Rayola Dougher

API Senior Economic Advisor, dougherr@api.org

Energy Market Update

Oil Market Outlook

and Energy Policy Issues

0

20

40

60

80

100

120

140

160

Iran/Iraq war

Gulf War OPEC

cuts 4.2

million

9/11

Low spare

capacity

Recession

Libyan

Uprising

Supply

surplus

The price of oil has fluctuated sharply before

Inflation-adjusted 2014 $/barrel

Sources: Inflation-adjusted average refiners acquisition price for crude oil

PDVSA strike

Iraq War

Asian Growth

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15

Crude Oil $1.20 Gasoline $2.40 Diesel $2.80

Changes in gasoline and diesel prices closely

track changes in crude oil prices

Average prices as of April 8, 2015

Sources: NYMEX (WTI crude oil) and AAA (gasoline and diesel)

Many factors affect the price of oil, but in the end

it comes down to supply and demand

Source: EIA

U.S. oil production is increasing as a result of

technological innovations

4

5

6

7

8

9

10

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

73% growth

2008-2014

(mill

ion

s o

f b

arr

els

pe

r d

ay)

Note: Bars in red show EIA’s Short-term Energy Outlook forecast.

Source: Energy Information Administration.

0

5000

10000

15000

20000

25000

30000

35000

40000

Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015

U.S. movements of crude by rail

Thousands of barrels

Source: EIA

SHALE ENERGY PROVIDES A NATIONAL OPPORTUNITY

Current and prospective resources and basins in the continental US

Source: EIA based on data from various published studies – updated May 9, 2011

Current Shale Resources

Prospective Shale Resources

Basins

Shallowest/ Youngest

Mid-Depth/ Mid-Age

Deepest/Oldest

Shale Resources, Lower 48 States

Stacked Resources

Shale production is offsetting declining production

from other U.S. oil and natural gas resources

0

1

2

3

4

5

6

7

8

9

10

1990 2000 2010 2020 2030 2040

Alaska

Lower 48 Offshore

Lower 48 Onshore

Conventional

Tight Oil

0

5

10

15

20

25

30

35

40

1990 2000 2010 2020 2030 2040

Tight Gas

Coalbed methane

Shale

Gas

Lower 48 Onshore Conventional

Lower 48 Offshore

Alaska

U.S. Crude Oil Production by Source (millions of barrels per day)

U.S. Natural Gas Production by Source (trillion cubic feet per year)

Source: EIA, Annual Energy Outlook 2014

Growth in Global Oil Supply

Disruptions (mmb/d)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Ma

r 201

2

Sep

20

12

Ma

r 201

3

Sep

20

13

Ma

r 201

4

Sep

20

14

Ma

r 201

5

OPEC

Non-

OPEC

Growth in U.S. Crude Oil

Production* (mmb/d)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Ma

r-20

12

Sep

-20

12

Ma

r-20

13

Sep

-20

13

Ma

r-20

14

Sep

-20

14

Ma

r-20

15

Growth in U.S. oil production has largely offset

the growth in global oil supply disruptions

Source: EIA * Includes hydrocarbon gas liquids, biofuels, and refinery processing gains.

0%

10%

20%

30%

40%

50%

60%

70%

Crude oil and petroleum product imports have

declined as a share of consumption

Source: EIA

-0.5

0

0.5

1

1.5

2

2014 2015 2016OPEC North America

Russia and Caspaian Sea Latin America

North Sea Other Non-OPEC

World crude oil and liquid fuels production growth

Mill

ion

ba

rre

ls p

er

da

y

Source: EIA, Short-term Energy Outlook, April 2015

-1

0

1

2

3

United

Sta

tes

Bra

zil

Cana

da

Ma

laysia

Chin

a

Kaza

khsta

n

Om

an

Austr

alia

Ind

ia

Norw

ay

Sud

an

/S.

Sud

an

Azerb

aija

n

Oth

er

Nort

h S

ea

Vie

tnam

Gab

on

Co

lom

bia

Syria

Egyp

t

Russia

Mexic

o

Un

ited

Kin

gd

om

2016

2015

2014

Non-OPEC crude oil and liquid fuels production

growth

(mill

ion

ba

rre

ls p

er

da

y)

Source: EIA, Short-term Energy Outlook, April 2015

0

0.5

1

1.5

2

2.5

2014 2015 2016

Production

Consumption

World growth in crude oil production surged

ahead of growth in consumption in 2014

Source: EIA, Short-term Energy Outlook, April 2015

(mill

ion

ba

rre

ls p

er

da

y)

2013

2014

2015

Projected

2016

Projected

WTI Crudea

($/barrel) 97.91 93.26 52.48 70.00

Brent Crude

($/barrel) 108.60 99.00 59.32 75.03

Gasolineb

($/gallon) 3.51 3.36 2.40 2.73

Dieselc

($/gallon) 3.92 3.83 2.86 3.24

Heating Oil

($/gallon) 3.78 3.72 2.81 3.04

Natural Gasd

($/mcf) 10.30 10.94 10.33 10.61

Electricity

(cents/kwh) 12.12 12.50 12.68 12.90

EIA price forecast

a West Texas Intermediate b Average regular pump price c On-highway retail d Residential average

Source: EIA, Short-term Energy Outlook, April 2015.

Refineries and Fuels

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

0

50

100

150

200

250

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

Operable Capacity* Number of Refineries

U.S. refining capacity continues to expand even

as the number of refineries contracts

*Operable as of January 1st of each year. Source: EIA

-5000

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

For the first time since 1949, the U.S. became a

net exporter of petroleum products in 2011

Source: EIA

(thousa

nds o

f barr

els

per

day)

Asia and Pacific -92 -311 Asia and Pacific

Canada 301 25 Canada

Caribbean 341 -94 Caribbean

Central America -115 -405 Central America

Europe 805 102 Europe

Mexico -218 -494 Mexico

Middle East, North Africa 266 -58 Middle East, North Africa

South America 2 -682 South America

Sub-Sahara Africa 66 -36 Sub-Sahara Africa

The U.S. balance of petroleum products traded has

shifted significantly (thousands of barrels per day)

WORLD 1,356

Non-OPEC 871

-1,953

-1,935

OPEC 485 -18

2008 2014

Source: EIA

Net Imports (+) and Exports (-) of Petroleum Products by Region

Expanding alternative fuels for transportation:

current laws

The Congressional

Budget Office

predicts the price

of diesel could rise

by up to 51 cents

per gallon and

gasoline by up to

26 cents per

gallon by 2017.

Power and Politics

Save consumers up

to $5.8 billion a year

in lower fuel costs

Add 300,000 jobs to

U.S. economy in

2020

Reduce America’s

trade deficit by $22

billion in 2020

Why export crude oil?

Crude oil exports yield economic benefit across all 50 states

Source: ICF International and EnSys Energy,

87% of federal offshore acreage is off-limits to

development

Development of Canadian oil sands would

benefit the U.S. economy

Filling America’s tank Within 10 years Canada and U.S. can provide all our liquid fuel needs

U.S. Oil

Production

Oil from Canada

Biofuels

Oil from

Rest of World

Sources of liquid

fuel supply

in 10 years

53%

13%

10%

24%

72%

18%

10%

EIA Forecast Potential Sources: EIA; Wood Mackenzie

Source: Wood Mackenzie,” “U.S. Supply Forecasts and Potential Jobs and Economic Impacts,” September 7, 2011.

90% 86% 86% 85%

83%

72% 70%

65%

Lead to morejobs

Helpstrengthen

energysecurity

Helpstimulateeconomy

Help lowerenergy costs

SupportO&NG

development

SupportKeystone XL

pipeline

Supportoffshore

development

Increasingenergy taxes

may hurtconsumers

Harris Poll Results on Increased U.S. Oil and Natural Gas Development

Voters voice strong support for increased

domestic oil and natural gas development

Source: Harris Interactive telephone poll, November 5, 2014

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