. Admittedly, the depreciation of the euro will provide a
welcomeexportboosttoEuropeaneconomies,butthatwillcomplicateeffortstoengineeragradual
appreciation of the renminbi relative to the US dollar in order to cool the overheating Chinese
economy.Sofar,Chinasmovestorestrictbanklendinghavehadlimitedimpactintermsofoverall
growth(GDPsurgedbyalmost12%yearonyearin1Q10).
Average Global Oil Demand Growth 1997-2003/2003-2009/2009-2015

thousand barrels per day
Europe
FSU
93
51
North America
-1
308
-92
Asia
-154
616
Middle East
-58
279
-213
634
442
307
134
Africa
Latin America
207
199
52
83
109
Avg Global Demand Growth

(mb/d)
OECD/IEA, 2010
15
1997-2003
2003-2009
2009-2015
1.01
0.82
1.19
1.3%
1.0%
1.4%
39
OECD/IEA, 2010
Therefore, an alternative case, whereby global

Global Oil Demand:
GDP would expand by a lesser 2.5% per year on m b/d
GDP & Efficiency Sensitivity
average over 20092015, cannot be discarded. 92
Base GDP & 3% Avg. Yearly
Efficiency Gains
Moreover, subdued economic activity over the 90
Low er GDP & 2% Avg. Yearly
medium term could conceivably also slow down
Efficiency Gains
efficiency gains, be they marketbased or 88
governmentmandated, to perhaps only 2% per
86
year. Under such a Lower GDP case, oil demand
would grow by 1.0% or 840kb/d per year on 84
2008 2009 2010 2011 2012 2013 2014 2015
averageto89.8mb/d,adifferenceof2.1mb/dby
2015versusthebasecase.
Largely shadowing economic growth assumptions, oil demand growth will be driven exclusively by
nonOECD countries. NonOECD oil product demand is expected to rise from 39.3mb/d in 2009 to
48.2mb/din2015,equivalentto+3.5%or+1.5mb/dperyearonaverage,withgrowthconcentrated
inAsia(51%),theMiddleEast(21%)andLatinAmerica(13%).OnlyinafewnonOECDareasAfrica,
theFSUandEuropewillgrowthbemuchmoremoderate.Demandgrowthisexpectedtobestrong
acrossallkeydrivers:transportationfuels(gasolineanddistillates)willaccompanytheriseinburning
fuels (heating and residual fuel oils) and industrial feedstocks (LPG, naphtha and other products)
consumption.Overall,by2015,nonOECDcountrieshavingaccountedfortotaloildemandgrowth
since 2009 will dominate global oil
OECD vs. Non-OECD Cumulative Oil Demand Growth
demand (53% versus 47% for the OECD).
m b/d
by Use, 1997-2015
This change is all the more striking when
30
Non-OECD - Other
consideringthat,asrecentlyasinthemid
25
Non-OECD - Transportation
1990s, nonOECD demand accounted for
OECD - Other
20
roughlyathirdoftotalglobaldemand.
OECD - Transportation
15
10
Bycontrast, OECDoildemandisprojected
5
to decrease by 0.7% or 290kb/d per year
on average over the forecast period, from
(5)
45.5mb/d in 2009 to 43.7mb/d in 2015.
(10)
Thus,asfarastheOECDisconcerned,the
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
emergence from the 20082009 recession
willinpracticetranslateintoanoillessrecoveryovertheforecastperiod.Ontheonehand,growth
in transportation fuel demand in the OECD will be modest and insufficient to offset the structural
decline in both burning and industrial fuels. Vehicle fleets have reached saturation point in most
developedeconomies,thuslimitingthescopeforexpansion.
Moreover,aggressiveefficiencymoves(notablyinNorthAmerica)andolderpopulationswhotendto
driveless(EuropeandthePacific)aresettosignificantlycurbdemandforgasolineanddiesel;only
jet fuel demand will post modest growth. Meanwhile, most OECD energy intensive industries have
relocatedtoemergingareas,whileothersourcesofenergynaturalgas,nuclearandrenewables
areovertakingoilforheatingorpowergeneration.Ontheotherhand,expectedoildemandgrowth
in North America albeit modest, given cheaper energy alternatives, efficiency improvements and
behaviouralchangeswillbecounterbalancedbystructurallydecliningdemandinbothEuropeand
thePacific.
40
AsmuchasthepreeminenceoftransportationfuelsisathemesharedbybothOECDandnonOECD
countries, the adoption of new, disruptive technologies in the longer term, notably in the
transportationsector,maybringaboutfurther,significantchangesinhowoilisconsumed.Indeed,
thepushtobuildnew,ultraefficientvehiclesisnotonlydrivenbyenvironmentalconsiderationsor
governmentlegislation,butalsobymarketforces.Althoughmostofthesenewtechnologicaltrends,
such as a widespread adoption of hybrid or electric vehicles, are unlikely to have an impact on oil
demandwithinthisreportstimeframe,theycouldwellbecomediscernibleby2020.
Overall, the current prognosis shows marginal differences versus our last assessment. Compared
with the December 2009 mediumterm update, the current global oil demand forecast is only
130kb/dhigherby2014.However,upwardrevisionsinthenonOECD(+850kb/d)offsetdownward
adjustments in the OECD (730kb/d). In the former, baseline revisions following the submission of
finalised2008dataandareappraisalofChineseprospectsyieldastrongerdemandoutlook.Inthe
latter, meanwhile, the pace of decline in North America is expected to be steeper, following a
reassessmentofefficiencytrendsinthetransportationsectorinboththeUSandCanada.
OECD Demand: Difference vs. Previous

MTOMR
kb/d
200
2009
2010
2011
2012
2013
Non-OECD Demand: Difference vs. Previous

MTOMR
2014
kb/d
1,500
2009
2010
2011
2012
2013
2014
1,000
(200)
500
(400)
(600)
(800)
OECD/IEA, 2010
(1,000)
OECD, North Am erica
OECD, Pacific
(500)
OECD, Europe
OECD
Africa
China
Non-OECD Europe
Middle East
Latin Am erica
Other Asia
FSU
Non-OECD
Finally,itiscustomarytorecallthat,giventhecomplexityofoildemanddrivers,thisoutlookfaces
both downside and upside risks. The strength and sustainability of the ongoing global economic
recoveryisobviouslyakeyone,asisthevolatilityofcommodityprices,particularlyoilanditsdirect
substitutes, such as natural gas. Other known
Global Oil Demand Growth in Different
unknowns include the persistence of
$/bbl
Price Eras
administered price regimes, as well as
5%
80
70
developments regarding energy efficiency and
4%
60
alternative technologies. The transition to fully
3%
50
marketbased prices in regions featuring high
2%
40
1%
subsidies,suchasthe MiddleEast,wouldindeed
30
0%
20
slowdownoildemandgrowth,butthispossibility
1997-2003
2003-2009
2009-2015
isnotenvisagedwithintheforecastperiod.More
Average Global Real GDP Grow th
subtle risks include behavioural changes, notably
Average Global Oil Dem and Grow th
in OECD countries, as well as weatherconditions
Average Real Brent (2005 US$/bbl)
that could deviate from the normal (a tenyear
averageofobservedtemperatures).Lastly,anyoildemandoutlookfacesthevexingproblemofpoor
orhardtointerpretdata,anissueboundtobecomeevermorepressingasthecentreofgravityof
globaloildemandmovesEastofSueztotheareaswhereoildataareoftenincomplete.
41
Oil Demand Sensitivity: Caught Between Income and Efficiency

Incomepercapitahasrepeatedlybeenfoundtobethemostimportantvariableaffectingoildemand,
which tends to follow a socalled energy ladder. As its income rises, a typical developingcountry
householdstrivingprimarilytomeetitscooking,heatingandlightingneedswillfirstconsumemore
energyfromtraditionalsources(biomassorsolidfuels)andthengraduallymovetohigherqualityfuels
(oilbasedliquidfuelsandeventuallyelectricity).Regardingmobility,asimilarcontinuumcanbetraced:
walking > bicycle > public transportation > motorbike > small car > large car. At each step of the
ladder, energy use tends to increase exponentially before reaching a saturation point, where growth
slowsdownmarkedly(thesocalledScurve),asinmanyadvancedeconomies.Empirically,theincome
percapitathresholdabovewhichoildemandtakes
Oil Dem and in Countries w ith per Capita GDP
off is around $3,000 (2000 base year). Many
m b/d
> US$3,000 (PPP, 2000 base)
emergingcountrieshaveorareabouttoreachthat
90
threshold, largely explaining why nonOECD oil
85
demand growth is likely to remain strong in the
80
yearsahead.
75
70
However, as much as GDP growth is a key oil
demand driver, efficiency improvements can also
65
playamajorrole.Seekingtorefineoursensitivity
60
analysis, we have introduced this last variable in
55
ordertogobeyondamereGDPbasedsensitivity,
1997
2009
2015
as in previous editions of this report. The gain in
efficiencyormoreaccurately,thedeclineinoilintensitycanbedefinedastheratioofthechangein
demandoverthechangeinrealincome.Achangeinoilintensityovertimeisakintoachangeinincome
elasticityi.e.,howmuchless(ormore)oilisrequiredtoproduceaunitofoutputatagivenpointin
time compared with previous timeframes. However, determining the precise drivers influencing oil
intensityisextremelycomplex,sincemanyvariablesareinvolved,mostnotablythepriceofoil,theprice
ofsubstitutes,andtheevolutionoftechnologiesandgovernmentpolicies,tonameafew.
OilDemandSensitivityRationale
BaseGDP&ExistingEfficiencyGains
LowerGDP&SubduedEfficiencyGains
The global economy recovers fully from the

20082009 recession, expanding by +3.6% on
average over 20092015 (+4.4% over 2010
2015) as internal and external imbalances
(high public and private leverage, excess
capacity, unemployment, current account
imbalances,etc.)aregraduallyeliminated
Existing efficiency goals are aggressively

pursued as oil prices remain high (tighter US
CAFE standards, hybrid/electric cars,
operational and technological improvements
inaircraftsandships);oilintensitydeclinesby
3%onaverageover20102015
Implicitlyloweroilpricesmeanthatefficiency
improves more slowly, thus reducing market
and government incentives to develop
cleanertechnologies;oilintensitydeclinesby
2% on average over 20102015, in line with
the15yearaverageto2009
Annual oil demand grows strongly, by

+1.2mb/d over 20092015 (+1.1mb/d over
20102015)
Annual oil demand grows by only +0.8mb/d

over20092015(+0.7mb/dover20102015)
The global economy fails to return to pre

crisis levels, burdened by persistent internal
and external imbalances, notably among
OECD countries; global GDP growth only
averages +2.5% over 20092015 (+3.0% over
20102015)
OECD/IEA, 2010
42
(continued)
In order to test the oil demand sensitivity to both income and efficiency, we have developed two oil
demand cases. The base case, which underpins the trends discussed in this report, assumes that
1)global economic growth averages 3.6% per year, in line with the latest IMF economic outlook, and
2)global oil intensity declines by 3% per year on average over 20102015, slightly faster than in the
previous6yearperiod(2.7%over20042009),whichsawthegamechangingemergenceofnonOECD
oildemandandthesharpriseinoilprices.
Alternatively, under the Lower GDP case, annual economic growth would average 2.5%, with oil
intensityfallingbyonly2%peryear,roughlyinlinewiththe15yearaverageto2009(2.1%).Themore
subduedoilintensityassumptionimplicitlyreflectsthelikelihoodthatoilpriceswouldbeweakerifGDP
growth wereto be much lower, thus reducing the incentives to rapidly improve efficiencygains. That
said,thesecondcaseispurelyillustrativeanddoesnotimplyanyspecificprobabilityofoccurrence,or
anycertaintyovertheextenttowhichefficiencygainswouldbedraggeddownwithweakereconomic
activity.Inotherwords,wehavenotattemptedtodirectlymodeltheiterationsbetweenGDPgrowth
andtheoilprice,assuchanscenarioapproachgoesbeyondoursensitivityanalysis.
m b/d
48
OECD Oil Demand: GDP Sensitivity

Base GDP & 3% Avg.
Yearly Efficiency Gains
47
m b/d
49
47
45
46
Low er GDP & 2% Avg.

45
43
Non-OECD Oil Demand: GDP Sensitivity

Base GDP & 3% Avg.
Low er GDP & 2% Avg.
41
44
39
43
37
2008 2009 2010 2011 2012 2013 2014 2015
2008 2009 2010 2011 2012 2013 2014 2015
The difference in projected oil demand between the two cases is 2.1mb/d or 2% by 2015, almost
equivalenttotheentirecurrentconsumptionofalargeEuropeancountrysuchasFranceorGermany.
Unsurprisingly,nonOECDcountriesaremoresensitivetochangesinGDPandefficiencythantheOECD.
Asnotedearlier,mostemergingeconomiesareattheinitialstepsoftheenergyladder,whereenergy
useincreasesrapidly,andonlyafewareactivelyadoptingefficiencygoalstheMiddleEastandLatin
America,andmorerecentlytheFSU,arenotoriouslaggardsinthisrespect.Bycontrast,OECDcountries
have already reached the point where income elasticity becomes very low, and have largely adopted
aggressiveefficiencytargetsthePacificandEuropebeingthemostconspicuousexamples,soontobe
followed by North America as more stringent standards are adopted in the transportation sector. As
such,underthelowercase,nonOECDoildemandwouldbeabout1.8mb/dor4%lowerby2015than
underthebasecase,whileOECDdemandwouldonlybe360kb/dor1%lower.
100
OECD: Oil Intensity, Base Case

(1995 = 100)
90
100
80
80
70
60
60
40
50
OECD/IEA, 2010
120
1995 1998 2001

OECD
OECD Europe
2004
2007 2010 2013

OECD North Am erica
OECD Pacific
Non-OECD: Oil Intensity, Base Case

(1995 = 100)
1995 1998 2001 2004

Non-OECD
Latin Am erica
Non-OECD Europe
Middle East
2007 2010
Africa
Asia
FSU
2013
43
(continued)
Oil Demand (mb/d)
More interesting, perhaps, is the offsetting effect of more subdued efficiency gains. Indeed, if the
declineinoilintensityremainedunchangedat3%peryearunderbothcases,globaloildemandwould
be over 6mb/d lower by 2015, should average GDP growth be curbed by a third. But if subdued
economicactivityoverthemediumtermweretoalsoslowdownefficiencyinitiativesbetheymarket
based or governmentmandated the GDP effect upon oil demand would be relatively limited.
Empirically,every0.5percentagepointvariationin
Oil Demand Sensitivity: Avg. Intensity
the pace of oil intensity decline would imply a
Change vs. Demand, 2010-15
changeinoildemandofroughly2mb/dbytheend
93
-1.5%, 92.6
-3.0%, 91.9
Base
of the forecast period. As such, assuming a 2%
Case
91
Low er
intensity decline effectively offsets the GDP effect
-2.0%, 89.8
-3.5%, 89.7
Case
bytwothirds.
89
-2.5%, 87.7
-4.0%, 87.5
Lastly,thisanalysissuggeststhat,thanksinpartto
87
risingefficiency,oildemandhasarguablypeakedin
-3.0%, 85.7
-4.5%, 85.4
85
the OECD. Even as these economies recover from
-1%
-2%
-3%
-4%
-5%
the recession and the resultant plunge in oil
Low er GDP
Base GDP
Oil Intensity (%)
demand, a large portion of oil demand will have
been permanently destroyed, rather than temporarily suppressed and this regardless of oil price
levels, as current technologies and operating procedures are unlikely to be rolled back even if prices
weretofallsharply.Admittedly,thisisnotthecaseinnonOECDcountries,althoughitshouldbenoted
that some more noticeably China have efficiency goals that are in many respects more ambitious
than in most advanced economies. Moreover, emerging countries can leapfrog the less efficient
technologies in favour of the most advanced ones an opportunity dubbed by some analysts as the
Hummerbypass.China,forone,islikelytohaveagreaterproportionofhighlyefficientvehiclesinits
overallfleetinjustafewyearsthan,say,theUS,whichwilltakemoretimetoturnoveritsexistingfleet,
whichismuchlargerandolder.Andifnew,disruptivetechnologiescometofruitionsuchaselectric
vehicles (EVs) nonOECD demand could also eventually peak, sooner than many envisage, although
arguablynotwithinthisreportsforecastperiod.
OECD/IEA, 2010
OECD North America

OilproductdemandinNorthAmericaisexpectedtofallby0.2%peryearonaveragebetween2009
and2015,from23.3mb/dto22.9mb/d.Thisoutlookstemsfromstructuraldeclinesinoilusagefor
heating and power generation outweighing modest rises in transportation fuel and petrochemical
feedstock demand. The US continues to dominate oil consumption, accounting for over 80% of
regional demand in 2015. The regional economic outlook envisages real GDP growth returning to
levelsseenbeforetheeconomiccrisis,with20102015annualgrowthaveraging2.7%,similartothe
20022006average.Thiswouldseemtosuggestastrongerreturntooildemandgrowth,particularly
inthemoreeconomicallysensitivetransportationsector.Yetgasolineconsumptionshouldactually
declineovertheforecastperiod,owingtoimprovedfueleconomyandhighoilprices.
Indeed, a dichotomy has emerged in North American transportation fuel demand. While
transportation fuels should grow by 0.3% annually from 20092015, the rise stems from higher
diesel, jet fuel/kerosene and Mexican gasoline outweighing structural declines in US and Canadian
gasoline. Vehicle efficiency standards issued by the US and Canadian governments portend falling
gasoline demand over the medium term, as new lightduty vehicles become increasingly more
efficientandlessemissionsintensive.Theeconomiccrisisandhighoilpriceshavespurredmarket
44
driven innovations in middle distillate use as well. Industrial supply chains are employing diesel
basedtruckingfleetsmoreefficiently,whileaircarriersarefieldingnewerandmoreefficientaircraft,
operated at higher passenger load factors. Still, a rebounding economy points to higher middle
distillate consumption ahead (as suggested by strong preliminary US data in recent weeks), with
efficiency improvements outweighed by activity and capacity gains. Industry restocking provided a
boost to petrochemical feedstock in 2010, underpinning overall forecast period growth. However,
petrochemical expansions in other, more costadvantaged regions suggest declines from 2011
onwards.Meanwhile,increasednaturalgasavailabilityshouldcontinuetospurdeclinesinoilbased
heatingandpowergeneration.
2.8%
2.6%
OECD North America: Total Demand by

Product, 2015
10.7%
12.3%
18.0%
1.2%
OECD North America: Oil Demand Growth by

Product, 2009-2015, kb/d
LPG
200
400
Naphtha
100
200
Mogas
(100)
Jet & Kero
(200)
Diesel
(300)
Other Gasoil
(200)
(400)
Gasoline
LPG & Naphtha
Other
(400)
(500)
7.6%
HFO
44.8%
Other
(600)
2009
2010
2011
2012
2013
Distillates
Fuel Oil
Total (RHS)
2014
(600)
(800)
(1,000)
2015
OECD North America: Demand Trends, Main Refined Products

Product
Volume, Avg. Yearly

2015
Growth, 2009(mb/d)
2015
Comments
Naphtha
0.29
-1.1%
Petrochemical activity boosted by economic recovery in 2010, but declining in the US and Canada from
2011 as more competitive petrochemical producers emerge; growth expected in Mexico, but from a low
base
Gasoline
(including
ethanol)
10.28
-0.4%
Declining demand in the US and Canada on increasingly stringent light vehicle fuel economy rules
outweighing rising vehicle-miles travelled; consumption continuing to grow in Mexico
Jet Fuel &

Kerosene
1.75
1.1%
Growing in all three countries; air travel boosted by economic recovery, particularly in Mexicos
expanding market, offsetting fleet and operational efficiency gains
Gasoil
(including
biodiesel)
4.72
0.4%
Diesel growing in all three countries, driven by economic activity and offsetting continued displacement
of heating oil by natural gas and electricity in the US and Canada
Residual Fuel
Oil
0.64
-6.7%
Declining use for power generation in all three countries, as fuel oil is substituted by natural gas or other
sources both for price reasons and in a bid to curb carbon emissions
Total Oil
Products
22.94
-0.2%
OECD/IEA, 2010
45
Evaporating US Gasoline Demand?

Increasingly stringent fuel efficiency rules for new light duty vehicles in the US have set the stage for
falling gasoline demand. Following the Obama administrations initial announcement in 2009, the US
governmentissuedfinalrulesinApril2010,settingoutefficiencyandemissionsmandatesfornewlight
vehiclesat35.5milespergallon(MPG)onaverageby2016(seeStructuralChangeinAction,OilMarket
Report dated 13 April 2010). Medium and heavy trucks will also be subject to future efficiency
standards,equallyimplyinganeffectondieseldemand.Yetspecificsarestillforthcoming,andmandates
willnotstartuntil2014.Assuch,thisanalysisfocusessolelyongasoline.
Overall, we expect US motor gasoline demand to decline by 0.6% annually from 20092015.
Assumptions about the vehicle fleet (number, type and technology), average vehiclemiles travelled
(VMT) and average MPG underpin the forecast, with the relationship between these variables and
demandgrowthexpressedasfollows:%Demand=%Fleet+%VMT%MPG.Onthisbasis,thefuel
economyoftheexistingUSgasolinevehiclefleetissettoimproveby1.9%annuallybetween2009and
2015,assumingthatbothfleetsizeanddrivingactivityexpandinlinewithhistoricalGDPcorrelations.
With US annual GDP growth of 2.6% on average, the fleet is seen growing by 1.2% per year, while
averagemilespervehicleareprojectedtoriseby0.1%peryear.Itshouldbenotedthattheincreasein
averageVMTstemswhollyfromareboundin2010,promptedbytheeconomicrecovery.Afterwards,
VMTareprojectedtofallby0.3%annually,inlinewiththetrendobservedinthepastdecade.
k b/d
US 50: Motor Gasoline Demand
9,500
9,000
8,500
8,000
7,500
7,000
2000 2002 2004 2006 2008 2010 2012 2014
Gasoline
Ethanol - energy content adjusted
2000
=100
135
130
125
120
115
110
105
100
95
90
US 50: Gasoline Demand Indicators,

Historical and Forecast
Fuel Consumption
Vehicle Fleet
Average VMT
Miles per Gallon
Source: US FHWA, EIA, IEA
2000 2002 2004 2006 2008 2010 2012 2014
Whileimprovedvehiclefleetefficiencyplaysadominantrole,highoilpriceassumptionsandpotentially
persistentlongtermunemploymentintheUS,theeconomicrecoveryhassofarbeenjoblessput
downsidecyclicalpressureondemand.Workcommuting,forexample,accountsforover25%oftotal
vehicle trips. Slower than anticipated GDP growth could also curtail the vehicle fleets expansion
anotherkeydemanddriverbutthiseffectwouldbepartiallycounteractedbyreducedturnoverofthe
fleet and lesser efficiency improvements. Nevertheless, the impact ofdifferent cyclical assumptions is
limitedUSgasolinedemanddeclinesby0.7%annuallyunderourlowerGDPcase,similartothe0.6%
fall in our base case. Finally, the subtraction of required ethanol blending amounts points to steeper,
thoughstillgradual,decreasesinoilbasedgasolineconsumption.
OECD/IEA, 2010
However,thefallinUSgasolinedemandisnotirreversibleinthelongterm.Althoughmovestoachieve
greatervehicleefficiency(suchasrecentlyannouncedlightdutyvehicleemissionsstandardsfor2017
andbeyond)wouldarguablyhelp,increasedefficiencycouldalsoparadoxicallyincreasetransportation
fueldemand,evenunderhigheroilprices.Indeed,higherfueleconomymaylowertheaveragecostper
miledriven,spurringdriverstoincreasetheiraverageVMT.Itmayalsorenewtherelativeattractiveness
oflighttrucks(whensafetyandutilityfactorsaretakenintoaccount)andthussloworevenreversean
assumedrebalancingofthefleetawayfromlessefficient,largervehiclestowardspassengercars.
46
Evaporating US Gasoline Demand?
(continued)
Finally,demographicandtechnologicalfactorswillplayacrucialroleinshapingthetransportdemand
equation, but arguably their effects will be truly felt beyond the forecast period. The US remains a
country designed around the automobile and is characterised by large swathes of suburban sprawl.
Whilepublictransportationridershipincreasedduringtheoilpricerunupof2008,theupsideforsuch
alternative forms of mobility remains limited, and government transportation spending is strongly
skewed towards roads. Moreover, even though the housing market bust may have curtailed a march
awayfromcitycentres,dramaticreurbanisationisunlikelyunderpresentincentives,whilethelureof
bigger,cheaperhousingmaykeepthesprawlmomentum.Yetmajortechnologicalbreakthroughssuch
as a shift towards ultraefficient electric vehicles could help offset these demographic features and
reinforcethetrendofeverfallinggasolinedemand.
OECD Europe
OilproductdemandinEuropeisseendecliningby0.7%peryearonaverage,from15.0mb/din2009
to13.9mb/din2015,largelyondevelopmentsinitslargesteconomies.DemandinFrance,Germany,
Italy,SpainandtheUnitedKingdom,expectedtoaccountfor60%oftotalregionaldemandbythe
endoftheforecastperiod,willcontinuetodeclinestructurally.Modesteconomicgrowthrelativeto
other countries, notably in central and eastern Europe; declining populations, particularly in
Germany,ItalyandSpain;theprogressivedieselisationofvehiclefleets,albeitatalowerpacethan
in previous years; and further substitution of heating and residual fuel oils by natural gas and
renewablesareallcontributingfactors.
Regarding this last point, it should be noted that natural gas substitution is likely to be centred in
heating uses rather than power generation, where such transition is largely completed. Moreover,
previous worries over natural gas availability following several interruptions of gas supplies from
Russiahavenowgivenwaytoexpectationsofapersistentgasglut.Theeconomicrecessioncurbed
gas demand dramatically, albeit temporarily, but also resulted in much idle LNG capacity, built
precisely to assuage European concerns over Russian supplies. If anything, gas supply will remain
plentifulfortheforeseeablefutureandabletocomfortablymeetfuturegasdemandgrowth.
10.7%
8.0%
6.2%
LPG
7.7%
12.3%
Naphtha
Mogas
Jet & Kero
12.2%
Diesel
Other Gasoil
HFO
9.9%
33.1%
OECD/IEA, 2010
OECD Europe: Oil Demand Growth by Product

2009-2015, kb/d
OECD Europe: Total Demand by

Product, 2015
Other
150
100
50
(50)
(100)
(150)
(200)
(250)
(300)
(350)
Gasoline
LPG & Naphtha
Other
2009
2010
2011
2012
2013
Distillates
Fuel Oil
Total (RHS)
2014
(100)
(200)
(300)
(400)
(500)
(600)
(700)
(800)
(900)
2015
Meanwhile, the steep fall in gasoline consumption, further encouraged by temporary, recession
induced,incentivebasedscrappingschemesofoldercarsinfavourofmoreefficientvehicles(mostly
dieselpowered)isnowexpectedtooffsetmodestgrowthinmiddledistillatedemand(dieselandjet
fuel). Together with vehiclefleet saturation and behavioural changes, transportation fuels demand
47
(55%oftotalconsumptiononaverage)shoulddeclineby2%overtheforecastperiod.Nonetheless,
whethertheshareofoilintransportationfueldemandwillactuallydeclinewilldependonbiofuels
mandates and government subsidies, which have become more lukewarm on concerns about the
environmentalsustainabilityandcostofsuchalternativesupplies.
OECD Europe: Demand Trends, Main Refined Products

Product
Volume, Avg. Yearly

2015
Growth, 2009(mb/d)
2015
Comments
Naphtha
1.07
1.3%
Petrochemical activity stagnating in 'core' countries (France, Germany, Italy, Spain and the United
Kingdom) after emerging from the economic recession; moderate growth in several 'peripheral' (eastern)
countries
Gasoline
(including
ethanol)
1.69
-5.0%
Recession-induced, incentive-based scrapping of older gasoline-fuelled cars in favour of more efficient

diesel vehicles in core countries; moderate growth in peripheral ones
Jet Fuel &

Kerosene
1.37
1.5%
Air travel boosted by the economic recovery, particularly in peripheral countries' expanding markets but
also in key airport hubs in core countries; offsetting efficiency gains in aircraft fleets and airlines
operations
Gasoil
(including
biodiesel)
6.30
0.6%
Diesel fleets expanding in peripheral, less saturated countries; continued substitution of heating oil by
natural gas and to a lesser extent electricity
Residual Fuel
Oil
1.11
-4.3%
Declining use for power generation on substitution by other energy sources (natural gas, renewables
and nuclear), although this process has largely been completed in large countries; rising bunker demand
in the Netherlands and Belgium as global trade recovers
Total Oil
Products
13.87
-0.7%
OECD Pacific
ThePacificisexpectedtofeaturethemostpronounceddeclineinoildemandintheOECD.Demand
isseenfallingby1.8%peryearonaverage,from7.7mb/din2009to6.9mb/din2015,drivenmostly
by powerful structural developments in Japan. The country faces the unappealing prospect of an
ageingpopulation,whichcouldaffectlongtermeconomicgrowth.Moreover,effortstodevelopever
more efficient vehicles continue unabated, while the share of electricitybased heating resumes
growthonthebackofrestorednuclearpowergeneration,reversingseveralyearsofstrongresidual
fueloilconsumptionanddirectcrudeburningfollowingaseriesofnuclearoutages.Meanwhile,the
postrecession surge of LPG and naphtha, prompted by the recovery of Japans exportoriented
petrochemical industry is likely to taper off as more competitive producers emerge elsewhere.
Japanesedevelopmentsshouldthusweighheavilyontheregionsoverallprospects,asthiscountry
willaccountforoverhalfoftotalregionaldemandovertheforecastperiod.
4.3%
4.4%
OECD Pacific: Total Demand by

Product, 2015
12.5%
17.7%
OECD Pacific: Oil Demand Growth by Product

2009-2015, kb/d
5.1%
LPG
150
Naphtha
100
(100)
50
(200)
Mogas
7.9%
26.6%
OECD/IEA, 2010
21.4%
48
Jet & Kero
(300)
Diesel
(50)
(400)
Other Gasoil
(100)
HFO
(150)
Other
(200)
Gasoline
LPG & Naphtha
Other
2009
2010
2011
2012
2013
Distillates
Fuel Oil
Total (RHS)
2014
2015
(500)
(600)
(700)
Korea,thesecondlargestconsumerwithroughly30%ofregionaloildemand,isalsofacingstructural
decline,butonlyinkerosene(usedforheating,asinJapan),heatingoilandresidualfueloil.Demand
forgasoline,dieseland,mostimportantly,naphthaisseenincreasing,albeitmoderately.Theoutlook
for naphtha use is particularly critical, given its weight relative to Koreas total oil demand (rising
from 42% in 2009 to 48% in 2015). It assumes that the country will successfully fulfil its ambitious
petrochemical expansion plans, aimed largely at feeding the vast Chinese market, despite fierce
competitionfromotherregions,notablytheMiddleEast(andChinaitself).
OECD Pacific: Demand Trends, Main Refined Products

Product
Volume, Avg. Yearly

2015
Growth, 2009(mb/d)
2015
Comments
Naphtha
1.84
1.5%
Growing in Korea but declining rapidly in Japan after a temporary post-recession surge, as other, more
competitive petrochemical producers emerge (the Middle East and China)
Gasoline
(including
ethanol)
1.48
-0.8%
Declining in Japan given demographic, technological and behavioural changes; marginal or stagnant
growth in Korea and Australia
Jet Fuel &

Kerosene
0.55
-7.0%
Rapidly declining kerosene consumption given sustained switch to electricity-based heating in Japan
and Korea, largely offsetting recovery-driven jet fuel growth, notably in Korea and Australia
Gasoil
(including
biodiesel)
1.52
-0.8%
Sharp structural heating oil decline, notably in Japan and Korea, largely offsetting growing diesel
demand in all countries (Australia, Japan, Korea and New Zealand) as economic activity rebounds
Residual Fuel
Oil
0.31
-14.0%
Declining across the region, displaced by natural gas and other energy sources, notably nuclear power
generation in Japan as shut-in plants resume operations
Total Oil
Products
6.91
-1.8%
Energy Subsidies: Getting the Price Right

Foroveradecade,theIEAsWorldEnergyOutlookhascalledforthephasingoutoffossilfuelsubsidies
asameanstoimproveenergysecurity,promoteeconomicgrowthandprotecttheenvironment.Since
2003,theriseinenergypriceshasbroughtaboutrenewedimpetusforreform.
Countriesimportingenergyatinternationalpricesandsellingitdomesticallyatlower,regulatedprices
havefacedarisingfiscalburden.Thereisgrowingrecognitionthatsubsidiesencouragefueladulteration
and smuggling, and typically benefit wealthier segments of the population rather than the poor.
Artificially low energy prices also stifle demand response at times of high international prices. While
energyimportershaveclearincentivestoremovesubsidies,severalenergyexportersarealsogradually
phasingthemoutorareconsideringdoingso,sincetheycanoftenleadtorampantdomesticdemand
growth, undermining export revenues. Notably, the Middle Easts expected rise in oil demand over
20092015isequivalentto70%ofthatperiodsnetincreaseinregionalOPECcrudeproductioncapacity.
AkeysteptowardreformwastakeninSeptember2009,whentheG20committedtorationaliseand
phaseoutoverthemediumterminefficientfossilfuelsubsidiesthatencouragewastefulconsumption.
Thispledgerecognisedthatsubsidiesdistortmarkets,impedeinvestmentincleanenergysourcesand
undermineeffortstodealwithclimatechange.TheIEA,OPEC,OECD,andWorldBankwerecalledupon
toprovideananalysisofthescopeofenergysubsidiesandsuggestionsforimplementationoftheG20
initiative. A Joint Report prepared by these four organisations will be reviewed at the G20 Leaders'
SummitinlateJune2010.
OECD/IEA, 2010
49
Energy Subsidies: Getting the Price Right
(continued)
In response to the call from the G20, the IEA estimates that fossil fuel subsidies amounted to
$557billionin2008.Iranssubsidybill,inparticular,reachedapproximately$101billion(thehighestof
any country) that year, equivalent to about a third of the countrys budget. Chronic underpricing of
domesticenergyhascausedmajoreconomicstrains,increaseddependenceonrefinedproductimports
and fostered widespread inefficiency. The government has announced a sweeping plan for energy
subsidyreformfromSeptember2010,butmanyobstaclesmustbeovercomeforsuchareformtolast.
Our projections in this report are based on policies in place, therefore incorporating the encouraging
movesafewotherlargenonOECDcountriessuchasChina,RussiaandIndonesiahavetakentobring
domestic energy prices in line with international prices. Saudi Arabia, one of the worlds largest oil
exporters, is currently debating the need to reform its price system, with top officials recently
suggesting that domestic energy prices should better reflect market conditions in order to tame
runawaydemandgrowth.
IEAmodellingindicatesthatgraduallyphasingoutfossilfuelsubsidiesoverthenextdecadewouldcut
global oil demand by roughly 6.5mb/d in 2020, compared to a baseline assuming no change from
current policies. This equates to roughly one third of current US oil demand. Higher enduser prices
would indeed encourage more efficient energy use, notably in the transportation sector, and trigger
someswitchingfromfossilfuelstoother,lesscarbonintensivesources.TheWorldEnergyOutlook2010
to be published on 9 November will include a special focus on energy subsides, building on the
findingsoutlinedabove.
OECD/IEA, 2010
Asia
Oil product demand in nonOECD Asia is expected to rise by 3.8% per year on average, from
18.5mb/d in 2009 to 23.0mb/d in 2015 the most significant regional change to the previous
forecast,whichforesawsomewhatlowergrowth.Althoughnotstrictlycomparable,growthhadbeen
assessedat+3.1%over20092014undertheDecemberupdate.Upwardbaselinerevisionsfollowing
the submission of finalised 2008 data for most countries have played a role, but the extraordinary
resilience of the regions economy in the face of the global recession, supported by massive
governmentbacked stimulus programmes, has been instrumental in improving the outlook, as
demandinboth2009andtheearly monthsof2010hasvastlyexceededexpectations.Indeed,the
regionslargesteconomiesChina,Indiaand
Asia: Contribution to Oil Demand Growth
Indonesiaandothersmalleronesmanaged
2010-2015, kb/d
toexpandrobustlyin2009,albeitataslower 2,000
100%
pacethaninpreviousyears,thussettingthe 1,500
50%
1,000
basisforstrongGDPgrowthin2010.
0%
500
-50%
Looking ahead, Asian economic activity is
(500)
-100%
projectedtoriseby8%peryearonaverage (1,000)
overtheforecastperiodevenasstimuliare (1,500)
-150%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
gradually withdrawn which is much faster
Global Dem and Grow th
Asia
thananyotherregionintheworld.Assuch,
demandforallproductcategoriesbarresidualfueloildisplacedbyrisingnaturalgaspenetration
will register strong growth, on the back of strong demand for greater mobility and petrochemical,
industrialandagriculturalactivity.Itshouldbenotedthat,contrarytoearlierexpectations,fueloil
demandinChinaissettofallovertheforecastperiod,ratherthanrise.Indeed,theconsolidationof
50
the independent refining industry has proceeded at a fasterthananticipated pace, with the
countrysoverallrefineryconfigurationgraduallybecomingmorecomplex.
14.9%
8.1%
Asia: Total Demand by

Product, 2015
8.6%
10.9%
34.5%
500
LPG
400
Naphtha
300
Mogas
200
Jet & Kero
100
Gasoil
15.9%
Asia: Oil Demand Growth by Product

2009-2015, kb/d
HFO
(100)
Other
(200)
2009
7.2%
Gasoline
LPG & Naphtha
Other
2010
2011
2012
Distillates
Fuel Oil
Total (RHS)
2013
2014
2015
1,000
900
800
700
600
500
400
300
200
100
-
Demandfortransportationfuels,fuelledbyahugepopulationandrisingincomepercapitainurban
areas,willcontinuetobethemaindriverofoilconsumptiongrowth,withvehicleandaircraftfleets
expandingsignificantly,particularlyinthelargestcountries.Thistrendcouldevenaccelerateifrising
oilpricesweretofosteramovetomaintainorrestoreendusersubsidies.Since2009,Chinathe
regionslargestoilconsumer,withalmosthalfoftotaldemandovertheforecastperiod,aswellas
theworldslargestcarmarketaheadoftheUShasputinplaceapricemechanismthathaslargely
trackedchangesininternationaloilprices,albeitwithlagsand concernsabouthoarding behaviour
(which will possibly lead to some finetuning in the months ahead). By contrast, India (17% of
regional demand) maintains both price subsidies (on LPG and kerosene) and price controls (on
gasolineandgasoil),despiteseveralgovernmentcommissionedreportsrecommendingtheadoption
ofmarketprices.Thegovernmentisunderstandablyconcernedtoshieldthepoorsegmentsofthe
population (who depend heavily on subsidised kerosene, in particular), but capping the price of
transportation fuels, while politically useful, has severely distorted demand and has arguably
benefittedhigherincomeearners.
Asia: Demand Trends, Main Refined Products
OECD/IEA, 2010
Product
Volume, Avg. Yearly

2015
Growth, 2009(mb/d)
2015
Comments
Naphtha
2.50
4.8%
Growing in China, Chinese Taipei, Hong Kong, Indonesia, Philippines and Singapore; declining in India
given growing supplies of both domestic and imported natural gas for the production of petrochemicals,
notably fertilisers
Gasoline
(including
ethanol)
3.67
3.6%
Surging as vehicle fleets expand, given rising income per capita in urban areas, notably in China, India,
Indonesia and Vietnam
Jet Fuel &

Kerosene
1.65
4.0%
Growing jet fuel demand with rising air transportation and expanding aircraft fleets in China, Chinese
Taipei, Hong Kong, India, Indonesia, Malaysia, Singapore and Thailand; subsidised kerosene to remain
the fuel of choice for the poor, notably in India and Indonesia
Gasoil
(including
biodiesel)
7.94
5.4%
Expanding strongly in all countries, driven by economic activity and gasoil's multiple usages; additional
support may be provided by subsidies if prices rise
Residual Fuel
Oil
1.97
-2.9%
Declining in the power generation sector because of natural gas substitution, notably in China,
Indonesia, Malaysia and Thailand; rising in Hong Kong and Singapore as global trade resumes and
bunkers demand picks up
Total Oil
Products
23.03
3.8%
51
Given its multiple usages (transportation, industry, agriculture and smallscale power generation),
gasoil will remain the regions fuel of choice, accounting for almost a third of total demand. Our
estimatessuggestthattransportationwillaccountforthebulkofAsiangasoiluse,bothin2010and
inyearstocome(transportationshouldaccountforroughly44%oftotalgasoilconsumptionin2010,
followed by petrochemical and industrial activities, with about 22%, and residential / agriculture /
power generation with almost 20%). Aside from the fact that precise sectoral breakdowns are
notoriouslydifficulttoachievegiventhelackofdata,theuseofgasoilforpowergenerationsources
is clearly an upside risk to the forecast, notably if other sources of electricity such as coal were to
falterduetosupplyanddemandimbalances.
Middle East
OilproductdemandintheMiddleEastisseengrowingby3.9%peryearonaverageovertheforecast
period,from7.1mb/din2009to8.9mb/din2015.AsinAsia,thisregionalsohadamildrecession,
withallcountriesbartwoexpanding,albeitatalowerpacethaninpreviousyears.GDPinKuwaitand
the UAE contracted, but both countries
Middle East: Contribution to Oil Demand Growth
registeredonlyamildrecession,ifjudgedby
2010-2015, kb/d
OECD standards. In the medium term, oil 2,000
40%
20%
demandlookssettocontinuegrowingdueto 1,500
0%
sustained economic expansion (based on oil 1,000
500
-20%
and gas, petrochemicals, heavy industry and
-40%
toalesserextentconstruction,whichfeltthe
(500)
-60%
brunt of the economic slowdown), (1,000)
-80%
demographics(continuedurbanisationanda (1,500)
-100%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
youngandgrowingpopulation)andenduser
Middle East
subsidies, which are unlikely to be
dismantled in most countries (currently, fuel prices across the region are among the lowest in the
world). However, Iran has announced plans for a gradual subsidy phaseout and some voices have
alsocalledforgreaterrelianceonmarketpricesinSaudiArabia.
13.8%
Middle East: Total Demand by

Product, 2015
13.7%
LPG
19.5%
Naphtha
2.6%
Mogas
300
250
200
19.5%
OECD/IEA, 2010
25.3%
5.6%
300
280
260
50
240
HFO
(50)
(100)
Other
(150)
340
320
150
100
Jet & Kero

Gasoil
Middle East: Oil Demand Growth by Product

2009-2015, kb/d
Gasoline
LPG & Naphtha
Other
2009
2010
2011
2012
2013
Distillates
Fuel Oil
Total (RHS)
2014
220
200
180
2015
Assuch,yearlydemandgrowthacrossalloilproductcategorieswillbestrong,rangingbetween2.5%
and6.0%dependingontheproduct.AsinAsia,demandfortransportationfuels(mainlygasolineand
jetfuel)willcontinuetoriseonthebackofexpandingvehicleandaircraftfleets(theGulf,moreover,
is becoming one of the worlds main air travel hubs), relatively unencumbered by efficiency
considerations given cheap enduser prices. Demand for petrochemical feedstocks (LPG and
naphtha)isalsoexpectedtoincreasesharply,astheregionstrivestobecomeamajorpetrochemical
52
hub.Demandforburningfuels(crudefordirectburning,residualfueloilandgasoil)willalsorisein
ordertomeetevergrowingpowerandindustrialneeds,sincethedevelopmentofdomesticnatural
gasresourcesislikelytobedelayed.
Even though SaudiArabia andIranwill remainthelargestregionaloilusers(40%and21%oftotal

Middle Eastern demand by 2015, respectively), other countries are projected to contribute
significantlytofutureregionalgrowth.Inabsoluteterms,combinedoildemandgrowthinIraqand
theUAE,inparticular,willberoughlyequivalenttoIrans,atalmost40kb/dby2015.Inthelongrun,
assecurityimprovesandthecountryisrebuilt,Iraqcouldbecomeamajorregionalpower,owingto
its relatively welleducated population, large industrial base and vast oil and gas resources. By
contrast,theoutlookforIraniscloudedwithuncertaintyand posesasignificant downwardriskto
theforecast.Demandplummetedin2009(6.4%yearonyear),andreportedfiguresforthefirstfew
months of 2010 have been inordinately weak, suggesting that economic conditions may be
worseningasaresultofbothexternalpressuresanddomesticfactors.Moreover,thegovernmentis
committed to gradually removing onerous fuel subsidies, which could further curb demand for
gasolineanddiesel.
Middle East: Demand Trends, Main Refined Products

Product
Volume, Avg. Yearly

2015
Growth, 20092015
(mb/d)
Comments
Naphtha
0.24
4.6%
Surging as ambitious petrochemical projects are developed across the region, particularly in Saudi
Arabia, and given the lack of sufficient natural gas supplies (although LPG/ethane supplies are set to
grow sharply)
Gasoline
(including
ethanol)
1.73
5.0%
Rising rapidly, spurred by expanding vehicle fleets on the back of rising income per capita, urbanisation
and extremely low end-user prices, especially in the largest markets; end-user price subsidies expected
to continue, with the notable exception of Iran
Jet Fuel &

Kerosene
0.50
3.2%
Increasing as air traffic rises across the region, which is becoming a key global hub, with the largest
markets being respectively Iran, Saudi Arabia, the UAE and Iraq
Gasoil
(including
biodiesel)
2.26
3.6%
Rebounding demand as rapid economic activity resumes, notably in the construction sector and, to a
lesser extent, the power industry, with Saudi Arabia, Iran, Iraq and the UAE at the forefront
Residual Fuel
Oil
1.74
2.5%
Growing to feed power plants as long as alternative sources (mainly domestic natural gas) remain
commercially unavailable, notably in Iran, the UAE, Saudi Arabia, Iraq, Syria and Kuwait
Total Oil
Products
8.90
3.9%
OECD/IEA, 2010
53
Staring at the Crystal Ball: New Transportation Trends

Since transportation is expected to account for almost twothirds of global oil demand by 2015, the
adoption of new, disruptive technologies and processes could bring about significant and longlasting
changes in how much oil is used globally. The main focus of attention is currently the automotive
industry. The push to build new, more efficient vehicles is not only driven by environmental
considerationsorgovernmentlegislation,butalsobymarketforces.Althoughthesetrendsareunlikely
to have an impact on oil demand within this reports timeframe, they could well become quite
discernibleby2020andarethereforeworthexamining.
IndustrialChallenges
Astheglobalrecessionunfolded,agrowingnumberofcarmanufacturerswereconfrontedbyplunging
sales and the threat of bankruptcy. Governments across the world opted either to bailout their car
manufacturersorputinplacetemporaryscrappageschemestosupportnewvehiclesales.Yet,atbest,
theautomotiveindustryjustgainedsometimeamidpressingfinancial,behaviouralandenvironmental
challenges. Indeed, OECD markets are becoming saturated, with sales stagnating, costs rising, profits
recedingandovercapacityincreasing.Postrecessionrestrictionsoncredit,improvingvehiclereliability
and widening options for cheap shortterm renting or carsharing in urban areas will all potentially
restrict sales in years to come. Moreover, consumers are increasingly choosing smaller, more fuel
efficientmodels.
Facing a seemingly unsustainable situation in the developed world,the industry has focused onmore
promising nonOECD markets, where vehicle fleets are still small and rising incomes are encouraging
sales. Most car manufacturers are actively pursuing this approach, notably in large countries such as
China, India or Russia, frequently through partnerships with local producers. Yet this strategy entails
environmentalconsequences.Theindustryhopestosellsome100millionvehiclesperyearworldwide
by 2020, compared to 60 million today. Development of new, much more efficient vehicles and
transportation concepts has thus become urgent. Currently, several technologies and new business
modelsareactivelycompetingintheracetobuildthecarofthefuture.
NewTechnologies&BusinessModels
One currently available technology is the hybrid vehicle. Already commercially produced by several
Japanesemanufacturers,itcombinesaninternalcombustionenginewithanelectricmotorthattakes
over at low speeds, powered by a nickelmetal battery recharged by the thermal engine or when
braking.Ahybridvarianthasanelectricmotorthatpowersthevehiclepermanentlyandasmallthermal
enginetorechargeitifneeded(thecarcanalsobepluggedintothemains).Althoughmoreexpensive
thanagasolinebasedvehicle,ahybridhasalargeautonomyrangeandismoreefficient,withbroadly
similarfueleconomytothatofconventionaldieselcars.Toboosttheappealofhybrids,carmakersare
attempting to increase efficiency by combining electricity and other hydrocarbon fuels, such as LPG.
Still,hybridsstillemitgreenhousegasesunderanyconfiguration.
OECD/IEA, 2010
Natural gas vehicles have gained ground in various countries (notably Argentina, Bangladesh, Brazil,
India,Iran,PakistanandThailand)andcanbeeconomicalifgasisplentifulandcheap.Therecentsurge
ofshalegasproductionintheUShasledtorenewedcallstheretoshifttowardsgaspoweredvehicle
technology. But despite more efficient combustion than gasoline and diesel engines, gaspowered
vehicles face several obstacles. These include small tanks, limited autonomy and concerns about
reliability, engine power and the risk of explosion in case of collision. Meanwhile, the conversion of
existing gasolinepowered vehicles to gas is relatively expensive, particularly if intended to use LNG
(liquefied natural gas) rather than the more widely used CNG (compressed). The establishment of
refuellinginfrastructureisalsocostly.Shortoffurtherincentives,naturalgasvehicleswilllikelyremaina
nichemarket,servingcommercialandpublicfleetsinurbanareas.
54
(continued)
Electric vehicles can be very cheap to operate, as well as silent, but face several potential hurdles,
notably high battery costs, long charging times and limited driving range. The first problem could be
overcome by government subsidies, while fastcharging points and schemes to lease and replace
batteries as needed could address the last two issues, albeit with high dedicated infrastructure costs.
More importantly, most carmakers would have to agree on battery size and positioning to facilitate
quickandeasyreplacement.ThemainadvantageofthisapproachisthatEVswouldbemuchcheaperto
buy,asthecostofthebatterywouldnotbeborneupfrontbytheconsumer,butwouldratherbecome
amortisedasarunningfee. BetterPlace,astartupUScompanyinpartnershipwiththeRenault/Nissan
alliance, is the main proponent of this concept, with pilot projects to be implemented in Denmark,
Israel,AustraliaandHawaii(aimedatprivatecars),aswellasJapan(taxis).
Better Places business model, however, could be derailed if major battery technology breakthroughs
weretomaterialiseorifrangeanxietyprovedlessthanexpected,notablyinurbanareas.Lithiumion
batteries are currently preferred, providing around 150 km average autonomy for small to medium
sized cars, although some companies are working on a cheaper sodiumnickelchloride variety. A
potentialhurdleoflithiumionbatteries,though,concernsthesupplyoftheirmaincomponent.Lithium,
a rare and expensive metal, is mostly found in only a handful of countries, notably in Latin America.
Chileiscurrentlythelargestproducer,butBoliviaaloneholdshalfoftheworldsknownreserves.More
interestingly, perhaps, than the evolution of batteries per se, is altering the design of the car itself in
order to expand the range of existing battery technology. Japanese researchers have built an eight
wheelprototypewithasmallmotorineachwheelasopposedtothecentrallylocatedenginefoundin
mosthybridsandforthcomingEVswhichcanreportedlyrunforupto300kmonasinglecharge,since
energylossesaresignificantlyreduced.
Inanycase,aswithpluginhybridsorhydrogenfuelcells,EVsmaynotbeentirelyemissionfreeifthe
electricitythatfeedsthemcomesfromthermalsources,althoughlargethermalpowerplantsaremore
efficientthaninternalcombustionengines.EVscouldalsooverloadthegridunlesstheywererecharged
atoffpeakhours.Butgridsmanagedwithsmarttechnologies,whichwouldsupplyrealtimepricedata
to users and demand and generation information to utilities, could overcome this problem.
Furthermore,EVscouldeventuallybecomeausefulrepositoryofpowerfromrenewablesourcessuchas
wind,whichotherwisecouldnotbestored.
Fuel cells, which are electrochemical devices mixing stored hydrogen with atmospheric oxygen to
generateelectricityandwatervapour,constituteanotherpossibility.Ahydrogenbasedcarproducesno
emissionsdirectlybut,aswithelectricvehicles,overallemissionsdependontheenergyusedtoproduce
the hydrogen.Naturalgas isoften the source of choice, although somecompanies are experimenting
withsolarenergy.Moreover,producinganddeliveringhydrogeninlargequantitiesisveryexpensive,in
additiontothecostofdedicatedrefuellinginfrastructure.Thevehicleitselfisalsopricey.Assuch,this
technology remains confined to a number of localised pilot projects, such as hydrogen highways in
California, Norway and Japan. Nonetheless, some carmakers envision commercial massproduction as
earlyas2015,arguingthatthistypeofvehiclewillflourishindenselypopulatedareas.
OECD/IEA, 2010
In sum, the race to find the transportation gamechanger is just beginning, but it remains unclear
whetherasingletechnologywillprevailorseveralalternativeswillcoexistforexample,hybridcarsin
the US and Japan, EVs in Europe, ethanolpowered models in Brazil, naturalgas vehicles in India or
hydrogen fuel cells in Norway. Oil companies may adapt to the new environment by adding electric
recharging facilities at their service stations (such plans were recently announced by two of Chinas
majors)orbecomingfullyintegratedenergycompaniestotapthepotentialofferedbyfuturepower
needs. Similarly, the automotive industry, forced to produce cheaper, smaller and more efficient
vehiclestomeetstringentmandatesandchangingtastes,willhavetomakehighrisktechnologicalbets.
55
(continued)
ThoseoptingforEVswillbewarytoletotherscontrolakeycomponentthebatteryandmaytiein
with battery manufacturers in order to secure their technology, as is already happening in Japan.
Competition could also come from unexpected quarters. Michelin, for example, has developed an
ActiveWheel,fittedwithtwoelectricmotors(onetodriveandbrakethewheelitselfandanotherto
control its suspension). The automotive industry will also be reluctant to be reduced to a mere
manufacturingroleandletthevalueofthegrowingpersonalmobilitybusinessbecapturedbyother
firms(DaimlerandPeugeothaveinfactalreadylaunchedtheirownservicesofshorttermcarrental).
AndGovernmentIntervention
Thesetechnologieshavethepublicpolicyadvantagesofcurbinggreenhousegasemissions,enhancing
energysupplysecurityandreducingoilimportdependence.Assuch,severalcountriesaroundtheworld
most notably China, France, Germany, Japan, Portugal, Spain, the UK and the US are actively
supportingtheadventofnewtransportationtrends.
Todate,fiscalincentivesforultralowemissionvehicles(hybridorelectric)rangefromroughly$5,000
perunit(France)to$10,000(Japan),whileEVresearchsubsidiesvaryfrom$250million(Spain)to$27
billion(theUS).Inaddition,severalgovernmentshavesignedspecificpartnershipswithcarmakers.In
France, for example, the central government has promised to purchase at least 100,000 EVs over the
next five years in order to kickstart domestic production, and intends to finance battery research in
partnershipwithRenault;theParismunicipalityisseekingtointroduceshorttermEVrental;andstate
owned utility EDF plans to build electric infrastructure in partnership with Renault and Peugeot. The
EuropeanUnion,meanwhile,isworkingoncommonstandardsforbothEVsandrechargingfacilities.
Government policies not only encourage the switch to new technologies, but also favour some. For
example, after spending some $1.2 billion in fuel cell research, the US DOE concluded that such
technologywasunlikelytobecomeimminentlycommercial,andlastyearslasheditsfuelcellbudgetby
90%. Meanwhile, the US Congress has long debated whether to push decisively for natural gas for
heavydutyvehicles.Similarly,Chinasprogrammesincludingfleetdemonstrationsinatleast20cities
andrecentlyannouncedsubsidiesforprivatepurchasesinfiveareexpectedtoputthousandsofEVs
ontheroadbyend2010.ThecountrysmaincarmakersaredevelopingEVs,andatleastone(BYD)will
soonmarketonemodelintheUS.
EqualsMuchLowerOilDemand?
Lookingahead,twokeyquestionsremainunanswered.Whatwillbethepenetrationrateofthesenew
transportation technologies and when will they begin to make a significant difference regarding oil
demand? Doubts over vehicle costs, range and reliability, as well as refuelling and recharging
capabilities, compounded by uncertainty on future government policies, have led to widely
divergentforecasts.
OECD/IEA, 2010
Regarding EVs, for example, carmakers are divided: Renault/Nissan predicts that worldwide sales will
represent10%ofthemarketby2020(equivalenttosome68millionunitsperyear),whilePeugeotputs
this share at 5% and Volkswagen at only 1.5%. Combining all technologies, the IEAs World Energy
Outlook (2009) envisages a global 7% share by 2030 under current government policies, while other
analystspredict a1418% share. Forcomparison,current worldwidesales of hybrids are estimated at
around1.3%ofthetotal.Intermsofoildemandeffects,therangeofforecastsalsovariessignificantly,
fromalmostniltoadeclineofover4mb/doverthenexttwodecades.
Insum,theuncertaintysurroundingnewtransportationtrendsishuge.Intheend,however,theshape
of future oil demand will be largely determined by emerging countries, especially if they sidestep
conventional technologies in the buildup of their own fleets. As in many other issues concerning oil
markets,Chinawillbeinstrumentalinthisrespect.
56
Latin America
OilproductdemandinLatinAmericaisexpectedtoriseby3.1%peryearonaveragebetween2009
and2015,from6.0mb/dto7.2mb/d.Theeconomiccrisisderailedregionaldemandgrowth,butdid
notcauseprecipitousfallsoilconsumptionfellbyonly0.1%in2009andshouldreboundby3.4%in
2010. This is due to only mild slowdowns in Argentina and Brazil, while electricity shortfalls have
increased oilfired generation in Venezuela. With average annual economic growth of 3.9% over
20092015, the region should experience a strong rise in middle distillate demand, as agriculture,
miningandairtravelactivitiesexpandinArgentina,BrazilandChile,butalsoassmallereconomies,
suchasColombiaandPeru,resumemorerapideconomicexpansion.Petrochemicalactivityshould
continuetogrow,whileusageofheavyfueloilforpowergenerationshouldfallslightlyasnaturalgas
availability increases. Nevertheless, reliance
Latin America: Contribution to Oil Demand Growth
on hydro sources (about twothirds of total
2010-2015, kb/d
powergeneration)leavetheregionproneto 2,000
40%
20%
increasing oil and natural gas 1,500
1,000
0%
consumptionforelectricitygenerationduring
500
-20%
timesofdrought,asin20092010.
-40%
(500)
-60%
Brazil will continue to dominate overall (1,000)
-80%
consumption, accounting for 43.7% of (1,500)
-100%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
regional demand in 2015, followed by
Latin Am erica
Venezuela (11.5%), Argentina (10.2%), Chile
(5.9%) and Colombia (5.0%). Brazils annual growth of 3.5% should be transportationled, with
smaller increases in petrochemicals. Rapidly expanding road and air travel should underpin strong
gasoline and jet fuel/kerosene growth, while increased freight and agricultural activity should spur
dieselconsumption.Transportationfueldemand,though,willbemarkedbyincreasedpenetrationof
alternative fuels. With flexfuel vehicles accounting for over 90% of light vehicle sales, ethanol
(adjustedforenergycontent)mayaccountforoverhalfofmotorgasolinegrowth.Higherblending
standardsalsoportendincreasedbiofuelsuseinArgentina,Colombia,EcuadorandPeru.
12.8%
9.9%
Latam: Total Demand by

Product, 2015
10.1%
Latin America: Oil Demand Growth by Product

2009-2015, kb/d
150
250
100
200
LPG
3.1%
Naphtha
Mogas
Jet & Kero
25.9%
33.9%
150
50
100
-
Gasoil
HFO
Other
(50)
(100)
OECD/IEA, 2010
2009
2010
2011
Gasoline
LPG & Naphtha
Distillates
Fuel Oil
Other
Total (RHS)
2012
2013
2014
50
(50)
2015
4.4%
IncreasednaturalgasavailabilityinBrazilandPerushouldenhanceusageinthosecountries,while
constrainedsupplyinArgentinarelativetoitsneedsshouldincreaseitsrelianceonLNGimportsand
Bolivian gas but that country is itself prone to slow development due to a difficult investment
climate. While natural gas vehicles have increasingly provided an outlet for transportation
requirementsinArgentinaandBrazil,highergassuppliesshouldgomoretowardsreducingregional
heavy fuel oil use in power generation. Nonetheless, Venezuelan oil use in electricity should grow.
57
Since mid2009 a power crisis induced by drought and chronic underinvestment in transmission
infrastructurehasledtoelectricityrationingforindustrialcustomers.Thegovernmentalsoplansto
construct new thermoelectric plants that will likely run on diesel. While the return of rain may
temporarilyassuagethesituation,creakyinfrastructurewillmakeVenezuelapronetodieseldemand
spikes over the medium term. Moreover, despite a precarious economic outlook over the medium
term with GDP forecast to decline by 2.6% in 2010 and threats of stagflation ahead the
persistence of enduser energy price subsidies should keep total Venezuelan oil product demand
increasingby2.1%peryearonaverageovertheforecastperiod.
Latin America: Demand Trends, Main Refined Products

Product
Volume, Avg. Yearly

2015
Growth, 20092015
(mb/d)
Comments
Naphtha
0.22
2.2%
Growing petrochemical activity in Brazil, the largest regional economy, as well as in Argentina, Chile and
Colombia (but all from a very small base, with Brazil accounting for the bulk of regional naphtha
demand)
Gasoline
(including
ethanol)
1.87
3.7%
Increasing in all countries as vehicle fleets expand, with strongest absolute growth in Argentina, Brazil,
Colombia and Peru; low end-user prices in Venezuela provide further support despite the country's weak
economic outlook
Jet Fuel &

Kerosene
0.32
4.3%
Growth spurred by expanding airline capacity and increased passenger travel, with the largest
increments from Argentina, Brazil, Chile, Colombia, Ecuador and Peru
Gasoil
(including
biodiesel)
2.44
4.2%
Renewed economic activity boosting diesel use in agriculture, mining and freight in Argentina, Brazil,
Chile, Colombia and Peru; increasingly used for power generation given natural gas shortfalls (and
potential hydropower disruptions) in Chile and Venezuela
Residual Fuel
Oil
0.72
0.0%
Declining slightly overall, replaced by natural gas or gasoil for power generation (both base and peak);
only growing in countries such as Venezuela, with under-developed or limited access to gas sources
Total Oil
Products
7.21
3.1%
Ethylenes Booming Times Ahead

Aseconomicrecoverygetsunderway,theethylenedemandoutlookhasimproved.Expectedethylene
production capacity additions in 2009 were delayed, thus supporting currently robust operating rates
and production margins. However, massive capacity additions are expected, particularly in 2010,
potentiallydepressing operating rates until the end of the forecast period. Meanwhile, petrochemical
demand has rebounded on the back of government stimulus programmes, particularly in China.
Ethylene demand should expand by 5.5% per year on average over the forecast period about
1.25times GDP growth. These feedstock supply requirements will pose significant challenges to both
theoilrefiningandgasprocessingsectors.
CapacityTrends
OECD/IEA, 2010
Onthebaseofourlatestassessment,globalethyleneproductioncapacitystoodat135.6milliontonnes
peryear(mt/y)in2009,0.3mt/ylowerthaninlastyearsreport.Thisfigure,however,masksupward
revisions in 2008 (+1.9mt/y) and downward adjustments in 2009 (2.1mt/y). In particular, Middle
Eastern production capacity in 2009 turned out to be 3.9mt/y lower than expected, while Asian
expansions were 1.1mt/y higher. In North America, 1.0mt/y of capacity previously slated for closure
remained in operation as natural gas prices supported production economics, given breakthroughs in
shalegasextractiontechnology.Capacityadditionsover20092014shouldbe2.2mt/ylowerthanlast
yearsexpectedgrowth(+35.7mt/y).Assuch,projectedethyleneproductioncapacityin2014isrevised
downby0.4mt/yto162.6mt/y.By2015,capacityshouldreach166.2mt/y.
58
(continued)
Productioncapacityadditionsover20102015(+30.5mt/y)willbeconcentratedintheMiddleEastand
NorthEastAsia,with11.0mt/y(36%oftotaladditions)and10.8mt/y(35%),respectively.Chinaalone
will account for 32% of global additions, expanding capacity by 9.9mt/y to 23.4mt/y by 2015. Saudi
Arabiawilladd5.2mt/y,reaching15.6mt/yby2015.Yetglobalproductioncapacitywillcontinuetobe
concentratedintheUS(despitenoplannedadditions),with17%ofthetotalby2015;ChinaandSaudi
Arabiawillfollowwith14%and9%,respectively.
Global Ethylene Capacity 2009
Global Ethylene Capacity 2015

N. Am .
21%
NE Asia
27%
N. Am .
26%
NE Asia
24%
S. Am .
3%
Other
Asia
8%
S. Am .
4%
ME &
Africa
15%
Other
Asia
11%
Europe
20%
FSU
3%
Europe
16%
FSU
2%
ME &
Africa
20%
DemandandOperatingTrends
GDPprojectionshaveimprovedmarkedlyrelativetolastyearsassessment.Inparticular,GDPgrowthin
2010isexpectedtotop4.1%,2.3percentagepointsabovelastyearsestimateof1.8%.Bettereconomic
prospects entail higher ethylene demand. Global ethylene demand in 2009 was around 110.5mt/y,
6.0mt/yoralmost5.8%higherthanestimatedlastyear,reboundingasearlyas2Q09asgovernments
implementedunprecedentedstimulusprogrammes,particularlyinChina.
mt
4,000
mt
16
Ethylene Capacity Forecast Revisions
Ethylene Capacity Additions

NE Asia
2,000
Other Asia
12
ME & Africa
-2,000
Last year's exp. additions

8
-4,000
-6,000
2009
2010
2011
2012
2013
2014
N. Am .
S. Am .
Europe
FSU
ME & Africa
Other Asia
NE Asia
Total
0
2010
2011
2012
2013
2014
2015
Ethylenedemandisnowseengrowingby5.5%peryearonaverage,reaching152.4mt/yby2015.Thisis
a hefty increase of 42.0mtor 38% from 2009, more than offsetting total capacity additions (34.6mt)
overthatperiod.However,outofthistotal,36%oftheethylenecapacityexpansionsareexpectedto
takeplacein2010,thusweighingheavilyonbothoperatingratesandmarginsintheearlystagesofthe
forecastperiod.Onlyby2015willdemandgrowthcatchupandoperatingratesrecover,assumingno
furthercapacityadditionstakeplace.
OECD/IEA, 2010
59
(continued)
As in last years exercise, excess production capacity can be defined as the difference between
nameplatecapacityoperatedat90%andexpecteddemand.Onthisbasis,excessproductioncapacity
could reach 20.3mt/y in 2010, equivalent to 13.7% of nameplate capacity. Considering the unlikely
event of no additional capacity to be announced on top of the current assessment, global operating
ratesareexpectedtorecoverto92%by2015.However,overtheforecastperiod,theexpectedaverage
operatinglevelisarelativelymuted84%.
mt
25
Excess Ethylene Production Capacity

15%
20
Average Ethylene Plant Operating Rate
95
10%
15
10
5%
85
0%
0
-5
-5%
2003
2005
2007
2009 2011
2013
2015
75
Excess capacity (@ 90% op. rate)

Excess capacity as a % of nam eplate
Source: IEA estim ates
2003
2005
2007
Source: IEA estim ates
2009
2011
2013
2015
Given the decoupling of natural gas prices from crude oil prices, light feedstocks are becoming more
attractive for petrochemicals production. This will support operating rates in North America, where
ethane is the main feedstock, suggesting this region could boost exports as much as production
economics permit. By contrast, European operating rates are expected to remain suppressed, as
approximately 71% of this regions ethylene production is based on naphtha. Furthermore, Europe is
pronetofaceincrementalcompetitionfromtheMiddleEast,whichwillremainthe mostcompetitive
regionintermsofproductioncostsascapacityislargelyrunonethane.
In Asia, integration of petrochemical complexes with refineries will help them avoid naphtha price
swingsfromthecrudemarketandreducethefeedstockcostgaprelativetoNGLs,whicharedrivenby
natural gas prices. However, the significant production capacity expansions expected in China will
decreasethecountrysethyleneimportsandaffectoperatingrateselsewhereintheregion,asdemand
willlagbehindcapacity.
Former Soviet Union
OECD/IEA, 2010
Oil demand in the Former Soviet Union is forecast to grow by 2.3% per year on average, from
3.9mb/d in 2009 to 4.4mb/d in 2015. This weaker prognosis, relative to previous assessments, is
relatedtothesharpeconomicrecessionintwoofthelargestregionaleconomies,RussiaandUkraine
(the third, Kazakhstan, experienced a marked slowdown in 2009 but should sustain a strong
economicexpansion,albeitatamuchlowerpacethanbeforetherecession).RussiasGDPshrankby
7.9% in 2009 as commodity prices fell and industrial activity came to a standstill, while Ukraines
plummetedby15.1%,recallingthetumultuousyearsoftheearly1990s.Consequently,oildemandin
both countries also plunged, thus lowering the baseline and weighing on the average growth rate
goingforward.Nonetheless,theregionaleconomyisexpectedtoreboundoverthemediumtermas
Russianoutputrecovers,givenitsabundanthydrocarbonresourcesandgrowingindustrialbase.
60
FSU: Total Demand by

Product, 2015
15.0%
FSU: Oil Demand Growth by Product

2009-2015, kb/d
11.0%
7.1%
60
LPG
6.7%
Jet & Kero

Gasoil
HFO
27.7%
20
Naphtha
Mogas
25.1%
40
Other
(20)
(40)
Gasoline
LPG & Naphtha
Other
(60)
(80)
(100)
2009
7.4%
Distillates
Fuel Oil
Total (RHS)
2010
2011
2012
2013
2014
200
150
100
50
(50)
(100)
(150)
(200)
(250)
2015
As such, oil demand should resume growing, largely spurred by demand for transportation fuels,
particularlyRussianneeds.Thiscountry,whichissettoaccountfor69%ofregionaldemandby2015,
isprojectedtobecomeEuropeslargestcarmarketintheshorttermasitsurmountstheeffectsof
theglobalrecession.Moreover,Russiawillpostdemandgrowthinallproductcategories,withthe
exception of residual fuel oil. This constitutes a major departure from previous forecasts: the
emergingnaturalgasglutinEuropeRussiasbiggestmarkethasarguablydilutedtheurgencyto
displacefueloiluseinpowergenerationinordermeetitsgasexportcommitments.
FSU: Demand Trends, Main Refined Products

Product
Volume, Avg. Yearly

2015
Growth, 20092015
(mb/d)
Comments
Naphtha
0.30
3.3%
Growing Russian petrochemical output (94% of regional naphtha demand), assuming it recovers from its
current recession-driven slump
Gasoline
(including
ethanol)
1.23
2.0%
Growing as vehicle fleets expand on the back of strong economic expansion and rising income per
capita, particularly in Russia, the largest regional (and soon European) car market
Jet Fuel &

Kerosene
0.33
2.9%
Rising air business and leisure air travel and expanding aircraft fleets in Russia and elsewhere
Gasoil
(including
biodiesel)
1.11
2.6%
Increasing as economic activity resumes; strong demand growth in Russia, Ukraine, Kazakhstan,
Belarus and Azerbaijan
Residual Fuel
Oil
0.31
-1.5%
Declining as the recession-induced natural gas glut no longer requires Russia to divert gas supplies
away from power generation in order to support exports
Total Oil
Products
4.43
2.3%
OECD/IEA, 2010
61
P ART 1: O IL S UPPLY
SUPPLY
Summary
The20092015globaloilsupplyoutlookisraisedbyanaverage0.3mb/d,withtotalproduction
capacity now forecast to rise from 91.0mb/d in 2009 to 96.5mb/d in 2015. Adjustments stem
mainly from higher nonOPEC supply, while growth in the forecast period comes largely from
OPEC, both in terms of crude and natural gas liquids (NGL) capacity. Renewed spending
increases, lower costs and an apparent easing in field decline paint a more optimistic supply
picturenowthaninearlierprojections.
NonOPEC supply is projected to grow from 51.5mb/d in 2009 to 52.5mb/d by 2015, an
average upward revision of 0.5mb/d. Growth comes from Latin America, Canadian oil sands,
biofuels and the Caspian. With the futures strip suggesting oil prices in a $7080/bbl range,
upstream projects have been reactivated or brought forward. Moreover, implied decline rates
have slowed since last year. Growth in biofuels, unconventional oil and nonOPEC NGLs more
thanoffsetdeclineinnonOPECconventionalcrude.Downsideforecastrisksincludedeepwater
projectdelaysaftertherecentDeepwaterHorizondisasterintheGulfofMexico.
mb/d
World Oil Supply Capacity Growth
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
2009
2010
2011
OPEC Crude Capacity Growth

Global Biofuels Growth
Total Net Change
OECD/IEA, 2010
62
2012
2013
2014
2015
OPEC NGLs Growth

Non-OPEC Growth (ex Biofuels)
OPEC is on course to increase installed crude oil production capacity by a net 1.9mb/d from
20092015, to 36.8mb/d. Growth comes mainly from Iraq, Saudi Arabia, Angola and the UAE.
While the forecast is largely unchanged from our December 2009 mediumterm update, the
headline number masks significant changes for some individual countries. The outlook for Iraq
and Venezuela, in particular, has improved dramatically after both signed new contracts with
IOCs,whileforecastcapacityforNigeria,AlgeriaandAngolaisreviseddownsharplyaspolitical
upheaval and unattractive contract terms conspire to delay previously included projects
beyond2015.
OPEC NGLs production is on track to rise by 2.6mb/d over the 20092015 period. Total
condensate,NGLsandnonconventionaloutputisprojectedtoincreasefrom4.7mb/din2009
to7.2mb/dby2015,withMiddleEasternproducersproviding85%ofthisexpectedgrowth.The
gas liquids component in OPECs total supply profile is seen rising from 13% in 2009 to 20%
by2015.
Non-OPEC Supply Overview

The nonOPEC supply projection is revised higher, increasing from 51.5mb/d to 52.5mb/d during
20092015.At+1.0mb/d,growthisstrongerthanintheDecember2009mediumtermupdate,which
envisaged incremental output of 0.7mb/d for 20082014, and significantly stronger than the
0.4mb/ddeclineforeseenoneyearago.Themoreoptimisticoutlookistheresultofacombination
offactors:Oilpriceshaveremainedrelativelyhighinasteady$6585/bblrangeoverthepastyear,
spurringrenewedupstreaminvestment.Atthesametime,upstreamcostshaveslippedbelowhighs
seeninmid/late2008.Boththesefactorshavepromptedcompaniestoreactivateupstreamprojects
they had delayed, as evidenced in a forecast surge of startups in the latter half of the outlook
period.Lastly,thereisevidencethatimplieddeclinehasslowedcomparedtolastyear.
mb/d
52.75
Total Non-OPEC Supply
mb/d
Total Non-OPEC Supply - Revisions
1.2
52.50
1.0
52.25
0.8
52.00
0.6
51.75
0.4
51.50
51.25
51.00
June 2010 Forecast

Dec 2009 Forecast
2009 2010 2011 2012 2013 2014 2015
0.2
0.0
2009
2010
2011
2012
2013
2014
OECD/IEA, 2010
Sources of growth remain largely unchanged. NonOPEC supply growth is expected to come from
LatinAmerica,theFSUandNorthAmerica,offsettingstrongdeclineinOECDEuropeand,toalesser
extent, elsewhere. Regarding the different types of oil output, once again a net decline in
conventional nonOPEC crude supply (1.0mb/d) is offset by gains in biofuels (+0.8mb/d), other
unconventionalsources(+0.7mb/d),NGLs(+0.4mb/d)andasmallriseinrefineryprocessinggains.
A Brighter Outlook
Comparedwithayearago,andwiththepicturepaintedintheDecember2009mediumtermupdate,
theoutlookfornonOPECsupplyhasimproved. Estimated2009 outputgrew by0.7mb/d yearon
yearand2010isforecasttoseeasimilarincrement.Thelasttimeyearlygrowthattainedtheselevels
was in the 20002004 period and, on average, the 20092010 increment is higher than the mean
annual increase since 1994. Extensive supply outages in 2005 and 2008, and the impact of weaker
pricesin2008/2009,mayhaveexaggeratedpessimismovernonOPECprospects,althoughitisstill
possiblethatsupplyincrementscouldslipinthefutureifinvestmentconditionsdeteriorateormajor
project delays materialise. 2010 supply could also be affected by strong anticipated Atlantic
hurricane activity, even though our projections include a fiveyear average storm adjustment.
Nonetheless,concernsoverimminentandirreversiblepeakoilsupplyseemtohavefadedfornow,
evenifaplateauingofconventionalnonOPECcrudesupplyisevidentinouroutlook.
Onaverage,nonOPECsupplyin20092014isrevisedupby535kb/d.Indeed,thisisapproximately
the level of cumulative baseline revision evident for 2010 nonOPEC supply in monthly OMRs
publishedsinceDecember2009.
63
A combination of the general recovery of the global economy, strong nonOECD oil demand and
higheroilpriceshavestimulatedrenewedinvestmentintheupstreamsector,whilecosts,although
sticky, have nonetheless fallen from mid2008 highs. Recent surveys put expected 2010 growth in
upstreamcapitalexpenditureinthe812%range,asignificantadvanceonthe1015%declinenow
widelyestimatedfor2009.
Despitefearstothecontraryoneyearago,themainimpactoftheupstreamspendingdiplastyear
wastopostponeratherthancancelupstreamprojects,manyofwhichhavebeenreactivated.Thisis
evidentintherevisedpatternofprojectstartups,postponedintothelatterhalfofthe20092015
forecastperiod,orbroughtforwardinto20132015followingreactivation.Agoodexampleofthisis
Canadianoilsandsprojects,thesectorseenlastyearasbeinghithardestbydelaysandsuspensions,
but also some Russian oil fields. Recent stronger production performance and better prospects or
detailed information on specific investments have prompted upward revisions to other areas,
includingColombia,whererecentrapidgrowthandfieldperformancehaveexceededexpectations.
Non-OPEC Supply
2009
2010
2011
2012
2013
2014
2015
13.6
13.5
13.4
13.3
13.3
13.4
13.7
Europe
4.5
4.2
4.0
3.8
3.6
3.6
3.3
Pacific
0.6
0.7
0.7
0.7
0.6
0.5
0.5
Total OECD
18.7
18.5
18.1
17.8
17.5
17.5
17.5
Former USSR
13.3
13.6
13.7
13.7
13.5
13.7
13.8
North America
Europe
0.1
0.1
0.1
0.1
0.1
0.1
0.1
China
3.8
4.0
3.9
4.0
3.9
3.9
3.7
Other Asia
3.6
3.7
3.7
3.6
3.6
3.6
3.6
Latin America
3.9
4.1
4.4
4.5
4.7
5.0
5.1
Middle East
1.7
1.7
1.7
1.7
1.6
1.5
1.5
Africa
Total Non-OECD
2.5
2.5
2.6
2.6
2.5
2.5
2.4
28.9
29.7
30.2
30.1
30.0
30.3
30.3
Processing Gains
2.3
2.2
2.2
2.3
2.3
2.3
2.3
Global Biofuels
1.6
1.8
2.1
2.2
2.3
2.4
2.4
Total Non-OPEC
51.5
52.2
52.6
52.4
52.1
52.5
52.5
Annual Chg (mb/d)
0.3
0.7
0.4
-0.2
-0.3
0.4
0.0
Changes from last MTOMR (mb/d)
0.3
0.6
OECD/IEA, 2010
0.5
0.3
0.4
1.2
But our calculations also show that implied levels of annual decline across the entire production
baseline have slowed by between 0.70.9% since last years estimates to around 5%. This would
suggestthatadditionalworkisalsobeingundertakenonmatureassetsorsimplythatevaluationsof
how long new fields can stay at plateau capacity have lengthened. None of this is to minimise the
ongoing, heavy investment burden the industry faces in coming years just to offset mature field
decline, which may amount to 1.9mb/d of lost nonOPEC capacity on an annual basis. But the
problemmaybealittlelessacutethanlookedlikelyayearago.
64
Dissecting the Changes: More Upstream Projects and Slower Decline Rates
Besidestheimpactofrelativelystableoilpricesina$6585/bblrangeinthepastyear,breakingdown
therevisionstononOPECsupplygrowthrevealsamoreoptimisticpictureofprojectstartupslaterin
theprojection.Alltold,the2009nonOPECsupplybaselinehasbeenadjustedupby250kb/dsincethe
December2009mediumtermupdate(andbynearly1mb/datthetimeofthatreport,comparedtothe
June2009 MTOMR) on higher reported production. Some projects previously expected to start up in
20092011actuallycameonstreamearlierthananticipated.
Later in the projection period the impact is twofold. Some project slippage has occurred, moving
expectedstartupvolumesfromthefirsttothesecondhalfoftheforecastperiod.Inaddition,thetail
endoftheforecastnowcapturessomeincrementspreviouslydeferredtolaterinthedecade.Notably,
thisincludesseveralCanadianoilsandsprojects.
mb/d
3.5
Non-OPEC Supply: Project Start-ups

per annum
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2009 2010 2011 2012 2013 2014 2015
Jun 2010 Forecast
Dec 2009 Forecast
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-8%
Non-OPEC Supply: Implied Decline

Rates over Forecast Period
-5.1%
-5.4%
-5.8%
-6.4% -6.6%
-7.3%
Crude & NGLs

Jun 10 Forecast
Crude only
Dec 09
Jun 09
However,notonlynewfieldsaffecttheoutlook.Mature,postplateauoilfieldsenterproductiondecline
as reservoir pressure drops. Individual field decline rates can vary from 12% per year onshore to in
excess of 30% annually offshore. Through the course of the year, individual field decline rate
assumptionsforthefutureareadjustedinOMRprojectionsbasedonobservedfieldperformance.We
attempt to make allowance for nongeological events such as mechanical outages, unscheduled field
stoppages, and prolonged field maintenance. The net result of our individual field decline can be
representedinanimplieddeclineproxy,calculatedbynettingoffnewproductionfromthenetgrowth
or decline in total regional production in our forecast. This will tend to be lower than actual field
decline,asthenumberreflectsimplieddeclinefortheentireproductionbaseload(fieldsatplateauor
rampingupsupply,aswellasthoseinpostpeakdecline).Howeveritservesasagoodataglanceproxy
forwhatishappeningtotheportionoftoday'sproductionwhichdoesnotcomprisenewfieldstartups.
OECD/IEA, 2010
This implied decline proxy came in lower in 2008 and 2009 than we had expected. Established fields
have therefore performed better, something reflected in our deployment of lower individual field
decline rates within our new projections. For 20092015, implied decline equates to 5.1% annually,
comparedwiththe5.8%assumedintheJune2009MTOMR.Thisisnottosaymaturefielddeclineisno
longer an issue. Even at these assumed lower rates, nonOPEC supply still loses the equivalent of
1.9mb/d of capacity each year (and OPEC supply a further 1.2mb/d). Rather, it suggests that higher
prices,lowercostsandrevivedspendinghaveeasedsomeofthepressuresonsupply.
ExamplesofwherewehaveactivelyadjusteddeclineratesincludeColombia,whichhasseenarecent
surgeingrowthduetoanimprovedinvestmentregimeandbetterthanexpectedperformanceatsome
keyfields.Russiatoo,whichsurprisedontheupsidein2009,hasbeenreassessedinlightofthisand,
while production is expected to remain relatively flat overall, this nonetheless implies slightly slower
declineatmatureassets.ThesameistrueoftheUK,NorwayandMexico,wherestructuraldeclinein
outputisnowseentobetakingplaceataslightlyslowerpace.
65
Dissecting the Changes: More Upstream Projects and Slower Decline Rates
(continued)
Todemonstratetheimpactofsuchashift,asensitivityexerciseshowsthateach0.5%incrementalshift
inimpliedannualdeclinehasanimpactofaround1m/donprospectivenonOPECsupplyby2015.This
illustratestheextremesensitivityofsupplytodeclinerateassumptionsandcautionsthatrecenthigher
thanexpected spending, while encouraging, nonetheless
Non-OPEC Supply: Decline Rate
needs to be sustained in years to come to prevent a mb/d
Sensitivity
55
renewedsharpdownturninnonOPECsupply.Inthenow
higher price environment we are assuming for the
54
projection period, we have dispensed with the lower
53
supplysensitivity(ofaround0.5mb/d)whichweillustrated
52
last year. That said, huge risks persist on the supply side
51
whichcouldagainunderminethismoreoptimisticoutlook
50
ifinvestmentopportunitiesagainbecomesqueezed.
2009 2010 2011 2012 2013 2014 2015
Turningagaintonewprojectassumptions,theforecast
-4.1%
-5.6%
-4.6%
-6.1%
includes only those projects already underway or for
Base case (-5.1%)
whichdetailed investment approval hasbeen granted.
Suchinvestmentsareunlikelytobehaltedandinanycasehaveusuallybeenplannedonthebasisof
conservativepriceassumptionswellbelowtherecentrange.Insummary,itwouldappearthatthekey
causes of recovery in nonOPEC supply in 2009 were several. Firstly, the more rapid than expected
realisationofaseriesofnewprojectsinwhichinvestmentwasbegunearlierinthedecade.Second,the
largely unforeseen turnaround in Russian upstream fortunes, and thirdly an absence of the extensive
hurricanerelatedshutinsintheUSGulfofMexicoseenin2008.Butthelessheadlinegrabbingimpact
ofwidespreadincrementalspendatmatureassetsalsoplayedanimportantrole.
OECD/IEA, 2010
Revisions to Forecast
Regionally,thelargestupwardrevisionstoforecastcompared totheDecember2009mediumterm
updatearefocusedontheOECD,mostlyinNorthAmerica(+290kb/donaverage),butalsoinEurope
(+175kb/d),whiletheoutlookfortheOECDPacificisleftlargelyunchanged.ForNorthAmerica,this
reflectsasubstantialadjustmenttotheUS,wherecrudeandNGLsuppliesareseenhigherinyearsto
come,whileinCanada,reactivatedoilsandsprojectsoffsetdownwardrevisedconventionalcrude.
Mexicancrudeproductionisstillforecasttodeclinesharply,butslowerthanpreviouslyassumed.
ThenonOECDasawholeisreviseddownbyanaverage50kb/d.Regionally,forecastsforOtherAsia,
China and the FSU are adjusted by 105kb/d, 65kb/d and 50kb/d respectively, partly offset by
upwardadjustmentstoLatinAmerica(+85kb/d),theMiddleEast(+45kb/d)andAfrica(+25kb/d).
Globalbiofuelsarerevisedupbyanaverage135kb/dperannum,whileprocessinggainswereleft
broadlyunchanged.
Forindividualcountries,thelargestupwardadjustmentsmade(onaverageperannum)aretotheUS
(+135kb/d), Russia (+110kb/d), Colombia (+105kb/d) and Canada (+60kb/d), as well as, perhaps
moresurprisingly,Mexico(+95kb/d),Norway(+90kb/d),Egypt(+90kb/d),andtheUK(+80kb/d).In
Egypt,theadjustmentislargelyduetoabaselinerevisiontoNGLs,whileinMexico,Norwayandthe
UK, erstwhilerapiddeclineappearstohaveslowed.
The largest downward revisions are in Azerbaijan (95kb/d), China (65kb/d), Kazakhstan, Sudan,
MalaysiaandIndonesia(eacharound50kb/d).Fortheformerthree,itisacaseofslowerassumed
66
growth,whileinMalaysiaandIndonesia,itisfasterdecline.InSudan,adryingupofinvestmentdue
topoliticalinstability,sanctionsandpossiblesecessionofthesouthhaveledtoareassessedprofile.
mb/d
0.6
Non-OPEC Supply Revisions 2009-14

by Region
mb/d
0.15
Non-OPEC Supply Revisions 2009-14

by Country
0.10
0.4
0.05
0.2
0.00
0.0
-0.05
-0.2
-0.10
Sustained Spending and Access to Reserves Will Drive Future Prospects

Oneyearago,IEAresearchanticipatedadeclineof21%inupstreaminvestmentin2009,atatimewhen
oil prices had plummeted and the scope of the credit crunch and subsequent global recession was
becomingapparent.TheJune2009MTOMRincludedafeatureonhowthiscouldpotentiallyimpacton
nonOPECsupplyintheshorttomediumterm(seeDownsideRiskstoNonOPECSupplyDuetoLower
Investment? in June2009 MTOMR). The reality proved to be different, as oil prices recovered and
subsequentlystayedrelativelysteadyina$6585/bblrangeoverthepastyear.
Upstream investment in 2009 did not fall as sharply as we had anticipated current estimates range
between1015%.And,aswehavepointedoutbefore,thisshortfallwasinanycasepartlyoffsetbya
contemporaneousfallinupstreamcostsintherangeof12%yearonyear,measuredattheendof2009
(according to IHS/CERAs UCCI Index and confirmed by data released by the US Bureau of Labor
Statistics). Another offsetting factor in some countries was currency devaluation,e.g. in Russia, which
helpedcushiontheupstreamfromexpectedactivitydeclines.Costsfornowappeartohavestabilised,
although new sources of oil are generally becoming more expensive, all the more so if widespread
adoptionofapriceonCO2materialises.Andintheshorterterm,significantincreasesininternational
ironorecontractpricesmayhelpplaceafloorunderupstreamcosts.
IHS/CERA Upstream Capital Costs
Index (UCCI)
Index (2000=100)
240
220
3Q08: 230
200
180
160
1Q10: 201
140
120
Source:IHS/CERA
80
OECD/IEA, 2010
300
140
260
130
220
120
180
110
140
100
90
100
2000
Producer Costs (Jan 2004 = 100)

150
2002
2004
2006
2008
2010
100
Source:USBureauofLabor Statistics
60
2004 2005 2006 2007 2008 2009 2010

Machinery & Equipment
Support Activities
Drilling - RHS
Estimatesof2010upstreaminvestmentcurrentlyrangebetween812%growthversus2009.Rigcounts
covering exploration and development have recovered globally and in the US have surged to their
highest level since early 1991, reflecting a surge in onshore activity in new areas such as the Bakken
Shale (albeit offshore drilling activity will be curbed following the Macondo disaster in the Gulf of
MexicoseePotentialImplicationsofUSGulfOilSpill).
67
Sustained Spending and Access to Reserves Will Drive Future Prospects
(continued)
Butclearlyriskstothedownsideremain.Basedupontherecentfuturesstrip,thisreportassumesthat
crude oil prices remain near $72/bbl in real terms throughout the forecast period. But, as our Lower
GDPandEfficiencyScenarioillustrates,werecognisethattherearestillhugequestionmarksoverthe
globaleconomicrecoveryandanyslowingindemandcouldrapidlyhaveanimpactonanalreadyamply
suppliedoilmarket.AshighlightedbytherecentoilspillintheUSGulfofMexico,theregulatoryand
investmentenvironmentcouldrapidlychangestrictersafetyrequirementsandtighterinspectionswill
likelybeimplementedandarebeingconsideredoutsidetheUS,evenifmoreextremecallsforatotal
banonoffshoredrillingduetoenvironmentalrisksareunlikelytoberealised.
After oil prices fell from mid2008 heights, resource nationalism has to some extent ebbed as
evidencedbyarekindledinterestinforeigninvestmentinVenezuelaandelsewhere.Iraqsopeningto
foreigninvestmentcouldproveasourceofsubstantialnewsupply(seeIraqiEffortstoBoostCapacity
FaceHeadwinds).ThereareanumberofkeynonOPECcountrieswheremootedchangestofiscaland
investmentregimescouldmakeasignificantdifference.TheyincludeRussia,whereexemptionstothe
crudeexportdutyandtheMineralExtractionTax(MET)havearguablyunderpinnedtherecentboostin
output for greenfield projects in Eastern Siberia, but uncertainty remains over the duration and
expansionoftheseadjustments.InBrazil,proposedlegislationthatwouldregulatethedevelopmentof
the huge, recentlydiscovered presalt reserves is making its way through Congress and will likely
determinethespeedatwhichtheseresourceswillbebroughtonstreamaswellasthedegreetowhich
foreigncompaniesbecomeinvolved.
4,000
Global Rig Count
US Rigs Drilling for Oil

600
500
3,500
400
3,000
300
2,500
200
2,000
100
Source:BakerHughes
Source:BakerHughes
0
1,500
Jan
Mar
May
Range 2005-09
2009
Jul
Sep
Nov
Avg 2005-09
2010
Jan
Mar
May
Range 2005-2009
2009
Jul
Sep
Nov
Avg 2005-09
2010
OECD/IEA, 2010
In OECD countries too, where oil production is mostly in steady decline, changes to the investment
environment have the potential to regulate that decline. Mexico, which has seen crude output fall
rapidly from a high of 3.4mb/d in 2004 to 2.6mb/d in 2009 and is constitutionally prevented from
allowing direct foreign participation in its upstream sector, has put in place an arrangement whereby
servicecompaniescanhelpittoaccessoilinchallengingareas.TheUKandNorway,whoseeraofmajor
discoverieshasarguablypassed,arekeentosetincentivestoencouragethedevelopmentofmarginal
fieldsandtomaximiserecoveryfrommatureassets.AndinAustralia,aproposedsupertaxisthought
bysometohavethepotentialtosignificantlycurboilproductioninyearstocome.
The degree to which this uptick in nonOPEC supply is sustained beyond middecade will depend on
ongoing increases in real spending and continued improvements in national investment terms and
access to reserves. Again, this brings the importance of the Macondo disaster into sharp focus,
suggesting a need for regulation that balances safety and environmental sustainability, with an
avoidance of placing large swathes of deepwater resources completely off limits. On a more upbeat
note, the assumed strength in prices looking ahead, and the potential for ongoing technological
advances,suchashaverecentlytransformedthenaturalgasmarket,suggestitisprematuretodismiss
prospectsfornonOPECsupply.
68
Sources of Non-OPEC Supply Growth

Regionally, sources of growth are largely unchanged from previous reports, with higher output in
LatinAmericamakingupmostoftheincrement,followedbyincreasesinglobalbiofuels,theFSUand
NorthAmerica.DeclineisbyfarthemostpronouncedinOECDEurope.
mb/d
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
Non-OPEC Supply: 2009-2015

by Region
mb/d
1.2
Non-OPEC Supply: 2009-2015

by Country
0.8
0.4
0.0
-0.4
Canada
Biofuels
Brazil
Colombia
K'stan
Az'jan
Ghana
Russia
Syria
Sudan
Australia
Norway
Mexico
USA
UK
-0.8
OECD/IEA, 2010
Intermsofindividualcountries,mostgrowthwillcomefromCanada(+1.1mb/d),followedbyglobal
biofuels and Brazil (each +840kb/d), Colombia (+450kb/d), Kazakhstan and Azerbaijan (+300kb/d
and +175kb/d respectively) and Ghana (+170kb/d). Oil supply will decline most in the UK
(580kb/d), the US and Mexico (each 480kb/d), Norway (445kb/d), Australia (180kb/d), Sudan
(165kb/d)andSyria(145kb/d).Relativelyspeaking,Colombiasrisetoprominencein thegrowth
rankingisperhapsthemostnoticeablechange.AlsonoteworthyisthatRussiasoilproductionprofile
isnowexpectedtostayflatoverthe20092015forecastperiod,albeitwithariseinmidforecast.
Onecleartrendisunchangedfrompreviousreports. mb/d Non-OPEC Supply - Yearly Change

While nonOPEC conventional crude is projected to 1.0
0.8
decline over the forecast period, to the tune of 0.6
1.0mb/d, this is more than offset by growth in 0.4
globalbiofuelsof+840kb/d,othernonconventional 0.2
0.0
oil (+715kb/d largely Canadian syncrude), NGLs -0.2
(+425kb/d) and a small increment in refinery -0.4
processing gains (+35kb/d). But compared to -0.6
-0.8
previous forecasts, the crude production decline is
2010 2011 2012 2013 2014 2015
noticeably less pronounced, with a small yearon
Crude
NGL
Processing Gains
Non-conventional
year increment in 2014, a year in which annual
Global Biofuels
Total
increases in Azerbaijan, Kazakhstan, Brazil and
Ghana are particularly pronounced. This can largely be traced to the projected startup of specific
projects,includingtheWestChiragplatforminAzerbaijan,KashaganinKazakhstan,theJack/StMalo
andMadDogprojectsintheUSGoM,aswellasastringofstartupsinCanadianoilsands.
69
The Evolution of Crude Oil Production by Quality

Crudeoilsupplyissettobecomesweeterandlighterbythemiddleoftheforecastperiodascondensate
andlightercrudeproductionintheFSUandMiddleEastincreases.However,between2012and2015,
decliningNorthSeaoutputcombinedwithariseinproductionofCanadianunupgradedbitumenand
LatinAmericancrudesreversesthetrendandonaveragecrudeoilbecomesheavierandsourerby2015.
API
degrees
Sulphur
(%)
Global Crude Quality

2009-2015
33.5
33.4
API
degrees
1.15
32.6
1.14
32.5
1.13

2009-2015
Sulphur
(%)
(excluding condensate)
1.20
1.19
1.18
32.4
1.17
1.12
33.3
1.11
33.2
1.10
32.3
1.16
32.2
1.15
2009 2010 2011 2012 2013 2014 2015

API
Sulphur (RHS)
2009 2010 2011 2012 2013 2014 2015

API
Sulphur (RHS)
Current Gravity & Sulphur1
40.0
API
Africa
Middle
East
FSU
35.0
Europe
World
AsiaPacific
Heavy
30.0
Changes in Quality 2009-2015
1.00
AsiaPacific
0.60
Middle
East
FSU
Latin
America
0.20
World
-0.20
Africa
-0.60
North
America
1.5
1.0
0.5
Europe
-1.40
0.0
Sweet
Sulphur %
1 Symbols proportionate in size to regional production.
Sour
North
America
-1.00
Latin
America
25.0
2.0
OECD/IEA, 2010
API
1.40
Lighter
Light
OutputwillbecomelighterasweightedaverageAPIgravityrisesfrom33.2to33.5by2012,withLatin
America,theMiddleEastandFSUcontributingtomuchoftheshift.Incontrasttoourpreviousforecast
ofstableAPIbytheendoftheperiod,currentprojectedAPIgravityfallsto33.3by2015,atrendmainly
due to developments in North America and Europe. In terms of sulphur content, oil supply becomes
sweeterintheearlieryearsandhitsafloorof1.11%ofsulphurin2011,becauseofhighercondensate
output and production capacity of lighter crudes in the Middle East. By 2015, as more barrels from
Canadianbitumenproductionreachthemarket,availablefeedstocksbecomesourer,reaching1.14%.
0.16
0.08
0.00
Sulphur %
-0.08
-0.16
Sweeter
The most significant change in quality in 20092015 is seen in North America, where crude becomes
heavierandsourerasproductionofAlbertanbitumenpicksupinthesecondhalfoftheforecastperiod.
TheprojecteddecreaseinNorthSeaoilproductionseesEuropeanweightedaverageAPIfallingbyone
degree.On the other hand,the start ofproduction of light Kashagan crude at the end of 2013 drives
overall FSU oil quality higher, while the decline in comparatively heavy Chinese crude oil production
causes Asia's API to rise by one degree. Latin American crude, traditionally heavier than the global
average,becomesslightlylighterandsweeterduetotheadditionofBrazilpresaltcrudeoilproduction
and despite a rampup from the heavy Colombian Rubiales and Castilla fields. All in all, global oil
suppliedtorefinerswillbecomeslightlylighter,butsourerby2015.
70
Regional Breakdown
North America
North America is the region to see the strongest upward adjustment to forecast, an average
290kb/d,withrevisionstotheUS(+135kb/d),Canada(+60kb/d)andMexico(+95kb/d).Theregion
asawholeisnowprojectedtoseetotalsupplyincreaseby110kb/dby2015,withstronggrowthin
CanadaoffsetbyheftydeclineintheUSandMexico.TheUSsawthesinglelargestupwardrevisions
to forecast in this MTOGM. Other Lower48 production is seen stronger on robust recent
performance, while Gulf of Mexico output is adjusted slightly lower. Over the forecast period
however,onlythelatterisexpectedtoseeincrementalcrudeproduction,growingby125kb/d,thus
onlypartlyoffsettingadeclineinothercrudeproducingareas.UScrudesupplywillfallby375kb/d.
NGLsupplyisexpectedtodeclineby130kb/d,whileotherhydrocarbons(excludingfuelethanol)will
riseby30kb/d.TotalUSsupplywillthereforefallby480kb/dto6.9mb/din2015.
mb/d
16
14
12
10
8
6
4
2
0
2009
North America Total Oil Supply
North America Total Oil Supply y-o-y
0.40
0.20
0.00
-0.20
-0.40
2010
2011
US - Total Crude
Canada - Conventional Crude
Mexico - Crude
OECD/IEA, 2010
mb/d
0.60
2012
2013
2014
US - NGL
Canada - Oil Sands
Other
2015
2010
2011
2012
2013
2014
US - Total Crude
US - NGL
Canada - Conventional Crude
Canada - Oil Sands
2015
Total oil supply in Canada will rise from 3.2mb/d in 2009 to 4.3mb/d in 2015, an increment of
1.1mb/d, with growth in bitumen and mined upgraded synthetic crude of 910kb/d and 650kb/d
respectively offsetting a decrease in other conventional crude of 410kb/d and a dip in NGLs of
85kb/d.Totaloilsandsproductionhasbeenreassessedaftermanyprojectswerereactivated.Ayear
ago, Canadian oil sands were seen as the sector hardest hit by lower oil prices and the projected
downturnininvestment.Intheend,fewprojectswereactuallycancelledbutinsteaddelayed.Their
resuscitation boosts the tail end of the forecast in particular. In addition, oil sands growth has
benefitedfromthedeclineinthepriceofnaturalgas(usedextensivelyinextraction)which,wereit
to rise again, could impose constraints on incremental supply. Potential future constraints to CO2
emissionscouldalsoslowgrowth,ascouldbothexportinfrastructurelimitationsandagrowingneed
fordiluentimportsusedtoaidtheflowofotherwiseveryviscousbitumen.
Oil production in Mexico is forecast to drop from 3.0mb/d in 2009 to 2.5mb/d in 2015, due to a
declineincrudeoutput.Inthelightofrecent,partialsuccessinslowingdeclineattheCantarellfield,
Mexicosproductionprofilehasbeenliftedslightly.Nonetheless,assuminganaveragedeclinerateof
20%,Cantarellsoutputcouldstillfalltoonly200kb/dby2015fromacurrent520kb/d.KuMaloob
Zaap (KMZ) output is seen to increase to a peak of 850kb/d in 20102011 and then to slow to
700kb/d by 2015. Despite Pemexs best attempts to boost output at the complex onshore
Chicontepecfield,weassumeonly100kb/doutputby2015.Ontheotherhand,weexpectaround
250kb/dofnewcrudeoutputby2015fromshallowwatersoffshoreTabascostate.
Mexico - Crude
Other
71
Potential Implications of US Gulf Oil Spill

ThesinkingoftheDeepwaterHorizonoffshoredrillingrigon22Aprilhasresultedinthelargestoilspill
in US history. An estimated 2040kb/d of crude oil (earlier estimates were 1219kb/d) have been
leaking into surrounding waters, amounting to some 0.52mb by 14June (compared to the 250kb
spilledintheExxonValdezincidentin1989).NoneofBPsattemptssofartocompletelyhalttheleak
havebeensuccessful,includingreactivatingthefailedblowoutpreventer,mountingadomeortophat
on top of the leak, or an attempt to clog the well using drilling mud (top kill) and solid waste (junk
shot).Atwriting,BPwassiphoningoffaround15kb/dthroughaLowerMarineRiserPackageplacedon
topoftheleakingwell,andwashopefulitcouldeventuallycatchmostoftheleakage.BPisalsodrilling
tworeliefwellsnearby,totaptheMacondowellbeneaththeseafloorandcuttheflowofoilandgas
permanently. However, these wells will likely take until at least August to complete and potentially
longerifhurricanedisruptionoccurs.
On27May,PresidentObamaextendedanearliermoratoriumonnewdeepwaterdrillingtosixmonths.
Allwellscurrentlyinoperationwillbeallowedtocontinueproduction,whiledrillingindepthslessthan
500feet will be unaffected. Exploratory drilling planned for summer 2010 offshore Alaska was
postponed. Lease sales planned for the Gulf of Mexico in August and offshore Virginia in 2011/2012
were cancelled. President Obama has established a bipartisan National Commission on the BP
DeepwaterHorizonOilSpillandOffshoreDrilling.Thisbodywillmakerecommendationshowtoprevent
andmitigatetheimpactofanyfuturespillsthatresultfromoffshoredrilling.TheCommissionwill
reportwithinsixmonths.TheMineralsManagementService(MMS)istobebrokenintothreedistinct
bodies,separatingthefunctionsofenergyleasing,revenuecollection,andsafetyenforcement.
Regional crude and natural gas production of kb/d
US Oil Supply: Change 2009-2015
150
around 1.7mb/d and 2.7tcf/y, respectively, is
100
continuing as normal and no shortterm impact
50
uponregionalproductionisexpected.Similarly,oil
shipment and refining operations are unaffected.
0
US Gulf of Mexico crude oil and gas production
-50
makeuparound30%and11%respectivelyoftotal -100
US domestic output. June however marked the -150
startofthehurricaneseason,with2010expected -200
to be particularly active. While it is not normally -250
until August/September that storms impact upon
Alaska
California
NGL
offshore operations, early storms this year could
Texas
Other Lower 48 Other
Gulf of Mexico
affect attempts to deal with the leak and the
spreadoftheoilslick(thoughtheycouldalsohelptodispersetheoil).Longerterm,themoratoriumon
drilling new deepwater wells could delay new oil and gas development projects. Existing production
might ultimately be affected, as oil fields need regular workover to maintain production, albeit this
activityisfornowunrestricted.
OECD/IEA, 2010
Meanwhile,theimpactontheregionaleconomyandenvironmentishighlysignificant.Despitethescale
of the cleanup effort, crude oil has now reached the coastline near Pensacola in Floridas western
panhandle, having previously hit Louisiana, Mississippi and Alabama. Large swathes of the local
economyhavebeenbadlyhit,includingfishing,shrimpingandtourism,thelatterofmajorsignificance
for Florida. Some 35national wildlife refuges are at risk and several hundreddead birds have been
collected.CriticismhastargetedBP,theUSgovernmentandthebroaderoilindustry.Thegovernment
maytrytoharnesschangingpublicsentimentbehindlegislationaimedatweaningtheUSawayfromoil
use,andmitigatingclimatechange.However,movesthatadverselyaffectlocaloilindustryemployment
carrytheirownpoliticaldifficulties.
72
Potential Implications of US Gulf Oil Spill
(continued)
At present there is no certainty over specific regulatory and permitting changes that may be
implementedintheaftermathofDeepwaterHorizonandsonocertaintyovertheultimateimpacton
regionalproduction.Purelyforillustration,assuming12yearsofdelayforallplannednewdeepwater
oilfield projects implies 2015 productionfrom the US Gulf of Mexico of 100300kb/d less than in our
workingcaseproductionforecast.Regulatoryproceduresandoperatingconditionsdifferfromcountry
to country, so extrapolating any potential delays in the Gulf to other deepwater regions has limited
analytical value. Nonetheless, Canada, the UK, Norway, Brazil and China are all examining existing
proceduresinlightofthedisaster.Afurther550kb/dofexpected20092015productiongrowthfrom
deepwater Brazil, Angola and Nigeria could be at risk, albeit there are no current indications that
permittinginthesecountriesislikelytobeaffected.
OECD Europe
Asinpreviousreports,OECDEuroperemainstheregionwiththemostpronounceddecline.Totaloil
supplyisprojectedtofallfrom4.5mb/din2009to3.3mb/din2015.TheUKisanticipatedtoseethe
sharpestdrop,withoutputfallingfrom1.5mb/din2009to0.9mb/din2015,asnewfieldstartups
only marginally slow declining output from mature fields. Nonetheless, UK oil supply has been
revisedupby80kb/donaverage,withdeclinehavingslowedonstrenuouseffortstoraiserecovery
ratesandextendfieldlife,asforinstancetaxbreaksforcertainnewfielddevelopmentsannounced
in 2009 and renewed earlier this year. Compared to an average annual decline of 200kb/d from
20002006, 2008 and 2009 each saw a drop of only 100kb/d and the average annual decline in
outputforthe20102015periodisforecasttoremainatasimilarlevel.
mb/d
5
OECD Europe Total Oil Supply
mb/d
0.10
OECD Europe Total Oil Supply y-o-y
0.00
3
-0.10
2
1
0
2009 2010 2011 2012 2013 2014 2015
UK
Norway
Other Europe Crude
Other Europe NGL
Other Europe Non-Conv. Other
-0.20
-0.30
2010 2011 2012 2013 2014 2015
UK
Norway
Other Europe Crude
Other Europe NGL
Other Europe Non-Conv. Other
OECD/IEA, 2010
Norway too is revised up an average 90kb/d on stronger recent performance and efforts to stem
decline.Nonetheless,whileincomparisontotheUK,Norwaysremainingreservebaseissignificantly
larger, many mainstays of current production such as the Ekofisk, Gullfaks, Oseberg, Statfjord and
Trollcomplexesareinsteadydecline.TotalNorwegianoilsupplyisforecasttofallfrom2.4mb/din
2009to1.9mb/din2015.NGLandcondensategrowbyacollective50kb/dwhilecrudeoildeclines
by500kb/dby2015.Meanwhile,therecentUSGulfoilspillhasraisedconcernsaboutsimilarleaks
in sensitive environments in Norway, for instance making the opening up of acreage offshore the
Lofotenislandslesslikely.
73
OECD Pacific
OilproductionintheOECDPacificisexpectedtofallfrom650kb/din2009to460kb/din2015asa
resultoflowerAustralianoutput.There,oilproductionisforecasttorisefrom550kb/din2009to
625kb/dby2011asnewfieldsrampupproduction,butthentodeclineagainto375kb/dby2015in
the absence of further new projects. A proposed supertax of 40%, to be levied on production of
naturalresourcesfrommid2012,couldcurbupstreaminvestment.Asmallincrementof25kb/din
NGLsduetoLNGstartupswillslightlyoffsetadeclineof205kb/dincrude.
mb/d
0.8
OECD Pacific Total Oil Supply
mb/d
0.10
0.6
0.05
0.4
0.00
0.2
-0.05
0.0
-0.10
2009 2010 2011 2012 2013 2014 2015

Australia - Total Crude
Australia - NGL
New Zealand - Crude
Japan - NGL
Korea - Non-Conv.
Other
OECD Pacific Total Oil Supply y-o-y
2010 2011 2012 2013 2014 2015

Australia - Total Crude
Australia - NGL
New Zealand - Crude
Japan - NGL
Korea - Non-Conv.
Other
OECD/IEA, 2010
Former Soviet Union (FSU)

FSUoilproductionisreviseddownbyanaverage50kb/d,butremainsoneofthemainsourcesof
growth for nonOPEC supply. Russian output is adjusted up by 110kb/d on strong recent
performance,withmoretocomefromanumberofkeyfields.Nonetheless,totalsupplyisseenflat
overallat10.2mb/dovertheforecast,albeitwithariseto10.4mb/din20102011.Towardstheend
oftheperiod,therelativeeffectofincreasesatVankorandotherlargenewfieldsismorethanoffset
by decline in mature West Siberian and other assets. Russia does however see strong growth of
250kb/din NGLoutput, whichisexpectedtorisefrom590kb/din2009to840kb/din2015.This
offsets a similar decline in crude production. NGLs are seen growing on a greater utilisation of
associatedgasduetoahigherliquidsratioindeeperreservoirs,greatermonetisationofthesegas
liquidsasrelevantinfrastructureisexpanded,andduetocurbsonflaring.
This report assumes todays policies persist, though as argued before, key tax breaks have likely
incentivisedgrowthatgreenfieldprojects,especiallyinEasternSiberia.Theseprojectswerelongin
conception and other factors such as rouble devaluation also contributed to output growth. The
issueofwhetherthesetaxbreaksremaininplace,areextendedintimeandlocation,perhapsalsoto
maturebasins,orwhethertheyaregraduallyreducedinordertoboosttaxrevenues,remainsoneof
thelargeruncertaintiesinourforecast.Despiterecentupwardrevisionstothebaselineandforecast
onthebasisofperformancein2009andinearly2010,weremaincautiousinthemediumterm,still
assumingthattheweightofRussiasmaturebaseloadsupplywilloffsetnewsourcesofgrowth.
The forecast for Azerbaijan is revised down by an average 100kb/d, but still sees oil supply grow
from1.1mb/din2009to1.2mb/din2015.ThelargeAzeriChiragGuneshli(ACG)offshorecomplex
willcontinuetoprovidethebulkofAzericrude,albeitincrementalsuppliesmaynowbeonaslower
timeline.Followingagasleakinmid2008,whichshutdownsomeoftheplatforms,outputappears
nevertohavefullyrecoveredtopreviouslevels.Moreover,ACGwillseecontinuedgrowthfromthe
74
GuneshliDeepcomplex,aswellasthe startupofthe185kb/d ChiragOilProjectin late 2013,the

nextlargestepindevelopment.
Oil supply in Kazakhstan is also adjusted down by an average 50kb/d on a reassessment of the
timing of key projects, including the next stage in the Karachaganak condensate field and most
importantly, startup of the supergiant Kashagan field. Already much delayed, our forecast now
assumesfirstoilfromKashaganattheendof2013,withincrementsin2014and2015,bywhichtime
weforecastoutputwillhavereached300kb/d.TotaloilproductioninKazakhstanisforecasttorise
from1.6mb/din2009to1.9mb/din2015.
mb/d
16
14
12
10
8
6
4
2
0
FSU Total Oil Supply
FSU Total Oil Supply y-o-y
mb/d
0.40
0.30
0.20
0.10
0.00
-0.10
-0.20
-0.30
2009
2010
2011
2012
2013
2014
2010
2015
Russia - Crude
Russia - NGL
Azerbaijan
Kazakhstan
Turkmenistan
Other
Asia
2011
2012
2013
2014
2015
Russia - Crude
Russia - NGL
Azerbaijan
Kazakhstan
Turkmenistan
Other
TotalnonOPECAsianproductionisreviseddownby170kb/donaverageandisexpectedtodecline
over the forecast period, from 7.4mb/d in 2009 to 7.3mb/d in 2015. Chinas production profile is
adjusteddownby65kb/dandisexpectedtodipfrom3.8mb/dto3.7mb/din2015,albeitwitha
surge to 4mb/d in 2012. While production from new offshore fields and some key onshore areas
suchasChangqingandYanchangwillcontinuetorise,someofitslarge,olderfieldssuchasDaqing
and Shengli face steady decline. Elsewhere, Papua New Guinea and Thailand will each see growth
around35kb/dby2015,whileMalaysiasoutputissettodropby45kb/d.IndiaandIndonesiaare
both expected to have a flat production profile. Despite regional crude production slowing, due to
risingnaturalgassupply,regionalNGLoutputwillrisefrom660kb/din2009to830kb/dby2015.
mb/d
4.1
China Total Oil Supply
4.0
Other Asia Total Oil Supply y-o-y
0.10
4.0
0.05
3.9
0.00
3.9
3.8
-0.05
3.8
-0.10
3.7
-0.15
3.7
2010
3.6
2009 2010 2011 2012 2013 2014 2015
OECD/IEA, 2010
mb/d
0.15
2011
2012
2013
2014
2015
Indonesia
India
Malaysia
Thailand
Vietnam
Other
75
Latin America
NonOPECLatinAmericaisforecasttoseethestrongestregionalgrowthbyfar,risingfrom3.9mb/dto
5.1mb/dby2015,duetorobustgrowthinBrazilandColombia.InBrazil,crudeoutputisexpectedto
growby815kb/dto2.8mb/d,alloffshoreandnearlyhalfofwhichwillstemfromproductionatnew
presaltfieldsincludingGuara,Iara,ParquedasBaleiasandmostimportantly,Tupi.Inthelongerterm,
thepaceofdevelopmentofthehugepresaltreserveswilldependuponanewlegislativeframework,
whichiscurrentlymakingitswaythroughCongress.Existingcontracts,includingthealreadysanctioned
projectsincorporatedinourforecast,wouldnotbeaffected,buttheproposaltomandatePetrobrass
operatorship in all new presalt developments and an attempt to source most of the related
construction, infrastructure and service work domestically could slow production increases.
Meanwhile,NGLoutputwillgrowamarginal20kb/d,hitting100kb/din2015.TotalBrazilianoilsupply
(excludingfuelethanol)isforecasttogrowfrom2.0mb/din2009to2.9mb/din2015.
mb/d
6
Latin America Total Oil Supply
mb/d
0.40
Latin America Total Oil Supply y-o-y
0.30
0.20
3
0.10
0.00
-0.10
0
2009
2010
2011
2012
2013
2014
2015
2010
Brazil-Crude
Brazil-NGL
Argentina
Brazil-Crude
Colombia
Peru
Other
Colombia
2011
2012
2013
2014
2015
Brazil-NGL
Argentina
Peru
Other
In terms of growth, Colombia is the new star on the nonOPEC horizon. Oil production is now
forecast to grow from 675kb/d to 1.1mb/d by 2015, following an average upward revision of
100kb/d. Changes to the investment environment such as a more competitive exploration rights
biddingframeworkandlargeareasmadeavailableinlicensingroundsinrecentyearsarepayingoff.
Thusgrowthatsomenewfields,includingRubialesandCastilla,hasbeenimpressive,withthosetwo
for instance showing combined yearonyear growth of 70kb/d alone by February 2010. Their
operators have ambitious plans to boost output further, aided by new infrastructure being put in
placetobringcrudefromtheLlanosareatocoastalexportterminals,aswellasanimprovedsecurity
environment. Peru is forecast to see growth of 75kb/d by 2015, while in Argentina, output is
expectedtodeclineby90kb/d.
Middle East
OECD/IEA, 2010
NonOPECMiddleEastoilproductionisrevisedupby45kb/donaveragebutisnonethelessforecast
todeclinefrom1.7mb/dto1.5mb/dby2015.ProductioninSyriaisanticipatedtofallquitesharply,
from385kb/dto240kb/dby2015,duetotherelativematurityofexistingfields.Yemenwillalsosee
outputdecline,by95kb/d,whileinOman,astringofenhancedoilrecovery(EOR)projectswillboost
output from 815kb/d in 2009 to a high of 930kb/d in 2011, before production drops off again to
865kb/din2015.
76
mb/d
2.0
Middle East Total Oil Supply
Middle East Total Oil Supply y-o-y
mb/d
0.10
1.5
0.05
1.0
0.00
0.5
-0.05
-0.10
0.0
2009
2010
2011
2012
2013
2014
2010
2015
2011
2012
2013
2014
2015
Oman
Syria
Yemen
Oman
Syria
Yemen
Bahrain
Jordan
Other
Bahrain
Jordan
Other
Africa
NonOPECAfricanproductionisrevisedmarginallyandisforecasttodeclineby100kb/dto2.4mb/d
in2015.GhanawillsoonseeoutputstartatitslargeJubileefield,boostingoutputfromnearzeroin
2009 to 175kb/d in 2015 and to perhaps 300kb/d or higher in the latter half of the decade.
Exploration indicates that the offshore basin where Jubilee is located may well contain significant
reserves,soGhanaandneighbouringcountriessuchastheIvoryCoastmayyetseemoreactivityand
growthinoutput.Uganda,anothernewcomertooil,willstartoutputintheAlbertLakeareainlate
2011 and reach nearly 50kb/d total output by 2015. Most other producers are forecast to
experienceadeclineinoutput,including,mostsignificantly,Sudan,duetoalackofinvestmentand
politicalinstability,andthepossibilityofsecessionbythesouthernregion.OutputinEgypt,Congo
andChadisalsoexpectedtodeclineovertheforecastperiod.
mb/d
3.0
Africa Total Oil Supply
mb/d
0.15
2.5
Africa Total Oil Supply y-o-y
0.10
2.0
0.05
1.5
0.00
1.0
0.5
-0.05
0.0
-0.10
2009
2010
2011
2012
2013
2014
2010
2015
2011
2012
2013
South Africa
Gabon
Egypt
South Africa
Gabon
Chad
Ghana
Other
Chad
Ghana
Other
Natural Gas Liquids Cornerstone of Global Oil Supply Growth
OECD/IEA, 2010
2014
Egypt
2015
In April 2010, we published Natural Gas Liquids Supply Outlook 20082015. OMR subscribers can
accessthereportatwww.oilmarketreport.org.Globalnaturalgasliquids(NGL)accountedfor13%of
total oil production in 2009 and are forecast to grow by a net 3.0mb/d during 20092015, with
2.6mb/d of the growth from OPEC and 0.4mb/d from nonOPEC countries. Incremental NGL
productionrepresents56%oftotaloilsupplygrowth(5.4mb/d)from2009to2015(seebelow).
77
What are NGLs?

NGLs are light hydrocarbons dissolved in natural gas and produced within the gas stream. They
comprise ethane, propane and butane (collectively LPG), pentanesplus and gas condensates. Here
NGLs are taken to exclude refinerysourced material.
Components of Global Liquids
Above ground, rich gas is unstable, as heavier
mb/d
Growth 2009-15
6.0
componentscondenseandareseparatedfromdrygasin
a processing plant (GPP). Condensate and other NGLs
4.0
distinct characteristics make it useful to distinguish
2.0
between the two. NGLs are extracted to meet dry gas
salescriteria,andtomonetisevaluableliquids.
0.0
-2.0
TheOMRandMTOGMreportallOPECcondensateand
OPEC*
Non_OPEC
Total
other NGLs separately from crude oil, as OPEC
Crude NGL Non-conv
producerscustomarilysetproductiontargetsexcluding
*OPECcrudeiscapacityadditions
gasliquids.FornonOPECcountriesOMRNGLestimates
generally include only gas plant NGLs. For some countries field condensates are also included,
accordingtoofficialreportingpracticesandcondensatemarketing.
OECD/IEA, 2010
ComponentsofLPGareusedasacleanburningheatingandcookingfuel,apetrochemicalfeedstock,
a gasoline blending component and an automotive fuel. In Canada condensates are spiked into
bitumentocutviscosityandlighten/sweetensupply.
Realising Investment in the NGL Value Chain

ThecompetitivenatureofthepetrochemicalfeedstockmarketensuresthatpriceelasticityforNGLs
demandinthatsectorisveryhigh.Incomparison,LPGdemandintheresidentialsectorisrelatively
inelastic. NGL prices are therefore traditionally more volatile than other oil product prices, making
NGLbusinessprofitabilitydifficulttopredict.Giventheuncertainty,plannedgasprocessingprojects
canoftenlingerinthedecisionprocess,whilecondensateisgenerallyeasiertomonetise.
NGL extraction and fractionation form the midstream part of the value chain. Midstream
investmentsaredifficulttoevaluatefromafinancialviewpoint,asthecostsofdevelopingcapacity,
plus segregated storage and shipment have to be balanced against the value of monetising
differentiatedproducts.Infrastructureconstraintscanalsoimpedemidstreamdevelopment.
RealisingacountrysNGLpotentialmaybedeterminedinpartbythewaypetroleuminvestmentsare
plannedandregulated.Firstly,largescalegasdevelopments,betheyLNGorpipelineexportprojects
or countrywide gasification projects, tend to favour NGL investments. The existence of specialist
midstreamcompaniesservicingupstreamoperatorshasbeenthepreferredmodelinNorthAmerica.
Agasprocessingcentrethatactsasahubforanentirecountryorregionalsocreateseconomicsof
scale that make NGL investments profitable. Another model that reduces the risk for midstream
investmentsisanintegratedsystem,regulatedasanaturalmonopoly,suchasinNorway.
NGLs are often developed as a partof a largescale gas development aimed at exports, but liquids
fromsmallerscaledevelopmentsaimedatflaringreductionalsoholdthepotentialtosubstantially
boost local supply and consumption of LPG. In emerging economies, domestic sector use of LPG
representsalogicalearlystepawayfromrelianceontraditionalbiomassfuelsandenjoystheinitial
benefitofactingasabridgebeforemorecostlynaturalgasdistributioninfrastructureisdeveloped.
78
Trends in Natural Gas Production and Implications for NGL Supply
OECD/IEA, 2010
ForecastNGLoutputincreasesatacompoundannual4.2%,whilemarketednaturalgasproduction
increasesby2.0%annually.ThisseestheratioofNGLstodrygasrisefrom20.6%in2009to23.4%in
2012,stabilisinguntil2015.Theincreasingscaleofnaturalgasdevelopments,increasedutilisationof
associatedgasandthetrendofwetnonassociatedgasgraduallyreplacingdry,nonassociatedgasin
some countries (partly due to the development of deeper reservoirs with high pressure and
temperature),allcontributetotheincreasingliquidsratio.However,thereplacementofassociated
gasbydrynonassociatedgasprovidesanoffsetinseveralcountries.
LargegascondensatedepositshavebeentargetedfordevelopmentbyIOCsinrecentyears,withwet
gas reservoirs developed relatively earlier than drier gas deposits as a way of maximising early
project returns. The many LNG projects launched in 20082011 boost global NGL production by an
estimated550kb/d,with380kb/drelatedtoQatarLNGdevelopmentsalone.
Increasedutilisationofnaturalgasisalsoaresultofmeasurestocutflaringofassociatedgas.The
WorldBankestimatesthat140bcmofgaswasflaredworldwidein2008.Measurestoreduceflaring
hereunderpinalargepartoftheprojectedriseinNGLsfromRussia,NigeriaandAngola.Assuminga
conservative average liquids ratio in flared gas of 20% implies that 0.5mb/d of NGLs are flared,
representingbothenvironmentalpollutionandawasteofvaluableenergyresources.
RecentrisinggassuppliesfromdeepwaterGulfofMexicoandfromtightgasintheRockyMountains,
havehadaliquidscontentonaveragetwotothreetimesthatofgasfromshallowwaterandonshore
Texas.ThetrendofwetternonassociatedgasisalsoevidentintheNorthSea,wheredeeper,high
temperatureandpressuredepositshavebeendeveloped.Russiatooisseentappingdeeper,wetter
reservoirs,boostingliquidsyieldsfromacurrentlowbase.Highoilprices,newtechnologyandaccess
restrictionscanfocuscompanyattentiononpreviouslyunattractivegassources.
The rapid development of unconventional gas in North America has transformed perceptions on
globalgassupplyinthenextdecade.Althoughunconventionalgastendstobedry,liquidscontent
varies widely, so longerterm NGL supply projections need to better reflect associated liquids
potentialifunconventionalgasdevelopmentcontinuesapace.Thehighpricespreadbetweennatural
gas and NGL in the USA prompts companies to target wet strata. Coal bed methane is dry, but
coexistsinbasinswithdifferentiatedgeologicalstrataandliquidscontentofmorethan30%.Clearly,
thereispotentialforgreaterliquidsexploitationhere,butbeyondthescopeofthisprojection.
In contrast, Mexico, Egypt, China, India and Australia have large natural gas reserves in drier
reservoirs, whose rising gas production in recent years has constrained liquids ratios overall. Long
term,globalgassupplyisexpectedtobecomedrier.However,risingdrynonassociatedgassupplyin
the Middle East has so far been hampered by subsidised local prices. To realise ambitious output
targets,thesecountrieswillneedpricestobetterreflectmarginalproductioncosts.
Global NGL Supply Outlook

Global supply of condensate and other NGLs is forecast to grow by 3.0mb/d from 2009 to 2015,
(+4.2%annually),closetogrowthseenin20032009.Between2009and2011growthaverages7.9%
per year, equal to 1.8mb/d in absolute terms. Notably in 2009, the launch of several liquefied
naturalgas(LNG)projectswithhighliquidscontent,contributestoNGLgrowth.Thetrendtowards
79
drier, nonassociated gas in some countries, is overshadowed globally by greater liquids recovery.
Thegloballiquidsratioincreasesfrom20.6%in2009to23.4%in2012,remainingflatto2015.
World Supply of Condensate and other NGLs 2009-2015

(thousand barrels per day)
2009
2010
2011
2012
2013
2014
2015
Increment
09 - 15
Non-OPEC
OECD North America
2,918
2,947
2,870
2,832
2,789
2,750
2,710
OECD Europe
737
738
742
810
805
787
758
OECD Pacific
94
100
104
108
111
115
120
Total OECD
3,749
3,785
3,716
3,749
3,706
3,651
3,588
(161)
FSU
1,050
1,117
1,188
1,290
1,337
1,366
1,402
353
15
14
14
13
12
10
661
680
716
774
824
831
830
Africa
283
280
281
283
286
288
291
Middle East
160
175
178
178
179
181
182
23
Non-OECD Europe
Asia
Latin America
(208)
21
26
(6)
169
329
329
336
344
352
361
369
41
Total non-OECD
2,497
2,596
2,714
2,883
2,990
3,036
3,085
588
Total non-OPEC
6,246
6,381
6,429
6,632
6,696
6,687
6,673
427
2,199
OPEC
Middle East OPEC
3,301
3,887
4,680
5,002
5,218
5,377
5,500
Other OPEC
1,278
1,429
1,489
1,553
1,591
1,652
1,659
381
Total OPEC
4,579
5,316
6,169
6,555
6,809
7,029
7,159
2,580
10,825
11,697
12,599
Total World Condensate

and other NGLs
13,187
13,505
13,717
13,831
3,006
NonOPEC NGLproductionrisesby0.4mb/dto6.7mb/dby2015,anannualgrowthrateof1.1%,
well below the 20032009 rate of 2.6%. In North America NGL production is seen falling by 1.2%
annuallywithadeclineingasproductionandtheexploitationofdriergasdeposits.InRussia,greater
flared gas capture and exploitation of wetter gas have a positive impact. Meanwhile in the Asia
Pacific region NGL production grows due to rising gas production, albeit the liquids ratio falls on a
growingcontributionfromdriernonassociatedgas.
OECD/IEA, 2010
OPEC NGL and condensate capacity growth

outpaces that for crude, and is on track to rise by
2.6mb/d over the 20092015 forecast period,
increasing from 4.6mb/d in 2009 to 7.2mb/d by
2015.MiddleEastproducerswillprovide85%ofthe
growth at 2.2mb/d, attaining production of
5.6mb/dbytheendoftheforecastperiod.Thegas
liquids component in OPECs total supply profile is
seen rising from 13% in 2009 to 20% by 2015.
OPECs rapid expansion of NGLs in large part is
driven by growing domestic demand for gas as a
fuel to power utilities, water desalination plants,
industrialuseaswellasforreinjectiontomaintain
pressureatmatureoilfields.
80
mb/d
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
OPEC NGL and Condensate Production
2009
2010
Saudi Arabia
Algeria
2011
2012
Qatar
UAE
2013
2014
2015
Iran
Other OPEC
Saudi Arabia remains OPECs single largest producer of NGLs over the forecast period, with
productionexpectedtorisebyaround425kb/dto1.8mb/dby2015.Mostofthecapacitygrowth
willcomefromprojectsalreadylaunchedbutscheduledtobuildupslowly,withboththe310kb/d
HawiyahNGLprojectandthe210kb/dKhursaniyahreachingpeakcapacityin2013.
Qatarpoststhelargestincrease,withcapacityalmostdoublingfrom720kb/dto1.4mb/dbetween
2009and2015.Developmentsin theNorthField,theworldslargestgasfieldwhichalsostraddles
the maritime border with Iran (where it is called South Pars), will provide most of the countrys
growth. Further North Field development beyond currently active projects is uncertain due to a
moratorium put in place in 2005 and extended to 2014 to allow time to study the effects of the
existingprojectsonthereservoir.MajorcapacityadditionsovertheforecastperiodincludeQatargas
2,3and4whichwilladd300kb/dofmostlycondensateby2012whileRasGas3willadd100kb/dof
condensateand45kb/dofotherNGLsby2012.
Thoughplaguedbyprojectdelays,IranisslatedtoincreaseNGLcapacitybyasubstantial525kb/d,
to 1.0mb/d by 2015. Delays with the startup of South Pars 710 have slowed expected capacity
growth at the front of the forecast but output is gradually expected to reach full capacity of 330
370kb/dby2012.However,anumberofprojectshavenowbeentemporarilydelayedorpostponed
as several foreign companies opted to abandon their involvement in the country given growing
concernsabouttheprospectofnewsanctionsonthecountrysenergyindustry.
Estimated Average Sustainable OPEC Condensate & NGL Production Capacity

Increment
2009
2010
2011
2012
2013
2014
2015
Algeria
627
667
705
724
742
762
780
153
Angola
50
50
50
85
92
86
80
30
521
585
788
909
929
985
1,048
Ecuador
Iran
(2)
527
42
56
59
64
68
73
74
32
Kuwait
190
195
205
223
308
320
320
130
Libya
115
111
111
111
122
168
172
56
Nigeria
273
388
409
419
420
421
410
137
Iraq
718
933
1,190
1,280
1,296
1,326
1,400
682
1,394
1,560
1,710
1,775
1,834
1,829
1,820
426
UAE
519
643
813
836
868
929
922
403
Venezuela
210
211
213
213
214
215
216
4,662
5,401
6,254
6,640
6,894
7,114
7,244
2,582
Qatar
Saudi Arabia
Total OPEC
OPEC Crude Oil Capacity Outlook
OECD/IEA, 2010
09 - 15
Ananticipatedrecoveryinoildemandgrowthinthemediumtermandstrongeroilpricesoverthe
pastyearhavespurredanumberofOPECproducerstomoveforwardwithexpansionplansfor2010
2015. OPEC is on course to increase installed crude oil production capacity by a net 1.9mb/d,
reaching36.8mb/dbytheendoftheforecastperiod.OPECseesstronggrowthincapacityin2010
butdeclinessetinduring20112012beforepostingastrongrecoveryin2014.Capacityadditionsin
2015 are seen as minimal, in part due to delays in agreeing final investment decisions by several
countries,especiallyNigeriawhereprojectsareinlimboawaitinganewpetroleumlaw.
81
MTOGMcapacityestimatesarebasedonacombinationofnewprojectstartups,andassessedbase
load supply, net of mature field decline. The implied decline rates for the 20102015 period are
slightly higher, at 3.9%, than last years roughly 3%, partly reflecting a shift in OPECs production
slate to offshore production, where decline rates can range from 1530% compared with 13% at
onshore fields. New OPEC production capacity coming on stream during the forecast period is
estimatedatagross10.9mb/datpeak,withoffshoreproductionaccountingfor38.3%oftheincrease
at4.2mb/d.Newcapacitywillbepartiallyoffsetbyanetdeclineof7.1mb/d,or1.2mb/dannually.
mb/d
37.0
OPEC Crude Oil Production Capacity
mb/d
Expected Incremental Change

in OPEC Capacity
2.00
36.5
1.60
36.0
1.20
35.5
0.80
35.0
0.40
0.00
34.5
-0.40
34.0
2009 2010 2011 2012 2013 2014 2015

Iran
Iraq
Saudi Arabia
UAE
Angola
Other
Total OPEC
33.5
2009 2010 2011 2012 2013 2014 2015
Previous
Current
Ayearago,OPEChadslowedorhaltedsomeplannedprojectsinthewakeoftheglobaleconomic
crisistoreassessdemandprospectsforitscrudeandgasliquids,reviewstrategicinvestmentplansor
renegotiate contract terms with IOCs, oil service companies and other contractors. The steady
increaseinoilpricesoverthepastyearhasleantmomentumtogetprojectsbackontrack.Middle
Easternproducers,inparticular,arepressingforwardfollowingrenegotiationofcontractsaimedat
capturingprevailinglowercosts,withcapacityadditionsconcentratedinIraq(50%),SaudiArabiaand
Angola (22% each) and the UAE (20%). By contrast, other countries have seen their startup dates
pushedbackfurtherduetouncompetitivecontractterms,especiallyAfricanmembercountries.
Estimated Average Sustainable OPEC Crude Production Capacity

Increment
2009
2010
2011
2012
2013
2014
2015
09 - 15
Algeria
1.39
1.37
1.38
1.45
1.49
1.49
1.45
0.07
Angola
2.06
2.03
2.02
2.02
2.12
2.36
2.48
0.42
Ecuador
0.49
0.48
0.45
0.46
0.46
0.44
0.42
(0.07)
Iran
3.97
3.93
3.79
3.66
3.56
3.46
3.29
(0.68)
Iraq
2.49
2.50
2.55
2.77
3.05
3.39
3.46
0.97
Kuwait
2.62
2.59
2.55
2.52
2.56
2.67
2.66
0.04
Libya
1.77
1.78
1.81
1.78
1.78
1.95
2.03
0.25
Nigeria
2.66
2.70
2.70
2.58
2.52
2.49
2.56
(0.10)
Qatar
0.93
1.00
1.02
1.00
0.98
0.98
1.03
0.10
0.43
11.23
12.09
12.04
11.83
11.65
11.63
11.66
UAE
2.72
2.71
2.72
2.84
2.98
3.05
3.12
0.39
Venezuela
2.51
2.42
2.33
2.33
2.37
2.60
2.62
0.11
OECD/IEA, 2010
Saudi Arabia
82
OPEC-11
32.35
33.09
32.82
32.47
32.46
33.12
33.32
0.97
Total OPEC
34.85
35.59
35.36
35.23
35.51
36.51
36.78
1.94
Indeed, while the overall forecast is largely unchanged from our December 2009 mediumterm
update, the headline number masks significant changes for several individual countries. The
productionoutlookforbothIraqandVenezuela,inparticular,hasimproveddramaticallyafterthose
countriessignedaraftofnewcontractswithIOCs.
Bycontrast,forecastcapacityforOPECsAfricanproducershasbeenreviseddownsharplyaspolitical
upheavalandunattractivecontractchangesconspiretodelayprojectdevelopmentstobeyondour
2015forecastperiod.ProjectcancellationsordelaysinAlgeria,NigeriaandAngolahaveresultedina
combined800kb/ddownwardrevisionfromtheDecember2009mediumtermupdate.
Middle East Producers Stay the Course

OPECsMiddleEastproducers,withtheexceptionofIran,havemovedapacewithplanstoincrease
productioncapacityfrom20092015.MiddleEastcapacityisexpectedtorisebyanet1.3mb/dand
accounting for 65% of OPECs total increase. Critically, Iraq is expected to provide 50% of OPECs
total1.9mb/driseinproductioncapacity.Iraqssuccesswithitstwomajorbiddingroundslastyear
is seen by some as capable of raising production to 6.0mb/d by 2015 but given the considerable
logistical, operational and political challenges, we
have assumed a more conservative increase to
Incremental Change in Crude
Production Capacity 2009-15
3.5mb/d over the forecast period. That said, an
increase to 6.0mb/d now appears to be more a
Iraq
S. Arabia
questionofwhen,ratherthanif(seeIraqiEffortsto
Angola
BoostCapacityFaceHeadwinds).
Iraq, Saudi Arabia, the UAE, Kuwait and Qatar

combined are slated to increase capacity by
1.9mb/d, which will be partly offset by a drop in
Iraniancapacityof675kb/dovertheforecastperiod.
Foritspart,Qatarscrudeoilproductioncapacitywill
be eclipsed by the rapid expansion of NGLs and
condensate output (see Natural Gas Liquids
CornerstoneofGlobalSupplyGrowth).
UAE
Libya
Venezuela
Qatar
Algeria
Kuwait
Ecuador
Nigeria
Iran
mb/d
-1.00
-0.50
0.00
0.50
1.00
Saudi Arabias production capacity is expected to average 11.7mb/d by 2015, a net increase of
433kb/d from 2009 levels. Saudi Aramco posted a record increase in nameplate capacity in the
20092010 period following the completion of three key projects Khurais (+1.2mb/d), Shaybah
(+250kb/d) and Nuayyim (+100kb/d). The projects, combined, are slated to add 1.6mb/d to the
countryscapacitythoughitisunderstoodthatworkonassociatedinfrastructureisstillongoing.
OECD/IEA, 2010
Despite the steady improvement in global oil demand over the forecast period, OPECs effective
sparecapacityremainsatrelativelycomfortablelevels,rangingfromahighof5.85mb/din2010toa
low of 3.5mb/d in 2013. With history as a guide, Saudi Arabia might be expected to shoulder the
burdenofcurtailingproduction,soweassumeinourforecastthatoperatinglevelswillbeheldbelow
nameplatecapacityof12.5mb/d,inarangeofbetween11.6mb/dto12.1mb/d.
SaudiArabiaisexpectedtoshutinsomeoperationsforextendedperiodsoftimeeitherforpurely
economic reasons or to perform extensive rehabilitation work. Indeed, extensive overhaul of
infrastructure and drilling of new wells is reportedly underway at Ghawar, the worlds largest oil
83
field.Inaddition,SaudiAramcoislayingthegroundworkforamassiveCO2injectionplanatGhawar,
whichwouldnotonlyadvanceplansforsequesteringgreenhousegasesbutalsoreducetheamount
ofnaturalgasneededforreinjectiontomaintainoilfieldpressureandenableittobedivertedfor
domesticuse.Initialplanscallforgatheringandinjecting40mmcf/dofCO2intothereservoir.
Saudi Arabias next mega project is the 900kb/d heavy oil Manifa field, which is slated to start up
late2013orearly2014andtobe broughtoninstages,withcompletionnownotexpectedbefore
end2015. The cost of developing Manifa is estimated at $16 billion. Manifa is designed to offset
declining production elsewhere so will not add to nameplate capacity. Moreover, the timeline for
Manifaalsocriticallyhingesonplannedrefinerystartups,whichhavealsobeensubjecttochanging
targetsduetothesurplusinglobalrefiningcapacity(seeRefining&ProductSupply).
mb/d
12.2
Saudi Arabia Crude Oil Capacity
mb/d
3.2
12.0
3.1
11.8
3.0
11.6
UAE Crude Oil Capacity
2.9
11.4
2.8
11.2
11.0
2.7
10.8
2.6
10.6
2.5
2009 2010 2011 2012 2013 2014 2015
2009 2010 2011 2012 2013 2014 2015
TheUAEisoncoursetorampupproductioncapacitybyanet394kb/dtoanaverage3.1mb/dby
2015.LastyeartheEmiratesdeferredplanstoincreaseproductioncapacityto3.5mb/dfrom2015
to2018.ExpansionoftheoffshoreUpperZakumfieldwillprovide65%oftheUAEstotalincreasein
capacity by 2015. The projects partners, stateowned Adnoc, ExxonMobil and Japan Oil
Development Co (JODCO) plan to raise Upper Zakums production capacity from 500kb/d to
750kb/dby2H15.JapansInpex,partneredwithJODCO,isalsoplanningafeasibilitystudyforCO2
injectionintothereservoir,whichwouldbeafirstforanoffshorefield.
Production increases elsewhere will come from extensive enhanced oil recovery (EOR) at mature
fieldsandrecomissioningofproductionfacilitiesmothballedinthe1980satLowerZakum.Aplanned
capacity increase of 100kb/d at Lower Zakum will be brought on in stages starting in 2012.
Incrementalproductionfromonshorefieldsisalsoslatedtostartin2012,withcapacityattheAsab,
Sahil and Shah by a combined 75kb/d. Qusahwira capacity of 30kb/d is expected to come online
in2013.
AlsoplannedisthedevelopmentoftheoffshoreNasrfield,withcontractawardforthefirstphaseof
constructionexpectedin2H10.Initialoutputof25kb/displannedforend2015.Thesecondphase
calls for an increase of 40kb/d by 2018. Nasr is the first offshore development since the Lower
Zakumfieldcameonstreamin1966.
OECD/IEA, 2010
Irans crude oil production capacity is forecast to decline by 675kb/d, from just under 4mb/d to
3.3mb/d by 2015. Iran has several small projects of 2550 kb/d coming online during the forecast
periodplusthe100kb/dAzadeganIIandYadavaranat85kb/d,bothwithChinesepartners.However,
theseadditionsfallshortofoffsettingdeclinerates,whichofficialsrecentlyestimatedat810%.
84
OECD/IEA, 2010
The countrys escalating isolation from the mb/d

Iran Crude Oil Capacity
international oil community in the wake of global 4.2
opposition to its nuclear programme is just one
4.0
factor behind the projected capacity decline.
Equally, if not more, important are unattractive 3.8
investment terms, based on a largely discredited 3.6
buyback programme of service contracts. An ever
3.4
changing management team at state oil company
NIOC has further clouded the countrys production 3.2
outlook. With investment by IOCs down to a trickle 3.0
2009 2010 2011 2012 2013 2014 2015
anddomesticproductioninitiativeshamperedbyUS
sanctions, Irans targeted increase in capacity to
5.1mb/dby2015lookswhollyunrealistic.
Kuwaits production capacity is forecast to stagnate in the medium term, averaging 2.7mb/d by
2015.Thestateoilcompanyrecentlysaiditplanstoinvestaround$10.4billiondollarsinupstream
developmentsoverthenextfiveyears,butthatpalesincomparisontoitsneighbouringcountriesin
theMiddleEastGulf.Projectsunderwayessentiallyoffsetdeclineselsewhere.TheGC24projectat
thenorthernSabriyafieldhasbeenslightlydelayedfrom2013toearly2014,withcapacityofaround
90 kb/d added by the end of the forecast period in 2015. EOR projects at the Burgan field are
expectedtoaddincrementalcapacityovertheperiod,upatotal100kb/d,to1.7mb/d,by2015.
Divisiveinternaldebateoverthefutureroleofforeigninvestmentinthecountrysoilsectorbetween
Parliament,theexecutivebranchandthegeneralpublichascombinedtoderailexpansionplansfor
almost two decades. A new Parliament and the appointment of a new oil minister earlier in 2010
may hold some promise for an improved investment climate going forward but the outlook is still
very murky. A recent technical service contract signed with Shell for the development of non
associated gas reserves is seen as a step forward. However, crude oil resources are still largely
viewedassacrosanctandindustryobserversquestionwhetherthesame,moreattractivetechnical
servicecontractagreedwithShellwill beonofferforoil.FurtherEORprojects,whichwillrequire
IOC involvement, hang in limbo. Longstanding technical service contracts with Chevron and BP
expiredlastyearandsofarKuwaithasnotpursuedalternativepartners.
Kuwaitslongertermplanscallforincreasingcapacityto4mb/dby2020,involvingresurrectionofa
modifiedProjectKuwait,whichencompassesthedevelopmentoffieldsinthenorthernregionofthe
country,andtheLowerFarsheavyoilprojectalsointhenorth.DiscussionswithIOCsonboththese
projectsareatanearlystage.
mb/d
Qatar Crude & NGLs

Qatarsproductioncapacityisforecasttobreachthe 1.5
1mb/d mark in 2010 following expansion of the al
Shaheenfieldearlierintheyear.Increasedoutputat
1.0
Al Rayyan and several other active EOR projects are
designedtomaintainandslightlyincreaseproduction
bytheendoftheforecastperiod.However,by2011 0.5
production capacity of NGLs and condensate will
overtake crude as the countrys primary source of 0.0
liquidfuelsupply.(seeOPECGasLiquidsSupply).
2009 2010 2011 2012 2013 2014 2015
Crude
NGLs
85
Reversal of Fortune for OPECs African Producers
OECD/IEA, 2010
CapacityexpansionplansinOPECsAfricanmemberhavebeenderailedbyincreasinglyunattractive
contract terms, resurgent resource nationalism and domestic political developments. Capacity
growthforthefourcountriesAlgeria,Angola,LibyaandNigeriahasbeenrevisedlowerbyasteep
800kb/donaveragesincetheDecember2009sixyearforecast,withproductionnowforecasttorise
by650kb/d,to8.5mb/d.
Nigeriasproductionoutlookisonceagainmarredbyrenewedmilitantactivity,politicalturmoiland
continueduncertaintiesaboutthefuturecommercialoperatingenvironmentforIOCsgivenpossible
new legislation that could negatively impact contract terms. Since the December update, several
critical issues have emerged, not least the death of President Umaru YarAdua on 5May. The
unsettledpoliticalandsecuritysituationhasledtoa
Nigeria Crude Oil Capacity
slowdown in project development plans, with mb/d
2.75
capacitynowseen decliningbyjustunder100kb/d
over the forecast period, from 2.7mb/d to 2.70
2.6mb/d. That is a downward revision of around 2.65
2.60
360kb/dfromDecembersforecast.
2.55
Nigeriasunexpectedsuccesslastyearinagreeinga 2.50
ceasefirewithrebelgroupssignalledamajorshiftin 2.45
the operating environment for IOCs, after years of 2.40
debilitating attacks on oil operations. The ceasefire
2009 2010 2011 2012 2013 2014 2015
period enabled companies to repair damaged
infrastructure and boost production closer to 2.0mb/d. However, the fragile peace accord began
frayingattheedgesamidpoliticaluncertaintyresultingfromthelongabsenceoftheailingPresident
UmaruYarAduafromthecountry. Militantsrenewedtheircampaignofsabotageinearly2010and,
while a brief calm prevailed over the country after Goodluck Jonathan assumed full presidential
powersfollowingthedeathofYarAdua,attacksonoilinstallationshaveresumed.Withcontentious
presidentialelectionsloomingsometimewithinthenextyear,thecountrysoperatingenvironment
remainshighlyuncertain.
The proposed Petroleum Industry Bill (PIB) is also casting a cloud over capacity expansion plans.
The draft legislation enables the government to renegotiate old contracts and impose higher
royalties and taxes. While we assume that ultimately a positive outcome for the government and
companieswillprevail,thetimelineforsanctionofnewprojectdevelopmentswilllikelybedelayed
pendingpassageofnewlegislatinnowlikelytobeafternextyearspresidentialelections.Projects
stillawaitingfinalinvestmentdecisionsandthereforeexpectedbeyondourcurrentforecastperiod
include the 140kb/d Bonga SW & Aparo; the 50kb/d Bongo NW; the 135kb/d Bosi; the 110kb/d
Uge.The100kb/dNsikoand200kb/dEginaprojectsarefactoredinatend2015butthefieldswill
notreachfullcapacityduringtheforecastperiod.
Angolas production capacity is forecast to increase by 420kb/d to 2.5mb/d over the 20102015
period, a downward revision of around 160kb/d since our last 6year forecast in December 2009.
Delays in final investment decisions are behind the lower production target by the end of the
forecast period, with planned increases now moved into the 20162017 period. In Block17 the
160kb/dCLOVcomplexnowlookslikelytocomeonlyatthetailendof2015.Alsoexpectedatend
2015isthe200kb/dCabacaNorte.
86
IraqiEffortstoBoostCapacityFaceHeadwinds
Iraqi production capacity is forecast to rise by just under 1.0mb/d, to 3.5mb/d by 2015. That is an
upward revision of 290kb/dfrom our December forecastbased on more detailed development plans
being put forward by the joint venture companies. Indeed, project plans envisage an even sharper
increaseinthemediumterm,withproductioncapacity,onpaper,projectedat6.0mb/dby2015and
1012mb/dby2017,butweexpectanarrayofproblemstodelayofficialtargetsandseeamoregradual
increaseinthemediumterm.
Nearterm maximum production capacity is mb/d
4.0
expected to average around 2.5mb/d this year
3.5
and next with a gradual ramp up seen after that.
3.0
Capacityisforecasttoaverageonanannualbasis
2.5
2.8mb/d in 2012, 3.1mb/d in 2013, 3.4mb/d in
2.0
2014and3.5mb/din2015.
Iraqi Crude Oil Production Capacity
1.5
Theimplicationsforthecountrysfuturefollowing 1.0
the March 2010 elections are still very unclear, 0.5
with escalating tensions and manoeuvring among 0.0
politicians still at a critical juncture four months
2009 2010 2011 2012 2013 2014 2015
on. The delay in forming a government will push
Previous
Current
even further into the future the passage of a
bindingpetroleumlaw,whichisseencriticaltothecompaniesbeforetheyinvestthebillionsofdollars
committed so far. The uncertain outcome from the elections has been accompanied by an uptick in
violenceacrossthecountry.Asaresult,neartermplanstoincreaseproductionby600kb/dby2011will
likelybedelayed.
Iraqs two bid rounds last year resulted in plans for eleven different field development projects. Five
megaprojectsRumaila,WestQurna1&2,MajnoonandZubairwillaccountformorethan85%of
the expectedcapacity increase. To fast trackproduction gains, thecontracts stipulate thatcompanies
willonlystartrecoveringcostsandperbarrelfeesonceproductionisincreasedby10%.Thecompanies
aremovingapacewithjointventureandlogisticalplanning.BylateMay,moreprojectdetailsemerged
fortwoofthebiggestandfurthestadvancedprojects.
AtRumaila,jointventurepartnersBPandCNPCplantoinvest$1520billionoverthe20yearcontract.
ReservoirpressureandwaterincursionisamajorproblemforRumaila,whichhasbeenproducingfor
morethan50years.Therefore,workoverofexistingwellsandreplacingwornoutequipmentatsurface
facilitiesaretoppriorities.Aseriesoftendersworthmorethan$500millionhavebeenawardedsofar,
whichentaildrilling56newwells,purchasingequipment,andinstallingpipesandothersecondarywork.
WestQurna1,theExxonMobilandShellJV,isoneofthemoregeologicallychallengingandexpensive
projects.Capexissetat$50billiontoboostoutputfromaround250kb/dto2.35mb/dby2017.Near
term,theJVpartnersplantodrill8newwellsandoverhaulupto4550wellsin2010toboostoutput.
West Qurna 1 has been pumping since late 1990 and reached a peak of 400kb/d before the 2003
invasionbutoutputfellbymorethan40%sincetheninlargepartduetodecliningpressure.Waterfor
reinjectionisalsocriticaltothetimingoftheproject.
OECD/IEA, 2010
There is little dispute that Iraq holds sufficient reserves to enable the attainment of its ambitious
production targets. However, while contracts have been awarded for field developments that could
producetothoselevelseventually,associatedcontractsneededtosupportdevelopmentarenotyetin
place. Their award will hinge on progress at the political level as well as improved security on the
ground.Also,Iraqsbasicnonoilinfrastructureisinadesperatestateofdisrepair.Everythingfromnew
roads,bridges,andexpansionsofportsisneeded.
87
IraqiEffortstoBoostCapacityFaceHeadwinds(continued)
Iraqi officials and oil company executives are already working on plans to develop the infrastructure
neededtosupportfielddevelopment,butthechallengesaredaunting.Onecriticalissueistheshortage
ofwaterforfieldreinjection,especiallyinthesouth.WaterflowsfromtheTigrisandEuphratesrivers
havebeendeclining,inpartduetodroughts.Theproblemhasbeencompoundedbyanincreaseover
thepastdecadeofthenumberofdamsinTurkeyandSyria,whichhavedivertedflows.Itisstillunclearwho
willshoulderthecostsforthesemassiveprojectssincetheoriginaldevelopmentcontractawardsdidnot
stipulate the companies responsibility and the state lacks the financial resources to provide the funding.
Final decisions on these issues will crucially depend on the new government currently being formed.
Infrastructureprojectsneededtosupportoilfielddevelopmentsinthe20092015forecastperiodinclude:
Water and gas reinjection facilities, which are critical to boosting production at many of the
projects.Workonasharedwaterinjectionplantisreportedlyexpectedtostartearlyinearly2011
andwilltake30monthstocompletebutthistimelineappearsunrealisticgiventhelackofprogress
on contract awards. The projects currently at design will only support production slated for the
firsttrancheofproductionexpansions,withplanningforadditionalfacilitiesstilltobedetermined.
Exportrouteshavebeenseverelyconstrainedbydecadesofwar,withsouthernportsandpipelines
alreadynearoperatingatcapacity.Logisticalobstaclesmaylimitthecountrysplanstosignificantly
expand exports until 201314 at the earliest. Iraq is planning to install single point mooring buoys
(SPM) in the Middle East Gulf designed to increase capacity by 1.0mb/d to relieve the export
bottleneckatitssouthernBasrahports.Currentsouthernexportcapacityislimitedtothe35yearold
BasrahOilTerminal(BOT)whichatmostcanhandle1.41.5mb/dandnearbyKhoralAmayathathas
a design capacity of 300 kb/d but is frequently plagued by operational problems. Iraq has yet to
finalisecontractsfortheSPMs,meaningplanstorampupcapacityby600kb/dmaybedelayed.
As part of the two licensing rounds Baghdad included several projects in the northern region of the
country but there were no bids given the political and legal uncertainty surrounding the fields. The
Kurdish Regional Government (KRG) has awarded almost two dozen development contracts but
Baghdaddisputesthelegalityofthecontracts.NewproductionfromtheTawkeandTaqTaqfieldslast
year was halted after the oil ministry refused to make payments to the companies on oil shipped
throughtheKirkukCeyhanpipeline.Governmentofficialshavereportedlyofferedtoletexportsresume
butwouldagreeonlytoreimburseminimaloperatingfeesandsofarthecompanieshaverejectedthis
proposal.Itisunlikelyprogresswillbemadeonthebroadercomplexnegotiationsoverautonomyfor
thenorthernregionofthecountryuntilanewgovernmentisfunctioninginBaghdad.
Iraq's Contract Awards & Planned Production Targets
Contract
Current
Awards
Production
Rumaila
Capacity Increment
Fee
Reserves
Paid
Billion bbls
17.0
1,066
2,850
1,850 BP/CNPC
$2.00
244
2,325
2,065 Exxon/Shell
$1.90
8.7
West Qurna 2
1,800
1,800 Lukoil,Statoil
$1.15
12.9
Zubair
46
1,800
1,754 Shell,Petronas, Missan Oil Co
$1.39
12.6
183
1,200
1,017 ENI, Occidental, Kogas
$2.00
6.6
535
532 CNPC, Total, Petronas
$1.40
4.1
230
230 Petronas, Japex
$1.49
0.9
Halfaya
Garraf
Badra
170
163 Gazprom, Kogas, Petronas, TPAO
$5.50
0.1
Qayara
120
120 Sonangol
$5.00
0.8
Najmah
110
110 Sonangol
$6.00
0.9
Missan
100
450
350 CNOOC, Turkish Petroleum
$2.30
1,649
11,590
Total
OECD/IEA, 2010

Production Companies
West Qurna 1
Majnoon
88
Target
9,991
2.5
67.1
Algerias crude production capacity is forecast to

Algeria Crude Oil Capacity
mb/d
increasebyaround65kb/d,to1.45mb/d,by2015. 1.50
Thisisasharpdownwardrevisionofsome240kb/d
from the December 2009 mediumterm update. In 1.45
March 2010 the countrys Oil Minister Khelilsince
replaced in a cabinet reshuffle at end May
1.40
announced that the country would maintain
production levels at around 1.4mb/d through 2014 1.35
compared with an earlier target of 1.6 mb/d.
Meanwhile, a corruption scandal engulfing top 1.30
2009 2010 2011 2012 2013 2014 2015
executivesfromstateownedSonatrach,whichcame
to light at the start of 2010, has paralysed the
decisionmakingprocess.TheappointmentofYoucefYousfi,aformerdiplomatandpreviousheadof
Sonatrach in the 1990s, is viewed as a positive development for getting projects back on track.
Expansionhasbeenplaguedbydelays,difficultcontractrenegotiationsandunattractiveterms.
However, EOR plans for Hassi Messoud, the countrys oldest and largest field, appear delayed
beyond the forecast period. Capacity was expected to be increased from a current 400kb/d to
600kb/d.However,projectsexpectedtogoforwardinclude:ElMerkat135kb/dstartingin2012;Bir
Sebaat36kb/dstartingin2011;IANEORprojectat30kb/dstartingin2012;MenzelLedjmetEastat
8kb/dstartingin2012;andTakouazetat50kb/dstartingin2013.
LibyancrudeoilproductioncapacityisdownslightlyfromDecembersforecast,nowseenrisingfrom
1.8mb/dto2.0mb/dby2015.Governmentplanstoincreaseproductionto2.3mb/dby2013look
ambitious, given continued delays in contract awards. Our current forecast sees capacity running
500kb/d below the governments target level in 2013, at 1.8mb/d. Several relatively small EOR
projectswillcombinetoboostcapacitybyjustover250kb/dduring20092015.
Mixed Outlook for OPECs Latin American Producers

VenezuelaismovingforwardwithexpansionofitsmassiveOrinocoheavyoilbelt.Thegovernment
hassignedsixcontractsaimedatboostingheavycrudeoutputby2.1mb/d.Twocontractscoverthe
CaraboboareaandfourprojectsareintheJuninarea.Thoughdevelopmenttimelinesforprojectsin
theOrinocobeltarestillbeingfinalised,giventhetechnicalcomplexityandleadtimesnecessaryfor
buildingtheaccompanyingupgraderstoprocesstheextraheavyoil,weassumeproductionwillstart
inthelaterhalfofourforecastperiod.
Venezuela Orinoco Projects
Orinoco Belt
Company
Junin Block 2
Petrovietnam 40%
Junin Block 4
CNPC 40%
Junin Block 5
ENI 40%
2013
75
Junin Block 5
ENI 40%
2015
165
Junin Block 6
40% shared Rosneft, Gazprom, Lukoil, TNK-BP, Surgutneftegaz
2017
450
Carabobo 1
Repsol/Petronas/ONGC 11% each, Indian Oil and Oil India 3.5% each
2013
400
Carabobo 3
Chevron 34%, Ven Suelopetrol 1%, Mitsubishi/Inpex 5% each
2017
OECD/IEA, 2010
Total
Est. Start
Capacity
2013
200
No date
400
400
2,090
89
OECD/IEA, 2010
Production from the new Venezuelan projects is likely to start in 2013 and build up to 400 kb/d on
averagein2015.For20092015,Venezuelaproductioncapacityisnowforecasttoriseonanetbasisby
justover100kb/d,to2.6mb/d,anupwardrevisionfromtheDecember2009sixyearforecastof425b/d.
Ecuadors punitive contract changes and deteriorating investment climate have combined to
underminefuturecrudeoilproductioncapacitylevels.Productioncapacityisforecasttocontractby
70kb/d, from around 500 kb/d on average in 2009 to 425kb/d by 2015. Further blunting foreign
investment, Ecuador announced it plans to renegotiate a number of contracts held by foreign
operatorsbytheendoftheyear,onceanewhydrocarbonlawisapproved.
90
P ART 1: O IL B IOFUELS
BIOFUELS
Summary
Note:BiofuelsdataintheMTOGMareexpressedinvolumetricterms.Exceptionswillbenotedwhere
volumesareadjustedforenergycontentversuscorrespondingfossilfuels.
Biofuels production should grow strongly in 2010 and expand over the medium term, with
volumesincreasingfrom1.6mb/din2009to2.4mb/din2015.Theeconomiccrisisdamped,but
didnotderail,growthas2009supplyroseby140kb/d.Growthduring20092014,at0.8mb/d,is
seen higher than the 0.6mb/d envisaged in the December 2009 mediumterm update. Still,
increases remain strongest in 2010 and 2011, with lower annual rises thereafter. Adjusted for
energycontentversusoil,biofuelssupplyincreasesfrom1.1mb/din2009to1.7mb/din2015.
Whiletheeconomiccrisis,loweroilpricesandhighsugarpricesforcedcapacityrationalisation,
improving economics and consolidation have enhanced growth prospects. Sizeable
overcapacitiesremain,particularlyinbiodiesel,andenvironmental/feedstockconcernswithfirst
generation biofuels cloud government support. Still, blending targets persist in the OECD and
have spread in Latin America. The US outlook has strengthened. Nonetheless, our production
estimatestherelagthoseimpliedbygovernmentgoals,notablyinsecondgenerationbiofuels.
Upward revisions, mainly in North America, increased 2009 and 2010 annual output by an
average45kb/dversustheDecemberupdate.Globalproductionisseen185kb/dhigherin2011
2014with70%oftherevisionfromNorthAmerica.LatinAmericaandEuropealsoseeupward
revisions for 20112014, while Asian production is slightly lower. The US and Brazil dominate
absoluteproduction(together75%ofworldsupply)andprovide75%ofgrowthfrom20092015.
mb/d
Global Biofuels Supply
2.8
0.30
2.4
Global Biofuels Supply - Annual

Growth
0.25
2.0
1.6
0.20
1.2
0.15
0.8
0.10
0.4
0.05
0.0
0.00
2008 2009 2010 2011 2012 2013 2014 2015

US Ethanol
Other Ethanol
OECD EUR Biodiesel
Brazil Ethanol
Other Biodiesel
mb/d
2009 2010 2011 2012 2013 2014 2015

Jun 10 Forecast
Dec 09 Forecast
With140kb/daverageannualoutputincreasesfrom20092015,biofuelscontributestronglyto
the nonOPEC supply growth picture. By 2015, ethanol and biodiesel should displace 5.7% and
1.5%ofglobalgasolineandgasoildemand,respectively,onanenergycontentbasis.
OECD/IEA, 2010
Secondgeneration biofuel activity should increase, particularly with a US cellulosic biofuel

mandate from 2010 onwards. Current plans imply 2015 global capacity potential at 150kb/d,
55%fromsecondgenerationethanoland45%fromsecondgenerationbiodiesel.Yet,technology
developmentdelaysanddifficulteconomicsmaykeepactualproductionwellbelowthislevel.
91
Biofuels Production Prospects Improve, Though Hurdles Remain

Thoughhamperedbytheeconomiccrisis,loweroilpricesandchallengingsugarmarketconditionsin
2009, the industrys slowdown remained modest and production prospects for global biofuels
continuetoimprove.HigherGDPandoilpriceassumptionsoverthe20092015forecastperiodhave
raised our outlook for global oil demand somewhat and point to potentially improved biofuels
production economics. Over the past year, prices for feedstocks such as corn and wheat have
remained steady relative to rising oil prices, benefitting North American and European ethanol
producers. Skyhigh sugar prices have also retreated somewhat, raising expectations for improved
Brazilianethanoloutput.Thoughbiodieselgenerallybearsmorechallengingproductioneconomics,
the rise of domestic blending mandates and export opportunities for costadvantaged producers,
such as Argentina, underpin a better outlook in that fuel as well. Industry consolidation and
improvedaccesstocredithavestrengthenedtheoperatingandfinancialpositionofbiofuelsonthe
whole,comparedwithayearago.Moreover,somelargeprojectsinEuropeandAsianotablyinthe
UK,NetherlandsandSingaporearesettoaddsignificantcapacityoverthenext18months.
World Biofuels Production

(tho usand barrels per day)
OECD North America

United States
2010
2011
2012
2013
2014
2015
759
907
980
1,033
1,065
1,089
1,101
738
879
946
995
1,027
1,047
1,059
OECD Europe
210
226
260
280
289
293
295
OECD Pacific
12
13
15
16
16
Total OECD
978
1,142
1,252
1,325
1,368
1,397
1,411
11
11
11
11
FSU
Non-OECD Europe
China
42
42
43
45
47
48
48
Other Asia
39
49
68
88
89
91
92
Latin America
532
589
677
749
795
830
859
490
543
623
686
727
760
789
Brazil
Middle East
Africa
Total Non-OECD
Total World
2009
11
14
620
689
807
905
956
995
1,028
1,598
1,831
2,059
2,230
2,324
2,391
2,438
As such, biofuels will continue to constitute an important component for satisfying oil demand
growth. From 20032009, biofuels supply growth, on an energyadjusted basis, met about 20% of
global incremental gasoline and gasoil demand, with ethanol accounting for 36% of gasoline and
biodieselmeeting9%ofgasoilgrowth.From20092015,withgasolineandgasoildemandgrowingby
4.8mb/dcollectively,biofuelssupplygrowth,onanenergyadjustedbasis,shouldonlymeet13%of
this. Some of the discrepancy between the two periods stems from the influence of 2009, when
globaloil,andparticularlymiddledistillate,demandfellwhilebiofuelsproductionrose.Nevertheless,
withdecliningNorthAmericangasolinedemandoverthemediumterm,ethanolshouldaccountfor
48%ofglobalgasolinedemandgrowthfrom20092015.Biodieselcomprisesonly4%ofrisinggasoil
demand,duetoaresurgenceinmiddledistillatedemandgrowthandaslowerbiodieselexpansion
profileversusthepreviousdecade.
OECD/IEA, 2010
Downsiderisksremainfortheindustry.Notably,itremainsburdenedbyovercapacity,particularlyin
biodiesel,whichmayweighuponmargins,andthusproduction,inmanyregions.Thoughforecasting
92
agricultural fundamentals and prices is beyond the scope of this report, continued expansion of
biofuels production may boost feedstock prices going forward, despite a relative nearterm
abundance in some commodities, notably corn. Weather patterns add another element of risk. In
2009,theElNiophenomenoninthePacificled tosimultaneousdrought conditionsinAsia,while
excess rains in Brazil tightened the sugar market and undermined ethanol production there.
Moreover, industry consolidation and the fallout from the credit crisis will likely continue to shift
capacityinandoutofuseandraisequestionmarksovertheviabilityofsomeexpansionplans.
Jan
08=100
Ethanol Feedstock vs Oil Prices
325
Source: Platts, Reuters
Jan
08=100
150
250
120
175
90
100
60
25
30
Jan 08 Jun 08 Nov 08 Apr 09 Sep 09 Feb 10

Intercont Exch Sugar
Europe Wheat
Biodiesel Feedstock vs Oil Prices
Source: Platts, Reuters
Jan 08 Jun 08 Nov 08 Apr 09 Sep 09 Feb 10

SE Asia Palm Oil
NW Eur Rapeseed Oil
Chicago Corn
NY Harbor RBOB
Chicago Soybean Oil

NW Europe ULSD
Ultimately,muchoftheindustrydependsongovernmentsupportintheformofblendingmandates,
production subsidies or both. Government policy simultaneously provides a floor for growth and a
ceiling to expansion. Notably, the fulfillment of government mandates/targets as they currently
stand suggests significant production upside, as graphically depicted in the Policy Targets output
trajectorybelow.Our20092015productionoutlooksees840kb/dofgrowth,with80%fromNorth
and Latin America. But this growth undershoots, by 500kb/d, potential supply increases from
meetingnationallevelpolicytargetsinselectmajorbiofuelsmarkets.
mb/d
3.1
mb/d

Adjusted for Energy Content
2.5
2.8
2.5
2.1
2.2
1.7
1.9
1.3
1.6
1.3
0.9
2008 2009 2010 2011 2012 2013 2014 2015

2010 MTOGM
Dec 09 Update
Policy Targets - Major Markets*
2008 2009 2010 2011 2012 2013 2014 2015

2010 MTOGM
Dec 09 Update
Policy Targets - Major Markets*
*Implied output from national level usage and/or production targets in the US, Canada, Brazil, Argentina,
Colombia, the European Union, Japan, Korea, Australia, China, India, Indonesia and Thailand
OECD/IEA, 2010
Othergovernmentpolicies,however,actasapotentialceiling.SustainabilitycriteriainOECDEurope
and North America allow blending targets to be met only with biofuels that nominally reduce
greenhousegases(GHGs)relativetofossilfuels.Thoughcurbinggreenhousegasemissionsremainsa
goal in China, biofuels plant approvals there have been low due to food supply concerns. Trade
barriersseektoprotectthedomesticindustriesofsomecountries,oftenonenergysecuritygrounds,
93
yettheyinhibitrebalancingofsuppliestowardslowercostproducers.Finally,governmentsplayan
important role in setting technical specifications and in infrastructure, both of which influence the
riseofdemandcentres,butadvancesintheseareasgenerallylagproductioncapacitygrowth.
Future technological and infrastructure developments will guide the industrys ability to meet
ambitious usage targets while at the same time fulfilling other policy concerns, with much hope
placed on the advancement of secondgeneration biofuels. Nevertheless, contributions from such
biofuelstechnologiesremainsmallduringtheforecastperiod,withcapacitypotentiallyonlyreaching
150kb/dby2015.
Key Revisions to the Supply Outlook

An upward revision to 2009 supply of 30kb/d provides a higher 1.6mb/d baseline to guide the
forecast. The supply growth pattern remains similar to the December 2009 mediumterm update,
withthestrongestannualincrementsin2010and2011,followedbydeclininggrowththereafter.We
see 2010 production growing to 1.8mb/d and 2011 supply reaching 2.1mb/d, on average 90kb/d
higher than predicted in December based on higher than expected production in the US and a
capacityreassessmentinBrazil.
World Biofuels Production - Changes to December 2009 Forecast

OECD North America

United States
2010
2011
2012
2013
2014
14
60
83
113
145
169
16
59
81
110
141
161
OECD Europe
11
-4
12
19
26
29
OECD Pacific
-1
Total OECD
28
58
97
130
171
198
FSU
Non-OECD Europe
-2
-1
-1
-2
-2
-2
China
10
Other Asia
-5
-15
-18
-10
-9
-7
Latin America
Brazil
Middle East
OECD/IEA, 2010
2009
48
58
44
14
-12
-3
30
39
22
-10
Africa
Total Non-OECD
-3
32
51
40
13
Total World
31
55
128
181
211
211
Upward revisions to 2009 stem from higher ethanol output in the US, more favourable estimated
biodiesel production in Europe and an upward revision to Chinese ethanol output carried through
from2008.TheseoutweighsomewhatlowerBrazilianethanolproduction.Otherrevisionsstemfrom
the continued integration of more comprehensive 2008 data from OECD and nonOECD countries
alike. We caution that while the quality of biofuels production data continue to improve, with
industry data collection and reporting still in its infancy, historical data points remain prone to
revisioninfuture.
Revisionspertainingtoforwardlookingvaluesstemfromareappraisalofourcapacitydrivenmodel
and expectations of utilisation going forward. Regional forecast revisions are explained in greater
94
detailinthesectionsahead.Giventheirsmallandfragmentednaturecomparedwithoilrefineries,
biofuelsplantsremaindifficulttotrack,particularlywhentheygoofflineoroperateatreducedrates.
Though the credit crisis has meant longer time horizons for bringing plants online, smaller overall
capitalrequirementsandshorterconstructionleadtimesmeanbiofuelscapacitycanrespondmore
quickly to changing market conditions. As such, while we conservatively scrutinise future plant
assumptions,wemayerronthesideofallowingpotentialcapacitytogrowfasterthanproduction.
Regional Outlook and Policies

OECD North America
The largest upward revisions to our forecast stem from the US, where ethanol production has
consistentlyexceededexpectations,averaging700kb/din2009.Steadycornprices,lownaturalgas
pricesandincreasingethanolpricesallowedproducerstoenjoyfavourablemarginsin2009.While
theeconomiccrisiscausedclosures,andindustryconsolidationcontinues,overallcapacitycontinues
toexpandandsomeidledcapacityhasbeenreactivated.Despitelowcornprices,marginserodedin
1H10 as ethanol prices fell. Still, ethanol has increased its competitiveness to gasoline, boosting
blending incentivesas of lateMay, 80% of US conventional gasoline carried some ethanol.
Moreover,theindustrycontinuestobenefitfroma45cent/gallonblenderstaxcredit.
US Renewable Fuel Standard: Mandated Biofuel Volumes

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Renewable biofuel
585
685
783
822
859
900
939
978
976
978
978
978
976
978
978
Advanced biofuel
0
39
62
88
130
179
245
359
472
587
718
848
976 1,174 1,370
Cellulosic Biofuel
0
0
0
16
33
65
114
196
276
359
457
554
683
881 1,044
Biomass-based Diesel*
0
33
42
52
65
0
0
0
0
0
0
0
0
0
0
Undifferentiated Advanced Biofuel
0
7
19
20
33
114
130
163
195
228
261
294
293
294
326
TOTAL RFS
585
724
845
910
989 1,080 1,184 1,337 1,447 1,566 1,696 1,826 1,952 2,153 2,348
* Biomass-based diesel standard has been combined for 2009/2010
Concernsaregrowingoverhowmuchethanolcanbeabsorbedintothesystemassupplygrowthhas
outpaced demand. Yet, we forecast higher production over the medium term as prospects for
meetingtheUSRenewableFuelStandard(RFS)forrenewablebiofuel(i.e.conventionalethanol)with
domestic output have improved. Notably, questions over the viability of most corn ethanol
production on environmental grounds have been assuaged. In February, the US Environmental
ProtectionAgency(EPA)issueditsfinalruleonbiofuelssustainabilityundertheRFS,acknowledging
that dry mill corn ethanol production (bar that using coal power) meets the required 20% GHG
reductioncomparedtopetroleumfuel.
$/gal
J an/07
1.0
US: Ethanol Operating Margin vs k b/d

Jun/07
Nov /07
Apr/08
Sep/08
Feb/09
Jul/09
Dec/09
May/10
Production
0.8
900
mb/d
1.2
750
1.0
600
0.6
North America Biofuels Output
0.8
450
0.4
300
0.2
0.0
OECD/IEA, 2010
Jan 07
Oct 07
Jul 08
Apr 09
150
0.4
0.2
Jan 10
Corn Ethanol Margin*

Production
*30-day moving average Source: Reuters, EIA, IEA
0.6
2008 2009 2010 2011 2012 2013 2014 2015

US Ethanol
Canada Ethanol
US Biodiesel
Rest of North America
95
The blend wall the 10% technical limit for ethanol in gasoline for conventional vehicles
representsanotherbarrier.MeasuredagainstourUSgasolinedemandforecast,ethanolproduction,
at 895kb/d, should reach 10% by volume of gasoline demand in 2011 and the most saturated
markets in the Midwest may already be hitting this wall. One relief valve would be for the EPA to
approve a 15% blend, a decision on which is expected this summer. While the outcome remains
uncertain, we assume for this forecast that the higher kb/d
Americas Ethanol Trade
blend will be allowed for at least post2000 vehicles. 150
Anysuchapprovalisunlikelytocauseaneartermsurge
inethanolabsorptionsubsequentsupplychainandair 100
quality issues will still need resolution. Nevertheless,
the higher blend and increased export oppportunities
should provide enough outlets for supply over the 50
medium term. Moreover, with automakers signalling
production increases, a growing US flexfuel vehicle 0
fleet (which can use 85% ethanol blends) should Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10
US Imports - Latin America/Carribean
provide another absorption mechanism, albeit from a
Brazil Exports - All
lowbaseandlimitedbyE85fuelpumpavailability.
Bigger question marks remain over the Advanced Biofuel portion of the RFS which sees increased
biodieselandcellulosicbiofuel,butmayalsoincludeotherbiofuels,solongastheyachieveatleasta
50%reductionofGHGsversuspetroleumfuel.Forcellulosicethanol,whileprospectshaveimproved,
lack of commercially available capacity will plague RFS requirements going forward (see Second
Generation Biofuels Hold Promise, But Capacity Remains Low). For biodiesel, the industry remains
underduresswithreducedexportopportunitiestoEuropeandthelapseofa$1.00/gallonblenders
tax credit (though this tax credit may be reinstated per a pending bill in the US Congress). Still,
persistenceoftheblendingmandatesupportsourrisingbiodieselproductionforecast(to70kb/din
2015), given that the capacity is available. Additional advanced biofuel could be sourced from
imported sugar cane ethanol, for example, but economics will remain difficult so long as the US
maintainsa54cent/gallonimporttariffonmostforeignsupplies.
Latin America
OECD/IEA, 2010
After a disappointing 2009, Brazilian ethanol prodution should rebound over the medium term.
Creditconstraintsforcedproducerstosellethanoltogeneratecashearlyin2009,leavingstockslean.
HighsugarpricescombinedwithheavyrainsintheCentreSouthregiontodampproductionin2H09
and caused hydrous ethanol prices to climb above energy parity with gasoline in most regions. To
stemrisingfuelcosts,theBraziliangovernmentorderedareductioninanhydrousethanolblendedin
thegasolinepoolto20%inFebruaryofthisyear,reinstatingtheprevious25%blendinMay.
Theindustryremainsfragileinthewakeofthecreditcrisis,butconsolidationandinvestmentfrom
larger players such as Petrobras, BP and Shell has helped shore up its financial position. A new
governmentloanschemeaimstohelpsmallerproducerscoverdaytodaycostsandthegovernment
has approved intermill ethanol trade, both of which should smooth supply. Increased domestic
demandwilldriveproductiongrowthin2010withcontinuedcapacityexpansionandexportshelping
toguidesuppliesoverthemediumterm.Withflexfuelvehiclescomprisingover90%ofautosales,
ethanol, on an energy adjusted basis, should satisfy over half of Brazils gasoline demand growth
from20092015andshouldrise,onavolumetricbasis,toover60%ofthegasolinepoolby2015.
96
mb/d
mb/d
1.0
Brazil: Motor Gasoline Demand
1.0
0.8
Latin America Biofuels Output
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.0
2008 2009 2010 2011 2012 2013 2014 2015
Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10

Ethanol (Hydrous and Anhydrous)
Brazil Ethanol
Argentina Biodiesel
Gasoline
Brazil Biodiesel
Rest of Latin America
OtherLatinAmericanbiofuelssectorsarepoisedforgrowthaswell.Increasedexportopportunities
to Europe, the introduction of a 5% domestic blending mandate in 2010 and plans to eventually
reacha10%blendhaveliftedArgentinasbiodieselproductionprofile.Brazilhasalsointroduceda
5%biodieselblendingmandateanddomesticusageshouldgrowbaseduponrapidlyincreasinggasoil
consumption. Meanwhile, ethanol blending mandates in Colombia, Ecuador and Peru should
underpinregionalbiofuelsproductiongrowthaswell.
OECD Europe
ProductionprospectsinOECDEuropehavealsoimprovedoverthepastyear,thoughtheregiononly
accountsfor10%ofglobalgrowthduring20092015.TheEUmaintainsatargetof5.75%renewable
fuels, by energy content, in the transport pool by 2010 and a 10% renewable energy mandate for
2020. Favourable wheat and sugar beet ethanol margins led to growing regional ethanol output in
2009, with further increases expected in 2010 and beyond. Some large ethanol capacity additions
over 2010 and 2011 drive the forecast. Abengoa recently started its 8kb/d (480ml/y) plant in the
Netherlands;intheUK,Ensusstarteda7kb/d(400ml/y)distilleryinDecember2009whileVivergo
planstobringa7kb/d(400ml/y)plantonlinebyearly2011.
mb/d
0.3
EU & Member State Biofuel Targets

As % of Transport Fuel Demand*
Europe Biofuels Output
EU-27
France
Germany
Italy
Netherlds.
Spain
UK
0.2
0.1
0.0
2008 2009 2010 2011 2012 2013 2014 2015
OECD Europe Biodiesel
OECD Europe Ethanol
Non-OECD Europe Biofuels
2009
2010
* On energy content basis except UK

where targets are volume based
OECD/IEA, 2010
Europesrapidbiodieselgrowthslowedin2009onovercapacityandfalteringeconomics,particularly
in Germany and Italy. Though output grew in Spain, the industry there also remains burdened by
overcapacity. Despite Europes short middle distillate position, with regional refineries unable to
meet diesel demand, domestic biodiesels generally unfavourable price competitiveness versus
imports (of both diesel and biodiesel) weighs upon utilisation rates. Still, the regional outlook is
better overall versus our last forecast, with the 2009 baseline revised up 10kb/d and mandates
97
driving growth over the medium term. Yet, the presence of more competitive imports remains a
challengeforEuropeanproducersgoingforward.In2009theEUimposedimportdutiestostemthe
practiceofforeignsuppliesemanatingfromtheUSandbenefittingfromataxcreditafterblending
withasmallamountofdiesel(socalledsplashanddash).Intheory,thetradeactionshouldhave
improved the production position of domestic European producers. Rather, more competitive
biodieselfromotherregions,particularlyArgentina,simplyfilledthegap.
Still, market access for imports remains uncertain over time. The EUs Renewable Energy Directive
requiresthatbiofuelsmustgenerateGHGsavingsofatleast35%versusfossilfuelsstartingatend
2010tocounttowardstargets;thesesavingsriseto50%in2017and60%in2018.CurrentEUdefault
values put rapeseed biodiesel, which accounts for most European production, above the 35%
threshold and soybean and palm based biodiesel, primary sources for imports, below it. Though
actual soy and palm biodiesel production may achieve higher GHG savings, such volumes would
requirecertification,whichitselfmayrepresentapotentialhurdle.Moreover,supplychallengesfor
foreignanddomesticproducerswilllikelyincreasewhencalculationstakeindirectlandusechange
intoaccount.ArecentEuropeanCommissionfundedstudyassessedthatofthe10%renewablefuels
targetin2020,firstgenerationbiofuels(withasignificantBrazilianethanolcomponent)couldmeet
5.6%, since negative environmental impacts, including indirect land use change, would increase at
concentrations above that level. Currently underdeveloped secondgeneration biofuels would thus
beimportantinfillingthegap.
Asia-Pacific
Though benefitting from a higher baseline in 2009, the Asia biofuels production outlook is less
optimisticthanintheDecemberupdate.Higher2009productionstemsfromanupwardrevisionto
Chinese ethanol carried through from 2008 and smaller upward biodiesel revisions in Korea and
Indonesia.ChinacontinuesasAsiaslargestproducerandastheworldsthirdbiggestethanolsource.
But its growth is limited over the forecast period given the Chinese governments strategy of
restrictingadditionalethanolproductiontonongrainsources,suchascassava.
300
250
200
150
100
50
0
-50
-100
Source: Reuters
Dec 08
Jun 09
NW Europe Rapeseed
OECD/IEA, 2010
Asia Biofuels Output
0.1
Jun 08
mb/d
0.2
Biodiesel Crush Spreads

30-day moving average
$/t
0.0
Dec 09
Jun 10
SE Asia Palm
2008 2009 2010 2011 2012 2013 2014 2015

China Ethanol
SE Asia Ethanol
China Biodiesel
Rest of Asia
SE Asia Biodiesel
Despiteadownwardrevisiontoexpectedoutputin2010and2011,Thailandholdstheregionsmost
promising growth potential, with ethanollargely from molasses and cassavaand biodiesel
largely from palm oilincreasing over the medium term. Thai government policy for biofuels has
been supportive, with 10%, 20% and 85% ethanol blends all on offer and plans to increase the
current2%biodieselblendingmandateto3%inJune2010andto5%by2012.Bycomparison,Indias
supportofitsbiofuelsindustryremainsmorefragmented.Despitethenominalimplementationofa
98
5%ethanolblendingmandateandatargetof20%forbiofuelsintransportfuelsby2017,thesectors
expansionlookstenuous,stymiedbyanunfavourabledomesticpricingsystemandrecenthighsugar
prices.Thegovernmenthasproposedanincreasetothepriceofethanolthatrefinerspaytosugar
mills,whichmayhelpboostproduction,thoughamarketbasedpricingstrategywouldbetterhelpin
balancingsupplyanddemand.
Biodiesel export potential in Indonesia and Malaysia remains strong, but barriers to palm based
suppliesinEuropesuggestthatdomesticdemandmustbestimulated.Malaysiahasintroduceda5%
biodiesel mandate for 2011. Yet, doubts remain over its implementationconsumers there have
enjoyedsubsidisedfuelpricesandtheprogrammessuccessmayhingeonthegovernmentsability
topassthehigherfuelcostsontooilcompanies.Indonesiahasplanstoincreaseitsbiodieselusage
over time, from a current 2.5% biodiesel blend in diesel. Yet, a 5% mandate is not envisaged until
2015andoverallplantutilisationremainslow.Finally,thestartupofNestesbiomasstoliquidsplant
byend2010shouldboostSingaporesproduction.Still,reducedexportopportunitiesforotherplants
maylimitoverallcapacityutilisationhereaswell.
Second-Generation Biofuels Hold Promise, But Capacity Remains Low

MeetingOECDtargetsforgreaterbiofuelsusewillrequireincreasedvolumesofsecondgenerationfuel.
While in the US this requirement is explicit and rises over time, in Europe it is implied through
sustainabilitycriteriawithincreasingGHGthresholds.Secondgenerationbiofuelsgenerallyderivefrom
cellulosic(nonfood)sourcesandprovidegreaterGHGsavingsthanmostfirstgenerationsupplies,which
comefromfoodcrops.Yet,theyfacehighertechnology,feedstockandcosthurdles,whichhavethusfar
limitedcommercialdevelopment.
A dramatic investment push may surmount those hurdles. The US government has approved $800
millionforfundingbiomassprojects,manyoftheminvolvingsecondgenerationbiofuels.Governments
inCanada,AustraliaandEuropearepushingforwardwithsupportmeasures.Integratedoilcompanies
havealsoenteredthefray,withinvestmentcommitmentsmadebyplayerssuchasBP,ShellandExxon
Mobil.Still,companiescontinuetotargetavarietyofoutputs,rangingfrombiobutanoltoalgaederived
biodiesel.Todate,nowinningtechnology,i.e.onethatcouldsignificantlyscaleupinacosteffective
manner,hasemerged.
Biofuels: Estimated Production Costs Under Different Oil Price Assumptions
$/lge
1.4
Gasoline
1.2
Sugar Ethanol
1.0
Corn Ethanol
0.8
Rapeseed Biodiesel
0.6
Cellulosic Ethanol
0.4
Cellulosic Ethanol (long term)

BTL
0.2
BTL (long term)
0.0
OECD/IEA, 2010
$60/bbl
$120/bbl
Source: IEA Mobility Model
lge = litre of gasoline equivalent
99
Second-Generation Biofuels Hold Promise, But Capacity Remains Low
(continued)
Developments in cellulosic ethanol and FischerTropsch biodiesel, or biomasstoliquids (BTL),

technologies look most promising. In the former, which aims to produce fuel from waste materials,
grasses, wood and corn cobs, progress has come from reducing the costs of enzymes for breaking
feedstocks into fermentable sugars. Successful demonstration projects have emerged such as DONG
Energys 5ml/year strawfed cellulosic ethanol plant in Denmark. POET, a large US ethanol producer
developing a 95ml/year plant, recently announced it had brought cellulosic ethanol costs down to
within$1/gallon(~$0.26/litre)ofitscornethanol.OntheBTLside,Chorencompleteda17ml/yearplant
inGermanyin2008,buthasstillnotcommencedcommercialproduction.
Overall, commercial production has yet to take hold for secondgeneration biofuels and is unlikely to
significantlydosoduringtheforecastperiod.Higheroilpricesmayultimatelyprovidethemosteffective
route for scaling up over the medium to long termcost data from the IEA Mobility Model show
cellulosicethanolandBTLapproachingfossilfuelcompetitivenessat$120/bbl(real).Still,evenwithhigh
fuelprices,considerabledifficultyremainsinsourcingandmovingfeedstock.
With a flurry of activity in secondgeneration, capacity forecasts remain difficult and estimating
productionpresentsagreaterchallenge.Toillustrate,theUSEPAdowngradedits2010requirementfor
cellulosic biofuel blending from 100 to 6.5million gallons due to delays and cancellations among
projects supporting the original standard. Our assessment sees 150kb/d (about 9bn litres/year) of
potential global secondgeneration capacity in 2015 based upon announced plans and plants under
construction. Secondgeneration ethanol represents 55% of this, while 45% comes from second
generation biodiesel. However, given the volatile nature of secondgeneration development many of
these facilities will likely experience delays and cancellations beyond those we have assumed. Plants
thatdocomeonlinemayoperateatratesfarbelowcapacity.Assuch,actualproductionvolumesover
themediumtermshouldremainsmall.
OECD/IEA, 2010
100
P ART 1: O IL C RUDE T RADE
CRUDE TRADE
Summary
Globalinterregionalcrudetradeisexpectedtorisebyarobust3.2mb/dduring20092015,
equatingto1.5%compoundannualgrowth,andtakingthe2015levelto36.5mb/d.Compared
withtheJune2009MTOMR,theoutlookisbrighter,withbothannualgrowthandendforecast
supply estimated significantly higher. This stems from two factors an inordinately low 2009
baselineandimproveddemandprospects.
The trade in crude oil will become more globalised as suppliers diversify into new markets.
LatinAmericamakesinroadsintoOtherAsiaandChina,andtheFSUwillopenupneweastward
routes into the Pacific Basin. Despite this, the Middle East remains the key crude exporting
region,withvolumessettogrowfrom15.9mb/din2009to17.4mb/din2015.
The nonOECD is expected to absorb all incremental supply over the forecast, with annual
growthof5.1%.ChinaandIndiawilldrivethistrend,withChinainparticularexpectedtoraise
importsby9.2%annuallyfrom20092015.Incomparison0.7%annualdeclineisexpectedin
theOECD,withonlyOECDEuropesettoseegrowthinresponsetofallingdomesticproduction.
OECD/IEA, 2010
Overview and Methodology

Asinpreviousexercises,crudeoiltradehasbeenmodelledasafunctionofoilproductioncapacity
and demand growth, incremental supplies being allocated on the basis of projected refinery
expansions. On this basis, during 20092015 exports of crude oil are estimated to increase by
3.2mb/d to 36.5mb/d, equating to 1.5% annual growth. This compares with June 2009 MTOMR
growthof0.1%annually.Thisdifferencestemsfromtherelativelylow2009baselineof33.4mb/d,
characterisedbydepresseddemandandOPECproductioncuts,thereforeleavingmorepotentialfor
futureexportgrowth.Comparedtolastyear,theshorttermoutlookisalsonowseenbrightersince
the economic recession has proved less longlasting than initially expected, albeit uncertainties
remain. Global crude trade in 2014 is now seen stronger at 36.0mb/d versus last years estimate
of35.4mb/d.
Crude oil trade is expected to become progressively more globalised with new long haul routes
growinginimportanceasswingproducers,notablytheFSUandLatinAmerica,increasinglyturntheir
attention to diversifying exports towards Asia. The Middle East will remain the key oil exporting
region,supplying17.4mb/din2015andretainingitsexistingdominantcrudetradepositionwitha
47.6% share. However, a subtle shift is expected, with Africa set to become the second largest
supplier on a global level and increasing its market share by 1.8% to account for 23.8% of global
exportsby2015.Thisriseisnotablyattheexpenseofthethirdlargestsupplier,theFSU,whichsees
itsshareofthemarketcutby2.0%to18.3%during20092015.LatinAmericaisalsoexpectedto
increaseitsmarketshareby1.8%to7.1%withotherregionsaccountingforacombined3.2%(1.5%
over the forecast). In 2010 the bulk of regional export growth is expected to come from Latin
America (+360kb/d from 2009) but with increasing growth expected from Middle Eastern and
African suppliers thereafter, a notable exception is 2014 where a dip in growth is expected in the
MiddleEast,astheregionseessignificantnewrefiningcapacitycommissioned.
101
Total Crude Oil Exports:

Annual Growth
mb/d
Inter-Regional Crude Exports:

Yearly Change
mb/d
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
2009 2010 2011 2012 2013 2014 2015
2009 2010 2011 2012 2013 2014 2015
June 2010 Forecast
June 2009 Forecast
Regional Trade
China
Other Asia
Africa
Latin Am
Mid East
FSU
OECD Pac
OECD Eur
TheMiddleEastretainsitsroleasswingsupplier,withoutputexpectedtoreach17.4mb/dby2015.
Thisrepresentsariseof1.5mb/dfromrecessionary2009levels,unsurprisinggiventhattheregion
borethebruntofOPECproductioncuts,butamoremutedexportriseof200kb/dversus2008.All
incremental production from the region heads to Asia. Other Asia consolidates its position as the
largest buyer of Middle Eastern grades, importing 5.0mb/d by 2015 (+460kb/d from 2009). The
strongest growth in imports of Middle Eastern grades is expected to come from China, where an
extra1.2mb/disprojectedin2015.Unlikelastyearsexercise,OECDEuropeimports730kb/dmore
Middle Eastern crude by the end of the forecast, stemming from a need to offset both declining
domestic production and lower imports from the FSU. The traditional markets of the OECD Pacific
andOECDNorthAmericawillcuttheirdemandforMiddleEasterngradesby500kb/deach,although
theOECDPacificremainstheMiddleEastssecondlargestcustomer,importing4.8mb/din2015.
Crude Exports in 2015 and Growth in 2009-15 for Key Trade Routes*
* Excludes Intra-Regional Trade
0.3 (+0.3)
OECD
Europe
OECD
North
America
4.4 (-0.6)
1.0 (+0.3)
2.1
(+0)
2.7
2.4
0.1
(+0.7)
(+0.1)
OECD
Pacific
4.8
(-0.5)
China
(+0.7)
Other Asia
1.6
2.9
2.0
(+1.1)
(+0.7)
(+0.0)
1.3
1.7
(+0.1)
5.0
(+0.5)
(-0.5)
0.6
(+0.4)
0.4 (+0.4)
OECD/IEA, 2010
Red number in brackets denotes growth in period 2009-15
102
Africa will become an increasingly important swing supplier over the forecast. Compound annual
growthof2.8%andexportsof8.7mb/dby2015areestimated.Incremental productionshouldbe
absorbed by OECD North America and China, both of whose imports increase by around 700kb/d
during 20092015. OECD North America will continue to be the largest customer for African crude
withimportssettoreach2.7mb/dby2015.InthefaceofdiminishingsuppliesofUSonshore,light,
sweetcrudes,USGulfCoastrefinersmayseekalternative,similarqualityAfricansupplies.Exportsto
OECD Europe are projected to remain static at 2.1mb/d, with Other Asia set to rise by a
modest100kb/d.
Middle East Export Growth 2009-15
Inter-Regional Export Growth

2009-15
China
ME -China
AFR-China
OECD Eur
AFR-OECD NAM
Oth Asia
ME-Oth Asia
LATAM-Oth Asia
Africa
LATAM-China
Oth Europe
FSU-China
ME-OECD PAC
OECD Pac
ME-OECD NAM
OECD Nam
FSU-OECD EUR
mb/d -1.0
-0.5
0.0
0.5
1.0
1.5
mb/d -0.6 -0.3
0.0
0.3
0.6
0.9
1.2
FSUexportsareexpectedtofallby100kb/dduring20092015overall,despiteinitiallyrisingduring
20092011 by 270kb/d. In contrast to the previous outlook, the FSU will diversify its exports with
new eastward routes to Pacific markets. These trades could displace around 0.6mb/d of existing
deliveriesintoOECDEurope.Althougheastboundvolumesremainminorcomparedtothoseheading
west,theyfulfiladualRussianaimofminimisingrelianceontransitcountriesandtargetinglucrative
Asiangrowthmarkets.InstrumentalinthisistherecentlyinauguratedEastSiberiatoPacificOcean
(ESPO)pipelinewhichalsofacilitatesthedevelopmentofneweastSiberianreserves.Cargoesfrom
the Kozmino leg of the pipeline will likely be sold spot, rather than on a contract basis, allowing
flexiblesalestoavarietyofAsiancustomersandpotentiallytheAmericas.RussianexportstoChina
willlikelybemorestableandsoldonacontractbasisorthroughswapdealswith300kb/dexpected
via ESPO. Total FSU exports to China are seen at 1.0mb/d. The Caspian region is also expected to
significantlyboostexports,notablywhenthegiantKashaganfieldstartsupinlate2013,withalarge
proportion likely absorbed by China. Nonetheless, OECD Europe retains its position as the main
destinationofFSUcrudeswith4.4mb/danticipatedin2015.
FSU Export Growth 2009-15
Africa Export Growth 2009-15

China
China
OECD Pac
OECD Nam
Oth Asia
Oth Asia
Middle East
Latin Am
Oth Europe
OECD Eur
OECD Nam
OECD/IEA, 2010
OECD Pac
mb/d -0.4 -0.2
OECD Eur
0.0
0.2
0.4
0.6
0.8
mb/d -0.6
-0.4
-0.2
0.0
0.2
0.4
103
OECD/IEA, 2010
Latin America is projected to display the strongest growth globally, at 6.7% annually over the
forecast.Totalexportsshouldrisefrom1.8mb/din2009to2.6mb/din2015.Alloftheincremental
productionwillbeabsorbedbyAsiancountries,wheretheadditionofcomplexrefinerycapacitywill
facilitate processing heavy Latin American grades, notably from rising Venezuelan production
expected to come onstream late in the forecast. Other Asia, notably India, has already started to
take Latin American cargoes and by 2015 could import 550kb/d, while China is expected to take
regular shipments from 2012, ramping up to 400kb/d by 2015. The diversification of markets will
stemfromvariousfactors.ProductionfromColombia,BrazilandVenezuelaisexpectedtoriseover
theforecastperiodandatthesametimeexpansionofthePanamaCanaltotakelargercarrierswill
reduceshippingtimesandimprovetheprofitabilityofcargoesintoAsia.LatinAmericansupplierswill
also likely have to look further afield since exports to the traditional destination of the US could
stagnateat1.6mb/doverthemediumterm.ItisanticipatedthatUSrefinerswillincreasinglylookto
importsofCanadianoilsandswhichcouldreplaceheavyLatinAmericangrades.
NonOECD importers are forecast to enlarge their

Inter-Regional Crude Imports:
shareofglobalimportsfrom35.1%in2009to43.2% mb/d
Yearly Change
1.5
in 2015. Imports grow from 11.7mb/d in 2009 to
1.0
15.8mb/d in 2015, representing annual growth of
0.5
0.0
5.1%. China and Other Asia will drive this trend by
-0.5
absorbing incremental production. Chinas imports
-1.0
shoulddramaticallyclimbfrom3.7mb/din2009to
-1.5
6.4mb/din2015,equatingto+9.2%onacompound
-2.0
-2.5
annual basis. On the same basis, Other Asia is
2009 2010 2011 2012 2013 2014 2015
projectedtohaveannualgrowthof3.1%asimports
OECD
Eur
OECD N Am OECD Pac
Other Eur
climbfrom5.9mb/dto7.1mb/d.Largelyunaffected
Latin Am
Africa
Other Asia
China
by the recession, imports into China and India rose
by600kb/dand100kb/drespectivelyin2009.
The OECD, in response to falling demand, is expected to reduce its absolute imports over the
forecast by an average of 900kb/d to 20.7mb/d by 2015, representing annual decline of 0.7%.
However, the picture is mixed with the OECD Pacific and OECD North America set to decline by
700kb/d and 370kb/d, respectively, while falling domestic production sees import requirements
intoOECDEuroperiseby170kb/dduring20092015.
Thedirtytankermarketisexpectedtobeunderpinnedbythisglobalisationoverthemediumterm
andpartlyallayfearsofsignificantlydepressedfreightratesinthefaceofaloomingoversupplyof
tankersorderedprerecession.Thetrendofincreasinglonghaulvoyages,especiallycrossPacific,is
expectedtoincreaseaveragejourneytimesandthereforetieuptonnageforlonger.Additionally,the
construction of extra, exportorientated refining capacity in Asia, notably India, is expected to
supportthecleantankermarketoverthemediumterm.
104
P ART 1: O IL R EFININGAND P RODUCT S UPPLY
REFINING AND PRODUCT SUPPLY
Summary
Globalrefinerycrudedistillation(CDU)capacityisexpectedtoincreaseby9.0mb/dfrom2009
to 2015, an average annual addition of 1.5mb/d, to reach 99.8mb/d in 2015. The largest
increasecomesfromChina,where3.3mb/dofdistillationadditionsarelikely,followedbyOther
Asia,theMiddleEastandLatinAmerica.IntheOECD,capacityrationalisationhasstarted,witha
total 1.4mb/d removed over 20092011, and we expect this figure to increase as refiners
continuetoreacttopooreconomics,andfurtherclosuresareannounced.
kb/d
0.6
Revisions to CDU Capacity
0.4
0.2
0.0
-0.2
-0.4
-0.6
2009 2010
OECD
Other Asia
Latin America
OECD/IEA, 2010
2011
2012 2013 2014

China
Middle East
Other Non OECD
Refinery capacity additions outpace expected demand growth in the 20102015 period,
potentiallyadding4.8mb/dofsparecapacitytoanalreadylargesurplus.Refinerythroughputs
aresettomeetonly62%offorecastdemandgrowth(of7.1mb/d)fortheperiod,asincreased
biofuelssupplies,NGLsbypassingtherefiningsystemandcoalandgastoliquidsareexpectedto
addacombined2.6mb/dtoproductsupplies.
Globalrefineryutilisationrates areseendeclining over themedium term, toaverage78% of

capacity in 2015, compared to 84% in 2008, and an estimated 81% in 2009. Although OECD
refineries sustain higher operating rates than in previous assessments, this in part reflects
capacity reductions. Operating levels are nevertheless expected to remain at suppressed levels
throughouttheforecastperiod,unlessmorecapacityisremoved.NonOECDrefinerswilllikely
sustain higher utilisation rates. Here too, less complex plants face competition for crude and
marketsfromnew,moresophisticatedorstrategicallyoperatedfacilities.
OilproductbalanceshavechangedsignificantlysincetheJune2009MTOMR,butmoresodue
torevisedoilproductdemandandupstreamsupplysidefundamentalsthanachangedviewof
therefinerysector.Globalbalancesnowpointtothepotentialforasignificant,andincreasing,
surplus of light distillates, tightening middle distillates supplies, and a more balanced fuel oil
marketintheyearsahead.
105
Refinery Investment Overview

Globalrefineryexpansionplansareexpectedtoadd9.0mb/dofcrudedistillation(CDU)capacityby
2015.MorethanonethirdofthegrowthcomesfromChina,whichisaddingalmost3.3mb/dinthe
forecastperiod,followedby1.5mb/dofnewcapacityinOtherAsia,1.4mb/dintheMiddleEastand
just over 1.0mb/d in Latin America. Refinery investment decisions in the main growth areas often
havestrategic,ratherthanpurelyeconomic,motivations.The20092014crudedistillationcapacity
forecasthasbeenrevisedhigherby670kb/dsincetheDecember2009mediumtermupdate.Lower
estimates for the OECD, where the closure of several refineries has been included, are more than
offset by stronger additions expected in the nonOECD, particularly from China and Other Asia.
Refinersarealsoinvestingtosatisfyalighter,lowersulphurdemandbarrel.Upgradingcapacityand
desulphurisationinvestmentsaddrespectively7.0mb/dand8.2mb/dby2015.Theglobalupgrading
ratio(cracking/distillation)thereforeincreasesfrom0.41to0.47overtheforecastperiod.
Global Crude Distillation Capacity

( m illio n ba rre ls pe r da y)
OECD/IEA, 2010
OECD
2009
2010
2011
2012
2013
2014
2015
2015-2009
45.3
45.4
45.4
45.9
46.0
46.0
46.1
0.8
FSU
7.8
7.9
7.9
8.3
8.4
8.4
8.4
0.6
China
9.1
10.1
10.1
10.5
11.3
11.9
12.4
3.3
Other Asia
10.4
11.1
11.1
11.2
11.5
11.8
11.9
1.5
Middle East
7.8
8.1
8.1
8.2
8.2
9.0
9.2
1.4
Other Non-OECD
10.3
10.5
10.5
10.8
11.0
11.4
11.8
1.5
World
90.8
93.1
93.1
94.9
96.4
98.6
99.8
9.0
The largest risk to our forecast revolves around our assumption for Chinese expansions. Industry
estimates for capacity growth vary considerably, with some assessements as high as 5mb/d,
equivalenttoa50%increaseintotalcapacity,by2015.Visibilityonthestatusofproposedprojects
remainsopaque,andtheincreasedinternalcompetitionbymainplayersandnewentrantsresultsin
a flurry of project proposals competing for government approval and market share. Although it is
hard to discern which refineries will be built within the timeframe and which will be delayed or
shelved,weassumethatChineseexpansionswillbemotivatedbysecuringproductsuppliestomeet
domesticdemandgrowthfordistillateproducts,therebylimitingproductimports.Ofcourse,should
demandgrowthprovelessstrongthancurrentlyprojected,refineryadditionsmightalsobelower.
Other Asian capacity expansions are dominated by growth in India, which account for 71% of
regional increases. The Indian governments objective of ensuring that Indias oil product demand
growth is met at affordable prices over time as well as establishing India as a major global refined
product exporter, drive expansions. Other additions come from Vietnam, where two further
grassroots refinery projects are now seen likely, although we recognise the risk of these slipping
beyond 2015. Growth in Middle Eastern refining capacity is heavily biased towards the end of the
forecast period, with the expected commissioning of two mega projects, namely Jubail in Saudi
ArabiaandRuwaisintheUAE,addingsome800kb/dofcapacityin2014.Whilesubstantialcapacity
is added in Latin America, driven by Brazil, the regions oil product import needs will rise as
additionalsuppliesfallshortofprojectedproductdemandgrowth.ThesameistrueforAfricawhere,
althoughamultitudeofrefineryprojectshavebeenproposed,fewmakeitpastplanningstage,due
tofinancing,politicalorotherproblems.
106
Refining Margins Trending Higher

Refining margins in 2010 have bounced back from the recessionary lows that prevailed for much of
2009.However,profitabilityremainsstrainedandwellbelowthecomparativelyheadylevelsevidentin
several years from middecade in the runup to the mid2008 crash. While utilisation rates in North
America, in particular, have recovered in recent months, we envisage OECD margins and throughput
remaining under pressure from the impact of major refinery expansions East of Suez and a growing
proportion of oil demand growth met from outside the refining system (biofuels, NGL and non
conventionalsupplies).
Jan 09 = 100
Cracking Margins
(Mars-Coking, Dubai-Hydrocracking)
150
$/bbl NWE Brent Quarterly Change in Margin $/bbl

3
20
100
10
50
0
-50
-100
-10
-20
-1
2Q 1Q09
-150
Jan 09 Apr 09
NWE Brent
USGC Mars
Jul 09 Oct 09
Med Urals
Sing. Dubai
Jan 10 Apr 10
NWE Urals
3Q - 2Q 4Q - 3Q
L. Distillates
Fuel Oil/ LPG
Margin (RHS)
1Q10 - Apr-May
4Q
vs 1Q
M. Distillates
Crude/Others
AlreadyverylowatthetimeoftheJune2009MTOMR,marginsdroppedfurthertoalowpointaround
November2009,forcingOECDrefinerstocutrunstolevelsaround78%utilisation,9percentagepoints
below the 20042008 average level. This followed OECD distillate stocks reaching record highs at
38.7days of cover in August2009 and gasoline at 27.5days in September. Since November2009,
however,marginshaverecoveredsomelostground,reachingahighpointinMarch2010onrevitalised
gasoline and distillate markets, as global maintenance activity was it its highest, and before intense
Eurozonefinancialconcernstookhold.However,amongthebenchmarkmargins,onlyEuropeanUrals
crackinghasregainedJanuary2009levels,withthereststillhavingsomegroundtorecover,particularly
inAsiawheremarginshaveremainedwellbelowearlierlevels.
OECD/IEA, 2010
Refinery Utilisation and Global Throughputs

Globalrefineryutilisationlevelsareseendecliningoverthemediumterm,toaverage78%ofcapacity
in2015,comparedto84%in2008,thelastyearforwhichannualthroughputdataareavailable,and
81%in2009.Crudedistillationcapacityadditionscontinuetooutpaceglobaldemandgrowth,which
isalsoincreasinglymetbysuppliesfromothersources(suchasbiofuels,NGLvolumesbypassingthe
refinerysystemandgasandcoaltoliquids).ComparedwiththeJune2009MediumTermOilMarket
Report,utilisationratesfortheOECDareseenhigheroverall,whilethoseofthenonOECDgenerally
trendflatataround80%.Thechangesarelessaboutdifferentoperatinglevelsperseandmoredue
to a lower capacity assessment for the OECD, following refinery closures, and significantly higher
capacity additions for the nonOECD (partly reflected in the December 2009 mediumterm update,
anddiscussedabove).Asbefore,weassumethatutilisationratesinthematuremarketsoftheOECD
willremainweakuntilfurthercapacityisshut,whilenonOECD,andinparticularthestrongdemand
growthcentresoftheMiddleEast,China,andLatinAmerica,managetokeepratesrelativelystable.
In Other Asia, where significant capacity is added, not always for purely commercial reasons, we
assume less complex refiners will struggle to source crude supplies and markets for their output,
resultinginslightlylowerutilisationrates.
107
mb/d
8.0
Refinery Utilisation Rates

95%
Cumulative Throughput Growth
6.0
90%
4.0
85%
2.0
80%
0.0
75%
-2.0
-4.0
70%
1Q06
1Q08
OECD
1Q10
1Q12
Non-OECD
2010
1Q14
World
2011
OECD
2012
2013
Non-OECD
2014
2015
World
OECD/IEA, 2010
Involumetricterms,however,aftercontractingby1.8mb/din2009,globalrefinerythroughputsare
expected to grow by 4.5mb/d from 2009 to 2015. Of this, roughly 30% is expected to come from
increasedcondensatesupplies,processedindedicatedsplittersorintraditionalrefineries,blended
intothecrudefeedstock.ThroughputgrowthiswhollyaccountedforbythenonOECD,with42%of
nonOECDgrowthstemmingfromChina,21%inotherAsiafollowedby17%intheMiddleEast.OECD
throughputsarecurrentlyseencontractingby1.6mb/dfortheforecastperiod,concentratedatthe
frontendoftheperiod.
Inordertobringglobaloperatingratesbackto85%utilisation,theaverageseenin20062008,anda
levelwidelyconsideredsufficienttosupportrefiningmargins,morethan7mb/dofcapacitywould
have to be shut, or not built by the end of the forecast period. The shutdowns are more likely in
mature markets, notably the OECD Pacific, OECD Europe and, to a lesser extent, OECD North
America. Some closures, or project delays, will also likely be seen in Other Asia. Not explicitly
included in this assessment is the assumed closure/mothballing of small independent refiners in
China.Toincreasethecompetitivepositionofitsrefiningindustry,theChinesegovernmentplansto
shut down refineries with capacities below 20kb/d, mainly in the Shandong region. Independent
refinersareestimatedtohaverunonlyaround20%ofcapacityin2009.
Product Supply Balances

Oil product balances look dramatically different from the outcome published in the June 2009
MTOMR. The changes stem less from modifications to our assumptions for the global refining
system,andmorefromsignificantrevisionstothesupplyanddemandoutlooksfromoneyearago.
The large potential deficit in fuel oil highlighted in last years report has all but vanished. Gasoline
andnaphthalookincreasinglytendedtowardsoversupply.Meanwhile,despiteextensiveupgrading
capacity additions, middle distillate supply potential again proves to be a bottleneck compared to
thepreponderanceofdemandgrowthfortheseproducts.Adegreeofmismatchbetweenthetypes
ofplannedupgradingcapacityadditionsandtheevolvingdemandslateisthereforeevident.
Not only has 2014 global oil products demand estimates been revised up by 2.0mb/d since last
years MTOMR, nonOPEC supplies have also been revised higher by a total of 2.3mb/d in 2014.
Behind the two seemingly offsetting factors, however, changes within demand and supply have
significantimplicationsforproductsupplies.Demandgainsareheavilybiasedtowardsstrongermiddle
distillates (+1.2mb/d), while gasoline (partly masked by stronger naphtha) and fuel oil demand are
sharplylowertowardstheendoftheforecastperiod(by0.6mb/dand1.2mb/d,respectively).
108
Products Supply Modelling Seeking the Pressure Points

Our approach to modelling refined product supply is not designed to optimise the global/regional
system,rathertohighlightwherepressuresmayemergewithinthatsysteminthe20102015period.A
numberofsimplifyingassumptionsunderpintheanalysis,changestoanyoneofwhichwouldgenerate
asignificantlydifferentpicture.Theaimistohighlighttheadequacy,orotherwise,offirmlycommitted
refiningcapacityandcurrentlyprevailingrefineryoperatingregimeinmeetingtheexpectedpatternof
demand growth, with expected changes in crude feedstock quality. The model uses our Base Case
demandprofile,withglobalrefinerythroughputlevelsfeedingoffabalancewherebynonOPECsupply
is maximised and OPEC acts as swing supplier in filling the gap between this and total oil product
demand. We also assume an operational merit order, with crude preferentially allocated to demand
growthregionsandtomorecomplexrefiningcapacity.Ourapproachisnoniterative,whenofcoursein
realitytheemergenceofimbalanceswouldtendtoforcechangesinoperatingregime,crudeallocation
andultimatelycapacityandinvestmentlevels.
Feedstock supply side revisions are dominated by higher Canadian oil sands supplies, these being
430kb/d higher than last years 2014 estimate, with further growth of 460kb/d seen in 2015.
StrongerthanexpectedRussiancrudevolumes,aswellastheadditionsofheavierColombiancrudes
towards the end of the forecast, further contribute to a heavier, more sour feedstock base for
refiners post2011/2012. A higher Venezuelan upstream capacity assessment from 2014 onwards
also translates into more heavy OPEC supplies, as we continue to assume that total OPEC supplies
are controlled to balance product demand, and that core producers (Saudi Arabia, Kuwait and the
UAE)actasswingsuppliers.
The most significant outcome of the changes above is that the huge potential fuel oil deficit we
outlined last year has all but vanished. Fuel oil now looks more balanced, with a tightening in the
Middle East mostly offset by increased potential surplus from Asia and North America. The
assumptionthatOPECwilldisproportionallyrestricttheproductionofheavy/sourcrudetobalance
themarketobviouslyhasanimpact.TheMiddleEastisshowntogeneratethelargestfueloildeficit
inthemediumterm,asdemandremainrobust,whilesuppliesdwindleduetolighterfeedstockand
significantinvestmentinupgradingcapacity.Theregionisalreadyincreasinglyreplacingfueloilfor
powergenerationwithdirectcrudeburning,inpartreducingimportneeds.Fueloilbalancesinthe
FormerSovietUnion(FSU)areexpectedtotighteninthenearmediumterm(20092012),asrefinery
investmentsboostlightproductyields,butthenstabilisetowardstheendoftheforecastperiod.
mb/d Demand Revisions by Products

2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
vs. June 2009 MTOMR
33.6

2009-2015
Sulphur
(%)
1.15
33.5
33.4
33.3
1.10
33.2
33.1
33.0
2009
Naphtha/Gasoline
Fuel Oil
OECD/IEA, 2010
API
degrees
2014
Gasoil/Kerosene
LPG/Others
1.05
2009 2010 2011 2012 2013 2014 2015
API
API (2009)
Sulphur (RHS)
Sulphur (2009)
109
Product Supply Balances - Fuel Oil

Change in Supply vs. Demand 2009-2012, 2012-2015
Thousand barrels per day
Europe
FSU
182
-256
North America
36
-90
90
203
Asia
Middle East
-358
Latin America
121
187
-303
Africa
55
37
World
-31
-109
-128
-108
Afteraperiodofrelativelyamplysuppliedmiddledistillatemarkets,strongdemandgrowthisagain
expectedtocreateabottleneckforrefiners.Ofthe7.1mb/dincreaseintotaldemandfrom2009to
2015, gasoil/kerosene account for an impressive 62%. Markets are expected to tighten, notably in
NorthAmerica,inthenearmediumterm.NorthAmericandemanddroppedfromahighof7.3mb/d
in 1Q07 to 6.0mb/d in mid2009, but is now expected to recover alongside economic growth.
Despite this tightening through 2012, our assumptions on run rates for North America suggest the
region will continue to export distillates throughout the forecast period, providing some relief to
Europe,whichseesitsmiddledistillateimportrequirementsincreasesharply.TheMiddleEastand
FSUalsoseemodestsurplusmiddledistillateavailabilitydevelop,albeitinsufficienttomeetsharply
risingimportdemandinotherregions.
mb/d
10.0
mb/d
Cumulative Oil Demand Growth
1.0
8.0
Potential Evolution in Regional

Gasoil/Kerosene Balances
4Q Rolling avereages
6.0
0.0
4.0
2.0
-1.0
0.0
-2.0
2010
2011
2012
Naphtha/Gasoline
Fuel Oil
Total
OECD/IEA, 2010
110
2013
2014
2015
Gasoil/Kerosene
Other
-2.0
1Q06
1Q08
Europe
Lat Am
1Q10
1Q12
N. Am
Asia
1Q14
Africa
M. East
Product Supply Balances - Gasoil/Kerosene

Europe
FSU
North America
21
-176
223
92
-352
Asia
Middle East
23
-428
163
-76
-308
Latin America
Africa
World
-191
-100
-103
-127
-483
-855
Gasolineandnaphthabalances,ontheotherhand,looksettoincreasinglytendtowardsoversupply
in the medium term, notably toward the end of the projection. The expected decline in North
Americangasolinedemand,aswellasincreasedavailabilityofbiofuels(seeEvaporatingUSGasoline
Demand?)hassignificantimplicationsforglobalbalances.USgasolinedemandisexpectedtofallby
330kb/d from 2009 to 2015, with regional biofuel supplies growing by 340kb/d. While Latin
Americasgasolinesupplysituationimprovesinthemediumterm,duetoincreasedbiofuelssupplies,
Africasimportneedsofgasolinewillincrease,asrefineryinvestmentsfailtokeepupwithprojected
demandgrowth.ThiswillprovidelittlerelieftoEuropeanrefiners,whowillstruggletoreplacetheUS
as an outlet for surplus supplies. European refiners will also meet strong competition for markets
from highly sophisticated export refiners in Asia (in particular India and Japan), who see regional
marketssufficientlysupplied.
Product Supply Balances Gasoline/Naphtha

Europe
237
-15
140
North America
FSU
30
493
Asia
Middle East
127
-73
194
184
-92
Latin America
124
Africa
76
-20
World
-99
951
OECD/IEA, 2010
355
111
Regional Developments
North America
North American crude oil distillation capacity is expected to grow by 860kb/d over the 20102015
period. Although very similar to the December 2009 mediumterm update, the headline number
masks offsetting changes. Firstly, in the December report we assumed Valeros Delaware refinery
wouldbepermanentlyshutandthereforetakenoutofcapacityassessments.The190kb/drefinery
has been reinstated, however, following the April sale to the Petroplusled PBF group. PBF bought
therefineryatabargainpriceof$170million(comparedtoValerospurchasepriceof$1.9billionin
2005),andplantorecommissiontheplantin2Q11,afterextensiverefurbishment.
mb/d
1.0
North America Utilisation Rates
North American Capacity Additions

100%
0.8
90%
0.6
80%
0.4
70%
0.2
60%
0.0
2010
2011
Crude Addition
2012
2013
Upgrading
2014
2015
Desulphurisation
50%
1Q06
1Q08
1Q10
1Q12
1Q14
Further changes include the closure of Shells 130kb/d Montreal refinery in Canada, which will be
turned into an oil terminal at the end of 2010. We have also included the shutdown of Giant
Refinings Bloomfield refinery, which was shut at the end of 2009, as well as a 35kb/d capacity
reductionforHollystwoTulsarefineries.IncludingSunocosEaglePointrefinery,alreadyshutinthe
Decemberupdate,totalNorthAmericanshutdownsnowamountto330kb/d.Thecommissioningof
Marathons180kb/dGaryvilleexpansionin1Q10offsetstherefineryclosures,however,andresults
in a 200kb/d net increase to North American crude distillation capacity in 2010. Further planned
additions,includingMotivaEnterprises325kb/dPortArthurexpansion,seemtobeon track,with
onlyminoradjustmentsmadetotimingsandcapacity.
A shortage of domestic refining capacity in Mexico has led the country to increasingly rely on
expensivegasolineandotherproductsimports.Pemeximportsproductatmarketpricesandsellsat
subsidisedretailpricessetbythegovernment.Torelievetheproductshortage,Pemexisplanningto
build a 250kb/d refinery in the city of Tula, outside our timeframe. Several expansion/upgrading
projects at existing refineries, however, will increase gasoline and diesel production. The 150kb/d
expansiontotheMinatitlanplant,includingacokerandFCC,shouldstartoperationinmid2010.The
SalinaCruz,SalamancaandTulaHildagorefineriesarealsoexpectedtobeupgradedover2013/2014.
OECD/IEA, 2010
As discussed in the overview section, declining North American gasoline demand and increasing
ethanol supplies reduce the regions import needs in the medium term. Furthermore, the regions
current middledistillate surplus is expected to narrow as demand growth resumes, yet the region
retains its export potential. Fuel oil balances ease in the period, as relatively cheap natural gas
continuestodisplacefueloilinpowergeneration,loweringdemand.Supplies,ontheotherhand,are
seen declining in the near term as additional upgrading capacity is commissioned, though the
increasedvolumesofheavyCanadiancrudeslimitthedownsidepotential.
112
North America
Gasoil and Kerosene Balance
mb/d
7.4
7.2
7.0
6.8
6.6
6.4
6.2
6.0
North America
mb/d
Fuel Oil Balance
1.5
1.3
1.1
0.9
0.7
0.5
1Q06
1Q08
1Q10
1Q12
Forecast Supply
1Q06
1Q14
Reported Supply
1Q08
1Q10
1Q12
Forecast Supply
Demand
Demand
1Q14
Reported Supply
USRefinersPrepareforIncreasedCanadianSupplies
Increased investments in Canadianoilsandsproductionandpipelineinfrastructureare currentlya main
driverofUSrefineryinvestments.CanadiancrudeimportsaretakingupalargershareoftotalUScrude
imports,andtheshareisexpectedtorisesignificantlyoverthemediumtermasCanadianoilproduction
increases,risingby1.1mb/dfrom2009to2015,ofwhichroughly80%isheavycrudeandbitumen.
The US imported 1.65mb/d of Canadian crude in
2009 (19% of total crude imports), through three
main pipeline systems: the Enbridge system,
Kinder Morgans Express and Trans Mountain
Pipelines. Current projects to increase pipeline
capacity include the TransCanada 435kb/d
Keystone line from Hardisty to Wood River and
Patoka by the end of 2010, with an extension to
the US Gulf Coast by 2013. A major expansion of
Enbridgesmainline,theAlbertaClipperProject,is
underwayfromEdmontontoSuperior,Wisconsin
as well as an extension southwards from Superior
toFlanagan,Illinois.
mb/d
12
10
8
6
4
US Crude Imports
Canadian Share
24%
22%
20%
18%
16%
14%
12%
10%
The investments in Canadian production and pipeline capacity have been accompanied by a slew of
proposed refinery expansion proposals in the US to process heavy bitumen blends. These feedstocks
traditionallyrequireadditionalcokingandvacuumdistillationcapacity,sulphurrecoveryandhydrogen
production,aswellasadditionalhydroprocessingunits.Amongthemoreadvancedprojectsare:
MotivaPortArthurs$7billionexpansion,whichwilladd325kb/dprocessingcapacityandcapability
toprocessCanadianoilsandscrude(byaddinga100kb/dcoker).Completionexpectedin3Q12.
Marathons Detroit refinery: $2.2 billion Heavy Oil Upgrade Project (HOUP) delayed from 2010 to
capturefallingcosts,80kb/dofheavyoilprocessingcapacityexpectedin1Q13.
BPs Whiting, Indiana refinery: the $3.8 billion modernisation project will increase the refinerys
capacity to process heavy Canadian crude by 260kb/d, expected to conclude in early 2012. The
expansionwillmaketherefinerythelargestrefineroftarsandsoilintheUS.
OECD/IEA, 2010
ConocoPhillips Borger/Wood River, Texas refinery: The 2007 ConocoPhillips and EnCana Corp. JV
entailsplanstoexpandthroughput(+195kb/d)andheavyoilprocessingcapacityatbothrefineries
between20112015.
113
USRefinersPrepareforIncreasedCanadianSupplies(continued)
a.
Borger will add 50kb/d of crude capacity and a 20kb/d delayed coker, as well as a vacuum
distillationunitandadieselhydrotreaterby2Q13.
b.
TheWoodRiverExpansionisscheduledintwophases.Thefirstphaseinvolvesa50kb/dincreaseto
CDUcapacityaswellasanew65kb/ddelayedcokerandisexpectedonlinein2011.Thesecond
phaseincludesa95kb/dCDUexpansion,aswellasanother50kb/dcoker,andisexpectedtobe
completedin2015.
Source: CAPP, 2010
OECD Europe
SincetheDecember2009mediumtermupdate,Europeancapacityestimateshavebeenreducedas
refinersreacttostructurallydecliningdemandandpooreconomics.Intotal,370kb/dofcapacityhas
beenpermanentlyshut,withfurthercapacityidleorforsale.Moreclosuresarelikelyintheyearsto
come,aseffortsmadetoreducetheoverhanghavebeeninadequateinkeepingoperatingratesat
highlevelsandsupportingeconomics.
OECD/IEA, 2010
InFebruary2010,FrenchoilmajorTotal,announceditwouldpermanentlycloseits140kb/dDunkirk
plant in response to structurally declining demand. The company had earlier announced plans to
shed500kb/dofcapacityby2011duetotheextremelytoughoperatingenvironment,butwasmet
with fierce resistance from workers, unions and politicians, and subsequently pledged not to shut
any further refineries in France within a fiveyear period. The company will nonetheless shut one
crude distillation unit at its largest refinery, Gonfreville in Normandy, idle since mid2009.
SpeculationhasitthatTotalwoulddisposeofitsLindseyrefineryintheUKtofulfilitsgoaloftotal
capacityreductions,andindependentrefinerPetroplusreportedlyputinanofferfortheplantatthe
endofApril.AlsointheUK,Petroplussuspendedrefiningoperationsatits100kb/dTeessiderefinery
attheendof2009,andthesitehasbeenconvertedintoastorageterminal.
114
Inadditiontotherefineriesalreadyclosed,severalplantshavebeenidentifiedasclosurecandidates
or are up for sale. In the UK, Shells Stanlow and Chevrons Pembroke refineries are looking for
buyers, while in Germany Shells Heide and Hamburg refineries are also for sale. ConocoPhillips
Wilhelmshaven refinery (260kb/d) could also still be closed or sold, even though the refinery
resumed operations at the tailend of April, after having been shut for six months due to poor
economics.Itsmuchdelayedupgradingprojecthasbeenofficiallycancelled,though.InItaly,industry
associationUnionePetroliferasaidearlierthisyearthattheoilrefiningsectorwasincrisisandthat
uptofiverefineries,oralmostathirdofthetotalcouldfaceclosure.TheassociationnamedLivorno
(Eni),Falconara(API),Taranto(Eni)andGela(Eni)refineriesaspossiblecandidatesforclosure.While
severalIndian,ChineseandRussiancompanieshavebeenlistedaspotentialbuyersofthedistressed
plants,evenintheeventofasaletheplantscouldstillfaceclosure,withthesitesturnedintoimport
terminalsandamarketentrypointforforeigncrudesandproducts.
mb/d
0.4
OECD Europe Utilisation Rates
OECD Europe Capacity Additions

100%
0.3
90%
0.2
80%
0.1
70%
0.0
60%
-0.1
2010
2011
Crude Addition
2012
2013
Upgrading
2014
2015
Desulphurisation
50%
1Q06
1Q08
1Q10
1Q12
1Q14
OECD/IEA, 2010
Despite efforts to reduce the capacity surplus in the region, total crude distillation capacity is
currently seen growing by 170kb/d over 20102015. Expansion and upgrading of Grupa Lotos
Gdanskrefineryisadding90kb/din2010/2011,whileexpansionsatSpains,Cartagena,Huelvaand
Puertollanorefineriesaddacombined215kb/dover20102012.
Europeanrefinersfacethetwinchallengeofmeeting mb/d
European Products Imbalances
regional middledistillate demand while reducing 1.8
surplusgasoline.Asdiscussedabove,withUSgasoline 1.6
import requirements dwindling, and new players 1.4
adding light distillate volumes to the market, Europe 1.2
will struggle to find buyers for surplus supplies. 1.0
However, middle distillate import requirements will 0.8
increasesignificantlyovertheperiod.Totalsmoveto 0.6
shut an FCC unit at its Gonfreville refinery, while 0.4
adding hydrocracking, is a step in the right direction
1Q06
1Q08
1Q10
1Q12
1Q14
toaugmentdieselproductionwhileloweringgasoline
Gasoline Exports Gasoil Imports
output,butcomesatahighcapitalcost.
OECD Pacific
The OECD Pacific, dominated by Japan, is the region where surplus refinery capacity is the most
acute,andwheremostannouncementsofcapacityrationalisationandrefineryclosureshavebeen
made.SincetheDecember2009mediumtermupdate,nearly400kb/dofcapacityhaseitherbeen
115
shutorscheduledtoclosebefore2011andafurther740kb/dreductionhasbeenannounced.Total
Pacificcrudedistillationcapacityisnowseenshrinkingby190kb/doverthe20102015period.
Despitetheweakregionalrefineryoutlook,investmentsinupgradinganddesulphurisationcapacity
inSouthKoreaproceedasplanned.GSCaltexisinstallinga113kb/dresiduehydrocrackeratitYosu
refineryin2013,HyundaiisplanningRFCCandresiduehydrotreatingadditionsfor2012,whileSOil
Corpwillinvestinareformerandnaphthareformingfor2011.SKCorpsplannedinvestmentsatits
Incheonrefineryhoweverhasbeendelayedforatleastfiveyearsduetotheworseningoutlook.
mb/d
0.15
OECD Pacific Utilisation Rates
OECD Pacific Capacity Additions

100%
0.10
90%
0.05
0.00
80%
-0.05
-0.10
70%
-0.15
60%
-0.20
2010
2011
Crude Addition
2012
2013
Upgrading
2014
2015
50%
Desulphurisation
1Q06
1Q08
1Q10
1Q12
1Q14
JapanTalkingRefineryConsolidation,MajorReductionsYettoCome
Japans refining industry is facing tougher times than most. Domestic demand is dwindling, from
5.5mb/din2000toonly4.4mb/din2009,andisexpectedtoshrinkbyafurther0.8mb/dby2015,as
energy efficiency and demographic shifts continue. Up until now, Japanese refiners have remained
competitive by exporting surplus product to energyhungry, developing neighbours. Japanese product
exportspeakedinAugust2008,buthavesinceseensteadydeclinesastheglobalrecessionandslumpin
oildemandcoincidedwithaglutofnewregionalrefiningcapacity.Japaneserefinershadtodrastically
cutrunstosustainprofitabilityandhaveannouncedclosuresandcapacityreductions.
Announced Japanese Capacity Cuts
Com pany
JX Holdings
Cosmo Oil
Plant
Included
Negishi
70
70
Osaka
115
Mizushima
110
Oita
Toyama
Kashima
OECD/IEA, 2010
116
Mothball 70 kb/d No. 2 CDU

Turn into export refinery JV CNPC
110
Jun-10
Mothball110 kb/d No. 2 CDU
24
24
May-10
Mothball No 1 CDU
60
60
Mar-09
Turned into an oil terminal
21
May-10
Cut nameplate cap. of No. 1 CDU by 10 %
TBC
200
200
Chiba
20
Yokkaichi
50
Ohgishima
Oct-10
Notes
Mar-11
TBC
Idemitsu Kosan TBC

Total
Closure date
Announced
Sakaide
Show a Shell
Capacity Cuts
Mar-14
Mar-21
Refinery closure
Feb-10
Company not physically removing capacity
Feb-10
30
Feb-10
120
120
Sep-11
End refining business, continue oil terminal
100
1120
2013-2014
384
JapanTalkingRefineryConsolidation,MajorReductionsYettoCome(continued)
Overthelastyear,morethan1.1mb/dofrefinerycapacityreductionshavebeenannouncedinJapan.
However, due to the high cost of closing a refinery, companies, although clearly recognising their
predicament,havebeenreluctantsofartodefinitivelyshutcapacity.Ofthetotal1.1mb/dannounced
figure,wehaveidentifiedlessthan400kb/daspermanentlyshut,mothballedordismantled,allbefore
theendof2011.Intheabsenceoffirmclosuredetailsweretaincapacityinourmodel,butcompensate
withlowutilisationrates.
JX Holdings, formed on 1 April as the holding company for Nippon Oil (Japans largest refiner) and
Nippon Mining Holdings,has a combinedcapacity of 1.7mb/d at eight refineries. The two companies
had previously announced they would shed 400kb/d by 2011 and a further 200kb/d by 2015. That
timetable may now have been brought forward. The company also now plans an additional 200kb/d
refineryclosureby2020/2021.Asdetailedinthetableonthepreviouspage,thecompanyhasalready
starteditsclosures.The60kb/dToyamarefinerywasclosedinMarch2009,andisnowoperatingonly
asanoilterminal.Thecompanyfurtherclosedits24kb/dNumber1CDUatOitarefineryinMayandwill
mothballthe110kb/dCDUno.2atMizushimainJunefollowedbya70kb/dCDUatNegishiinOctober
ofthisyear.The115kb/dOsakarefinery,althoughshedfromthecompanysrefiningportfolio,willnot
close but rather be turned into an exportrefinery,through apotential JV with CNPC. Wehave yet to
includethe200kb/dreductionbyMarch2014andtheadditional200kb/dby2021,asnofirmdetails
havebeenmadeavailable.
Showa Shell, announced, also in February, closure of the Toa Keihin Refinery (Ohgimachi Factory) by
September2011.ToaOilwillcontinuetooperatethecrudeoilloadingfacilityandtheterminal.
Cosmo Oil stated it would reduce crude processing capacity at four refineries by 100kb/d, but add a
20kb/dcokeratoneplant,effectivelyonlycuttingcapacityby80kb/d.Thecompanyisnotintendingto
mothball or dismantle the CDUs however, rather reducing nameplate capacity, as a message to
markets of the companys intention to balance its refining capacity, a company official said in early
February.Thecompanywillexaminewaystophysicallyremovecapacityaspartofitsthreeyearfiscal
planfromfiscalyear20102011.
Idemitsu Kosan joined the list of Japanese refiners to slash refining capacity at the end of April,
announcingitwillcutcrudedistillationcapacityby100kb/doverthenextthreetofouryears.Idemitsu
currentlyoperatesanameplatecapacityof640kb/d,spreadacrossfourrefineries.Itisunclearwhere,
andinwhatform,thecapacitycutswilltakeplace.
China
Chinawillclearlyprovidethelargestcapacityadditionsinthemediumterm,addingalmost3.3mb/d
by 2015 or an average of 545kb/d per year over the forecast period. Chinese crude distillation
capacityalreadyincreasedsignificantlyin2009(by850kb/d),andnewsofrecordhighChinesecrude
runs are now almost a monthly occurrence. 1Q10 throughputs averaged 8.1mb/d, an impressive
1.6mb/d above 1Q09, which admittedly was exceptionally weak. 2010 growth is coming from
SinopecsTianjinrefinery,whichstartedoperationsearlierthisyearandCNPCs200kb/dQuinzhou
refinery,whichisslatedtostartcommercialoperationsin3Q10.
OECD/IEA, 2010
Chineseeffortstoteamupwithforeignpartnerstoexpandtherefiningindustryseemstohavebeen
successful,withseveralprojectsnowdeemedfirmandlikelyforcompletionbefore2016.Thejoint
venturesaremutuallybeneficialasChinesecompaniessecurecrudesuppliesfortherefineries,and
producerssecureasteadycrudeofftakewhilegettingashareofChineseproductmarkets.Wenow
117
include the joint ventures of CNPC/Rosneft for a 200kb/d refinery in Tianjin for 2013, the
CNPC/PDVSA400kb/dJieyangrefineryfor2013,Sinopec/KPCs300kb/dZhanjiangrefineryfor2014
as well as Sinochems 240kb/d Quanzhou refinery in 2014. The proposed 400kb/d project by
CNPC/Qatar Petroleum and Shell in Taizhou and Sinopec/Saudi Aramco/ExxonMobils 240kb/d
projectareforthemomentexpectedtobecompletedafter2015.
The assumption that refinery additions and throughput levels will keep up with domestic demand
providesakeyrisktotheforecast.Thelackofvisibilityonprojectstatusmakesitdifficulttoascertain
progressandexpectedcompletionforproposedprojects.Inthenearterm,however,thesignificant
capacityadditions,coincidingwithadropoffinmiddledistillatedemand,providessurplussupplies
beforethebalancetightenstowardstheendoftheforecast.
mb/d
2.00
China Refinery Utilisation Rates
China Capacity Additions

100%
1.50
90%
1.00
80%
0.50
70%
60%
0.00
2010
2011
Crude Addition
2012
2013
Upgrading
2014
2015
50%
1Q06
Desulphurisation
1Q08
1Q10
1Q12
1Q14
Notexplicitlyincludedinthisassessmentistheassumedclosure/mothballingofsmallindependent
refiners in China. To increase the competitive position of its refining industry, the Chinese
government plans to shut down refineries with capacities below 20kb/d, mainly in the Shandong
region. While our own capacity database includes about 1mb/d of capacity at independent
refineries,someotherestimatesdoublethat.Independentrefinersareestimated tohaverunonly
around20%ofcapacityin2009.
mb/d
China
Naphtha and Gasoline Balance
3.8
3.5
3.3
3.0
2.8
2.5
2.3
2.0
1.8
mb/d
China
5.5
4.5
3.5
2.5
1Q06
1Q08
1Q10
Forecast Supply
Reported output
1Q12
1Q14
Demand
1Q06
1Q08
1Q10
Forecast Supply
Reported Output
1Q12
1Q14
Demand
OECD/IEA, 2010
Other Asia
OtherAsianrefineryprojectssumupto1.5mb/dofadditionalcapacityoverthe20102015period,
the bulk of which stems from India. The Indian governments policy of ensuring that domestic oil
productdemandismetataffordablepricesandestablishingthecountryasanetproductexporter
has led to massive refinery expansions (See Indian Downstream Petroleum Sector). A total of
118
1.1mb/d of crude distillation capacity additions is scheduled by 2015 and further investment is
aimed at meeting new fuel standards. The Auto Fuels Policy mandated that major cities moved
towardsEuro4fuelspecificationsbyApril2010,andtheremainderofthecountrytowardsEuro3
standards,butasitbecameevidentthatrefinerswouldnotbeabletocompleteupgradingprojects
beforethedeadline,thenationwideEuro3targethasbeendelayed.
mb/d
1.0
Other Asia Utilisation Rates
Other Asia Capacity Additions

100%
0.8
90%
0.6
80%
0.4
70%
0.2
60%
0.0
2010
2011
Crude Addition
2012
2013
Upgrading
2014
2015
Desulphurisation
50%
1Q06
1Q08
1Q10
1Q12
1Q14
OutsideofIndia,Vietnamaccountsforthesecondlargestshareofadditions.Vietnamsfirstrefinery,
the140kb/dDungQuatrefinery,startedoperationsinearly2009.Threeotherrefineryprojectshave
been proposed, two of which we have included in this report. The first, at Nghi Son, will have a
processingcapacityof195kb/dandisaJVbetweenPetroVietnam(25.1%),KuwaitPetroleumCorp.
(35.1%),Idemitsu(35.1%)andMitsuiChemicals(4.7%).Weexpecttherefinerytobecompletedby
early2014,atacostof$8billion.TherefinerywillrunKuwaiticrude.
WorkisalsoproceedingattheVungRorefinery,tobebuiltinthePhuYenProvince.Constructionis
settobeginasearlyasJuneorJulythisyear,afterhavingbeendelayedforseveralyearsduetoland
clearingproblems.TheprojectisbeingjointlyfundedbyUKsTechnostarandRussiasTellOil,andis
scheduled for completion in 2014. We foresee some delays and have included it for 2015, but
recognise the risk of the project slipping beyond the timeframe of this report. PetroVietnam is
furtherlookingtofinaliseagreementswithforeigninvestorsfortheconstructionofafourthrefinery,
Long Son, and has reportedly been seeking Saudi Aramcos participation in the $7billion project.
Althoughtheprojectisscheduledforcompletionin2015,wedonotseeitatanadvancedenough
stagetobecompletedwithinthereportstimeframe.
WecontinuetodiscountIndonesiasambitiousplansofaddingatleast500kb/dofrefiningcapacity
todealwithincreasinglyexpensiveproductimports.Projectfinancingremainsdifficult,andforeign
investorsarehesitanttojointheprojectsaslongasincentivesareunclear.Indonesiasstateowned
PertaminaandJapansMitsuihavefurthershelvedplanstobuilda$1.5billionRFCCattheCilacap
refinery in Central Java, after failing to set up the Joint Venture for the project. Pertamina is now
planningtogoaheadwiththeprojectalone,butwedontseecompletionlikelybefore2016.
OECD/IEA, 2010
Regionaldistillationcapacityadditionsaremoreorlessinlinewithexpecteddemandgrowth.Middle
distillatesuppliesareexpectedtomoreorlesskeeppacewithdemandgrowth,despitethistakingan
increasinglylargeshareoftotaldemand.Overthe20102015period,middledistillatesaccountfor
65% of regional demand growth, while gasoline grows more modestly and fuel oil contracts. As
highlightedinpreviousreports,lighterfeedstocksandupgradingcapacitysignificantlyreducefueloil
supplies. Naphtha and gasoline availabilities on the other hand will grow faster than demand,
considerablyincreasingtheregionsexportpotential.
119
mb/d
Other Asia
3.0
Fuel Oil
mb/d
2.0
Product Supply Potential vs. OMR Demand
2.8
1.5
2.5
2.3
1.0
2.0
1.8
0.5
1Q06
1Q08
1Q10
Forecast Supply
1Q12
1Q14
Demand
Reported Output
1Q06
1Q08
1Q10
Forecast Supply
Demand
1Q12
1Q14
Reported Supply
IndiasDownstreamPetroleumSector1
Indiaisexpectedtobecometheworldsfourthlargestcrudeconsumerby2020.Indiacurrentlyimports
almost80%ofitscrudeoildemandandthesharewillincreasefurther.Twokeyobjectivesmotivatethe
Indian governments policy in the downstream petroleum sector: (a) ensuring Indias growing refined
product demand is met at affordable prices over time; and (b) establishing India as a major global
refinedproductexporter.
Indialiberalisedthepetroleumsectorin2002butmaintaineddefactopricecontrolsonfoursensitive
petroleum products to insulate consumers against high global crude oil prices: petrol and diesel as
transport fuels and LPG and kerosene as cooking fuels. Indias governmentowned Oil Marketing
Companies(OMCs)aremandatedtoselltheseproductsinretailmarketsatcentrallydetermined,fixed
prices. As crude prices began structural appreciation from 2005, OMCs began recording significant
underrecoveries on the sale of these four products. Underrecoveries are a notional measure
representing the difference between the tradeparity refinerygate cost of refined product paid by
OMCs and their managed sale price. As a consequence, the government has been forced to issue
hundredsofbillionsofrupeestomaintainthesolvencyoftheOMCs.Thishasincreasinglyoccurredvia
the extension of offbudget oil bonds debt securities issued to OMCs to be traded by these
companies for liquid cash, or to be used as collateral for borrowing in financial markets. The
GovernmentissuedclosetoUS$20billioninoilbonddebttoOMCsinFY20082009.2
Offbudget debt issuance has led a fiscal overflow in India. Indias fiscal deficit more thandoubled in
nominalterms,from5.7%ofGDPinFY20072008,to11.4%inFY20082009.Inanefforttofurtherdeal
withtheunderrecoveries,thegovernmentalsocutthevarioustaxratesonpetroleumproducts.This,
however,hasbeendoneinanunbalancedfashion,withthecentralgovernmenttakingalargerfiscalhit
than local authorities. Cutting taxes on petroleum products has provided shortterm relief but also
underminedakey,inelasticsourceofrevenueandweakenedanimportantelementforfuturedemand
sidemanagementwhilefailingtoaddresstherootproblemofcontrolledpricing.
The current pricing practices have made publicsector OMCs de facto reliant on the government for
workingcapital.DuringtheheightoftheoilpriceriseIndianOMCslostbetween25and43%oftheirnet
worthfromAprilandDecember2008.Despitethis,OMCshaveinvestedstronglyinrefinerycapacityin
recentyears.Between2007and2012,OMCswillhaveaddedover900kb/dinrefiningcapacity,morethan
matchingIndiasrapidlygrowingproductdemandoverthisperiod.TheOMCsectoristhereforedefinedby
heavyhandedregulationandlacklustrecommercialperformance,yetrobustcapacityinvestment.
OECD/IEA, 2010
TheIEArecentlypublishedaworkingpaperonIndiasDownstreamPetroleumSector.Thepapercanbedownloadedfreeunder:
http://www.iea.org/publications/free_new_Desc.asp?PUBS_ID=2238
2
AUSdollarconversionsarebasedontheaveragedollarrupeeexchangerateforfiscalyear20082009of45.53Rs/$.Note,theIndia
fiscalyearrunsfrom1Aprilto31March.
120
IndiasDownstreamPetroleumSector(continued)
PrivatesectorrefineryinvestmentinIndia,too,isshowntoberobustinboththerecentpastandinthe
near future. From the commissioning of Reliance Industry Limiteds (RIL) Jamnagar II refinery in late
2008toEssarOilsVadinarIIrefineryscheduledin2011,privatesectorrefinerswillhaveaddedaround
0.8mb/dofnewcapacity.Thishasbeendrivenby:(a)privatesectorrefinersscopetoprofitablysupply
domestic Indian markets byselling wholesale toOMCs,avoiding exposure to managed prices; and (b)
Indias significant comparative advantages as a base for exportoriented refining operations. The
countryspresentrefiningbaseof3.7mb/disexpectedtoincreasetonearly4.8mb/dby2015.Indiais
expectedtosurpassJapanastheworldsfourthlargestrefinerby2013,givencurrentfirmexpansions
andrefineryshutdowns.
Despitestrongdemandgrowth,Indiasexcessrefiningcapacitycouldtotal1.0mb/dby2015,allowing
thecountrytoincreaseproductexportsbymorethan0.5mb/dfrom2009andprovidegreaterbreadth
tohighqualityregionaloilproductsupplies.Thisisfurtherevidenceofashiftwherebyrefininghubsin
AsiaandtheMiddleEastincreasinglybecomethesourceofincrementalworldrefinedproductsupply.
MovestoconsolidateIndiasroleasamajorexporterwillrequiresustainedinvestment,ideallybythe
privatesectorandthroughaprocessofmarketreform,leavingOMCinvestmentincreasinglybasedon
market signals and retained earnings. The fiscal burden from unofficial price subsidies needs to be
lessened,allowingmoredirectpassthroughofinternationalpricesignalstoconsumersandconsequent
incentives to conserve or substitute. Market based pricing reform, while simultaneously targeting
graduatedsubsidiestothepoorestconsumers,willlikelyberequired.
Latin America
LatinAmericaisexpectedtoseestronggrowthincrudedistillationcapacitytowardstheendofthe
forecastperiod,butadditionsfailtooffsetdemandgrowth.Justover1.0mb/dofrefinerycapacity
willbeadded,ofwhich87%from2013onwards.Regionaloildemand,however,isexpectedtogrow
by 1.2mb/d from 2009, to reach 7.2mb/d in 2015, leading to increased regional product import
requirements. Refinery additions stem almost exclusively from new refineries and expansions in
Brazil.Thedownstreamexpansionsareaimedatmeetinggrowingdemandandtoincreaseexports
ofrefinedproductsbyprocessingthebulkofpresaltcrudeproductionathome.Thegovernments
aimistofurtherdeveloptheindustryandcreatejobsintheunderdevelopednorthernstates.
mb/d
1.0
Latin America Utilisation Rates
Latin America Capacity Additions

100%
0.8
90%
0.6
0.4
80%
0.2
0.0
70%
-0.2
60%
-0.4
2009 2010 2011 2012 2013 2014 2015
OECD/IEA, 2010
Crude Addition
Upgrading
Desulphurisation
50%
1Q06
1Q08
1Q10
1Q12
1Q14
121
StatecontrolledoilcompanyPetrobrasoutlinedplanstoincreaserefiningcapacityfrom1.8mb/dto
3.0mb/dby2020initsrecentstrategicplan.Theplan,althoughcurrentlyunderreview,istobuild
five new refineries, and upgrade existing facilities to produce more diesel. Petrobras announced
earlier this year that work had started at the 600kb/d export refinery, located in Sao Luis in the
northernstateofMaranhao.Therefineryisexpectedtoprocesslightcrudesfromthegiantpresalt
fieldscurrentlybeingdevelopedoffshoreRiodeJaneiroandSaoPaulo,andweexpectthefirstphase
(300kb/d)tobecompletedinearly2015.Thesecondphase,whichwilldoublecapacity,aswellasa
second300kb/drefineryplannedinCearastate,areexpectedtobecompletedafter2015.
InadditiontotheSaoLuisrefinery,twootherrefineriesareunderconstruction,dedicatedtoprocess
heavycrudeoilfromtheCamposBasin.The230kb/dAbreueLimaplantinPernambucostatewasto
bebuiltasaJVwithVenezuelanPDVSA.Petrobrasmaybestuckwithpayingfortheprojectbyitself,
however,asPDVSAhasyettosigntheagreementgivingit40%oftherefineryorputupanyofits
promisedshareofinvestment.Petrobrasisbuildingasecondheavyoilrefinery,Comperj,nearRiode
Janeiroandrecentplansincludedoublingthecomplexscapacity,toincludetwoidentical165kb/d
refiningtrainsinsteadofone.Thefirstisexpectedtostartoperationsinearly2014,thesecondtwo
orthreeyearslater.
OutsideofBrazil,smallerexpansionprojectsinColombia,CostaRicaandVenezuelaaddtocapacities.
We continue to exclude Petroecuador and PDVSAs planned 300kb/d refinery on Ecuadors Pacific
coast,despitecompanyreportsofprogressinsecuringpartsoftherequired$1012billionfinancing.
ThejointoilrefineryprojectbetweenVenezuelaandNicaraguatobuilda200kb/dunit(100kb/dby
2015)toprocessheavyVenezuelancrudeandexportproductsisalsoexcluded.Wearealsowaiting
formoredetailsbeforeincludingplanstoexpandrefiningcapacityintheDominicanRepublic.
Latin America
mb/d
2.3
2.1
1.9
1.7
1.5
1.3
1Q06
1Q08
1Q10
Forecast Supply
OMR Demand
1Q12
1Q14
Reported Supply
mb/d
Latin America
3.0
2.8
2.6
2.4
2.2
2.0
1.8
1.6
1Q06
1Q08
1Q10
Forecast Supply
OMR Demand
1Q12
1Q14
Reported supply
Middle East
OECD/IEA, 2010
TheMiddleEastwillmakeasignificantcontributiontoglobalcrudedistillationgrowthoverthenext
fiveyears,addingcloseto1.4mb/dofcapacityby2015.ThelargestcontributorstogrowthareSaudi
ArabiasJubailrefinery,dueforstartupearly2014andUAEsRuwaisrefinery,alsoslatedfor2014.
The doubling of capacity at the recently commissioned Qatari condensate splitter at Ras Laffan
furtherboostscapacityin2015.SmalleradditionsareseeninIranandIraq,althoughthemajorplans
forgrassrootsexpansionsarenotseenwithinthetimeframeofthisreportduetofinancingconcerns.
122
mb/d
2.0
Middle East Utilisation Rates
Middle East Capacity Additions

100%
1.5
90%
1.0
80%
0.5
70%
60%
0.0
2010
2011
Crude Addition
2012
2013
Upgrading
2014
2015
Desulphurisation
50%
1Q06
1Q08
1Q10
1Q12
1Q14
SaudiArabiasMegaProjectsSlipAgain?
The withdrawal of ConocoPhillips from the 400kb/d, $10 billion Yanbu refinery project at the end of
April is another blow to Saudi Arabias ambitious refinery expansion programme. The programme,
launched in 2006 in response to product supplybottlenecks and spiralling prices, included four major
refinery projects and plans for doubling domestic and international refinery capacity by 2015. The
subsequentdownturnintheglobalmarkethasseenplansrevised.Ofthefourmegaprojectsproposed,
weonlyincludeonerefinerytobecompletedwithinthe2015timeframe.
WorkonSaudiAramcoTotalRefiningandPetrochemicalCompanys(SATORP)400kb/dJubailrefineryis
progressingasplannedandweexpecttherefinerytostartupinearly2014.Theprojectwaspostponed
from its original March 2013 start, as construction and procurement contract awards were delayed to
capturedecliningprojectcosts.Thecompanyisestimatedtohavesaved20%bythedelayandreduced
costsfromanoriginal$12billionto$9.6billion.Therefinery,whichistoprocess100%ArabHeavycrude,
wasplannedasanexportunit,butthescopeseemstohaveshiftedduetothechangingglobalrefinery
outlook. Recent indications that the planned DowChemical Saudi Aramco JV petrochemical project
(whichwasalsodelayedtocapturefallingcosts)willberelocatedfromRasTanuratoJubailmeanthat
Jubailcouldbemoredomesticallyfocusedsupplyingthepetrochemicalplantwithfeedstockinstead.
The relocation of the petrochemical plant also makes the Ras Tanura refinery expansion project less
likely. Saudi Aramco is reported to have effectively shelved the 400kb/d project, letting design and
project management contractor, Worley Parsons, send the project staff home. Although not officially
cancelled,theprojecthasbeenpostponedforfiveyearsormore,andmightonlybebroughtbackon
thetableoncerefiningeconomicsimprove.
The ConocoPhillips Saudi Aramco JV Yanbu refinery was to be almost identical to the Jubail refinery.
AlthoughAramcoiscurrentlylookingfornewpartnersfortheproject,andisadamantitwillcontinue
aloneifitfailstosecureapartner,weseetheprojectslippingfromitsoriginalplannedstartupin2014
tobeyond2015.SaudiAramcohasextendedbiddingdeadlinesforasolidhandlingunitagaininMay,
makingitthethirdtimethedeadlinehasbeendelayed.Thecomplexrefineryisslatedtoprocessheavy
oilfromtheManifafield,whichhasalsobeendelayedfromitsplannedstartup.
OECD/IEA, 2010
ThelastproposedmegaprojectistheJazanrefinery,inthecountryssouthwestregion.Thisisplanned
asa250/400kb/dsemi/fullconversionexportrefinerywithatargetedstartupin2015.Itwassupposed
to be the Kingdoms first private sector refinery but, due to lack of interest, KingAbdullah reportedly
askedAramcotoproceedwiththeprojectalone.
123
Elsewhere in the region, Qatars 250kb/d Al Shaheen refinery project has been indefinitely
postponed.Itwasputinholdinearly2009,duetorisingcosts,andisstillconsideredtooexpensive.
Instead, the country will double capacity at the recently commissioned 146kb/d Ras Laffan
condensate refinery, to deal with increasing associated liquids stripped out from gas produced to
feedQatarsLNGindustry,thecountrystwogastoliquidsplantsanddomesticconsumption.
Iraq is planning massive refining investments over the coming years, and has outlined plans to
increase distillation capacity to 1.45mb/d by 2015. FEED contracts have been awarded to four
grassroots refinery projects, with a joint capacity of 740kb/d, in Nassiriya, Karbala, Missan and
Kirkuk.With Baghdadyet tosecureforeigninvestorshowever,noneisincludedinour projections.
Some smaller expansion projects are underway however, including a 70kb/d addition of SOMOs
Basrahplantin2011.AsmallerrefineryinErbilalsostartedoperationsatthetailendof2009,andits
capacityisexpectedtodouble,to40kb/d,byearlynextyear.Therefineryisexpectedtoprocessoil
fromtheKhurmalaDomeoilfield.
WecontinuetoexcludeKuwaitsproposedAlZourrefinery,despiterecentreportsthattheproject
willberetenderedthisyear.Therefineryhasbeendelayednumeroustimes,firstduetosurgingcost
estimates; secondly due to political disputes. Political and financial problems equally continue to
hamperprogressonIransimpressiverefineryexpansionplans.Thecountryaimstodoublecurrent
refining capacity of 1.6mb/d, through seven new grassroots refineries. The only active project
howeveristhePersianGulfStarproject,designedtoprocess360kb/dofcondensatefromtheSouth
Pars field. The refinery would produce some 220kb/d of gasoline, significantly alleviating the
countrys current gasoline deficit, and is scheduled for 2012. Although construction is reportedly
morethanonethirdcomplete,workhasapparentlystalledduetolackoffunds,andisthusexcluded
from capacity assessments. Work seems to be progressing at some of the expansion projects
however,aimedatreducingthecountrysgasolineimportrequirementsaswellasmeetingtargetsto
meetEuroIVgasolineenvironmentalstandardsby2012.
mb/d
4.0
Middle East
2.0
1.8
1.6
1.4
1.2
1.0
0.8
3.5
3.0
2.5
2.0
1Q06
OECD/IEA, 2010
mb/d
1Q08
1Q10
Forecast Supply
Demand
1Q12
1Q14
Reported Supply
Middle East
Fuel Oil Balance
1Q06
1Q08
1Q10
Forecast Supply
Demand
1Q12
1Q14
Reported Supply
Theadditionofupgradingcapacity,aswellastheassumptionthatOPECproducerswillpreferentially
curb output of heavy/sour crude to balance the market, play out in the regions fuel oil balance.
While supplies are severly curtailed, demand growth feeds increased power generation needs.
Increaseddirectburningofcrudeoilistoanextentreducingimportneeds,thoughfueloilmarkets
aresettotightensharply.
124
Africa
African refinery capacity is largely unchanged from the December 2009 mediumterm update, with
crudedistillationadditionsamountingtoamere340kb/doverthe20102015period.Whilethereis
no lack of proposed projects, and sound reasons to expand capacity, funding problems seem to
hinderprojectsbeingbroughttocompletion.Oftheproposedprojects,theonesfundedbyChinese
investorsaresofardominatingtherefineryinvestmentoutlook.
ChinaInvestingalsointheAfricanDownstream
Inexchangeforaccesstoupstreamprojects,Chinahasbeeninvestingininfrastructuredevelopmentsin
oil producing African countries. (For an overview of Chinese upstream overseas investments, see
Chinese NOCsActive Abroadin June 10OMR). Currently,CNPC isconstructing refineries both inChad
andNiger,andplansarebeingdrawnupforinvestmentsinSudan,Egyptandmostrecently,potentially
inNigeria.Intotal,morethan1.3mb/dofrefiningcapacitycouldbebuiltonthecontinentif,however
unlikely,alltheprojectsweretomaterialise.
In Chad, CNPC has started the construction of a 20kb/d refinery, expected to start up in early 2012.
AccordingtoCNPC,therefinerywillincludeaCDU,heavyoilcatalyticcracker,ahydrotreatingunitand
areformingfacility.Theplanincludesraisingtheplantscapacitybyafurther30kb/din2015.CNPCalso
startedconstructionofa20kb/drefineryinZinder,Niger,in2008.Therefineryisalsoexpectedtostart
operationsin2012.
The government of Sudan, CNPC and Petronas signed a memorandum of understanding (MoU) on
17November2009toexpandtheKhartoumrefineryby50kb/dby2013andafurther50kb/datalater
stage. According to theMoU, CNPC andPetronas are to upgrade the refinery in exchange forgreater
stakeinupstreamprojectsinthecountry.CNPCiscurrentlyoperating7upstreamprojectsinSudan.The
Khartoumrefinery,inwhichCNPCandtheSudanesegovernmenthasa50/50share,wasbuiltin2000
andhasacapacityof100kb/d.SudanscrudeexportstoChinarose16%to245kb/din2009,becoming
thefifthlargestChinesecrudesupplier.
China is also planning to invest in a $2billion refinery project in Egypt. With a distillation capacity of
300kb/d, the refinery will be Egypts largest. The refinery will be constructed by Chinese companies,
Rongsheng Petrochemicals and CNPC, and will be operated by the Chinese firms for 25 years, before
ownership is gradually transferred to Egypt. The project will provide products including jet fuel and
dieselforthedomesticmarketandnaphthaexportstoChina.
StateownedNigerianNationalPetroleumCorporation(NNPC)signedamemorandumofunderstanding
(MoU) on 13 May with the China State Construction Engineering Corporation (CSCEC) for the
constructionof3newrefineries,withacombinedcapacityof750kb/d,inNigeria.Theinvestmentof
some $23 billion is to be contractorfinanced with funding coming from the China Export and Credit
InsuranceCorporationandaconsortiumofChinesebanks.TheNigerianandEgyptianprojectswillonly
be included in our capacity estimates, once, and if, they reach a more advanced stage. ONGC Mittal
EnergyandONGCVideshhavealsosignedMoUstobuildrefineriesinNigeriainexchangeforincreased
involvementinNigeriasupstreamsector,butsofarprogressontheprojectsseemtohavestalled.
Uganda, which is preparing for its first oil production, is undertaking a feasibility study to build a
150kb/drefinery.Theprojecthasyettosecurethe$2billionestimatedcostandtherehasbeentalkof
possibleChineseinvolvement.
OECD/IEA, 2010
AsidefromChinesesponsoredprojects,progresselsewherehasbeenlesssuccessful.InSouthAfrica,
forexample,thegovernmentisdeterminedtobuildnearly500kb/dofcapacitytoreduceproduct
importsandmeetgrowingdomesticdemand,buthasencounteredproblemssecuringthefinancing.
125
NationaloilcompanyPetroSAhasproposedtospend$910billionona400kb/drefineryinCoega,
but is looking to finance as much as 62.5% of the project cost through private investors. The
governmenthassaiditisopentotheidea,givenitsfiscalchallengesandtheneedtofundpowerand
pipeline infrastructure. Final investment decision is not expected until 2012, with an eventual
commissioningin2016.InAngola,Sonangols200kb/dLobitorefineryprojectwasdelayedfromits
original2012completiontargetasChinasstateownedSinopecwithdrewduetoamarketingdispute.
Asfinancingconcernsremain,wehaveexcludedtheprojectfromcompletionwithinourtimeframe.
mb/d
2.0
mb/d
Africa Capacity Additions
Africa
1.0
1.5
0.9
0.8
1.0
0.7
0.5
0.6
0.0
1Q06
2010
2011
Crude Addition
2012
2013
Upgrading
2014
2015
1Q08
1Q10
Forecast Supply
OMR Demand
Desulphurisation
1Q12
1Q14
Reported Supply
Former Soviet Union

TheFormerSovietUnionisexpectedtoadd585kb/dofcrudedistillationcapacitybeforetheendof
2015. The expansion is some 300kb/d higher than in the December 2009 mediumterm update, as
we have included several smaller expansion projects, in addition to Rosnefts Tuapse and Tatnefts
Nizhnekamsk 140kb/d expansions included previously. Included amongst others, is a 54kb/d
expansiontotheMariElrefineryintheMariRepublic,a20kb/dadditionatRosneftsKomsomolsk,a
20kb/d addition to Alliances Khabarovsk plant, as well as a 50kb/d expansion the Antipinsky
refineryin2010,followedbyafurther70kb/dexpanisonin2013whichwillincludeahydrocracker
andaddunitstoproduceEuro5fuels.Interestingly,regionalfueloilbalancestightenovertheperiod
despitelikelyincreaseddomestic gas availability.Thelatter coulddiluteapreviouspolicyaimedat
maximising domestic fuel oil burn for power generation to free up gas for export. In addition to
increasedupgradingcapacity,therefineryfeedstockslatebecomesslighlylighterovertheperioddue
toincreasedregionalcondensateproduction.
mb/d
1.2
FSU Capacity Additions

mb/d
1.0
2.0
0.8
1.5
0.6
FSU
Fuel Oil Balance
1.0
0.4
0.5
0.2
0.0
0.0
2010
2011
OECD/IEA, 2010
Crude Addition
126
2012
2013
Upgrading
2014
2015
Desulphurisation
1Q06
1Q08
1Q10
Forecast Supply
Demand
1Q12
1Q14
Reported Supply
P ART 1: O IL T ABLES
TABLES
Table 1
WORLD OIL SUPPLY AND DEMAND
1Q09 2Q09 3Q09 4Q09 2009
1Q10 2Q10 3Q10 4Q10 2010
2011 2012 2013 2014 2015
North America
23.5 22.9 23.2 23.5 23.3
23.5 23.3 23.6 23.4 23.5
23.4 23.3 23.2 23.1 22.9
Europe
14.9 14.2 14.5 14.4 14.5
14.1 14.2 14.6 14.5 14.4
14.3 14.2 14.1 14.0 13.9
OECD DEMAND
8.1
Pacific
7.3
7.3
8.0
7.7
46.6 44.4 45.0 45.9 45.5
Total OECD
8.2
7.2
7.2
7.9
7.6
45.8 44.7 45.3 45.9 45.4
7.5
7.3
7.2
7.0
6.9
45.2 44.9 44.5 44.1 43.7
NON-OECD DEMAND
FSU
3.9
3.8
4.0
3.9
3.9
4.1
3.9
4.1
4.1
4.1
4.2
4.3
4.3
4.4
4.4
Europe
0.8
0.8
0.7
0.7
0.7
0.7
0.8
0.7
0.7
0.7
0.8
0.8
0.8
0.8
0.8
China
7.7
8.6
8.8
8.9
8.5
9.1
9.3
9.1
9.1
9.2
9.7 10.2 10.7 11.2 11.6
Other Asia
9.9 10.0
9.8 10.1
9.9
10.0 10.2 10.0 10.3 10.1
10.4 10.7 10.9 11.2 11.4
Latin America
5.8
6.0
6.1
6.2
6.0
6.0
6.2
6.3
6.3
6.2
6.4
6.6
6.8
7.0
7.2
Middle East
6.5
7.1
7.6
7.0
7.1
6.9
7.4
7.9
7.2
7.4
7.7
8.0
8.3
8.6
8.9
Africa
3.2
3.2
3.1
3.1
3.2
3.2
3.3
3.2
3.3
3.3
3.4
3.5
3.6
3.7
3.8
Total Non-OECD
37.7 39.5 40.2 39.8 39.3
40.1 41.1 41.4 41.2 40.9
42.5 44.0 45.5 46.9 48.2
84.3 83.9 85.1 85.7 84.8
85.9 85.9 86.7 87.0 86.4
87.7 88.9 90.0 91.0 91.9
13.5 13.4 13.5 13.7 13.6
13.8 13.6 13.2 13.5 13.5
13.4 13.3 13.3 13.4 13.7
Total Demand
OECD SUPPLY
North America
Europe
4.9
4.5
4.2
4.5
4.5
4.5
4.1
4.1
4.3
4.2
4.0
3.8
3.6
3.6
3.3
Pacific
0.7
0.6
0.7
0.6
0.6
0.6
0.7
0.7
0.8
0.7
0.7
0.7
0.6
0.5
0.5
Total OECD
19.1 18.5 18.5 18.9 18.7
18.8 18.5 18.1 18.6 18.5
18.1 17.8 17.5 17.5 17.5
13.0 13.2 13.4 13.5 13.3
13.5 13.6 13.5 13.8 13.6
13.7 13.7 13.5 13.7 13.8
NON-OECD SUPPLY
FSU
Europe
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
China
3.7
3.8
3.8
3.8
3.8
4.0
4.0
4.0
4.0
4.0
3.9
4.0
3.9
3.9
3.7
Other Asia
3.6
3.6
3.6
3.6
3.6
3.6
3.6
3.7
3.7
3.7
3.7
3.6
3.6
3.6
3.6
Latin America
3.8
3.9
3.9
4.0
3.9
4.0
4.1
4.1
4.2
4.1
4.4
4.5
4.7
5.0
5.1
Middle East
1.7
1.7
1.7
1.7
1.7
1.7
1.7
1.7
1.7
1.7
1.7
1.7
1.6
1.5
1.5
2.6
2.5
2.5
2.5
2.5
28.5 28.8 29.0 29.2 28.9
Africa
Total Non-OECD
Processing Gains
Global Biofuels
3
4
2.6
2.5
2.5
2.5
2.5
29.5 29.6 29.6 30.0 29.7
2.3
2.3
2.3
2.3
2.3
2.2
2.2
2.2
2.2
2.2
2.2
2.3
2.3
2.3
2.3
1.5
1.6
1.6
1.7
1.6
1.8
1.8
1.9
1.9
1.8
2.1
2.2
2.3
2.4
2.4
51.4 51.1 51.4 52.1 51.5
52.3 52.1 51.8 52.6 52.2
Total OPEC
28.6 28.5 28.8 29.0 28.7

4.6
4.5
4.7
4.8
4.7
33.2 33.0 33.5 33.8 33.4
29.1
5.1
34.2
Total Supply
84.6 84.2 84.9 85.9 84.9
86.5
Total Non-OPEC
2.6
2.6
2.5
2.5
2.4
30.2 30.1 30.0 30.3 30.3
52.6 52.4 52.1 52.5 52.5
OPEC
5
Crude
OPEC NGLs
5.2
5.5
5.8
5.4
6.3
6.6
6.9
7.1
7.2
Memo items:
OECD/IEA, 2010
Call on OPEC crude + Stock ch.6
28.3 28.2 29.0 28.8 28.6
28.5 28.5 29.4 28.6 28.8
28.8 29.8 31.0 31.4 32.2
1 Measured as deliveries from refineries and primary stocks, comprises inland deliveries, international marine bunkers, refinery fuel, crude for direct burning,
oil from non-conventional sources and other sources of supply.
2 Net volumetric gains and losses in the refining process (excludes net gain/loss in China and non-OECD Europe) and marine transportation losses.
3 As of the June 2010 MTOGM, Global Biofuels comprise all world biofuel production including fuel ethanol from the US and Brazil.
4 Non-OPEC supplies include crude oil, condensates, NGL and non-conventional sources of supply such as synthetic crude, ethanol and MTBE.
5 As of the March 2006 OMR, Venezuelan Orinoco heavy crude production is included within Venezuelan crude estimates. Orimulsion fuel remains within the OPEC NGL &
non-conventional category, but Orimulsion production reportedly ceased from January 2007.
6 Equals the arithmetic difference between total demand minus total non-OPEC supply minus OPEC NGLs.
127
Table 1A
WORLD OIL SUPPLY AND DEMAND: CHANGES FROM LAST MEDIUM-TERM REPORT
1Q09 2Q09 3Q09 4Q09 2009
1Q10 2Q10 3Q10 4Q10 2010
2011 2012 2013 2014 2015
OECD DEMAND
North America
0.0
0.0
-0.1
0.1
0.0
0.1
0.2
0.0
-0.2
0.0
-0.1
-0.3
-0.4
-0.5
Europe
0.0
0.0
0.0
-0.4
-0.1
-0.7
-0.1
0.0
-0.3
-0.3
-0.3
-0.3
-0.3
-0.3
Pacific
0.0
0.0
0.0
0.1
0.0
0.2
0.1
0.0
0.2
0.1
0.2
0.1
0.1
0.1
Total OECD
0.0
0.0
-0.1
-0.1
-0.1
-0.4
0.2
0.0
-0.2
-0.1
-0.2
-0.4
-0.5
-0.7
NON-OECD DEMAND
FSU
0.0
0.0
0.0
-0.1
0.0
0.0
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.2
Europe
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
China
0.0
0.0
0.0
0.4
0.1
0.6
0.4
0.3
0.4
0.4
0.6
0.7
0.9
1.0
Other Asia
0.0
0.0
0.1
0.2
0.1
-0.2
-0.1
0.0
0.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.1
0.1
0.0
0.0
0.1
0.1
0.1
0.1
0.2
0.2
-0.2
-0.2
-0.2
-0.2
-0.2
-0.2
-0.2
-0.2
-0.3
-0.2
-0.2
-0.2
-0.2
-0.2
0.0
0.0
0.0
-0.2
-0.1
-0.1
0.0
0.0
0.0
-0.1
0.0
0.0
0.0
0.0
Total Non-OECD
-0.2
-0.2
-0.1
0.3
0.0
0.2
0.1
0.0
0.4
0.2
0.4
0.6
0.7
0.9
Total Demand
-0.2
-0.2
-0.2
0.2
-0.1
-0.2
0.2
0.0
0.2
0.1
0.2
0.2
0.2
0.1
North America
0.0
0.2
0.1
0.2
0.1
0.3
0.5
0.5
0.4
0.4
0.3
0.2
0.2
0.5
Europe
0.0
0.0
0.0
0.3
0.1
0.2
0.2
0.3
0.3
0.2
0.2
0.2
0.1
0.1
Pacific
0.0
0.0
0.0
0.0
0.0
-0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Total OECD
0.0
0.2
0.1
0.4
0.2
0.4
0.7
0.8
0.7
0.6
0.5
0.4
0.4
0.6
FSU
0.0
0.0
0.0
-0.1
0.0
-0.2
-0.3
-0.2
-0.1
-0.2
-0.1
-0.1
0.0
0.2
Europe
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
China
0.0
0.0
0.0
-0.1
0.0
0.0
0.0
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
Other Asia
0.0
0.0
0.0
0.0
0.0
-0.1
-0.1
-0.1
-0.1
-0.1
-0.2
-0.2
-0.2
0.0
Latin America
0.0
0.0
0.0
0.1
0.0
0.0
0.1
0.1
0.1
0.1
0.1
0.1
0.0
0.1
Middle East
0.0
0.0
0.0
0.1
0.0
0.1
0.1
0.1
0.1
0.1
0.0
0.0
0.0
0.1
Africa
Total Non-OECD
0.0
0.1
0.0
0.1
0.0
0.1
0.1
0.0
0.0
0.1
0.1
-0.1
0.1
-0.2
0.1
-0.1
0.1
-0.1
0.1
-0.1
0.1
-0.2
0.0
-0.2
0.0
-0.2
0.0
0.3
Processing Gains
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Global Biofuels
0.0
0.0
0.0
0.1
0.0
0.1
0.1
0.0
0.0
0.1
0.1
0.2
0.2
0.2
Total Non-OPEC
0.1
0.3
0.2
0.4
0.3
0.4
0.6
0.7
0.6
0.6
0.5
0.3
0.4
1.2
OPEC NGLs
0.0
-0.1
-0.4
-0.3
-0.2
-0.3
-0.3
-0.3
-0.2
-0.3
-0.1
0.0
-0.1
-0.2
-0.3
-0.3
-0.1
0.0
-0.2
-0.3
0.0
-0.4
-0.3
-0.2
-0.2
-0.1
-0.2
-0.8
Latin America
Middle East
Africa
OECD SUPPLY
NON-OECD SUPPLY
Memo items:
OECD/IEA, 2010
Call on OPEC crude + Stock ch.
128
Table 2
SUMMARY OF GLOBAL OIL DEMAND
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10
2010
2011
2012
2013
2014
2015
Demand (mb/d)
North America
23.52
22.91
23.25
23.48
23.29
23.53
23.33
23.57
23.45
23.47
23.37
23.29
23.19
23.07
22.94
Europe
14.90
14.24
14.46
14.39
14.50
14.11
14.19
14.57
14.55
14.36
14.33
14.25
14.14
14.01
13.87
Pacific
8.14
7.30
7.27
8.01
7.68
8.19
7.22
7.17
7.88
7.61
7.47
7.32
7.18
7.04
6.91
Total OECD
46.56
44.45
44.98
45.88
45.46
45.83
44.74
45.31
45.88
45.44
45.17
44.85
44.50
44.12
43.72
Asia
17.53
18.65
18.62
18.99
18.45
19.10
19.54
19.11
19.47
19.31
20.11
20.88
21.63
22.35
23.03
Middle East
6.54
7.12
7.59
6.96
7.06
6.91
7.40
7.87
7.23
7.35
7.68
8.00
8.31
8.61
8.90
Latin America
5.81
5.99
6.11
6.17
6.02
6.05
6.22
6.29
6.34
6.23
6.42
6.62
6.82
7.02
7.21
FSU
3.85
3.75
3.97
3.92
3.87
4.09
3.93
4.13
4.09
4.06
4.17
4.25
4.33
4.39
4.43
Africa
3.22
3.19
3.14
3.09
3.16
3.20
3.29
3.25
3.31
3.26
3.38
3.49
3.59
3.70
3.81
Europe
0.76
0.76
0.74
0.73
0.75
0.73
0.75
0.74
0.73
0.74
0.75
0.77
0.79
0.81
0.82
Total Non-OECD
37.71
39.48
40.16
39.84
39.31
40.08
41.14
41.39
41.16
40.95
42.52
44.02
45.47
46.87
48.21
World
of which:
US50
Euro5
China
Japan
India
Russia
Brazil
Saudi Arabia
Canada
Korea
Mexico
Iran
Total
% of World
84.27
83.92
85.14
85.72
84.77
85.91
85.88
86.70
87.04
86.39
87.69
88.87
89.98
90.99
91.93
18.96
9.41
7.65
4.72
3.36
2.64
2.43
2.15
2.20
2.34
2.05
1.68
59.59
70.72
18.54
8.85
8.61
4.03
3.30
2.60
2.53
2.70
2.08
2.17
2.01
1.64
59.05
70.37
18.70
8.92
8.84
4.10
3.09
2.80
2.62
2.92
2.16
2.07
2.10
1.63
59.94
70.41
18.86
8.88
8.92
4.59
3.30
2.73
2.68
2.41
2.16
2.29
2.14
1.66
60.63
70.73
18.77
9.01
8.51
4.36
3.26
2.69
2.57
2.54
2.15
2.22
2.08
1.65
59.81
70.56
18.91
8.78
9.09
4.77
3.36
2.85
2.59
2.42
2.16
2.34
2.14
1.66
61.07
71.09
18.90
8.72
9.31
3.92
3.37
2.75
2.65
2.83
2.11
2.18
2.05
1.67
60.46
70.40
18.90
8.90
9.12
3.98
3.17
2.95
2.71
3.05
2.25
2.07
2.13
1.69
60.92
70.26
18.77
8.92
9.12
4.44
3.42
2.87
2.77
2.55
2.22
2.30
2.15
1.70
61.22
70.34
18.87
8.83
9.16
4.28
3.33
2.85
2.68
2.71
2.19
2.22
2.12
1.68
60.92
70.52
18.77
8.77
9.69
4.12
3.44
2.91
2.78
2.87
2.17
2.22
2.13
1.73
61.61
70.25
18.68
8.68
10.20
3.96
3.53
2.97
2.87
3.03
2.15
2.22
2.15
1.78
62.23
70.03
18.58
8.57
10.69
3.83
3.63
3.01
2.96
3.20
2.13
2.21
2.17
1.83
62.81
69.81
18.47
8.44
11.17
3.69
3.72
3.05
3.06
3.36
2.12
2.21
2.18
1.87
63.33
69.60
18.35
8.32
11.63
3.55
3.81
3.08
3.15
3.52
2.10
2.20
2.18
1.91
63.80
69.40
-6.2
-5.6
-7.2
-6.1
4.0
2.9
-1.4
-6.7
1.5
-1.1
1.5
-2.7
-1.4
-6.8
-3.5
-3.5
6.7
3.1
-0.8
-6.7
1.3
-0.9
2.8
-0.6
-1.9
-6.8
0.5
-3.1
12.1
3.4
2.2
-3.6
-2.6
-6.4
5.7
0.8
-3.7
-5.4
-4.8
-4.4
5.3
2.6
-0.1
-5.6
0.5
-3.2
2.2
-1.4
0.0
-5.3
0.6
-1.6
9.0
5.7
4.1
6.1
-0.4
-4.4
6.3
1.9
1.8
-0.3
-1.1
0.7
4.8
3.9
3.8
4.7
3.0
-1.3
4.2
2.3
1.4
0.7
-1.3
0.7
2.7
3.7
3.0
4.2
3.6
-0.3
3.1
1.8
-0.1
1.1
-1.6
0.0
2.5
3.9
2.8
4.5
7.0
0.2
3.3
1.5
0.8
-1.0
-0.9
-0.1
4.6
4.2
3.4
4.8
3.3
-1.5
4.2
1.9
-0.4
-0.2
-1.9
-0.6
4.2
4.4
3.1
2.7
3.6
2.4
3.8
1.5
-0.4
-0.6
-2.0
-0.7
3.8
4.2
3.1
2.0
3.1
2.7
3.5
1.3
-0.4
-0.8
-1.9
-0.8
3.6
3.9
3.0
1.7
3.1
2.3
3.3
1.2
-0.5
-0.9
-1.9
-0.9
3.3
3.6
2.9
1.4
3.1
1.9
3.1
1.1
-0.6
-1.0
-1.9
-0.9
3.1
3.3
2.8
1.1
3.0
1.6
2.9
1.0
-1.51
-0.84
-0.56
-2.91
0.72
0.20
-0.09
-0.27
0.05
-0.01
0.60
-2.31
-0.33
-1.06
-0.26
-1.65
1.18
0.23
-0.05
-0.29
0.04
-0.01
1.10
-0.55
-0.46
-1.05
0.04
-1.46
2.06
0.23
0.13
-0.15
-0.08
-0.05
2.14
0.68
-0.88
-0.83
-0.39
-2.11
0.92
0.18
0.00
-0.23
0.02
-0.02
0.86
-1.24
0.01
-0.79
0.05
-0.73
1.57
0.37
0.24
0.24
-0.01
-0.03
2.37
1.64
0.42
-0.04
-0.08
0.30
0.90
0.28
0.23
0.18
0.09
-0.01
1.66
1.96
0.32
0.11
-0.10
0.33
0.49
0.28
0.18
0.17
0.11
0.00
1.23
1.56
-0.03
0.16
-0.13
0.00
0.48
0.27
0.18
0.17
0.22
0.00
1.32
1.32
0.18
-0.14
-0.07
-0.02
0.86
0.30
0.21
0.19
0.10
-0.01
1.64
1.62
-0.10
-0.03
-0.14
-0.27
0.81
0.33
0.19
0.11
0.12
0.02
1.57
1.30
-0.08
-0.08
-0.15
-0.32
0.77
0.32
0.20
0.08
0.11
0.02
1.50
1.18
-0.10
-0.11
-0.14
-0.35
0.75
0.31
0.20
0.07
0.11
0.02
1.45
1.10
-0.12
-0.13
-0.14
-0.39
0.72
0.30
0.20
0.06
0.11
0.02
1.40
1.02
-0.13
-0.14
-0.13
-0.40
0.68
0.29
0.20
0.05
0.11
0.01
1.34
0.94
0.08
-0.70
0.24
-0.38
0.40
-0.16
0.09
-0.03
-0.14
-0.01
0.16
-0.22
0.20
-0.09
0.09
0.19
0.29
-0.20
0.05
-0.07
-0.03
0.01
0.05
0.25
-0.02
-0.04
0.03
-0.03
0.26
-0.18
0.01
-0.07
-0.01
0.02
0.04
0.01
-0.18
-0.25
0.25
-0.19
0.64
-0.27
0.13
-0.09
-0.04
0.00
0.38
0.19
0.02
-0.27
0.15
-0.10
0.40
-0.21
0.07
-0.06
-0.05
0.01
0.16
0.06
-0.13
-0.26
0.15
-0.23
0.57
-0.19
0.10
-0.05
-0.02
0.01
0.41
0.18
-0.25
-0.26
0.14
-0.38
0.72
-0.18
0.12
-0.09
0.00
0.01
0.59
0.21
-0.39
-0.27
0.12
-0.54
0.85
-0.18
0.16
-0.14
0.02
0.01
0.72
0.18
-0.53
-0.28
0.09
-0.73
0.99
-0.18
0.20
-0.22
0.05
0.01
0.85
0.13
0.43
0.18
0.00
0.15
0.12
0.03
-0.03
-0.05
Annual Change (% per annum)

North America
-5.1
Europe
-2.5
Pacific
-8.6
Total OECD
-4.9
Asia
-1.6
Middle East
0.9
Latin America
-0.3
FSU
-5.2
Africa
2.1
Europe
-4.5
Total Non-OECD
-1.1
World
-3.3
Annual Change (mb/d)
North America
-1.25
Europe
-0.39
Pacific
-0.77
Total OECD
-2.40
Asia
-0.29
Middle East
0.06
Latin America
-0.02
FSU
-0.21
Africa
0.07
Europe
-0.04
Total Non-OECD
-0.43
World
-2.84
OECD/IEA, 2010
Revisions to Oil Demand from Last Medium Term Report (mb/d)

North America
0.00
0.00
-0.06
0.10
0.01
Europe
-0.01
0.00
-0.01
-0.36
-0.09
Pacific
0.00
0.00
0.00
0.11
0.03
Total OECD
-0.01
0.00
-0.08
-0.14
-0.06
Asia
-0.05
-0.02
0.07
0.59
0.15
Middle East
-0.17
-0.19
-0.17
-0.18
-0.18
Latin America
0.04
0.04
0.02
0.12
0.05
FSU
-0.04
-0.03
-0.04
-0.07
-0.05
Africa
-0.02
-0.02
-0.02
-0.16
-0.05
Europe
0.04
0.04
0.03
0.01
0.03
Total Non-OECD
-0.20
-0.18
-0.10
0.33
-0.04
World
-0.21
-0.18
-0.17
0.18
-0.09
Revisions to Oil Demand Growth from Last Medium Term Report (mb/d)
World
0.13
-0.13
-0.03
0.47
0.11
-0.01
129
Table 3
WORLD OIL PRODUCTION
1Q09
2Q09 3Q09 4Q09
2009
1Q10
4.66
5.09
2Q10 3Q10 4Q10
2010
2011
2012
2013
2014
2015
5.40
6.25
6.64
6.89
7.11
7.25
OPEC
Total NGLs1
NON-OPEC
4.59
4.53
4.69
4.83
5.21
5.53
5.76
OECD
North America
United States
Mexico
Canada
13.55 13.38 13.55 13.74 13.55

7.21 7.30 7.40 7.55 7.37
3.04 2.97 2.94 2.95 2.97
3.31 3.12 3.21 3.24 3.22
13.75 13.64 13.23 13.53 13.54

7.57 7.42 7.16 7.28 7.36
2.99 2.97 2.90 2.87 2.93
3.19 3.25 3.17 3.38 3.25
13.42 13.33 13.27 13.43 13.66

7.33 7.20 7.07 7.01 6.89
2.75 2.61 2.51 2.52 2.49
3.34 3.51 3.69 3.90 4.28
Europe
UK
Norway
Others
4.88
1.62
2.56
0.69
4.46
1.56
2.25
0.66
4.24
1.26
2.32
0.66
4.52
1.46
2.42
0.64
4.52
1.47
2.39
0.66
4.45
1.46
2.35
0.64
4.14
1.38
2.11
0.65
4.12
1.31
2.16
0.65
4.28
1.40
2.24
0.64
4.25
1.39
2.21
0.64
3.99
1.27
2.09
0.63
3.79
1.11
2.09
0.60
3.62
0.99
2.06
0.56
3.55
0.98
2.04
0.53
3.34
0.89
1.94
0.51
Pacific
Australia
Others
0.65
0.56
0.09
0.64
0.54
0.09
0.67
0.57
0.10
0.65
0.55
0.10
0.65
0.55
0.10
0.63
0.53
0.10
0.73
0.60
0.13
0.74
0.61
0.13
0.76
0.63
0.13
0.72
0.59
0.12
0.74
0.62
0.12
0.69
0.57
0.12
0.60
0.49
0.11
0.53
0.43
0.10
0.46
0.37
0.09
Total OECD
19.07 18.48 18.45 18.91 18.73
18.83 18.51 18.09 18.57 18.50
18.15 17.82 17.49 17.51 17.46
13.02 13.24 13.37 13.47 13.28

10.06 10.16 10.26 10.36 10.21
2.96 3.09 3.11 3.11 3.07
13.50 13.62 13.46 13.75 13.58

10.39 10.43 10.39 10.45 10.42
3.10 3.19 3.07 3.30 3.16
13.73 13.68 13.54 13.69 13.81

10.43 10.34 10.23 10.18 10.22
3.30 3.34 3.31 3.50 3.59
NON-OECD
Former USSR
Russia
Others
Asia
China
Malaysia
India
Indonesia
Others
7.31
3.73
0.76
0.79
0.99
1.05
7.36
3.80
0.74
0.79
0.98
1.05
7.41
3.83
0.74
0.80
0.98
1.07
7.41
3.81
0.72
0.81
0.98
1.08
7.37
3.79
0.74
0.80
0.98
1.06
7.61
3.97
0.74
0.83
0.99
1.08
7.60
3.97
0.70
0.86
0.99
1.08
7.66
3.98
0.69
0.90
0.98
1.09
7.63
3.96
0.69
0.90
0.99
1.09
7.62
3.97
0.71
0.87
0.99
1.08
7.61
3.94
0.67
0.91
0.96
1.12
7.60
4.00
0.62
0.93
0.94
1.11
7.53
3.93
0.61
0.90
0.96
1.12
7.50
3.86
0.67
0.86
1.01
1.10
7.33
3.75
0.69
0.80
0.99
1.09
Europe
0.14
0.13
0.14
0.14
0.14
0.13
0.13
0.13
0.13
0.13
0.13
0.11
0.10
0.09
0.09
Latin America
Brazil
Argentina
Colombia
Others
3.84
2.00
0.74
0.64
0.46
3.86
2.01
0.73
0.66
0.45
3.85
2.03
0.70
0.67
0.45
3.98
2.07
0.72
0.73
0.46
3.88
2.03
0.72
0.67
0.45
4.02
2.09
0.71
0.76
0.46
4.06
2.11
0.72
0.77
0.46
4.12
2.16
0.71
0.80
0.46
4.23
2.25
0.70
0.83
0.45
4.11
2.15
0.71
0.79
0.46
4.40
2.36
0.69
0.91
0.45
4.52
2.44
0.68
0.96
0.43
4.71
2.60
0.67
1.00
0.44
4.99
2.78
0.65
1.08
0.48
5.11
2.87
0.63
1.13
0.48
Middle East
Oman
Syria
Yemen
Others
1.67
0.79
0.39
0.30
0.19
1.69
0.80
0.39
0.31
0.19
1.71
0.83
0.38
0.30
0.19
1.70
0.83
0.38
0.29
0.19
1.69
0.81
0.38
0.30
0.19
1.70
0.86
0.37
0.28
0.19
1.70
0.86
0.37
0.28
0.19
1.71
0.88
0.37
0.27
0.19
1.71
0.89
0.36
0.27
0.19
1.70
0.87
0.37
0.27
0.19
1.72
0.93
0.35
0.27
0.18
1.66
0.91
0.32
0.25
0.17
1.60
0.90
0.29
0.24
0.17
1.55
0.88
0.26
0.22
0.18
1.50
0.87
0.24
0.21
0.18
Africa
Egypt
Equatorial Guinea
Sudan
Others
2.55
0.70
0.32
0.46
1.08
2.55
0.69
0.31
0.47
1.07
2.55
0.68
0.30
0.47
1.09
2.54
0.67
0.29
0.47
1.10
2.55
0.69
0.31
0.47
1.08
2.56
0.68
0.29
0.47
1.13
2.53
0.68
0.28
0.47
1.11
2.53
0.68
0.27
0.47
1.12
2.54
0.68
0.26
0.47
1.14
2.54
0.68
0.27
0.47
1.12
2.58
0.67
0.25
0.45
1.21
2.56
0.65
0.25
0.41
1.25
2.53
0.64
0.28
0.38
1.24
2.49
0.62
0.31
0.34
1.22
2.45
0.61
0.33
0.31
1.20
Total Non-OECD
Processing Gains3
Global Biofuels4
TOTAL NON-OPEC
28.54 28.82 29.03 29.23 28.91

2.29
1.49
2.29
1.56
2.29
1.65
2.29
1.70
2.29
1.60
51.39 51.15 51.42 52.12 51.52
29.52 29.64 29.62 30.00 29.69

2.20
1.79
2.20
1.80
2.20
1.86
2.20
1.88
2.20
1.83
52.34 52.15 51.76 52.65 52.22
30.16 30.14 30.01 30.32 30.27

2.23
2.06
2.26
2.23
2.29
2.32
2.30
2.39
2.32
2.44
52.60 52.44 52.11 52.51 52.50
OECD/IEA, 2010
1 Includes condensates reported by OPEC countries, oil from non-conventional sources, e.g. Venezuelan Orimulsion (but not Orinoco extra-heavy oil),
and non-oil inputs to Saudi Arabian MTBE. Orimulsion production reportedly ceased from January 2007.
2 Comprises crude oil, condensates, NGLs and oil from non-conventional sources.
3 Net volumetric gains and losses in refining (excludes net gain/loss China and non-OECD Europe) and marine transportation losses.
4 As of the June 2010 MTOGM, Global Biofuels comprise all world biofuel production including fuel ethanol from the US and Brazil.
130
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Project
Shenzi
Tahiti
ThunderHawk
Chinook&Cascade
Clipper
Droshky
GreatWhite,SilverTip&Tobago
Phoenix
Telemark
Caesar
Liberty
Nikaitchuq
SantaCruz/Isabela
Kaskida
BigFoot
Jack/StMalo
MadDogtiebacks
PointThomson
TubularBells
Horizon1
HiberniaAAexpansion
NorthAmethyst,SouthWhiteRose
Scotfordphase2
Algar(GreatDivide)
Athabasca2Jackpine1A
Athabasca3MuskegRiverexpansion
ChristinaLake1C(Cenovus)
Firebag3
Jackfish2
Leismer
PoplarCreek1
BlackGold1
CarmonCreek1
Firebag4
GreatDivideexp
Kearl1
MayRiver
McKayRiver
TerredeGracepilot
ChristinaLake1D(Cenovus)
CHRISTINALAKE2B(MEG)
Saleski
Scotfordphase3
Voyageur
Athabasca4Jackpine1B
Borealis1
Chard1
CHRISTINALAKE3A(MEG)
Firebag5
Grouse
Horizon2/3
Kirby
MacKayRiver1
Sunrise1
Tamarack1
JoslynNorth
OECDNorthAmerica
Country
OECD/IEA, 2010
100
125
45
80
12
45
100
30
25
40
40
60
50
140
55
150
50
10
100
110
25
35
100
10
100
100
40
68
35
10
10
10
50
68
24
100
10
12
10
40
35
10
100
120
100
50
40
50
68
60
120
45
50
50
20
100
2009
2009
2009
2010
2010
2010
2010
2010
2010
2011
2011
2011
2011
2013
2014
2014
2014
2014
2014
2009
2010
2010
2010
2011
2011
2011
2011
2011
2011
2011
2011
2012
2012
2012
2012
2012
2012
2012
2012
2013
2013
2013
2013
2013
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2015

Uvatexpansion
Vankor
YuzhnoKhylchuyuskoye
Odoptu
YuriKorchagin
Priobskoyeexp
Kharyagaexpansion
Prirazlomnoye
Bolshekhetsky
YurubchenoTokhomskoye
VladimirFilanovsky
ArkutunDaginskoye
Russkoye
ChiragOilProject
Karachaganakexpansion(phase3)
Kashaganphase1
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Azerbaijan
Kazakhstan
Kazakhstan
FSU
Pyrenees
VanGogh
Crux
Kipper&Turrum
Montara(andSkua&Swift)
Gorgongas
Gjoa
Morvin
Trym
Vegacomplex(North,Central,South)
Oselvar
Skarv
Froyredevelopment
Goliat
Trestakk
Gudrun
Ekofiskextension
Eldfiskextension
Lochranza
Alder
Athena
Bentley
Causeway
Perth
Cheviot
Clairexpansion
Huntington
Jasmine
Kessog
LagganTormore
Project
Kearl2
Surmont2
Taiga
Chicontepecexpansion
Kuil
Ayatsil
Tsimin
Australia
Australia
Australia
Australia
Australia
Australia
OECDPacific
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Norway
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
OECDEurope
Country
Canada
Canada
Canada
Mexico
Mexico
Mexico
Mexico
120
500
150
30
50
100
20
120
100
200
120
90
175
185
100
450
90
40
25
20
35
15
10
20
10
10
13
80
35
90
50
65
50
20
10
9
20
10
10
15
30
35
30
85
25
15
100
83
35
100
10
125
125
(kbd)
(kbd)
StartYear
Peak
Capacity
Peak
Capacity
2009
2009
2009
2010
2010
2011
2012
2012
2013
2013
2014
2015
2015
2013
2012
2013
2010
2010
2011
2011
2011
2014
2010
2010
2010
2010
2011
2011
2012
2013
2013
2014
2015
2015
2010
2011
2011
2011
2011
2011
2012
2013
2013
2013
2013
2014
StartYear
2015
2015
2015
2008
2010
2013
2013
Table3A:SELECTEDNONOPECUPSTREAMPROJECTSTARTUPS
Country
Aseng
Belinda
Jubileephase1
Kasamene/Kingfisher
AlbertBasin
EquatorialGuinea
EquatorialGuinea
Ghana
Uganda
Uganda
Africa
HarweelandotherPDOEOR
AmalEast/Westexpansion
MukhaiznaEOR
Frade
Jabuti
MarlimSul2P51
ParquedasConchasBC10
Albacoreexpansion
Cachalote
Tupipilot(Tupiphase1)
Urugua/Tambau
Chinook/Peregrino
MarlimSul3P56
BaleiaAzul
Jubarte2P57
Tupiphase2
Espadartemodule3
Guara
PapaTerraBC20
Sidon/Tiro
RoncadorP55
RoncadorP62
Iara
ParquedasBaleias
Rubialesexpansion2
Castillaexpansion
Quifa
JidongNanpu
Penglai3
Changqingexpansion
Kitan
Mangala
Aishwariya
B22cluster
Bhagyama
Tubanexpansion
NorthDuristeamfloodphases2&3
Aster
BukitTua
Gendalo/Gehem
DoiMoi
ChimSao
HaiSuDen/HaiSuTrang
TeGiacTrang
Gumusut
Ubah
Malikai
Project
Oman
Oman
Oman
MiddleEast
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Colombia
Colombia
Colombia
LatinAmerica
China
China
China
EastTimor
India
India
India
India
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Vietnam
Vietnam
Vietnam
Vietnam
Malaysia
Malaysia
Malaysia
Asia
50
50
120
10
100
40
40
50
90
100
150
100
100
100
100
35
100
100
100
180
100
100
100
140
60
150
150
100
150
80
100
30
200
75
100
20
150
40
15
50
10
45
30
20
25
75
25
35
40
135
50
50
(kbd)
Peak
Capacity
2012
2014
2010
2011
2015
2010
2012
2012
2009
2009
2009
2009
2010
2010
2010
2010
2011
2011
2012
2012
2012
2013
2013
2013
2013
2014
2014
2015
2015
2010
2011
2013
2009
2009
2010
2011
2009
2010
2012
2012
2010
2012
2013
2013
2014
2010
2011
2011
2011
2013
2014
2015
StartYear
131
132
W.Qurna2Phase2
MajnoonPhase1
Iraq
Iraq
Halfaya
W.Qurna2Phase1
Iraq
Iraq
W.Qurna1Phase1
Iraq
ZubairPhase1
RumailaPhase2
Iraq
ZubairPhase2
RumailaPhase1
Iraq
Iraq
200
Nassiriyah
Iraq
150
Paranj
Iraq
100
100
100
200
200
200
200
25
50
85
Iran
65
35
Foroozan
Khesht
Iran
25
35
YadavaranI
SouthPars
Iran
Iran
Jufeyr
Iran
44
100
30
25
Iran
AzadeganII
Aghajari
Iran
CheshmehKosh
Other
Iran
30
PungarayacufieldPhase1
Ecuador
Ecuador
Iran
160
CLOV(Block17)
Angola
130
50
200
Negage(Block14)
CabacaNorte1(Block15)
Angola
200
Lucapa(Block14)
Gindungo,Canela,Gengibre(Block32)
Angola
150
Angola
TerraMiranda,Cordelia,Portia(Block31)
Angola
150
2014
2013
2012
2013
2014
2012
2011
2012
2011
2009
2013
2013
2012
2010
2011
2010
2009
2014
2009
2013
2013
2014
2014
2014
2014
2013
2013
2013
2013
2012
140
150
2012
2011
2013
2009
2012
2012
2012
2012
150
100
135
50
Angola
SEPAJ(Block31)
PSVM(Block31)
Angola
Angola
PAZFLOR(Block17)
Angola
KizombaDSatellites(Block15)Clochas&Mav
Sangos/N'Goma(Block15)
Angola
Platino,Chumbo,Cesio(Block18W)
TombuaLandana(Block14)
Angola
200
ElMerk
Algeria
Angola
Angola
85
Takouazet
Algeria
Algeria
30
IAN/EOR
MenzelLedjmetEast(MLEBlock405b)
Algeria
2011
2010
Iraq
Venezuela
Venezuela
Venezuela
Venezuela
Venezuela
UAE
UAE
UAE
UAE
UAE
UAE
UAE
SaudiArabia
SaudiArabia
SaudiArabia
SaudiArabia
SaudiArabia
Qatar
Qatar
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Libya
Libya
Libya
Libya
Libya
Libya
Libya
Kuwait
Kuwait
Kuwait
Iraq
Iraq
Iraq
Iraq
AlAhdab
50
100
200
400
240
400
Corocoro
Junin Block 2-PetroVietnam
Junin Block 4--CNPC
Junin Block 5--ENI
Carabobo 1
75
65
75
25
250
100
75
40
900
1200
100
250
50
100
200
100
29
180
60
115
130
50
50
35
100
60
90
40
160
120
60
50
170
230
BabRumaitha/AlDabbiya(NE)
ADCOOnshoreQusawirah\BidahalQemzan
ADCOOnshoreSahil,Asab,Shah
Nasr
UpperZakumexpansion
LowerZakumexpansion
UmmShaifExpansion
OffshoreEocene(Khafji/Hout)
Manifa
Khurais(inclAbuJifan&Mazalij)
Nuayyim
Shaybah2
AlRayyan
AlShaheenincrements
Egina
Nsiko
Oyo
Usan
Ofon2
EAField
Nafooraexpansion
Zuetinaexpansion
Area47GhadamesBasin
NC186expansion
GialoExpansion
WAHADeveolpment
Amal
OffshoreEocene(Khafji/Hout)
SabriyaGC24
Burgan(Watertreatment)
TaqTaq
Tawke
Badra
Gharaf
2012
2013
2013
2013
2012
2010
2013
2013
2012
2015
2013
2012
2011
2010
2014
2009
2009
2009
2010
2010
2014
2015
2010
2013
2010
2009
2014
2014
2013
2013
2013
2011
2010
2010
2014
2013
2011
2011
2014
2014
UAE
UAE
UAE
UAE
UAE
S.Arabia
S.Arabia
S.Arabia
S.Arabia
S.Arabia
S.Arabia
S.Arabia
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Nigeria
Nigeria
Libya
Kuwait
Iran
Iran
Iran
Iran
Iran
Iran
Iran
Iran
Iran
Algeria
Algeria
Algeria
Algeria
IGD--Integrated Gas Dev. (NGLs)
IGD--Integrated Gas Dev. (Condensate)
Asab 2 NGL
OGD 3 Habshan (NGLs)
OGD 3 Habshan (Condensate)
110
30
80
120
120
30
40
Hasbah
65
70
310
210
80
65
70
70
72
40
140
21
100
45
140
Shaybah (NGLs)
Manifa(Condensate)
Khurais(Condensate)
HawiyahNGLComplex
Khursaniyah(NGLs)
Khursaniyah(condensate)
OryxGTL
PearlGTL2
PearlGTL1
AlKhaleej2(NGLs)
AlKhaleej2(Condensate)
Qatargas67(condensate)
QatargasIITrain5&6(NGL)
RasGasTrain6(condensate)
RasGasTrain6&7(NGL)
QatargasIITrain4&5
70
175
Akpo
Gbaran/Ubie
60
115
50
60
80
80
20
120
50
152
10
30
55
14
10
(kbd)
Peak
Capacity
NC98
Sabriyah&UmmNiqaII
KhargNGLs
S.Par12Condensate
S.Par12NGLS
Pars9&10NGLs
Pars9&10Condensate
BidbolandCondesate
BidbolandNGLs
Pars68(NGLs)
Pars68(Condensate)
TisselitNordCondensate
ElMerk(NGLs)
ElMerk(Condensate)
MLE(NGLs)
MLE(Condensate)
Algeria
36
20
Project
BirSeba(Blocks433a/416b)
Country
ROMIntegrated
StartYear
Algeria
Project
Algeria
Country
(kbd)
StartYear
(kbd)
NGL&CondensateProjects
Project
Peak
Capacity
Table3B:SELECTEDOPECUPSTREAMPROJECTSTARTUPS
Peak
Capacity
CrudeOilProjects
Country
OECD/IEA, 2010
2013
2013
2009
2010
2010
2014
2014
2014
2010
2009
2010
2010
2012
2014
2011
2009
2009
2010
2009
2009
2009
2009
2010
2009
2013
2012
2013
2014
2014
2010
2010
2011
2011
2009
2009
2012
2012
2012
2012
2012
StartYear
Table 4
WORLD ETHANOL PRODUCTION1
OECD North America

United States
Canada
OECD Europe
Austria
Belgium
France
Germany
Italy
Netherlands
Poland
Spain
UK
OECD Pacific
Australia
Total OECD
FSU
Non-OECD Europe
China
Other Asia
India
Indonesia
Malaysia
Philippines
Singapore
Thailand
Latin America
Argentina
Brazil
Colombia
Middle East
Africa
Total Non-OECD
Total World
2009
2010
2011
2012
2013
2014
2015
723
702
20
57
2
3
15
14
1
1
2
7
3
4
4
784
1
1
36
14
4
1
0
0
1
7
476
1
462
6
0
2
529
1,313
872
846
24
67
2
3
15
15
2
3
4
8
4
4
4
943
2
1
36
18
4
2
0
0
1
9
523
1
507
7
0
3
582
1,525
925
895
28
80
2
3
17
16
2
6
5
10
8
6
5
1,011
6
1
37
26
5
2
0
1
1
14
594
1
578
7
0
5
670
1,681
969
936
31
88
2
3
17
17
2
7
5
10
8
6
6
1,062
8
1
39
36
5
3
0
2
1
20
654
1
636
9
0
6
745
1,807
998
965
32
91
2
3
18
17
3
7
6
10
9
7
7
1,097
8
1
40
38
5
4
0
2
1
20
693
1
674
9
0
8
788
1,884
1,015
979
35
94
2
3
18
17
3
7
7
10
9
8
7
1,118
8
1
41
38
5
4
0
3
1
20
726
1
707
9
0
8
822
1,940
1,026
989
35
94
2
3
18
17
3
7
7
10
9
8
7
1,129
8
1
41
39
5
4
0
3
1
20
755
1
736
9
0
8
852
1,981
1 Volumetric production; to convert to energy adjusted production, ethanol is assumed to have 2/3 energy content of conventional gasoline.
OECD/IEA, 2010
133
Table 4A
WORLD BIODIESEL PRODUCTION1
OECD North America

United States
Canada
OECD Europe
Austria
Belgium
France
Germany
Italy
Netherlands
Poland
Spain
UK
OECD Pacific
Australia
Total OECD
FSU
Non-OECD Europe
China
Other Asia
India
Indonesia
Malaysia
Philippines
Singapore
Thailand
Latin America
Argentina
Brazil
Colombia
Middle East
Africa
Total Non-OECD
Total World
2009
2010
2011
2012
2013
2014
2015
36
36
0
153
4
5
46
44
7
1
2
10
8
4
1
194
1
2
6
26
2
5
5
2
2
10
56
24
28
3
0
0
92
286
35
33
2
159
4
7
47
44
7
3
4
12
8
5
2
199
1
2
6
31
2
7
6
2
4
10
66
26
37
3
0
0
107
306
54
50
4
179
4
7
47
48
13
11
5
14
8
7
3
241
3
2
6
42
3
7
8
2
11
10
83
34
45
3
0
0
136
377
64
59
5
192
4
7
49
49
16
15
5
15
8
7
3
263
3
2
7
52
3
7
8
3
16
14
95
37
50
4
0
1
160
423
67
62
5
197
4
7
49
49
16
19
6
16
8
7
3
271
3
2
7
52
3
7
8
3
16
14
103
42
53
4
0
1
168
439
73
68
5
198
4
7
49
49
16
19
7
16
9
7
3
279
3
2
7
53
3
7
8
4
16
14
104
43
53
4
0
3
173
451
74
69
5
200
4
7
49
49
16
19
7
16
10
7
3
282
3
2
7
53
3
7
8
4
16
14
104
43
53
4
0
6
176
458
OECD/IEA, 2010
1 Volumetric production; to convert to energy adjusted production, biodiesel is assumed to have 90% energy content of conventional diesel.
134
Table4B:SELECTEDBIOFUELPROJECTSTARTUPS
Country
Project
Output
Capacity
Capacity
(kbd)
(mly)
StartYear
OECDNorthAmerica
USA
AventineRenewableEnergyAurora,Nebraska
ethanol
428
USA
AventineRenewableEnergyMtVernon,Indiana
ethanol
428
2010
2010
USA
MetroEnergyNewYork,NewYork
biodiesel
416
2010
USA
HomelandEnergySolutionNewHampton,Iowa
ethanol
379
2010
USA
AbengoaMtVernon,Indiana
ethanol
333
2010
USA
AbengoaMadison,Illinois
ethanol
333
2010
USA
DynamicFuelsGeismar,Louisiana
biodiesel(BTL)
284
2010
USA
BiodieselofLasVegasLasVegas,Nevada
biodiesel
379
2011
USA
AltAir/TesoroAnacortes,Washington
biodiesel/biojet
379
2012
USA
Vercipia(Verenium/BP)HighlandsCounty,Florida
cellulosicethanol
136
2012
USA
POETEmmetsburg,Iowa
cellulosicethanol
95
2012
Netherlands
AbengoaRotterdam
ethanol
480
2010
Netherlands
NesteOilRotterdam
biodiesel(BTL)
15
899
2011
Portugal
GreencyberSines
biodiesel
281
2013
UK
EnsusTeeside
ethanol
400
2009
UK
VivergoHull
ethanol
400
2011
NesteOilSingapore
biodiesel(BTL)
15
899
2010
OECDEurope
Asia
Singapore
OECD/IEA, 2010
LatinAmerica
Argentina
LouisDreyfusCommoditiesBahiaBlanca
biodiesel
337
2011
Argentina
PatagoniaBioenergiaSanLorenzo
biodiesel
281
2013
Brazil
PetrobrasParana
biodiesel
298
2012
135
Table 5
WORLD REFINERY CAPACITY ADDITIONS
2010
2011
Crude Distillation Additions and Expansions1

OECD North America
207
70
OECD Europe
91
-61
OECD Pacific
-139
-51
FSU
80
20
Non-OECD Europe
China
Other Asia
Latin America
Middle East
Africa
Total World
2012
2013
2014
2015
Total
400
110
75
26
15
95
70
730
315
250
21
620
375
335
817
28
50
540
80
300
146
30
862
166
-190
584
100
3,266
1,512
1,013
1,354
337
560
252
73
160
35
130
100
414
50
450
64
55
80
144
1,320
999
1,767
1,487
2,190
1,241
9,004
152
57
25
79
205
175
52
370
50
295
262
49
94
25
168
55
113
45
43
462
240
215
135
125
115
50
297
82
85
105
45
227
107
48
55
26
214
270
30
146
8
250
220
294
457
57
95
40
130
25
927
510
238
586
119
1,612
1,114
803
962
135
928
1,130
1,577
1,477
1,518
377
7,006
386
89
-49
30
8
192
223
210
190
95
175
76
66
235
65
358
180
213
346
5
115
145
35
30
510
185
347
256
418
214
165
335
42
115
26
205
40
1,307
241
66
330
77
2,000
1,071
1,485
1,422
197
1,374
1,719
1,413
1,354
416
366
426
Upgrading Capacity Additions2

OECD North America
OECD Europe
OECD Pacific
FSU
Non-OECD Europe
China
Other Asia
Latin America
Middle East
Africa
Total World
Desulphurisation Capacity Additions3

OECD North America
456
OECD Europe
41
OECD Pacific
49
FSU
65
Non-OECD Europe
3
China
407
Other Asia
243
Latin America
345
Middle East
255
Africa
55
Total World
1,919
37
8,195
OECD/IEA, 2010
1 Comprises new refinery projects or expansions to existing facilities including condensate splitter additions. Assumes zero capacity creep.
2 Comprises gross capacity additions to coking, hydrocracking, residue hydrocracking, visbreaking, FCC or RFCC capacity.
3 Comprises additions to hydrotreating and hydrodesulphurisation capacity.
136
Table 5A
WORLD REFINERY CAPACITY ADDITIONS:
Changes from Last Medium-Term Report
2009
2010
2011
Crude Distillation Additions and Expansions1

OECD North America
121
-203
OECD Europe
-100
-74
OECD Pacific
-57
-174
FSU
60
80
-139
-101
20
Non-OECD Europe
China
Other Asia
Latin America
Middle East
Africa
Total World
239
-70
2012
2013
75
60
74
70
190
-196
-190
276
-25
107
100
240
8
30
90
-100
20
160
-111
25
-157
-10
400
-102
-140
56
121
-87
-1
25
-28
-15
-25
2014
Total
54
-313
-332
304
20
255
85
28
659
163
115
-20
38
65
388
667
25
-18
30
20
40
50
102
37
-15
45
43
152
-102
-61
201
60
30
43
363
282
60
50
5
-60
Upgrading Capacity Additions2

OECD North America
OECD Europe
OECD Pacific
FSU
Non-OECD Europe
China
Other Asia
Latin America
Middle East
Africa
Total World
-26
-5
90
Desulphurisation Capacity Additions

OECD North America
112
OECD Europe
-24
OECD Pacific
FSU
Non-OECD Europe
China
Other Asia
Latin America
Middle East
Africa
Total World
149
-60
25
-26
131
-29
35
175
117
29
-10
5
52
44
308
188
290
972
-73
-34
49
25
-25
-80
35
-134
85
15
69
-33
-85
262
70
58
158
5
96
-110
20
-91
160
70
42
401
221
70
171
97
553
-74
281
910
48
-20
92
40
49
-25
35
-6
81
-78
-11
15
83
-98
165
1 Comprises new refinery projects or expansions to existing facilities including condensate splitter additions. Assumes zero capacity creep.
2 Comprises stand-alone additions to coking, hydrocracking or FCC capacity. Excludes upgrading additions counted under 'Refinery Capacity
Additions and Expansions' category.
3 Comprises stand-alone additions to hydrotreating and hydrodesulphurisation capacity. Excludes desulphurisation additions counted under
'Refinery Capacity Additions and Expansions' category.
OECD/IEA, 2010
137
138
Country
India
India
India
India
India
India
India
India
India
Pakistan
Vietnam
Vietnam
OtherAsia
Country
IndianOilCo.Ltd.Panipat
HPCLMumbai
BPCLKochi
EssarOilVadinar
BharatOmanCo.Ltd.Bina
IndianOilCo.Ltd.Gujarat
ONGCMangalore
IndianOilCo.Ltd.Paradeep
HPCL/MITTALBathinda
BycoPetroleumPakistanLtd.Karachi
Petrovietnam/KPC/IdemitsuNghiSon
VungRoPhuYen
Project
SinopecYangzi
Sinopec/KPCZhanjiang
SinochemQuanzhou
CNOOC/ShangdongHaihuaHaihua
SinopecZhenhai
SinopecCaofeidian
200
200
50
60
50
110
100
66
200
90
60
400
200
70
2010
2010
2010
2010
2010
2011
2011
2011
2012
2012
2012
2013
2013
2013
Africa
NaftecSPASkikda
NaftecSPAArzew
SonangolLuanda
SONARACapeLimboh
CNPCN'Djamena
TemaOilRefineryCo.Ltd.
SAMIRMohammedia
CNPCGanaram
CNPCKhartoum
CNPCQuinzhou
SinopecTianjin
SinopecQilu
DongmingPetrochemicalDongming
SinopecQingdao
CNPCFushun
CNPCYinchuan
SinopecZhanjiangDongxing
CNPCPengzhou
SinopecMaoming
SinopecWuhan
CNPC/PDVSAJieyang
CNPC/RosneftTianjin
CNPCHuhhotPetchem
Algeria
Algeria
Angola
Cameroon
Chad
Ghana
Morocco
Niger
Sudan
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
NationalIranianOilCo.Arak
NationalIranianOilCo.LavanIsland
SOMODaura
KurdistanGovn.Erbil
SOMO/TGEAddaxTaqTaq
SOMOBasra
ORLHaifa
QatarPetroleumRasLaffan2
SaudiAramcoRabigh
SATORPJubail
AbuDhabiNationalOilCo.Ruwais2
MiddleEast
2012
2010
2012
2012
2012
2013
Iran
Iran
Iraq
Iraq
Iraq
Iraq
Israel
Qatar
SaudiArabia
SaudiArabia
UAEAbuDhabi
60
50
140
140
54
70
P.O.NaftanRefineryNovopolotsk
AntipinskyRefineryAntipinsky
RosneftTuapse
TatneftNizhnekamsk
MariElrefineryMariRepublic
AntipinskyRefineryAntipinsky
FSU
2015
2012
Belarus
Russia
Russia
Russia
Russia
Russia
50
50
LukoilBourgas
PetrobraziSAPloisti
Bulgaria
Romania
NonOECDEurope
PetrobrasPaulina
Petrobras(ClaraCamarao)
PetrobrasAbreueLima
PetrobrasComperj
PetrobrasMaranhao
ENAPCartagena
ENAPBarrancabermeja
Recope/CNPCLimon
PetrojamLtd.Kingston
PDVSantaIns
2010
2010
2010
2010
2011
2010
2011
2010
2011
2010
2010/2011
2010
2010
2012
2010
2012
2010
2010
2010
2011
2012
2012
2013
2015
China
China
China
China
China
China
LatinAmerica
30
24
70
110
120
35
50
141
94
60
90
75
30
110
130
30
150
180
35
50
325
45
50
95
StartYear
Brazil
Brazil
Brazil
Brazil
Brazil
Colombia
Colombia
CostaRica
Jamaica
Venezuela
CosmoOilCo.Ltd.Sakai
JXHoldingsOita
JXHoldingsNegishi
JXHoldingsMizushima
ShowaShell/ToaOilCo.Ltd.OhgimachiFactory
NewZealandRefiningCo.Ltd.MarsdenPoint
SOilCorp.Onsan
Capacity(kbd)
OECDPacific
TotalSADunkirk
TotalSAGonfreville
MotorOil(Hellas)CorinthRefineriesSAAghiiTheodori
GrupaLotosSAGdansk
Cia.EspanoladePetrolesSAHuelva
RepsolYPFSAPuertollano
RepsolYPFSACartagenaMurcia
ShellCanadaLtd.Montreal
Consumers'CooperativeRefineriesLtd.Regina
PEMEXMinititlan
MarathonGaryville
HollyCorp.Tulsa
ConocoPhillipsWoodRiver
MotivaEnterprisesLLCPortArthur
ValeroStCharles
ConocoPhillipsBorger
ConocoPhillipsWoodRiver
Project
Table5B:SELECTEDREFINERYCRUDEDISTILATIONPROJECTLIST
Japan
Japan
Japan
Japan
Japan
NewZealand
SouthKorea
France
France
Greece
Poland
Spain
Spain
Spain
OECDEurope
Canada
Canada
Mexico
UnitedStates
UnitedStates
UnitedStates
UnitedStates
UnitedStates
UnitedStates
UnitedStates
OECDNorthAmerica
OECD/IEA, 2010
32
22
35
28
20/30
60
40
20
50
80
21
70
20
20
70
60
146
50
400
417
33
30
230
165
300
70
65
35
20
30
60
48
40
151
120
40
64
300
180
115
195
80
60
300
240
80
300
200
Capacity(kbd)
2012
2012
2010
2014
2012/2015
2011
2011
2012
2012
2012
2013
2010
2010
2010
2011
2011
2015
2010
2014
2014
2010
2010
2013
2014
2015
2014
2014
2014
2013
2012
2010
2010
2010
2011
2011
2011
2012
2013
2014
2011
2014
2015
StartYear
2013
2014
2014
2014
2015
2015
Part
gas
Overview
Recent Global Market Trends
Short-Term Demand Forecasts
Market Trends in the LNG Business
Unconventional Gas
Prices and Trading Developments
Investments Overview
Investments in Production
Investment in LNG
OECD/IEA, 2010
Investments in Pipelines and Regasification Terminals
OECD/IEA, 2010
P ART 2: G AS O VERVIEW
OECD/IEA, 2010
OVERVIEW
World gas demand dropped sharply in 2009 as a result of the economic crisis, with strong
variations between regions. While gas demand declined in all OECD regions, by on average 3.3%,
disparities were wider among nonOECD countries. It plummeted in Former Soviet Union (FSU)
countries,butincreasedstronglyinChina,IndiaandMiddleEastandNorthAfrican(MENA)countries.
In the OECD, Europe was by far the most affected: seasonally adjusted data show demand in late
2008fallingbacktoearly2004levels.Thedropwasconcentratedintwosectors,industryandpower.
Interestingly, gas consumption in power generation has evolved very differently depending on the
prevailing regional price differentials: consumption declined in several European countries where
gasfiredplantsareatthemargin;gasactuallydisplacedcoalinthepowermixintheUnitedStates.
OECDgasdemandwillrecoverslowly,withanexpectedreturnto2008levelsbyabout2012but
withlargeregionalvariations.In2013,gasdemandwillreach1,578bcm,2%above2008.Theendof
2009 and early 2010 started to show some relative improvement with the tide turning. Gas
consumptionin2010seemstohavealreadyshowedsignsofrecovery,but thisislargelydue toa
colderthanaveragefirstquartersothatdemand,inparticularintheresidential/commercialsector,
is estimated to be 10bcm higher than in a normal winter. Looking forward, the main driver is
obviously the economy and what shape the nascent economic recovery will have over the coming
four years. OECD North America and OECD Pacific show the strongest recoveries; the recovery is
anticipatedtobemoresluggishinEurope.Europeangasdemandwillrecoverto2007levelsonlyby
2013 but that level will still be below that prevailing in the first half of 2008. While
residential/commercial gas demand can be expected to be relatively stable (assuming normal
weather), industrial gas demand will not come back to 2008 levels before 2013: across the OECD,
growthinNorthAmericaandPacificwillcompensateforthedropinEurope.Thekeysectorandby
farthebiggestuncertaintyregardingthepaceoffuturegasdemandisthepowergenerationsector:
the year 2009 has proved that every country evolves differently according to its generation mix.
Dependingontheevolutionoftheeconomicrecovery,prevailingpricesandthesuccessorfailureof
continuingtobuildrenewables,gasinputinthepowergenerationsectorcanvaryconsiderably.
Two revolutions took place on the supply side: the muchanticipated one was the growth of
liquefied natural gas (LNG) capacity which will see liquefaction capacity growing by 50% over
200913.Therevolutioniswellunderway,as60bcmalreadystartedoperatingin2009,followedby
another20bcmduringthefirsthalfof2010.Afurther50bcmisexpectedtocomeonlinebytheend
of2013.However,thiscapacitygrowthwasnotmatchedbysupply:LNGproductionincreasedonly
by5%in2009.Supplyissuesarenow common notonlyforexisting plants, butalsofortherecent
onesduetofeedgasandtechnicalissues.TherelentlessgrowthofLNGsupplyhappensinamarket
withmuchlessappetitethananticipatedwhenthoseprojectsweresanctioned,generallyearlierin
thedecade.Inparticular,theNorthAmericanmarkethasabsorbedlimitedvolumesofLNG,leavinga
surpluswhichhasbeenredirectedto othermarketssuchas EuropeandChina.MoreLNGmarkets
areemergingaroundtheworldinAsia,MiddleEastandLatinAmericatakingadvantageofthe
upcomingwaveofnewLNGsupply.TheactualincreaseofLNGsupplyisexpectedtotakeplacelater
in 2010 and 2011, which will test the resilience of LNG markets in regions where demand will
increaseataslowpace.
141
OECD/IEA, 2010
Thesecond,lessexpected,supplyrevolutionisunconventionalgas.Startingonlyinabout200607,
thecontinuedriseofNorthAmericanunconventionalgashashadregionalandglobalconsequences;
in particular it aggravated the global oversupply and significantly reduced US import needs. It also
raisesthequestionofwhethersucharevolutionispossibleinotherregions,wherecompaniesand
governmentsarealreadyinvestigatingthispotential,andifso,howquicklycansignificantvolumes
reachmarkets.ProspectslookquitegoodinAsia,whereAustralia,ChinaandIndiaalreadyproduce
small volumes of unconventional gas. The effective development of unconventional gas in Europe,
MENA or Latin America will face some challenges. The IEA does not anticipate unconventional gas
playing a major role in Europe before the end of the decade. Among the challenges faced by
unconventional gas resources are the need to more systematically appraise resources, as well as
environmental issues and local opposition. The ongoing discussions about the impact of
unconventional gas drilling on water reservoirs well founded or not are likely to play a role in
Europe.Finally,adifferentownershipstructureofsubsoilresourcesincountriesoutsidetheUnited
Statescouldmakelandownerslessacceptingofproduction.Similarlytoconventionalgas,pricingand
fiscal conditions, the availability of gas transport infrastructure, as well as of specific completion
methods,suchashorizontaldrillingandhydraulicfracturing,willbedeterminingfactors.
The most daunting question faced by the gas industry is the duration of the gas glut. As supply
matchesdemand,someproducershadtocurtailtheirproductionin2009:thiswasparticularlythe
caseinFSUcountries,butalsoinCanada,Nigeria,andAlgeria.Similartothedemandside,ahandful
of producers, notably Qatar, still saw their output increasing. Looking forward, the duration of the
oversupply will depend on many factors, including the growth of regional gas markets, the actual
increase of LNG supply, and the sustainability of unconventional gas given low price levels. More
importantly,theglutwillplayoutdifferentlyindifferentmarkets.IntheAtlanticbasin,andinEurope
in particular, it is hard to see tight supplies before 2015, despite the rapid decline of European
domesticproduction.ThesituationislessclearinAsiaandinthePacific.Forexample,Chineseand
IndiandemandgrowthcouldreallybiteintoLNGsupply:withinafewyears,bothcountriescombined
willbecapableofimportingaround65bcm,roughlytheLNGimportsofOECDEuropein2009.
Theresultoftheoversupplyisthat,intheOECD,twodifferentpricesystemsnowcoexistwitha
large and unprecedented gap between them. Henry Hub (HH) and National Balancing Point (NBP)
gas prices averaged $4/MBtu and $5/MBtu respectively in 2009, compared to around $9/MBtu in
Japan and Continental Europe. This sustained decoupling between low spot prices in the
UnitedStatesandtheUnitedKingdomandoillinkedgaspricesprevailinginContinentalEuropeand
OECDPacific,ishavingfarreachingconsequencesforbuyersandsellersinthethreeOECDtraditional
markets, as well as in emerging LNG importers. Gas buyers, mostly in Europe, are caught between
theirlongtermcontractualobligationsandpressurefromtheircustomers,inparticularindustrial,to
supply gas at more competitive prices. Importers have in turn pressed their suppliers for more
flexibilityonpriceandvolumes.AlreadyafewkeysupplierstoEuropehavegrantedsomeimportant
concessions onthese twoitems. This additionalvolumeflexibility,thatwas agreedinseverallong
termcontracts,notonlyeasedthesituationofoversupplyin2009,butwillalsoaltertheEuropean
supply/demand balance in 2010 and beyond. Pricing flexibility has also been important, with price
fallsinimportantuserssuchasGermany,butasacorollary,aclosingofthegapbetweenspotand
contract prices in Europe. A second interesting pricing development has been the remarkable
convergence between HH and NBP prices overoneyear; the latest evolution in the spring of 2010
suggests,however,thatthistrendmaynotbesustainable.
142
OECD/IEA, 2010
Arguably,thesecondmostimportantquestionfacedbythegasindustryiswhetherthetraditional
oil linkage on European continental and Asian markets will continue. The growth of trading in
ContinentalEuropeprovesmarketplayersincreasedconfidence.Furtherimprovementsintransport,
regulation,andservicesareexpectedtoenhanceliquiditygrowth.Thisquestionfindssomeanswers
intheotherkeyquestionstatedabove:thedurationofthegasglut.Indeed,theconcessionsgranted
giving a partial spot indexation in some European contracts, are temporary. Whether such spot
indexation remains beyond the three years, and is extended to other contracts or traditional oil
indexation fully returns will depend first on the global supply/demand balance and then on the
evolutionofthegapbetweenthedifferentspotandoillinkedprices.Again,regionaldifferenceswill
matter,sothatapersistentregionaloversupplyinNorthAmericacouldleaveHHpricesbelowother
regionalprices.
The past two years will have profound consequences for future investments as markets moved
from tightness to a global oversupply. Despite the comforting Final Investment Decisions (FID) for
twoLNGliquefactionprojectslatein2009,uncertaintiesprevailandinvestmentsalongthegasvalue
chain slowed down during 2009. Investors now face the doublewhammy on the supply side
combined with increased uncertainty on future demand growth, fuelled by the uncertainties
regarding the economic recovery, and have unsurprisingly adopted a cautious waitandsee
approach. The question is raised on where and when incremental gas volumes or supply
infrastructurewouldbeneededandwheretoinvestinthegasvaluechain.Afewprojectsarestill
movingforwardbutthesearetargetingthosemarketswheretheeconomiccrisishasnotaffecteda
growingappetiteforgaspredominantlyAsia.AustraliahasemergedasamajorfocusfornewLNG
investments and many projects, including coalbed methane (CBM)toLNG projects in Queensland,
arecompetingtosecuremarketsharesandlimitedprojectresources.Itisreasonabletoanticipateat
leastoneortwonewFIDsover201011.ItisdifficulttoseeanyFIDbeingtakenintheAtlanticbasin
inthecurrentmarketcircumstances.Globally,floatingLNGisgainingmomentum,butthetechnology
remainstobetested.
While import requirements will be less than they were expected to be two years ago and
investmentsintheupstreamsectorwillnotbeaspressingasthen,gasdemandisstillplannedto
increase in any scenario in the longer term. Even if demand were flat, production from existing
declining fields would have to be replaced. Experience shows that at least a decade is needed to
developagreenfielddeposit;aliquefactionplantnowrequiresfiveyearsonaverageoncetheFIDis
taken. Producers are consequently adapting their strategies, focussing on key projects and shifting
towards the growing markets. In particular, Russia faced a tough year in 2009, with increasing
uncertainty in its main export market, Europe. Consequently, its strategy slightly shifted towards
Asianmarkets,butitremainstobeseenwhetheritwillbetranslatedintoconcreteoutcomes,asthe
developmentofthefieldsinEasternSiberiaandtheFarEastismorechallengingthantheongoing
development of the Yamal Peninsula. In MENA countries, only Qatar seems to be able to meet
confidentlyrisingdomesticdemandandfuelitsexporttargetsinthemediumterm.Developingmore
difficultand expensive nonassociated gasfields(frequentlytightgasorsour)isthenew challenge
for MENA countries. Despite campaigns to attract exploration and production (E&P) investors,
rapidlyrisingdomesticdemandandthecontinuingrequirementsforgasreinjectionmayleavevery
littlegasforexports,unlessCO2reinjectionprojectsgainpopularityintheregion.Indeeddomestic
market obligations have emerged as a new trend across producing regions, with governments
reservingvolumesfortheirowncustomers,bylaworbycontract.However,usuallylowlocalmarket
gaspricesfailtoattractforeigninvestors.
143
OECD/IEA, 2010
Amongallpartsofthegasvaluechain,interregionaltransportislikelytobethemostaffectedby
theglobaloversupplynowandinthemediumterm.Indeed,asurplusofcapacityisresultingfrom
the current and future wave of new projects while demand remains weak. This will lead to
competitionbetweenpipelinesandregasificationterminalswhoseoutcomewilldependonregional
dynamics, especially in Europe. Looking forward, the race will continue between these different
delivery modes which are still at the planning stage. Across regions, LNG regasification terminals
seemtobemakingmoreprogressthanpipelines.In2009,theonlysignificantinterregionalpipeline
thatcommencedoperationswasthefirstpartoftheTurkmenistanChinapipeline,whichincidentally
marks a fundamental change in the relationships between Central Asia and its potential markets.
Interestingly, some regions such as the Middle East, Latin America, and Southeast Asia are now
turning to LNG imports, sometimes to mitigate the failure of regional pipelines. The floating
regasificationandstorageunits(FRSU)andLNGregasificationvessels(LNGRV)whicharequickerto
build have been very successful in these regions. Looking ahead, regasification terminals are
advancing faster than pipelines when projects move ahead. Global regasification capacity will
increase by at least 20% by 2013, exacerbating the excess of regasification capacity compared to
liquefactionbutallowingLNGtobemovedaroundtheworld.Meanwhile,onlyonemajornewinter
regional pipeline project advances the muchawaited Nord Stream pipeline between Russia and
Germany,nowunderconstruction.
Thelastpartofthegasvaluechain,undergroundgasstorage,facestheverysamemarketissuesas
the other parts: demand uncertainties, as well as cost and regulatory difficulties. Even in mature
markets,manyprojectsarestillplannedastheroleofstorageischanging.Theincreasinguseofgas
tocompensatefortheintermittencyofwindgenerationimpliesthatmoreflexibilitywillbeneeded,
andthereforemorefastcyclingstoragefacilities.Storagealsoremainsakeycomponentforsecurity
of supply in regions that are becoming increasingly import dependent. Meanwhile, fastgrowing
marketssuchasChinaandIranarelookingtoexpandstoragecapacity.
144
P ART 2: G AS R ECENT G LOBAL M ARKET T RENDS
RECENT GLOBAL MARKET TRENDS
OECD/IEA, 2010
Summary
Worldgasdemandisestimatedtohavedroppedby3%in2009,thebiggestdeclineobserved
since the 1970s. Demand dropped sharply in almost all OECD countries, but with strong
variationsamongtheregions:Europehasbeenbyfarthemostaffectedasseasonallyadjusted
demandlevelsdroppedinlate2008tothelevelsofearly2004.Demanddisparitiesarewider
for nonOECD countries, some of which observed remarkable growth. Such a demand fall is
unprecedented:accordingtoIEAsannualgasstatistics,worldgasdemandhasfallenonlytwice,
in1975and1992,andneverbymorethan1%.OECDgasdemandfellby3.3%,whilesomenon
OECD countries such as Russia, Ukraine and Brazil also saw their demand receding, but others
suchasChinaandIndiahavewitnessedastronggrowthby10%orasmuchas20%.Theendof
2009 and early 2010 started to show some relative improvement, notably in the OECD region,
withthetideturningastheeconomyrecovers.Thegasindustryalsobenefitedfromanextreme
winter2009/10,whichwasnotonlycoldbutlingeredwellintoMarch.
Twosectorsmakethedifference:industryandpowergeneration.Whiledemandplummetedin
theindustrialsector,theoutcomeforthepowersectorvariesacrossregions:gasmanagedto
increase its share in the power mix in a handful of countries. The economic recession has
affected the industrial sector as many factories closed or reduced output. This had two
consequences on gas demand: a direct one diminished need for gas and an indirect one
through reduced power demand, which subsequently impacted the use of gasfired
powerplants.
Whileeconomicactivityremainsthemaindriverofgasdemand,pricelevelscanconsiderably
change the outcome in the power sector. The economic recession is one of the major factors
contributingtotheoveralldropofenergydemand.Relativelyhighoillinkedgaspricesinsome
regions, such as Europe or OECD Pacific, also impacted gas demand in particular in the power
generationsector,pricinggasoutofthemix;inregionswheregaswaspricedatmarketlevels,
notablytheUnitedStates,gasfiredpoweractuallyincreasedin2009inabsoluteterms.
Two supply revolutions took place in 2009: the start of the much expected but still
unprecedented rise of LNG liquefaction capacity and the continued growth of US
unconventionalgasproduction.Thefirstonewasclearlyanticipatedbymarkets,butthegrowth
ofunconventionalgasreallybegantoacceleratein2006and2007.Thisadditionalsupplyadded
toweakdemand,resultinginglobaloversupply.Asaresult,manysuppliershadtocurtailtheir
productionwhileafew,suchasQatarorYemen,increasedproduction.AsLNGsupplyincreased,
albeitmodestly,theentiredemanddrophadtobebornebypipelinetrade.
The daunting question faced by the gas industry is how long the gas glut will last. The exact
duration of the current gas glut will depend on many factors, the two most important being
economicrecoveryandthegrowthofgasdemandinthepowergenerationsector.Itwillplay
outdifferentlyindifferentmarkets.WhileitishardtoseeatighteningsituationinEuropebefore
2015despitethedeclineofdomesticproduction,muchuncertaintyliesinAsiaandinMENA.In
particularChinasgasdemandcontinuestogrowatanimpressive10%peryear.Asgasmarkets
areglobalising,tighteningmarketsinthePacificregioncouldspilloverintootherregions.
145
The Worst Decline Ever

OECDDemandTrends
OECD gas demand, which represents just under half of global gas demand estimated at around
3,050billion cubic meters (bcm) declined by 3.3% in 2009, from 1,545bcm in 2008 to 1,495bcm.
Thisrepresentsa50bcmdrop,morethanFrancesannualgasdemand.Historically,theOECDregion
hasseenhigherrelativedeclines4.5%in1982,buttheabsolutedecline waslowerandlessthan
halfofthecountriesactuallysawtheirdemanddeclining.Asinpastyears,theanalysisrevealssome
wide variations across regions and countries: OECD Europe was the worst affected among OECD
regions with 5.6% decline. The drop was less significant in OECD Pacific at 3.4% due to a recovery
during the last months of 2009. Among the largest relative declines in demand are Greece (16%),
Hungary(14%),Spain(11%)andtheUnitedKingdomdownnearly8%.Therehavebeencountries
wheredemandincreasedthough:Swedenwitnesseda30%increase(onaverysmallbase)andthe
Netherlands saw demand increasing slightly, due to the effect of low gas spot prices in the
powersector.
GasDemandinOECDCountries:2008versus2009(bcm)
Australia
2008
2009
31.8
31.0
Korea
2009
35.8
34.0
Austria
8.7
8.8
1.3
1.3
Belgium
17.5
17.2
Mexico
60.3
60.9
Canada
95.1
92.7
Netherlands
48.5
48.8
Czech Republic
8.7
8.2
New Zealand
4.2
4.2
Denmark
4.6
4.4
Norway
5.8
6.0
Finland
4.7
4.3
Poland
16.3
16.4
France
46.1
44.5
Portugal
4.7
4.8
Germany
98.0
92.6
Slovakia
6.3
6.1
Greece
4.2
3.5
Hungary
13.1
11.3
Iceland
Ireland
5.2
5.0
84.9
78.1
103.5
100.1
Italy
Japan
Luxembourg
2008
Spain
38.2
33.9
Sweden
0.9
1.2
Switzerland
3.4
3.3
Turkey
36.6
35.1
United Kingdom
99.0
90.8
657.8
646.6
United States
OECD/IEA, 2010
Source: IEA statistics.
The effects of the economic crisis were particularly felt during the first half of 2009, during which
OECDgasdemanddroppedsubstantially:thedeclineeasedthereafter.Duringthefirsthalfof2009,
OECDdemandfellbyover5%withthemostdramaticdeclinesinEurope(8%)andPacific(6%).Over
thesecondhalfof2009,demandcontinuedtodeclineoverthepreviousyeardespitewhatseemed
animprovementintermsofrelativedecline;onlythemonthofDecember2009showedincremental
gasdemandgrowth.Thetwofirstmonthsof2010seemedtocontinuethistrend,withdemand8%
higherthanthesameperiodthepreviousyear.Thisincreasehastobeviewedwithcautiondueto
theexceptionallycoldweatherinmostOECDcountries.
146
OECDMonthlyGasDemandVariations
10
bcm
10
Source: IEA, Monthly Gas Statistics.
Lookingattheyearonyeardifferencescansometimesbemisleadingasseasonality(higherdemand
duringwintermonthsandthereforehigheryearonyeardifferences)canmasktherealtrend.Thus,
inordertoanalysetrends,onehastolookatdemandcorrectedforseasonaleffectssuchasweather
andnumberofworkingdays.
SeasonallyAdjustedDemandTrends
In order to improve the identification of turning points in demand, yearonyear comparisons of
widelyoscillatingseriesareoftenaccompaniedbytheanalysisofseasonallyadjustedvalues.When
the regular seasonal variations and large deviations from average weather are taken into account,
additionalinsightintotherecentdevelopmentsindemandcanbegained.
AccountingforSeasonalEffects
OECD/IEA, 2010
Natural gas demand in the majority of OECD countries varies significantly from month to month,
exhibiting seasonality. This is a common phenomenon and can arise from natural factors such as the
weather, length of the day, but it is also affected by administrative (e.g. school year), cultural (e.g.
holidayperiods)andcalendareffects(e.g.thenumberofworkingdaysinagivenmonth).Temperature
is clearly the main contributor to seasonality in gas demand, but the size of other effects is also
significant according to this analysis. Seasonality complicates the interpretation of trend dynamics for
gas demand by making it impossible to compare directly the values of adjacent months. The
conventionalsolutionisyearonyearanalysisbutthismethoddoesnottakeintoaccountdemandinthe
11monthsbetweenthecomparedtimesandhasbeencriticisedforproducingdelayedidentificationof
turningpoints.Turningpointsingasdemandareofparticularinterestattimesofdramaticchangesin
themarket;whennoticed,theycanfeedintopolicydecisionsandbusinessplanning.
147
Accounting for Seasonal Effects (continued)
Awellestablishedwayofidentifyingturningpointsandtrends,whichoftencomplementsyearonyear
comparisons, is seasonal adjustment. Theapproach is based on thedecomposition of raw values into
trend,seasonaleffectandanirregularcomponent:
Demand=Trend*Seasonal*Irregular
In this calculation, the trend and the seasonal components are evaluated by an AutoRegressive
Integrated Moving Average (ARIMA)based method of estimating unobserved components, based on
maximising the variation of the irregular component.3 Dividing the original demand by the estimated
seasonaleffectsproducesseasonallyadjustedvalueswhichcontainthenoiseandarenotassmoothas
thefittedtrend.
CorrelationofDemandandHeatingDegreeDaysinOECDEurope
80
600
Demand
HDD
70
500
60
bcm
300
40
30
NumberofHDD
400
50
200
20
100
10
Source:IEA.
Analysisfocusesonthetrendbecauseitdrivesthetotalvalue.Forinstance,a5%increaseinthetrend,
resultsinthesame5%increaseinthetotal.Onehastobeawarethoughthattrenddynamicsarean
indicator of the next, not current, year growth rate. For example, if the monthly trend grew (very
linearly) by 1% between January and December of Year 2, it does not follow that the annual
consumption in Year 2 is 1% higher than in Year 1, because in the intermediate months, it was
somewherebetweenthestartandtheendlevel.However,itdoesimplythatifthetrendcontinuesat
the same rate during all the months of Year 3, the annual demand will grow by 1% as well. This is
assuming stable seasonality which seems to be a reasonable assumption for gas demand. For this
analysis, a preadjustment procedure to remove the effect of large deviations from the average
temperaturehasbeenusedforthefollowingreason:ifoneseasonallyadjuststherawdemandvalues,
the method will identify the average seasonal pattern, but then the trend will be affected by large
deviations from the normal weather. For the purpose of this analysis, the interest is mainly in the
longertermprospectsofdemandthanshortlivedpeaksduetofluctuationsintemperature.
OECD/IEA, 2010
European Statistical System Guidelines on Seasonal Adjustment, Eurostat, 2009.
148
Gas demand in OECD Europe has been steadily increasing over the period 19962008. This trend
abruptlystoppedmid2008whengasdemandfellsharplybetweenSeptember2008andNovember
2008,roughlytothelevelofearly2004,butthenquicklyreturnedtothepreviouslongtermgrowth
path.Oneinterpretationisthattheeconomic crisisexposedthesystem toa shock,whichbrought
demand down significantly. However, the fundamentals, which had been historically driving gas
demand up, are still present or recovered so that gas demand has resumed its growth. Since fuel
demandisoftenconsideredtodependonthelevelofeconomicactivity,itisinterestingtonotegross
domesticproduct(GDP)inEU27(alsoseasonallyadjusted)startedgrowingfromthethirdquarterof
2009,albeitatveryslowquarterlyratesof0.3%,0.1%and0.2%duringthetwolastquartersof2009
andfirstquarterof2010.4Thefittedtrendindicatesthatmonthlydemandgrew2.6%fromJanuary
2009 to January 2010, which suggests that recovery of annual demand could potentially happen
quickerthanmostobserverssuggest.
OECDEuropeRawDemand,SeasonallyAdjustedDemandandTrend
80
70
60
bcm
50
40
30
20
10
Rawdemand
Seasonallyadjusted
Trend
Source: IEA.
OECD/IEA, 2010
Looking more closely at the dynamics of the seasonally adjusted demand in 2009, it appears that
spring 2009 saw the lowest level of gas demand over the period mid2008 to early 2010. Several
factors can explain that gas demand bottomed during that period: industrial production also
bottomedinseveralcountriesinspring2009andthatperiodisgenerallyrecognisedasthenadirof
the recession in many IEA countries, while both NBP prices and oillinked gas prices were still
relativelyhigh.ThelinealsopointstoJune2009asthefirstmonthofsubstantialincreaseindemand.
Interestingly, the high consumption in January 2010 in Europe does not appear to be as extreme
4
Eurostat data.
149
whentheverycoldtemperatureistakenintoaccountbythemodel.Consumptionhaseffectivelynot
beengrowingbetweenJuly2009andJanuary2010.
Thus, the overall demand trend and the seasonally adjusted values point to somewhat different
paths of recovery, differing by region, reflecting a hesitant recovery. This uncertainty will probably
becomegraduallyresolvedasmoredatabecomeavailable.
TrendoftheLastTwoYearsinOECDEurope
8000
47
6000
46
4000
45
44
2000
43
Trend,bcm
YOY,bcm
2000
4000
42
6000
41
8000
YOY
Trend
Seasonallyadjusted
40
10000
Source: IEA.
IndustrialSector
OECD/IEA, 2010
Gasdemandcollapsedintheindustrywithsomedifferencesacrossregions.Estimatesofsectoralgas
demandtrendsarenotyetavailableforallcountries,buttheevolutionofindustrialproductioncan
give an insight on how industrial gas demand has evolved during 2009. Switching from refined
products to gas is structurally limited, and not encouraged by recent price developments, so that
industrial production remains one of the best indicators. Based on OECD indices for total industry
production,allOECDcountriessawtheirtotalindustryproductiondeclineabruptlyby11.9%5in2009
comparedto2008,theworstdeclineinover40years.ThemostextremewasinJapan(22%).Major
economies such as Germany, Italy, and Spain also saw a sharp drop, between 15% and 20%;
productionintheUnitedStatesandtheUnitedKingdomdroppedbyaround10%.
5
Based on OECD indices on total industry production, which take 2005 as the reference year (100).
150
This translated almost directly into gas demand falls from industry in 2009, mostly during the first
half of the year. Although the second half started to show some slight improvements, one has to
rememberthatthecrisiswaswellengagedduringthesecondhalfof2008.Thusitisnotsurprising
whenmakingmonthonmonthcomparisons,thedeclineratesseemtobelevellingout.Despitethe
lack of a complete OECD picture, preliminary data indicate that OECD industrial gas demand has
declinedbyaround10%.IntheUnitedStates,industrialdemanddroppedby8%anddespitesome
improvingeconomicperspectives,industrialgasusewasstillwellbelow2008levelsuptoDecember
2009. This is in line with the still declining production indices. Starting from December 2009, an
improvement in industrial gas demand is evident. In the United Kingdom, industrial demand
plummeted by 22%, continuing a trend started last decade: 2009 industrial gas demand was 32%
lowerthanthatin2005and44%lowerthan2000.Germanysindustrialgasdemandisestimatedto
have collapsed by 10%, while French industrial and power consumption declined by 2%.6 Dutch
industrialgasdemanddeclinedby7%mostlyduringthefirsthalfof2009.Spainsconventionalgas
demand(excludingpowergeneration)declinedby17%inlinewithasimilardropinindustryoutput.
ThesituationseemstobereversinginanumberofcountriesaccordingtotheOECDindicesontotal
industry production, suggesting a partial recovery in this sector in 2010. Still, permanent demand
destructions are likely to be seen in this sector due to factory closures; this will leave shortterm
industrialgasdemandatlowerlevelsthanin200708.
ResidentialSector
Residential demand is mostly influenced by the temperature; winter 2009/10 was certainly one of
thecoldestinmostOECDcountries.Thegraphicbelowshowsthesumofheatingdegreedays(HDD)
forthekeywintermonths,DecembertoFebruary,forthreeperiods:winter2009/10,winter2008/09
andtheaverageofthefivepreviouswinters.
As shown, winter 2009/10 was colder than the previous year, except for Spain, Turkey and North
America. Even in North America, some regions were heavily affected by colder weather well into
2010.Crucially,winterhasbeencolderthanthefiveyearaverageformostcountries,exceptSpain,
TurkeyandJapan.InSpainandJapan,residentialgasdemandrepresentshoweveraverysmallshare
of total demand, around 10%. The increase in HDD is astonishing for Germany, Poland and the
UnitedKingdom.GermanyandtheUnitedKingdomhaveahighshareofresidentialdemandwhich
representsaround36%and33%respectively,soanyvariationinthissectorhasmajorimplications
fortotalgasdemand.PeakdailygasdemandbrokerecordsintheUnitedKingdominJanuary2010
reachingan unprecedented470Mcm/d(equaltoanannualrateof172bcmperyear(bcm/y)).US
residentialgasdemanddeclinedby2%.Frenchgasdemandfromresidential,commercialandsmall
users declined by 5% on the back of annual HDD decline by 2% and high gas prices. Temperature
corrected consumption for these sectors shows demand declining by 6.7%. German residential gas
demandisestimatedtohaveincreasedby3%.
OECD/IEA, 2010
Sources :United Kingdom - Department of Energy and Climate Change; Germany - Ag-energiebilanzen; France - Ministry of
Ecology, Energy, Sustainable Development and the Sea.
151
HeatingDegreeDaysinVariousOECDCountriesandRegions
2500
Fiveyearaverage
W09/08
+17%
2000
W10/09
+4%
+7%
+17%
1500
+20%
+9%
+1%
3%
1000
3%
16%
500
OECD Germany
Europe
Italy
Poland
Spain
Turkey
United
Kingdom
Japan
Korea
OECD
North
America
Source: IEA.
It seems that the residential sector was less affected by the economic crisis. There were,
nevertheless, some strong indirect effects: consumers saw their incomes declining or faced
unemployment while their energy bills increased. This was particularly the case during winter
2008/09 during which residential gas prices were high. Prices declined in most OECD countries
starting in the second or third quarter 2009. The high price level is likely to have resulted in
residential users starting their boilers later in the fall or switching them off earlier in April, and
loweringthethermostatduringthewholeheatingseason.
PowerGenerationSector
OECD/IEA, 2010
Onesectorattractseveryonesattention:thepowergenerationsector.Thissectorhasthepotential
toprovidethebiggestvariationsfromoneyeartoanother,andisthebiggestuncertaintyforfuture
gasdemand.GasuseinthepowergenerationsectorinOECDcountriesin2009hasbeenaffected,
first of all by the 4.2% decline in electricity production induced by the economic crisis, a demand
declineunprecedentedsincetheSecondWorldWar.Indeed,fossilfuelgeneration,whichrepresents
twothirdsoftotalgeneration,accountedfor420TWhofthe450TWhdeclineinpowergeneration.
ThisismorethanUKelectricitydemandandslightlylessthanKoreas.Meanwhilehydroandnuclear
declined by only 2% and 1.5% respectively, reflecting their low shortterm marginal cost. Only
renewablegenerationincreased,by18%,onthebackofgrowthofwindcapacity.However,thisstill
representsasmallshareoftotalelectricitygeneration.
Fossilfuelsareusuallydispatchedafternuclear,hydroandrenewablewhicharemustruncapacity.
In2009,gashadtocompeteagainstcoalforashrinkingpartoftotalelectricitygeneration.Inmost
countries, high gas prices did not allow gas to hold its ground versus coal: coal prices plummeted
152
fromabove$200pertonnemidlate2008toaround$60pertonnebymid2009(althoughtheyhave
sincerisenbacktoaround$90pertonne)whileoillinkedgaspricescontinuedtoincreaseuptoend
2008 and remained above $7/MBtu in 2009 with an increasing trend since then. This usually puts
gasfiredpoweratadisadvantageinthemeritorder,especiallyinContinentalEuropeforcompanies
thatdonothaveaccesstocheapspotgassupplies.
Thetwoextremeexamplesofhowfuelpricesandnonfossilfuelgenerationcanaffectgasdemand
canbefoundintheUnitedStatesandSpain.IntheUnitedStates,gaswonmarketsharefromcoal
due to the extremely low Henry Hub prices (HH) during most of 2009, which supported the
preferential dispatch of gas versus coal in some regions during much of 2009. Gas demand in this
sector increased by 3% as a result. Low spot prices, however, did not help gas use in the United
Kingdom as electricity consumption declined while nuclear and wind generation increased. The
17.5%dropincoalgenerationdidnotpreventgasgenerationfromalsodroppingby8.2%.Theother
extreme case is Spain where gas use by power generators plummeted by 15% in 2009, but this
partally reversed a 33% increase seen the previous year due to extremely low hydro levels. As
highlighted in the Natural Gas Market Review (NGMR) 2009, Spanish gas demand for power is
extremelyvariable:despitethemassivebuildofgasfiredcapacitysince2000,gasisdispatchedafter
hydro, wind and nuclear which represent around 40% of total generation. The strong seasonal
variationsofwindgenerationrequiresignificantflexibilityfromthegasfiredplants,leadingtowide
dailyandannualdemandswings.Furthermoregas isimported underlongtermcontracts, someof
whichhaveoilindexedformulae.
Non-OECD Demand Trends
ThedemandpictureinnonOECDcountriesisastudyincontraststosaytheleast.Ontheoneside,
somecountrieshavebeensimilarlyaffectedasOECDcountriesbynegativeeconomicgrowth,falling
industrialproductionorspecificcountryconditionssuchasrenewablesavailability.Amongthemost
noticeable drops, Russia the worlds second largest market saw its gas demand fall by an
estimated 6% on the back of falling industrial demand. Brazilian gas consumption had been
increasingrapidlyoverthepastdecadebutneverthelessfellby22%duetohighhydroproduction.
Ukraineseconomicdeclinewasamongtheworstgloballyofanymajorcountry,anditsconsumption
dropped substantially. The economic crisis has also particularly affected demand in nonOECD
Europeancountries,whereconsumptionisestimatedtohaveplummetedby15%.
Thereareneverthelesssomeexceptionstothistrend:somenonOECDcountrieshaveseenpositive
economic growth or increasing supply. In particular, Chinese gas demand increased by 9bcm to
87.5bcm,an11%increase.InChina,moreandmoreresidentialcustomersareusinggasasaheating
fuel,eveninthesouthofthecountry.Thiscreatedsomesupplyissueswhenpeakdemandjumped
aboveavailablesupplylatein2009.Indianconsumptionisestimatedtohaveincreasedby10bcmto
53bcm.7TheIndianstoryisabitdifferent:thecountryhasalwaysbeensupplyconstrainedandthe
startofthegiantKrishnaGodavarifieldenabledmoresuppliestobeavailabletotheIndianmarket.
Inparticular,fertiliserproducersandpowergeneratorshavebeenusingmoregas,reducingsharply
oilproductsuse.
OECD/IEA, 2010
Source: Petroleum Planning and Analysis Cell (PPAC) and statistics from the Ministry of Energy. Consumption is based on the
fiscal year (1 April31 March).
153
Supply Trends: the Boom and the Bust

Twosupplyrevolutionstookplacein2009:thestartofthemuchawaitedandunprecedentedriseof
LNG liquefaction capacity and the continuation of the growth of unconventional gas. The first one
was clearly anticipated by markets; despite delays and technical issues, the construction of LNG
plantsisdifficulttomiss.Thegrowthofunconventionalgaswasthecontinuationofaphenomenon
that started long ago, but really began to accelerate in 2006 and 2007, catching many industry
observersoffguardbybothitsvolumeoverthepastthreeyears.ThefactthatunconventionalUSgas
productionwasboomingdespitealloddswhilethenewLNGliquefactioncapacitywasarrivingslowly
butsurelyontomarketsputanotherlayerofsupplyonworldproductioncapacity,whichwasalready
muchhigherthandemand.Thesethreetrendshavecausedweakpricesandthecurrentoversupply,
thegasglut.
The Gas Glut
As world gas demand declined by over 3% in 2009, inevitably, supply had to adjust. Beyond the
naturaldeclineofgasproductioninContinentalEuropeandintheUnitedKingdom(UKgasoutput
fell more than 15% in 2009), some gas producers had to curtail their gas production: despite their
higher production potential, they were unable to find demand for their gas in their traditional
markets and could not find alternative markets. Russia, Turkmenistan and Canada are examples of
countries that were forced to curtail production. Meanwhile, some producers maintained their
marketshare,ifnotthevolumessupplied,andafewreinforcedtheirpositionorenteredthemarket.
Globally,LNGsupplyincreasedalbeitmodestlyby5.3%(around12bcm),whileUSgasproduction
increased by 3.3% (19bcm). In the importing regions or countries, pipeline exporters (especially
those exporting at oillinked gas prices) confronted not only weaker demand because of the
economybutalsostiffcompetitionfromcheapersourcesofsuply:inEurope,pipelinesuppliesfrom
Russia and Algeria were displaced by LNG or Norwegian pipeline gas; in North America, LNG and
Canadawerethevictimsoftheproductiongrowth.
However, the capacity to produce more was there: the surplus capacity on the production side is
estimatedtobeover200bcmin2009.TheupsidewaslimitedinOECDcountriestoaround30bcm
asonlyafewcountries,suchasCanada,AustraliaandtheNetherlands,couldhaveproducedmore.
TheupsidecomesmainlyfromnonOECDproducers.Afewcountrieshadplannedtoincreasetheir
productionbutcouldnotduetolackofbuyers.ThisgroupincludesRussiaandTurkmenistanwhose
combinedproductiondroppedbyaround115bcmandafewLatinAmericancountries.Othersfaced
technicalissues,suchasAlgeriaorNigeriawhoseproductiondroppedbyanestimated13bcm.
OECD/IEA, 2010
Thedauntingquestionfacedbythegasindustryishowlongthegasglutwilllast,knowingthatupto
110bcmofLNGsupplywillarrivebytheendof2013,basedonplantscurrentlyunderconstruction
and those recently completed. The duration of the current gas oversupply depends on several
factors, but the two most important ones are economic growth over the upcoming years and the
evolutionoftheroleofgasinthepowermix(aswellasrelativefuelpricesinthedifferentregional
markets). The gas glut will play out differently in different markets, with supply/demand balance
expectedtotightenfasterintheAsiaPacificregioncomparedtotheAtlanticregion.
Theglobalgasglutconsistsofsomepartsofsupplythatarefungible(suchasflexibleLNG)andsome
partsthatarenot,suchaslargescalepipelinecapacityfromRussiatoEurope.InEurope,itishardto
see tight supplies before 2015, despite the continuous decline in UK gas production (only partly
compensated by Norwegian growth). But the situation is less clear in Asia and the Pacific. For
example,ChineseandIndianLNGdemandgrowthcouldreallybiteintoLNGsupply:indeed,withina
154
fewyears,bothcountriescombinedwillbecapableofimportingaround65bcmannually,whilethey
started importing LNG only in 2006 and 2005, respectively. This level would be similar to that
imported in 2009 by OECD Europe. Other Asian countries such as Thailand and Pakistan are also
seeingtheirdemandincreasequicklywhilegasdemandinMENAisexpectedtoincreaseby100bcm
between2008and2015.8
The IEA foresees a weak recovery in European gas demand, on the back of a feeble economic
recovery,andincreasingrenewablepowerintotheEuropeangrid.Therefore,theunderutilisationof
thesepipelinesislikelytocontinueforsometime,likelywellintothisdecadewhilesomeadditional
pipeline and LNG capacity will be added over the 201015 period. Abundant gas is already putting
strong downward pressure on gas prices in markets where prices are generally oillinked. North
America, with plentiful unconventional gas plus underutilised Canadian pipeline and production
capacity,seemslikelytobewellsuppliedwithouttheneedforthelargescaleLNGimportsthatwere
anticipated,evenasrecentlyasfiveyearsago.USLNGterminalshavebeenutilisedatonly10%over
the past two years. However, a key question is whether prices will stay at the current $45/MBtu,
whichisverylow,especiallycomparedtooil.Asnotedearlier,suchlowpricelevelshavehelpedgas
todisplacesomecoalfiredpowerin2009,notablyinthesummer,thusraisingdemandinthepower
sector,andtorebalancemarkets.
InAsiaandthePacific,itisclearthatChineseandIndiangasdemandisgrowingfast,andthatmany
playersarewillingtoinvestinnewsupplyinfrastructureforthosemarkets.Thelargecommitmentto
the Gorgon project in Australia in 2009, for delivery in 2015, as well as the high interest in other
AustralianLNGprojects,isevidenceof that.MoreQatariLNGseemslikelytohead easttoo.China
hasproveditsabilitytorapidlyrampupenergydemandinoil,andinimportedcoaltoo.Thesameis
quite possible for gas; in any event, China will, by well before 2015, use more gas than any OECD
countryexcepttheUnitedStates.Therefore,gassuppliesinthePacificseemlikelytotightenmore
quicklythaninEurope.
As mentioned before, there is a high potential that gas demand could recover more quickly than
expected, particularly in the power generation sector, even in the OECD region. There is around
800GWofgasfiredpowerintheOECD,whichisusedataroundacapacityfactorof35%.Ifthese
plantswereusedtomeeta1%increaseinOECDpowerdemand(100TWh),gasdemandcouldbe
expectedtoincreasebyaround25bcm.Toputthesenumbersincontext,hydrogenerationcanvary
by50TWhfromoneyeartoanother,a1.6GWnuclearpowerplantrunningbaseloadwillproduce
upto13TWh.Furthermore,ifthepowerdemanddropseenin2009of450TWhwasentirelymetby
reducinggasfiredpower,itwouldrepresentmorethan100bcmofreducedgasdemand.
Oil Versus Gas Drilling
OECD/IEA, 2010
Anotherfactorisatworkontheproductionside:thepreferenceforoilovergas.Withoilpricesat
$7080andspotgaspricesat$4/MBtu(oraround$25oilequivalent),someproducersmaytendto
drillmoreoilthangaswells,whichmaythenhaveanimpactonfuturegasproduction.However,this
phenomenon has happened mostly in North America as can be seen on the graphic below, which
shows the oil and gas rigs internationally, as given by Baker Hughes (Europe, Middle East, Africa,
Latin America, Asia and North America). While the number of gas rigs does not seem to have
recoveredasmuchasoilrigs,theexclusionoftheUnitedStatesandCanadafromthiscountshowsa
different trend with both oil and gas rigs coming back to the levels seen mid2008. The strongest
declinestookplaceinEurope,AsiaandLatinAmerica.Thiscanbeexplainedbythepricemechanisms
8
World Energy Outlook (WEO) 2009, Reference scenario.
155
prevailingineachregion.Obviously,theNorthAmericanmarket,wherespotindexationprevailsand
where gas prices have plummeted, sees a direct, rapid reaction to the spot price collapse. Europe,
where spot indexation is gaining ground, also saw an effect of lower spot prices on gas drilling. In
other regions, prices are regulated so that the spot gas price movements have less impact than
governmentdecisions.
OilandGasRigsintheWorld
2500
Oil
Gas
2000
OilexcNA
GasexcNA
1500
1000
500
0
1/00
1/01
1/02
1/03
1/04
1/05
1/06
1/07
1/08
1/09
1/10
Source: Baker Hughes.
OECD Regions
ThethreeOECDregionsarenetgasimporters:theirtotalproductionrepresentedjustbelow40%of
globalgasproductionwhiletheyconsumedjustunderhalfoftotaldemandin2008.In2009,OECD
production declined slightly by 0.7% or around 8bcm, much less than the 50bcm demand drop in
theOECD.ThismeansthatmostofthesupplyreductionwasbornebynonOECDproducers;some
facednotonlylowerdemandintheirdomesticmarketbutalsoreducedexportrequirements.
OECD/IEA, 2010
Production increased both in OECD Pacific (5.1%) and OECD North America (0.7%) but declined
sharply in OECD Europe (5.4%). US domestic production increased by 19bcm, after some revisions
fromtheEnergyInformationAdministration(EIA)whichhadinitiallyoverestimatedunconventional
gas production from small producers. This does not diminish the fact that unconventional gas
productionincreasedintheUnitedStates,despiteadeclineinthenumberofrigsandpricesfalling
sharply.ProductionfallsinCanadapartlyoffsettheseUSproductiongains.NorthAmericaproduced
morethanitsactualconsumption(803bcmversus800bcm),thebalancegoingtobuildrecordgas
storage levels. The key question for the following years is how much North America will need to
156
import (via LNG), and whether, and how much LNG can displace the most expensive conventional
nonassociatedgasandunconventionalgas.
OECDEuropesproductiondeclinedby5.4%,a16bcmdrop,whichstemsfromthecontinuoussharp
declineofUKgasproduction(11bcm),asmalldeclinebytheswingDutchsupplier(5bcm)andsome
limiteddrops(around1bcm)inGermany,ItalyandDenmark.Thesedeclineswerepartlyoffsetbyan
increase in Norway of 4bcm. Norwegian production grew less than in 2008 (10bcm) due to the
European gas market conditions. Production from major fields such as Troll and Sleipner dropped.
OrmenLangesproductioncontinuedtoincreaseandreacheditsplateauof20bcmin2009.
ThefactthatNorwaymanagedtoincreaseproductionanddeliveriestoadecliningmarketprobably
reflects the countrys marketing and price strategy. Indeed Norway exports almost entirely to
WesternEuropewiththelargestvolumessoldtotheUnited Kingdomand totheGermany/Austria
region. Sales to the United Kingdom declined slightly (by less than 1bcm) from 2008 to 2009.
Althoughtheyincreasedby18%duringthefirsthalfof2009,theyalsodeclinedby20%duringthe
second half, displaced by new LNG arriving at South Hook and Dragon. Sales to Germany/Austria
increased by 5bcm, mostly at the expense of Russian imports. Sales to France, the United States,
SpainandEasternEuropeincreasedaswell.ThissuggeststhatNorwegiangashasbeensoldatlower
pricesonthespotmarketanddisplacedmoreexpensivegassuchasRussianorAlgeriandeliveries.
NorwegianExportsin2008and2009byQuarter
30
25
bcm
20
15
10
0
Q12008
Q12009
Q22008
Q22009
Q32008
Q32009
Q42008
Q42009
BENELUX/Denmark
EasternEurope
France
Austria/Germany
Italy/Switzerland
Spain
UnitedKingdom
UnitedStates
OECD/IEA, 2010
Source: IEA statistics.
In OECD Pacific, Australian domestic production increased by 2.5bcm, which translated into
increasedLNGexportsassuppliestothedomesticmarketdroppedby1bcm.Althoughalargepart
oftheproductioniscurrentlyconsumedinthecountry,AustraliaisalreadyasignificantLNGexporter
157
withover24bcm/y.ItsglobalroleissettoincreaseastwonewLNGliquefactionplants,Plutoand
Gorgon, will start late 2010/early 2011 and 2015. Australia has the highest additional LNG export
potentialwithwellover100bcmofplannedliquefactioncapacity.Finalinvestmentdecision(FID)on
newLNGprojectsseemslikelyin2010and2011.
Non-OECD Regions
Supplyin nonOECDregionsisestimatedtohavedeclinedbyaround100bcm,butglobalnumbers
maskmanydisparities.ThelargestshareofthisdeclinehasbeenbornebyRussiawhoseproduction
declined by 12% or around 82bcm. Turkmen gas production also declined as its exports to Russia
(over 40bcm/y in 2007 and 2008) were cut over a ninemonth period. Turkmen gas production is
estimatedtohavedeclinedfrom71bcmin2008toaround3542bcmin2009duetolowerexports
and less gas used for compression. Other countries have seen more limited declines. Brazilian
domestic gas production declined by 19% while imports plummeted by 29%. Production also
declinedinBolivia,duetolowerexportstoBrazilandinArgentina.DespitetheglobalincreaseofLNG
trade in 2009, some LNG suppliers such as Nigeria saw their exports declining mostly due to
upstream or political issues. There were also some limited export declines (less than 1bcm) from
Indonesia,AbuDhabi,Egypt,andBruneiduetothedropofdemandintheirtraditionalmarkets.
But as observed with demand, the declining trend is not happening in all markets. Some growing
marketswitnessedanincreaseofproduction:China,andparticularlyIndiawiththestartofKrishna
GodavarifieldinApril2009.QatarsawasignificantjumpofitsproductionwiththestartofthreeLNG
trainsin2009,whileYemencommencedexporting.
Are Gas Markets Globalising?

Theanswertothisquestionisyes,theyareglobalisingandtheuseofthepresentprogressivetense
in this sentence is deliberate. Markets are not globalised yet: twothirds of global gas is still
consumed in the country where it is produced and parts of the world are relatively exempt from
globalmarketinfluences.LNGisthegluelinkingdifferentpartsoftheworldtogether.
Recently, China became physically linked by pipeline to the Caspian region and thus to Russia and
Europe.Otherpartsoftheworldarebecomingnewlyconnected:LatinAmericathroughitsnewLNG
terminals, China due to its growing appetite for LNG (and to a lesser extent India) and the Middle
East which started operating its first LNG import terminal in Kuwait in July 2009. As LNG trade
resumeditsgrowthin2009andmoreLNGissettocomeonlineoverthenextyears,gasmarketswill
increasinglyinteractwitheachother.Twoofthethreetraditionalregionalmarketsareincreasingly
connected:thepriceconvergencethatmanyanalystshadbeenanticipatingcanbeclearlyseeninthe
linksbetweentheUnitedKingdomandtheUnitedStateshubpricessincespring2009.
OECD/IEA, 2010
TheUnitedStateshascurrentlyalmostwithdrawnfromtheLNGtradingpicture;thisdoesnotmask
thefact that theyremaintheresidual marketwhereLNGwill competeagainstthemostexpensive
conventionalandunconventionalgasproduction.InEurope,someuncontractedorflexibleLNGwill
compete against pipeline supply. Europe, whether it has noticed it or not, is now effectively
competing with China for LNG supplies and also for Caspian gas. Indeed, growing and flexible LNG
productionfromtheMiddleEastmeansthatthesesupplierscanequallytargetAsian,Europeanand
NorthAmericanmarkets,ortheChinesemarket,whichhasrecentlyproventhatitwaswillingtopay
higherprices(over$6/MBtu)thanthoseinEuropeorintheUnitedStates.
158
GlobalisationofGasMarkets
Source: IEA.
Globalisationcanbealsoexaminedthroughtheinvestmentprism:developmentsinonepartofthe
world now have widespread consequences. The reversing of the supply situation in North America
notonlydroveawayproducingcountriesthathadbeenlookingatthismarket,butalsohadregional
consequences for import terminal projects. One import terminal project in Canada was even
transformedintoanexportproject.
OECD/IEA, 2010
Despitetheglobalisation,thereisahighgeographicalconcentrationintermsofresources.In2008,
morethanhalfoftotalgassupplywasproducedinfivecountriesandmorethanhalfofgasexports
werefromfivecountries.Thiscomparestoalowerconcentrationofcrudeoilproductionandexports
of 43% to top five countries. Concentration is even higher in LNG: 62% was exported from five
countries.Thesefigureswerehigherin1990:68%ofgasproduction,80%ofgasexports,and92%of
LNG exports were from five countries. In 2009, the ranking changed: the UnitedStates overtook
RussiaowingtoUSproductionincreaseandthecollapseofRussianproduction.Qatarovertookboth
Algeria and the Netherlands while Indonesia dropped below China. Among the exporters, Russia
remainsthelargestdespiteitsweakerperformancein2009,whileQatarjumpedfromthefifthtothe
third rank. Turkmenistan has probably observed the biggest fall among these exporters as exports
areestimatedtohavebeenaround20bcm.
Butgasdemandisalsohighlyconcentrated.WhilesomemainconsumerssuchastheUnitedStates,
Russia,andIranarealsolargeproducers,manydifferencesarisewhenonelooksatcountriesbelow
thethirdrank.Findingthelargestdevelopedcountries(fromapopulationandindustrypointofview)
in this list is not a surprise. More surprising is Ukraines 10th position, which is largely due to the
inefficiency of its gas sector. Chinas rank will be higher in 2009 as it overtook Italy and is set to
159
overtakeGermanyandtheUnitedKingdomandpossiblyJapanby2010:thatwouldputChinaatthe
fifth, potentially fourth position among gas consumers a dramatic change from the 28bcm
consumedin2000.
ConcentrationinGasProduction,ExportandLNGExportin2008(bcm)
Production
Export
LNG Export
Russia
665
Russia
195
Qatar
39
United States
575
Canada
103
Malaysia
31
Canada
175
Norway
96
Indonesia
28
Iran
130
Netherlands
62
Australia
21
Norway
102
Qatar
58
Nigeria
21
Netherlands
84
Algeria
57
Algeria
20
Algeria
82
Turkmenistan
54
Trinidad and Tobago
17
Qatar
78
Indonesia
37
Egypt
13
Indonesia
74
Malaysia
28
Oman
11
10
China
72
United States
28
Brunei
10
Total
3 149
942
226
Top 5
52%
55%
62%
Source: Natural Gas Information 2009, IEA.
ConcentrationinGasDemand,ImportsandLNGImportsin2008(bcm)
Consumption
Imports
United States
658
United States
Russia
460
Iran
Japan
United Kingdom
Germany
Canada
95
Spain
Italy
85
United Kingdom
China
78
Turkey
10
Ukraine
67
Korea
LNG imports
113
Japan
95
Japan
95
Korea
37
132
Germany
92
Spain
28
103
Italy
77
Taipei
12
99
Ukraine
53
France
10
98
France
46
India
10
39
United States
10
37
Turkey
37
China
37
Mexico
Total
3 154
937
226
Top 5
46%
46%
81%
OECD/IEA, 2010
Source: Natural Gas Information 2009, IEA.
160
P ART 2: G AS S HORT T ERM D EMAND F ORECASTS
SHORT-TERM DEMAND FORECASTS
Summary
IntheOECD,afterthe3.3%dropin2009,gasdemandisexpectedtorecoverto2008levelsby
2012.In2013,gasdemandwillreach1,578bcm,2%above2008.Gasconsumptionin2010seems
tohavealreadyrebounded,butthisislargelyduetoacolderthanaveragefirstquarter:demand,
particularly in the residential/commercial sector, is estimated to be 10bcm higher than in a
normalwinter.
Thepaceofgrowthwilldifferwidelyamongregions,withOECDEuropeclearlylaggingbehind.
OECDNorthAmericaandOECDPacificshowthestrongestrecoveries.Europeangasdemandwill
recoverto2007levelsonlyby2013butthatlevelwillstillbebelowthatprevailinginthefirsthalf
of2008.
Thepowergenerationsectoristheprimarydriverbehinddemandgrowth.Gasdemandinthis
sector is expected to grow in all regions, despite competition from increasing renewables
generation, nuclear (particularly in OECD Pacific) and coal. Residential/commercial demand is
expectedtostabilise,whileindustrialgasdemandwillreturnto2008levelsin2013.
Recent demand developments underline the need to understand the possible future demand
developmentsintheshorttomediumterm.Asnotedearlier,twomainfactorsoruncertaintiesexist
for future gas demand: the economy how fast and by how much will the economy recover in
different countries and the evolution in the power generation sector. Gas demand levels in any
given countryaretheresultof thehistoricalevolutionofdifferentsectors:residential/commercial,
industry, power generation and uses in the energy sector (such as oil and gas production, LNG
liquefactionorregasification).Theuseofgasasrawmaterial(fertiliser)isincludedintheindustrial
sectorforthisparticularexercise. Gasdemand hasalwaysbeenandremains influenced byvarious
factorssuchasthedevelopmentofthegasgrid,thenumberofresidentialandindustrialcustomers
optingforgas,temperatureinfluencingheatingdemandlevels,behaviourtowardsenergyefficiency,
policy and regulatory decisions leading to a particular evolution of the power generation mix (e.g.
nuclear,wind)aswellaspricesortaxes,andtheavailabilityofdomesticenergyresources.
OECD/IEA, 2010
Economic activity is the primary determinant of natural gas demand. It influences industrial
production and therefore its energy consumption (particularly gas and electricity) as well as
household incomes, commercial activity and to some extent price levels. There is still considerable
uncertaintyonthepaceandextentoftheeconomicrecovery(ifany)acrossregions.Infact,recent
developmentsintheEuropeanregionareaddinganewlevelofuncertainty.AssumptionsonGDPare
based on the latest International Monetary Fund (IMF) outlook, which foresees a recovery of the
globaleconomyby2010withtheworldsGDPincreasingby4.1%in2010andthen4.3%(2011),4.4%
(2012)and4.5%(2013).TherecoverywillbemoresluggishinEuropewiththeeconomyexpectedto
increaseby1.3%in2010butwithstrongergrowthinthefollowingyearsat1.9%,2.2%and2.3%.In
OECD North America and OECD Pacific, economic growth will be stronger: North American
economies will recover in 2010 (+3.2%) and the economic growth will remain strong over the
followingthreeyearsataround2.7%.MeanwhileOECDPacificeconomiesareprojectedtogrowat
around2.6%peryearover201013.
Anotherkeyparameterisfuelprices.AssumptionsoncrudepricesaresimilartothoseinthePart1:
Oilofthisreport.Thesepricesareassumptionsbasedontheprevailingfuturestripandserveasan
161
inputinthemodelbutdonotrepresentforecasts.Nominalcrudepriceswillincreasefrom$77/bblin
2010 to $79 (2011), $81 (2012) and $83 (2013). Coal price assumptions in Europe and in the
UnitedStates are also based on the current curve: they will continue on the increasing trend that
startedmid2009.InEurope,coalpriceswillincreaseprogressivelyfrom$90pertonneto$122per
tonnein2013whileintheUnitedStates,coalpricesincreasefrom$62pertonnein2010to$80per
tonnein2013.Regardinggasprices,assumptionsdifferacrossregions.AssumptionsonHenryHub
prices are based on the forward curve: they are expected to increase from $4/MBtu in 2009 to
$4.5/MBtu in 2010 and then progressively reach $6/MBtu by 2013. In OECD Pacific, gas prices will
remain strongly linked to oil prices: in this case, price assumptions are based on the historical
relationshipbetweenoilpricesandJapaneseimportprices.Inthisregion,gaspricesareassumedto
increasefrom$9.1/MBtuin2009to$11.8/MBtuin2013,reflectingtheincreaseinoilpriceswitha
timelag.AssumptionsregardingEuropeangaspricesreflecttheinclusionofaspotelementinsome
contractformulas:priceswillincreasefrom$8/MBtuin2010to$9.4/MBtuby2013.
Methodology
For these shortterm forecasts, consumption is divided into four main sectors based on the IEAs
annualstatistics(NaturalGasInformation).
The residential/commercial sector includes residential, commercial and public services,

agricultureandnotelsewherespecified(OtherSectors).
The industrial sector includes what is usually categorised as industry (such as iron and steel,
chemicalsandnonferrousmetals)andnonenergyusefromfertiliserproducers.
Thetransformationsectorcorrespondsessentiallytothepowergenerationsectorandincludes
categories such as Main Activity Producer Electricity Plants, Autoproducer Electricity Plants,
MainActivityProducercombinedheatandpower(CHP)Plants,AutoproducerCHPplants.
Other uses include the energy sector, distribution losses and the transport sector (use in
pipelinesorinroadtransport).
OECD/IEA, 2010
As noted earlier, economic growth is the single most important assumption for the forecasts. It is
usedasaprimaryinputintheindustrialsectorandforelectricitydemand.Itdoeshaveanimpactin
theresidentialsectorbutamoreindirectone.Indeed,theresidentialsectorhasacertaininertiaas
consumerswillgenerallychangetheirheatingsystemsonlyaftermorethanadecade.However,their
consumption patterns evolve over time as they react to external changes such as climate change
awareness, but also increasing energy prices, lower incomes or as their social behaviour changes
(morehouseswithfewerpeople).Asweatherremainsthesinglemostimportantfactorbehindthe
yearlychangesinthissector,itisimportanttotakeouttheinfluenceofHDDandtolookinsteadat
theevolutionofconsumptionperconsumerperHDDforthedifferentcountries(orattheevolution
perHDDwhennoreliabledataonconsumerswasavailable).Theresultingtrendhasbeenusedfor
the forecasts. HDD for the upcoming years 2011 to 2013 are based on the fiveyear average. For
2010, real data for the months January to April have been used and the fiveyear average for the
remainingeightmonths.
Intheindustrialsector,production(thereforeGDP)andpricesaretwoessentialcomponentsusedto
determine the historical relationship between gas demand, production and prices, and therefore
future demand path. For gas demand from fertiliser producers, the production forecasts of the
International Fertiliser Industry Association (IFA) and the European Fertiliser Manufacturers
Association (EFMA) has been used as an input for demand forecasts. The transport sector groups
162
bothtransportbypipelineandroadtransport.Forroadtransport,assumptionsonfleetgrowthfor
differentcountrieshavebeenbasedonthehistoricalevolutionofnaturalgasvehicles(NGVs).
Themostcomplexsectoris,unsurprisingly,thepowergenerationsectorasfinalgasconsumptionis
theendresultofmanyiterations.First,oneneedstolookattheevolutionofelectricitydemand,for
whicheconomicgrowthisamajordriver.Thengenerationofrenewables,hydroandnuclearmustbe
subtractedastheyaremustrungeneration.Formostcountries,historicalutilisationratesofthese
different generation types have been used to forecast electricity generated for the years 2010 to
2013, based on power capacity and taking into account new plants or decommissioning of older
plants. It is important to recognise that a rainy or a dry year can have a significant impact on gas
demandinthepowergenerationsector:thedropofBraziliangasdemandin2009andtheincrease
in Spanish gas demand in 2008 reflect these two factors. Finally, the balance between electricity
demandandtheseitemsrepresentsgenerationbyfossilfuels:gas,coalandrefinedoilproducts.
Short-Term Gas Demand Forecasts by Sector

According to this analysis, OECD gas demand is expected to recover to 2008 levels by 2012. OECD
North America and OECD Pacific show the strongest and fastest recoveries. The recovery will be
more sluggish in Europe due to lower GDP. Gas consumption in 2010 seems to have already
rebounded,butthisislargelyduetoacolderthanaveragefirstquartersothatdemand,inparticular
in the residential/commercial sector, shows an estimated 10bcm surplus compared to a normal
winter.Europegasdemandwillrecoverto2007levelsonlyby2013.
OECDGasDemandbyRegion(bcm)
2000
2005
2008
2009
2010
2011
2012
2013
Europe
472
546
557
527
544
533
540
548
North America
791
763
814
800
804
803
820
835
Pacific
131
151
175
169
180
182
149
195
1,394
1,459
1,546
1,495
1,528
1,517
1,549
1,578
Total
Source: IEA.
OECDGasDemandbySector(bcm)
2000
2005
2008
2009
2010
2011
2012
2013
Res/com
486
518
524
522
532
513
513
514
Industry
391
344
343
306
310
320
331
342
Power
382
463
529
516
532
529
548
563
135
134
152
152
153
155
157
159
1,394
1,459
1,546
1,495
1,528
1,517
1,549
1,578
generation
Others
Total
OECD/IEA, 2010
Note: Others include energy, transport and distribution losses.

Source: IEA.
163
Themajordriverbehindthisgasdemandgrowthisthepowergenerationsector,witharound35bcm
of gas demand growth over the period 200813. There will also be growth in the energy and
transport sectors, but other sectors, such as industry or residential/commercial, will show an
absolutedecline.Again,mostoftheuncertaintyisconcentratedonthepowergenerationsector,in
whichgasdemandevolutiondependsnotonlyonhowelectricitydemandrecovers,butalsoonthe
evolutionofthepowermixineachcountryandontheevolutionoftradebetweencountries.
Residential/Commercial Sector
OECD residential gas demand has been growing over recent years, but the main driver has been
relativelycolderweatherratherthanastructuralgrowth.Althoughthenumberofgasusershasbeen
growing relentlessly over past years, individual consumption has been falling progressively due to
progressininsulation,useofnewboilers,anduseofalternativeheatingsourcessuchassolarpanels.
In Europe, the Energy Performance in Buildings Directive was passed in 2002 and implemented in
most member countries.9 The impact of the Directive was estimated as insufficient, so that the
DirectivewasrecastinMay2010;however,newmeasureswilltaketimetobeimplemented.Most
countriesshowdecliningtrendsintermsofindividualconsumptionperhouseholdperHDD.
Asaresult,residential/commercialgasdemandwillremainrelativelystableintheOECDregionover
theperiod200813.Whilethissectorsdemandwillbehigherin2009and2010asaresultofcolder
weatherduringthesetwoyears,itwillrecedeagainin2011duetoassumptionsforHDDbasedon
thefiveyearaverage.Itwillthereforeincreasefrom524bcmin2008to532bcmin2010andreach
514bcm in 2013. Demand is expected to show a slightly positive trend in OECD Pacific while the
trendwillbenegativeinNorthAmericaandOECDEurope(excludingTurkey).
Industry
OECDindustrialgasdemandhasbeenhitbytheeconomiccrisis,morethananyothersector.10Butit
was already affected by trends inherent to that sector such as a shift to light industry or even
services as heavy industry moves offshore, and more energy efficient processes triggered by rising
energy prices over the past decade. A clear proof is the decline of industrial gas demand over the
period200008from391bcmto344bcm.Inmostcountries,industrialgasdemandhasbeenona
decliningtrendwhenreportedrelativetoindustrialproduction.Industrialgasdemandwillnotreach
2008 levels before 2013. Again, the trends will be different depending on the region: both OECD
NorthAmericaandOECDPacificwillseedemandincreasingby5bcmeachover200813,whileOECD
Europewillseedemandactuallydeclineby12bcm.
Demand from fertilisers amounted to 37bcm in 2008. World fertiliser consumption has been
strongly affected by the financial and economic downturn. According to IFA, aggregate fertiliser
consumptionin2008/09droppedbyanestimated6.7%,althoughnitrogen(ammonia,urea)dropped
only by 1.5%. Demand for fertiliser declined in all OECD regions. IFA anticipates a full recovery of
globalnitrogenconsumptionin2010andfurtherincreasesby1.9%/yovertheperiod201013,with
the strongest demand growth in Asia and Latin America. Meanwhile, production of ammonia was
stable and urea increasing slightly, resulting in inventory buildup. Looking forward, there will be a
continuedincreaseofcapacityinAsia,AfricaandLatinAmerica.
OECD/IEA, 2010
The Directive did not fix concrete levels but required setting minimum energy performance requirements for new buildings, as
well as for the large existing ones being renovated, so that it lowered energy consumption in new buildings.
10
This includes demand from fertilisers which represents about 11% of total industry demand.
164
Therefore,gasuseinthissectorinOECDcountrieswillregain2008levelsby201112onthebackof
increased fertiliser demand, and relatively low prices in North America and continue to increase
further,buttheincreasewillbelimitedasthebulkofadditionalfertiliserproductionwillcomefrom
nonOECDcountriesdrivenbytheirhigherdemand,productioncapacityandlowergasprices.Inthe
OECDregion,mostoftheincrementalgasuseinthissectorwillcomefromNorthAmerica,whilegas
demandinEuropewillnotrecoverevenby2013despitethefactthatsomefertilisersaresuppliedat
spotprices.
OECDIndustrialGasDemandbyRegion
450
400
Pacific
NorthAmerica
391
Europe
344
350
343
342
310
300
bcm
250
200
150
100
50
0
2000
Source: IEA.
2005
2008
2010
2013
Power Generation Sector
OECD/IEA, 2010
Powerdemandwillrecoverslowlyfromtheeconomiccrisis,largelybecausetheindustrialsectorhas
beenparticularlyhitandrepresentsoveronethirdoftotalelectricityconsumed.Powergenerationin
OECDcountriesisanticipatedtocomebackto2008levelsbetween2011and2012.By2013,power
generationwillbe2.7%above2008levels.NorthAmericaandPacificwillbebackto2008levelsby
2011butEuropeonlyby2013.
Generationfromhydroisexpectedtoberelativelystableovertheperiod200813asonlyafewnew
hydroplantswillcomeonline,forexampleinTurkey,Canada,Portugal,SpainandJapan.Generation
fromnuclearwillincreaseby3%over200813duetonewplantscomingonlineinKorea(5.5GW),
Finland (1.6GW), France (1.6GW), Japan (1.3GW) and the United States (1.3GW), and some
capacityincreasesinSwedenandMexico.Thiswillcompensatefordecommissioningofolderplants
in countries such as the United Kingdom. Nuclear output in Japan is expected to increase in 2010
withblocksofKashiwazakiKariwastartingagain.
165
Althoughwindandsolarwillstillrepresentasmallshare(3%)oftotalOECDgeneration,theiroutput
willincreaseby55%overtheperiod200813onthebackofincreasingwindcapacity.Outputfrom
windandsolarwillreach308TWhby2013upfrom199TWhin2008.TheUnitedStates,Spainand
Germanywillbethebiggestcontributorstothatincrease,whilehalfoftheincreasewillhappenin
Europeastheregiontriestoreachthe20:20targets(requiringrenewablestorepresent20%offinal
energyconsumptionby2020).Otherrenewableswillalsoshowstrong,albeitlowergrowth,astheir
output will increase by 16% over the 200813 period. They also represent a small part of total
generation,justabove2%.
EvolutionofPowerGenerationfortheOECDRegion
12000
OTHERRENEWABLES
10000
GAS
TWh
8000
6000
4000
OIL
COAL
WIND/SOLAR
HYDRO
2000
NUCLEAR
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: IEA.
After a strong decline in 2009, generation by fossil fuels (gas, coal and oil) will recover over the
period 201013, with total generation reaching 2008 levels (6,409 TWh) between 2012 and 2013.
Again, the growth will be stronger in Pacific and North America, where fossilfuel generation will
increasebackto2008levelsbetween2011and2012;inEuropeitwilllagbelow2008levels.
OECD/IEA, 2010
Refinedoilproductsfacestructuraldeclineinthepowergenerationsector,apartfrompeakloador
inregionssuchasislandswithoutanygasgrid.InmostOECDcountries,oilusetogenerateelectricity
is limited to 1% to 3% of total generation. The exceptions are Mexico (18%), Greece (14%), Italy
(10%),Japan(9%),Spain(6%)andPoland(5%).11Oiluseinthepowergenerationsectorhasdeclined
by 41% over the 200509 period, owing to higher oil prices and decommissioning of old oilfired
plants in countries such as Italy, where they were replaced by new combinedcycle gas turbines
11
Shares in total generation capacity as of 2009.
166
(CCGTs).Thedeclineisanticipatedtocontinuealbeitatslowerrates:by2013,oilfiredplantsoutput
willbe26%lowerthanin2008;in2009,theiroutputhadalreadydeclinedby18%comparedto2008.
Competition between coal and gasfired plants will continue in all OECD regions: gasfired plants
output will increase by 8% over the 200813 period while coalfired plants output will marginally
declineby1%.Butregionaldisparitiesareverystrong:generationfromcoalfiredplantswillincrease
inOECDPacificanddeclineinEurope:thedeclineinEuropewillberelativelystrong(11%)whenone
looksattheperiod200813,butnotifonecompares2009and2013ascoalfiredplantsoutputwill
only decline by 3%. Gasfired plants output will increase strongly in North America (+7%), Pacific
(+10%)butmoremodestlyinOECDEurope(+4%).
Others
Inthetransportsector,demandisexpectedtoslightlyincreasefrom28bcmto30bcmover200813,
withtheincrementaldemandcominghalffrompipelinetransportandhalffromroadtransport.Gas
use for NGVs is particularly interesting and has been attracting attention from leaders and market
players,althoughmostofthegrowthisactuallyhappeninginnonOECDcountriessuchasArgentina,
Iran,orIndia.
For the moment, it is a niche market and will undoubtely remain so during the period considered.
Therewereanestimated700,000NGVsinOECDcountriesin2008,ofwhichover500,000werein
Italy. From the government perspective, there can be several reasons to promote NGVs such as
makingthetransportsectorcontributetonationalCO2reductiontargets,improvingpublichealthby
reducing pollution from traffic in cities or increasing energy security of transport fuels through
domestic production or by diversifying supply. Looking at the period 200913, the total number of
NGVs increases at much lower growth rates than the period 200508 suggests (10%/y) with an
averagegrowthof4%,drivingdemandfrom2.6bcmin2008to3.7bcmin2013.
OECD gas demand in the energy sector amounted to 120bcm in 2008. Twothirds of this
consumptioncomesfromoilandgasextraction,whileinputinoilrefineriesrepresents26%,andthe
restfromuseinliquefaction,regasificationandcoalmines.Demandinthissectorhasbeengrowing
steadily over the past four years and this trend is expected to continue with demand reaching
125bcm in 2013. Consumption related to oil and gas extraction will globally increase by around
2bcm,whileinputinoilrefinerieswillincreasebyanother2bcmasnaturalgaswillberequiredto
produce hydrogenbysteamreforming.InmostOECDcountries, consumptionlinked tooilandgas
extractionwilldeclinewiththemostimportantdropintheUnitedKingdom.Afewcountrieswillsee
remarkable growth, notably Canada due to the doubling of oil sands production from 1.2million
barrelsperday(mb/d)in2008to2.1mb/din2013.LowerincreaseswilltakeplaceinNorwayand
Australia.Hydrogenrequirementswillincreaseduetodesulfurisationofgasoline:requirementswill
increase in particular in North America and Europe but remain stable in OECD Pacific. Fuel
requirementsforLNGliquefactionwillincreaseinAustralia.
Distributionlossesaccountforaround3bcmandareexpectedtostayatthatlevel.
OECD/IEA, 2010
167
P ART 2: G AS M ARKET T RENDSINTHE LNG B USINESS
MARKET TRENDS IN THE LNG BUSINESS
Summary
Global LNG trade grew by 5.3% to 245 bcm (180 mtpa) in 2009,12 thanks to the massive
expansion of LNG liquefaction capacity, mainly from Qatar, as well as switching from Russian
pipelinegastoLNGinNorthwestEurope.
This trend is gaining even greater momentum in 2010, in a market with much less appetite
than anticipated when those projects were sanctioned earlier in the decade. Increased LNG
trade is applying further downward pressure on spot prices, but at the same time giving more
confidence to buyers from OECD countries and emerging markets that additional LNG supplies
wouldbeavailable.
Thestartofthedramaticexpansionofliquefactioncapacity,whichwillseea50%increaseover
200913 has nevertheless been partially offset by the sluggish performance of some existing
LNGexporters.Technicaldifficultieshavebecomethenormratherthantheexception,including
unplannedoutages,feedgasissuesinAlgeriaandNigeria,longrampupperiodsatnewproduction
facilities,whichwerenotedinthepreviousNGMRs.MostLNGisstilltohitthemarket.
Despite the downturn in demand, major new FIDs were taken late in 2009. Other FIDs are
expectedin2010,notablyinAustralia.
MoreLNGmarketsareemergingaroundtheworld,takingadvantageofexpectedincremental
availabilityofLNGsupplyincomingyears,andquickstartfloatingLNGisseeingmoreinterest.
PlentyofnewLNGterminalsareplanned.ChinaisquicklyexpandingLNGimports:afterstarting
importingLNGonlyin2006,2009sawcommercialoperationsattwonewLNGreceivingterminals
(FujianandShanghai)andlongtermcontractdeliveryfromIndonesia,MalaysiaandQatar.
Stronger LNG Growth Buoyed by Liquefaction Expansion

GlobalLNGtradegrewby5.3%to245bcm(180mtpa)in2009,10thankstothemassiveexpansionof
LNG liquefaction capacity, mainly from Qatar. The shares of the Middle East in global LNG exports
andEuropeandAsiaintheLNGimportsincreasedslightly.InEurope,LNGalongwithothersources
ofcheaperspotgasdisplacedsomeRussiangassupplies.Whilethetrendofliquefactionexpansionis
settocontinuein2010,theLNGmarketenvironmenthasalteredmarkedly:theappetiteforLNGin
the United States is much less than previously anticipated by LNG exporters that were originally
targetingthismarketseveralyearsago.Buyersinothermarketsaretryingtotakeadvantageofthese
newvolumes.Atthesametime,supplyproblemscontinueincertainLNGexportingcountries.
OECD/IEA, 2010
TheglobalLNGmarketexpandedbyaround50%infiveyearsfrom2002to2007,followedbyalmost
nogrowthin2008andearly2009duetoupstreamissuesinmajorproducingcountries,particularly
Nigeria and Algeria. The market then returned to a relatively strong growth in the second half of
2009evenastheglobalgasmarketcontracted.Another50%liquefactioncapacityexpansioniswell
underwaywithinthe200913period.Whetherthiswilldirectlyleadtoacomparativeexpansionof
globalLNGtradeisanotherquestion.Indeedmanydelayshavebeenobservedforthestartofthese
newLNGplants,aswellasunplannedoutagesrequiringthesenewplantsaswellasexistingonesto
12
Preliminary figure.
168
go into prolonged maintenance. It usually takes these plants several months and sometimes up to
one year to ramp up to full production. Therefore a more gradual is anticipated but still very
significantincreaseinLNGtradeduringtheperiod201015.
LNGTradesin2009(preliminaryfiguresinbcm)
Exporter
Importer
Asia Pacific
Middle East
Atlantic
Total
Share (%)
Asia
97
48
10
155
63
Middle East
0.7
0.1
0.1
0.4
Europe
0.2
20
48
69
29
Americas
0.1
0.9
20
21
World Total
98
70
78
245
Share (%)
40
28
32
Source: Preliminary estimates based on custom statistics in countries, company information, GIIGNL, and industry journals.
LNGTradeFlowsin2009
OECD/IEA, 2010
Note: Flows indicated on the map represent flows between the regions and correspond to the table LNG Trades in 2009.
Source: IEA.
China became the market of choice during 2009 for some LNG exporters. The country is quickly
expandingLNGimports,afterthestartofcommercialoperationsofthenewLNGreceivingterminal
atShanghaiandthestartoflongtermcontractdeliveryfromIndonesia,MalaysiaandQatarin2009.
Meanwhile,traditionalAsianimportingcountrieswereshowingsomesignsofrevivedLNGappetites
attheendof2009,afteramarkedslumpovermostoftheyear.
169
From2006to2008,highergaspricesandtightermarketbalancesacceleratedsomeglobalexchanges
of LNG cargoes, notably from the Atlantic to the AsiaPacific markets. These interregional
movementsofLNGunderpintheglobalisingtrendsofgasmarketsdescribedearlier.Someobservers
and industry experts have predicted that the next few years will see a return to regional markets
despiteanexpectedsignificantincreaseinbothliquefactionandregasificationcapacityaroundthe
world.Thisassumesthatanyextraregionalrequirementsshouldbemetbyextraoutputwithinthe
regions. Particularly, the increase in North American production from shale gas sources has
apparentlyeliminatedtheneedforimportsofLNG,whichwereanticipatedasrecentlyas2006.
However,therecenttrendtowardsglobalisationofmarketshasalreadytransformedthebusinessto
anirreversibleextent:anumberofplayersareclearlyworkingtosecuremultiplesupplysourcesto
support deals in multiple market outlets in different regions. Trading patterns are constantly
evolving. Although the AtlantictoPacific trades reduced in 2009, certain cargoes are still being
transportedinthesamepatternsassometransactionsareundershortandmediumtermcontracts,
ratherthanoneoffspottrading.In2009,flowsfromtheMiddleEasttoNorthwestEuropeincreased.
SomeincreasesintotheMiddleEastandSouthAmerica,bothrelativelynewLNGimportingregions,
werealsoobserved.Finally,someimportingcountriesarenowabletoexportLNG:LNGhasbeenre
exportedfromBelgiumsince2008andtheUSSabinePassterminalstartedtoreexportLNGin2009.
IssuesintheLNGMarketsin200910
Short-Term
Trends
Long-Term
trends
Emerging
Markets
2009 Developments
2010 Issues
Sluggish demand in traditional big LNG markets

(Japan, Korea and Spain).
Significant increase of LNG imports into
Northwest Europe led by Qatar into the United
Kingdom.
Other markets expand.
The largest ever expansion of liquefaction
capacity starts.
Concrete steps in Pacific for next generation
(FIDs and long-term sales).
Uncertainty in Atlantic projects continues.
Demand recovery is still uncertain.

While the US market is the residual market, how
much LNG it will import is a major unknown.
While liquefaction expansion continues,
uncertainty persists on the supply side, too.
Latin American LNG markets expand.

Southeast Asia emerges as a future consuming
centre.
New terminals open in both OECD and nonOECD countries.
New terminal plans in Europe and North America

slowly advance with supply uncertainty.
China and India expand gas and LNG markets.
Price reforms in some countries are needed and
expected.
Focus shifts to projects for second half of 2010s

Most projects from Australia
Source: IEA.
Current Expansion of Liquefaction and its Consequences
OECD/IEA, 2010
In2009,60bcmofliquefactioncapacitystartedoperating.TheyearmarkedtheentryofRussiaand
YemenasnewLNGexporterswhileQatarachievedunprecedentedgrowthbyover30bcminasix
monthperiodandIndonesiastartedproductionatitsfirstnewliquefactionplantinalmost25years.
A large part of this new capacity started in the second half of 2009 apart from Sakhalin and
QatargasIItrain4duetoconstructionandcommissioningdelays.Mostprojectsexperiencedinitial
operational problems requiring long maintenance periods. Combined with problems at existing
liquefactionplants,thisledtolimitedgrowthinLNGtradein2009.
170
All LNG export projects that started incremental and new production in 2009 have supply
commitments to multiple markets. As the new projects ramp up to capacity and some additional
projectscomeonline,theresilienceandflexibilityofglobalmarketswillbe testedlaterin 2010.In
2010,anadditional15bcmstartedoverJanuaryAprilwithRasGasIITrain7andthesecondYemeni
train.ThefirstLatinAmericanplantinPerustartedinJune.TwootherQatariplantsareexpectedto
start before the end of 2010. Over 200910, over 105bcm will have started the largest increase
everseeninLNGcapacityinsuchatimeframe.Overtheupcomingthreeyears(2011to2013),there
willbefewerplantsstarting26bcm.Halfoftheincrementalcapacitystartingduringthe200913
period will be located in Qatar (63bcm) and will be able to easily target Asian, European or North
Americangasmarkets.Twoadditionalplantsareunderconstruction,GorgonandPapuaNewGuinea
(PNG).FIDsweretakenin2009,andtheyarescheduledtostartby201415.
LNGLiquefactionStartingover200913
140
120
Algeria
Angola
Australia
Peru
100
Malaysia
Yemen
Bcm
80
Indonesia
Qatar
60
Russia
40
20
0
Source: IEA after companies press releases.
Qatargas and RasGas Mega-Trains, Qatar

Qatarexported50bcm(37mtpa)ofLNGin2009,settinganewrecordforLNGexportvolumebya
singlecountry,aftersurpassingIndonesiaasthelargestLNGexportingcountryintheworldin2006.
The previous record was Indonesia's 40bcm in 1999. After the commissioning of Qatargas II
Train4&5 and RasGas III Train 6, the Middle East emirate is expected to double this amount fairly
quickly after completing the remaining megatrains in 2010.13 Qatargas II Train 4 was officially
inauguratedon6April2009,withinitialLNGproductionstartingon14March,andshuttingdownon
1April2009.LNGproductionresumedattheendofMay.Afterfixingtheinitialteethingproblems,
OECD/IEA, 2010
13
Qatargas chief executive Faisal Al-Suwaidi forecast in March 2010 that his company will complete its last two remaining megatrains by the end of 2010, enabling Qatar to reach its targeted production capacity of 77 mtpa (105 bcm) in 2011. The company
plans to start up Train 6 in June and Train 7 in September 2010.
171
Train4hadrampedupto80%ofcapacitybytheendofJuneand100%bySeptember.QatargasII
Train5startedproducingLNGinSeptember2009.RasGasIIITrain6startedexportinginSeptember.
The fourth megatrain (RasGas III Train 7) started in February 2010 but has been encountering
difficulties. Qatargas III and IV (Trains 6 and 7) will follow late in 2010. Those six megatrains
representthebiggestexpansionofliquefactioncapacityintheworldover200911,from41bcmat
theendof2008to105bcm(77mtpa,onequarteroftotalliquefactioncapacity)in201011.
Qataralreadyproduces22bcf/dofgas(atthewellhead,equivalentto227bcm/y).Gashasbecome
very important for Qatar: gas overtook oil in 2009 as the largest contributor to Qatar's economy,
accountingfor32%ofGDP,comparedwith28%foroil.TheincreaseofQatar'sproductiondirectly
contributed to additional LNG imports into Northwest Europe in 2009, notably into the United
Kingdom,BelgiumandItaly,whereQatarhaslongtermsupplycommitments through eitherdirect
investmentinLNGreceivinginfrastructureorlongtermsaledeals.
Partly due to the sheer size of the trains and the expansion as a whole, the Qatargas and RasGas
projectswerenotimmunetothedelaysandcostoverruns.Theoriginalstartupscheduleforthose
trainswasfrom2007to2010whenFIDsweremadein2004and2005.Rampinguptotheplateau
capacity production was also expected to take more time than originally planned, but is now
apparentlyrunningsmoothly,asoperatorslearnfromtheexperiencesoftheearliermegatrains.
The unprecedented scale of expansion has begun to have significant impacts on the balance of the
globalLNGmarket,andsubsequentlyonQatar'sownLNGmarketingstrategy.Whetherthiswillresult
in changes in its LNG pricing and regional allocation of volumes is to be seen in the next couple of
years.TheinitialstrategyofhavinganequallyspreadgeographicaldistributionbetweenAsia,Europe
and North America has clearly evolved towards Asia, away from North America. Indeed, Qatar has
beenexpandinganddiversifyingitsmarketreachsinceitstartedexportingLNGin1997toJapan.The
current massive expansion phase was originally proposed to target markets in the UnitedKingdom
and UnitedStates. The United Kingdom imported some 10bcm of LNG, ramping up sharply in the
latter half of 2009. But from 2006, the Qataris started to market some of the expected megatrain
outputtootherregionalmarketsonmediumandlongtermbasis,notablytoChinaandtoalesser
extenttonewLNGmarketsinEurope.AstheQatarimarketershavedifferentpricingstrategiesinto
differentmarketsandinsistnearoilpriceparityintheNorthAsianmarkets,Japanesebuyershavenot
madeadditionallongtermpurchasecommitmentsbeyondtheoriginalQatargas1contracts.
OECD/IEA, 2010
While the Qatargas megatrains have a basic destination coming online at the same time as the
liquefactionproject,RasGasIII'sdefaultdestination,theGoldenPassterminalintheGulfofMexico
has been delayed until the middle of 2010 by the damage caused by Hurricane Ike in 2008,
highlighting again the issue of supply security surrounding energy production and infrastructure
assets in the Gulf of Mexico. While waiting for the startup of Golden Pass, RasGas III arranged
interim18monthsaledealswithChevron,Sempra,andStatoilfromthesecondhalfof2009to2010.
Theglobalgasmarkethaschangeddramaticallyinrecentyearsasaresultoflowerdemandinthe
UnitedStatesforLNG.Inturn,AsiancountriessuchasChinaandIndia,aswellassomeEuropeanand
South American countries, would absorb more volumes. Soon after the start of the longterm
contract delivery to China National Offshore Oil Corporation (CNOOC) in October 2009, Qatargas
signed memoranda of understanding (MOUs) with CNOOC and PetroChina in November 2009 to
doublethe contractedamountofLNGtothosecompaniestoacombined 14bcm(10mtpa)inthe
firsthalfofthe2010s.InDecember2009,RasGasbegansupplyinganadditional3.4bcm(2.5mtpa)
ofLNGtoIndia'sPetronetLNG,increasingthetotalLNGtermcontractquantitiesbetweenthetwo
firmsto10bcm(7.5mtpa).Thesedeliveriescouldbeincreasedbyupto5.4bcm(4mtpa)by2014.
172
PolandsignedanagreementwithQatarinJune2009forthesupplyof1.5bcm(1.1mtpa)ofLNGfor
Poland'splannedterminalinSwinoujscie.ThisLNGissaidtobequiteexpensivecomparedtocurrent
market prices. Qatar is also looking at other Eastern European markets including Greece and
Bulgaria;thelatterdoesnotyethaveanyterminalsbutcouldimportviaGreece.TurkeyandQatar
signedanagreementtopotentiallycooperateonproposedoilandgasprojectsinAugust2009,which
couldincludeLNGsalestoTurkey,aswellaspotentialpipelinegas.
Sakhalin II, Russia
The 13bcm Sakhalin project started production in early 2009 and exported the first LNG cargo to
JapaninMarchfollowinganoffspecLNGcargotoIndia.Thetwotrainswerenearfullcapacitybythe
end of September 2009. Sakhalin exported 81 LNG cargoes (5mtpa or 6.8bcm) along with
59shipmentsofcrudeoil,whichexceededitsprevioustargetsfor2009.MorethanhalfoftheLNG
wenttoJapan,andtheresttoKorea,India,China,ChineseTaipeiandKuwait.Russiangascouldalso
targettheEnergiaCostaAzulterminalinBajaCalifornia,inwhichShellownscapacity.
Tangguh, Indonesia
Indonesia'sTangguhprojectwasthefirstliquefactiontraincommissionedinthatcountrysincethe
late1980s.ItstartedinJuly2009andexporteditsfirstcargoestoKorea,forPoscoandKPower,and
Fujian, China. Sempra Energy's Costa Azul LNG terminal in Baja California, Mexico received its first
Tangguh cargo in August 2009. The cargo was the first delivered to the Mexican terminal since
September2008.
DespitethestartupoftheTangguhproject,thecountry'soverallLNGproductionin2009wasbelow
27bcm(20mtpa)forthefirsttimesince1989.Theprojectexportedonlyaround20cargoesin2009,
much lower than the anticipated 56 cargoes, due to initial production problems and delays in the
secondtrain'sstartup.TheTangguhventurehasoriginallongtermsalescontractstocustomersin
China,Korea,andMexico.Halfofthe5bcm(3.7mtpa)contracttoMexicocanbedivertedtoother
markets with compensating fees to the original buyer and some has already been diverted to
customers in Asia. The country's Bontang LNG plant shipped out several replacement cargoes to
fulfill contractual obligations to Chinese and Korean customers in the interim period from May to
July,partlythankstothereducedliftingbythelongtermbuyersfromtheBontangventurein2009.
In addition, two Korean buyers have been supplied from other sources, notably from Egypt, since
2006fortheirTangguhcontracts.
OECD/IEA, 2010
Yemen LNG, Yemen

The 9.2bcm Yemen LNG project began production in October 2009 and exported its first cargo to
Korea in early November, following several startup delays. The project is the largest industrial
undertakinginthecountryandtheconsortiumisledbyTotal.Thefirsttrainbeganoperatinginlate
June, with the first cargo scheduled by the end of August. Due to technical glitches, Yemen LNG
exportedonlysixcargoesin2009.Theprojectcameonlineaboutoneyearlaterthanplannedandat
alittleover$4billion,about15%aboveplannedcost.Thesecondtrain,whichwasplannedtoarrive
oneyearafterthefirst,startedoperatinginApril2010.AboutonethirdofYemensLNGisplannedto
gotoKoreaunderalongtermcontract.TheremainderiscontractedbyTotalandGDFSuez,which
can benefit from using arbitrage opportunities. Both companies have multiple outlets in North
America, Europe and Asia (India) for LNG, but are currently selling significant quantities of LNG to
ChinawherepricesarecomparativelyhigherthaninEurope.
173
Peru LNG, Peru

The 6bcm Peru LNG is started producing in June 2010. The 400km transAndes pipeline from the
CamiseafieldstoPampaMelchoritawascompletedattheendofJanuary.Theprojectwillbethefirst
in Pacific South America and was the only project that made an FID in 2006. Due to its location,
access to the global LNG market is currently relatively limited. The majority of the planned LNG
volume is contracted to Mexico's Manzanillo terminal under construction on the Pacific Coast
through Repsol. Some volumes may be sold to Asian LNG buyers. The planned expansion of the
PanamaCanalafter2014wouldincreaseflexibilityinmarketingfromtheproject,ifadditionalLNGis
available.AstheMexicanterminalisduetobecomeoperationalonlyinJuly2012,theinitialvolumes
areexpectedtogotootherdestinations,includingtheCanaportterminalonCanada'sAtlanticCoast,
whichisoperatedbyRepsolandopenedin2009.
The Peru LNG project features a unique combination of promoters as an LNG project without
supermajors: Hunt Oil of the United States (50%); SK of Korea (20%); Repsol of Spain (20%);
MarubeniofJapan(10%),andarelativenewcomerinLNGliquefactionengineering:ChicagoBridge&
Iron (CB&I). Feed gas will come from the Camisea fields. The government is facing pressure to
prioritise domestic users, as many critics insist that the country lacks sufficient reserves to supply
bothlocaldemandandLNGexportcommitment.
Pluto, Western Australia
As of the end of 2009, the first phase of Pluto was 83% complete and the commissioning of the
offshore production platform was already under way, according to the project majority owner
Woodside. Onshore, more than 90% of the 264 modules that comprise the first train had been
delivered,includingtheplant'smainliquefactionunit.Therewasneverthelessconcernaboutproject
delays, triggered by a labour dispute at the construction site in January and February 2010.
WoodsidesaysithasstarteddiscussionswithitsJapanesebuyers(andminorityshareholders),Tokyo
GasandKansaiElectric,toimplementriskmitigationmeasuresincaseofpotentialfurtherindustrial
actions.Theprojectisexpectedtostartbytheendof2010,butmaybedelayedto2011.
Woodside raised the cost estimate for the project by A$1.1 billion ($1 billion), citing a shortage of
skilled labour as the main cause. The estimated cost stood at A$12 billion, including upstream
developmentwhentheFIDwasmadeinAugust2007,alreadyalmostdoublingtheoriginalestimate
madein2005.TomitigatecostpressuresandutilisetheskilledlabourforcemobilisedforTrain1,the
companyseekstoimplementTrains2and3sequentially.However,thecompany'sownexploration
activities and talks with thirdparty gas suppliers for the expansion trains have not yet led to
sufficientgasreserves.WoodsideistargetingaFIDonPlutoTrain2bytheendof2010andTrain3by
theendof2011ifitcangainaccesstoenoughgasreserves.
Angola LNG, Angola
AlthoughAngolaLNGisstillontargettostartexportingLNGfromits7bcmplantinthefirstquarter
of 2012, the estimated cost of the project as of January 2010 has doubled to reach $9 billion
compared to 2006 estimates. The remote location of the facility and rising construction costs over
the200708periodhavebeenpinpointedasreasonsforrisingcost.
OECD/IEA, 2010
The project's FID was made in December 2007, after being postponed several times; one foreign
partner,ExxonMobil,wasreplacedbyItaly'sEni.TheAngolaLNGprojectisownedbyChevron(36%),
stateownedSonangol(SociedadeNacionaldeCombustveisdeAngola,23%),Total,BPandEni(14%
174
each). The venture's preferred outlet has been the Gulf LNG'S Clean Energy terminal under
construction in Pascagoula, Mississippi, in which Sonangol has a 20% interest along with El Paso
Corporation(50%)andCrestGroup(30%).Theterminalisduetoopeninlate2011,justbeforethe
liquefactionventure.AsUSLNGneedsarelessthanexpected,thepartnersareconsideringdiversion
mechanismselsewhereintheAtlanticbasinwhilekeepingtheUSterminalasthebasedestination.
Skikda and Gassi Touil, Algeria
ThestartofthetwoliquefactionprojectsinAlgeria,the6.4bcmGassiTouilandthe6.1bcmSkikda
replacingtheplantdestroyedin2004,hasbeendelayedto2013.GassiTouilwasinitiallyplannedto
come onstream in 2009 and Skikda in 2011. Gassi Touil suffered from significant delays during the
first development phase by Spains Repsol and Gas Natural. This led Sonatrach to assume
responsibilityforfullmanagementoftheprojectafterarbitration.Noneoftheplantshavededicated
longterm supply contracts and most of Algerias traditional LNG markets, Spain, Italy, France, are
wellsuppliedtooversupplied.AlgeriahasbeenindiscussionwithseveralIndiancompanies butno
agreementhasemergedfromthesediscussionsyet.
Sluggish Performance of Existing LNG Plants

Increases in production from new liquefaction trains were to some extent offset by sluggish
performanceatsomeoftheexistingproducersin2009.ReductionsintheAsiaPacificLNGproducers
were mostly caused by depressed demand from their longterm buyers and can be classified as
plannedreductions,althoughfeedgasshortagesandupstreamproblemsledtosignificantdecreases
inLNGproductioninNigeria,AlgeriaandIndonesia.
Bontang and Arun, Indonesia
Indonesia'sLNGexportwasdownanestimated4%in2009,despitethedelayedstartupofthenew
Tangguhproject.TheexistingArunplantisexpectedtoship36cargoesofLNGin2010,downfrom
42in2009.TheBontangLNGplantwillexporttheequivalentof279.5standardsizedLNGcargoesin
2010, also down from the equivalent of 302.6 cargoes in 2009, due to lower feedgas supply.
UpstreamregulatorBPMigassaidthatTangguhisexpectedtoship116LNGcargoes(around7mtpa)
in2010dependingonmarketdemandandiftheplantperformsasplanned.Intotal,Indonesiacould
export432cargoesin2010,comparedtoabout360in2009.
OECD/IEA, 2010
ForBontang,thefeedgassupplyfromthemainMahakamfieldsisdecliningfurther,thequestionis
whethertomothballtheoldestTrainsAandBwithacombinedcapacityof6bcm(4.5mtpa),orto
maintainthesetrainsinareadystateatacost,inanticipationoffutureincreasesingassupplyfrom
coalbedmethane(CBM)anddeepwaterfields,asitwouldbeexpensivetobringbackcapacityonce
mothballed.InlateNovember2009,BPEnijointventureVicowasawardedanewCBMproduction
sharingcontract(PSC)intheSangaSangablockinEastKalimantanthatcouldprovidefeedstockfor
Bontang.Vicoproducedconventionalgasformorethan40yearsfromthatblock.Preliminarystudies
show that this block, which covers 1700 km2, has a CBM resource potential of more than 4tcf
(113bcm,83mtpaLNGequivalent).
The Arun liquefaction plant could be converted into a storage and regasification terminal over a
period of just two years. The terminal would be modified to meet domestic demand, but also to
serveasanLNGhubinthearea.ThereisstillamajorquestionofgapsbetweeninternationalLNG
pricesanddomesticgasprices.TheupstreamregulatorBPMigassaidinMarch2010thatArunwould
stopLNGexportsin2014,andBontangwilldivertitsentiresupplytothedomesticmarketby2020.
175
ChangesinLNGProductionbyCountry(2008vs2009)
10
8
6
bcm
4
2
0
2
4
6
Source: Preliminary estimates based on custom statistics in countries, company information, industry journals.
Nigeria LNG, Nigeria

Nigeria'sLNGproductionin2009wasalmost30%lowerthanthatin2008,equatingtoabout6.3bcm
reduction,duetocontinuedtroublesinfeedgassupplycausedbycivilstrikeandvandalismandcivil
strike to its condensate and feedgas pipelines. Nigeria LNG continues facing feedstock shortages
becausetheSokugasprocessingplantinRiversState,whichtypicallyprovides40%ofthefeedgasto
the LNG plant, has yet to be brought back to stable full capacity since it was shut again on
15December2009 after operating for only three months. A joint investigation team comprising
regulatoryandsecuritypersonneldeterminedaleakhadbeencausedbythirdpartyillegaltampering.
Malaysia LNG, Malaysia
OECD/IEA, 2010
Malaysia'soverallLNGoutputin2009wasslightlydown0.1%yearonyearto30bcm(22mtpa).This
resultedfromacombinationofreductionsincontractualdeliverytocustomersinJapan,Koreaand
ChineseTaipeiandstartofthelongtermcontractdeliverytoChina,notnecessarilyrelatedtofeedgas
shortage. Only half of the 1.6 bcm (1.2 mtpa) of the extra capacity associated with the
debottleneckingofMalaysiaLNGDuawasonlinebytheendof2009andPetronasputoffcompletion
oftheremaining50%untilthesecondquarter2010inordertoavoiddisruptingwinterloadings.
Therehasbeensomeenhancementinfeedgassupply.PetronassignedanagreementwithSarawak
ShellandPetronasCarigaliinMarch2010tobuygasfromthreefieldsinblockSK308200kmoffshore
Sarawak. Shell and Petronas Carigali would supply gas from fields F28, F14 and E6 to Petronas'
liquefaction complex in Bintulu. The F28 field would be the first to be developed and first gas is
expectedinApril2012,Petronassaid.ShellandPetronasCarigalieachholda50%stakeintheblock.
176
North West Shelf (NWS), Western Australia

Australia's LNG production in 2009 was around 19% more than that of 2008, mainly due to the
ramping up of production from the fifth train of the North West Shelf (NWS) that started up in
September 2008.14 The train actually was operating at reduced capacity in 2009 due to a problem
withtheplant'scryogenicheatexchanger.ThetrainwasshutdownfornearlyamonthinMay2009
forrepairs.Theventurealsoconductedmaintenanceforothertrainsinthesecondhalfoftheyear,
takingadvantageofthereduceddemandfromitsexistingcustomersinAsia.
ReflectingthereducedcontractvolumestothehistoricalbuyersinJapanfromApril2009,15further
reduced demand from those buyers, and some incremental production capacity, the NWS venture
increasedspotsalessignificantlyin2009toaround10%intotalfromjust1%in2008,mainlytoits
newmarketsintheAsiaPacificregion,butalsotoEuropeonacoupleofoccasions.
Flood of New Terminals

There could be more than a dozen quickbuilt terminals using either LNG regasification vessels
(LNGRV) or floating storage and regasification units (FSRU) throughout Southeast Asia, the Middle
East,SouthAmerica,theCaribbeanandtheMediterraneanbythemiddleofthisdecade,particularly
encouragedbyrecentsuccessesinSouthAmericaofthoseapplications.FSRUsaretypicallychartered
onalongtermbasiswhileLNGRVsareoftenusedtomeetdemandpeaks.
Terminals in Europe Notably in the United Kingdom, Italy and France
Four new LNG receiving terminals started importing LNG in Europe, two in the United Kingdom
SouthHookandDragonLNG,thefirstsincetheIsleofGrainterminalinKent,Englandwascompleted
inJuly2005andtheTeessideDocksideGasportin2007.TherewerealsooneinItalyAdriaticLNG
offshore Rovigo, and one in France Fos Cavaou on the Mediterranean coast. Those capacity
increases coincided with the major expansion of LNG availability from Qatar. The United Kingdom
andBelgiumhavebecomethelargestbuyersofQatariLNGinEurope,importing12bcmin2009.
TheUnitedKingdom'sLNGimportcapacityincreasedfrom17bcmto34bcmwiththeadditionofthe
twonewimportterminals.Thecapacityissettoincreaseto50bcmbywinter2010/11equivalent
tomorethanhalfofUKannualdemand.ThesecondphaseofSouthHookiscompleted.LNGimports
grewexponentiallyto10bcmin2009,from1bcmin2008.55%wassuppliedfromQatar,including
longterm supply under the vertically integrated arrangement from Qatargas 2 to the South Hook
terminal in Wales and occasionally spot cargoes into the expanded Isle of Grain terminal. While
anotherterminalinWales,DragonLNG,receiveditscommissioningcargoinJuly2009,theterminal
hasnotbeenasutilisedastheothertwo.
The8bcmAdriaticLNGterminalinthenorthernAdriaticoffshoreRovigo,Italy'ssecondLNGterminal
andtheworld'sfirstgravitybasedLNGstructure,receiveditsfirstcargofromQatarinAugust2009.
The terminal's main supply source is Qatar's RasGas, although 1bcm capacity is allocated to BP,
whichisexpectedtobringinEgyptiancargoes.
OECD/IEA, 2010
14
With the fifth train, the venture now has a total production capacity of 16.3 mtpa (22.2 bcm/y), out of which the venture has
flexibility volumes of as much as 1.7 mtpa (2.3 bcm/y).
15
The original sales contracts amounting to 7.33 mtpa (10 bcm/y) from the Trains 1-3 with Japanese foundation buyers expired
in March 2009. Some of the foundation customers were forced to receive smaller volumes than they previously imported. The
renewal terms only last from six to 12 years, compared to 20 years for all the original deals, which were made in the early 1980s
and started in 1989.
177
The Fos Cavaou terminal in southern France received its first cargo in late October 2009 after
repeateddelaysfromtheoriginaltargetdateof2007.Theoperationalrateislikelytoberestrictedto
20%ofnameplatecapacityuntiltheoperator'sreapplicationtooperateitatfullcapacityisaccepted
by the local authority. In the meantime, a valuable source of potential downward pressure on
increasingFrenchgaspricesisnotbeingutilised.
ElsewhereinEurope,theGateterminalintheNetherlandsandOLTOffshoreLNGToscanainItalyare
underconstructionfortargetedcompletionin2011.ConstructionatSpain'sElMuselgreenfieldLNG
terminalinGijononthenorthcoastisabouttobeginfollowingmonthsofdelays.Theterminalhad
been planned to start in 2011, although this now looks unlikely. Capacity expansion works are
underwayatsometerminalsinSpainandtheUnitedKingdom.Apartfromthoseexpansionplansat
existingsites,securinglongtermLNGsupplycommitmentiskeytoadvancingprojects.
New Terminals in China
Chinaseemssettobecomeincreasinglyimportdependentandinthemediumterm,theadditional
sources of import will be LNG and pipeline gas from Turkmenistan. The country imported 7.5bcm
(5.5mt)ofLNGin2009,upfrom4.5bcm(3.3mt)in2008.Longtermcontractdeliverystartedfrom
Indonesia,MalaysiaandQatarin2009,inadditiontolongtermcontractcargoesfromAustraliaand
spotcargoesfromothersources.FirstcargoesfromBelgiumandYemenarrivedinJanuary2010.
Three terminals are under construction: CNOOC has confirmed the start of construction of its LNG
terminal project in Zhejiang in January 2010, expected to be onstream by 2012. PetroChina is
constructingitsownterminalsinRudong,JiangsuandDalian,Liaoning,inthenorthofthecountryfor
itscontractpurchasesfrom2011fromAustraliaandQatar.ItreceiveditsfirstLNGcargo,fromRussia's
SakhalinIIproject,inJanuary2010attheShanghaiterminalinwhichitisleasingcapacity,inorderto
meetgasshortagescausedbyrecordlowtemperaturesandhighsnowfall.TheNationalDevelopment
andReformCommission(NDRC)signedoffonSinopec'sapplicationtoconstructanewLNGterminalin
Qingdao,ShandongshortlyafterSinopecsignedabinding20yearsaleandpurchaseagreementwith
PNGLNGinPapuaNewGuineainearlyDecember2009.Theterminalcouldbeonlineby2013.
Latin America Expands
ChilereceiveditsfirstLNGcargoattheGNLQuinteroterminalinthecentralregionfromTrinidadand
TobagoinJuly2009.Thesecondterminalinthenorthofthecountry,GNLMejillones,inFebruary2010,
alsoreceiveditsfirstLNGfromTrinidadandTobago.Thecountryimportedabout0.5bcmofLNGin2009.
Both terminals adopted quick implementation schemes and are supplied by global LNG players'
portfoliosofLNGBGforGNLQuinteroandGDFSuezforGNLMejillones.GNLQuintero'sfasttrack
phase discharges LNG directly from the ship into the onshore vaporisers with only a very small
10,000m3storagetankavailableasbuffer.Twolarger160,000m3tankswillbeoperationalin2010.
The first stage of GNL Mejillones uses a LNG vessel for storage, as well as a jetty and onshore
regasificationplant.SecondcargoarrivedattheterminalinMay2010fromEgypt.
OECD/IEA, 2010
Argentina is expected to use its Baha Blanca GasPort, 687km south of Buenos Aires, for three
winters (AprilOctober) in a row from 2010, with an onboard regasification ship provided by
Excelerate Energy, after importing 1bcm of LNG in 2009. A second floating terminal is also
consideredtobelocatednearZarateinthenortheastofBuenosAiresprovincein2010.
BrazilstartedimportingLNGinearly2009withFSRUslocatedinPecm,Cear,inthenorth,andGuanabara
Bay,offtheRiodeJaneirostate.ThePecmterminalisthefirstFSRULNGterminalintheworld.
178
Middle East Emerges

KuwaitstartedimportingLNGinAugust2009withanonboardregasificationvesselmooredatKuwait
PetroleumCorporation's(KPC)MinaAlAhmadirefinery.SourceswerefromShell'sglobalportfolio,
includingSakhalin,Oman,MalaysiaandAustralia.CargoesalsocamefromTrinidadandTobago.KPC
wants to expand LNG procurement beyond Shell in 2010. The Dubai Supply Authority (Dusup) is
accelerating its LNG import project for commissioning in September or October 2010 after
postponingtheprojectuntilthemiddleof2011.DPWorldputitsJebelAliportexpansiononholdin
2009 as a result of the economic downturn, delaying a large breakwater. But Dusup moved the
locationoftheFSRUslightlytoputtheplanbackontrack.
Portfolio LNG Players are Thriving

Thesedays,playerswithmultipleoptions,suchasinternationaloilandgascompanies(IOGCs)and
portfoliomidstreamplayers,leadtheglobalgasbusiness.Theyareexpectedtoincreasetheirshare
of LNG for at least the medium term. The strategy is to have a portfolio of LNG assets in multiple
locations, in upstream, liquefaction, regasification and marketing. Companies with more options
haveabetterchancetowinbusinessopportunities,furtherexpandingoptionsforpotentialbusiness.
TheAppendicesinPart3,GasSupplement,givedetailsonLNGandotheractivitiesbycompany.
Supermajors and International Oil and Gas Companies (IOGCs)
Many supermajors and other international oil and gas companies (IOGCs) have in recent years
expanded LNG upstream positions, as well as market reach. Some of them have also bought into
unconventionalgasproductioninNorthAmerica,furtherdiversifyingtheirportfolios,partlyaimingat
mitigating risks as the earlier LNG initiatives were targeting markets in the United States. After
effectivecompletionofthemegaprojectwavesinQataranditslongtermsaledrivetoChina,their
focusofthosecompaniesisnowshiftingtothePacific,notablytoAustralia.Competitionthereisnow
fierceinmarketingandresultingprojectdecisions.
BG
BG Group is the prime mover in several areas of the global LNG business including firm capacity
holding in the United States, portfolio supply building with flexible destinations, and secondary
marketing of LNG. Taking advantage of its large regasification capacity position and LNG supply
portfolio, the company is expanding from the Atlantic into Pacific LNG marketing, not only by
divertingshorttermcargoesfromtheformertothelatter,butalsobyestablishinglongtermmarket
access in Chile, Singapore and China, as well as developing supply sources in Eastern Australia
fromCBM.
GDFSuez
OECD/IEA, 2010
GDF Suez formed an even stronger group in LNG after the merger in summer 2008, now holding
significantreceivingcapacitiesonbothsidesoftheAtlantic,AmericanContinentandevenfootholds
in Asia (India's Petronet and the planned LNG project off Australia). Startup of the Yemen LNG
projectisnowgivingthecompanyanopportunityforfurtherexpandingmarketreach,includingChile
andPakistan,aswellasitsbasedestinationsinNorthAmericaandEurope.
179
GasNatural/Repsol
TheGasNatural/RepsolduoofSpainhasmainlyfocussedonLatinAmericanandSouthernEuropean
countries. Now that Repsol opened a receiving terminal in eastern Canada in 2009, the two
companieshavemoreflexiblemarketaccessonbothsidesoftheAtlantic.Repsolhascommittedto
buyalltheplannedoutputfromPeruLNGinwhichthecompanyalsohas20%equity.Thecompany
willsupplymostofitsPeruLNG totheplanned ManzanilloterminalonthePacificcentral coastof
Mexico.ThecompanyisconsideringdirectingasmallerportionofPeruvianLNGproductiontoAsia,
subjecttopricingarrangements.
Asian Utility Buyers and Trading Houses
SomeutilitybuyersfromtraditionalLNGmarketsinJapanandKoreahavebecomeactiveinacquiring
upstream and liquefaction stakes in exchange with longterm purchasing commitments. Recent
examples include LNG purchase contracts from the Pluto and Gorgon projects in Australia to
Japanese buyers. In December 2009 Tokyo Electric Power (Tepco) bought an 11.25% stake in
Chevron'sWheatstoneprojectinAustraliaalongwithnearlyhalfoftheoutputfromtheprojectfor
20yearsstarting2016.
In February 2010, Korea Gas Corporation (Kogas) agreed a jointventure deal with Canadian gas
producerEnCanatodevelopprospectsintheprovinceofBritishColumbiathatcouldsupply20%of
the planned LNG export project in Kitimat. In March 2010, Tokyo Gas announced its intention to
acquire a 25% interest in a relatively smallscale gas field and LNG development project in South
Sulawesi, Indonesia, led by Energy World Corporation (EWC) of Australia. In May 2010, another
JapaneseutilityOsakaGasannouncedthepurchaseofa20%stakeofSaguntoLNGterminalinSpain
fromEndesa.
OECD/IEA, 2010
180
P ART 2: G AS U NCONVENTIONAL G AS
UNCONVENTIONAL GAS
Summary
TheriseofunconventionalgasinNorthAmericahashadregionalandglobalconsequences,and
raises the question of whether such a revolution is possible outside the United States. Many
countries,includingAustralia,China,India,Indonesia,EuropeanandLatinAmericancountries,are
investigating their unconventional gas potential. While prospects look quite good in Australia,
which already produces some unconventional gas, and Asia, the effective development of
unconventionalgasinEurope,MENAorLatinAmericawillfacemorechallenges.
Among the challenges that developers of unconventional gas resources face are the need for
moresystematicappraisalsofresources,aswellasenvironmentalissuesandlocalopposition.
Unconventional gas resources have been only roughly estimated outside North America and a
deeper, more detailed study of the geological potential and the best plays is necessary.
Furthermore,questionsabouttheimpactofunconventionalgasdrillingonwaterreservoirswell
foundedornothavebeenraisedbymanyobserversandpoliticians.Thisislikelytoplayarolein
EuropewhereexperiencewiththehydrocarbonindustryislessthanintheUnitedStates.Finally,
differentownershipofsubsoilresourcesincountriesoutsidetheUnitedStatescouldfailtoattract
landownersacceptanceofproduction.
Unconventional gas development will also face challenges similar to conventional gas. The
prevailing pricing and fiscal conditions, the presence of infrastructure to transport the gas,
availability of drilling rigs and of a qualified workforce as well as the availability of specific
completionmethods(hydraulicfracturing)willbedeterminingfactors.
What a difference five years makes. In 2005, significant unconventional gas production was a
relatively distant prospect in most countries outside North America. Paradoxically it was already
contributingtoover30%ofUSgasproduction thesecondlargestgasproducergloballymainly
through tight gas and CBM. But it was not so widely discussed as it had not impacted global gas
markets, and the surge of shale gas production had not started. While a few countries, such as
Australia,Indonesia,China,India,werealreadylookingatthispotential,unconventionalgaswasstill
relatively unheard of outside North America. Studies of worldwide unconventional gas potential
were relatively few. Mostly geologists were discussing the issues related to horizontal drilling,
hydraulicfracturingandthepermeabilityofrocksthatarenowwidelypublicisedinthepress.
OECD/IEA, 2010
Atthattime,theUnitedStateswasstillexpectedtobecomealargeimporterofLNGbytheendof
thedecade(2010)andcompanieswereactivelypursuingregasificationterminalprojects.TheEIAin
its Annual Energy Outlook (AEO) 2005 expected LNG imports to reach around 50bcm in 2008 and
2009 and increase to 70bcm by 2010. But by 2008, the unconventional revolution had already
changedtheUSsupplypicturereducingLNGimportneeds.AsUSproductionincreasedby29bcmin
2008 and again by 19bcm in 2009, LNG imports were reduced to 9bcm and 13bcm respectively,
implying a 10% utilisation of the US regasification capacity. In 2009, the effect of increasing US
productioncombinedwithrisingglobalLNGproductionandtheeconomiccrisishadspillovereffects
onbothregionalandglobalgasmarkets,thelatteroftendescribedasagasglut.
Tosomeextentonecanwonderiftheseresourcesshouldbecalledunconventional;infacttheEIA
nowincludestightgasintheconventionalcategoryintheirlatestAEO,whileestimatesoftheshare
ofunconventionalgasinUSproductionvaryfortheverysamereason.Chinaandothercountriesalso
181
count tight gas as conventional gas. Now that North America has become almost selfsufficient in
gas,manycountriesareexaminingunconventionalgasproductionasapotentialmeansofreducing
theirimportneeds(orincreasingtheirabilitytoexport).TheUnitedStatesremainstheunchallenged
leader of unconventional gas production with around 300bcm in 2008, followed by Canada with
60bcm. A few other countries, such as Australia, also produce unconventional gas, but quantities
remainlimitedsofar.Thegasindustryfacesthefollowingquestions:
What will be the shortterm evolution of the US supply/demand balance as unconventional gas
faces increasing competition from the new wave of LNG? Are the current production levels
sustainableat$45/MBtu?
What challenges does unconventional gas production face in the United States and in other
countries?
Howlikelyisanunconventionalgasrevolutioninotherpartsoftheworldandhowlongwillittake
tocomeabout?
Unconventional Gas Types

There are three types of unconventional gas, not taking into account the more distant methane
hydrates: tight gas, coalbed methane (CBM) and shale gas. Tight gas is contained in a very tight
formation,trappedinunusuallyimpermeable,hardrock,inasandstoneorlimestoneformationthathas
a low permeability and cannot be developed profitably with conventional vertical wells. CBM is gas
containedincoalbeds,whichareusuallytoodeeportoopoortobeprofitable.Ithasbeenknownfora
long time due to the danger of explosions in coal mines. Shale gas is natural gas, primarily methane,
which is trapped is the Earths most common sedimentary rock, shale. Shale generally has a very low
permeability,butthegasisusuallycleananddry.Mostproducershaveignoredshaleforalongtimeand
itcansometimesoccurfarfromthetraditionalproductionareas,sothatmanyareasareunexplored.
Two technologies have helped the development of unconventional gas: hydraulic fracturing and
horizontaldrilling.Hydraulicfracturing(orfracking)iscreatedbypumpingwater,solidproppingmaterial
(proppants,usuallysand)intothewell.Thewateropensthecracks,andthesandortheotherproppants
maintain them open. The key to increase production is to have as many fractures as possible and
maintainthemopenallowingthegastobeextracted.Awelldrilledinanunconventionalgasreservoir
will usually produce less gas over a longer period of time than a well in a conventional reservoir, with
oftensharpearlydepletionrates.Thisrequiresmorewellswithsmallerwellspacingtobedrilled.
A Slow Evolution
Unconventionalgasisnotnew.Tightgashasbeenproducedforover40yearsintheUnitedStates:
CBM production started in the 1990s although CBM has been known for as long as coal has been
exploitedandwasoftenconsideredasarisk.Shalegaswasthelastonetobedevelopedduetothe
verylowpermeabilityofthehostrock.Whatmadethisrevolutionpossiblewasthecombinationof:
betterknowledgeofbestresourcepotential,withentrepreneursthedrivingforce
improveddrillingandcompleting(fracking)technologiesand
OECD/IEA, 2010
risingHHpricesto$68/MBtuover200508.
182
A long E&P history, a meshed gas grid, and the need to replace declining gas resources and meet
increasing demand led US geologists to seek better knowledge of the underground geology and
improve progressively the drilling technology, notably horizontal drilling and improved fracturing.
UnconventionalgasalsobenefittedfromregulartechnicalprogressintheE&Psector.Forexample,
CBMisadsorbedatthecoalsurfaceandpressuremustbereducedtoextractgas;furthermoreCBM
often contains significant amounts of water which must be removed and disposed of in an
environmentally sound manner as well. Better understanding of CBM resources in place and
technologyfordewateringcoalseamsenabledUSCBMdevelopmentsinthe1990s.
The fracking methods applied before 1998 for shale gas used massive amounts of sand, while the
developmentoflightsandfracturing(waterfracturetreatment)improvedtheefficiencyandreduced
thecostofwells.Thepricefactorwasalsoanimportantelementforshalegasdevelopment.Until
2008,theconventionalwisdomwasthatshalegasneededpricesaround$68/MBtutobeeconomic.
Nowtherangeofgaspricesisestimatedataround$36/MBtu.Shalegasisexpectedtorepresentan
increasingshareofUSunconventionalgasproduction,growingfrom34bcmand57bcmin2007and
2008 respectively to 109bcm by 2015 and 128bcm by 2020 (one quarter of total US production).
One important fact is that the development of these resources seems to have been systematically
underestimatedascanbeseeninthetablebelow.Gasproductionforecastswereoften30bcmto
60bcmlowerthanactualproduction.
EvolutionofUnconventionalGasProductionForecasts(EIA)(bcm)
1995
2000
2005
2010
2015
AEO 1996
76
66
AEO 1998
86
98
106
122
144
AEO 2000
n.a.
141
150
184
AEO 2002
131
165
202
229
AEO 2004
n.a.
206
246
AEO 2006
n.a.
218
230
AEO 2008
224
256
268
301
310
AEO 2009
Note: underlined data indicate actual production. This data represents only unconventional gas production, not total gas production.
Source: Annual Energy Outlooks from 1996 to 2009, EIA.
Notonlyisfutureproductiondifficulttoforecast,buttheactualproductionisdifficulttoestimate.In
April 2010, the EIA announced upcoming revisions in gas production data due to a potential
overestimation.Indeedthesumofmonthlybalancingitems16intheUSsupplyanddemandbalance
amounted to 20bcm for 2009 according to first estimates, a level much higher than the previous
years(3.8bcmin2008and5.9bcmin2007).USproductionhasbeenreevaluatedat594bcm,5bcm
lower than the original estimates. The reason for the change of methodology is that the EIA only
surveystopproducers(whichaccountforthebulkofUSgasproduction),assmallproducerschange
rapidlyandaredifficulttotrack.
OECD/IEA, 2010
16
Supply and demand of natural gas cannot always be measured exactly. When physical and statistical measurements of
natural gas supply and disposition activities do not match, the difference is called the balancing item. (Source: EIA).
183
What Price is Needed for Unconventional Gas?

Thereisnosingleanswertothatquestion,muchtothedismayofanalysts,orrathertheansweris:it
depends.Likeforconventionalgas,awiderangeofpricescanmakeunconventionalgaseconomic,
dependingamongothersonthequalityandproductivityoftheplay,onwatermanagement,onthe
specificfiscalconditionsandenvironmentalregulationintheregion.IntheWEO2009,BarnettShale
wells were analysed. The threshold price (at the well head) needed to get a 10% return on capital
ranged from $4/MBtu to over $13/MBtu. So far, most wells have been drilled in those productive
areasoftheBarnettshaleclosetothe$4/MBtuthreshold.However,thisvalueisanaverageforall
operators, and does not take into account the learning curve and better experience of some
producers against less experienced or smaller players. Some companies have even reduced the
average threshold to $2.5/MBtu. There is astrong belief among the US gas industry that the most
economic unconventional gas can reach lower prices than conventional gas plays, the question is
howmuchunconventionalgascanbeproducedattheselowprices.
Againoneofthekeyfactorsdrivingpricesdownwardswillbethetechnology,whichwillundoubtedly
favour the most experienced players. Spacing between wells, length of the wells are some of the
techniquestoimprovetheproductivityofthewells,whileotherslookatimprovingthecurrentlow
recoveryfromreservoirs.Thelearningcurveisalsofaster:ittookover25yearsfortheBarnettplay
toreachadailyproductionof50Mcm/dand5yearsforFayetteville.However,inothercountries,
with less qualified workforces and equipment, higher service costs and higher environmental costs
(water treatment), the threshold price is very likely to be higher. The price per acre as well as the
royaltiesandothertaxeswillalsobekeyparametersforinvestorstolookat.Fromthenationalpoint
of view, there will be a balance between a higher security of supply through increased domestic
productionandtheseprices,thatcouldbeattainedthrough,forexample,preferentialfiscalregimes.
In the longer term, recoverable unconventional gas resources can be produced at prices between
$2.7/MBtuand$9/MBtu.
But in the short term, the price question is whether the current $45/MBtu at which HH has been
since mid March 2010 (and the relatively weaker HH prices since March 2009) will support
USproductionatsimilarlevelsas2009s.Sofar,productionhasbeenstableinearly2010compared
tothesameperiodin2009,just0.1%upoverthefirsttwomonths.MeanwhilethenumberofUSgas
rigshasbeendecliningagainsincemidAprilinresponsetodecliningprices.Someplayersmaywant
tocontinuetodrillduetoexpiringleases,evenmoreiftheyhadhedgedcontractslockinginhigher
prices. Furthermore, many players have entered into jointventures with foreign players or
International oil companies (IOCs), some of which will be willing to pay for continued drilling or
leases in return for experience. But while some may be drilling at a loss, they may still have
difficultiesfundingthenewwells.Alsoaconsiderableamountofthedrillingbeingdoneforgasthis
yearintheUSisforleasecommitments(ratherthantoaddeconomicalproductiontoday).
Unconventional Gas Outside the US, a Dream or a Reality?
OECD/IEA, 2010
There will be challenges to overcome to reproduce the unconventional gas revolution outside the
UnitedStates.Theseissuescanbecategorisedasfollows:
184
Stilllimitedstudiesontheunconventionalgaspotential,includingsufficientgeologicalinformation,
Resolvingwatermanagementissues(andpotentialleakagesintodrinkingwaterreservoirs)
Fiscalconditions
Acceptancebylandownersandthelocalpopulation
Interferencefromlocalauthorities
Proximityofapipelinesystem
AvailabilityofsuitablerigsandofskilledworkforceinEuropeandmanyotherregions
Gasplayersexperience
Limited Studies on the Potential

Thefirstuncertaintyis:howmuchpotentialisthere?DespitesomeestimatesoutsideNorthAmerica,
majorworkisstillneededtorefineandexpandthesedata.EvenintheUnitedStates,gasreserves
are constantly reappraised; proven gas reserves increased from 4.7tcm to 7.5tcm between 2000
and 2009, mainly because of reevaluation of unconventional gas resources. In the WEO2009, the
unconventionalgaspotentialhasbeenanalysedbasedonvariousstudiesavailable:17totalresources
inplaceareestimatedat921tcm,alargepartofwhichisnotrecoverable.
UnconventionalGasResourcesinPlace
500
450
400
350
tcm
300
250
200
150
100
50
0
TightGas
Europe
Subsaharan Africa
AsiaPacific
CoalbedMethane
LatinAmerica
MiddleEast NorthAfrica
ShaleGas
FSU
NorthAmerica
Source: World Energy Outlook 2009, IEA.
OECD/IEA, 2010
Lookingatregionalestimatesofunconventionalgaspotential,AsiaPacificandNorthAmericahave
the highest with 274tcm and 233tcm respectively followed by FSU with 155tcm, Latin America
98tcm and MENA 95tcm. Although there is much discussion about unconventional gas in Europe,
theresourcesaresofarestimatedatonly35tcm.Shalegasrepresentshalfofthisglobalpotential
andisespeciallypresentinAsiaandNorthAmericawhileCBMismainlyinFSUandtightgasisquite
evenlydistributedbetweentheregions.Again,thesenumbersshouldbeconsideredwithcaution.
17
Rogner, Kawata & Fujita, Holditch. This excludes methane hydrates.
185
First, with a few exceptions, unconventional gas resources have largely been overlooked and
understudied. They are usually more viewed as a potential longterm resource and have not been
appraised in any systematic way. Furthermore, not all of this gas will be recoverable; the IEA
estimated that around 380tcm would be recoverable based on current data and knowledge: this
compareswith405tcmofrecoverableconventionalreserves,and182tcmofprovengasreserves.
ManyinitiativesareunderwaysuchastheGasShalesinEurope(GASH),coordinatedbytheGerman
GeoForschungsZentrum (GFZ) and The Institut Franais du Ptrole (IFP). In other regions, IOCs and
NationalOilCompanies(NOCs)havebeencarryingoutexploratorywork,theresultsofwhichwillnot
alwaysbeavailable.Oncethepotentialhasbeenestablished,companiesneedtofindthebestareas.
Population Density
In addition, there will be many aboveground issues making it difficult to realise the potential in
someregions,inparticularenvironmentalconcernsandinteractionwiththelocalpopulation.North
Americahas benefittedfromaquitelowpopulationdensityasbothCanada andtheUnitedStates
haveverylowpopulationdensityinmostproductionareas.However,manyEuropeancountrieshave
a population density above 100hab/km2 or even 200hab/km2 compared to around 30hab/km2 in
the United States and 3hab/km2 in Canada. A higher population density implies more interaction
with the local population who may in general be less ready to accept disturbances. It may also be
moredifficulttodrillmanywellsinoneplace.
Environmental Concerns
In the United States, there have been some increasing concerns about the impact of fracking and
chemicals contained in the fracking liquids on the environment, and how this might affect water
quality,quantityandsupplyinfrastructure.CBMproductionproduceswaterasabyproduct,whichis
notalwayssuitableforirrigation;meanwhilewaterisusedforshalegasproduction.Severalmillion
litres of water (23 million gallons) containing 12% chemicals are used per well. A study reported
that 3% of the groundwater in the Barnett shale area was used for shale gas production in 2005.
Unconventional gas development could compete with other groundwater uses, in particular in
regionswithscarcewatersupplies.
OECD/IEA, 2010
Early in 2010, the EPA (Environmental Protection Agency) launched a study to determine whether
fracking could contaminate water supplies. In a previous EPA study in 2004, it had not found any
evidenceofcontamination.TheEPAislikelytotrytoregulatefrackingundertheSafeWaterDrinking
Act.Thisstudyisexpectedtotaketwoyears,duringwhichshalegasproductionislikelytoblossomin
theUnitedStates.MajorgasproducersareconcernedaboutthepossibleconsequencesoftheEPA
study.ExxonMobilincludedafrackingrelatedescapeclauseinits$41billiontakeoverofXTOEnergy
(butthedealisexpectedtoclosein2010,beforethestudyiscompleted).Thefindingsofthisstudy
could also be significant on a global scale as some regions, in particular Europe, are particularly
attentivetoenvironmentalissuesandarelikelytoraisemoreobjectionstodrilling.
MeanwhilesomecongressionalDemocratslaunchedaprobeintothechemicalsusedbycompanies,
whicharecommercialintellectualproperty.Policymakersarelookingatwaystoforcecompaniesto
disclose information on chemicals. This may however clash with intellectual property rights, since
producersareusingchemicalsdesignedbyservicecompanies.Thereareneverthelesstwocounter
argumentsthatcouldpostponefederalregulationforsometime:thepotentialtobeselfsufficientin
gasandthelowerCO2emissionsofgas.Inthemeantime,theseconcernshaveledNewYorkstateto
186
imposeamoratoriumonshalegasdrillingnearthewatersourcessupplyingNewYorkcity.Concerns
about water management will be particularly acute in densely populated areas such as Europe or
someAsianregionsandwherewaterresourceswouldbeanissue.
Finallythelongtermmanagementofintensivedrillingandmultiplicationofholesandcracks,their
influenceonexistingnaturalfracturesandfaults,andtheirlongtermdevelopment,issofarunknown.
Gas Grid
AnotheradvantageoftheUnitedStatesistheextremelydevelopedandhighlymeshedgasgridand
thelongexistenceofE&Pactivitieswhichfitsverywellthefragmentedcharacterofunconventional
gasresources.
GasGridDensity
Gas grid (km) /area (1000 km2)
United
States
62
Australia
Italy
3
Sweden
110
United
Kingdom
45
India
3
Source: IEA country reviews, based on length of the transmission grid.
Landowners Acceptance
TheUnitedStateshasspecificlegislationregardingundergroundresources:ownersofaboveground
landalsofrequentlyownundergroundresources.Thereforelandownershavereceivedupto$25000
peracre,andsometimesupto25%royalty;eventhosewhogotonly$5000peracreand20%royalty
did not prevent drilling from happening; on the contrary, such ongoing incentives are a powerful
stimulusforopenlandaccess,drillingandproduction.
The mineral rights are however different in many other countries where landowners do not own
underground resources; rather they are generally owned by the State, either regional or national.
Usually, US landowners tolerate the invasion of trucks, rigs and workers as they receive ongoing
revenuesfromthisactivity.Inalmosteveryothercountry,thestateownsmineralrights,sothatlocal
inhabitantswillmainlyfeelthedownsideofE&Pactivitiesbutcanonlyhopetobecompensatedfor
theuseoftheirproperty.
Access to Technology
To develop unconventional gas resources, access to specific technology for drilling (hydraulic
fracturingandhorizontalwells)andforevaluatingthepotentialiskey.ThefactthatmajorIOCshave
now acquired midsize unconventional gas players will enable them to export the expertise
worldwidesothatthelearningexperiencegainedinNorthAmericacanbeappliedrelativelyquickly.
Unconventional Gas Developments Outside North America
OECD/IEA, 2010
WhileunconventionalgasisarealityinNorthAmerica,itsdevelopmentatacomparablescaleisstill
tobeproveninothercountries.AsintheUnitedStates,itisimportanttonotethatthethreetypesof
unconventionalgascanbedevelopedbuttherateandextentwilldifferbyregion.UnliketheUnited
States,allthreetypescouldbedevelopedintheshorttermifthepotentialandtheplayersarethere,
thetechnologyisrelativelyreadilyavailable,havingbeendevelopedtomaturityinNorthAmerica.
By any account, Australia ranks first among the countries with high shortterm unconventional gas
potential.TheinterestandthepotentialisveryhighinAsia:ChinaandIndiabothhaveexisting
187
activitiesandIndonesiaislookingactivelyatshalegas.RussiaspotentialliesprimarilyinCBM,but
the country has extensive conventional resources that are likely to be developed first if the
economicsareright.
ThemajorquestionisontheEuropeanmarketascountrieswouldliketoreduceimportdependency,
but the development would face many challenges. Lastly Argentina has been looking actively at
unconventional gas. In all these countries, except maybe Australia, players are at the stage of
acquiringlargeareasofland,participatinginbiddingroundsandstartingexploration.
Australia
CBMhasbeenatthematuremarketstageinAustraliaforsometime,butshalegasisstillinitsinfancy.
CBM has been produced in Australia since 1996 and more is to come with six LNG liquefaction
projects based on CBM (also called coal seam gas (CSG)) in the Gladstone basin. It is uncertain
whether all projects will move forward (their prospects are discussed in the LNG investments
section). Around 20 companies are active on CBM, including Arrow Energy, Santos or Queensland
GasCompany.ThedistinctionismadebetweenCBM,alsoknownasCoalSeamMethane(CSM)and
CoalSeamGas(CSG),andCoalMineMethane(CMM),whichismethaneassociatedwithcoalmining
operations. Legislation on CBM and CMM resources depends on the State and Territory
Governments: in New South Wales and Queensland, petroleum resources legislation is applied on
CBM while mineral resources legislation is relevant for CMM. In Victoria, CBM resources are
administered under the legislation for mineral resources development. As water resources are
particularly scarce in Australia, the State government is funding a study on coal seam gas mining
impactsonundergroundwater.
SomecompaniessuchasSantos,BeachPetroleum,NewStandardEnergyandExomaEnergyLimited
arealsolookingatshalegas,inparticularintheCooperBasin,butsuchadevelopmentseemsless
likely than CBM. One of the major challenges would be higher costs that would make shale gas
uncompetitiveonthedomesticmarket,whileAustraliastillhasampleconventionalgasresources.
China
China has important unconventional gas resources of the three types and the US revolution has
inspired Chinese energy policy makers as the country is expected to be increasingly import
dependent.TherehasbeenhistoricallyalargefocusonCBM,butnowthecountryislookingatshale
gasaswellwhiletightgasisalreadyproduced.InNovember2009,theUnitedStatessignedaMOU
withChinatodevelopshalegasresourcesbyhelpingtoassessthepotential,conductingjointstudies
andpromotinginvestments.Inanycase,assessingthepotentialwillbeakeysuccessfactoraswellas
acquiringthetechnology.ThisisthereasonwhyChineseNOCshavebeenengagedintakeoversor
cooperationagreementswithforeigncompaniessuchasShell,andFortuneOil,overthepastyear.
Furthermore, reform of pricing policies may be necessary if prices are kept at low levels. Finally,
developingtheinfrastructuretotransportthisgastothemarketswillalsobeachallenge.
OECD/IEA, 2010
ThereisalreadytightgasproductioninChina,thatisinfactclassifiedwithconventionalresources.
TheChangbeitightgasfieldintheOrdosBasin,thatShellandCNPCareoperating,produces3bcm/y.
BothcompaniesplantojointlydeveloptightgasdepositsinSichuanundera30yearPSA.Meanwhile
TotalhasaPSCwithPetroChina,signedin2006,todeveloptheSuligeSouthfield.
CBMgeologicalresourceswereestimatedat37tcmandprovenresourcesat134bcmin2009,but
progresshasbeenrelativelyslowoverthepast15years.Indeed,theChinaUnitedCoalbedMethane
188
(CUCBM)wasformallyestablishedinMarch1996byapprovaloftheStateCouncilandwasgranted
the exclusive right of the exploration, development, and production of CBM in cooperation with
foreigncompaniesthroughPSCs.Itwasrestructuredin2008,andCNPCwaslefttoproduceCBMby
itself.PSCshavebeensignedbetweeneitherCUCBMorCNPCandcompaniessuchasArrowEnergy,
Fortune Oil, ConocoPhillips, Greka, and TerraWest. Chevron however quit its three CBM blocks in
2009.Thegovernmentplanstoproduce40bcmofCBMby2020,fromonly0.7bcmin2009.
MostofCBMcurrentlyproducedcomesfromCBMextractionincoalminesandverylittlefromCBM
wells. CNPC started producing CBM gas from the Fanzhuang block, which has an annual production
capacity of 0.6bcm/y and is also developing CBM in Shanxi province. They have built a dedicated
pipelinefromQinshuitotheEastWestpipeline.Theyexpecttoproduce10bcm/yby2020,including
5bcmfromtheQinshuibasin.Mostoftheresourcesareconcentratedin13coalbasinswiththelargest
potential located in Shanxi and Ordos. One of the potential challenges though is the competition
betweencoalandCBMproductionsothatagreementshavetobefoundwithlocalcoalproducers.Part
of the CBM produced is transported in compressed form by trucks, liquefied or consumed locally at
power stations. Increased transport infrastructure in particular the West East pipeline will be
neededtomovethisgastoconsumingregions.CBMbenefitsfromgovernmentsubsidies:RMB0.20/m3
forCBMproducedandRMB0.25/kWhofelectricityproducedbyCBMfuelledpowerprojects.Current
production costsaresaidtoliearoundRMB0.81.2/m3, makingCBM morecompetitive thanLNGor
Turkmengas.TheChineseGovernmenthasderegulatedCBMnaturalgassuchthatproducershavethe
righttonegotiatetheirowncontractsandsellproducedgasdirectlytoendusers.
China is estimated to have 26tcm of shale gas, and the Ministry of Land and Resources (MLR) has
announced a strategic goal of reaching a production target of 1530bcm by 2020. MLR will also
allocateRMB33milliontoappraiseitsshalegasreserves:itwillbethefirsttimeChinahasassessed
these reserves. Again, it will be crucial for Chinese NOCs to acquire technology. In this regard,
SinopechasbeenintalkswithBP.
India
IndiahasbeenfocusingmoreonCBMbutisnowturningtoshalegasaswell.Therewillbethreekey
issues for the development of such resources: low domestic prices, lack of domestic infrastructure
exceptintheNorthWestandexpertise.
OECD/IEA, 2010
IndiahadbeenorganisingCBMlicensingroundsandthe4thlicensingroundtookplacein2009,butso
farCBMproduction,whichstartedin2007,isverylimited.CBMresourcesareestimatedat4.6tcm
mostofwhicharelocatedintheNorthEastandNorthWestofthecountry.Indianaswellasforeign
companiesareactiveincludingOilandNaturalGasCorporation(ONGC),BP,RelianceIndustriesLtd
(RIL), Essar Oil, Arrow Energy, Gas Authority of India Ltd (GAIL), and GEECL. So far only 26 blocks
representing13,600km2havebeenauctioned.CBMisoftensoldascompressednaturalgas(CNG),
but RIL has been looking at using it for a power plant. ONGC and Arrow Energy signed a MOU on
cooperationinearly2009.
ShalegasexplorationisrelativelynewinIndiabut rapidlygainingtheattentionofindustryplayers
withONGClaunchingapilotprojectin2011.ThefactthatRILinvested$1.7billioninthe USshale
play Marcellus in April 2010 shows the interest of Indian companies in acquiring the expertise and
technology.However,twoobstaclesremain:thelackofclarityregardingtheupstreamregulationfor
shalegasi.e.doestheNewExplorationandLicensingPolicy(NELP)apply?andthelackofdataas
mostofIndiaremainsunderexplored.
189
Indonesia
Despiteitspositionasanetexporter,Indonesiafeelstheneedtoincreasedomesticproduction to
meet increasing demand and reverse the decline of conventional gas. Indonesia has nevertheless
beenrelativelyslowtodevelopunconventionalgascomparedtoIndiaorAustralia.Oneofthemain
reasonsmayhavebeentheregulatoryandlegaluncertainty,makingforeigncompaniesreluctantto
invest,butthesituationhasimprovedsince2007.
Indonesia has significant CBM reserves (12.7tcm) mainly located in Southern Sumatra and East
Kalimantan, and is thought to hold large shale gas resources as well. The government aims at
producing10bcmofCBMby2025.Sofar,20CBMPSCshavebeensignedbetweentheDirectorate
GeneralofOilandGas(Migas)andtheCBMcontractors.Thegovernmentsimplifiedlegislationand
offeredincentivestocontractors,whichgeta45%share.18Late2009,MigaslaunchedthefirstCBM
round:threeblockswereawardedtothreecompanies.Theinvestmentcommitmentfortheseblocks
would consist of geological and geophysical studies, drilling of exploration and exploration wells
amountingtoatotalcommitmentof$53million.Additionally,twoCBMblockshavebeenproposed
fromtheexistingPetroleumWorkingAreaandCoalMiningArea.ThegovernmentexpectsfirstCBM
productionin2011.
Indonesia plans to launch a tender of shale gas fields in 2010; shale gas potential is estimated at
around30tcm.
Europe: An Evolution Rather Than a Revolution
LookingattheUSexample,manyimportingEuropeancountrieshavebecomeveryinterestedabout
the potential of unconventional gas production. As noted earlier, there are many challenges that
couldpreventanunconventionalgasboomhappeninginEurope.However,therehasbeenalotof
activity recently, in particular on shale gas or CBM, in Austria, Bulgaria, France, Germany, Italy,
Poland,Romania,Spain,SwedenandtheUnitedKingdom.Therearealsosometightgasprospectsin
CentralEurope(Poland,Hungary,andGermany).
IOCs,whichhadbeenlargelyabsentfromthefirststepsintheUnitedStates,arekeentobeonboard
sooner rather than later: ExxonMobil, Shell, Chevron, ConocoPhillips Marathon, and Total are
present in one to several countries. European upstream players such as Statoil, OMV, Eni are also
looking into this potential. But there are also smaller players such as European Gas, Falcon,
Schueppbach,AurelianOil&Gas,FXEnergytoquoteafew.
Europe,atleast,benefitsfromgoodgeologicaldocumentationbutneedstoappraisethequalityof
the potential shale plays. In most countries, unconventional gas is at the very early stages of
acquiringseismicdata,lookingtodrillwellsin201012.OnlyafewEuropeancountriesareactually
producingunconventionalgas,andthenonlyinsmallquantities.
OECD/IEA, 2010
18
This compares with much lower share for conventional oil (15%) and gas (30%).
190
UnconventionalGasActivitiesinEurope
Austria
Belgium
Bulgaria
France
CBM
EuropeanGas,TranscorAstraGroup
CBMEnergy
EuropeanGasLtd
Germany ExxonMobil
Hungary
Tightgas
Wintershall
MOL,Falcon,
ExxonMobil
Shale
OMV
Total,EgdonResources,Mouvoil,
SchueppbachEnergyLLC,DaleGas
Partners,EagleEnergyLtd,Bridgeoil
Ltd.,DiamocoEnergy
ExxonMobil,
ExxonMobil
Italy
Poland
Ind.Resourcesplc
CompositeEnergy,EurEnergy
Romania
Sweden
UK
Turkey
Falcon,Galaxy
Islandgas,CompositeEnergy
BG,Nexen,Marathon
Preliminarywork,exploration,assessmentofseismicdata
Wellsdrilled
Production
Aurelian
ExxonMobil,ConocoPhilips,Lane
Energy,Talisman,Chevron,Aurelian,
FXEnergy
FXEnergy
Aurelian,FXEnergy
Shell
TransAtlanticPetroleum,TPAO
Note: the list of companies is not exhaustive.

Source: IEA, based on press releases, news reports.
Poland
OECD/IEA, 2010
Poland is a large coal producer, so that CBM resources could be expected, but shale gas seems to
have got more attention. Unconventional gas has attracted not only IOCs such as Chevron, Exxon
Mobil, ConocoPhillips, Marathon but also smaller companies such as Lane Energy, a subsidiary of
3Legsresources,AurelianOil&Gas,EurEnergy.
Polandhasapprovedaround45explorationlicensesforshalegas.ExxonMobilhasfiveconcessionsin
the Podlasie and Lublin basins representing 1.3 million acres and is quite advanced in seismic data
analysis.ConocoPhillipssignedanagreementwithLaneEnergy,whichownssixexplorationlicences
coveringaround1millionacres,locatedinNorthernPoland,intheBalticBasinregion.ConocoPhillips
fundedaninitialshalegasexplorationprogrammeofseismicanddrillingandLaneexpectstostart
drillinginJune2010.ChevronalsoacquiredrightstoexplorefornaturalgasinPolandandexpectsto
start drilling in 2011. It was awarded three fiveyear exploration licenses in December 2009
(Zwierzyniec,KransnikandFrampol)andanotherone(Grabowiec)inFebruary2010.Theyrepresent
togetheraround1.1millionacres.Talismanhasa60%interestintwoconcessionsinPoland,aswell
as a third one. Talisman is conducting seismic in 2010, and also expects drilling to start in 2011 or
2012.IthasalsosignedafarmagreementwithSanLeonEnergy.
191
Despitethediscussionsaroundshalegas,thereisalsodevelopmentontightgas,withAurelianOil&
Gas expecting to start drilling in its Sierkeki discovery in June 2010. Areas in eastern and southern
PolandarethoughttoholdCBMresources.CompositeEnergy,EurEnergyandsmallercompaniesare
investigatingthispotentialwhichfailedtoattractIOCs.
France
France has attracted a lot of interest recently, in particular on shale gas, and the government has
awarded several licenses in March 2010. In 2009, the area of exploration licenses increased from
28,882km2to42,666km2,dueto12additionalpermits.SmallcompaniessuchasEuropeanGasLtd
hadbeenactiveforseveralyears,particularlyinCBME&Pwithseveralpermits,notablyintheNorth
(NordPas de Calais, Lorraine). European Gas started producing small amounts of CBM (10Mcm)
fromGazonorinthelastquarterof2009.ThisgaswassoldtoTotalonanoillinkedprice,butstarting
March 2010, the price would be flat for 13 months at 15.4/MWh. The company is explorating in
otherregions(Lorraine,Jura).Thereisalsoafocusonshalegas:early2010,Totalobtainedapermit
for 75% of the Bassin dAles in Southern France. Many small companies such as Egdon Resources,
EagleEnergyLimited, Mouvoil,SchuepbachEnergyLLC,BridgeoilLtd.andDiamocoEnergyarealso
activelylookingforunconventionalgasinFrance.
Hungary
Historically,theattentionhasfocusedontightgas,inparticularontheMakoTrougharea.InJanuary
2005,theCanadianFalconOil& Gas Companyacquiredlicensestoexploreanddrillinthisareain
southeasternHungary.Acomplete3Dseismicprogramwasacquiredandwellsdrilledupto6,000m
deep. First estimates indicated reserves higher than 600bcm (P90), approved by the Hungarian
GeologicalSurveyend2006.MolandExxonMobilmovedin,bringingtheirexperience.Buttheygave
up in 2009 after disappointing drilling results, including water penetration. Exxon is also looking at
shalegas.
Germany
ExxonMobilisactiveinbothshalegasandCBM.Theyhavealargeacreageposition,verylongholding
periodandsofarhavedrilledthreewellsforshalegasandareevaluatingseismicdata.ExxonMobil
also has a longterm multiyear program in place to assess the potential of CBM. Wintershall has
beenactiveonthetightgasdevelopmentofLeer,LowerSaxony,since2007.
Other Regions Have Still to Appear on the Radar Screen
Other regions or countries are also looking at unconventional gas. Ukraine has attracted a lot of
interest,bothonCBM,mostlyintheDonetskbasin(EuroGas,TNKBP)andonshalegas(EuroGas).In
SouthAfrica,Shell,Statoil,ChesapeakeandSasolareconductingstudiesonshalegaspotentialofthe
KarooBasin.Apachewilldrillasmanyas48wellsintwofieldsintheArgentineanNeuquenbasinin
thenextfouryears.Gaswouldbesoldat$5/MBtu.Therearealsoactivitiesintightgasprospectsin
MENA countries. While conventional resources may be developed earlier, such resources can
effectivelychangethesupplypictureasitisthecaseforOman,wheretightgasfieldsseemlikelyto
enablethecountrytoremainagasexporter.
OECD/IEA, 2010
192
Unconventional Gas Global Players

For a long time, unconventional gas, in particular CBM and shale gas, was a matter of interest for
mediumtosmallE&Pcompanies.Overthepasttwoyears,ithasattractedincreasinginterestfrom
majorsIOCsandfrommanyNOCseagertoparticipateinthisnewdevelopment.Technologyisthe
keytodevelopingunconventionalgasandthisisnotsomethingthatcanbedevelopedinacoupleof
years. To overcome this, energy companies have focused or combined the following strategies:
acquisitionsofacreage,takeover,orpartnershipwithexistingcompanies.
The New Prize
One of the largest takeovers in 2009 was Exxon Mobil buying XTO Energy, an unconventional gas
playerandoneofthelargestUSgasproducerswitharound30bcm/y.Thiseventwasjustthetipof
anicebergasIOCsaswellasNOCshavebecomeincreasinglyinterestedinshalegas,afterrealising
theymissedtheboattwoyearsago.IOCshavealsobeenlookingattightgasfieldsforsometime,
eventhoughthesedepositswereoftenleftbehindduetothelackofproperdrillingtechniques.
ExxonMobilhasspreaditspresenceinthreeregionsandinmanycountriesandislookingactivelyat
all three unconventional gas types. By buying XTO, Exxon Mobil acquired not only the technology
experience but also 390bcm of reserves (85% gas) and operations in the Barnett, Haynesville
Bakken, Woodford, and Fayetteville shales, and planned drilling for the Marcellus shale, all in the
UnitedStates.ExxonMobilisalsopresentinHungary(tight),Indonesia,PolandandGermany(CBM),
Germany,PolandandCanada(HornRiverPlay,shale).
BPhasastrongpositionandhasbeenveryactiveinallthreetypes.BPstartedshalegasoperations
with the Amoco takeover a decade ago, but continued to expand its position by spending
$1.75billion to acquire shale interests (Woodford, Fayetteville, Haynesville) from Chesapeake in
2008 and acquired additional acreage in the Eagle Ford Shale play in Texas from Lewis Energy in
2009. As of end 2009, BP has 1.2tcm of proven gas reserves in North America, 80% of which is
unconventional.Thecombinedpositioninthefourshaleplaysmentionedearlieramountstoaround
280bcm.ItalsohastightgasandCBMpositionswithSanJuanandWamsutter.BPisalsoincreasing
itsCBMresourcesinIndonesiawiththeSangaSangaproject.Inaddition,BPisevaluatingCBMand
shale gas opportunities with CNPC and Sinopec in China. Regarding tight gas, BP has a very strong
positioninNorthAmerica,sincehalfofitsproductioncomesfromtightgas.BPisnowapplyingits
experience to its growing international assets in MENA countries: Amenas, In Salah and
TiguentourinefieldsinAlgeria,theKhazzanandMakaremfieldsinOman
ConocoPhilipspioneeredlargescaleCBMproductionintheUnitedStatesandhasstartedlookingat
shalegasproductionandevenresearchinggashydrates.In2006,theyacquiredBurlingtonresources,
enabling them to get access to the San Juan tight gas basin and CBM production and also have
positions in Haynesville, Eagle Ford and Barnett shale gas areas. In 2009, they acquired acreage in
Canada(HornRiver)and signedexplorationagreementsinPoland.IntermsofCBM,ConocoPhilips
plans to use its experience in the CBM Australia Pacific LNG (APLNG) with Origin Energy in
QueenslandaswellasinprojectsinChina.
OECD/IEA, 2010
Total has developed experience in tight gas reservoirs some time ago, for example in Indonesia,
allowingittowinacompetitivetenderforChinasSouthSuligereservesin2006andbechosenlater
for the development of the field. More recently, Total has moved to shale gas but is activities are
currentlyverylimited:early2010,itformedajointventure(JV)withChesapeaketoacquire25%of
193
the Chesapeakes holdings in the Barnett Shale (representing around 2bcm of production and
20bcmofreserves).TotalwasalsoawardedpermitsforshalegasexplorationinFrance.
ShellhasdecadesofexperienceindevelopingtightgasinCanada(Foothills,Albertadeepbasin),
the United States (Pinedale, Haynesville as well as Marcellus and Eagle Ford through the recent
acquisitionofEastResourcesfor$4.7billioninMay2010),Oman,UKNorthseaandChina(Changbei)
andislookingatNorthAfrica.Shellproducedaround6bcmin2008,ofwhichChinaandtheUnited
States contributed 40% and Canada the rest. In 2010, Shell and PetroChina decided to acquire the
Australian CBM specialist Arrow Energy. Shell has proposed a CBM LNG project in Australia,
nearGladstone.
BG acquired Exco in 2009, giving it access to US shale (Haynesville) and tight gas (Cotton Valley)
resources.Sofar,theshaleexperiencehasbeenlimitedtotheUnitedStates,whiletheyalreadyhad
tightgasplansinOmanwithAbuButabuldiscovery.BGisalsobehindthelargeproposedCBMbased
QueenslandCurtisLNGproject:in2009,theyacquiredPureEnergyenlargingtheirQueenslandgas
resourcestoaround500bcm.
Statoilhasbeenquiteactivelystrengtheningitsshalegasposition,andstartingin2008byacquiring
32.5% of Chesapeakes position in Marcellus. Statoil plans cooperation on unconventional gas with
Chesapeake in a certain number of countries; the companies have identified 14 projects in India,
Poland, Hungary, Australia, China or South Africa. Statoil has some experience with tight gas
reservoirs,forexampleinAlgeria.
What is the Rationale?
There are several reasons driving the new quest for unconventional gas. Acquiring technology, in
particular for shale gas as IOCs have quite strong positions in tight gas, is one of the key drivers.
Expanding their acreage, increasing their reserves (or keeping a reservereplacement ratio higher
than100%),expandingtheirglobalpresence,orbeinginapositiontobeselectedbygovernmentsto
developfutureunconventionalprospectsarealsoimportantdrivers.
MostcompanieshavestartedintheUnitedStates,andapartfromafewexceptions,therehadbeen
limitedmovesabroaduntil2009.Butthisisquicklychangingwiththesuddeninterestofcountries
for this new resource. Based on the analysis above, two companies have a global presence and
strongpositioninallthreetypesofunconventionalgas:ExxonMobilandBP.Othersarelimitedto
oneortwotypes,havingminorpositionsinthethird,and/orregionalpresence.
NOCsorsmallernonUScompaniesaremovingaswellasisillustratedbytheinterestofChineseNOCS
inCBMandshalegasorbyRILsentryintheUnitedStates.Forthem,therationaleappearsmainlyto
acquire experience to be able to export the knowhow to their home markets or in producing
countries that would supply their domestic market in the future. Finally, there are many small to
mediumsize companies active in what is still a niche market at the country scale: it remains to be
seenwhethertheywillbeabletokeeptheirindependenceorbeabsorbedinthenextM&Awave.
OECD/IEA, 2010
194
P ART 2: G AS P RICESAND T RADING D EVELOPMENTS
PRICES AND TRADING DEVELOPMENTS

Summary
Two different price systems in OECD countries coexist with a large and unprecedented gap
between them. The decoupling between low spot prices and oillinked gas prices is having far
reachingconsequencesforbuyersandsellersinthethreeOECDtraditionalmarketsaswellasin
emerging LNG importers. Gas importing companies, essentially in Europe, are caught between
their longterm contractual obligations and the pressure from their customers, in particular
industrials, to supply gas at more competitive prices. Importers have in turn pressed their
suppliers for contract renegotiations on price and volumes. Those producers supplying at oil
linkedgaspriceshaveseenamorerapiderosionoftheirsalesthanthatimpliedbytherecession
and a few key suppliers have granted some concessions. The additional volume flexibility that
wasagreedinseverallongtermcontractsnotonlyeasedthesituationofoversupplyin2009,but
willalsoaltertheEuropeansupply/demandbalancein2010andbeyond.
Arguably,themostimportantquestionfacedbythegasindustryoverthecomingthreeyearsis
whetherthetraditionaloillinkageonEuropeancontinentalandAsianmarketswillcontinueor
not. The concessions granted giving a partial spot indexation in some European contracts are
onlytemporary.Whethersuchspotindexationremainsbeyondthethreeyearsortraditionaloil
indexation returns will depend on the global supply/demand balance and the evolution of the
gapbetweenspotandoillinkedprices.
TradinginContinentalEuropehascontinuedtoprogress.ThegrowthoftheDutchandGerman
spotmarketsoverthepasttwoyearshasbeenremarkable.Newhubservices,improvementsin
interconnectionsbetweencountries,increasedtransportationcapacity,regulatoryimprovements,
merging of market areas and improvements of balancing regimes will provide a stimulus for
furtherdevelopmentofliquidityinEuropeangasmarketsinthenearfuture.
Two Different Price Systems: is a $5/MBtu Gap Sustainable?
OECD/IEA, 2010
Since the beginning of 2009, two distinct gas price regimes have emerged: the high oil-linked gas
pricesthatprevailinlongtermContinentalEuropeancontractsandJapan/Koreaandthemuchlower
spot prices that can be found in NorthAmerica, the UnitedKingdom and on Continental European
spotmarkets.Thecollapseofspotprices,adirectconsequenceofthegasglut,putthesepricesas
lowasonethirdoftheenergyequivalentofoil.Thepricedivergencebetweentheoillinkedandthe
spot based gas price systems is unprecedented $5.2/MBtu between the Henry Hub (HH) in the
UnitedStatesandtheJapaneseimportpriceover2009.Suchagaphasprofoundconsequencesfor
both buyers and sellers: buyers asked for renegotiations of the contracts formulas while some
sellers,whoretainedtheirlongtermoillinkedgasprices,sufferedfromalackofcompetitivenessin
some markets and consequently lost market shares. Such high prices have contributed to demand
destruction.Furthermore,themuchawaitedconvergencebetweenspotpricesonbothsidesofthe
AtlanticHHpricesandtheUKNationalBalancingPoint(NBP)isnowafact.BetweenMarch2009
andMarch2010,themonthlydifferencebetweenNBPandHHhasbeenaround$0.5/MBtuandhas
onlyrarelyexceeded$1/MBtuwithHHgenerally(andunsurprisingly)atadiscounttotheNBP.Since
April2010,thedifferencehashowevergrownwider.
Lookingforward,themainquestionfacingthegasindustryishowlongsuchagapcouldpersistuntil
majorchangesoccur.Thishasalreadylaunchedaheateddebateaboutthedelinkagebetweengas
195
andoilprices,aprinciplewhichhasbeenthebackboneofmanylongtermcontractsinEuropeand
OECDPacific(althoughondifferentbases).Oneshouldnotforgetthatoilpriceindexationrepresents
only20%oftotalglobalgassoldwhilepricingbasedongastogascompetitionrepresentsonethird
andregulatedgaspricingcloseto40%.19Andthatonmanyoccasions,spotpriceshavebeenmore
volatile and higher than oillinked gas prices and have spiked occasionally to record levels in 2005
and2006,drivenbyshortages(notablyhurricanesintheUnitedStates).
Gas Price Evolution: a Look Back at 2008-10
Thefallinspotgaspricesthatstarted mid2008 continuedwell into2009,reflecting theeconomic
downturnthatresultedinlowergasconsumptionincombinationwithabundantsupply.Theworlds
twomajorspotmarketsbothsawextremelylowpricesin2009:$4/MBtuand$5/MBtuattheHHand
NBP respectively. HH prices occasionally dropped to a low of $1.8/MBtu, a first since 2002. Prices
haverecoveredtosomeextentsincetheselevelsoccurredinSeptember2009duetotheseasonality
andthecoldwinterseason.
InternationalGasPrices(200710)
16
14
Prices[USD/MBtu]
12
10
8
6
4
2
NBP(monthlyaverage)
HenryHub(monthlyaverage)
GermanBorderPrice
May10
Mar10
Jan10
Nov09
Sep09
Jul09
May09
Mar09
Jan09
Nov08
Sep08
Jul08
May08
Mar08
Jan08
Nov07
Sep07
Jul07
May07
Mar07
Jan07
JapaneseLNG
Source: German ministry of Economics, ICE, Japanese Customs and Tariff Bureau.
ItisremarkablethoughthatdespitetherecordsindailydemandinboththeUnitedKingdomandthe
United States, dayahead prices never exceeded $8/MBtu. Lower spring demand levels triggered a
return to $45/MBtu so that they are now well below their fiveyear averages of approximately
$77.5/MBtu.Whilepriceshaveindeedalreadyfallenbelow$4/MBtuinMarchandApril2010,itis
OECD/IEA, 2010
19
WEO-2009, based on International Gas Union (IGU) (2009). Other formulations include bilateral monopoly and netback from
final product.
196
unlikelythattheywillfallsignificantlyandsustainablybelow$3.5/MBtuin2010,eveninsummer,as
coaltogasswitchinginthepowersectorwouldstarttodrivegasdemandbackupagain.Supplywill
alsobeaffectedatsomepointuntilonlythemosteconomicalmarginalsupplysourcesremain.
ThetimelagofthreetoninemonthscausedoillinkedgaspricesinJapanandcontinentalEuropeto
start falling later in 2008 than spot gas prices and they recovered earlier on the back of rising oil
prices in 2009, thereby increasing the gap between oilbased prices and spot gas prices. It is
worthwhiletonoteaveryinterestingchangeintheevolutionoftheGermanborderprice.Thisprice,
reportedbytheGermanministryofeconomy(BMWI),wasknowntobethebestrepresentativeof
oillinkedcontractgaspricesinnorthwesternEurope.Overthepasttenyears,untilsummer2008,
theGermanborderpriceandtheJapaneseLNGimportpricehadbeenfollowingeachother,ifnotin
terms of levels, at least in their evolution. But this stopped mid2008: the German border prices
never exceeded $12/MBtu and started to drop mid2008 at the same time as oil prices collapsed,
althoughthetimelagsintheformulasshouldhaveledtoacontinuedincreaseoveratleastthethird
quarter of 2008, if not longer. Meanwhile, Japanese LNG prices followed a different pattern: they
continued to increase over the end of 2008 reflecting the increase of JCC to over $130 during
summer2008andconsequentlyfelllaterinearly2009.AlthoughbothGermanandJapaneseprices
showedsimilarlevelsduringthefirsthalfof2009,Japanesepricesrecoveredearlierinsummer2009
and more strongly, reaching $10/MBtu early 2010. Since the beginning of 2010, there has been a
$2.5/MBtu gap between both oillinked gas prices, which seems to imply that the German border
pricesarenolongerpurelyreflectinganoillinkage,butalsoincorporatingspotgassupplies.
Convergence:HenryHubandNBP
TheconvergenceofHHandNBPthatstartedearlyin2009continuedthroughouttheyearandinto
2010. The NBP premium to HH mostly moved in an unprecedented tight band of $0.51/MBtu,
averaging $0.75/MBtu. The premium exceeded $1/MBtu only briefly, and Henry Hub traded at a
premium to the NBP rarely, for example in December 2009, when cold weather in North America
droveupHHprices.
OECD/IEA, 2010
The question is how this convergence came about and whether it is here to stay with NBP at a
premiumoverHH.Inotherwords:whichfactorswillcausethesemarketstocontinuetoconvergeor
start to (structurally) diverge again? Indeed, in recent months, the gap increased again with HH
staying close to $4/MBtu while NBP set off on a rise to $56/MBtu. The fundamentals behind this
recent development temperatures below seasonal averages, volatility in flows from Norway and
increased continental power demand seem to be mostly shortterm in nature compared to the
factors driving convergence. This illustrates that occasionally some shortterm regional factors can
weakentheconvergence.
Soletstakeacloserlookatwhatsfundamentallydrivingconvergence.Theriseofunconventional
gas production and the drop in domestic demand in North America mean that one of the worlds
largest markets is now less dependent on imports and has more options in optimising natural gas
sourcing. Some unconventional gas producers have proven to be resilient to prices as low as
$3/MBtu and most producers appear to be comfortable with prices ranging around $45/MBtu.
Furthermore,QatariLNGcanbedeliveredprofitablytotheUnitedStatesataround$3/MBtudueto
low feedstock costs and the value of associated condensates. High oillinked prices in Continental
Europe provided buyers with an incentive to maximise the offtake of lower priced spot LNG and
createdlucrativeopportunitiesforLNGsupplierstodivertcargosfromtheUnitedStatestoEurope.
This would not have been possible in a world with disconnected regional markets or without the
197
current oversupply. Past investments in liquefaction and regasification capacity have created a
potentialforarbitrageonaglobalscale.AnanalysisoftheLNGcontractsintheAtlanticbasinsuggests
that 60% of the current volumes are flexible, enabling gas suppliers to ship their gas to the market
that offers the highest netback. As a result of this, North America is effectively emerging as a price
setterforshorttermmarketsinWesternEurope.Astheyarealsotheresidualmarket,theirpriceis
set to remain at a discount against European spot prices. The United Kingdom is indeed importing
increasingamountsofLNGandthistrendwillonlycontinuewiththerecentgrowthofLNGcapacity.
Divergence:OilindexedGasPricesandGastoGasCompetition
Fromthestartof2009,thedifferencebetweenspotpricesforoilandgas(WTIversusHenryHubin
energy equivalents) started to widen again. While oil and gas prices fell almost simultaneously in
mid2008,oilpricesstartedrisingagainfromFebruary2009onwardswhilegashasonlyrecovered
slightly in recent months. The current absolute difference of around $8/MBtu is certainly not
unprecedented(andwasevenhigherin2007and2008),butstillremarkableonthehorizonofthe
pastdecade. Therollingaverageratio betweenHenryHuband WTIoilprices(expressed inenergy
equivalent)hasbeencontinuouslydecliningoverthepastsevenyearsfrom1towellbelow0.4.
WTIandHHPrices
25
1.40
1.20
20
USD/Mbtu
1.00
15
0.80
0.60
10
0.40
5
0.20
0.00
WTI
HenryHub
HH/WTIratio
HH/WTIratio12monthsrollingavg
Sources: IEA, ICE, EIA.
OECD/IEA, 2010
Several factors have contributed to the divergence of spot gas prices versus oilindexed prices or
more generally between the gas and the oil markets. On the supply side, the gas market has
experiencedadoublesupplyshockfromrelentlessunconventionalgasproductioninNorthAmerica
198
and large scale additional LNG, whereas oil supply has not had such paradigm changes. On the
demandside,gasmarketshavebeenhitharderthanoilmarketswithworlddemanddeclining34%
versus 1% respectively. This is because of the relative inelasticity of oil demand, especially in the
transportsector,versusthehighlevelofgasuseinthehardhitindustrysector.
Gaspricesunderlongterm,oilindexedcontractshavegenerallybeenhigherthanspotgaspricesfor
three years now, but the gap has widened significantly since mid2008. Differences between the
GermanborderpriceandNBPaveraged$3.6/MBtu(around10/MWh)in2009.Asnotedearlier,the
Germanborderpricehassomewhatdecoupledfromwhatcouldbeexpectedfromanoillinkedgas
price.ThegraphicbelowshowsthedifferencebetweentheactualGermanborderpriceandanoil
linkedgaspricebasedonaregressionoverafiveyearperiodbetweentheGermanborderpriceand
Rotterdams fuel oil and gasoil prices. Meanwhile the Japanese import price continued to reflect
morecloselytheoilpricechanges.
ActualandExpectedGermanBorderPrice
16
14
Price(USD/Mbtu)
12
10
8
6
4
2
0
Germanborderprice
RegressionbasedonFO/GO
OECD/IEA, 2010
Source: BAFA, IEA analysis.
NeitherthewidevariationsofexchangeratesbetweentheUSdollarandtheEuro,northevariations
ofthe Rotterdamfueloil andgasoilpricescanexplainsuchbehaviour.One possibleexplanationis
thatalthoughmostofthegasimportedintoGermanyisstillbasedoncontractswithanoillinkage,
thereisnowincreasingspotbasedgasenteringGermany.Asexplainedlaterinthesectiononmarket
developments, trading on the Title Transfer Facility (TTF) in the Netherlands and Net Connect
Germany(NGC)inGermanyhasincreasedsignificantly:tradedandphysicalvolumesincreasedfrom
86bcmand31bcmin2008to130bcmand50bcmin2009respectively.Clearlythesetwomarkets,
whosepricescloselyfollowNBP,providesellerswithmoreopportunitiestomarkettheirgasatspot
prices. Therefore it would not be surprising to see spot gas entering Germany directly or through
199
crossborder trade with the Netherlands. However, entry capacity from the Netherlands into
Germanyisverylimited,particularlyonashorttermbasis.Naturally,waystoswapvolumesatthe
border exist and Tracx also provides market participants with a way to buy capacity on the
secondary market, but crossborder trade with the Netherlands could not explain such a
development.Therefore,thisexplanationcanonlypartiallyexplainsuchachange.
ThereareotherexplanationsfortheGermanborderpriceleavingitsoilbasedpath.Onefactorthat
is likely to be part of the answer is ceilings in the price formulae that dampen the impact of
extremely high oil prices on the gas price under longterm contracts. Such ceilings could involve
linkagestocoalspotprices,whichcollapsedfromapeakof$220pertonnetoaround$80pertonne
between July 2008 and December 2009. This would explain why the German border price did not
increaseafterJuly2008.AnotherreasonmightbethatGermanimporterschosetoincreasetheiroff
take under the contracts which have a longer timelag and thus a lower price in this period of
increasingoilprices.Therecentchangesresultingfromthenegotiationonlongtermcontractswill
alsoaffecttheGermanwholesaleprice.
ContractsRenegotiation:theBeginningoftheEnd?
The outcome of this disparity was minimum offtake under oilbased gas contracts and
renegotiationsoflongtermcontracts.Europeanbuyersrealisedasearlyasthethirdquarterof2008
thatthecrisiswasaffectingtheirdemandmuchmorethanexpectedandthatitwaslikelythatthey
would not be able to respect minimum takeorpay quantities. Criticism over the oillinkage was
vociferous among European buyers while Asian buyers called for more flexibility and competitive
prices. Both volumes and prices, which are interlinked, were at stake: a high price is less likely to
encouragearecoveryofdemandinparticularintheindustrialandpowergenerationsectors.
OECD/IEA, 2010
Adjustmentsoflongtermoilbasedcontractshavealreadyoccurred.Surprisingly,Gazpromagreed,
publicly,tosomeconcessionsonboththevolumeandthepricewithsomeofthemajorconsumers,
includingENIandE.ONRuhrgas.GazpromandE.ONRuhrgasagreedonlinking15%ofthevolumeto
spotpricesforathreeyearperiod.GasTerramadeitknownthatinthe2009negotiationsconcerning
theextensionoflongtermcontractswithGDFSuez,DistrigasandSwissgas,partialdecouplingfrom
oilbased pricing has been incorporated. Contracts from Turkish utility Botas apparently received
evengreaterflexibilityin itsRussiandeliveries.Early2010,Statoilaccommodatedsomechangesin
longtermcontractsbyintroducingseparatecontractsandthecompanyrecentlyannouncedthatitis
looking for buyers, power generators in particular, to engage in longterm commitments based on
price indices other than oil (e.g. power, gas). Energy companies that managed to renegotiate
conditionseithergenerallyhavedirectaccesstoLNGsuppliesorfacecompetitionfromnewentrants
which could source volumes on spot markets themselves and outbid them, particularly in
competitionforsupplycontractstoindustrialbuyers.
Such adjustments to the price formula are not too much of a surprise: given the volume losses
experienced by sellers and the difficulties encountered by buyers selling this gas to their own
customers.Indeed,whilesomelargeEuropeanimportersmaybeabletopassthroughthegasimport
price increases to small users with predictable reactions from gas users associations and
governments,someindustrialconsumersandpowergeneratorsseethespotpriceanddemandthis
price. Furthermore, both buyers and sellers have an interest helping gas demand recover in the
industrial and power generation sectors by improving its competitiveness versus coal and other
generating technologies. Finally, sellers want to protect their share of the market in particular ina
contextofdeclininggasdemand.
200
E.ON Ruhrgas for instance made a strong plea for adapting longterm contracts to the changed
circumstances, saying: [longterm import contracts] must be carefully adapted flexibly to major
market changes. This is urgently needed at present and adding that In Europe, [gas] has
increasingly gained the image of an insecure imported energy that is problematic in geopolitical
termsandisalsoexpensiveandsubjecttopricevolatility.20GDFSuezvoicedsimilarconcernsand
theJapanGasAssociationurgeddialoguebetweengasexportingandimportingcountriestoreduce
exposure to oil price fluctuations and reach an agreement on a reasonable and acceptable price
level to create sustainable growth for both parties. While some companies have been relatively
vocalaboutthechangesobtained,theconfidentialityoflongtermcontractsmakesitdifficulttoget
a comprehensive picture of the size of the market that has been affected by the changes. Even a
market without LNG terminals like Germany sees some influence from cheap supplies available
through its interconnections to other countries and the growth of trading. Meanwhile, Eastern
European countries have limited access to spot gas and the geographical constraints on the
transmissionsystemmakeitunlikelythattruecompetitionfromspotgaswillbeseeninthatregion.
WhichWayForward?
Evenifachangetowardsspotpricingweretohappenatthemargin,thatwouldnotbetheendof
thelongtermcontractswhichhaveunderpinnedmajorupstreamandinfrastructureinvestmentsfor
years.Also,therearemanyroadsthatleadtoRome:adjustmentsinoilindexedlongtermcontracts
to(partially)closethegapcaneitherbemadebyadjustingtheoilbasedformula21orbyintroducing
spotmarketindexationforacertainpartofthevolume(e.g.allvolumesaboveminimumbilllevels).
Thecontinuedgapbetweenspotgaspricesandoilbasedpriceswillnaturallyinducebuyerstoexert
pressure on suppliers for the introduction or expansion of gastogas pricing in new and existing
contracts, particularly if they sell gas to, or operate, gasfired power plants. It would, however, be
unrealistic to expect a sudden turnaround of oilbased pricing. But, first of all, what are the
argumentsinfavouroragainstdecoupling?
BuyerswouldarguethatthegrowthofLNGsuppliesandunconventionalgasleadingtothecurrent
oversupplyhasmadeconsiderablequantitiesofcheapgasavailabletothemarket.Furthermore,oil
indexation is not adequate as a reference for most sectors, in particular for the fastest growing
sectorpowergeneration,whereoilplaysatbestaveryminorroleinallbutafewIEAcountries.
OilsroleinthepowersectorofIEAcountrieshasbeendecliningoverthelastdecades.Accordingtoan
IEAstudycompletedin2002,fuelswitchingfromoiltoanalternativefuelincaseofsupplydisruption
represented around 1.2mb/d with 80% concentrated in the United States, Japan, Italy, Korea and
Spain. Nine countries were able to reduce their national total oil consumption by more than 5%
throughfuelswitchingoutofoil.Fuelswitchingfromgasintooilrepresentsroughly3.5mb/dforthe
IEAasawhole,againconcentratedintheUnitedStates,Japan,Italy,GermanyandKorea.Sincethat
study,oilusehasdeclinedfurtherinOECDcountriestojustoverhalfthelevelsof2000,accountingfor
around2mb/d,or4%oftotalpoweruseandhasfallensharplyinthelasttwoyears.Anindexationto
spot, which would lead to lower prices in the current market conditions, would also improve the
competitiveness of gas, accelerate demand recovery and also give some shortterm gains to buyers.
Wheregasispricedonfundamentals,ithasheldorevenincreasedmarketshareagainstotherenergy
sources,suchascoal,ashasbeenseenintheUnitedStates.Finallyoilpriceshaveproventobevery
volatileoverthepastyearsandtheirevolutionislargelyindependentfromthepriceevolutionofgas.
20
IGU World Gas Conference, Buenos Aires 5 9 October 2009.

Price formulae in long-term contracts usually take the general form of P0 + x1 * Gas-oil + x2 * Fuel-oil. Adjusting the P0 is the
most straightforward way to tune the formula to a new level.
OECD/IEA, 2010
21
201
Supplierswillarguethatliquidityofspotgasmarketsisinsufficient,whichmeansthatcontraryto
theglobaloilmarketdemandandsupplymaybesubjecttomanipulationandthatvolatilityistoo
high for large scale, long term indexation. In doing so, they will not only attempt to protect their
revenues,butalsosecureincentivesforfutureupstreaminvestments.Thereisalsotheproblemof
choosing the appropriate marker: would the NBP market be sufficiently representative given their
own market conditions differ fundamentally from the UnitedStates? It is already used in a certain
numberoflongtermcontracts,inparticularfromNorwayandtheNetherlands.SomeEuropeanor
PacificsuppliersmightconsiderHHinappropriateasamarker.
The next three years will be a test for the oil linkage of gas prices but also for the convergence
betweenNBPandHHgasprices.OillinkageandtheconvergencebetweenNBPandHHareinfact
closelyinterlinked.Thekeyparametersthatwilldecidetheoutcomewillbewhenglobalgasmarkets
recover,howthedemandandsupplybalanceineachofthethreeregionalmarketswillevolve(i.e.
wheretightnessemerges)andtheprevailingoilpricelevel.
Ifdemandrecoversonlygraduallysothattheoversupplyisonlyprogressivelyerodedtowards2015
andifweakdemandinNorthAmericapersists,thenthedelinkageofspotgaspricesfromoilpricesis
likelytocontinueandevenincreasewhileHHandNBPwillshowastrongconvergence.Thepressure
will come from two sides: on the supply side, the availability of increased flexible LNG volumes
combinedwithincreasedLNGimportcapacitywillimproveplayerscapacitytoimportcheapgas.On
the demand side, industrials supplied under oillinked prices will be put at a disadvantage against
theircompetitorshavingaccesstospotgas(directlyorthroughtheirsuppliers)andsuchindustrial
consumersarelikelytoincreasepressureontheirsuppliers(reducedofftakeanddemandforprice
concessions).OnEuropeangasmarkets,buyerswillrenegotiateashareofspotindexationdepending
on their ability to source additional supplies on global LNG markets or on the Continental spot
market.OnAsianmarkets,buyersmayaskformoreflexibilityintheircontractsinordertobeableto
sourcepartoftheirsuppliesonspotmarkets.Chinesebuyersarelikelytobeparticularlyattentiveto
priceconditions,notwithstandingaclearwillingnesstopayhigherpricesthanpreviously.Japanese
buyersarelikelytobemoreprudentastheypreferstabilityoflongtermrelationships,andareless
likely to deviate from their current model, but an expansion of upward and downward quantity
tolerancesandagentlerslopecouldbepartofrenegotiations.Unexpectedevents,suchasfailurein
otherpartsoftheirpowersector,couldseeJapanbuyingmorespotgas.
OECD/IEA, 2010
Howeverthecurrentoversupplycouldalsobeerodedswiftlyifdemandreboundsrapidlydrivenby
strongeconomicgrowthandthepowergenerationsectorwithinthecomingfiveyears.Demandin
nonOECDcountriesissettoincreasebutcouldincreasemorerapidlythanexpected,inparticularin
ChinawhichisbecomingaseriouscompetitortoEuropeforLNGsupplies.Alsoarapidgasdemand
increaseinproducingcountriescouldtakeawayvolumespreviouslyearmarkedforexports.Inthat
case two possibilities arise depending on whether the United States remains disconnected from
internationalmarketsintermsofsupplyanddemand.
Inafirstcase,the USmarketwouldremainphysicallydisconnected due toabundantdomestic

supplyresultinginlimitedLNGimportsneedsandstillrelativelylowHHprices.Inthatcase,HH
and NBP prices would diverge as NBP prices would be determined by the marginal supplier
globalLNGorEuropeangas.Asianmarketswouldremainpredominantlyoillinked.Themarket
wouldbeasellersmarketgivinglimitedconcessionstobuyers.
Inthesecondscenario,demandincreaseswouldmaketheNorthAmericangasbalancetighten
againandHHpriceswouldincreaseaccordingly,closingpartofthegapwithoillinkedgasprices.
202
Regional Price Evolution

Continental European Spot Price
PricesontheContinentalEuropeanspotmarketscontinuedtofollowNBPpricesevermoreclosely.
ThedeltabetweenZeebrugge(ZBH)andTTFusuallymovedwithin$0.4/MBtueitherway.Unlikein
recentyears,TTFtendedtobehigherthanZBHandNBPin2009.Apossibleexplanationforthisis
that while ZBH and NBP are directly influenced by global price development through LNG trade,
transport constraints for gas flowing from the UK and Belgium to The Netherlands (i.e. no reverse
flow through BBL) cause these price changes to seep through more slowly and imperfectly to the
Dutch market. The United Kingdom was clearly well supplied during winter 09/10. It was only late
November2009thatInterconnectorUnitedKingdom(IUK)flowsturnedtotheUnitedKingdomand
net flows over the winter 09/10 were close to 0 bcm. This also confirms the role of the United
KingdomasatransitcountryforLNGandNorwegiangasforWesternEurope.GasflowstotheUnited
KingdomthroughtheIUKwillbestimulatedbytheJuly2009decisionofFluxysandInterconnectorto
bringWobbeindexrequirementsforgasthroughtheIUKinlinewiththelevelintheUnitedKingdom.
North-American Prices
PricesinNorthAmericahavebeenseverelydepressedasaresultoftwocheapsupplyoptionsthat
drastically changed the market: unconventional gas and LNG. Both can be commercially produced
and sold at prices below $4/MBtu and sometimes even $3/MBtu, due to technological
improvements, economies of scale and valuable associated NGLs. Since European buyers are
strugglingtomeettakeorpayobligations,itislikelythatsomeoftheglobalincreaseinLNGsupplies
willcontinuetoendupinNorthAmericatheresidualmarket,whichmeansthatpricesareunlikely
to rise in the near future. This is illustrated by a recent trend in the UnitedStates for sellers and
buyerstocommittolongtermcontracts.Suchproducersfearthatpricesmayplummetevenfurther
andbuyersarewillingtolockincurrentpricesandavoidspeculatingonafurtherdeclineofprices
andtheriskandvolatilitythatcomewiththatstrategy.Thisdemonstratesthatproducersareableto
sell substantial volumes at current prices of $4/MBtu and still make a satisfactory profit and
secondly,theyarenotexpectinghigherpricesanytimesoon.
Another development in pricing in NorthAmerica is the convergence of regional prices. The
traditional premium of gas in the consuming Eastern regions compared to the producing Western
regionshasalmostdisappearedasaresultofEastWesttransportationcapacitycomingonline(e.g.
the Rockies Express Pipeline) and increased Eastern supplies from unconventional gas production
(e.g. Marcellus) and LNG terminals along the Atlantic coast (Excelerate and Canaport). Canadian
AECO prices, that used to move parallel to HH, have over the course of 2009 and early 2010 also
convergedtoHH.TheAECOdiscountthataveraged$1/MBtuin2007and2008iscurrentlylessthan
halfthatdifference,reflectingtheshiftintheNorthAmericansupplybalance.Consideringtherather
permanent nature of these changes and expected future increases in transportation capacity from
theWesttotheEast,itislikelythattheconvergenceisheretostay.Thegraphicbelowillustratesthe
convergence between the Opal Hub in Wyoming, where REX starts, and the Henry Hub (the upper
limitoftheareaisthepriceattheHenryHub,thelowerlimitisthepriceattheOpalHub,andthe
colouredareaisthedifference).
OECD/IEA, 2010
203
DayAheadPricesattheHenryHubandOpalHub(Wyoming)22
14
12
10
)
u
t 8
b
M
/
SD
U
(
ce
ir
P 6
HHOpal
Source: ICE.
Asian Price Developments

Japan,KoreaandTaiwanhavebeenthetraditionalLNGmarketsinAsiaforalongtime,fourdecades
inthecaseofJapan,theworldslargestLNGuser,withChinaandIndiaemergingasrelativelynew
markets as their economies grow and their energy consumption, in particular gas, rises. Although
ASEAN countries have bilateral gas pipelines and gas trade has been encouraged over the last few
decades, the Asian gas market is dominated by the trade in LNG due to its dependence on energy
resourcesthataregeologicallyremotefromthehomemarkets.Inordertosecurestablegassupplies,
AsianmarketsrelymostlyonmarinetransportationsuchasLNGtankers.Onlyoneintercontinentalor
crossborder pipelines has beenbuiltin thisregion,the TurkmenistanChina pipeline. Although Asian
marketsaremutuallyindependentinphysicalterms,theyaresignificantlyinfluencedbyeachotherin
termsoftradingpricessincetheytendtoprocurethemajorityofLNGfromcommonproducersinthe
AsiaPacific region (Australia, Indonesia, Malaysia, Brunei) or the Middle East (Qatar, Oman). Due to
thesecharacteristics,theAsiangaspricehasbeenthroughauniquedevelopment.
OECD/IEA, 2010
Asiangaspriceshavesomeremarkableproperties,whichdistinguishthemfromEuropeanoillinked
gas prices. The first is linked to the historical dependency of Japan and Korea on LNG. As LNG
liquefactionplantsrequiremassivelongleadtimecapitalinvestments,particularlyintheearlystage
ofprojects,LNGproducershavesoughtlongtermcommitments(oftenupto20years)frombuyers
tomaketheirprojectseconomicallyfeasible.Asianbuyershavealsopreferredlongtermcontractsto
secure access to gas in times when less LNG projects were operational globally. Furthermore, as
22
Opal Hub is generally lower than HH.
204
notedearlier,thepriceformulaofAsianLNGiscloselylinkedtoJapaneseCrudeCocktail(JCC)prices
and,asaresult,Asiangaspricesfollowoilpricefluctuations.Theformulaalsocontainsthesocalled
SCurvemechanism,whichprovidesprotectionforbothbuyersandsellersattimesofhighandlow
oilpricesrespectively.23
However,duetothehighcrudeoilpricessince2004andthewideneddisparitybetweenoilandgas
prices in energy equivalent terms, there has been some debate concerning the price formula
between LNG buyers and sellers although the slope of price formulae has been evolving forward
around85%crudeoillinkage.Contractualcommitmentssometimespreventthemfromswitchingto
other supply sources that become more favourable as the market changes. It is also one of the
unique characteristics of LNG trade that delivery schedules of LNG cargoes are agreed well in
advance between a buyer and a seller so that the buyer and seller can plan an efficient
demand/supply program respectively. It is particularly important for the buyers to know when the
cargoesarescheduledtoarriveattheirterminalsinordertomanagethereceptionofvariousLNG
cargoesfromdifferentprojects,takingintoaccountthevolumeofLNGintheirtanks.Thesedelivery
schedulesobviouslylimitflexibilityinsupplyanddemand.
Furthermore, the destination clause in LNG purchase agreements limits Asian buyers in their
flexibilityofreplacingexpensivecargoesbyprocuringcheaperspotcargoesavailableinthemarket.It
is noticeable that spot cargoes which represented around 10% of Japanese supplies during late
2007early2008,whenLNGpriceswerewellbelowoilonanenergybasishavecollapsedtoaround
3% during most of 2009. Unavailability of key nuclear plants was also a driving factor behind high
spotLNGimportsin200708.AlthoughJapanesebuyersuseddownwardquantitytolerancesintheir
contracts,thelowdemanddidnotallowthemtobenefitfromcheapLNGsupplies.
Finally, Japanese and Korean buyers pay a premium on their LNG purchases. For instance, the
average imported price of Japanese LNG for the last 3 years (early 2007 until early 2010) is
$9.9/MBtuwhereastheequivalentpricesattheGermanBorderandtheHenryHubare$9.3/MBtu
and $6.5/MBtu respectively. The higher average of Japanese LNG prices is driven by high crude oil
pricesthroughindexation,shippingcostsfromremoteexportingcountriesandalackofcompetitive
domestic production. The difference in indexation between Asian markets on the one hand and
European/NorthAmerican prices on the other may play an important role in global gas price
development. As the LNG market globalises and traded volumes increase, more diversified price
arrangements or formulas could be developed and much more sophisticated deals emerge, using
financial instruments to take advantage of different price indexation formulae. Such developments
wouldservethevariousneedsofnewproducersandcustomersnotonlyinAsiabutglobally.
European Market Development

In2009,onceagain,annualtradedvolumesonContinentalhubsrosemarkedly.Therearenowseven
Continentalhubsforwhichdataarereported:ZeebruggeinBelgium,TTFintheNetherlands,Point
dEchangeGaz(PEG)inFrance,PuntodiScambioVirtuale(PSV)inItaly,NetConnectGermany(NGC)
andGaspoolinGermanyandCentralEuropeanGasHub(CEGH)inAustria.The56%growth,which
nearlyequals2008sunprecedentedgrowth,drovetradedvolumesto292bcmandphysicalvolumes
areestimatedtohavereachedover100bcmalmostonequarteroftotalEuropeangasdemand.All
OECD/IEA, 2010
23
The idea behind this is that crude oil had been the predominant energy source in the power sector in major consuming Asian
countries such as Japan and that, in contrast with European and North American markets, no substantial volumes of natural gas
were produced domestically. Therefore, the comparative advantage of natural gas as an alternative energy source to crude oil was
the key issue for gas importing industries and consumers.
205
continentalhubsexperienceddoubledigitgrowth,whichwastheresultofbothimprovedfunctioning
of markets and the global situation of oversupply. Improvements in the transportation system, or
abolishingdifferentgasqualities,weresomeofthereasonsforimprovement.Onmosthubs,withthe
notableexceptionofTTF,tradingconcentratesonthespotmarketratherthanonthecurve.24
TradedandPhysicalVolumes
bcm per year
Traded volume
2003
2004
2005
2006
2007
2008
2009
Physical volume 2003
2004
2005
2006
2007
2008
2009
NBP
(96)
611.0
551.9
500.1
615.2
902.6
960.8
1051.3
52.5
53.2
53.7
60.6
66.8
66.6
n/a
ZBH
(00)
38.6
41.1
41.7
45.1
40.2
45.4
64.9
10.2
10.6
8.4
8.6
7.9
9.1
12.9
TTF
(03)
2.3
6.2
11.6
19.1
27.3
60.2
76.1
1.3
2.3
3.8
5.9
7.4
18.7
25.0
PSV
(03)
0.1
1.1
2.6
7.1
11.5
15.6
23.5
n/a
n/a
n/a
n/a
6.8
7.7
11.0
PEGs
(04)
GASPOOL
(04/09)
0.3
4.0
7.0
11.1
16.5
23.7
n/a
n/a
n/a
n/a
1.4
4.5
11.6
0.0
0.4
1.2
4.8
9.7
28.6
n/a
n/a
n/a
n/a
n/a
n/a
n/a
CEGH
(05)
NCG
(06/09)
0.8
8.9
17.7
14.9
22.8
0.2
6.6
25.3
53.5
n/a
n/a
6.9
5.2
7.6
0.1
4.1
14.4
25.0
Source: National Grid, Gas Transport Services, Huberator, GRTgaz, TIGF, CRE, Gashub, Gaspool, Aequamus, Net
Connect Germany, SNAM Rete Gas.
Moreworkstillhastobedoneregardingthesimplificationofbalancingrulesandthedevelopmentof
tradingplatforms.InGermanyandFrance,thegrowthoftradedvolumeswasheavilyinfluencedby
themergersofmarketareas.ZBH,whichwasoncetheleadingcontinentalhub,isnowclearlybehind
TTF. NGC is likely to overtake ZBH in coming years and the combined traded volume of NGC and
GASPOOLalreadyexceedsTTF.
The volatility of prices on the three main hubs NBP, ZBH and TTF has increased substantially from
2008to2009andisbackto2007levels.ForNBPandZBHthevolatilityhasmorethandoubled,for
TTF it has tripled. The indicator used (standard deviation of closing prices / average closing price)
measuresthevariationinpricesrelativetothepricelevelitself.Thevariationitselfremainedmoreor
less constant for NBP and Zeebrugge, but increased dramatically for TTF. For all three markets the
averagedecreasedtomorethanhalf2008svalue.Theresultingvolatilityismoreorlessequaltothe
fiveyearaverageforNBPandZBH,butmuchhigherforTTF.Otherindicatorsmeasurethevolatility
ofpricechangesratherthanthepriceitself,whichleadstoaslightlydifferentconclusion:volatility
hasindeedincreasedin2009toalevelclosetothatin2007,buttheincreaseislessdramaticthan
theotherindicatorsuggestsandTTFhasthelowestvolatilityofthethreemarkets.
OECD/IEA, 2010
24
In financial and commodity markets, the prompt or spot market refers to the transactions where delivery is immediately or at a
point in the relatively near future, whereas the curve represents trading of products on the futures market, with delivery at a
specified time in the future. In gas markets, the curve is loosely defined as a point in time in or beyond the month following the
month of the trading day (month-ahead), which makes every contract with delivery before the end of the month of the trading
day part of the prompt. The most commonly traded contract on the prompt is Day-Ahead.
206
TradedVolumes
300
250
Volume[BCM/Year]
+56%
200
+57%
150
+35%
100
+45%
50
0
2003
TTF('03)
2004
Zeebrugge('00)
2005
NCG('06)
2006
PEG's('04)
2007
CEGH('05)
2008
PSV('03)
2009
GASPOOL('04)
Sources: National Grid, Gas Transport Services, Huberator, GRTgaz, TIGF, CRE, Gashub, Gaspool, Aequamus, Net
Connect Germany, SNAM Rete Gas.
Looking at the near future, most of the European hubs can be expected to continue their growth
pathsofrecentyearsasmarketfunctioningcontinuestoimprove.Whilenotallhubsaredeveloping
at the same pace, each country is at least working on improvements that will over time boost
liquidity. These include more import/export capacity through pipelines or LNG terminals, domestic
transportationcapacity,tradingservicesofferedatthevirtualexchangepoint,transmissionsystem
operator(TSO)orregulatorypolicyrelatedtobalancingregimesandaccesstocapacityinpipelinesor
storage. The recent Link4Hub initiative, a joint project of TSOs Gasunie Deutschland, Energinet.dk
andDutchGTS,providesagoodexampleofwhatisneeded.StartingwithapilotinJune2010,this
application will enable shippers to link their portfolios in the three grids on a dayahead basis to
facilitatetradingattheVEPs.
Allthesefactorshaveapositiveimpactonhubliquidityastheyfacilitatetheaccessofvolumestoa
hub,decreaseuncertaintyformarketparticipants,lowertransactioncostsandenablethemtoprofit
fromarbitrageopportunities.Therecenttrendofsuppliersdumpingvolumesonspotmarketswhen
facedwithalackofdemandisoneimportantfactorinincreasingliquidityin2009.Thiscouldreverse
wheneconomicgrowthdrivesgasdemandupwards,whichmayhaveadepressingeffectonphysical
andprobablyalsoontradedvolumes.
OECD/IEA, 2010
207
UnitedKingdom
TradedvolumesonNBPgrew7%to1053bcmin2009,forthefirsttimeeverexceeding1tcm.The
firstquarterof2010sawaconsiderably(around10%)lowervolumetradedthanintheprevioustwo
years,anoppositetrendcomparedtoTTFandZBHwheretradedvolumesincreasedby17%and6%
respectively. UK numbers from October 2009 onwards have to be interpreted with some caution
though, since the reporting standard changed when National Grid implemented the Network Code
modification.Unfortunately,withtheimplementationofthischange,dataonthephysicalvolumes
on NBP have become unavailable. This represents a major step back in transparency of Europes
largestgashubthatneedstoberesolved.
TheNetherlands
Substantial growth helped TTF to maintain its position as the Continents leading hub. There are
currently68partiesregisteredbyGTSfortradingattheTTFasofApril2010.Tradedvolumesgrew
26%to76bcmwhilephysicalvolumesgrew34%to25bcm,causingthechurnratetodeclinefurther
to3.0(comparedto3.2in2008).Inprinciple,onewouldexpectadevelopingspotmarkettoincrease
itschurnrateasmoreplayersenterthemarketandsetupmutualcontractsenablingthemtotrade
with more and more counterparties. Established markets such as NBP and HH have churn rates
around 1015 and around 30 respectively. The drop in growth in the churn rate may be only a
temporary hiccup in TTFs growth, due to the limited activity of financial players as a result of the
financialcrisis.However,thequestionneedstobeaskedwhetherthechurnrateofTTFislimitedby
amorestructuralcause.
Substantialprogresshadbeenachievedinfacilitatingtradingbyabolishingqualitydifferencesfrom
the traders point of view. In 2009 the Dutch TSO Gastransport Services (GTS) implemented
importantchangestoqualityconversion(QC).Priortothis,tradingattheDutchTTFwasseparated
forhighcalorificgas(Wobbe51.6)andG+gas(Wobbe44.4)25andshippersneededtobooktheQC
servicewhenthequalityoftheirgasthattheyenteredintothesystemdifferedfromthequalityof
thegasthatexitedthesystem.NowthatQCisasystemservice,onlyonegasqualityistradedatTTF,
separatefeesforQCservicehavebeenreplacedbyamarkuponallentryandexitfeesandbooking
ofQCisnolongernecessary.Atthispoint,thereisnoapparentreasonforTTFnottoresumeitspath
to maturity as the economy recovers. Three factors could help further improve liquidity: increased
transportcapacity,newtradingservicesandanewbalancingregime.
MoreimportandexportcapacityisplannedtocomeonlineasaresultofOpenSeasonprojects.
TheIntegratedOpenSeasonofGasunieNLandDeutschlandrevealedasubstantialdemandfor
additional capacity, 7% in the Netherlands and 40% in Germany. The FID is to be taken in the
secondhalfof2010;whethertherequiredinvestmentsof12billionwillbemadedependstoa
largeextentontheGermanregulatoryregimeregardingtransportationtariffs.
Another step in enhancing liquidity in the short term is expected to come from the
Intercontinental Exchange (ICE) offering TTF futures trading since 15 March 2010 and thereby
addinganothertradingplatformwhichalsoprovidesaccesstotheNBP.Tradesinthefirstweek
amountedtoover1millionMWh(>100Mcm).
Implementationofthenewbalancingregimehasbeendelayedandisnowtobeintroducedin
2011.Thekeywordinthisnewregimeismarketbalancing,whichmeansthatmarketplayers
OECD/IEA, 2010
25
In principle, two more qualities (43.8 and 46.5) were tradable but these were never used in practice. Liquidity on G+ was also
very low compared to H-gas.
208
collectivelyaretokeepthesysteminbalance.Toenablethemtodothis,GTSsendsneartime
information on the position of their portfolio and the system as a whole. When the system
exceedslinepacklimitsaresidualbalanceprocedurestarts,wheremarketparticipantscanoffer
shorttermcapacityonthebidpriceladderattheexpenseofparticipantsthatcausedthesystem
tobeoutofbalanceandrewardingparticipantsthathelpedthesystemmovetowardsbalance.
Theaimistostimulatethewithindaymarketandimproveaccesstothemarket.
BalgzandBacton Line (BBL) Company undertook a market consultation to gauge interest for non
physicalinterruptiblereverseflow(IRF)services.Afterthisconsultation,discussionswithregulatory
bodies have taken place and BBL Company recently received Ofgems approval for its auction
methodology, developed in cooperation with APXEndex. Approval of the Dutch regulator
Energiekamer is now the only requirement left for the delayed implementation of this important
service,whichwouldstimulatefurtherdevelopmentoftheWesternEuropeangasmarket,theDutch
gasroundaboutandTTFinparticular.Whenimplemented,itislikelythatIUKwillseeadeclineof
flows from the UK as currently gas takes a detour through BBL, the UnitedKingdom and back
thoughtheIUKtoContinentalEuropewhenNBPisatadiscounttoContinentalhubs.FromDecember
2010, the installation of a fourth compressor will increase BBLs technical forward flow capacity by
morethan3bcm/y(to18bcm/y),whichalsoincreasesthepotentialvolumeforvirtualIRF.
Germany
In Germany, 2009 brought yet more mergers of market areas. The five market areas of Gasunie
Deutschland,ONTRAS(VNGGastransport),WINGAStransport,StatoilHydroDeutschlandandDONG
EnergyPipelinesmergedintoonesinglemarketareacalledGASPOOL,creatingatradeareaformore
thanhalfofthetransportedHGasinGermany.Furthermore,theNetConnectGermany(NCG)area
was expanded with ENI Gas Transport Deutschland, GRTgaz Deutschland and GVS Netz joining in
October2009.
TheGermanBundeskartellamtrecentlyindicatedthatfurthermergingofmarketareasisdesirable,
addingthatNCGsLandHgasareasarelikelycandidatesforamerger.Anotherpossibilitywouldbe
to merge the different L gas zones. A government decree that is expected to enter force in
September2010wouldenforcefurthermergersuntileventuallyonlyoneHgaszoneandoneLgas
zoneremain.Thedecreeisalsodesignedtomakegridoperatorspooltheirentryandexitcapacity
intooneplatformandensurethat20percentofthetransportcapacityisreservedforbookingsinthe
short term (less than two years) and 15 percent will be reserved for the medium term (under
fouryears).
Inthisrespect,E.ONcuttingitslongtermcontractedimportcapacityto54%andmakingthebalance
availabletothemarketbyOctober2015,underpressureoftheEuropeanCommission,isalsoworth
mentioning.IncombinationwiththeintroductionofUIOLI,26thesedevelopmentswillputanendto
thetraditionallongtermcontractingoftransportcapacity,whichwascapableofeffectivelyclosing
marketareastogasfromotherareasoracrosstheborder.
OECD/IEA, 2010
26
Use it or lose it: a policy whereby it is mandatory to offer unused capacity on the secondary market.
209
MarketAreasinGermany
OECD/IEA, 2010
Source: IEA.
210
Since October 2009 traded volumes in all formerly separated market areas are included in the
volumesforGASPOOLandNCG,makingacomparisonwithpreviousvolumestradedintheBEBarea
and the EGT area impossible. It is clear though that volumes traded at both markets have shown
substantial growth since their establishment/expansion on October 1, 2009. Traded volumes
amounted to 29 bcm for the GASPOOL area and 54 bcm for the NCG area; when combined these
volumes exceed traded volumes in 2009 at the Dutch TTF by 6 bcm. The German exchange EEX
introducedanintradayauctionin2009thatenablestradinginNCGandGaspoolpromptproducts
(dayahead, 2DA and weekend). Although the volumes exchanged have been very limited so far,
they are growing and it might prove to be another stimulus for liquidity. A gas balancing platform
mayfollowinalaterstage.
Belgium
TheBelgianZeebruggeHub(ZBH)maintainedthegrowthpathofthepreviousyearbygrowing43%
to65bcmtradedvolumeand42%to13bcmphysicalvolume.Whilethegrowthofitschurnratehas
come to a halt as it has for other markets, the drop is less thanthe one observed for TTFand the
2009churnrateof5.0stillmakesZBHthemostliquidhuboftheContinentinthisrespect.Thefirst
quarterof2010sawamodestincrease(6%)comparedtothesamequarterin2009.
The LNG terminal supplied the Belgian market with 6 bcm of natural gas from 78 ships in 2009
(37shipsin2008)andthereloadingoptionthatwasaddedin2008hasbeenusedfourtimesin2009.
ThisyearshouldseeadditionalEastWestcapacitybetweenOpwijkandEynattencomingonlineand
virtual storage services are to be introduced. Other more longterm plans for infrastructure
investments include a higher capacity on the French border (possibly both ways), the Luxembourg
border (binding open season held), and possibly doubling of capacity for the Zeebrugge LNG
terminal. The Belgian ambition to play a pivotal role in the WesternEuropean gas market would
certainlybenefitiftheseplansbecomereality.
France
ThetotalvolumestradedattheFrenchhubs(PEGs)rose43%to24bcmandphysicalvolumesmore
thandoubledtoalmost12bcm,accompaniedbyafurtherdeclineinthechurnrate.BoththeGRT
areainthenorthandtheTIGFareainthesouthcontributedtothegrowthalthoughvolumesinthe
southern market area remain quite limited. Its worth noting that the French regulator CRE has
startedpublishingdataaboutvolumesattheFrenchPEGsin2009,distinguishingbetweenvolumes
ngoci, livr and total livr. The first category includes all trades made through exchanges and
brokers,whilethelastcategoryincludesnominationsfromallOTCtrades.Tomakecomparisonswith
other hubs consistent, the category total livr is regarded as the traded volumes. The volumes
ngociamount to13bcmin2009,butunfortunatelytherearenodataavailablefrom otherhubs
withwhichtocomparethis.
OECD/IEA, 2010
The market consultation that regulator CRE carried out in 2009 revealed that market participants
desire more transparency in terms of information on wholesale trading and the availability of
capacity. Respondents also indicated an interest in CRE analysis of the behaviour of market
participants near the borders in relation to wholesale market activity and prices relative to the
neighbouring markets, e.g. Belgium or Germany. CRE has announced the publication of a set of
indicatorstomonitortheseaspectsofmarketsandindeedfolloweduponthisinitsDecember2009
211
reviewofthewholesalemarkets.CREusestheHerfindahlHirschmannindex(HHI27)tomeasurethe
marketconcentrationonthePEGsandfoundthatforPEGNord,thereislittlemarketconcentration
onthesellersside(HHIbelow1,000forspotandcloseto1,000forthefuturesmarket)andonthe
buyers side for the futures market (below 1,000), but the buyers side of the spot market is fairly
concentrated (HHI between 1,000 and 1,800). The other PEGs are more concentrated, particularly
PEGSudOuestwhichishighlyconcentratedonbothsidesandonboththespotandfuturesmarket.
PEG Sud is most concentrated on the buyers side of the futures market (HHI ~2,200). It must be
noted that the first half of 2009 shows a clear improvement for the southern PEGs compared
with2008.
The picture that emerges from this analysis is that the French wholesale market is definitely
developing but currently is less mature than its counterparts in The Netherlands and Belgium. The
outlook can certainly be improved if interconnections with Spain and Germany improve, LNG
volumesincreaseandthezonesaremergedintoonecommonmarket.
Austria
The Austrian market is progressing very well, as illustrated by the significant growth that the hub
CEGHexperiencedduring2009.Benefitingfromtheoperationalbalancingagreementthatwasputin
placeearly2009,tradedandphysicalvolumesgrewby53%to23bcmand47%to8bcmrespectively
in2009.TheintroductionoftheIntegratedTradingAreaBaumgarten(ITAB)providedafurtherboost
toliquidityandhelpedtheyear2010startoutsuccessfullywithan8%highertradedvolumeinthe
first quarter of 2010 compared to the fourth quarter of 2009. The churn factor increased slightly
from2.9in2008to3.0in2009.Thenumberofregisteredusersincreasedfrom84membersofwhich
68wereactiveinDecember2008tocurrently102membersofwhich87areactive.
ThedominantroleofGazpromattheCEGHthroughitslongtermcontractsincombinationwiththe
proposedtransferofsharesfromOMVtoGazpromanditssubsidiaryCentrexEuropeEnergy&Gas
hasledtoconcernsfromtheAustrianregulatorEcontrol.Thesharetransfer,whichfollowsfroma
cooperation agreement signed between OMV and Gazprom in January 2008, is subject to prior
approvalbytheEuropeanCommissionunderEuropeanUnion(EU)mergercontrollaw.
Since11December2009,thehubnotonlyoffersOTCtradingbutalsoagasexchangeincooperation
withWienerBrseandEuropeanCommodityClearingAG(ECC).Thecurrentspottradingservicesare
expectedtobefollowedbyfuturestradingin2010,subjecttoFinancialMarketAuthorityapproval.
These developments fit in with CEGHs ambition to become the Continents biggest gas hub and
thereby provide shortterm trading services to market participants in the area of Central Eastern
Europe that is currently dominated by traditional longterm gas supply agreements at the
Baumgartennode.
TheCEGHisverywellplacedtofulfilapivotalrolebetweenthegrowinggasflowsinCentralEastern
EuropeandWesternEurope.WhetherithasthepotentialtooutgrowthecurrentContinentalhubs
remains to be seen, as the other hubs also benefit from improved market functioning, higher
transportedvolumesandinvestmentsintransmissioncapacity,LNGandstorage.
OECD/IEA, 2010
27
The HHI measures market concentration by calculating the sum of the squared market shares of market participants. A
market with a HHI under 1,000 is considered to show little concentration and a HHI above 1,800 indicates a highly concentrated
market.
212
Italy
TheItalianPuntodiScambioVirtuale(PSV)benefitedfromincreasedpipelinecapacitythroughthe
TAG and Transmed pipelines (+13bcm) and the new 8bcm offshore Adriatic LNG terminal. The
tradedvolumegrewby50%to24bcm,makingitslightlybiggerthantheCEGHandthePEG.Physical
volumes also grew by a substantial 42% to 11 bcm, 2bcm less than Zeebrugge. Nevertheless, this
remainsquitelowconsideringthesizeofthemarketandthediversityofsupplysources.
TheobligationsinceOctober2008toauctionacertainvolumeofnonEUentrycontractsonthePSV
resultedinseveralgasreleases,themainonebeinga5bcmreleasebyENIinSeptember2009for
Gas Year 2009. This auction was not met with much enthusiasm in the market for various reasons
including timing, risks concerning price changes and a general lack of demand as Italian demand
droppedbynearly9%in2009,despiterecoveringsomewhatinthelastquarter.Alsotheminimum
priceislikelytohavecontributedtotheratherdisappointingresultoflessthanonequarterofthe
volume being assigned. The regulator sets a minimum price which determines the revenue for the
seller;additionalrevenuesfromtheauctionareredistributedamongtheItalianindustry.
Thenewgasexchangethatistobelaunchedisstillprogressingalthoughataratherslowpace.From
10May2010,onwards,apreliminarygasimporttradingplatformcalledPGAShasbeenavailableas
apreludetothelaunchoftheexchangeinOctober2010.ThisexchangeistobemanagedbyGME
(Gestore Mercati Energetici), the organisation that is currently managing the electricity exchange.
PGASquotessecondmonthaheadandgasyearaheadcontracts.Althoughtheplatformhassofar
seenonlyonetransaction,itrepresentsapositivedevelopmentinacountrywheregasconsumersstill
missoutonlowergaspricesseenelsewhereinEurope.ItispossibletoturnItalysgasfuturearound,
but for this many factors contributing to a lack of competition need to be addressed firmly by the
regulator,includingadiscouragingbalancingregimeandlimitedaccesstoimportandstoragecapacity.
CzechRepublic
TheCzechelectricitymarketoperatorOTElaunchedthecountrysfirstspotgasmarketasofJanuary
2010,addingintradaytradinginthesecondquarter.Thenumberofdealsandthetradedvolumesin
theauctionbasedDayAheadmarkethavebeenquitelimitedsofar(2,557MWhor0.23Mcminthe
firstquarter).Thefirstmonthoftheintradaymarketgotofftoagoodstartwith1,685MWhtraded.
OTE currently has registered 47 participants for the spot gas market, including both Czech and
WesternEuropeanutilities.
OECD/IEA, 2010
This development represents a promising initiative to improve liquidity on Central European gas
markets. Combined with the possibilities of daily nomination and secondary trading of border
capacity,itenhancestheintegrationoftheCzechRepublictoWesternEuropeanmarkets.Hopefully
therecentlyestablishedtaskforceoftheEuropeanFederationforEnergyTraders(EFET)forEastern
Europewillalsosucceedinstimulatingtheliquidityandtransparencyofmarketsinthisregion.The
taskforce will focus on Hungary, the Czech Republic and Slovakia initially and address Poland and
Romania in a later stage. Indeed improvement of markets would be very welcome as it enhances
securityofsupplyinthisregionaswell.
213
P ART 2: G AS I NVESTMENTS O VERVIEW
INVESTMENTS OVERVIEW
Theyears2008and2009willleaveprofoundmarksontheinvestmentside.Despitethecomforting
and muchawaited FID for two LNG liquefaction projects late 2009, uncertainties prevail and
investmentssloweddownduring2009.Intwoyears,marketshavemovedfromtightnesstoaglobal
oversupplythegasglut.Gassawdemanddestroyedsharplyin2009,notablyinEurope,whilethe
supply side has witnessed a halfexpected boom. The US unconventional gas revolution was
unexpectedbyitsscale,andcontinuedtoincreaseproductiondespitesharplylowerprices;however
its potential to spread to other continents by 2020 is difficult to assess. Meanwhile, the dramatic
rampupofLNGoutputuntil2014hasbeenonthecardsforanumberofyears.
Thisdoublewhammy,coupledwithcontinuinguncertaintyaboutthepaceandlocationofeconomic
recovery, has created new uncertainties on where and when incremental gas volumes would be
neededandwheretoinvestinthegasvaluechain.Anunsurprisinglycautiouswaitandseeapproach
hasthereforebeenadoptedbymanyinvestors:projectsarepostponed,reappraisedbasedonnew
demandandpriceestimates,whennotcancelledoutrightduetotheperceptionofalackoftimely
marketdemand.Thefewprojectswhicharemovingforwardaretargetingthosemarketswherethe
economiccrisishasnotaffectedagrowingappetiteforgas.
One question is in the mind of all investors. How long will the global oversupply last and where
shouldtheyinvest?Toanswerthatquestion,oneneedstolookatglobaldevelopmentsofsupplyand
demandasthepotentialtomovegasacrossoceanstodemandingmarketshasbecomeareality,but
also at the regional trends as the interregional transport or even transmission infrastructure is not
alwayssufficientlydeveloped,orinthecaseoflargetranscontinentalpipelines,isrelativelyinflexible.
Onthesupplyside,muchoftheinvestmentsto2015haveahighdegreeofcertainty,inparticular
the new LNG capacity, as they are characterised by long lead times. Unconventional gas is more
uncertain,bothintermsofvolumesandtiming:ithasaprovencapabilitytoanswerrapidlypriceand
demand signals in North America but remains to be developed in other continents. Additionally,
abovegroundriskssuch asconflicts,regulatoryissues,royaltiesandtaxchanges,canaffectsupply
developmentsandarelesspredictable.
OECD/IEA, 2010
Amoresignificantuncertaintycomesfromthedemandside,duetotwomajorfactors:theeconomic
recoveryandfutureinvestmentsinthepowergenerationsector.IntheWorldEnergyOutlook2009,
theIEAconcludedthatgasdemandwouldincreaseinallscenarios,evenagreenerscenario,reaching
between3560bcmand4313bcmby2030from2007slevelof3049bcm.TheReferenceScenario
portraysthatarecoveryto2015wouldbeslowandsluggishintheOECDcountries,comingbackto
the2007levelsby201415,butquitehealthyinnonOECDcountrieswithanincrementalincreaseof
350bcmbetween2007and2015.
Ironically, the biggest upside risks are also likely to be in large nonOECD countries, in particular
China,IndiaandMENAcountries.InChinaandIndia,theappetiteforgasisgrowingasnewsupply
becomesavailable.GivenChinastrackrecordofexceedingenergydemandforecasts,agasdemand
levelof142bcmby2015(a9bcm/yincrease)couldverywellbeexceeded.MiddleEastgasdemand
isprojectedtojumpby30%fuelledbylowdomesticprices,whilesomecountriesstruggletoachieve
production increases that keep up with demand growth. In mature OECD countries, besides the
economicrecovery,theuncertaintycomesmorefromgreeningthepowersectorforexamplethe
20/20targetsinEurope.Iflessrenewablescapacityisbuilt,energyefficiencygainsdonotappear,or
powerdemandrecoversquickly,gasdemandinthepowersectorislikelytogrowmoreandfaster
214
thanexpected,asgasisandremainsthefuelofchoice.Hoewever,ifhighlevelsofrenewablepower
areachievedinthe2020timeframe,gasdemandgrowthintheEUwouldbeamodest7%between
2007and2020.
Uncertainties on the supply and demand balance ripple through into investments in transport
capacity, both LNG and pipeline. For the coming ten years, unutilised capacity in interregional
transportwillgrowfrom70bcmin2007whichwastootight,toover200bcmbythemiddleofthe
next decade. Some may argue that a volume of 200bcm compared to total demand around
3400bcmisarelativelylowreservemarginindeed6%.However,onaglobalscale,mostgasisstill
consumed where it is produced, so that imported volumes represent only onethird of global
demandandvolumestransportedbetweenregionsonly14%around400bcm,growingtoaround
650bcm by the end of the decade. As interregional capacity will continue to increase, this means
thatitscapacityutilisationwilldropfrom88%in2007to69%in2011,thenrecoverslowlyto71%in
2015and76%by2020.Thereforethesurplusintransportcapacitywillbequitesignificant.
UtilisationofInterregionalTransportCapacity
900
100%
800
90%
80%
700
70%
600
bcm
60%
500
50%
400
40%
300
30%
200
20%
100
10%
0%
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Totaltrade
Unutilisedcapacity
Capacityutilisationrate(rightaxis)
OECD/IEA, 2010
Source: IEA.
Inthemindofsomeinvestors,thecurrentsituationmaynotcallformoreinvestmentsinupstream
or in interregional transport capacity. While this attitude is understandable based on the facts
explainedabove,theobserveddelayininvestmentscouldresultinasupplycrunch.Onehastokeep
in mind the long lead times on the upstream side: liquefaction plants projects approved today will
comeonstreamin2015,attheearliest,andmorelikelywithoneortwoyearsdelaybasedonrecent
experience. The current surge on the LNG side comes from FIDs taken before 2005. During the
215
followingyears,therewasashortageofinvestmentsacrossthegasvaluechaindrivenbyincreasing
costsandmarketuncertainties.Allpartsofthegasvaluechainmustbedevelopedinacoordinated
manner: upstream reserves that feed both domestic and export markets; the liquefaction plants,
regasification terminals and pipelines to transport gas, and finally the transmission and storage
infrastructuretomeetannualandseasonaldemand.Tightnessinonepartofthevaluechaincould
haveglobalorregional/nationalconsequences.
Furthermorethissituationislikelytoshowageographicaldisparityaswellasdifferencesbetween
pipelinesandLNG.Asnotedearlier,Asiaisexpectedtobethefastestgrowingmarket:in2009,India
and China grew by around 10bcm each despite the recession. Supplies are therefore likely to be
tighter in Asia Pacific, relative to the Atlantic Basin. Moreover, some countries currently exporting
mayreducetheirfutureexportsduetofieldsdepletionordomesticmarketobligations(DMO).Most
ofthesurpluscapacitycanbeexpectedtobefoundinthepipelinesduetotheirlimitedflexibility,
while much of the LNG oversupply can and will be moved around between regions. Firstly, the
regasification capacity is double that of liquefaction, allowing gas to be redirected to demanding
markets. Second, a large chunk of this LNG will come from Qatar with the ability to move easily
betweenAtlanticandPacificmarketsrespondingtopricesignals.Finally,partoftheLNGislikelyto
be priced based on gas fundamentals, while much pipeline gas in Europe and certain parts of Asia
seems likely to remain on an oilpriced basis. Thus it seems likely that pipeline suppliers will likely
bearthebruntofvolumecutbacks,whileLNGsuppliersmaynotreceivethepricestheymighthave
hopedfor.
Despitethecurrentgloomypicture,newgassupplieswillbeneededbeyond2020,notonlytomeet
demand,butalsotoreplaceexistingsupplies. Globallythedeclinerateofexistingfieldsaftertheir
peak is 5.3%, so that even with stable demand, ongoing upstream investments are necessary.
Furthermore, producing countries focus increasingly on their own markets, sometimes giving them
priority over export markets even if the latter bring more revenues. Such decisions are becoming a
trendinmostproducingcountriesandcouldreducetheircapabilitytouseevenexistinginfrastructure.
Thepreviousyearhasremindedusthatsupplyshortagescanhappenduetomanycausestransit
issues(RussiaUkraine),orupstreamissuesinNorwayorThailand.Therefore,someexcesscapacityin
the import infrastructure, with diversification of supply routes, is often desirable as well as better
interconnections between markets. In some regions, the depletion of traditional sources of supply
willalsorequirenewinvestmentsashistoricalflowsareimpacted.
Similarly one should not forget the seasonal character of gas demand and the need to invest in
sufficient transport and storage capacity to meet peak demand. Even an apparently very well
supplied market like the United Kingdom had difficulties meeting peak demand in January 2010;
China also faced shortages in some undersupplied regions while El Nio caused peak demand to
surgeinColombia.Suchrequirementswillbecomeincreasinglyimportantifgasfiredplantsareused
tobalancewindgeneration.
OECD/IEA, 2010
216
P ART 2: G AS I NVESTMENTSIN P RODUCTION
INVESTMENTS IN PRODUCTION
OECD/IEA, 2010
Summary
The current oversupply has led to many questions on how much additional supply will be
needed,whereandwhen.Whileimportrequirementswillbelessthantheywereexpectedtobe
afewyearsagoduetothedemanddropin2009,gasdemandisstillplannedtoincreaseinany
scenario, while production from existing declining fields will have to be replaced. There is
howeverastrongasymmetrybetweendemandandsupplyevolution:demandhasthepotential
to increase at faster rates, in particular in the power generation sector, than new additional
supplycanbebroughttothemarkets.Atleastadecadeisneededtodevelopagreenfield,while
it will take five years to put a LNG plant on stream once the FID is taken. Investments in the
upstreamsectorneedtobebasedonalongerviewratherthanontheshorttermenvironment.
Russia faced a particularly tough year in 2009, with increased uncertainty on its main export
market, Europe, not only on volumes but also on prices. The new Energy Strategy to 2030
releasedinNovember2009remainsambitiousintermsofproductiontargetsincludingLNG,and
new regions to be developed. There has also been a slight shift of strategy towards Asian
markets,butitremainstobeseenwhetherthiswillbetranslatedintoconcreteoutcomesasthe
development of these fields is even more challenging than the ongoing development of the
YamalPeninsula.
DespitethelargescaleofprovengasreservesintheMENAarea,onlyonecountry,Qatar,can
beconfidentofmeetingbothitsdomesticneedsanditsexportambitionsinthemediumterm.
Inrecentyears,anumberofcampaignshavebeenlaunchedtoattractforeignE&Pinvestors,to
tacklechallenging,andmoreexpensive,nonassociatedgasdeposits(frequentlytightgasorsour)
andtoexplorefornewdepositsinareashithertooverlooked.Gasnowseemslikelytoattracta
significantproportion,ifnotthemajority,ofmediumterminvestmentinthehydrocarbonsector.
Butgivenrapidlyrisingdomesticdemandandthecontinuingrequirementsforgasreinjectionin
oilfields,itisstilluncertainhowmuchadditionalgaswillbeavailableforworldmarkets.
With its 8tcm of proven gas reserves, the Caspian region has emerged as a key supplier
strategicallyplacedbetweendifferentexistingandpotentialimporters:Russia,Iran,Chinaand
Europe.ThecommissioningoftheTurkmenistanChinapipelineinDecember2009representsa
majorshiftinthepoliticsandeconomicsofEastCaspiangas.Turkmenistanhasbeenthecentre
ofmuchinterestduetothehugeSouthYolotanfield,andhasambitioustargetstoincreaseits
productionfrom70bcmin2008to250bcmby2030,butthereisstillconsiderableuncertainty
that sufficient upstream investment will be forthcoming and that markets for such large
incrementalgasvolumeswillbeavailable.
Acrosstheworld,domesticmarketobligationsarebecomingmoreapparentamongproducers,
which are now giving increasing priority to their domestic markets. Gas demand in many of
thesemarketsisoftenrisingfast,sothatproducingcountriesarechoosingtolimitthevolumes
destined for export. These countries face a difficult choice between losing potential export
revenuesandmeetingarapidlygrowingenergydemandwithalowerenvironmentalimpact.As
domesticgaspricesareoftenlow,theyfacetheriskofdeterringforeigninvestment,whilethe
decision to increase energy prices is a tough political one, particularly in the current
economicenvironment.
217
Introduction
Theupstreampartofthegasmarketisprobablythemostvisiblepartofthegasvaluechain,dueto
thesizeofsomeprojectsandtheamountofinvestmentsunderdiscussion.Failuretoinvestenough
globally will spread to all markets as these become increasingly interconnected through LNG. Until
mid2008, the biggest worry of gas users was indeed whether producing countries were investing
enough in a timely way, and would be in a position to meet their demand and contractual
obligations.Theeconomicandfinancialcrisishascompletelyreversedthepictureascountriesand
companiesfacetworadicalchanges:thegasglutand,forsomeexportingcountries,adeclineinthe
gasexportprice.Manyproducershaveseennotonlytheirsalesfallingintheircoreexportmarkets
sincemid2008,butalsoweakercashflowsandnowfacemuchtougherfinancingconditionstobuild
newproducinganddeliveryinfrastructure.Since2009,anewinvestmentframeworkhasemergedas
some countries or companies adopt a waitandsee approach. The only major projects moving
forward are in the Pacific basin. Meanwhile, domestic market obligations are becoming a more
widespreadtrend.
Domestic Market Obligations (DMO)

A trend, that one could have thought to be limited to a handful of countries, is spreading among
producing countries as these want to use the more environmental friendly fuel to replace more
polluting (and sometimes imported) refined oil products. The DMO can have various forms, either a
limitationintheshareofgasexported,amoratoriumonexports,thecancellationofexportprojectsor
obligations given to companies finding gas to help develop the domestic market. The dilemma is a
difficultonethough:whilesuchadecisionbenefitsthecountrybyhelpingittomeetarapidlygrowing
energydemandwithalowerenvironmentalimpact,italsohasacost.Thecountrylosespotentialexport
revenues,whicharenotcompensatedbylowdomesticprices,andrisksdeterringforeigninvestments,
particularlyinriskyexploration.Increasingdomesticpricesorremovingsubsidiesisapoliticaldecision
thatmanygovernmentswillstruggletoimplementinthecurrentsocialandeconomiccontext,sothat
meetingcontractualobligationsandrisingdomesticdemandwillprovetobeincreasinglydifficult.
OECD/IEA, 2010
Egypt was one of the first countries to allocate gas for its domestic market and has used various
methodstomeetitsgrowinggasdemand:in2000,thegovernmentdecidedtoallocateonethirdofthe
thenprovenreservesfordomesticgasdemandfor25years,onethirdforstrategicpurposes,andone
third plus upcoming gas discoveries to exports. Being a regional and an LNG exporter, this decision
affectsmanycountries.InJune2008,Egyptdecidedtoputnewgascontractsonholdduetoconcerns
thatgas(LNG)wassoldunderthemarketprice,triggeringrenegotiationswithbuyers.Thisalsoledto
theinterruptionofexportstoIsraelinNovember2008,untiltheEgyptiansupremeadministrativecourt
decidedinFebruary2010thatthecontractwithIsraelwaslegal,undertheconditionthatpriceswould
be closely monitored. Egypt is a textbook example of the export versus domestic market dilemma: in
2008,itagreedtoraisepricesatwhichproducerscouldsellgasonthedomesticmarket.Thisallowed
some needed upstream projects from BP and RWE Dea to move forward. Removing subsidies and
increasing prices could be a way to dampen domestic demand growth. This seems to be the solution
chosenbytheMinistryofPetroleumwiththenewpostproductioninvestmentmodelwithBPon the
NorthAlexandriafield.ItgivesBPfullproductionrightsbutgivestheGeneralPetroleumAuthorityfirst
purchasingrightsatapricelinkedtooilprices.ButthismightnotbesufficientasEgypthadbeentrying
to renegotiate export volumes downwards. Given the current market conditions,buyers will probably
behappytodoso,butthiswillconsiderablyreduceexportrevenues.
218
Domestic Market Obligations (DMO)
(continued)
Qatarhasoptedforamoratoriumongasexports,whichhasbeenextendedto2015.Whilethecountry
alsodesirestokeepsomegasforitsgrowingmarket,themaindriveristogetabetterunderstandingof
theimpactoftherapidincreaseingasoutputfromtheNorthField.
Severalcountriesarereconsideringtheirexportplansinthelightofgrowingdomesticdemand.Peruhas
renegotiated the agreement with the consortium operating the Camisea field to make sure its rising
domestic demand would be met. The consortium has the obligation to cover domestic demand for
20yearsandmayreduceLNGoutputaccordingly.Indonesiahasbeenfacingregionalimbalances,dueto
thecountryssize,whichhavebeenthreateningnotonlynewexportprojectssuchasDonggiSenorobut
existing ones as well. Fears that Indonesia may soon slip into deficit have prompted BPMigas, the
country's upstream regulator, to state that LNG plant Arun would stop exports in 2014, and Bontang
wouldsupplythedomesticmarketby2020.BPMigasexpectsalsotofreeupbetween2.5and3mtpa
when some of its Japanese contracts expire in 2011. They will supply planned domestic LNG import
terminals.Thiswouldremovearound30bcmofinterregionalcapacityby2020.Nigeriahassetouta
masterplanprioritisingthedomesticmarket(alongwithaddressingthehugeflaringissue),whichcould
furtherdelayLNGplantsunderdiscussion.ThisfirstrequiresthePetroleumIndustryBilltobecomelaw.
Middle East and Former Soviet Union (FSU) countries hold 41% and 30% of proven global gas
reservesrespectively.Bothareexpectedtobethesourceofmostincrementalgasproductionuntil
2030. In both regions, gas represents already an important part of the primary energy supply, just
below50%,andgasissoldatcheaptoverycheappricesonthedomestic marketandexportedat
higher prices to other countries. But the similarities between them stop there: Middle Eastern
countriesgasdemandandgasshareinTPEShavebeengrowingsharplyoverthepasttwodecades.
Demandwillcontinuetogrowatahealthypaceasgovernmentstakeadvantageofthecleanerfuel,
especially in the power sector where gasfired output can be expected to grow 50% by 2015.
Incremental gas use between 2007 and 2015 is estimated at 300bcm. Gas use in Russia has been
quitedynamicoverthepasttwodecadesanddespitethesubstantialincrease,Russiangasdemandis
notexpectedtorecoverfromtherecessionbefore2015.
OECD/IEA, 2010
Russia
The global economic crisis created many uncertainties for the Russian gas industry at a time when
the Russian government was releasing a new energy strategy to 2030. Before the economic crisis
changedtheoutlookforRussia,aswellasformanygasindustryplayers,Russiahadbeenpressedto
invest in new upstream projects: over 200608, voices among European consumers, Russian
politicians and the IEA expressed concerns that Russia would not be able to meet its increasing
demand(+30bcmbetween2005and2008)anditsexportcommitments.Whilebothwereexpected
to continue to grow, Russias three super giant fields (Yamburg, Medvezhe, and Urengoy), which
werethebackboneofitsproductionuntil2000,weredecliningsharplyatanestimated2025bcm/y.
Thestartofnewfields,particularlyZapolyarnoyein2000,helpedtostabiliseproductionupto2010.
Butpost2010,RussiawouldhavetoinvestintothenextgenerationoflargeRussianfields,Yamaland
Shtokman,fortheWesternmarket.Thesenewprojectsarecapitalintensive,locatedinremoteareas
andtechnologicallychallenging.TheEasternSiberiaandFarEastregions,whichhavedrawnalotof
attentionrecently,areevenmorechallengingduetotheabsenceofexistinggasinfrastructure,and
the need to settle a legal dispute on one of the major fields (Kovykta) while negotiating a price
agreementwithChina.TheglobaleconomiccrisishashadamajorimpactonthewayRussiaregards
219
itsshortandlongtermstrategyonproductionandexports,atatimewhenRussiangasexportshave
droppedanditsowndemandfallen,andconsequentlyRussianowhastoaccommodateasurplusof
gasforanumberofyears.
The Year 2009: The Outcome
Ifanycountryhasseenitsgasindustryaffectedbythefinancialandeconomiccrisis,thenitisRussia.
EvenwithouttheJanuarycrisis,theyear2009willcertainlygodownintheannalsoftheRussiangas
industryasannushorribilis.
KeyNumbersforRussiaSupply,DemandandInvestments
Russian production
Of which Gazprom
Domestic demand
Gazprom sales to Russia
Total exports
Exports to Europe
Investments priorities
Investments
2009
582.9
462.3
430.6
273.5
202.8
145.0
2010
3 axes
Yamal
Eastern gas
Others including Shtokman,
Prirazlomnoye,
Nord
Stream,
Pochinki
Gryazovets
2008
664.9
550.9
459.7
292.2
247.5
166.7
2009
2 axes
Zapolyarnoye, Yamal, Urengoy,
Shtokman,
SeveroKamennomisskoye
Pochinki-Gryazovets,
Nord
Stream, Yamal and MurmanskVolkhov
RUB 753 billion, Capex RUB

614 bln
RUB 920 bln, Capex RUB 700 bln

RUB 762 bln, Capex RUB 484 bln
(rev. April 2009)
Source: Minenergo, Gazprom, Central Dispatch Unit 2009 annual report
Russian domestic demand started to drop as early as the beginning of Winter 2008/09, while a
similar trend was observed in all export markets as well. For example, German gas imports fell by
16%fromAugusttoDecember2008comparedwiththesameperiodayearearlier.Lookingbackat
2009,allelementsofthesupplyanddemandbalancehavethereforecontractedin2009.Russiaeven
lost its position as the worlds largest gas producer to the United States, whose 3% production
growthcontrastedwithRussias12%decline.Russiandomesticdemanddeclinedbyover6%dueto
lowerdemandfromindustryandthepowergenerationsector.
Exports took a sharp fall: to European markets28 down by 13.7% and to Former Soviet Union by
37%.29 All FSU countries economies have been badly affected and most reduced their gas imports
accordingly,theworstbyfarbeingUkraine(49%).Europeancountries,Russiasmaincustomerand
traditionalsourceofrevenues,havealsoimportedlessgasandevenlessRussiangas:Russianexports
to Europe (including Baltic countries) plummeted from 166.7bcm in 2008 to 145bcm.30 While this
28
Excluding the three Baltic countries.

Data on domestic demand are from Minenergo, data on exports are reported by Central Dispatch Unit.
30
This is data as reported by the Russians, but the bcm are measured at a different temperature (20C versus 15C) and are
not comparable one to one to what Europeans would report. Exports to Europe excluding Baltics have declined from 162 to
141 bcm.
OECD/IEA, 2010
29
220
partlyreflectedweakeningwesterneconomies,itwasalsodrivenbythehighpriceofoilindexedgas.
In early 2009, oilindexed gas prices incorporated oil prices from the first half of 2008 which were
more than $100. Because of this pricing formula, Russian gas has proven to be too expensive,
especiallycomparedtospotgas.WhentheRussianimportpricewasstillat$10/MBtuearlyin2009,
NBP had already dropped to $7/MBtu, and when Russian prices declined to $78/MBtu during
summer2009,NBPwashalftheselevelsat$34/MBtu.ThegapcontinueswithRussianoilindexed
gaspricedat$10/MBtuagainst$5/MBtuinspring2010.Despitethetakeorpay(TOP)obligationsin
their longterm contracts, many European gas buyers tried to replace their expensive Russian gas
imports by cheaper spot gas. As a result, many failed to meet their TOP obligations at the end of
2009,pressingGazpromforrenegotiationsonthevolumesandpricingconditionsastheendof2009
approached.Earlyin2010,Gazpromagreedtomoreflexibilityoverthenextfewyearstocome.
The economic downturn was also particularly severe for Russia with a 9% drop, the worst among
majoreconomies.A6.2%declineduringthefourthquarter2009showsthatRussiaisnotoutofthe
woodsyet,althoughtheIMFexpectstheeconomytoreboundby3.6%in2010.Onthepositiveside,
an improvement was clearly noticeable in the fourth quarter of 2009 with exports to Europe and
FSU,anddomesticsalesallincreasing.Gazpromsgasproductionthenreturnedtolevelscomparable
to2007.Russiancompaniesalsobenefittedfromthecoldwinter09/10.
Incommonwithmanycompanies,Gazpromsfinancialsituationiscertainlymuchlessbrightthanin
2008,whenthecompanylaunchedabigacquisitioncampaign.Thiscouldaffectfuturedebtfinancing
terms,andagain,unsurprisingly,hasimpactedontheinvestmentprogramandforcedthecompany
to prioritise and reassess investment projects. During 2009, Gazproms sales revenues dropped by
10%toRUB2,991billion($94billion).31Theoperatingprofitplummetedby32%toRUB857billion
($27 billion). Meanwhile Gazproms total debt increased by 19%. Moreover, most debt is in US
Dollars or Euros, and the rouble has depreciated heavily against these currencies since early 2008.
Thissituationclearlycalledformeasurestobetakenonthefinancialandoperationalsides.Onthe
financial side, Gazprom is looking at costcutting measures and possible improvements in debt
management. On the operational side, there have been substantial revisions to the investment
program. Gazprom revised downwards their initial investment program for 2009 from
RUB920billion (announced in December 2008) to RUB762billion32 with Capex cut from RUB700
billiontoRUB484billion.Investmentsfor2010areplannedat RUB753 billion,withanincreaseof
Capex to RUB614 billion. Gazprom has announced quite radical changes in terms of priority
investments:33 these are now on three axes compared to two axes in 2009. What remains a clear
priority is the Yamal development along with the associated upgrade of the transmission network
suchasPochinkiGryazovets.34NordStreamiscommittedandconstructionstartedinApril2010.
Independent gas producers, the most prominent of which are Novatek, and Itera, and vertically
integrated oil companies, including Surgutneftegaz, Lukoil, Rosneft and TNKBP, have suffered less
than Gazprom over 2009. The proportion of oil companies and independent producers in total gas
productioninRussiahasbeengrowingsince2002.Despitethecrisis,theywereevenabletoboost
production by 5.8% to 120bcm while their share in total gas production increased to 21% against
17%in2008.
31
Source: Gazprom, consolidated financial results under FIRS, April 2010. Sales net of VAT, excise tax and custom duties.
This includes RUB 138.5 billion for the purchase of 20% of Gazprom Neft.
33
Based on Investment day presentations in February 2009 and February 2010.
34
Pochinki-Gryazovets will link the Central and Northern transmission networks and allow gas from the Central line to be
transported to Nord Stream and later gas from Yamal to be re-routed to the South.
OECD/IEA, 2010
32
221
NovatekoccupiessecondplaceinRussiaintermsofreservesandgasproductionafterGazprom.It
produced32.8bcmin2009,a6.2%increaseover2008,duetothelaunchofthesecondphaseofthe
Yurkharovskoye field, the companys largest field, in the YamalNenets Autonomous Region, above
theArcticCircle.Inthefirstquarterof2010,gasoutputwasup21%over2009,withliquids(mainly
condensates)up22%.Novatekintendstocontinuethedevelopmentofthisfieldwiththephases3
and4.TNKBPandRosneftalsoincreasedtheirproductionwhileLukoilandSurguneftegazbothsaw
a decline. One of the reasons why independent and oil companies have been less affected than
Gazprommaylieintheirbusinessoptimisationbetweendrygasandwetgas.Companieswithwet
gasresourceswillmaximisethisproductionandselltheliquidcontent,evenifthismeansreducing
dry gas production. But these companies were also affected by reduced demand from their
customers and potentially by difficulties accessing the gas grid. Many companies such as
Surguneftegaz,Rosneft,TNKBPareinvestingtoincreasetheuseofassociatedgasintheirfields,in
linewithagovernmentdecreepassedin2008toensuretheenforcementoflicenseterms(95%use
ofassociatedgas)byJanuary2011.
IndependentGasProducersandOilCompanies
2008
Novatek
Otherindependents
PSAoperators
Lukoil
Surgutneftegaz
Rosneft
TNKBP
Russneft
Bashneft
Slavneft
Oilcompanies
Independents
oilcompanies
and
30.9
17.7
8.5
14.2
14.1
13.0
11.7
1.3
0.4
0.9
57.0
114.0
2009 Plans
32.8
14.1
18.1
12.4
13.6
13.2
12.4
1.3
0.4
0.9
6065 bcmby2015
55bcmby2020
55.8
120.6
Source: companies websites and annual reports, Central Dispatch Unit 2009 annual report.
Anotherkeychangein2009wasapartialstrategicandpoliticalrefocusonAsia,whichfindsitsroots
in Europe as well as in central Asia with the deals Turkmenistan has with China. As Russias
traditionalmainexportmarket,Europesawdoubledigitdemandgrowthinthefirstmonthsof2008
rapidlyreversedwitha7%demanddropinthebalanceof2008,andbyafurther6%demanddropin
2009.Suchvolatilityofdemandwill,inevitably,spillouttoEuropesgassuppliers.Moreover,some
EuropeanconsumersboughtlessthantheminimumTOPquantities,whichwerethoughttoprovidea
safeguardontheexportside.Intheshortterm,Russiahadtolowersomepricesandagreetovolume
revisionstoitsmaincustomers,hopingthatthey wouldbelimitedintime. Inthelongerterm,the
questionishowandatwhatpace Europeangasmarketswillrecoverfromtherecession andwhat
willbetheimpactofthe20/20targets.
OECD/IEA, 2010
222
Long-Term Energy Strategy to 2030: Taking into Account the New Signs?
ANewRussianEnergyStrategyto2030
InNovember2009,theRussiangovernmentapprovedanewEnergyStrategy(ES)to2030,replacing
the previous one to 2020, which had been approved in 2003. Its adoption had been postponed
several times during 2009 due to the uncertainties of the economic crisis. This document, which
determinestheaimsandprioritiesfordifferentstagesofthenationalenergypolicy,hastobeseen
as a geopolitical document rather than the blueprint of Russias future energy balance. It remains
howeverakeydocumenttounderstandhowRussiaapproachesthepostcrisischallengesandadapts
its internal and external strategy. It looks at the economic implications of the energy strategy as
energy and the economy are particularly intertwined in Russia (as is the case for many energy
producers). Among the general objectives of the ES are reducing the economys dependency on
energy(whoseshareinGDPandinexportsissettodeclinefrom30%and64%in2008to18%and
34% in 2030 respectively), lowering energy intensity, helping to strengthen its foreign economic
positionsandreducingtheshareofgasinfavourofotherfuels,inparticularrenewablesandnuclear.
RussiasTotalPrimaryEnergySupply
1600
milliontonsofcoalequivalent
1400
1200
Others
Coal
Oil
Gas
1000
800
600
400
200
0
Low
2008
High
1ststage
Low
High
2ndstage
Low
High
3rdstage
Source: Energy Strategy of Russia.
OECD/IEA, 2010
TheESforeseesthreestagesorperiods,withnoclearstartsorendingreflectingthepossibleshifts:
200912/15:postcrisisdevelopment,arecognitionofthemediumtermeffectsofthecrisis.For
gas,thisperiodincludesthedevelopmentofYamal,preparatoryworkintheFarEastandEastern
Siberia,constructionofNorthStream,andguidedliberalisationonthedomesticmarket.
2013/1520/22:energyefficiencydevelopment,duringwhichthenecessarystepstoreducethe
waste of energy would be taken. Regarding gas, the fields in the Ob and Taz bays, Shtokman,
KrasnoyarskandIrkutskgasextractingcentresstartwiththeexportnetworkbeingenhanced.
223
2021/2330: innovative development with more focus given to renewables and nuclear. The
regionalgasnetworkwillbeneverthelessdevelopedtotheEast,whileuseofnaturalgasinthe
chemistrysectorandsyntheticliquidfuelsproductionwillbeencouraged.
Despite the efforts during the second stage, Russian total energy demand is expected to grow
between 39% and 58% over 200830, whereas the IEA foresees TPES increasing by only 22% over
200730.ThemajordifferencesarethemoreoptimisticeconomicassumptionswithanannualGDP
growth of 7% compared to 3.4% for the IEA. As of 2007, Russian TPES/capita consumption was at
4.75toe/capita,slightlyhigherthantheOECDaverageandmuchhigherthanOECDEuropesaverage
of 3.4toe/capita. Furthermore, the ES foresees electricity demand jumping from 1,021TWh to
1,7402,164TWh by 2030 compared to 1,424TWh in IEAs reference scenario. If the population
declinesasforecastbytheUnitedNationsfrom142millionin2007to129millionin2030,thiswould
imply a significant jump in energy consumption per capita at levels higher than the OECD average
andevenhigherelectricitydemandpercapita.Furthermore,theESassumesthatnucleargenerating
capacitywouldmorethandoubleto5262GWby 2030,noting that nearly7.7GWofnewnuclear
capacity is under construction. In the Alternative Innovation Scenario developed in the ES 2030,
foreseeingmoreenergyefficiencyandstrongerenvironmentalfocus,TPEScouldbe1,195mtce,13%
to24%lowerthanthelowandhighestimatesby2030.
FocusontheGasPartoftheEnergyStrategy
The gas strategy has to be viewed through the prism of the supply/demand balance. Previously
basedonsixelements(Gazpromsproduction,independentsproduction,Caspianimports,domestic
Russian demand, exports to Europe and to FSU), it now incorporates LNG exports and exports to
China. Russias (and Gazproms) upstream strategy uses all elements. The flexible LNG element
appearedin2009withthestartofexportsfromSakhalinwhileexportstoAsia(bypipeline)arefor
thepost2015period.Turkmenistan,previouslyconsideredasasourceofcheapgas,isnowpaidat
prices closer to global levels and Russias import strategy has evolved accordingly, although Russia
seekstoimportmorefromotherCaspiancountriessuchasAzerbaijan,UzbekistanandKazakstan.
AgaintheESisonepartofthestorytobecomparedtothesignsontheground.Regardingupstream
gasdevelopmentsandgasexports,thefollowingtrendscanbeobserved:
OECD/IEA, 2010
35
36
Diversifying exports. Although Europe is and remains the main export market, Russia looks at
diversifying exports and at lower(ing) the risk of the Russian energy sectors mono
dependence.35Europeanexportsarestillexpectedtoincreasefrom140bcmtoover200bcmby
2030,butbythen,Asiawouldaccountfor20%oftotalexports(around70bcm)whileLNGwould
contributeto15%ofthisvolume(around5255bcm).36FarEastandEasternSiberianproduction
andexportstoChinahadalwaysbeenpresentinGazpromsexportstrategybutingeneralatthe
bottomoftheprojectslist.Theseprojects,acombinationofLNGandpipelineexportscoupled
with the development of the Far East region, have been gaining momentum since mid 2009.
Following a visit of Prime Minister Putin in October, first agreements have been signed that
foresee exports up to 70bcm to China. Also gas would gain importance economically with its
shareinenergyexportsincreasingfrom32%in2008to43%by2030.Itremainstobeseenhow
quicklythegeopoliticalshifttowardstheEastwillbefollowedbyconcretestepsontheground.
ThecriticalissuewillbenegotiatinganadequatepricewiththeChinese.
Energy Strategy 2030.

Asia will be China but also Japan and Korea, three countries to which Russia already exports gas from Sakhalin.
224
RussiasSupplyandDemandBalanceAccordingtotheES
1200
1000
bcm
800
600
400
200
0
Domestic
demand
Exports
Supply
Domestic
demand
1ststage
Exports
Supply
2ndstage
Demand
Otherfields
FarEast
Imports
Yamal/ObTaz
Domestic
demand
Exports
Supply
3rdstage
Shtokman
EasternSiberia
FSUexports
Otherexports
OECD/IEA, 2010
Source: Russian Energy Strategy, IEA.
Postponing projects. In the mediumterm, both Yamal and Shtokman have been postponed to
2012and2016respectively.AshighlightedintheNGMR2009,thedatespreviouslyannounced
were considered to be too optimistic; this shows a more realistic approach to new market
uncertainties.TheassumptionthatShtokmancouldstartinthefirststageoftheEnergyStrategy
seemsalsounrealisticandnotinlinewithGazpromsstrategy.Inthelongterm,39%ofnatural
gas production (345367bcm) would come from new regions such as Eastern Siberia, the Far
East,Shtokman,whiletheshareofindependentgasproducerswouldincreasefrom21%in2009
to27%by2030(113bcmto150160bcm).ThedevelopmentoftheFarEastandEasternSiberian
fields is particularly challenging. Eastern Siberian fields are located in remote areas where most
infrastructure (railroads, roads, pipeline) is absent requiring huge investments to be made,
notwithstandingaverylowpopulationdensityandadifficultclimate.Furthermore,thereisstillno
agreementonprices,althoughthepositionsofRussiaandChinaaregettingcloser.Finally,thereis
stillalegaldisputeoverKovykta.Productionstartingduringthefirststageseemsoptimistic.One
couldarguethatmoreemphasiscouldpossiblybeputonindependentproducerssittingonhuge
naturalgasreservesnearertoexistinginfrastructure.Thiswouldseemmuchmoreeconomicand
wouldbemuchlessrisky,especiallyduringthistimeofuncertaintyonthedemandside.
Waitandseeapproach.IfYamalgasweretostartin2011aspreviouslyplanned,itwouldjust
add a layer of unwanted gas to an already oversupplied market. This gas, being oillinked and
deliveredbypipeline,islikelytobelesscompetitivethanspotgasatleastforthemediumterm.
Itwouldnotbesurprisingtoseethestartoftheseprojectsdelayedfurtherifmarketconditions
arenotright,butasexplainedearlier,Gazpromhasmanyelementstoplaywith,suchasitsown
225
production, independents production, and Caspian imports. Serious investments have already
been done on Yamal with the most difficult part completed, allowing the ability for a staged
approachandstartupinacoupleofyears.Shtokman,whichcombinestechnicaldifficultieswith
existingmarketuncertainties,maywellbefurtherdelayed.
Caspian imports carrot and stick. Russia continues to have a strong relationship with the
Caspiancountries,butthisdiffersaccordingtothecountry.Russiaislookingtoincreaseimports
fromAzerbaijan,awaytopreemptShahDenizphaseIIgasthathasbeenmootedforNabucco,
andalsofromUzbekistan.Butatthesametime,importvolumesfromTurkmenistanhavebeen
revised downward from a level above 40 bcm in 2008 to a maximum of 30 bcm from 2010
onwards, although actual volumes in 2010 are likely to be closer to 10 bcm. According to the
previous longterm agreement, Russia was supposed to import up to 8090 bcm from
Turkmenistan by 2010. The Russian projection of imports of around 70 bcm assume either an
increaseofTurkmendeliveriesand/ordeliveriesfromotherCaspiancountries.
ThereareadditionalunknownfactorsinRussia:thefutureoftheRussiandomesticmarketandthe
roleofindependentgasproducersandverticallyintegratedoilcompanies.
TheevolutionoftheRussiandomesticgasmarketitselfisquiteuncertain.AccordingtotheES2030,
gasdemandincreasesinvolume to605641bcm(growthof32%to40%)butitsshareinthetotal
energymixdeclinesfrom53%to4448%.ThedomesticRussiangasmarketischaracterisedbytwo
aspects: electricity and gas are intertwined, and it is energy inefficient. Around 60% of total gas
demand is used in the transformation sector while 48% of the power generated comes from gas,
creating a significant interdependency. Gasfired power is especially prominent in large urban
centres,oftenassociatedwithCHP.
OnecouldarguethatYamalgascouldmoreeasilycomefromeffectiveimplementationofRussias
newly passed Energy Efficiency Law. In the Alternative Innovation Scenario, gas demand would be
10%15% lower, saving 6090bcm by 2030. Gazprom estimated in 2009 that more efficient gas
generating plants could easily save 20bcm/y while better insulation in the residential and
commercialsectorcouldsaveanother70bcm/y.Gainscouldbeachievedbyusingmoreefficientgas
plantsinthepowerandindustrialsector,rationalisingenergyuseintheindustrysector,movingfrom
centralheatingtodirectheating,orimprovinginsulationintheresidentialsector.But,aselsewhere,
thecrisisislikelytohaveanadverseeffectonenergysavingasuserscannotaffordtoinvestinmore
efficientequipment.Morechangescanalsobeexpectedfromstructuralshiftssimilartothosethat
happened in developed countries during the last decade with a progressive move from heavy
industrytolightindustryorservices.
OECD/IEA, 2010
AtthefinalimplementationstageoftheEnergyStrategy,theRussianeconomyisexpectedtoboost
theutilisationofnaturalgasnotonlyasanenergysourcebutalsoasavaluablechemicalproduct.High
techgaschemistryandproductionofsyntheticliquidfuelsfromnaturalgaswilldevelopextensively.
Whatcouldtriggersuchchangeswouldbetheplannedpricerises,buttheseareespeciallydifficultto
pursue,giventheeconomicandsocialimpactsofthecurrentrecession.Intheory,Russiaaimsatgas
exportparitypricingbetweenthedomesticmarketandexportstoEurope;inpractice,thismeasure
has repeatedly been pushed back, either due to the dramatic increase of oil prices (and therefore
exportprices)ortherecession.TheFederalTariffServiceisworkingonanewpricingformulatobe
proposed to the government. In ES 2030, prices are expected to be at parity by 201315, but
Gazprom does not expect this before at least 2014: gas prices would have to reach
RUB4,800/1,000m3 from 2009 levels of RUB1,970/1,000m3, implying an annual increase of 20%,
226
wellabovetheofficial15%.Thekeyuncertaintiesaretheoilprice,37theexchangeratebetweenthe
Rouble and the US Dollar and future European export prices if the inclusion of a spot element is
extendedintothemediumterm.
Thesecondopenquestionistheroleoftheindependentsaswellasprivateandforeigncompaniesin
thefutureEnergyStrategy.Investmentsinthegassectorovertheperiod200930areestimatedat
$565590billion (2007), split as follows: onethird in production, half in transport and the rest in
treatment, and storage. By comparison, oil investments would amount to $609625 billion (2007).
Althoughthereisanoveralltargetofincreasingtheshareofforeigninvestmentintheenergysector
toatleast5%,8%and12%overthethreestages,thereisnospecificdetailsaboutgas.Beforeand
duringthecrisis,thegovernmenthasalwayssupportedstatecompaniesthroughfinancial,political
andregulatorymeasures.Independentgasproducersandoilcompaniesarerapidlyincreasingtheir
production. These companies have a keen interest in LNG and production of liquids rich gas.
However, despite their important gas production potential, one potential difficulty is access to the
grid.Moreover,thetargetiswellbelowwhatthesecompaniesplanfortheshortandmediumterm.
Novatekexpectsitsproductiontoincreasefrom32bcmin2009to6065bcmin2015,whileLukoil
expectsitsproductiontoincreasefrom12bcmto5070bcmby2017.
The relationship between the Russian government and IOCs is more complex: after some difficult
episodes,thegovernmentisagaininterestedinIOCparticipationintheRussianupstreamsectordue
totheirknowhowandtheiraccesstocapitalmarkets.ItisobviousthatGazpromalonewillbevery
hard pressed to support all this investment and that financial help of foreign companies will be
needed.AccordingtothenewlegislationbeingdraftedbytheMinistryofNaturalResources,foreign
companiescouldgetupto49%ownershipofoffshoreRussianoilandgasprojects,achangefromthe
2008decisiontorestrictaccesstooffshoredeposits.Buttheirinvolvementwouldstillbelimitedto
jointventureswithRosneftandGazpromfortechnologicallychallengingprojectssuchasShtokman,
Yamal LNG, the Eastern Siberia development, or the expansion of Sakhalin. It remains to be seen
whetherIOCsorforeignNOCswillaccepttheseconditions.ChineseNOCscouldbeparticularlykeen
to help on the development of the Far East and Siberian fields, if the gas is for their market,
replicating what has been done with Turkmenistan. But Russian views on an important Chinese
presenceinthisregionhaveyettobetested.
New Projects
Over the coming years, Gazprom expects its production to increase from 462bcm in 2009 to
507.5bcm in 2010 and 523.8bcm by 2012. The production increase would come from deposits
surrounding the supergiants: first Achimovsk (Urengoy) in 2009; Valanginian (Zapolyarnoye),
Zapadnoe (Urengoy), Yareyskaya (Yamsoveyskoye) in 2010, Nydinskaya (Medvezhye) in 2011 and
finallythestartoftheYamalpeninsulaproductionwithBovanenkovoin2012.
YamalPeninsulaandtheObTazBay
OECD/IEA, 2010
Despitetheoneyeardelayforthestartingdate,theYamalPeninsulaprojectremainsoneofthetwo
priorityprojectsforGazprom.Asnotedabove,thisprojectiscriticaltoreplacedecliningproduction
fromthemajorexistingfields:Urengoy,Medvezhye,andYamburgwhoseproductionisdecliningby
2025bcm/ysince2000.YamalandtheObTazBayinclude26fields,andtheproductionareascanbe
divided into three groups: Bovanenkovo, Kharasavey and Kruzenshternskoye in the centre of the
peninsula, the southern production zone of the ObTaz Bay and six fields in the Tambey group
37
The ministrys forecasts is $76 for Urals crude.
227
locatedinthenortheastpartofthepeninsula.38ProductionfromYamalisexpectedtoincreaseto
1244bcmby2015,to7276bcmby2020,toreach185220bcmby2030,morethanonequarterof
Russianproduction.ProductionfromtheObTazbaywouldreach68bcmby2030.By2012(instead
of 2011 previously), Bovanenkovo is expected to produce 8bcm per year. Given the delays in the
start,aproductionrangeof1244bcmappearsrealisticby2015.
The challenge in the development of the two fields has been above all logistical: the construction
materialhastobetransportedtotheYamalPeninsula,thepipelinestobringthegastotheunified
gas supply system (UGSS) have to be built. Transporting the material has been performed mostly
during summer at the Kharasavey port. Early 2010, the ObskayaBovanenkovo railroad was
commissioned and the construction of the BovanenkovoKarskaya railroad section should be
completedlaterin2010,allowingallyeartransport.Bovanenkovoholds4.9tcmofgasreservesand
was chosen to be developed first. This approach necessitated a difficult route, crossing the
BaidaratskayaBay,ratherthanlinkingthefieldstotheexistinginfrastructuresurroundingthethree
supergiantfields.GazpromhasalreadyspentsignificantsumsonBovanenkovo:$4billionin2008,
$3.4 billion in 2009 and a planned $6.8 billion in 2010. The most difficult technical part, laying the
pipeline across the Baidaratskaya Bay, has been half completed as of early 2010. Most of the
infrastructure has been completed while the first production wells have been drilled. The
developmentofthesouthernzonewouldstartin2015,withthefieldslinkedtoYamburg.39
GazpromhassetoutplansforthedevelopmentoftheObTazbaythefieldslocatedtothesouthof
theYamalPeninsula.Thedevelopmentofthesefieldshasalsobeenpostponedduetotherecession.
The company is still waiting to receive offshore licenses. The first to be developed would be the
SeveroKamennomysskoye offshore field that could start by 2018. Kamennomysskoye could start
threeyearslater.TheadvantageisthatthesefieldsareclosetoYamburgandcanberelativelyeasily
tiedtoexistinginfrastructure,replacingdecliningproductionfromYamburg.
A new stage has been reached with more serious discussions around the 1516 mtpa Yamal LNG
project,basicallythedevelopmentoftheNorthernzonewellabovetheArcticCircle.Novatek,which
owns 51% of the YuzhnoTambeiskoye field, can be considered as a prime mover. In September
2009, Prime Minister Putin invited CEOs from international companies for discussions on this new
project.TendershavebeenorganisedbyNovatektofindapartnerandwereclosedinMarch2010.
The project is nevertheless much less advanced than Bovanenkovo, and would present more
challenges than the southern zone. To some extent, this project is a competitor to Yamal if not in
termsofthemarketstargeted,atleastintermsofdomesticworkforce,materialandcashresources.
There was first an agreement between Gazprom and Indias ONGC to cooperate on the project.
Recently, Moscow has been trying to get Qatari companies participation in the project, while
companies such as Shell, Total or Wintershall have also expressed interest. In any case, this
commerciallyandtechnicallycomplexprojectwoulddependonthemarketoutlookbutmayrequire
atleastadecadetocomplete,basedoninternationalexperiencewithgreenfields.
OECD/IEA, 2010
38
Gazprom holds the development licenses for Bovanenkovo, Kharasavey, Novoportovskoye, Kruzenshternskoye, SeveroTambey, Zapadno-Tambey, Tasiyskoye and Malyginskoye fields.
39
Jonathan Stern, Oxford Energy Institute: Future Gas Production in Russia: is the concern about lack of investment justified?,
October 2009.
228
RussianGasInfrastructure
Source: IEA
TheEasternSiberiaProgram
Developments in the Eastern and Far East regions have become the second priority of Gazprom
under the name Eastern Siberia Program. The project appeared firmly on Gazproms strategy in
June 2009, after years ofdiscussions and the September 2007 Order. This order calls for a parallel
developmentofproduction,transmission,gasprocessingandchemicalindustriesinEasternSiberia
and the Far East, with potential gas exports to China and other Asian countries. Gazprom was
appointed as the Program execution coordinator. These projects are even more challenging as the
regionislargelyundevelopedandpoorlyexplored,apartfromSakhalin2.Oneshoulddistinguishthe
fieldslocatedintheFarEast(Sakhalin,Kamchatka)fromtheotherfieldsinEasternSiberia.
OECD/IEA, 2010
The Eastern Siberia program would develop fields such as Kovykta and Chayandinorskoye both for
localconsumptionandexport.ThesefieldscouldeitherbelinkedtotheEasternpipelinesystemand
possiblythentoChinaortotheWesternsystementeringtheNorthwestofChina.TheKovyktafield
isownedbyRUSIAPetroleum,inwhichTNKBPholds63%.In2007,TNKBPagreedtocedeitsshare
to Gazprom after failing to fulfil the license terms: TNKBP could not bring output to the levels
stipulatedduetolowlocaldemandandbecauseGazpromhasamonopolyonRussiangasexports.
However, the deal was never completed: talks between TNKBP and Gazprom over the sale of the
assetshadpreviouslybrokendownasthecompanieswereunabletoagreeonaprice.Thefactthat
Gazprommaynothavesufficientfinancingtodevelopallprojects(ontopofYamalandShtokman)
maywellplayinthefavourofapositivedecisionbeingtakenforastrongIOCpartnertodevelopthe
Easternfields,giventhegeopoliticalinteresttodevelopthisregionsoonerratherthanlater.
Production from Sakhalin 2 started in early 2009, and production from Sakhalin 3 is expected for
2014.TheES2030isratheroptimisticregardingthisregionwithproductionreaching3540bcmby
the end of the first stage and rising progressively to around 85bcm by 2030. Gazprom is currently
developing the gas transmission system from Sakhalin to Khabarovsk and Vladivostok, and started
229
buildinganewgaspipelinetolinkSakhalinIslandwithKhabarovskandVladivostokinJuly2009.The
onshore pipeline is expected to be part of an export route to the Pacific Rim later. The 1,350 km
pipelinesystemwillhaveaninitialcapacityof6bcmtobeincreasedto30bcmandbecommissioned
inthethirdquarterof2011.Then,inasecondstage,thepipelinewouldbeextendedto1,800km
andreachacapacityof30bcm(22mtpa).AliquefactionplantatVladivostokhasbeenproposedto
supplyAsianmarkets.Thiswouldgivethepotentialtoeitherlinkthepipelinesystemtotheonein
northernChinaortoexportLNGtothePacificmarket.
Sakhalin could be the first step of a more important liquefaction centre in Far East, depending on
futureresources.AlthoughItisveryimportantforustosetupnewcentresofgasproductioninthe
FarEastandEastSiberia,asRussianPrimeMinisterVladimirPutinsaidataceremonymarkingthe
welding of the pipeline's first segment in Khabarovsk, the supply sources to this pipeline and the
potentialliquefactionprojectatVladivostokarenotcertain.ThedevelopmentofSakhalinIIIandIV
ledbyGazprom,potentiallyinvolvingShell,Mitsui,andMitsubishi,couldbeafuturesource,although
SakhalinIcannotberuledout.Customers,notablyinKorea,arealreadyshowingsignsofinterest.
Shtokman
TheShtokmanprojectappearstohavebeenputonthebackburner.Discoveredin1988,thefieldis
estimated to contain 3.9tcm of gas. It represents the first major offshore development for the
Russiangasindustryandisprobablyoneofthemostchallengingduetothedifficultarcticconditions.
Thefieldsoutputistobedevelopedinthreephasesof23bcmeach,splitbetweenLNGandpipeline.
TheShtokmanDevelopmentCompany(Gazprom51%,Total25%andStatoilHydro24%)isdeveloping
thefirstphase.ThegaswouldbetransportedtoMurmansk,andtheneitherbypipelinetoEurope
throughtheNordStreampipelineorbyLNGtotheAtlanticregion.InFebruary2010,theShtokman
DevelopmentCompanyannouncedthatthestartupoftheprojectwouldbedelayedbythreeyears.
Thefirstpipelinegaswouldbein2016andfirstLNGproductionin2017.FEEDwascompletedend
2009.Accordingtothelatestplans,theShtokmanDevelopmentCompanyiscurrentlyconductinga
study on market potential (in particular shale gas) and plans to take a decision on pipeline gas in
March 2011 and on LNG end 2011. More than any other project, Shtokman requires demand
certainty,whichatthemomentissimplylacking.TheuncertaintiesregardingEuropeangasmarkets
andtheriseofunconventionalgasintheUnitedStatesmakeexportstothesemarketslesscertain.
Dependingonthetechnicaldifficulties,itmayevenberankedafterYamalLNGifmarketconditions
intheAtlanticbecomefavourableagain.
The Caspian Region

The Caspian region is strategically placed to supply different regions or countries: Asia, Russia,
Europe or Iran. The four countries, Turkmenistan, Azerbaijan, Kazakhstan and Uzbekistan hold
around8tcmofprovenreservestogether,butthemediumtermperspectivetoincreasegasexports
comesmainlyfromtwoTurkmenistanandAzerbaijan.
OECD/IEA, 2010
Turkmenistan
TurkmenistanisthemajorgasexportingcountryintheCaspianregionandithasrecoveredwellfrom
the difficult shortterm outlook that it faced in mid2009. At that time, gas trade with Gazprom
Turkmenistans main gas export partner had broken down following an explosion in April on the
main Central AsiaCentre export pipeline. Discussions on the price and volume terms under which
tradecouldresumewerenotpromisingquickresultsandcontinuedformuchoftheyear.Giventhe
230
demand declines in Russias main European markets, Gazprom had few commercial incentives to
take extra volumes from Turkmenistan. For Ashgabat, the only shortterm alternative route to
market was a relatively smallcapacity connection southwards along the Caspian Sea to Iran. The
breakdownofTurkmenistanexportswouldhavehadamajorimpactonproduction;thereisforthe
momentnoofficialconfirmationoftheamountofgasproducedin2009,buttheIEAestimatesthatit
wasintherangeof3542bcm,onlyjustoverhalfthe71bcmproducedin2008.Likewise,thedecline
inexportmusthavehadamajoreffectongovernmentrevenues,althoughthescaleofthisimpactis
difficulttodiscernfromofficialfigures.
It may take more than one year to return to the production levels of 70bcm, but the situation in
2010isundeniablybrighterforTurkmenistanthanitwasinmid2009.Twonewroutestomarket,a
largecapacitylinktoChinaandasecondcrossborderlinetoIran,werecommissionedinDecember
2009; negotiations with Russia were concluded successfully and northward exports were resumed
from the end of the year (albeit at lower volumes than before). Moreover, the Turkmenistan
authorities moved ahead with contracts for development of the supergiant South Yolotan field in
the southeast of the country, which is the cornerstone of Turkmenistans plans to increase output
overthecomingyears.Theofficialproductiontargetistoreach250bcmperyearby2030.Whilethe
resource base could conceivably support an expansion of this magnitude, there is considerable
uncertainty that sufficient investment will be forthcoming and that markets for such large
incrementalgasvolumeswillbeavailable.
Turkmenistanpolicyonupstreamdevelopmentsisthatinternationalcompaniesarewelcometoinvest
inoffshoredevelopments,butthatonshore,wherethebulkofgasreservesarelocated,theirroleis
limitedtoprovidingassistanceonacontractualbasistostateownedTurkmengaz.Offshoregasoutput
intheCaspianSea,primarilyassociatedgasproducedbyMalaysiasPetronas,couldeasilyreach10bcm
peryearby2015.ThisgascouldpotentiallybedirectedtoEuropealonganewsoutherngascorridor
ontheconditionthatawayisfoundtobringgasacrosstheCaspianSeatoBaku.
OECD/IEA, 2010
RussiasIteraandGermanysRWEbothtookthefirststepstowardsjoiningtheoffshoreproducersin
2009, signing productionsharing agreements (PSAs) on different offshore blocks (21 and 23
respectively).AlessencouragingmediumtermsignofTurkmenistansoffshoregaspotentialwasthe
decisionbyWintershall/Maersk/OMELtosurrenderrightstoblocks1112afterconcludingthatthe
resultsofinitialdrillingwerenotsufficienttoproceedwithfurtherexploration.
Anumberofcompaniesarelookingatlargerresourcesavailableonshore.BurrenEnergy,whichwas
boughtbyItalysENIin2007,hasonshoreoperationsneartheCaspianSeaunderaPSAconcluded
backin1996.Buttheonlyinternationalcompanythathasbeengranteddirectaccesstothemajor
inlandresourcessofarisChinasCNPC,whichhasaPSAforgasdevelopmentontherightbankofthe
Amu Darya river, near the border with Uzbekistan. Given the reluctance of the Turkmenistan
authoritiestocountenanceotheronshorePSAs,someinternationaloilcompaniesarelookingathow
onshoreservice contractscanbestructuredtoincludeanelementoflongertermriskand reward,
butitisnotyetclearwhetherthisapproachwillfindfavourfromtheTurkmenistanside.Onewayor
another, though, the Turkmenistan authorities will need to harness international expertise and
technologytosupportnewgasdevelopments:thenextgenerationofTurkmenistanonshoregaswill
bemoreexpensiveandcomplextodevelopthangasproducedupuntilnowbecauseitisdeeper,at
higher pressure and temperature, and has higher concentrations of hydrogen sulphide and carbon
dioxide. For the moment, as the example of the South Yolotan field suggests (see below), the
Turkmenistanauthoritiesexpectthattheirpolicyofrelyingonclassicalservicecontractsforonshore
gasdevelopmentswilldeliverthenecessaryresults.
231
CaspianRegionGasInfrastructure
Source: IEA
SouthYolotan
Appraisal work conducted by the UKs Gaffney Cline at the South Yolotan field, in southeast
Turkmenistan, has estimated gasinitiallyinplace at 614tcm; the Turkmenistan government has
recentlygonefurtherwithahighfigureof16tcm.Eventakingafigureatthelowerendofthisrange
andthenapplyingapessimisticassumptionaboutthelevelofrecoverableresources,SouthYolotan
isstilloneofthelargestdiscoveriesevermade.Onceitstartsproduction,SouthYolotanislikelyto
bethemainstayofTurkmenistanproductionformanyyearstocomeasproductionfromtheShatlyk
andDauletabadfieldsdecline.
OECD/IEA, 2010
Withtheassistanceofatleast$3billioninloansfromChina,theTurkmenistanauthoritiesawardeda
seriesofcontractsin2009forthefirstphaseoffielddevelopmentatSouthYolotan.Thisfirstphase
should produce 30bcm/y, with first gas expected in 2012. The contracts came to a total value of
$9.7billionandwereawardedtoUnitedArabEmiratessPetrofacandGulfOil&Gas,SouthKoreas
LG and Hyundai, and Chinas CNPC. These contracts cover drilling, subsurface development and
surface handling and construction, with Turkmengaz retaining overall project management.
Developing such a large and complex field will involve huge technical challenges (including an
average nonhydrocarbon gas content of around 8%); given the pattern of delays experienced by
otherlargeinvestmentprojectsintheCaspianregion,theannouncedscheduleforfielddevelopment
withfirstgasexpectedalreadyin2012couldwellslip.ThesuccessandspeedwithwhichSouth
232
Yolotan is developed will be the key variable in determining Turkmenistans ability to supply
significant volumes to multiple export markets. Since the field is being developed with Chinese
money and Turkmenistan needs to deliver 40bcm/y to China once the second string of the
TurkmenistanChina pipeline is completed, it is likely that first gas from South Yolotan will be
earmarkedfortheChinesemarket.
Azerbaijan
After a major increase in 2008 as production from Phase I of the Shah Deniz field ramped up,
Azerbaijans gas output rose only slightly in 2009. The rise from 16bcm to around 16.6bcm was
mainlyduetoanincreaseinassociatedgasdeliveredtoSOCARfromtheAzeriChiragGuneshli(ACG)
oil complex. Azerbaijan gas production comes from three main sources: the Shah Deniz field and
SOCARs own production (each contributing over onethird in 2009), with the remainder being
associated gas from ACG. Most Shah Deniz gas is exported, mainly to Turkey along the South
CaucasusPipeline(alsoknownastheBakuTbilisiErzurumpipeline).Since2010,aseparateportion
of SOCARs own gas is exported to Russia according to an agreement signed in October 2009
betweenGazpromandSOCAR.Theinitialamountof0.5bcm/ywasdoubledinearly2010to1bcm
increasing to 2bcm in 2011. The rest of SOCARs own production and ACG gas is used for the
domesticmarket.
Thereissignificantpotentialtoincreaseoutputfrom2009levels.Themainincrementalsourceofgas
intheperiodto2020isPhaseIIdevelopmentoftheShahDenizfield.Thiscouldbringanadditional
1416bcm/yandhadbeeninitiallyforeseenasstartingin2014.Additionalgasoutputisalsopossible
from the Absheron field, where Total will drill a first exploratory well in 2010, and from deep
horizons under currently producing reservoirs at Shah Deniz and the oilproducing ACG complex.
Following on from their PSA in the Turkmenistan sector of the Caspian, RWE concluded in 2009 a
Memorandum on the Nakhichevan offshore field and expects to conclude an exploration,
developmentandproductionsharingagreement(EDPSA)beforetheendof2010.
Uncertainty over the timing, direction and marketing arrangements for future gas export from
Azerbaijanhasheldbacksomeupstreamdevelopments.AlthoughAzerbaijanhasbeenlookingata
varietyofoptionsforgasexport,includingtransBlackSeaLNGandCNG,andsalestoRussiaandIran,
AzerbaijansexpressedpreferenceistosellitsgasonEuropeanmarketsviapipelinetoandthrough
Turkey. However, delays in agreeing the terms for gas trade along this southern gas corridor to
EuropemeantthatadecisiontosanctionShahDenizPhaseIIhasbeendelayedsothatfirstgascould
arriveonlyby2016oreven2017.
The conclusion of an InterGovernmental Agreement among the transit countries for the Nabucco
project in July 2009 helped to clarify the arrangements for a southern corridor, as did the
memorandaagreedinJune2010betweenTurkeyandAzerbaijanonthepriceofgasdeliveredfrom
ShahDenizPhaseI,andpriceandtransitarrangementsforPhaseII.Thesedevelopmentsshouldhelp
to clear the way for specific commercial negotiations to begin between the members of the Shah
Deniz consortium and the different pipelines and purchasers interested in Azerbaijan gas exports.
Evidence that a functioning southern gas corridor is in place will be essential to encourage further
upstreamdevelopmentsintheCaspianregion,notonlyinAzerbaijanbutalsoinothercountrieswith
potentialaccesstothiscorridor,suchasIraqandalso(offshore)Turkmenistan.
OECD/IEA, 2010
233
Middle East and North Africa

Qatar will shortly be exporting 77mtpa (105bcm) of LNG, in addition to pipeline exports to the
UnitedArabEmirates(viaDolphin)of20bcm/yanddomesticsalesof28bcmforpowerandindustry.
By2013,QatarshouldalsohavedevelopedthesubstantialBarzanoffshoregasfield(15bcm/y)as
well as benefiting from the exports of Shells pioneering Pearl GTL venture (16.5bcm/y) a total
annualproductionofsalesgasof185bcm.
AllothermajorgasproducersintheGulfandMediterraneanareasarestruggling.SaudiAramcohas
not made an allocation of gas to industry since 2006. The United Arab Emirates has to consider
alternatives to gas for power generation, and indeed, has recently awarded a major contract for
nuclear power plant construction. Kuwait is already importing LNG to cover summer peak power
demand and Dubai is expected to follow suit in 2011. Oman is limiting its LNG exports to 80% of
capacity, while Egypt has denied foreign investors the authorisation to add further LNG export
capacityatDamietta,givingprioritytodomesticdemand.Algeriahassufficientgasatpresent,butis
planning an extra 20bcm of pipe (Medgaz) and LNG export capacity (Skikda and Gassi Touil), for
which the gas supplies need to be developed. While Iran produces about 160bcm/y of raw gas,
increasing quantities are used for oil field injection and other internal uses; so despite its massive
reserves, Iran is a net gas importer. Meanwhile, for lack of foreign partners, National Iranian Oil
Company (NIOC) has failed to develop any LNG capacity to enable exports from their South Pars
production. The recent increase in supply capacity from Turkmenistan (to 14bcm/y) will make it
easiertocovernorthernIranswinterdemandpeaks;butwithvolumesexportedtoTurkeystillvery
variable,itseemslikelytoextendtheperiodwhenIranremainsanetimporterofgaswellintothe
mediumterm.
For both environmental and technical reasons, gas remains the fuel of choice for both power
generation and petrochemicals, as well as for enhanced oil recovery in this region. The race is
therefore on to identify additional quantities of nonassociated gas. An early step in this direction,
the Saudi Gas Initiative in the late 1990s, proved unsatisfactory. While companies like Shell, Lukoil
and Repsol were pleased to be invited into the Kingdom, it proved impossible to develop any
reservesatacostanywhereneartheSaudidomesticsellingpriceof$0.75/MBtu.Today,thereisa
greaterrealisationthatadditionalgasdepositsaregoingtocomeinatcostsmuchhigherthaninthe
past, and that if domestic prices are going to remain artificially low, a way must be found for the
governmentortheNOCtobridgethegap.Morelogically,pricesshouldbeallowedtorisetolevels
thatencourageviableexplorationandproduction,atthesametimeencouragingefficientutilisation
inapplicationssuchaspowergeneration,andwaterproductionanduse.
OECD/IEA, 2010
Saudi Arabia
Thus in Saudi Arabia, while Saudi Aramco is still expecting to benefit from some large additional
associated gas volumes from the 500,000 b/d Khursaniyyah oilfield development, which came on
streaminearly2009,andfromthe900,000b/doffshoreManifafield,whichistobedevelopedby
2014, the main additional volumes of gas in the medium term are expected to come from non
associatedgasprojectswherecostsaremuchhigher.TheoffshoreKaranfield,whichshouldproduce
18bcm/y of sour gas when it comes on stream in 2012, may deliver gas at a production cost of
$3.50/MBtu. Gas from the additional fields at Arabiyyah and Hawiyyah, which should add nearly
10.3bcm/ytosuppliesfortheWasitgasprocessingfacility,maycostasmuchas$5.50/MBtu.There
are also plans to develop an extra 400mcf/d of ethane for the petrochemical industry from the
750,000b/d expansion of the Shaybah oilfield in the Empty Quarter. This might be linked to
234
developing the sour gas deposits at Kidan identified by Shell, which currently represent stranded
assets.LUKoilarealsosoundingmoreoptimisticaboutbeingabletodeveloptheirdiscoveriesinthe
EmptyQuarter(perhaps70bcmofthe300bcmgasinplace),butthiswillnotbebefore2015.
WhilemostSaudigashashistoricallycomeasassociatedgas,therearealreadysubstantialsupplies
ofnonassociatedgas,thoughinsufficientforallcurrentneeds.Itisestimatedthattheproportionof
associatedtononassociatedgasinSaudiArabiassupplyvariesbetween40%and60%,dependingin
partonthelevelofoilproduction.When,asatpresent,SaudiArabiaisproducingjustover8mb/d
(of its installed capacity of 12.5mb/d), the proportion of associated gas as quoted by the Oil
Minister Ali alNaimi in mid2009 is 42%. The 58% of nonassociated gas in the supply system
representsalreadythereforeahugeinvestmentinnonassociatedgassupply.
Longerterm, the Saudis have said that they hope to expand raw gas production from the current
90bcm/y(8.8bcf/d)to134bcm/y(13bcf/d)by2020.Withprovenreservesalreadyraisedto7.6tcm
attheendof2009,theSaudissaytheyhopetoincreasethesereservesbyabout140bcmeachyear,
matchingoutput.TheyhavejustlaunchedafreshfiveyearseismicsurveyoftheEmptyQuarter.Late
2009, Saudi Aramco also let a $400 million contract for seismic work in the Red Sea; and in early
2010, Khalid alFaleh, CEO of Saudi Aramco, said that the inland areas north and northwest of
Riyadh would also be explored. If gas in sufficient quantities is located in the Jalamid area, for
example, there is a proposal to develop it as part of the Maaden phosphate and fertiliser project.
Overall,thisamountstoamassiveupstreamdevelopmentprogramme.
United Arab Emirates
In the United Arab Emirates, which has 6.1tcm of proven gas reserves, ADNOC has had to take a
similarly realistic approach on costs. They have three major gas development projects currently
underway,whicharemainlyaimedatincreasingvolumesofgasforuseinreinjection,whileprofiting
from the significant quantities of NGL byproducts. Onshore Gas Development III is designed to
provide12bcm/yforreinjectionintotheBaboilfield.AsabGasDevelopmentIIshouldtreatabout
7.8bcm/yofrawgasforreinjectionintotheAsabreservoir.TherecentlylaunchedHabshan5project
will produce 10.3bcm/y for reinjection and another 10.3bcm/y for industry and power by 2013.
These projects will also produce 11mtpa of NGLs, much of which will be allocated to the rapidly
developingpetrochemicalindustry.
OECD/IEA, 2010
LessobviouslyprofitableistheambitiousShahsourgasfielddevelopmentwhich,untilveryrecently,
was expected to be taken forward in partnership with ConocoPhillips. ADNOC are now said to be
lookingfornewpartners,possiblyeitherShellorTotal,whichoriginallybid,orOccidentalPetroleum.
TheShahprojectistotake10.3bcm/yofonshorenonassociatedsourgasandproduce5.6bcm/yof
salesgasforthedomesticmarketalongwithlucrativequantitiesofcondensatesandNGLs.Butthe
production cost of the gas is estimated at $5.0/MBtu and the waste sulphur from the treatment
processhasproveddifficulttodisposeofinanoversuppliedworldmarket.Nevertheless,theUnited
ArabEmiratesneedforadditionalgasislikelytotemptADNOCtoproceedanyway.Aswillalsobe
seenbelowinthecaseofOmanandKuwait,thesetechnicallychallenginggasprojectsareoftenthe
pointofentryforthewesternmajorsintoupstreamreserveshithertoclosedoff.Theyalsoprovide
large scale and lucrative contracts for the European, North American and Far Eastern engineering
andprojectmanagementindustries.
One last, relatively smallscale, initiative in the United Arab Emirates, is to take some 2bcm/y of
additionaloffshoregasandpipeitonshoreforthedomesticmarketinsteadofaddingittothelong
235
standingDasIslandgasliquefactionfacility.LikeOmanandEgypt,the UnitedArabEmiratesshows
noinclinationtoexpanditsLNGexportcapacityaslongasithastoaddressthedemandsofoilfield
injection, local industry and power generation. But at the same time, it is devoting significant
investmentandcuttingedgetechnologytodevelopingadditionalgassupplies.
Iran
WhilegasstrategyontheArabsideoftheGulfismainlyconstrainedbygeologyandeconomics,on
theIranianside,politicalissuesplayadominantrole.Iranhastheworldssecondlargestprovengas
reserves(29tcm),andconsumescurrentlyabout160bcm/yofrawgas(ofwhichabout120bcmof
salesgas).InthecontextofinternationalconcernoverIransnuclearpoweranduraniumenrichment
programme, bilateralUSsanctionsandsuccessive UNSecurityCouncilresolutions,whilesofarnot
directlyimpactingimportorexportofgas,crudeoiloroilproducts,haveeffectivelydiscouragedthe
largescale foreign investment and technology which the Iranian government was hoping could
contributetoupstreamgasdevelopment.Thisparticularlyappliestophases11and1314ofSouth
Pars gas production which were intended to bring in Total and Petronas in the first case and Shell
with Repsol in the second. On the other hand, phase 12 of South Pars is being developed by the
NationalIranianGasLiquefactionCompanyusingGermantechnologyunderlicence.Butprogresshas
beenslowandtheIraniansaresaidtohaveofferedONGCVideshofIndiaandtheHindujacompany
40%oftheproject,possiblyasawayofattractingmorefunding.TheIranianshavealsoinvitedCNPC
of China to farm in to the Pars LNG project (South Pars phase 11) in place of Total (at a price of
$4.7billion).Butthelackofproprietarytechnologyandprojectmanagementskillswillbeahandicap.
Meanwhile, the development rights for South Pars phase 1314 was granted to Iranian group
KhatamolOseainplaceofShellandRepsolfor$5billion.
OECD/IEA, 2010
Thethreatofsanctionsisnottheonly problem.TheIranianoilandgassectorhasbeensubjectto
strong political influence. Massoud Mirkazemi, appointed Oil Minister after the last presidential
elections,isapoliticalallyofPresidentAhmedinejadratherthanatechnocrat.TheselectionofJavad
OwjitobeDeputyMinisterforgasaffairsandtoheadtheNationalIranianGasCompany(NIGC)and
therecentappointmentofAhmedGhalebaniasDeputyMinisterandheadofNIOCarebothseenas
political. The politicisation of projects has caused problems for foreign participants: StatoilHydro,
whichwaskeytodevelopSouthParsphases68andprovided27bcm/yofgasforreinjection,found
itverydifficulttoworkwithdesignatedIraniannationalcompaniessuchasPetropars.Theallocation
ofcontractsforlargelypoliticalreasonshascontinued.KhatamalAnbiya,acompanyownedandrun
bytheIranianRevolutionaryGuardCorps,wasawardedSouthParsphases1516(18.2bcm/y)onthe
withdrawal of Kvaerner: they will also take over South Pars phases 2224 (14.5bcm/y), which had
beenintendedtobedevelopedbyTPAOforexportthroughTurkeytoEurope.
There is also a general problem of funding. In February, the outgoing head of NIOC, Seifollah
Jashnsaz, regretted that Iran had only attracted $8 billion of foreign investment in the 2009/10
financialyear.ThenewMinister,Mirkazemi,statedinJanuarythatwhile$19billionwasneededthis
year to sustain gas development projects, the national budget only allocated $3 billion. This has
incidentally prompted a determination on his part to ratchet up domestic gas prices sharply,
somethinglongoverdue.NotalloffshoregasdevelopmentsneedtobelinkedtoLNG,butfundingis
stillnecessary.SouthParsphase1516nowinthehandsofKhatamalAnbiyawasrecentlyawarded
$2billionoffundingfromtheforeignexchangefund,fromtheOilMinistrysownbudgetandfrom
domestic banks. Similarly phase 1718 (18.2bcm/y) which has recently been taken forward by the
Industrial Development and Renovation Organisation (under Ahmed Ghalebani), was said to be
236
$750millionshortoffundingthisyearandhasjustbeenallocated350millionfromarecentissueof
Eurobonds.Boththeseprojectsmaynowhaveachanceofstartingbythemiddleofthedecade.
AnothersourceofnewgasdeliverieswillbetheSalmangasfieldintheLowerGulf.Thesubjectofa
protracteddisputewithDanaGasofSharjah,itsoriginalexportcustomer,overdeliveryprices,ithas
nowbeenlinkeduptoIransownonshorenetworkandshouldbeproviding5.15.6bcm/ythisyear.
(The overall cost of this will be a small fraction of the cost to Abu Dhabi of developing a similar
quantityofgasfromtheShahgasfield).Lastautumn,theoutgoingheadofNIGC,AzizollahRamezani,
saidthateveniftheysucceedinrestrainingdomesticdemand,overallgasconsumptionwaslikelyto
increasefromthepresent160bcm/ytoabout200bcm/yby2014(includingcontinuingincreasesin
demandforgasreinjectioninoilfields).Alltheseprojectswillbeessentialforthattargettobemet.
Furtherdowntheroad,thereistheprospectofdevelopingthegiant31bcm/yKishfield,alsointhe
lower Gulf. But recent attempts to persuade the Omanis to jointly fund the project in return for
10.3bcm/y to supply Omans own underused LNG export capacity have not borne fruit. A fortiori,
any plans to develop the Durra field in the Upper Gulf which straddles the Iranian/Saudi/Kuwaiti
maritimeborderwillneedtoawaitasignificantimprovementintheregionalpoliticalsituation.Iran
continuestoexploreonshorefornewgasresources.ThenewMinisterannouncedanassessmentof
therecentlydiscoveredHalegangasfield,withthecapacitytoproduce18bcm/yforabout20years.
Oman
Omanhasamodest690bcmofprovengasreservesbut,liketheUnitedArabEmiratesandIran,has
agrowingneedforgastoenhanceoilproduction.In2009,gasusedintheoilfieldsincreasedby35%
overthepreviousyear.Atthesametime,itseeselectricityandwaterdemandrisingstronglyover
themediumterm.Thereare1,650MWofgasfiredpowercapacitycomingonlineby201213(and
55mgallons/dayofwater).Omans10mtpaofgasliquefactiontrainsarebeingrunat80%capacity.
Petroleum Development Oman (Shell/Total) which hold the major concessions, are concentrating on
maximisingoilandgasrecoveryrates,andwheretheycandevelopfreshgassupplieshopetocapitalise
onassociatedcondensatesandNGLs.TheirrecenttightgasdiscoveryatKhuludofferstheprospectof
10.3bcm/yinthemediumterm,thoughtheupstreaminvestmentcostswillbeconsiderable.
Likewise,bothBPandBGGrouphavepromisingtightgasconcessionsheldonanEDPSAbasissince
2006.Theyhopetodeclarecommercialityinthenearfuture(onthebasisofanagreementonhigher
salesprices).InthecaseofBP,thiswillrequireafurtherappraisalinvestmentof$650millionover
two years. BPs current estimate of their reserves ranges between 0.6tcm and 1.7tcm, and of
ultimate full production using hydrofracking, between 10.3bcm/y and 20.6bcm/y. They hope to
establish early production at about 2bcm/y by the end of 2011. If all three of these tight gas
prospects are confirmed, Omans gas reserves position will be significantly enhanced and it would
openthewayformuchgreaterupstreaminvestmentoverthemediumandlongterm.
OECD/IEA, 2010
237
P ART 2: G AS I NVESTMENTSIN LNG
INVESTMENT IN LNG
Summary
Theyear2009sawasharpcontrastbetweenthePacificandAtlanticLNGmarkets,especiallyin
longtermmarketingandliquefactioninvestment:significantprogresswasachievedinthePacific
basin while uncertainty continued in the Atlantic and in the Middle East where progress on
futureprojectsislessclear.Thefocusofmarketingandinvestmentactivitiesintheseregionsis
alreadyshiftingtothelatterhalfofthedecade.
Twoprojectshavemadefinalinvestmentdecisions(FIDs)sincetheNGMR2009Gorgonand
Papua New Guinea LNG (PNG LNG) and some others have seen significant progress in
marketing their planned volumes in the Pacific region. Longterm and vertically integrated
valuechain arrangements have proven to be key to advance projects. Australia has become a
majorfocusfornewinvestments:severalprojectsinWesternAustraliaandCBMtoLNGprojects
in Queensland are competing for marketing windows and limited project resources. It is
reasonabletoanticipateatleastoneortwonewFIDsover201011.
FloatingLNGproductionisgainingmomentumalthoughnoprojectshaveyetbeensanctioned.
Those projects sponsored by companies with established track records in LNG business seem
morelikelytoproceed.
Traditional LNG supply regions are becoming major consuming centres of LNG as well as
pipelinegas,inparticulartheMiddleEastandSoutheastAsia.Whiletheseregionswillremain
globally net exporters of gas, regional disparities between, or even within countries have
resultedinnewLNGimportinfrastructurebeingbuiltorplanned.
AfterfouryearsduringwhichonlyfiveFIDsweretaken,thetrendwasbroken:twoprojectsinthe
Pacificmadefinalinvestmentdecisions(FIDs)inthesecondhalfof2009GorgonandPapuaNew
Guinea LNG (PNG LNG). A key success factor for these two projects was the longterm sales
agreementstobothgrowingandmorematuremarketsseekingtomeeteitherincrementaldemand
orreplaceexpiringcontracts.Someotherprojectshaveseensignificantprogressinmarketingtheir
plannedvolumesandseemlikelytotakeFIDin2010or2011.
OECD/IEA, 2010
EstimatesonnewLNGliquefactioncapacitybyregionweremorebullishin2006beforeengineering,
procurement and construction contract (EPC) costs started to increase rapidly. In the NGMR 2009,
the IEA looked at seven projects with potential FID in 2009 and 2010: two are effectively moving
forwardbuttheothers,BrassLNG,NigeriaTrain7,DonggiSenoro,ShtokmanandIchthysseemfar
fromFID. TheoneslocatedintheAtlanticbasinsufferfromthe currentregionaloversupply,while
factorssuchastheregionalinstability,technologicalchallengesandallocationofdomesticgashave
addedtothedifficulties.NowAustralia,strategicallyplacedinthePacific,hasemergedasthemajor
newproductioncentre.
ThechallengeshighlightedintheNGMR2009arestillverymuchpresent.First,marketuncertainty
remains a concern and projects with sales agreements have a clear advantage. Furthermore, the
materialandengineeringcostsofliquefactionplantscomingonlineover200913remainrelatively
highat$830pertonne/yearofcapacitycomparedtothosecompletedover200508($430).Thefact
thatmostprojectswhicharelikelytotakeFIDover200911wouldbelocatedinAustraliamaycause
someissuesintermsoflabourshortage.
238
ExpectedLNGExportbyRegion
700
Atlantic
Hybrid
600
Pacific
EstimatesinNGMR2009
500
EstimatesinNGMR2008
EstimatesinNGMR2007
400
bcm
EstimatesinNGMR2006
300
200
100
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Note: annual capacity is adjusted depending on expectations on starting date. In the NGMR 2007 and 2008, it was
assumed that Indonesias Arun would cease in 2009 and that exports from Indonesia would progressively decline as
export contracts are not extended.
Source: IEA, previous NGMRs.
Delays and difficulties seem to have become a common trait among existing and new plants;
additionallymostofthemhavecomeonlinelaterthanexpected.WiththetwonewFIDsonGorgon
andPNG,therearestill79bcmofcapacityunderconstructionandplannedtocomeonlineby2015.
Liquefactioncapacityatthattimewillreach439bcm,althougharound10bcmofcapacitycouldbe
decommissioned by then. In addition, there is 500bcm of capacity currently proposed. Four
countries,Australia,Nigeria,IranandRussia,represent77%ofthisplannedcapacity,butAustralian
projectslooksthemostlikelyinthecurrentcircumstances.
AsofJune2010,thereisaround360bcmofexistingliquefactioncapacity,37%inthePacificbasin,
33%hybridand30%intheAtlanticbasin.Qatarnowhasclosetoonequarterofgloballiquefaction
capacity,wellaheadofIndonesia.Some82bcmstartedoperatingsincethestartof2009,butmost
projectswereplaguedwithtechnicaldifficultiesrequiringshutdownandmaintenance.
Thefollowingsectionwilllookatprojectsrecentlyapprovedaswellasattheprojectscurrentlyunder
consideration. The Appendices in Part 3: Gas Supplement give details on LNG liquefaction plants
existing,underconstructionandplanned.
OECD/IEA, 2010
239
FIDsTakenOverthePastTenYears
Project
Capacity (bcm)
FID
Start
Darwin
Snhvit
Sakhalin
Equitorial Guinea
RasGas II Train 5
NWS Train 5
Qatargas Trains 4&5
RasGas Trains 6&7
Qatargas Trains 6&7
Tangguh
Yemen
Peru
Pluto
Skikda
Angola
Gassi Touil
Gorgon
PNG
4.4
5.6
13.6
4.6
6.4
6
10.5 x 2
10.5 x 2
10.5 x 2
10.3
9.2
6.0
6.5
6.1
7.2
6.4
20.4
9.0
2002
2002
2003
2004
2005
2005
2005
2005
2005
2005
2005
2006
2007
2007
2007
2008
2009
2009
2006
2007
2009
2007
2007
2008
2009
2009-10
2010
2009
2009-10
2010
2011
2013
2012
2013
2014-15
2014-15
Source: IEA based on companies information.
Pacific Advances two Major Projects: Gorgon and Papua New Guinea
WhenonelooksatwhereLNGliquefactionplantscouldbebuiltinthenextdecade,Australiahasthe
potentialtobecomethenewQatar.With27bcminoperation,ithastwoplantsunderconstruction,
PlutoandGorgon,andanumberatadvancedstagesofplanning.Itsgeographicalpositioncloseto
booming Asian markets will also prove an advantage compared to other countries. There are two
particular aspects to Australian projects: six are CBMprojects while three are floating liquefaction
plantsinadditiontotheplannedconventionalLNGprojects.Australiahasnotonlyagreatpotential
as an exporting country but could be the theatre of major technological breakthroughs. Among all
these plants, the Queensland Curtis LNG project from BG and Wheatstone from Chevron are
probablythemostadvanced.PapuaNewGuineahasalsoseenoneofitsprojectssanctionedin2009.
Australiacontinuestofacethesamechallengesthathavemadepastdevelopmentsdifficult.Gasis
frequently located in very remote locations, where infrastructure is lacking, and labour costs high.
Theweakimpactoftherecessionmeansthatcostpressuresmayemergeagainquickly.However,the
centralQueenslandCBMLNGprojectsarebetterlocated,soinfrastructureissues,whilestillpresent,
may be less pressing. The Australian government is currently negotiating key parameters of the
proposednew40%taxonresourceprofitswithmininggroups.Untiltheseareagreed,itisdifficultto
assesstheimpactofthetaxonnewinvestmentdecisions.
OECD/IEA, 2010
Gorgon, Western Australia

On 14 September 2009, development proposals for the 20bcm per annum Gorgon project were
approved and production licenses granted by the Western Australian State and Australian
Governments.TheFIDwasthenannouncedbythethreejointventurepartners:Chevron,Shell,and
ExxonMobil.LocatedonBarrowIslandoffthenorthwestcoastofWesternAustralia,Gorgonwillhave
240
withitsthreetrainsacapacityclosetothefivetrainsoftheNorthWestShelfproject.Thereisalsoa
domesticangletotheproject.UnderanagreementwiththeWesternAustralianstategovernment,
theprojectpartnersarerequiredtoreserve50bcmfromtheGorgonfieldsfordeliverytodomestic
customers, subject to supply being commercially viable. Domestic deliveries are also planned to
begin 2015. Considerable attention has been given to environmental aspects: the plant is to be
constructedinmodulesoffsiteandthenassembledonsitetominimisetheenvironmentalimpacton
theplantsite.Thepartnershavealsocommittedtocaptureandstorearound3.5milliontonnesper
year of CO2, in a host geological storage structure known as the Dupuy formation, at least 2km
beneath the island's surface. This will be one of the largest integrated CCS projects when Gorgon
entersoperation.Oneofthekeysuccessfactorsfortheprojectwasthesaleagreementssigned,as
wellasJapanesebuyerstakingequitystakesinGorgon.Accordingtotheseagreements,Japanwould
take5.2mtpa,China4mtpa,India1.5mtpaandKorea2.7mtpa.
SalesDealsfromtheGorgonLNGProject(asofJune2010)
Seller
Chevron
Buyer
Tokyo Gas
Chubu Electric
Osaka Gas
Nippon Oil
Kyushu Electric
GS Caltex
Korea Gas
CNOOC
ExxonMobil
Petronet LNG
PetroChina
Shell
PetroChina
Volume (mtpa (bcm))

6.52 (8.93)
1.1 (1.5)
1.44 (1.96)
1.375 (1.87)
0.3 (0.41)
0.3 (0.41)
0.5 (0.68)*
1.5 (2.04)
n.a.
3.75 (5.06)
1.5 (2.0)
2.25 (3.06)
2.0 (2.8)
2.0 (2.8)**
Details
SPA in September 2009
SPA in December 2009
HOA in January 2010
HOA in January 2010
HOA in September 2009
SPA pending as of September 2009
SPA in August 2009
SPA in August 2009
SPA in November 2008
Notes:Chevron'ssalestoGSCaltexcouldincludeothersourcesofChevron'sglobalportfolio.Shell'ssalestoPetroChinacouldinclude
other sources of Shell's global portfolio. Shell also has a MOU for 0.7 mtpa destined for Mexico and India, which is not counted as a
saleagreement.
Source: IEA.
PNG, Papua New Guinea

ExxonMobilannouncedon8December2009thatthepartners(OilSearch,Santos,AGL,NipponOil,
MRDC) had agreed to proceed with the development of the 9bcm Papua New Guinea LNG (PNG
LNG),pendingcompletionofSPAswithLNGbuyersandfinalisationoffinancingarrangementswith
lenders.BythetimeofthisconditionalFID,longtermSPAswereinplacewiththreebuyers:Tepco,
OsakaGas,andSinopec.Sinopec'spurchaserepresenteditsfirstlongtermimportdeal,enablingthe
companytoadvancetheconstructionofitsQingdaoregasificationterminal.FIDwastakenafterthe
finalSPAwithCPCCorporation(Taiwan)inMarch2010.ConstructionstartedinApril2010.
OECD/IEA, 2010
ThePNGprojecthasclearlyindicatedanincreasingroleforexportcreditagencies(ECAs)intheLNG
industry. Financing includes $8.3 billion of loans from key ECAs in the United States, Japan, China,
Italy and Australia. The rest of the financing package comprises $3.75 billion of colending from
241
ExxonMobil and $1.95 billion from a syndicate of 17 commercial banks such as Sumitomo Mitsui
Banking (SMBC), Mizuho Corporate Bank and the Bank of TokyoMitsubishi UFJ. Japan Bank for
InternationalCooperation(JBIC)wouldprovidefinancingofasmuchas$1.8billion.
SalesDealsfromthePNGLNGProject(asofJune2010)
Buyer
Tokyo Electric Power (Tepco)
Osaka Gas
Sinopec
CPC Corporation, Taiwan
Total
Volume (mtpa (bcm))

1.5 (2.0)
1.5 (2.0)
2.0 (2.7)
1.2 (1.6)
6.2 (8.3)
Remarks
SPA in March 2010
Source: IEA.
AnotherLNGproposalinthecountrybythejointventureLiquidNuiginiGasbetweenInterOil,Merrill
Lynch and the Swiss private equity find, Clarion Finanz, is less advanced. Despite a government
approvalinMarch2009,enoughreserveshavenotbeenprovenupintheElkandAntelopefields.
CBM-to-LNG Race is Heating Up in Australian State of Queensland
There are currently six projects based on CBM40 reserves in Australia, all located in the Central
Queenslandregionwhichholdsaround380bcmofprovenandprobableCBMreserves.
Australia'sCBM(CSG)toLNGProjects(asofJune2010)
Project
Queensland Curtis
LNG (QC LNG)
Sponsors
BG Group
Capacity (mtpa (bcm))

8.5 (11.6)
Timeline
FID 2010
Start 2014
Gladstone LNG
(GLNG)
Santos, Petronas
3.5 (4.8)
FID 2010
Start 2014
Australia Pacific
LNG (AP LNG)
Fisherman's
Landing
Curtis Island LNG
Origin Energy,
ConocoPhillips
LNG Limited
(Arrow Energy)
Shell, PetroChina
7.0 (9.5)
8 (11)
FID 2010
Start 2014
FID 2010
Start 2014
FID 2012
Start 2014-15
Southern Cross
LNG
Galveston LNG
1.0 (1.4)
1.5 (2.0)
Markets
Singapore, China
(PetroChina),
Chile
Malaysia
(Peninsula),
Japan
Japan (Toyota
Tsusho)*
China
(PetroChina)
*The deal has expired.

Note: starting dates are those given by the operators and do not represent IEAs views.
Source: IEA.
Currentlytheregionproduces3.5bcm/yofCBM.41Amongthem,theQueenslandCurtisLNGproject
byBGGroupandtheGladstoneLNGprojectbySantosandPetronashaveadvancedtocriticalstages
nearingFIDinlate2010orearly2011.Asskilledlaboursourcesandlogisticalcapabilityareexpected
OECD/IEA, 2010
40
41
The term 'coal seam gas (CSG)' is more often used in Australia.
The Australian Atlas of Mineral Resources, Mines, and Processing Centres.
242
to be limited, more than two projects are unlikely to be constructed simultaneously. Thus timely
marketingarrangementsandengineeringworksarecritical.
BG plans to produce 8.5 mtpa (12 bcm) at QC LNG, up from the previously planned output of
7.4mtpa (10 bcm). The increased output would be underpinned by combined sales of 9.5 mtpa
under agreements with China, Japan, Singapore and Chile. In March 2010, BG Group entered a
binding SPA with CNOOC and a HOA with Tokyo Gas. CNOOC will buy a 10% stake in Train 1 and
Tokyo Gas will acquire a 2.5% stake in Train 2. In February 2010, BG awarded Bechtel more than
$3billionfortheEPCfortheprojectandwasissuedaninitialnoticetoproceedandorderequipment
includingstoragetanksandcompressors.InMarch2010,BGselectedBaosteeltobuildthepipeline
from the CBM fields to Gladstone. BG is now waiting for final regulatory and environmental
approvalsfromtheQueenslandGovernment.
MarketingArrangementsfromtheQueenslandCurtisLNG(QCLNG)Project(asofJune2010)
Buyer
CNOOC
Volume (mtpa (bcm))

3.6 (4.9)
Tokyo Gas
Chile
Singapore
Total
Plant capacity
1.2 (1.6)
1.7 (2.3)
3 (4.1)
9.5 (12.9)
8.5 (11.6)
Details
SPA in March 2010 following a PDA in May
2009
HOA in March 2010
BG Group as an aggregator is to supply LNG
to the terminals from its global portfolio.
Source: IEA.
Santos, with partner Petronas, plans to build the 3.6 mtpa Gladstone LNG plant (GLNG), whose
outputcouldeventuallyberaisedto20mtpa(fivetrains).ThepartnersareplanningtotakeFIDby
late2010forthefirsttraintostartin2014andwantstosanctionadoublingoftheplantsizetotwo
trains(7.2mtpa)bythemiddleof2011.Thiswillrequiresecuringadditionalgasreservestosupport
the expansion and more LNG offtakers. However, before Santos can give the green light, the
projectsenvironmentalimpactstatements(EIS)needtobeapproved.
TheAustraliaPacificLNG(APLNG)venturepairingOriginEnergyandConocoPhillipsislaggingbehind
thesetwoprojectsintermsofmarketingandapprovalprocesses,althoughitisadvancingupstream
CBMdevelopment.Theprojectincludesafirst3.5mtpatraintostartby2014,anotherby2015and
ultimatelyincreasingthecapacityto14mtpa.FIDforthefirsttrainisexpectedbylate2010.
OECD/IEA, 2010
Initially,ArrowEnergywasinvolvedintwoCBMprojects:the1.5mtpaFishermansLanding(FLLNG)
withLNGLltd(51:45interest)andthe8mtpaCurtisIslandLNG(CILNG)projectatGladstonethrough
Shells30%interestinArrowsCBMreserves.InMarch2010,ArrowEnergyagreedtoatakeoverbid
by Shell and PetroChina. The takeover will enhance the prospects of Shell's CILNG project by
increasingavailablegasreservesandintroducingabigChinesebuyerintothepicturewhilegivingit
additional CBM production experience. At the same time, the deal will force the smaller FLLNG
project, which was to be sanctioned in April 2010, to find alternative gas sources. Shell and
PetroChina plan to make a FID on the CILNG project in 2012, with first gas targeted for 2015. The
partnerswouldeachtakehalfoftheproject'soutput.PetroChinawouldsenditsshareoftheoutput
to China and is negotiating to buy Shell's output. The offer has to be sanctioned by Arrow
shareholdersinJuly2010.
243
Western Australian Race is also Hot

In addition to Gorgon and the CBMtoLNG projects described above, there are several other LNG
projectproposalsinAustralia,mostlyinWesternAustraliaandintheNorthernTerritory.
Wheatstone
Chevron intends to go ahead with the 8.6mtpa Wheatstone project as a stand alone LNG plant at
OnslowimmediatelyaftersanctioningtheGorgonproject.BasedondrillingsuccessattheIagofield
and agreements with Apache and Kuwait Foreign Petroleum Exploration (Kufpec) to include the
JulimarandBrunellofields,Chevronisconsideringatwotraindevelopmentatthefirststagestarting
in 2016. It would take the FID in 2011. Several factors favour this project. First, Apache and Kufpec
joined in October 2009 Wheatstone LNG instead of Woodside's Pluto, bringing additional gas
resources to the project in exchange for stakes in the project. To address the potential shortage of
skilledlabour,thecompany'sintentionistoutiliseprojectresourcesmobilisedfortheGorgonproject
sequentially after completing the first phase of that project. In addition, Chevron has signed a HOA
withTepcofor20yearscoveringalmosthalfofWheatstone'sinitialcapacity.Furthermore,Tepcowill
purchase 15% of Chevron's holdings in the Wheatstone field equal to about 11.25% of the project,
whileKyushuElectricPowersignedaninitialdealinJanuary2010tobuyLNGfromChevron'sprojects.
SalesDealsfromtheWheatstoneLNGProject(asofJune2010)
Buyer
Tokyo Electric Power (Tepco)
Kyushu Electric Power
Total initial capacity
Volume (mtpa (bcm))

4 (5.44)
0.7 (0.95)
8.6 (11.7)
Remarks
HOA in December 2009
HOA in January 2010
Source: IEA.
Browse
InadditiontosecondandthirdtrainsatthePlutoproject,Woodsideisleadingtwootherprojectsin
Australia:BrowseLNGinWesternAustraliaandGreaterSunrise(viaafloatingplant).
OneofthedifficultiesregardingtheBrowseLNGprojecthasbeentofindasolutiontodevelopthe
gasresources,whichmeetsenvironmentalrequirementsandtoreachanagreementwithTraditional
Owners of land in the Kimberley. In December 2008, the Western Australian state government
selectedasiteforanLNGhubintheKimberleyregiontoreceivegasfromtheBrowsebasinJames
PricePoint,60kmfromBroome,withnosettlementswithin20kmasitcouldmeetenvironmental
requirements and accommodate several projects. Late December 2009, the Browse joint venture
accepted the Australian federal and Western Australian state governments' offers to renew the
retention leases for their offshore gas reserves, including a 120day deadline to agree on a
developmentconcept.InFebruary2010,thepartnersinBrowseLNGagreedtoprocessthegasatthe
proposedLNGhub.WoodsideclaimstheagreementpavesthewayforFIDbythemiddleof2012.It
immediatelyawardeddesigncontractsforboththeonshoreandoffshorecomponentsoftheproject;
thiswillbefollowedbyFEEDin2011.
OECD/IEA, 2010
244
Prelude
PreludeisoneofAustraliasthreefloatingLNG(FLNG)proposals.SponsoredbyShell,itwillhavea
3.5 mtpa (4.8bcm) capacity and be able to resist poor weather and ocean conditions. No sale
contract is yet in place to underpin the project. This FLNG is one of the projects that Shell may
developfollowinganagreementbetweenShell,TechnipandSamsungHeavyIndustries(SHI)inJuly
2009. The two companies won a 15year contract to design, produce and install FLNG facilities for
ShellaswellashandleFEEDforShell'sFLNGfacilities.ShellsignedtwocontractsinMarch2010witha
consortiumofTechnipandSHIforthePreludefloatingLNGprojectoffthecoastofWesternAustralia.
The first contract covers the FEED elements specific to the Prelude project, taking into account the
compositionofthegas,localweatherandothersitespecificfactors.Thesecondcontractdetailsthe
termsunderwhichtheFLNGfacilitywouldbebuilt,iftheFIDforthePreludeprojectismade.
Bonaparte
GDFSuezfinalisedadealwithSantostobuyintothreeoffshorefieldstosupplytheproposed2mtpa
BonaparteFLNGprojectinJanuary2010.Thecompanyhaspaidabout$200milliontoSantosfor60%
ofthePetrel,TernandFrigatefieldsintheTimorSea.GDFSuezwillleadtheproject.Itwillspendthe
nextthreeyearsworkingondevelopmentplansandexpectstheplanttostartby2018.GDFSuezwill
alsoberesponsibleforofftakeoftheLNGanditsmarketing.
Sunrise
Woodside has selected a FLNG project for the Greater Sunrise field rather than the alternative of
pipingthegas500kmtoDarwinforprocessingatanewproductiontrain,tobebuiltattheexisting
DarwinLNGplantoperatedbyConocoPhillips.
Ichthys
TheIchthysproject,sponsoredbyJapansInpex,willproduce10.9bcm(8Mtpa)ofLNG,1.6Mtpaof
LPG, and 100000b/d of condensate. The facility will be located in Darwin, northern Australia, and
feedgaswillcomefromtheIchthysfieldintheBrowseBasinviaan850kmsubseapipelinetoDarwin,
one of the longest undersea pipelines in the world. FID has been postponed from late 2008 to late
2011,althoughoffshoreFEEDisexpectedtobecompletedinOctober2010.Inpexstartedbuildingits
NaoetsuLNGterminalinJoetsu,Niigata,Japan,inJuly2009,withaplannedstartupin2014,toprovide
anoutletforIchthysLNG.Howevertheprojectsstartingdatehasbeenpostponedto2016.
Indonesia: Domestic Market Versus Exports
OECD/IEA, 2010
ThesecondLNGexporter(basedonliquefactioncapacity)maynotexpanditsliquefactioncapacity
furtherduetoitsrisingdomesticdemandandthereareproposalstostopexportsfromArunby2014
andBontangby2020.Threeprojectsarenonethelessunderconsideration:DonggiSenoro,Sengkang
andMasela,whichcouldpotentiallysupplythegeographicallyspreadIndonesianmarket.
TherelativelysmallsizeofDonggiSenoroLNGprojectinCentralSulawesi,2mtpa,wasdesignedto
givesomeadvantagestothesponsorsintermsofmarketingandfinancetheoperatorMitsubishi
(51%), state Pertamina (29%), and the privately owned Indonesian company Medco Energi (20%).
Thethreecompaniesfinalisedashareholders'agreementinDecember2007 fortheproposedLNG
project and FID was expected to be taken in 2009 for a start in 2013. In January 2009, the
liquefaction venture signed 15year contracts with Pertamina and Medco Energi, partly owned by
245
Mitsubishi,forthefeedgasgassupplytotheplant,fromPertamina'swhollyownedMatindokblock
andtheSenoroarea,whichisjointlyheldbyPertaminaandMedco.Theblocksareestimatedtohave
68bcmofgas.Howeveramajorobstacleappearedwithdiscussionovertheallocationofgastothe
domestic market, so that the initial LNG sales agreements with Japanese buyers expired in August
2009andtheprospectsoftheprojectarenowuncertain.Pertaminawantslocalcompaniesinterested
inpurchasingoutputfromtheSenoroandMatindokfieldstomakefirmlongtermcommitments.
InFebruary2010,Japan'sInpexpostponedawardingofacontractforFEEDforits3mtpaMaselaLNG
tomid2010.However,InpexstillplanstomakeaFIDin2011andbringitonlinein2016.Indonesia's
upstreamregulatorBPMigashasapprovedInpex'sinitialdevelopmentplanforAbadi,locatedonthe
Maselaproductionsharingcontract100kmsouthoftheTanimbarIslands.Thecompanyclaimsthat
ithasfoundenoughgasintheblock'sAbadifieldstosupporttheliquefactionplant.
Uncertainty Continues in the Atlantic

After the Angola LNG and two projects in Algeria were sanctioned in 200708, no FIDs have been
made for LNG liquefaction projects in the Atlantic region. Due to uncertainty over market
developments, particularly the need for LNG with the huge increase in shale gas production in the
United States, LNG project promoters in the Atlantic basin may have a few more tough years to
establish integrated value chains that are absolutely necessary to finance LNG projects. On top of
gloomy market perspectives, some projects suffer from technological challenges, or political
instabilitywhichmakeFIDdifficult.Thus,instarkcontrasttothePacific,few,ifany,FIDsseemlikely
intheAtlanticbefore2012attheearliest.
Shtokman and Yamal LNG, Russia
Russia is considering several Arctic LNG export projects destined for the Atlantic: Shtokman and
YamalLNG.SeveraloptionshavebeenconsideredforShtokman,eitheronlypipeline,onlyLNGora
mixofboth.AsthisLNGwasdesignedtotargetprimarilythenowoversuppliedNorthAmericangas
market,perspectiveslookdifficult.TheFIDonLNGproductionhasbeendelayedbyatleastayear,
from 2010 to end 2011 and the startup of the project has been delayed by three years, with first
LNGin2017,acknowledgingchangesinthemarketsituationandparticularlyintheLNGmarket.The
projectmaygoaheadwiththepipelinephaseevenifLNGproductionisdelayedorrejecteddueto
unsatisfactorymarketconditions.Inthelattercase,phaseoneoftheprojectwouldbefulfilledinthe
formofsuppliesofpipelinegasandcondensate.
OECD/IEA, 2010
The second project is the 15mtpa Yamal LNG that Russian independent gas producer Novatek is
consideringbuildingintheNorthoftheYamalPeninsula.Itwouldhavetwotrainsof7.5mtpaeach.
NovatekandGazprom(whichowns19.4%ofNovatek)areplanningtousetheTambeifieldsinthe
YamalPeninsula.Indeed,NovatekexpectsproductionfromtheYuzhnoTambeiskoyegasfieldinthe
Yamal region to begin between 2015 and 2017. When Novatek bought a controlling 51% stake in
YuzhnoTambeiskoye in May 2009, it signed an option to buy an additional 23.9% for $450 million
withinthreeyears.Thecompanyhasnotdecidedwhentousetheoption.ProjectpromotersinArctic
Russia are eyeing AsiaPacific LNG markets in the midst of uncertainty in the Atlantic markets. As
Novatek plans to send a test LNG tanker from its fields on the Yamal Peninsula to Asia via the
NorthernSeaRouteinJuly2010,whichwillcut4000nauticalmilesofftheusual11000milejourney
throughtheSuezCanal.ThesuccessofthistestcouldbeamajorboosttoYamalLNG,butitwould
stillfacestrongcompetitionfromtheAustralianprojects.
246
Nigeria
SeveralprojectshavebeenplannedinNigeria,afewforsometime.Thetwomostadvanced,Nigeria
LNGTrain7(NLNGSevenPlus)andBrassLNG,haveseentheirFIDslip.Otherprojects,includingOK
LNG whose FID was initially planned in 2006, are less advanced. Nigerian projects suffer from the
instability and insecurity in the Niger Delta which has affected the output of existing plants.
Furthermore, uncertainty regarding the Atlantic markets outlook prevails, although most Nigerian
projectsaresponsoredbyportfolioplayerswhichcouldusethisgastotakeadvantageofarbitrage
opportunities. Finally, the Nigerian government announced in 2008 that international oil and gas
companiesworkinginthecountrywouldfacesuspensionofLNGexportprojectsifadequategasis
not supplied to the domestic market. Project sponsors do not question the legitimacy of domestic
gas supply but highlight the need to meet these needs with gas exports in order to earn the
necessary revenues to support the development of the infrastructure. Nigeria LNG called for the
governmenttogiveequalprioritytodomesticandexportorientedprojectsinFebruary2010andfor
alegal,fiscalandregulatoryframeworktoattractinvestmentinthedomesticsectortosatisfyboth
domesticdemandandexportdemand.
InMarch2009theNigeriangovernmentchose15companiesascoreinvestorsforitsGasMasterPlan
(GMP),designedtodevelopthecountrysgasindustry,inlinewiththegovernment'sestimatesthat
domesticdemandwillgrowfrom12bcmin2007toaround65bcmin2011.Theimmediatefocushas
been on three gas gathering and processing facilities. In October 2009, the Nigerian government
selected seven consortiums to bid for three main gas gathering and processing hubs: in Warri
Forcadosinthewest,ObiafuinthecentralandAkwaIbomCalabarintheeast.However,itemergedin
March2010thatbidsfortheGMPinfrastructureprojectswerefewerandcostlierthananticipated.
NigeriaLNGandBrassLNG,Nigeria
BothFIDsonNigeriaLNGTrain7(NLNGSevenPlus)andBrassLNGhaveslippedfrom2006and2008
and no timeline is in sight for the moment. Partners still hope that these projects will make FID
during2010,butthislooksunlikelygiventhecurrentmarketuncertaintyandinstabilityinNigeria.
Prospects for NLNG Seven Plus improved when a new inlet gas price for the entire NLNG complex
wasagreedwithstateNigerianNationalPetroleumCorporation(NNPC)inApril2009.Asupermega
trainof8mtpa(10.9bcm)evenlargerthantheQatarimegatrainsisenvisagedforthisproject.
Offtakers would include global portfolio players including BG, Shell, Total and Eni. The partners of
NLNGincludeNNPC(49%),Shell(25.6%),Total(15%)andEni(10.4%).Securingenoughfeedstockgas
remainsamajorhurdlefortheproject,especiallyinthemidstofrepeatedfeedgassupplydisruptions
totheexistingtrains.
The Brass LNG project in the Niger Delta state of Bayelsa has also secured marketing agreements
withglobalportfolioplayersincludingBG,GDFSuez,BP,ConocoPhillips,andEniformorethanfour
yearsandpartnersareeagertostarttheprojectassoonaspossible.TotalreplacedChevronin2006
in the project, which plans to have capacity of 10 mtpa (13.6 bcm) from two trains. The project is
owned by NNPC (49%), ConocoPhillips (17%), Eni (17%) and Total (17%). Bechtel was awarded the
FEED contract in November 2004 and the construction contract in June 2007. One of the major
obstaclestotheprojectistheinstabilityintheNigerDelta.
OECD/IEA, 2010
247
OtherProjectsinNigeria
While project officials claim that Olokola LNG (OK LNG) has sufficient gas reserves to bring it on
stream in 2014, it is unlikely that OK LNG would come online by that time, in particular due to
administrativeandcostrelateddelays.FlexLNG,MitsubishiandPeakPetroleumIndustriesLimited
ofNigeriaagreedinJune2008toconstructthe1.5mtpa(2bcm)floatingliquefactionplantwithan
expected starting date of 2011 and Mitsubishi as the sole offtaker. Despite the approval of the
NigerianDepartmentofPetroleumResources(DPR),theindustryregulator,theFIDwaspostponed
late 2008. Centrica, StatoilHydro and Greece's infrastructure company Consolidated Contractors
(CCC)signedaMOUin2007toconductafeasibilitystudyforanLNGprojectonTomSchottIsland.
Constructionistargetedtobeginin2010,withproductionstartingin2013,whichlooksunrealistic.
AddaxPetroleum,ChromeOilServicesandKogaswereplanninga10mtpa(13.6bcm)LNGprojectin
Bayelsastatetocomeonstreamin2013,whichalsolooksunlikely.Theprojectalsoincludesamuch
neededpowergenerationplantandsupplytolocalpetrochemicalfacilities.
Equatorial Guinea
WiththesuccessfuloperationofthefirstLNGproject(EGLNG)since2007,EquatorialGuineahopes
toestablishitselfasahubfortheaggregationofgasintheareatoexportasLNG.InJanuary2009,an
MOUwassignedbetweenthenationalgascompanySociedadNacionaldeGasdeGuineaEcuatorial
(Sonagas),E.ONRuhrgas,UnionFensaGasandGalpEnergiaforthecreationofacompanythatwill
act as the owner of a gas gathering system which will utilise gas that is currently being flared. In
July2009, Gasol and Sonagas formed a joint venture to develop associated gas from the Zafiro
offshore oil field. Equatorial Guinea initially thought of piping gas from neighbouring Nigeria or
Cameroon, which now looks unlikely. However, the country recently upgraded its reserves to
127bcm,whichwouldbeenoughtosupporta3mtpatrainby2016.
Cameroon
GDFSuezchangedplanstodevelopitsCameroonliquefactionprojectfromoffshoretoonshoreafter
lining up enough reserves to support a larger onshore plant. More feedstock available than first
expectedswingstheeconomicsinfavourofatraditionalplantofatleast3mtpa(4.1bcm).PreFEED
forthenewplantisexpectedtostartin2010.In2008,GDFSuezconductedafeasibilitystudyunder
its strategic partnership with Socit Nationale des Hydrocarbures (SNH) into the use of gas as
feedstockforLNG.ThisworkfocusedonthesouthwesternKribiandsouthernLimbecoastalareas.
Venezuela
OECD/IEA, 2010
Three LNG trains are planned in Venezuela, but all have been on the cards for years and still look
uncertainduetolackofprogressontheupstreamsideandincreasingdomesticdemand.Petroleos
de Venezuela (PdVSA) will retain a 60% interest in each of the three trains, but each will have a
differentshareholding.Thefirsttwo4.7mtpatrainsarescheduledtobeoperationalby2014,though
littleprogresshasbeenmadesincetheplanwasannouncedin2008.Differentholdingstructuresof
thethreetrains,combinedwiththeseparatedifferentprojectstructuresoftheupstreamelements,
complicatethenegotiationsfurtherinthisdifficultcountry.
Output from Deltana Block 2 is earmarked for the first of Venezuela's three planned LNG trains.
PdVSA has paid an undisclosed sum for ConocoPhillips' stake in the Deltana Platform gas project
offshore Venezuela. PdVSA now holds a 61% stake in Block 2 of the project, estimated to contain
7tcf (198 bcm) of gas reserves, while Chevron owns the remaining 39%. It is expected to produce
248
about78bcmperyear.PdVSAwillholda60%stakeinthefirsttrainwithPortugal'sGalpEnergia
(15%),Chevron(10%),QatarPetroleum(10%)andMitsubishi(5%).
Thesecondtrain,tobesuppliedbytheMariscalSucrefield,includesGalp(15%),Argentina'sEnarsa
(10%), Japan's Itochu (10%), Mitsubishi (5%) and Mitsui (5%). PdVSA announced in July 2009 that
11companies were preselected as potential minority partners in the Mariscal Sucre natural gas
offshoreexplorationandproductionproject.ThefinalistsareJapaneseMarubeni,Mitsui,Mitsubishiand
Itochu; Algeria's Sonatrach; Kogas; Malaysia's Petronas; Norway's Statoil; Portugal's Galp Energia;
Russia's Gazprom and Italy's Eni. The four offshore deposits to be developed are Dragn, Patao,
MejillonesandRioCaribe,locatednorthofthePariaPeninsula,offshoreEasternVenezuela'sSucrestate.
ThethirdtrainincludesGazprom(15%)andPetronas(10%),Eni(10%)andPortugal'sEDP(6%)and
willbesuppliedbytheBlanquillaandTortugaoffshoreblocksnorthofMargaritaIsland.Theproject
partnerswilleachholdaninterestintheupstreamelementoftheproject.
Iran and Iraq Are Yet to Emerge in the Middle East

Iran
Among the three major LNG projects based on the South Pars gas reserves, only Iran LNG claims
some progress. The initial phase of the project is to produce 5mtpa (6.8bcm) of LNG from gas
producedatPhase12oftheSouthParsfield.Some2000peopleareworkingatthesiteatBandar
Tombak,northwestofBandarAssaluyehonthePersianGulfcoastandtheprojectisclaimedtobe
24%complete.WhilemarinefacilitiesandfoundationsforLNGstoragetanksareunderconstruction
for Iran LNG, none of the core liquefaction facilities are being built. As most technology for large
scaleLNGprojectsisnotavailableforIranbecauseoftheeconomicsanctions,itisunlikelythatany
LNGwillbeexportedfromIraninthenearfuture.
In the meantime, the Pars LNG project received a fresh boost in February 2010 as CNPC finalised
appraisal drilling plans at Phase 11 of the South Pars gas field. The project used to be part of an
integratedLNGprojectbyaTotalPetronaspartnershipuntil2009.
IranalsohasaproposedprojecttoexportgasfromKishislandtoOmanforliquefactionatthelatter's
underutilisedQalhatLNGplant.Theprojectiscitedasoneoffourregionalgasexportschemesthat
Tehran would like to see implemented. However, as is often the case for any regional gas export
plans,gaspricinghasbeenadifficultissuefortheprojectandnomutuallyacceptablesolutionhas
emerged yet. The deal with Oman would involve construction of a pipeline from the Kish gas field
located 200km off the Omani coast. Oman held talks with Iran for nearly two years over possible
supplies of gas but in 2009 declared it was temporarily shelving the scheme because of changed
economiccircumstances.
OECD/IEA, 2010
Iraq
AlthoughIraqhardlyproducesanymarketablegas,ithasthepotentialtobecomeamajorproducer.
Outofthecurrentproductionofmorethan10bcm/y,mostlyassociatedwithoil,barelyabout1bcm
ismarketedwiththerestflaredintheBasraregionorventedbecauseofalackofinfrastructureto
processandtransportthegastomarket.Mostofthecountry'sprovenreservesofgas,whichtotal
3.2 tcm, are located in the main oilfields the Kirkuk and Bai Hassan fields in the north and the
RumailaandZubairfieldsinthesouth.TheonlynonassociatedgasproductioncomesfromtheAnfal
field,whichsuppliesabouthalfofallthegasconsumedinIraq.Commercialgasproductioncouldbe
249
expanded considerably if flaring was reduced: Shell has already invested in gas installations in
southernIraq,contributingtoareductioninflaring.
Shell'splantodevelopassociatedgasinsouthernIraqthroughtheplannedjointventureBasraGas
Company(BGC)(Mitsubishi(5%);stateSouthGasCompany(51%);andShell(44%))mayincludean
LNG export component. But progress has been slow, partly due to political developments. The
projectscopeincludesgasfromtheRumaila,WestQurnah1andZubairfieldswhichwereawarded
in the first oil licensing round in 2009. The deadline to sign a development agreement has been
extendedtoSeptember2010fromtheoriginalplanofSeptember2009.Fundingmaybeaproblem
fortheestimated$810billionproject.
Inadditiontocopingwithitsunusedassociatedgas,theIraqiGovernmentisalsolookingaheadto
investment in major nonassociated gas fields. A fresh licensing round was opened in early May for
threegasfieldswithtotalreservesofjustover6tcfandprospectiveproductioncapacityofabout800
mcf/day.Someofthisalsomayinduecoursebeavailableforexport.Butuntilatleastthemiddleof
the decade priority is most likely to be given to using any available volumes of gas for power
generationandindustrywhereIraqneedstoreconstitutevirtuallyitsentiredomesticinfrastructure.
North American LNG Exports?

While LNG has been exported from Alaska to Japan since 1969 and a few cargoes have been re
exportedfromtheGulfofMexicoLNGreceivingterminalstoglobalmarkets,duetotherippleeffects
ofrisingdomesticgasproduction,gasproducersinAlaskaandWesternCanadamayeventuallyneed
alternative markets in the Pacific, or may need more flexibility in choosing markets by having LNG
shipping capabilities. There have been suggestions that LNG export plants could be built in the
United States (lower 48). This would require marketers sourcing gas close to HHbased prices
(dependingonthelocationoftheterminal)tofindpremiumbuyerstomarkettheirgaswhileusing
theUnitedStatesasaresidualmarket.InJune2010,Cheniereannounceditwouldaddliquefaction
technologytoitsSabinePassterminaltoexportfromshalegasby2015.
While Canada started importing LNG in 2009 on its eastern coast, the country may become the
fourthLNGexportingcountryamongtheOECDmembers,followingtheUnitedStates,Australiaand
Norway.KitimatLNGisplanninga5mtpaonshoreLNGexportplantinBritishColumbiaonthePacific
Coast.Ironically,theprojectwasonceanimportprojectbutmarketconditionshavereversedthese
plans. While the project has received all necessary federal and provincial permits for its proposed
PacificTrail pipeline toshipgastothe liquefaction plantfrom producingareasinBritish Columbia,
Canada's National Energy Board (NEB) has yet to receive an application from Kitimat seeking
permission to export LNG. The project has secured initial offtake agreements based on MoUs with
KogasandGasNatural(GN),aswellasanonbindingfeedgassupplyagreementfromEOGResources
Canada (12bcm) and Apache (23bcm). In February 2010, Kogas struck a jointventure deal with
CanadiangasproducerEnCanatodevelopMontneytightgasandHornRivershalegas,fromwhereit
hopestoproduce1.4bcm/yover40years,startingin2017.InJanuary2010,Apacheboughta51%
stakeoftheproject.
OECD/IEA, 2010
250
INVESTMENTS IN PIPELINES AND

REGASIFICATION TERMINALS
Summary
Amongallpartsofthegasvaluechain,thetransportbetweenregionsorwithinagivenregion
isprobablytheonemostaffectedbytheglobaloversupplynowandinthemediumterm.How
pipelines and regasification terminals will be used will not only depend on the regional
supply/demand balance dynamics but also on the competition between these different
deliverymodes.
Acrossregions,LNGregasificationterminalsseemtobemakingmoreprogressthanpipelines.
In2009,regasificationcapacityincreasedby90bcm.Meanwhiletheonlysignificantnewinter
regionalpipelinewasthefirstpartoftheTurkmenistanChinapipeline,whichstartedoperating
inlateDecember.ThispipelineneverthelessmarksafundamentalchangeintheroleofCentral
Asiainsupplyingsurroundingregions.
AlthoughsomeregionssuchastheMiddleEast,LatinAmerica,andSoutheastAsiaremainnet
exporters, they are turning to LNG imports, sometimes to mitigate the failure of regional
pipelines or to meet seasonal needs. Middle East and Latin America are looking at floating
regasificationandstorageunits(FRSU)andLNGregasificationvessels(LNGRV),whicharequicker
tobuild.
Looking ahead, regasification terminals are expanding faster than pipelines when projects
move ahead. Capacity will increase by at least 20% by 2013, conserving the excess of
regasification capacity compared to liquefaction. Meanwhile, only one major new pipeline
projectadvancesthemuchawaitedNordStreampipelinebetweenRussiaandGermany,now
underconstruction.
Global Trends
OECD/IEA, 2010
Thereisgreatuncertaintyonwhen,howmuchandwherenewinterregionaltransportinfrastructure
willbeneededtofaceincreasingimportrequirements.Theevolutionofregionsimportdependency
over 200730, based on the latest WEO2009 forecasts, shows that the import dependency of
Europe, North America, China and other Asian countries will increase quite dramatically in OECD
Europe.Butagain,twouncertaintiespersist:thefirstregardinggasdemandevolution,whichagain
dependsoneconomicrecoveryandgrowth,plustheevolutionofthepowersector,andondomestic
production including how unconventional gas might change regional supply pictures. Suppliers
thereforehesitatebetweenLNGandpipelineoptions,sometimeschoosingboth.Meanwhilemarkets
arenowincreasinglycompetingforthesameupstreamresources,beitLNGorpipelinegas.
Whatwillmakethedifferencebetweenthepipelineandtheregasificationterminaloption?Thiswill
depend on many factors: flexibility and absence of transit countries will play in favour of the
regasification terminal; the difficulty of diverting gas away from the pipeline compared to many
diversionpossibilitiesforLNGwillfavourpipelines.Italsodependsonhowtheprojectisintegrated
inthevaluechain:combinedwithaspecificfield/producingregionornot,andonwhotheplayers
sponsoring the project are. Beyond the market needs and the development of the upstream
resources,severaldevelopmentmodelsexist.Whilefinanceisthekeyaspect,themaindifferences
betweenthesedevelopmentmodelsareasfollows:
251
Infrastructuresponsors:numberofsponsors,characteristicsincludingsize,ownership,financing
capacity,presenceofproducersorbuyers,
Ownershipofthegasandproductioncapacity,
Salestructure:underpinnedbythebuyerssales,marketliquidity,andthepresenceorabsence
oflongtermcontracts.
EvolutionofImportDependencybyRegion
300
2007
200
2020
2030
100
bcm
100
200
300
400
500
OECD
Europe
OECDPacific OECDNA
Other
Eurasia*
China
Latin
America
OtherAsia MiddleEast
Africa
Russia
Source: IEA, WEO-2009.
OECD/IEA, 2010
Therearethreemainstructuresforpipelines:firstlythoseunderpinnedbylongtermcontractsthat
would help raise debt finance (like Nord Stream), secondly financed by buyers upfront like the
TurkmenistanChina pipeline, or thirdly virtual pipelines where shippers raise finance on their own
balancesheetstobuyvirtualsharesofthepipeline.Thislateroptioncanbetakenindeepandliquid
markets which enable shippers to manage their volume risk with contracts with big commercial or
distributionbuyers.TheEuropeanorLatinAmericanmarketsdonothavesuchliquidity(noneatall
for Latin America) and require some longterm contracts. Meanwhile, the Chinese companies are
certainly underpinned to some extent by booming domestic energy demand and therefore much
lowervolumeuncertainty.
The era for LNG supplies dedicated to one market/terminal is reaching its end, replaced by an era
withamixtureofrelativelyinflexibleLNG(inparticularinOECDPacificduetohighdependencyon
LNG imports) and flexible LNG destined for liquid markets or held by aggregators. Regasification
terminalsaredifferentfrompipelinesasthereisnoonetoonerelationwiththesourceofsupply,
but rather a multipletoone relation global regasification capacity is more than twice the
252
liquefactioncapacity,aratioexpectedtocontinue.Theirflexibilityistheirmainadvantagebutcould
also prove a drawback as illustrated by the 10% utilisation rate of the US terminals in 2009.
Financing, or even the construction of regasification terminals, depends on how sponsors are
integratedintheLNGvaluechainandhowtheyplantoutilisethiscapacity.
ThefirstcaseisthehistoricaloneofanLNGterminalbuiltbythebuyerandunderpinnedbyalong
term contract and by the buyers demand. That would be the case of LNG terminals in emerging
marketssuchasChina,butalsoinJapanorEurope(Rovigo),orevensomeoftheseasonalterminals
inLatinAmericaandMiddleEast. Thebuyercan haveashareintheliquefactionproject tohelpit
move forward (Japanese buyers in Gorgon). The second case would be the terminal built by an
aggregator (such as ExxonMobil, Shell, Total, BP, BG, GDF Suez, Repsol or Gas Natural) to take
advantage of arbitrage opportunities ideally such terminals would be in different regions. So far
they are essentially spread between Europe, the United States and India. Such terminals would be
builttypicallyinthemostliquidmarkets;howeverthosecannotabsorbunlimitedvolumes.Thelast
caseisacompanyusuallytheunbundledTSObuildingaterminalandfundingit,underpinnedby
longtermbindingagreementswithusers:GATEintheNetherlandsorIsleofGrainareexamplesof
suchterminals.
Regulationontariffsandaccesswillbekeytodecidebetweentheseoptionsoreventhethreshold
decision whether to build a terminal. Some LNG terminals in the United Kingdom would not have
seendaylightwithoutthirdpartiesaccess(TPA)exemptionswhileRovigoandFosCavaouhadtogive
asharetothirdparties.Inmaturemarkets(exceptJapan),thetrendistowardsthesecondorthird
option,whileemergingmarketstendtofavourthefirst.
An interesting development is that of floating regasification and storage units (FRSU) and LNG
regasification vessels (LNGRV). There could be more than a dozen terminals using either of both
options throughout Southeast Asia, the Middle East, South America, the Caribbean and the
Mediterranean by the middle of this decade, particularly encouraged by recent successes of those
applicationsinSouthAmerica:theyhaveshortleadtimes,relativelylowcostandflexibility.FSRUsare
typicallycharteredonalongtermbasiswhileLNGRVsareoftenusedtomeetseasonaldemandpeaks.
OECD/IEA, 2010
Global regasification capacity reached 772bcm as of June 2010. This represents 2.5 times the
liquefaction capacity. The highest capacity increase in 2009 was observed, ironically, in North
America, where the regasification capacity increased to 165bcm, despite low utilisation rates.
Capacityalsoincreasedbyaround25bcminAsia,notonlyinChinabutalsoinmaturemarketssuch
as Korea and Japan, and in Europe. Latin America doubled its regasification capacity although it
remains very small at a global scale (2%), while Middle East entered the group of LNG importing
countries. World regasification capacity is expected to increase by another 20% (154bcm) over
201014 (16bcm already started in the first half of 2010), with the terminals under construction
spread as follows: 42% inAsia, 32% inNorth America and 23% in Europe and the remaining 4% in
MiddleEastandLatinAmerica.ItislikelythattheupcomingterminalsinNorthAmericawillremain
underutilised. The Appendices in Part 3: Gas Supplement give details on regasification capacity
existing,underconstructionandplannedbycountry.
By2013,Japan,KoreaandtheUnitedStateswillholdover60%oftotalregasificationcapacity.Spain
andtheUnitedKingdomwillholdthefourthandfifthpositionwith62bcmand51bcmrespectively
followed by China and India at 33bcm. But the utilisation rate will vary greatly depending on the
region.Thegraphicbelowshowshowtheregasificationcapacityhasevolvedandwillevolveoverthe
coming years. Before 2005, both Japan and Korea dominated the LNG import picture, while the
United States and Spain had around 45bcm of LNG import capacity each. The picture drastically
253
changed in the last five years with the United States moving very quickly to become the second
holderofLNGimportcapacity,inanticipationoflargescaledemandforLNGimportsyettoappear,
whilenewLNGimportingcountriesappeared.
LNGRegasificationTerminalsbyRegion(asofJune2010)
Region
Operation
Construction
Planned
Asia
418
59
131
Europe
173
24
244
11
North America
165
49
282
Latin America
14
Grand Total
772
137
674
Middle East-Africa
Source: IEA.
TopSevenHoldersofLNGRegasificationCapacity
300
250
Underconstruction
Existing(from2005)
200
bcm
Existing(before2005)
150
100
50
0
Japan
UnitedStates
Korea
Spain
United
Kingdom
China
India
OECD/IEA, 2010
Source: IEA.
254
PipelineProjectsbyRegion
Source
Name
Start
Capacity
(bcm)
Length
(km)
Sponsors
Estimated
cost (bn)
Europe
Russia
Nord Stream 1
27.5
1,200
27.5
1,200
63
3,192
Nabucco
2014
25.5-31
3,296
IGI
TAP
2015
n.a.
8+
10 (20)
800
520
Galsi
2014-15
1,470
Gazprom 51%, BASF,

E.ON 20% each,
Gasunie, GDF Suez
9% each (tbc)
Gazprom, Eni 40%
each, EDF 20% (tbc)
Botas, Bulgargaz,
MOL, Transgaz, OMV,
RWE
Depa/Edison
EGL/Statoil 42.5%
each, E.ON 15%
Sonatrach 41.6%,
Edison 20.8%, Enel
15.6%, Sfirs 11.6%,
Hera: 10.4%
7.4 ()
South Stream
End
2011
End
2012
2015
Alaska Pipeline
(option 1)
(option 2)
Denali
n.a.
46
2,720
2020
31
47
1,280
2,8003,200
BP/ConocoPhilips
19-24 ($)
35 ($)
n.a.
n.a.
10.1
n.a.
1,461
n.a.
Enarsa
n.a.
1.8 ($)
3 ($)
Nord Stream 2
Caspian/
Middle East
Algeria
North America
Alaska
7.9 ()
0.95 ()
1.5 ()
2 ()
32-41 ($)
Latin America
Bolivia
GNEA
Bolivia
Urupabol
Middle East- Africa
Syria-Turkey
East
(Arab Gas
Mediterranean
Pipeline
Extension)
Iraq
Iraq-Syria
2011
10
248
Syrian Gas Company/

BOTAS
0.2 ($)
2015+
n.a.
120
n.a.
Caspian
2010-11
6 (12)
n.a.
Syrian Gas
Company/NOC
Turkmengaz/NIGC
2015+
30
4,128
Nigeria
OECD/IEA, 2010
TransCanada,
ExxonMobil
19-24 ()
TurkmenistanIran
Trans Sahara
Gas Pipeline
Gazprom, Total
interested
n.a.
12 ($)
255
PipelineProjectsbyRegion(continued)
Asia
Caspian
TurkmenistanChina
TAPI
Myanmar
Iran
MyanmarChina
Iran-Pakistan
(India)
Southeast Asia
Indonesia
East Natuna
Thailand
Indonesia
East NatunaMalaysia
Indonesia
East NatunaJava
Indonesia
East Natuna Vietnam
Indonesia
East Natuna
Brunei-SabahPalawan
End
2009
2012
2015+
10
7,000
CNPC, China
Development Bank
15 ($)
40
30
1,680
7.6 ($)
2012
12
793
ADB, other investors

tbd
CNPC
2015+
7.5 (22)
900
(2,700)
Inter-State Gas
Systems, NIOC
7.5 ($)
2015+
n.a.
1,500
Sponsors tbd
7 ($)
2015+
n.a.
600
2015+
n.a.
1,400
2015+
n.a.
900
2015+
n.a.
1,340
n.a.
Note: Pipelines in bold and grey shading are under construction.

Source: IEA, press releases, companies websites.
Europe
Europe is definitely the region which has been attracting most import projects, both pipelines and
LNGimportterminals.Overthepastyear,fourLNGterminalsstartedinEurope,butnonewpipeline
entered service as Medgaz was further delayed to mid 2010 due to the current oversupply in the
Iberianmarket.NoFIDwastakenregardingnewLNGregasificationterminals,whiletheconstruction
ofthefirstpartoftheNordStreampipelinebetweenRussiaandGermanystartedinApril2010.The
race between pipelines and LNG terminals to supply the uncertain gap between future European
demandanddecliningdomesticproductioninEuropecontinues.
OECD/IEA, 2010
Thereisalready173bcmofLNGterminalcapacityand406bcmofpipelinecapacity(includingthose
from Norway), while 35.5bcm of pipeline and 24bcm of LNG are under construction. Moreover,
planned capacity amounts to around 150bcm for pipelines and 240bcm of LNG regasification
terminals.WhileEuropeisalreadythebiggestimportingregion,itisexpectedtoseethegapbetween
demandanddomesticproductioncontinuingtoincrease.Evenifdemandincreasesmodestlybetween
now and 2015, domestic production will decline, especially in the United Kingdom, and therefore
imports will increase as well. Net imports are expected to increase by 178bcm for OECD Europe
between 2007 and 2030 reaching 428bcm. Meanwhile, they would increase by 204bcm for the
EuropeanUnionfrom312bcmin2007to425bcmin2020and516bcmin2030.
256
EUImportRequirementsvs.ImportCapacity(ExistingandFuture)
1000
900
800
700
bcm
600
500
400
300
200
100
0
2007
2015
2030
Imports
Pipeline
LNG
Existing
Pipeline
LNG
Underconstruction
Pipeline
LNG
Planned
Source: IEA.
One Pipeline Advances

NordStreamPipeline
OECD/IEA, 2010
Oneofthemostawaitedeventsof2010wasthestartoftheconstructionoftheNordStreampipeline
linkingVyborginRussiatoGreifswaldinGermany,whichtookplaceinApril2010.Projectshareholders
are currently Gazprom (51%), E.ONRuhrgas and Wintershall holding (20% each) and Gasunie (9%).
However,GDFSuezandGazpromsignedamemorandumtogivea9%sharetoGDFSuez.BothE.ON
RurhgasandWintershallwouldgive4.5%toGDFSuez,whileGazpromretainsthemajority.Over2009,
NordStreamsecuredallthepermitsfromthefivecountrieswhoseterritorialwatersand/orExclusive
EconomicZones(EEZs)arecrossedRussia,Finland,Sweden,GermanyandDenmarkwhichwasquite
alengthyprocess.Thepipelinewillultimatelyconsistoftwostringsof27.5bcmeach,butonlythefirst
oneiscurrentlyunderconstructionandexpectedtocomeonstreambywinter2011/12.TheFIDonthe
secondstringhasnotbeentakenyetbutthepipelinewouldbecommissionedassoonasend2012.
Costs have increased substantially to reach 7.4billion. The pipeline is financed through a
70/30debt/equityratio.InMarch2010,NordStreamfinalisedtheagreementswith26banksfora3.9
billionloanforthefirststring.Thecompanyneedstoraiseanadditional2.5billionforthesecondline.
Therearemanyquestionswhetherthesecondlineisnecessaryinthecurrentcontextofoversupply.So
far 22bcm have been contracted, almost all on the first stream: Wingas (9bcm/y), E.ON Ruhrgas
(4bcm/y),GDFSuez(2.5bcm/ytobeincreasedto4bcm/yafter2015),GazpromMarketing&Trading
(4bcm/y),DONGEnergy(1bcm/yfirstwithanoptionforanother1bcm/ysubjecttothecompletionof
thesecondstring).
257
It remains to be seen how this pipeline will affect the flows though Ukraine and Belarus and
thereforethroughSlovakia,theCzechRepublicandPoland.Ifdemanddoesnotrecover,especiallyin
theNorthwestEuropeanmarket,itislikelythatgasflowswillbedisplacedfromtheexistingpipelines
to Nord Stream, affecting the revenues of TSOs such as Eustream and RWE Transgas. The new
interconnections, OPAL to the CzechGerman border and the planned Gazelle pipeline through the
CzechRepublic,wouldallowpartofthegaspreviouslyflowingtoWaidhaustotakethatroute.
GalsiPipeline
Originallyplannedtostartin2008,theGalsipipelinelinkingAlgeriatoItalythroughSardiniagotthe
goaheadatthesigningofanintergovernmentalagreementbyRomeandAlgiersattheendof2007.
Since then, the FID has been continuously postponed although it is still planned for 30 June 2010,
implying a later start in 2014. Galsi would be owned by Sonatrach (41.6%), Edison (20.8%), Enel
(15.6%) and Hera Trading (10.4%), the rest being held by the Sardinian authorities. There were
suggestions made by French President Sarkozy early in 2010 about linking the pipeline to Corsica,
whichdoesnothaveanygassupplyandhenceusesoilproductsinmanystationaryenergyuses.It
hastobeseenwhetherthisannouncementduringtheregionalelectioncampaignwillbetranslated
into agreements and contracts and what impact it would have on the pipeline route and
shareholding. This could further delay the FID. Finally, Algeria will put on stream 13.5bcm of
liquefaction capacity and the 8bcm Medgaz pipeline while its domestic demand continues to
increase. Hence, the success of Galsi also depends on upstream developments and transport
infrastructureinAlgeriaaswellasontheprogressinanyoftheothersupplyprojects(LNGterminals,
InterconnectorGreeceItaly,TransAdriaticPipeline)competingtosupplyItaly.
Nabucco
OECD/IEA, 2010
Therehasbeensomeprogressover2009inclarifyingtheregulatoryframeworkfortheoperationof
the Nabucco pipeline, with the signing of the intergovernmental agreement in July 2009 between
the five countries crossed Turkey, Bulgaria, Romania, Hungary and Austria. There was also a
commitmentof200millionfundingforthisprojectfromtheEuropeanUnionaspartofthestimulus
plan announced in April 2009. However, the project has not found any solution yet to its main
challenge: securing gas supplies. Possible supply sources remain unchanged: Azerbaijan, Iran,
Turkmenistan,Kazakhstan,Iraq,EgyptorRussia.WhileAzerbaijanhaslongbeenexpectedtobethe
first and main source of gas, Iraq and Turkmenistan have emerged recently as other main sources
expectedfortheinitialphasesofpipelineoperation,buttherearedoubtsonwhetherandwhengas
suppliesfromthesethreecountrieswillbeavailable.
ThesecondphaseofShahDenizwasexpectedtoprovidefirstgassuppliesintheshortterm,butthis
hasbeenpostponedto2016becauseofuncertaintyoverthemarketingarrangements.Someofthis
uncertaintyhasnowbeenremovedbecauseoftheNabuccoInterGovernmentalAgreementandthe
memorandasignedinJune2010betweenAzerbaijanandTurkeyonpricingofexistinggasdeliveries
underShahDenizPhaseIandpricingandtransittermsforPhaseII.Thesedevelopmentshelpto
clear the way for specific commercial negotiations on marketing gas from Shah Deniz Phase II, but
thefactremainsthatNabuccostillfacessomeseriouscompetitionfromotherimportersandpipeline
projectsforthisgas.AzerbaijansstrategicpriorityistosellgasonEuropeanmarkets,butAzerbaijan
alsohasaninterestindiversifiedsalestoneighbouringmarkets.Georgia,andparticularlyTurkey,will
look for supplies from Azerbaijan to their domestic markets; likewise, both Iran and Russia are
interestedinAzerisuppliesandGazpromhasalreadyagreedtobuyvolumesfromSOCAR(although
notfromtheShahDenizfield)overthenextyearsforsupplytotheRussianNorthCaucasus.Aside
258
frompipelineoptionsthroughTurkey,AzerbaijanhasalsobeeninvestigatingoptionsfortransBlack
Seatransportation,includingagreementswithBulgariatolookatCNGshipmentsandwithRomania
tolookatLNG.Furthermore,thereistoughcompetitionbetweenseveralotherpipelinestogetthis
gas including the ItalyGreeceInterconnector and the TransAdriaticPipeline. Given likely
commitments to the Azerbaijan domestic market and transit markets in Georgia and Turkey, a
reasonable assumption is that Shah Deniz Phase II could plausibly supply around 812 bcm/y for
Nabuccoifthisroutebecomesthepreferredchoiceforexport.
IraqisapotentialsuppliereitherfromtheKurdishregionorfromtheSouthviaSyriaandtheArab
GasPipeline,andhasindicatedapoliticalwillingnesstocommitgasexportstotheNabuccopipeline.
The resources are undoubtedly sufficient to support an increase in production and export, but the
questionisovertiming.Giventhecurrentinstabilityoftheregion,anddisagreementsbetweenthe
centraladministrationandtheKurdistanRegionalGovernment(KRG)regardingcontroloveroiland
gasdevelopments,itseemsunlikelythatsignificantvolumesofIraqigaswillbeavailableforexport
beforetheendofthedecade.Althoughsignificantquantitiesofassociatedgasarelikelytoarisefrom
theincreaseinoilproductionintheSouthofIraqwhichiscurrentlyplanned,muchifnotallofthis
gas in the initial period will be required for reinjection or for domestic electricity generation.
However,IraqhasalsoincludedtheAkkasgasfieldinwesternIraqinitsthirdlicensingroundtobe
decided later this year. If satisfactory development terms can be agreed, Akkas might reach
productionofabout3.6bcm/ywellbeforetheendofthedecade,andgivenitslocationclosetothe
Syriandomesticpipelinenetwork,thisgasmightsensiblybeearmarkedforexport.
Supplies from Turkmenistan are still widely discussed, not least since RWE Dea was awarded an
offshore exploration licence (Block 23) located in the Caspian Sea in 2009. Offshore associated gas
appears the most likely early option for Nabucco, particularly from the Petronas field (Block 1).
However, there are a number of difficulties that still need to be resolved before Turkmenistan gas
canflowalongasoutherncorridor.Themainoneisthelackofexportinfrastructure:Turkmenistan
insistsonsellinggasatitsborderandanythingbeyondhastobetakencareofbybuyers.Thisimplies
either the construction of a TransCaspian or at least a midCaspian pipeline (on which there are
differentviewsastopoliticalfeasibility),orthetechnicallyunprovenoptionofCNGtransportation,
orapoliticallydifficultpipelineorswaparrangementthroughIran.
TheNabuccoconsortium(RWE,OMV,BOTAS,MOL,Transgaz,andBulgargaz)isanticipatingFIDbutit
ishardtoseethishappeningwithoutfirmgassupplies.Nevertheless,lateApril2010,theconsortium
launched an initial tender for the long lead time items with the real tender expected in July 2010.
Theseitems,notablythepipelines,willrepresentmostofthecostastheinvestmentstoincreasethe
pipelinecapacityfromtheinitialcapacityof8bcmto31bcmareunderstoodtorepresentarelatively
smallpartofthetotal.IfAzerigascomesfirst,Azerbaijanmaybereluctanttohavetosupportmost
ofthepipelinecostforfuturesuppliers.
OECD/IEA, 2010
SouthStream
DespitethecurrentuncertaintiesonEuropeangasmarketsneedsandthefinancialcrisis,thesizeof
theplannedSouthStreampipelinehasexpandedfromaninitiallyannouncedcapacityof31bcmto
63bcm.SeveralintergovernmentalagreementshavebeensignedwithdifferentEuropeancountries
Bulgaria,Serbia,GreeceandHungaryin2008,Sloveniain2009andAustriain2010.Thepipeline
consistsofthreemainparts:theoffshoreparttoBulgariawhichwouldcostover4billion,andtwo
subsectionsamountingto1520billion.Severaloptionsexistforboththeoffshoreandtheonshore
sections.TheonshorepipelinewouldcrossBulgariaEastWestandthendivideintothetwopartsat
259
Pleven,onegoingtoGreece(Thessaloniki)andthentosouthernItaly(OrantoandBrindisi)andthe
other to Serbia (Belgrade), Hungary, splitting to serve Austria and Slovenia. In December 2009,
Gazprom and Eni Gazprom signed a MOU fixing their support to EDFs participation in the project.
EDF has now agreed to take 20% of the pipeline, with the formal agreement to be signed in June
2010.EDFwouldtakeeither20%fromEnior10%fromGazpromandEni,puttingGazpromsshareat
40%,whichwouldbethefirsttimeGazpromhasagreedtotakeaminoritystakeinsuchamajornew
infrastructureproject.UnlikeNordStream,nolongtermcontracthasbeensignedyet,whichraises
thequestiononhowthepipelinewillbefinanced.Thequestiononhowmuchofftakeeachcompany
isplanningtotakeisalsonotsettled.
EuropeanImportInfrastructure
Source: IEA.
OECD/IEA, 2010
InterconnectorGreeceItaly(IGI)
The Interconnector TurkeyGreeceItaly also competes for Caspian gas. The first part, the Turkey
GreeceInterconnectorwascompletedin2007enablinggastoflowfromTurkeytoGreece;butthe
secondpartfromGreecetoItaly(IGI),alsocalledthePoseidonproject,isstillawaitingFID,whichis
expectedbyend2010orearly2011.TheIGIwillbebuiltbyPoseidon,aJVbetweenDepaandEdison
andwillhaveaminimumcapacityof8bcm(6.4bcmforEdisonand1.6bcmforDepa).Itisexpected
to be operational by 2015, although it was originally planned for 2012; the last authorisations and
detailengineeringareexpectedtobecompletedbytheendof2010.
260
In July 2009, the IGI has been included in the list of projects eligible to get funds under the EC
stimulus plan and has been awarded a 100 million grant. In November 2009, the Preliminary
EnvironmentalAssessmentStudyfortheGreeksectionwassubmittedtotheGreekMinistryforthe
Environment,EnergyandClimateChange.FurthermoreanMOUbetweenBulgarianEnergyHolding
(BEH), Depa and Edison was signed in July 2009 to build an additional link the Interconnector
GreeceBulgaria(IGB).Itwillbea160kmlinkof3to5bcmbetweenKomotiniandStaraZagorain
thecentralpartofsouthernBulgaria.TheIGB,expectedtocost120million(witha45milliongrant
tobeprovidedbytheEU),willhaveacapacityof35bcmandwillprovidevaluablediversitytothe
Bulgarian gas market. It is expected to start operating by 2013. Further interconnections between
BulgariaandRomaniaaswellasSerbiaarealsoforeseenandexpectedby2013.
TransAdriaticPipeline(TAP)
OriginallybackedbySwissEGL,theprojectgotaboostwhenStatoildecidedtojoin;bothcompanies
createda50/50jointventureinFebruary2008.InMay2010,E.ONdecidedtotakea15%equityin
theproject,leavingbothStatoilandEGLwith42.5%each.EGLprovidesamarketforthegasdueto
itspowerplantsinItalywhereE.ONalsosellsgas,whileStatoilisapartnerinAzeriupstreamprojects
(notablyShahDeniz).The520kmpipelinewilllinkThessalonikiinGreecetoBrindisiinItalythrough
Albaniaandhaveacapacityof10bcm.EGLsignedacontractwithIransNIGECfor5.5bcmstartingin
2012,butitisdoubtfulthatthisgaswillbeavailableasIraniscurrentlyanetimporter.
North America
Asnotedearlier,NorthAmericahasplentyofregasificationcapacity,whichislargelyunderutilised.
TheregionholdsalsolargereservesofgasinAlaska,whichstillhavetobebroughttomarkets.Gas
has been historically exported from Alaska by LNG tankers, but two projects aim at bringing larger
volumestotheUnitedStatesandCanadabypipeline.Thefutureofbothprojectswilldependonthe
resultsofopenseasonsin2010.
TwoPipelinesfromtheNorth
The twooptionstotransportgasfrom the NorthSlopetomarketshavebeenunderdiscussionfor
almost40years.Theyarenowbothadvancingatthesamepacewiththeiropenseasonslaunched
early 2010. The key questions are whether and when this gas will be needed in the current
environmentofrising unconventional gasproductionand plentyofLNGimportcapacity, andwhat
deliveredcostsarelikelytobe.
OECD/IEA, 2010
InFebruary2010,TransCanadaandExxonMobilfiledplansforanopenseasonforpipelineplansto
transportgasfromtheNorthSlopereserveswiththeFederalEnergyRegulatoryCommission(FERC).
Therearetwomutuallyexclusiveoptionsastherearenotenoughreservestosatisfyboth:46bcm
(34mtpa) via a 2,720km pipeline from North Slope to Alberta connecting with existing networks
servingNorthAmericaor31bcm(23mtpa)viaa1,280kmlinetoValdezwhereanLNGliquefaction
plantwouldbelocated.TwoconcurrentopenseasonswillbeheldinCanadaandtheUnitedStates
betweenAprilandJuly2010.Thechoicesarerestricted.Constructionisscheduledtobeginin2014
withthepipelinetobeoperationalby2020.Costswilldependonwhichoptioncustomerschoose.
PipingtoAlbertawillcost$3241billionwhileroutingtoValdezwouldcost$1924billion.
The Denali project has been launched by BP and ConocoPhilips in 2008. It is a 46bcm pipeline
between the North Slope where both companies are producers and Alberta in Canada. There is a
261
possibility to extend the pipeline to Chicago. The open season plan was filed with the FERC, two
months after the competing project of TransCanada and ExxonMobil. The project would cost
$35billion(basedonthemainline)andbecompletedby2020.ItwillberegulatedbytheNational
EnergyBoardinCanadaandbyFERCintheUnitedStates.
A Multitude of LNG Terminals is There Room or Need for Others?
Therearecurrently14LNGterminalsinNorthAmerica(asofJune2010),representingacapacityof
165bcm.Another49bcmareunderconstruction,sothattotalLNGimportcapacitywillincreaseto
214bcmby2013whichisalreadymorethanthreetimesthetotalnetimportrequirementsby2030
(61bcm)expectedbytheIEAinitsWEO2009.Thatsaid,regionalimbalanceshavetobetakeninto
account,forexampleimportneedsinMexico.Manycompaniestargetisolatedregions,wherethey
could benefit from higher prices, but the boom of unconventional gas is also having an effect on
these expected premiums. Due to its liquidity, the US market is effectively used as a residual
importerwhereexcessLNGcanbesold,butthesheercapacitycomparedtoforecastneedsmeans
that LNG import capacity is likely to remain much less utilised than the world average. There are
15projects (new ones or expansions), mainly in the Gulf of Mexico, which have been approved by
the FERC and are awaiting FID. Given the current excess capacity, local opposition, delays and the
development of unconventional gas in that region, these projects are unlikely to move forward.
SomeprojectssuchastheBradwoodLNGprojectandtheClearwaterPortfromNorthernStart,both
ontheWestCoast,havealreadybeencancelled.
South America
For a long time, Latin America has remained a self sufficient regional market, except for the
DominicanRepublicwhichstartedimportingLNGin2003.Inthe1990s,thecontinentalpartofLatin
AmericahadbaseditsgasexchangesonpipelinetradebetweentheresourcerichcountriesBolivia,
Argentinaandtheothers.Butfailurestoboostproductioninmanycountries,asurgeinresource
nationalism and significant supply shortages since 2004 have prompted three countries to look for
additional/replacement external supply sources. In 2008, Argentina, despite its abundant gas
resources, started importing LNG, followed in 2009 by Brazil and Chile. This brought pipeline
additionstoastandstill.WhileArgentina,TrinidadandTobagoandVenezuelarepresentover70%of
the production, only Trinidad and Tobago exports significant volumes. Argentinean exports have
beendwindlingoverrecentyearsandVenezuelaimportsgas.Bolivia,whichconsumesverylittlegas,
and Colombia are the two other exporters in the region. Most new pipeline projects seem now to
have been abandoned or to have lost political support, while LNG import projects multiply, in
particularontheIslandswhichdonothaveaccesstogasyet.
New LNG Terminals any Hope for a Regional LNG Market?
OECD/IEA, 2010
TherearecurrentlysixLNGterminalsinLatinAmerica:the2.4bcmPuntaCaucedointheDominican
Republic,the1.5bcmBahaBlancaGasPortinArgentina,the2bcmPcemand4.8bcmGuanabara
BayinBrazilandthe3.6bcmGNLQuinteroandtherecentlycommissioned2bcmMejillonesinChile.
Interestingly,apartfromGNLQuinteroandPuntaCaucedo,allprojectsareFSRU,whichmadetheir
construction times quite short compared to traditional regasification terminals. Argentina plans to
buildanotherFSRUnorthofBuenosAires,whichcouldbereadyby2011,andisalsolookingatthe
possibilitytoimportLNGthroughUruguay.AthirdterminalplannedinBrazilwouldbeonshore:the
2.2bcm Tergs terminal (Terminal de Recebimento e Regaseificao de Gs Natural) is being
262
developed by Gas Energy. The plant would supply twothirds to the 1.18GW UTE Rio Grande gas
firedpowerplantandtherestwouldbesoldtothemarket.Petrobrasisalsolookingatbuildingtwo
additional LNG terminals by 2013 and 2014 respectively and possibly expanding Guanabara Bay.
Althoughnothingconcretehadbeendecided,theseterminalscouldbereadyiftheyarealsoFSRU.
OECD/IEA, 2010
LatinAmericaImportInfrastructure
Source: IEA.
263
Furthermore, Petrobras also plans to build a floating liquefaction plant based on its large offshore
fields,whichcouldthereforesupplyitsownLNGterminalsaswellasothersinSouthAmerica.This
firstfloatingLNGproductionvesselisexpectedtobeinplacebytheendof2014tostartdeliveriesin
early2015.LNGimportterminalsarealsoplannedinElSalvador,Cuba,Jamaica,buttherehasbeen
verylittleprogresssofar.ThegradualexpansionofthePanamaCanal,withtheAugust2014target
for completion in time to commemorate the Canals 100th anniversary will give crossocean
accesstonewLatinAmericanmarkets.PanamaisonlythreedayssailingtimefromPeru,fourdays
from the Manzanillo terminal on the West Coast of mainland Mexico, and six days from Chile.
Accordingtoshippingexperts,currentlylessthan10%oftheworldsLNGfleetcanusethePanama
Canal.Onceworkiscompleted,80%ofLNGvesselswillbeabletofitthroughtheCanal.
Pipeline Projects Mostly on Hold
DespiteuncertaintiesontheBolivianside,inMarch2010,ArgentinaandBoliviasignedtheexpansion
of their gas agreement. A new pipeline will be built enabling an increase of gas deliveries from an
initial3bcm/yto10bcm/yby2017.Thepipelineis50kmlongandisexpectedtobecompletedin
May2011.TherearealsodiscussionsregardingtheGNEA(NortheasternArgentinaGasPipeline)to
Argentina. A call for bids for the engineering was launched in February 2009. The total capacity of
this 1,465km pipeline would amount to 10.1bcm and the total investment costs are estimated at
$1.8billion.Enarsaneverthelessannouncedthat theconstructionwouldstartin2010,whichlooks
doubtful with the other pipeline being built. In 2009, Bolivia, Uruguay and Paraguay also revived
Urupabol,apipelineprojectbornin1963tolinkthethreecountries.ItwouldstartinTarijainBolivia,
crosseitherBrazilorArgentinatoreachParaguay,andthenUruguay.Thethreecountriesareintalks
withtheWorldBanktofinancethepipeline,whichisestimatedtocost$3billion.Otherprojectssuch
astheGranGasoductodelSur(VenezuelaArgentinaGasLine)seemtohavebeenabandoned.
Middle East-Africa
A Small Revolution LNG Import Projects
KuwaitstartedimportingLNGin2009andanotherterminalisplannedinAbuDhabi,formalisingthe
entryofMiddleEastintheclubofLNGimporters,despitetheregionshugereservesandpotentialof
regional pipelines. One of the first shipments came from Sakhalin. These LNG terminals are
essentiallydesignedtomeetthepeakdemandduringsummer.AnoffshorepermanentLNGterminal
hasyettobeseen.
Pipeline Developments Small Interconnections Move Forward
OECD/IEA, 2010
There are only a few pipeline projects in the region, either to supply neighbouring countries with
insufficient gas resources or to export to more distant regions. The small ones the Arab Gas
PipelineandWestAfricanGasPipeline(WAGP)havemovedforwarddespitethedifficulties.WAGP,
which runs from Nigeria to Ghana, started full commercial operations in 2010 after some sporadic
suppliessince2008.DespiteIranshugereserves,therearebothprojectstoexportandtoimportas
thecountryisstillanetimporter:intheshortterm,projectsaimatenhancingitsimportcapacity,
whilesomeprojectsstillexisttoexportgasbypipelinetoAsia.
264
ArabGasPipeline
The Arab Gas Pipeline transports gas from Egypt, through Jordan into Syria and Lebanon. Egypt
exportedanestimated5.5bcmthroughthispipelinein2009.Thepipelineisplannedtobeextended
toTurkeyby2011witha186kmsectiontobebuiltbetweenHomsandAlepanda62kmsectionto
bebuiltbetweenAlepandKalasontheTurkish border.There areincreasingconcernsaboutrising
Egyptian gas demand so that Egypt is now looking at the possibility of importing gas from Iraq
throughthispipeline.IraqhasalsoexpressedawishtoparticipateintheArabGasPipelineproject.
The pipeline would therefore be bidirectional, enabling Syria to import gas from Azerbaijan
accordingtotheMOUsignedinMarch2010for11.5bcm/yandtoexportEgyptianorIraqigasto
Turkey.EgyptalsoexportsgastoIsrael,aftersigningacontractfordelivering1.7bcm/y.
TransSaharaGasPipeline(TSGP)
TSGP would carry Nigerian gas for 4,128km through Niger and Algeria to the southern
Mediterranean coast. Although it has been presented as an option for Europe to diversify its gas
supplies,thispipelinefacesmanyhurdlesincludingNigeriasownneeds,andtherisksofsabotageon
thepipelinewhoselengthmakesitdifficulttoprotectduringconstructionandafterwards.Algeriais
alsointerestedinthisprojectasanadditionalsourceofgaseitherforitsownmarketorforexports
and an incentive to develop its southern fields. In July 2009, Algeria, Nigeria and Niger signed an
intergovernmental agreement for its development. The project is estimated to cost $12 billion.
ManycompaniesincludingGazprom,Sonatrach,Total,EniandShellhaveexpressedinterest.There
aredoubts,however,onwhetherthisexportoptionwouldbecheaperthandirectLNGexports.Ifthe
gasistobeexportedbypipelinefromAlgeria,itwouldfacecompetitionintheoversuppliedItalian
andIberianmarket.IfitistobeexportedbyLNG,thereisnologicbuildingthepipeline.
Asia
ManypipelineprojectstargetingAsia(mainlyChinaandIndia)sourcetheirgasinTurkmenistan.The
commissioningoftheTurkmenistanChinapipelineinDecember2009representsamajorshiftinthe
politicsandeconomicsofEastCaspiangas.ItmarkstheendofRussiasmonopsonyonlargevolume
gaspurchasesfromtheCentralAsianproducers,notonlyforTurkmenistan,butalsoforUzbekistan
andKazakhstan,whicharethetransitcountriesforthepipeline.Italsomeansthattheseproducers
can, to some extent, make discretionary choices in the future about shipping their gas either to
Europeanmarkets(viaRussia)ortoChina.BothChinaandIndiahaveturnedintogasimportersover
thepastfewyears(asrecentlyas2006forChina).Astheirdemandforgasincreases,theyarelooking
atdifferentsourcesofimports,bothLNGandpipeline.LNGhasbeenthepreferredoptioninIndia
whileChinahasoptedforamixofLNGandpipelineimports.
Pipeline Projects: Mostly Looking West
Pipeline gas will come from the West the Caspian region or even Middle East. There are also
projectsforChinatoimportgasfromRussia,whicharediscussedintheRussiansection.
OECD/IEA, 2010
TurkmenistanChina
ThepipelinewasformallyopenedmidDecember2009,withfirstgasinJanuary2010.Thecapacityof
the pipeline is scheduled to rise from the current 10bcm to around 40bcm by 2012 with the
completion of a second string and additional compression, and the whole project has been
265
implementedwithimpressivespeed.Theinitialframeworkagreementongascooperationbetween
Turkmenistan and China was concluded only in 2006 and construction began in the latter part of
2007. The entire pipeline stretches for close to 7,000 km, consisting of under 200km within
Turkmenistanitself,around500kmthroughUzbekistan,1,300kmthroughKazakhstan,andthenthe
remainderwithinChinaitself(includingasecondWestEastpipeline)tobringgasfromtheWestern
bordertothemaingasconsumptionareas.GasdeliveriestoChinain2010areforeseenataround
35bcmandTurkmengazissupplyingmostoftheearlyvolumesforthepipelinefromtheMalaifield
insoutheastTurkmenistan,althoughthereisnosinglesourceofgasfortheinitialvolumes.Itisnot
yetclearhowquicklyTurkmenistanwillbeabletorampupexportstothefullcontractualvolumes;
thiswilldependonthespeedofdevelopmentofthefieldswithintheCNPCproductionareanearthe
Uzbekistanborder,togetherwiththeSouthYolotanfield.
TurkmenistanAfghanistanPakistanIndia
This proposed pipeline along a 1,680km route aims to deliver 30bcm of gas to consumers in
Afghanistan,PakistanandIndia.Capitalcostisestimatedat$8billion.InApril2009,thegovernments
of the four countries signed a framework agreement to construct TAPI. However, the project has
been pending for more than ten years. It is backed by the United States, but from the Indian
perspective, the security situation in Afghanistan makes it a more distant prospect than the IPI
pipeline(seebelow).SecurityoftheTAPIroutethroughAfghanistanisanimpediment,althoughthe
Afghan government made in 2008 several pledges to address these concerns. The framework
agreement states that the TAPI pipeline would be built by a consortium of national oil companies
from the four nations by 201112. The draft of Gas Pipeline Framework Agreement provides for
paymentoftransitfeetoAfghanistanandPakista,basedoninternationallyacceptedcostofservice
tariffmethodology.TheIPpipeline(seelater)wouldalsounderminetheparticipationofPakistanin
theTAPIpipeline.Anotherquestionisaboutresources.Althoughitsreserveshavebeenreevaluated
upwards,TurkmenistanhasalreadycommittedsignificantvolumestoChina,Russia,andisincreasing
deliveriestoIran,whileEuropeisalsolookingatTurkmengas.
IranPakistanIndiaPipeline
OECD/IEA, 2010
The IranPakistanIndia pipeline is a project launched in the 1990s that envisaged initial export
volumes of around 22bcm/y, rising to around 50bcm/y. After long years of negotiations between
the neighbouring countries concerning pricing and delivery terms, from which India has virtually
withdrawnsincetheterrorattacksinMumbaiinNovember2008,IranandPakistanagreedfinallyon
5June2009todevelopanIranPakistan(IP)pipeline,movingaheadwiththefirstpartofwhatisstill
intendedtobeatrilateralproject,thesocalledPeacePipeline.IranandPakistansignedinMarch
2010 an agreement to build the $7.5 billion IP pipeline between Assaluyeh and Iranshahr at the
Pakistaniborder.In2009,thetwocountrieshadsignedanagreementforIrantosupplyPakistanwith
7.5bcm/y for 25 years, with an extension of an additional five years in case of mutual agreement.
BothcountriesexpressedtheirinterestinafutureIndianparticipation.Therearestillmanyhurdles
to be overcome by this pipeline. First, despite its large reserves, Iran is still a net importer of gas.
Sufficient gas might become available by the middle of the decade, but pipeline projects compete
againstLNGliquefactionplants.Second,discussionsonpriceshavebeendifficultasIranproposeda
price formula similar to that for Japanese LNG (Scurve). This added to the transit fees through
Pakistanwouldresultinpricesaround$7/MBtu;thisishigherthanIndiaispreparedtopay,despite
266
therecentchangesintheirdomesticpricingpolicy.Finally,geopoliticalissueshamperingthepipeline
arediverseandwideranging.
MyanmarChina
The construction of the 793km gas pipeline from Myanmar to the southern part of China started
earlyJune2010.GaswillcomefromblocksA1andA3inMyanmarandisexpectedtostartin2013,
following an SPA for 10bcm/y signed in December 2008. This project advanced despite opposition
fromNGOs.ItisrunningalongsideanoilpipelineforwhichCNPCreceivedexclusiverightstobuild
andoperateinDecember2009.Myanmarislocatedinauniquepositionsinceitcanprovidenatural
gasdirectlytosouthernChinabypipeline.
LNG Regasification Terminals: Two Major Players on the Rise
Both China and India have started relatively recently to look at LNG and their LNG imports only
started a few years ago. But with 7.5bcm and 12bcm respectively in 2009, they are already
significantplayers,convenientlylocatedneartwomajorsourcesofLNG:QatarandAustralia.Thereis
a total of 27bcm terminal capacity under construction in both countries, which will increase their
combinedLNGimportcapacityto64bcm.TheDabholterminalisIndiaisexpectedtobecompleted
in2010whileKochishouldstartoperatingin2012.Threeadditionalterminalsareunderconstruction
inChina:the4.1bcmDalianandthe4.8bcmRudong,bothfromPetroChinaandexpectedtostartin
2011, and CNOOCs fourth terminal, the 4.1bcm Zhejiang. An additional 90bcm of LNG terminal
capacity (on top of the 64bcm mentioned before) is planned for both countries: the Chinese
terminalsarequitelikelytoproceedifgasdemandcontinuestoincreaseatanastonishing10bcm/y,
which seems likely. Other Asian countries are also looking at LNG imports, notably Pakistan, for
which additional gas supplies are critical to avoid a major power crisis. 4Gas is planning to build a
3.5mtpaFRSUatPortQasim,nearKarachi.GDFSuezwonthefirsttendertosupplytheterminalbut
thistenderhasbeencancelled.Interestingly,thisLNGwouldhavebeenpricedonamixofoillinked,
NBPandHHprices.
Southeast Asia
Southeast Asia is historically an energy producer but is also facing import requirements issues:
rapidlygrowingenergyconsumptionisoutpacingregionalgasproduction.Theregionwillremaina
net exporter of gas for the next few decades with proven gas reserves of 6.6tcm, but due to
increasing regional gas demand, each country has now to review its energy (and gas) strategy to
diversify energy sources, secure energy supply and support economic growth. This requires
significantly increasing investments in gas import infrastructure, notably in longdistance pipelines
and/orLNGimportterminals.
OECD/IEA, 2010
Pipeline Development
Currently,nineinterconnectinggaspipelinesareoperatingonlongtermcontractstodelivernatural
gas from gas producers in one country to customers in another. They all are bilateral
interconnectionswithaneighbouringcountry:therearestillnomultilateralonesacrosstheregion.
Oneofthepipelinesstartedasearlyas1991withrelativelyshortdistance(5km)andthelongestis
660km long and started operation in 2001. The latest one to be commissioned was the 325km
pipelinebetweenMalaysiaandVietnam.
267
In 1997, ASEAN member countries launched the ASEAN VISION 2020 calling for cooperation
between countries to establish gas interconnections within the ASEAN region through the Trans
ASEANGasPipeline(TAGP).Thesameappliedforthepowersector.Aseriesofpoliticalagreements
and a review of the plan followed, and accelerated the construction of regional pipelines. In 2002,
ASEAN countries signed the ASEAN MOU on the TAGP to further pursue efforts to construct a
regional gas pipeline network and it came into force in 2004. According to the latest TAGP Master
plan,fivemorepipelineprojectsareunderconsiderationinvolving4,500kmworthof$7billion.The
origin of these pipelines is the same: the Indonesian offshore gas field, Natuna DAlpha. It is
estimatedtocontain1.3tcmofrecoverablegasreserves,buthasaveryhighCO2content.Pertamina
has been looking for partners since Exxon Mobil left in 2007. This technical difficulty added to the
commercialuncertaintiesresultedinthepipelinesbeingdeferred.Thefivepipelineswouldlinkthe
fieldtoThailand,Malaysia,Indonesia,Java,Brunei,MalaysiaandthePhilippines.Theywouldcome
onlineapproximatelysevenyearsafteranFIDonNatunaistaken.Meanwhile,evenifthepipelines
arephysicallyinterconnectedandbilateralgastradingisencouraged,regionalmarketintegrationis
another issue. Each ASEAN country is at a different stage in terms of economic growth and their
market maturity differs. In this regard, if ASEAN wishes to pursue the integration of the regional
market,itcouldusefullystudythedevelopmentofEuropeangasmarketintegration.
ExistingPipelinesintheSouthAsianRegion
Current interconnections
Peninsular Malaysia - Singapore
Yadana (Myanmar) - Ratchaburi (Thailand),
Yetagun (Myanmar) - Ratchaburi (Thailand)
West Natuna (Indonesia) - Singapore
West Natuna (Indonesia) - Duyong (Malaysia)
South Sumatra (Indonesia) - Singapore
Malaysia - Thailand Joint Development Area (JDA)
Malaysia - Singapore
Malaysia - Vietnam
Distance
5 km via Johore Straits
470 km
340 km
660 km
100 km
470 km
270 km
4 km
325 km
Commissioning date
1991
1999
2000
2001
2001
2003
2005
2006
2007
Source: WEO-2009.
OECD/IEA, 2010
Regasification Terminals
Some ASEAN countries, notably, Thailand, Indonesia, Philippines, Singapore and Malaysia are
considering building LNG regasification terminals in order to supplement growing gas demand,
recognising that interconnecting pipeline development in the region is not fast enough to satisfy
theirgrowingregionalgasdemand.Inthisregard,ThailandandSingaporeareprogressingaheadof
theirneighbouringstateswiththeirterminalsunderconstructionwhereastheothersarestillatthe
planning phase. Total capacity of the regasification terminals in the region is expected to surpass
26bcm (20mtpa) by 2013 (equivalent to Spanish annual LNG imports) if all the planned terminals
proceed.TheconstructionofLNGregasificationterminalsisawaytoenhancegassecurityinparallel
withtheinstallationofregionalgaspipelines,justasEuropeisdoing.Interestingly,twoofthemajor
LNG exporting countries in the world, Indonesia and Malaysia are planning to build their own
regasificationterminals.Indonesiahasliquefactionplantsinremotelocationsthattheyplantouseto
supplytheregasificationterminalsclosetodemandcentres,notablyJava.Itwouldgivethecountry
flexibilityintermsofsupplysources:theycaneitherdeliveranLNGcargotoadomesticterminalas
wellasprocureonesfromexternalsources.
268
However, uncertainty still remains around the economic viability of these projects and firm supply
sources.LNGregasificationterminalsrequirecapital,andefficientoperationoftheterminalsisavery
important factor to recoup the capital invested. Unless terminals planned/under construction find
firm LNG supply sources around the world, they may end up having low capacity utilisation and
undermine the economics of the projects. Stakeholders may then have to pay higher prices for
enhancementoftheirenergysecuritythantheyoriginallyexpected.
GasInfrastructureintheSouthAsianRegion
Source: IEA.
RegasificationTerminalsintheSouthAsianRegion
OECD/IEA, 2010
Planned/Under construction
LNG regasification terminals
Capacity (mt (bcm))
Commissioning date
Thailand (Map Ta Phut)
5 (6.8)
2011
Indonesia (East Java)
1.5 (2)
2011
Indonesia (North Sumatra)
1.5 (2)
2011
Indonesia (West Java)
1.5 (2)
2012
Philippines (Quezon)
1.0 (1.4)
2011
Philippines (Bataan)
1.4 (1.9)
2012
Singapore(Jurong Island)
3 (4.6)
2013
Malaysia (Port Dickson)
5 (6.8)
2013
Note: Names of terminals in bold and underlined indicates that the terminal is under construction.
Source: IEA.
269
OECD/IEA, 2010
OIL CONTACTS
Editor
Head of the Oil Industry and Markets Division
David Fyfe
(+33) 0*1 40 57 65 90
david.fyfe@iea.org
Demand
Eduardo Lopez
(+33) 0*1 40 57 65 93
eduardo.lopez@iea.org
OPEC Supply and Oil Pricing
Diane Munro
(+33) 0*1 40 57 65 94
diane.munro @iea.org
Non-OPEC Supply
Julius Walker
(+33) 0*1 40 57 65 22
julius.walker@iea.org
Biofuels
Michael Waldron
(+33) 0*1 40 57 66 18
michael.waldron@iea.org
Toril Bosoni
(+33) 0*1 40 57 67 18
toril.bosoni@iea.org
Oil Pricing/Statistics
Martina Repikova
(+33) 0*1 40 57 67 16
martina.repikova@iea.org
Statistics/Crude Trade
Andrew Wilson
(+33) 0*1 40 57 66 78
andrew.wilson@iea.org
Editorial Assistant
Esther Ha
(+33) 0*1 40 57 65 96
e-mail: esther.ha@iea.org
GAS CONTACT
Senior Gas Expert
Anne-Sophie Corbeau
(+33) 0*1 40 57 65 16
anne-sophie.corbeau@iea.org
OECD/IEA 2010. All Rights Reserved
The International Energy Agency (IEA) makes every attempt to ensure, but does
not guarantee, the accuracy and completeness of the information, or the clarity
of content, of Medium-Term Oil and Gas Markets (hereafter MTOGM). The IEA
shall not be liable to any party for any inaccuracy, error or omission contained
or provided in this MTOGM, nor for any loss or damage, whether or not due to
reliance placed by that party on information in this MTOGM.
The Executive Director and Secretariat of the IEA are responsible for the
publication of MTOGM. Although some of the data are supplied by IEA membercountry governments, largely on the basis of information they, in turn, receive
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This MTOGM is the copyright of the OECD/IEA and is subject to terms and
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OECD/IEA, 2010
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MEDIUM-TERM

INTERNATIONAL ENERGY AGENCY

IEA member countries:

Please note that this publication

The European Commission

M EDIUM T ERM O ILAND G AS M ARKETS 2010

Included on CD or available in PDF format

Gas for Power

M EDIUM T ERM O ILAND G AS M ARKETS 2010

M EDIUM T ERM O ILAND G AS M ARKETS 2010

M EDIUM T ERM O ILAND G AS M ARKETS 2010

M EDIUM T ERM O ILAND G AS M ARKETS 2010

M EDIUM T ERM O ILAND G AS M ARKETS 2010

M EDIUM T ERM O ILAND G AS M ARKETS 2010

PART 3: GAS SUPPLEMENT

M EDIUM T ERM O ILAND G AS M ARKETS 2010

M EDIUM T ERM O ILAND G AS M ARKETS 2010

Thisyearfor thefirst time,wehavemodelled OECDgasdemandinto the mediumterm, usingthe

M EDIUM T ERM O ILAND G AS M ARKETS 2010

M EDIUM -T ERM O IL AND G AS M ARKETS 2010

M EDIUM T ERM O ILAND G AS M ARKETS 2010

Global Balance Summary (Base Case)

GDP Growth Assumption (% per year)

OPEC NGLs, etc.

Global Supply excluding OPEC Crude

OPEC Crude Capacity

Call on OPEC Crude + Stock Ch.

Implied OPEC Spare Capacity1

Effective OPEC Spare Capacity2

as percentage of global demand

OPEC NGLs, etc.

Global Supply excluding OPEC Crude

OPEC Crude Capacity

Call on OPEC Crude + Stock Ch.

Implied OPEC Spare Capacity

1 OPEC Capacity minus 'Call on Opec + Stock Ch.'

M EDIUM T ERM O ILAND G AS M ARKETS 2010

Global Balance Summary (Lower GDP Case)

GDP Growth Assumption (% per year)

OPEC NGLs, etc.

Global Supply excluding OPEC Crude

OPEC Crude Capacity

Implied OPEC Spare Capacity

Effective OPEC Spare Capacity2

Call on OPEC Crude + Stock Ch.

as percentage of global demand

Changes since December 2009 MTOMR

OPEC NGLs, etc.

Global Supply excluding OPEC Crude

OPEC Crude Capacity

Call on OPEC Crude + Stock Ch.

M EDIUM T ERM O ILAND G AS M ARKETS 2010

M EDIUM T ERM O ILAND G AS M ARKETS 2010

M EDIUM T ERM O ILAND G AS M ARKETS 2010

Global Oil Demand:

Base GDP & 3% Avg. Yearly

2008 2009 2010 2011 2012 2013 2014 2015

Oil Demand Sensitivity: Avg. Intensity

M EDIUM T ERM O ILAND G AS M ARKETS 2010

M EDIUM T ERM O ILAND G AS M ARKETS 2010

Refining and Product Supply

M EDIUM T ERM O ILAND G AS M ARKETS 2010

Cumulative CDU Expansions