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You acknowledge that your use of any content, information or materials in this presentation is entirely at your own risk. THIRD PARTY LINKS AND RESOURCES IN THIS PRESENTATION Where this presentation contains links to other sites and resources provided by third parties, these links are provided for your information only. We have no control over the contents of those sites or resources. We assume no responsibility for any of the content, information or any statements contained on any websites linked in this presentation. Such links should not be interpreted as endorsement by us of those linked websites. Table of Contents 1. Executive Summary (Page 4) 2. ERCE Oil and Gas Price Forecasts (Page 9) • ERCE and other key petroleum consultants 3. Crude Oil & Natural Gas Trading Prices (Page 15) • Spot price and futures • Commitment of traders 4. Global Oil Demand & Supply (Page 24) 5. Gas Market Fundamentals (Page 33) 6. Upstream Costs & Drilling Rig Market (Page 39) 3 1 Executive Summary All prices are in U.S. dollars as at 31st December 2020 Welcome to the ERCE Energy Review for Q1 2021 Status Quo. Brent price declined in October to a low of $37.5/b before surging past $54/b at the start of the year, on market optimism due to additional OPEC+ production cuts and positive vaccine news. Numerous countries have approved and begun deployment of Moderna and Pfizer’s COVID-19 vaccines. Uncertainties remain significant, with a strong resurgence of the virus in US and Europe, and the discovery of a new strain in the UK. Short-term. Short-term consensus on oil prices will be a balancing act between the optimism of vaccine rollout and the resurgence of COVID-19 infections. Fresh lockdowns across the developed world might stall the recent oil price rally. On the supply side, OPEC+ announced a ‘hands-on’ approach, scheduling monthly meetings to increase its control of the markets, as the group commits to additional cuts until March. According to the EIA, US rig counts continue to rise, but total production is expected to decline in the coming months. Medium-term. Medium-term consensus revolves around steady and continual oil price recovery. The demand recovery is likely to depend on the pace and ease of vaccine rollouts. Three vaccines (Pfizer-BioNTech, Moderna and Oxford/AstraZeneca) have been approved by numerous countries, but worldwide deployment is expected to be a lengthy process, and might extend past 2021. Producers will likely keep a heavy hand on the taps to adjust production and match the demand recovery. US crude oil production is forecasted by the EIA to increase in 2021, as a response to rising oil prices. Upward pressure on oil price is expected to be limited by excess production capacity and elevated inventory levels. Long-term. Long-term consensus continues to be uncertain and heavily debated. European producers have embraced the energy transition and adopted extensive plans to reach net-zero targets. US producers continue to hold out on significant changes, but this stance will be tested by mounting investor pressure and an imminent Joe Biden presidency. Despite the increased support for the energy transition, significant obstacles continue to exist and the process is anticipated to be gradual. Welcome to the ERCE Energy Review. This report reviews current oil and gas prices and looks at some of the global macro indicators influencing oil price trends. In addition, we provide our current oil price decks and review oil price assumptions presented by other petroleum consultants and analysts. The report is based on publicly available information. Zhamal Orazbayeva Head of Economics Nicholas Lee Omar Ali Authors: Tel (direct): +65 6332 5161 Graduate Economist Costs & Facilities Engineer Mob: +65 8879 0123 [email protected] [email protected] [email protected] Long Term Crude Oil Price - Annual Average (1970 – 2020YTD) Oil Price History: Long-Term Crude Oil Price (Real Vs. Nominal) $ Nominal (Money of the day) $ Real (2020) 1970-2020 Annual Avg (Nominal) 1970-2020 Annual Avg (Real, 2020) 2017: Rising 1980-1986: Non-OPEC production increased 6 MMb/d demand and OPEC attempted to set production quotas 2008: Global Financial Crisis combined 120.00 1985: Saudis abandon swing producer role with OPEC/Russia production 100.00 cut brings 1979: Iranian 1999 - 2008: Strong demand growth inventory 1973: Arab Revolution from Non-OECD Countries and low levels back to oil embargo OPEC spare capacity 5-year norms. 80.00 1998: Asian Financial Crisis 60.00 $54/bbl 1970 - 2020 Avg (Real,2020) 2009: OPEC cuts production targets by 4.2 MMb/d 40.00 $33/bbl 1970 - 2020 Avg (Nominal) 2020: Material Nominal and Real (2020) Crude Oil Price ($/bbl) Price Oil Crude (2020) Real and Nominal 2018 - 2019: Strong supply, decrease in 20.00 weakening demand, Saudis look to crude demand maintaining market share instead due to Covid19 1990: Iraq invades of acting as swing producer pandemic Kuwait 1998-1999: OPEC production decreased ~3 MMb/d 0.00 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 ● Nominal - economic value expressed in historical nominal monetary terms, also known as “money-of-the-day”. ● Real - Economic value that has been adjusted from a nominal value to remove the effects of general price level changes over time (using the CPI from U.S. Bureau of Labour Statistics) and is thus measured in terms of the general price level in some reference year (the base year in this case 2020). ● 1970-1983 Arabian Light posted at Ras Tanura; 1984-2013 Brent dated; 2014+ Brent spot. Source: Intercontinental Exchange, U.S. Energy Information Administration, BP Statistical Review, ERCE Estimates Global Oil Demand: Path to Normality The recovery in demand continued at a steady pace in Q4 2020: ● Global Demand Vs Global Supply: Monthly Breakdown • Demand in the Asia-Pacific region has recovered to its pre- Global Oil Demand Global Oil Demand (Prediction) COVID levels, driven by a strong recovery in Chinese Global Oil Supply Global Oil Supply (Prediction) demand. 110 • The demand recovery in the western world has flattened, as 100 countries struggle to contain the virus. 90 ● The Pfizer-BioNTech, Moderna and Oxford/AstraZeneca 80 vaccines have been approved in various countries with trial data showing high efficacy rates. China and Russia have also started MMbbl/d 70 the rollout of their own vaccines (Sinopharm/Sinovac and 60 Sputnik V). 50 ● The vaccines are rapidly being produced and are expected to be available to most of the developed world by the middle of 2021. However, the roll-out to the developing world is expected to be slow and delayed, due to cost and supply challenges. US Liquid Oil Demand ● Heading into winter, Governments around the world announce fresh lockdowns to cope with the surge in COVID-19 infections. Hydrocarbon Gas Liquids Motor Gasoline Jet Fuel Fuel Oil Others 25.00 ● The spread of new COVID-19 variants have threatened to derail virus containment efforts. Initial reports suggest the new strain is 20.00 70% more transmissible, but is not expected to affect vaccine 15.00 efficacy. 10.00 ● Jet fuel consumption (historically around 7-10% of petroleum MMbbl/d consumption) has slowly risen, but remain far behind pre-COVID 5.00 levels, as the number of flights remain low. 0.00 ● The EIA forecasts that global demand will continue its gradual recovery in Q1 2021 to average 96.3 mmbpd, despite a seasonal winter decline in January. 7 Source: U.S. Energy Information Administration, International Energy Agency, Rystad Energy, FT, New York Times, ERCE Estimates, S&P Global Global Oil Supply: A Balancing Act Global Vs.