Vandana Hari presented on global energy and petrochemicals outlook. Key points include: - World population is projected to grow to 9.2 billion by 2040, with denser urbanization in Asia and Africa. - China and India will drive increasing shares of global economic growth. - Global oil demand growth is expected to slow dramatically, while gas and petrochemicals demand increases. - The outlook is for lighter, sweeter global crude but this may reverse after 2025 depending on OPEC production.

1. Indian Petrochem 2019
Mumbai, 14 November 2019
Vandana Hari
Founder & CEO
Global Energy & Petrochemicals Outlook

2. ©Vanda Insights
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7. Demographics, Economics and Energy Demand
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8. World population to hit 9 billion in 2040; denser urban areas
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World population growth, 1996-2018 vs 2018-2040
China
India
Mideast &
Africa
Rest of the
world
OECD
India
Mideast &
Africa
Rest of the
world
China
OECD
Regions with fastest rates of urbanisation
China
World avg
Other Asia
Mideast &
Africa
India
Source: OPEC World Oil Outlook, 2019
2018 total: 7.7 billion
2040 total: 9.2 billion

9. Asia to take growing share of global economy
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Distribution of global economy: Rise of China, India
India
Rest of the
world
OECD
India
China
Source: OPEC World Oil Outlook, 2019
China Rest of the
worldOtherAsia
OtherAsia
OECDAsia
Oceania
OECDAsia
Oceania
OECD
Europe
OECD
Europe
OECD
Americas
OECD
Americas
• Global economy expected to DOUBLE between
2018 and 2040
• China, India, rest of Asia expected to be
biggest centres of economic growth
• Globally, 1 billion people lack access to
electricity, 3 billion lack access to clean
cooking fuels. Much of the energy poverty is
concentrated in Asia

10. World primary energy demand growth by fuel type
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9
-2
0
2
4
6
8
10
12
14
Mil boe/d
2020-2030 2030-2040
Source: OPEC World Oil Outlook, 2019
Volumetric growth
• Demand growth in China, India will outpace global average of 1% per annum
• Total global primary energy demand expected to rise by 25% between 2018-2040 to 358 mil boe/day
• Gas use to grow the fastest (in volume), reaching 25% of primary energy share by 2040

11. OPEC sees dramatic drop in rate of oil demand growth
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Average annual oil demand growth, 2018-2040
• Global oil demand seen rising from
101 mil b/d in 2020 to 110 mil b/d
in 2040
• Annual demand growth to shrink
from 1.1 mil b/d at present to just
130,000 b/d by 2040
• Main causes of decelerating demand:
- Displacement by gas, renewables,
cleaner fuel alternatives
- Technology-driven efficiency gains
- EVs, alternative-fuelled vehicles
Source: OPEC World Oil Outlook, 2019

12. Petchems to underpin rise in oil demand over next 20 years
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Oil demand growth by sector, 2018-2040
• Petrochemical sector seen as
leading source of incremental oil
demand to 2040 (+4 million b/d)
• Road transportation and aviation
the other big contributors
• Oil demand in road transportation
may plateau sometime between
2030 and 2040
2040
2040
Source: OPEC World Oil Outlook, 2019

13. A world of lighter, sweeter crude … but may switch again?
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Global crude oil* quality swings, longer-term
• Consensus on global crude slate
becoming lighter, sweeter on the back of
US shale boom, OPEC output cuts
• But OPEC sees trend reversing again
around middle of next decade
• Expected post-2025 decline in output
from US, Canada, Asia-Pacific, Caspian to
increase share of OPEC’s heavier, more
sulphurous crude
2040
Source: OPEC World Oil Outlook, 2019
*Includes condensates, synthetic crude
◦API gravity % Sulphur

14. Ethane demand growth strongest among petchem feedstocks
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Short-term changes in petchems feedstock demand
• LPG, ethane to record largest demand
increase among oil products, driven by
petrochemical and residential sectors
• Marks a shift from gasoil/diesel leading
the pack, historically
• Naphtha is expected to remain the prime
petrochemical feedstock
• New ethane-based capacity in US, but
mostly naphtha-based in Asia, Middle East
2040
Source: OPEC World Oil Outlook, 2019

15. Oil Markets Outlook
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16. Brent range-bound around $60: Will it break out?
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Source: ICE, CME
30
40
50
60
70
80
90
$/bbl
Brent WTI
2019 Jan-Oct average
WTI ~$57 Brent ~$65
Brent 4-year high $86
Brent 16-month low $50
$60
2018 average
WTI ~$65 Brent ~$72

17. …Hinges on which way US-China trade war goes
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Source: ICE, CME
30
40
50
60
70
80
90
$/bbl
Brent WTI
Economic gloom
over trade tensions
Growing
optimism
over trade
deal
10 May:
Trade talks
collapse
1 Dec: Trump, Xi
agree 90-day truce
Jan 2019: Trade
talks resume
29 Jun: Trump,
Xi agree to
resume trade
talks
China signals
likely rollback
in tariffs
11 Oct: Plan
for “phase-
one” trade
deal
Jul 2018: Start of tit-
for-tat import tariffs
$60-70
Phased
resolution
$50-60
Impasse

18. Demand concerns: The biggest drag on oil
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• Global economic growth has been decelerating
• Manufacturing contraction across the globe; consumer sentiment cooling
• World trade growth to slow to 3-year low of 2.6% in 2019: IMF
0
1
2
3
4
5
IMF: 3 consecutive downgrades in global GDP growth forecast
2019 2020
From global ”synchronized
growth” in 2017 … to a
“synchronized slowdown”
in 2019.
Source: IMF. The “S” and “F” represent Spring and Fall World Economic Outlook Forecasts each year

19. Easy money has boosted stock markets but not crude prices
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2300
2400
2500
2600
2700
2800
2900
3000
3100
3200
30
40
50
60
70
80
90
$/bbl S&P 500 (rhs) WTI (lhs) Brent (lhs)
Divergence since June 2019
Source: ICE, CME, Yahoo Finance

20. Global oil demand growth forecasts downgraded since Feb
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Source: International Energy Agency, OPEC, US Energy Information Administration, Vanda Insights
1.52
1.51
1.45 1.41 1.38
1.41 1.42
1.38 1.37
1.34 1.30
1.19
1.12
1.06
1.00
0.93
0.0
0.4
0.8
1.2
1.6
2.0
Mil b/d The slippery slope of oil demand: Changes in 2019 projections
IEA EIA OPEC Avg
Month of
forecast

21. Non-OPEC oil supply growth outpaces rise in demand
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Source: International Energy Agency
• Strong rise in non-OPEC oil supply, led
by tight oil from US shale
• Continuing gap puts pressure on
OPEC/non-OPEC alliance to keep tight
reins on oil output
0
1
2
3
Annual growth
in mil b/d
Non-OPEC output Global demand

22. Major areas of oil supply growth and decline
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2019 2020 (e)
• US 1.6 1.3
• Canada 0.1 0.1
• Brazil 0.2 0.3
• Norway - 0.4
2019 2020 (e)
• Iran 1.1 ?
• Venezuela 0.5 ?
• Saudi Arabia 0.3 ?
• Mexico 0.2 0.03
Annual jump
(in mil b/d)
Annual slump
(in mil b/d)
Source: International Energy Agency, OPEC. Non-OPEC volumes include condensate and NGLs. OPEC volumes are only crude.

23. OPEC output didn’t really drop – until this year!
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25
26
27
28
29
30
31
32
33
"Core" OPEC production in million b/d
2016 avg: 31.5
2017 avg: 31.4
2018 avg: 31.2
2019 Jan-Sep
avg: 29.3
Vanda Insights analysis:
• OPEC agreed to cut output by
1.2 mil b/d from Jan 2017 and
by 0.8 mil b/d from Jan 2019
• But actual reduction in 2017
and 2018 was much smaller
• First REAL CUT – of nearly 2
mil b/d on year – has
happened only in 2019
Source: Vanda Insights analysis based on OPEC monthly reports

24. The picture of oil demand: Few bright spots
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31
32
33
34
35
36
37
Asia-Pacific
30.5
31.0
31.5
32.0
32.5 Americas
14.5
15.0
15.5
Europe
4.0
4.5
5.0
FSU
8.0
8.5
Middle East
3.5
4.0
4.5
Africa
Source: International Energy Agency

25. China, India biggest drivers of oil demand growth
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-0.5
0.0
0.5
1.0
1.5
Mil b/d
ROW
Middle East
India
China
IEA outlook over next 5 years
Source: International Energy Agency 2019 annual report
• Chinese economy and oil demand
growth have been slowing, now
amplified by trade war
• China still remains the biggest
contributor to demand growth: Up
6% on year over Jan-Sep
• Indian oil demand rose 2% over
Jan-Sep (vs annual growth of 4.5%
for full-year 2018)

26. Downstream: Asia dominates refining capacity additions
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Distillation capacity additions from existing projects
Source: OPEC
2024: 0.4 mil b/d
2023: 0.8 mil b/d
2022: 1.4 mil b/d
2021: 1.7 mil b/d
2020: 1.6 mil b/d
2019: 2.0 mil b/d
Global total
• Global capacity creep cools
off after 2021
• Asia ex-China and Middle
East to surpass China in
additions from 2020
• Latin America continues to
lag in adding downstream
capacity

27. OPEC worries about oil stocks, ghost of 2015-2017 glut
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Source: International Energy Agency
• OECD oil stocks rose for the fifth straight
month in August 2019
• Closing in on the 3 billion barrel figure last
seen during the 2015-2017 overhang
• IEA projects >1 mil b/d build in stocks
through first-half 2020

28. Producer alliance is girding for tough times…
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Non-OPEC liquids supply outlook 2018-2040
Peak in 2026
…But only till the end of next decade
• Sees non-OPEC oil supply peaking
around 2026
• Sees demand for OPEC liquids (crude +
NGLs) rising from 34 mil b/d in 2020 to
44 mil b/d in 2040
Source: OPEC World Oil Outlook 2019
Conventional crude
Biofuels
Other liquids (ex-Biofuels)
Tight oil (crude + NGLs)
Conventional NGLs

29. Trump wants US stock markets high – Implications for trade deal
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30. Speculators raising bullish bets on crude since Oct
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Source: US Commodity Futures Trading Commission, CME, ICE
0
15
30
45
60
75
90
0
200
400
600
800
1,000
$/bblMil bbl Spec length in WTI (lhs)
0
15
30
45
60
75
90
105
-20
80
180
280
380
480
580
$/bblMil bbl Spec length in Brent (lhs) Brent (rhs)

31. Deeper OPEC+ cuts in 2020 far from certain
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• US-China trade deal likely to support Brent above $60 psychological mark
• Russia, important non-OPEC ally, has been dovish since late 2018
• Saudi Arabia needs to manage optics around Aramco IPO with oil buyers
• Saudi Arabia cutting more than it needs to, complicating the maths
• Tough to impose deeper cuts without 100% compliance with current quotas

32. Is geopolitical risk underpriced in oil?
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33. US Production Surge and Uncertainties
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34. US shale boom drives crude, product exports higher
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Source: US Energy Information Administration
0
2
4
6
8
10
12
14
Mil b/d Crude exports Finished petroleum product exports NGLs exports Crude production

35. Petchem feedstocks: Cracks under pressure, ethylene volatile
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Source: S&P Global Platts (naphtha, ethylene, propylene, benzene), ICE (Brent)
0
200
400
600
800
1000
1200
1400
1600
1800
$/mt
Ethylene CFR NE Asia
Propylene Poly Grade CFR
China
Benzene FOB Korea
Marker
Naphtha C+F Japan
ICE Brent front-month

36. 0
2.5
5
7.5
10
12.5
15
Big question on future trajectory of US oil output
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OPEC outlook on US tight oil supply
Peak in 2027: 11.8 mil b/d
Source: OPEC World Oil Outlook 2019
Peak in 2032: 14.5 mil b/d
US EIA projection
Source: EIA Annual Energy Outlook 2019

37. Near-term uncertainty too, as shale succumbs to price pressure
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600
650
700
750
800
850
900
40
50
60
70
80
WTI in $/bbl (lhs) Oil rig count (rhs)
300
350
400
450
500
40
50
60
70
80
WTI in $/bbl (lhs) Frac fleet count (rhs)
• US shale producers have laid off
23% of oil rigs since start of 2019
• Fracturing fleet count has dropped
28% from recent high of April 2019
• Shale producers under pressure to
increase cash flow, have exhausted
“sweet spots”, face well
interference issues, challenges of
limited access to capital and credit
Source: Baker Hughes, Primary Vision, CME

38. 8
9
10
11
12
13
US crude production in million b/d
US output growth decelerating, but by how much?
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2018: 10.99 mil b/d
2019: 12.26 mil b/d
2020: 13.17 mil b/d
Source: US EIA. 2019 and 2020 are the latest projections
+1.6 mil b/d
+1.3 mil b/d
+0.91 mil b/d
2017: 9.35 mil b/d
?

39. The future ain’t what it used to be
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For now it’s all about:
• Trade war
• Trade war
• Trade war
• Rising Middle East tensions
In early 2019, we were focusing on:
• US sanctions against Venezuela,
implications of civil war or regime change
• US sanctions against Iran, fate of 6-month
waivers granted on crude exports in Nov
• US-China trade war: Resumption of talks
promising, but no guarantees
• Will US launch a trade war with Europe?

40. ©Vanda Insights
Email: vandana.hari@vandainsights.com
Web: www.vandainsights.com
Twitter: @VandanaHari_SG
Thank You!