Oil Buyer's Guide 2013 Review

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01.16.14 www.bloombergbriefs.com

Bloomberg Brief | Oil 2013 Review

STORY OF THE YEAR: The Spread
The price gap between the world’s two
biggest oil benchmarks probably will narrow this year as U.S. exports of refined
fuels reach a record and crude supply from
the Middle East and North Africa recovers.
West Texas Intermediate, the U.S.
benchmark, will average $6 a barrel less
than Europe’s Brent in 2014, from almost
$15, according to Commerzbank AG.
Goldman Sachs Group Inc. is predicting
$9 and Barclays Plc $8.
While the U.S. is pumping the most
crude oil in a quarter century, laws
prohibit most exports, driving down costs
for domestic refiners and spurring record
shipments of everything from diesel to
gasoline. The forecasters expect Brent
prices to weaken as regional supply
recovers, led by Iran and Libya.
Brent futures for February settlement on
ICE Futures Europe in London closed at

2

by Grant Smith, Bloomberg News

$106.75 a barrel on Monday, for example,
$14.95 more than the corresponding
WTI contract on the New York Mercantile
Exchange. The spread averaged $10.65
last year, reaching as high as $23.44 on
Feb. 8.
WTI also may rise because of expanding pipeline capacity from Cushing,
Oklahoma, where the crude is priced, to
America’s refining hub on the Gulf Coast.
Stockpiles of 40.7 million barrels at Cushing are 21 percent lower than a year ago,
government data show.

Will the Spread Narrow?
“Ask me that question again in 15 minutes! I think the spread will narrow, but it
just widened a little again on the news of
disappointing U.S. production and inventory and ongoing issues in the Middle
East. We could be seeing an upside bias
on WTI crude soon due to a number of
factors, including the opening of the
southern leg of Keystone, expectations of
a decision on Keystone XL, talk of lifting
the crude export ban, and re-opening of
the Sharara oil field in Libya. There are so
many factors that come into play in world
markets, I don’t think anyone can say with
certainty one way or the other.”
— Chris Faulkner,
CEO of Breitling Oil Corp.

Contents
Outlook 2014: Voices
Regulators, executives, and analysts weigh in
on the export ban and the widening spread.
Page 4
Differentials
Brent’s premium to WTI began to widen again
in the second half of the year as the longerterm differential was expected to widen further.
Page 5

Verbatim: Production Focus
Exxon says it expects global shale development to take time to develop amid legal hurdles
and other obstacles, as companies reflect on
the past year and look to 2014.
Page 7

Refining Outlook
U.S. players were favored in 2013 as the shale
boom caused a decoupling of U.S. and European margins.
Page 10
LNG Outlook
The U.S. is shifting to exporting LNG as
terminals are proposed to meet growing gas
production.
Page 11

Demand Outlook
Modest demand is expected as production
continues to rise in 2014.
Page 9

Regional Differentials
Bakken crude differentials are seen narrowing as more rail and pipeline options become
available.
Page 6

OPEC
OPEC’s production declined in 2013 amid disruptions in Libya and plunging Iranian exports.
Page 8

Q&A
Portfolio manager Ed Cowart says to watch
companies with Permian exposure in 2014.
Page 12

Bloomberg Brief Oil Buyer’s Guide
Data Editor: Joseph Aboussleman
U.S. Crude Oil jaboussleman@bloomberg.net
609-279-4281

Bloomberg Brief Ted Merz
Executive Editor tmerz@bloomberg.net
212-617-2309
Managing Editor, Stuart Wallace
Global Energy Markets swallace6@bloomberg.net
+44-20-7673-2388
Managing Editor, Tim Coulter
Energy and Commodities tcoulter@bloomberg.net
+44-20-7330-7901
Oil Buyer’s Guide Jessica Resnick-Ault
Editor jresnickault@bloomberg.net
212-617-3058

Newsletter Nick Ferris
Business Manager nferris2@bloomberg.net
212-617-6975

Data Editor: Paul Batchler
Canadian Crude pbatchler@bloomberg.net
609-279-4128
Data Editor: Andrew Stewart
Natural Gas anstewart@bloomberg.net
609-279-4258

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+1-203-550-2446
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To subscribe via the Bloomberg Terminal type BRIEF <GO> or on the web at www.bloombergbriefs.com. To contact
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may not be forwarded or redistributed without the prior consent of Bloomberg. Please contact our reprints and
permissions group listed above for more information.

1 2 3 4 5 6 7 8 9 10 11 12


by the Numbers


3

Compiled by Jessica Resnick-Ault

$98.05 Average WTI price
$108.70 Average Brent price
39% Amount the Brent-WTI spread narrowed from 2012

30.58 Average OPEC daily production
million barrels

7.36 Average U.S. daily production
million barrels

31% Increase in average monthly North American railcar loads of oil

37% Increase in railroad incidents involving crude

377 Average 2013 U.S. crude in storage
million barrels

99.2 Average 2013 crude in offshore storage
million barrels

$89.35 Price of one Exxon Mobil share

5.59 Barrels of reserves per Exxon share

$548

Cost of 5.59 barrels of WTI at the end of 2013

25 Place Exxon Mobil would have among world powers, if its revenue were GDP
3 Increase in U.S. diesel exports
1% Decrease in U.S. domestic diesel prices
23,215

China’s monthly crude imports, in metric tons

$637
million

Cost of an average oil and gas M&A deal by a Chinese company

$330
million

Cost of an average oil and gas M&A deal by a U.S.-based company

9.7%

2013 proposed cut to ethanol volumes required by the Renewable Fuels Standard of 2007

5% Ethanol production decline since EIA measurements began in 2011

1.7% Year-on-year decline in the Newedge Commodity Trading Index of Hedge Funds

86% Decline in assets under management at energy hedge fund Vector Commodity Management in first
four months of 2013

18 months Amount of time Higgs Capital commodities hedge fund was open before closing due to lack of
capital stability

32% Traders and analysts surveyed by Bloomberg who said they had little confidence in assessed
prices of crude and other commodities
3 U.S. LNG export projects approved in 2013
$9.277 Premium for LNG in Japan over LNG in U.S.
A mmBtu

58 Average age of a top 10 oil CEO

58 Age of Hugo Chavez at his death in 2013

97.5%

Value lost by OGX in 2013

$449 Amount OGX owed for a platform at a non-producing field
million

1 2 3 4 5 6 7 8 9 10 11 12



4

outlook 2014: Voices
U.S. Product Shipments Rise on U.S. Crude Export Ban; Brent Premium Could Grow on Unrest
Energy executives, analysts and regulators expect a review of U.S. oil export policies may begin in 2014 as refined product shipments
continue to soar. The year ahead also holds the potential for approval of TransCanada’s Keystone XL pipeline and unrest in the Middle
East. Comments from interviews and conferences, including the Platts Global Energy Outlook Forum, have been edited and condensed.
— Jessica Resnick-Ault

Adam Sieminski,
U.S. EIA Administrator

“We’ll see product exports go up slightly
in the near term. The U.S. is exporting 3
million barrels a day, so we’re actually a
net exporter of oil products. There is an increasing production of light sweet crudes,
with 1.3 million barrels a day from the
Eagle Ford, and we’re getting more from
the Permian Basin. Five years ago, the
U.S. was making huge investments to run
heavy crude on the Gulf Coast, so some
of this crude is going to the East and West
Coasts, and some to Canada. There’s a
whole range of solutions that the market
will come up with.”

Russ Girling,
CEO TransCanada

On exports: “That law was a child of the
1970s. We will provide data to the Department of Commerce if they want to evaluate a change. We are aware that there are
big differentials.”

Ernest Moniz,
U.S. Energy Secretary

“I’m a free market proponent, so we
should let everything go where it wants
to go. People are starting to realize that
eventually it will happen, but, like always,
we’ll wait until it hurts.”

Charif Souki, CEO
Cheniere Energy

“We need to act before the crude oil
export ban causes problems in U.S. oil
production, which will raise prices and
therefore hurt American jobs.”

Lisa Murkowski,
Senator, R-Alaska

On persistence with Keystone: “From what
I can see they’re still refining 7.5 million
barrels a day in the Gulf Coast. 4.5 million
barrels a day of that is imported from
elsewhere around the globe. U.S. multinationals and others are developing the
oil sands. That hasn’t stopped. So when
our shippers tell me ‘We no longer want to
connect growing production in the Bakken
and growing production in Canada with
those refiners in the Gulf Coast’ is when
we give up. And at this point in time, 100
percent of those shippers continue to support us through their long-term contracts.”

Helima Croft,
Barclays Analyst

“Well the thing about this year compared
to 2011 is you had the same amount of
disruption as 2011. We had at one point
this year nearly 3 million barrels off the
market. But the difference this time around
is North America. If we didn’t have the
North American story, we’d be at a much
higher price environment right now. So
what you want to watch for in 2014 is, do
we have another big producer go offline?
If we have problems for example in Iraq,
I think that’s what would propel us to a
significantly higher price environment.”

1 2 3 4 5 6 7 8 9 10 11 12


Differentials Defined

5


By Mario De La Ossa, Bloomberg Commodity Specialist

The WTI-Brent Spread Widened in 2013 Because of Abundant North American Supply
The spread between WTI and Brent
averaged $10.63 in 2013, compared with
$3.94 over the past decade. The widening
gap reflects an abundance of U.S. supply
at a time of disrupted exports from Iran,
Iraq and Libya. Brent prices will average
$105 a barrel in 2014, from $108.71 in
2013, according to the median of estimates from the seven analysts who most
accurately predicted this year’s level in a
survey last December. Global supply is
expanding as the U.S. pumps oil trapped
in shale-rock formations, driving domestic
output to the highest in a quarter century
and curbing demand for the crude priced
off Brent. Iran, Iraq and Libya will also produce more in 2014, the forecasters said.

WTI Declined in Fourth Quarter as Spread Widened

CO1 Comdty (Generic 1st 'CO' Future)
CL1 Comdty (Generic 1st 'CL' Future)
Brent - WTI

— Grant Smith, Bloomberg News
Source: Bloomberg LP
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Bloomberg ®Charts

1 - 1

Despite Short-Term Narrowing, Long-Range Expectations Veered Toward a Wider Spread
.ARB48M U Index (WTIBrent 48month out ARB)

The chart of the four-year-out WTI-Brent
contract models a long-term fair value for
WTI compared with Brent over time. While
there may be some short-term narrowing
as U.S. runs pick up and Libyan production returns, the market expects a wider
spread over the next four years. A supply
surplus on the WTI side, more than a
Brent phenomenon, has contributed to the
widening. The four-year spread jumped in
June after a seasonal slowdown in U.S.
refinery runs, which cut demand for U.S.
crude grades, leading to oversupply. Any
relaxing of the U.S. ban on exports could
alter the spread.

Long-Term Brent-WTI Spread Widens on Mid-Continent Outlook

—Mario De La Ossa, Bloomberg Commodity
Specialist


Bloomberg ®Charts

KNOW WHAT’S MOVING IN COMMODITIES
BEFORE YOU MAKE YOUR MOVE

1 2 3 4 5 6 7 8 9 10 11 12

CPLY

<GO>

SEE THE PLAY. BE THE PLAY.

1 - 1


Regional Differentials


6

By Mario De La Ossa, Bloomberg Commodity Specialist

U.S. Differentials Began to Narrow in Late 2014 Ahead And Are Expected to Contract Further
Bakken vs.LLS Discounts Stay Near Rail Parity

USCSUHC1 Index (Bloomberg Bakken (Clearbrook MN) Crude Oil Differential)
USCSLLSS Index (Bloomberg Light Louisiana Sweet Crude Oil Differential)
USCSLLSS Index - USCSUHC1 Index

The discount for buying Bakken crude from North Dakota instead of Light
Louisiana Sweet crude on the Gulf Coast narrowed in 2014 as more
pathways to market opened up. Bakken crude ended the year right above
rail parity — about $12 a barrel — the cost for transporting the crude to
the Gulf Coast by rail.

Source: Bloomberg

Bloomberg ®Charts

1 - 1

Discounts Narrowed in June, Then Widened

USCSSYNS Index (Bloomberg Syncrude Sweet Blend Crude Oil fob Edmonton Spot DIfferential)
USCSUHC1 Index (Bloomberg Bakken (Clearbrook MN) Crude Oil Differential)
USCSWCAS Index (Bloomberg Western Canada Select Crude Oil Differential)
WCS Diff vs. Brent (USCSWCAS Index + ENCO1 Index)

The discounts for syncrude, Bakken crude and WCS narrowed in June
as attractive refining margins resulted in high refinery runs. The discounts
then widened in the second half of the year and began to narrow as the
year drew to a close amid announcements of improved rail terminals and
pipeline networks.

Source: Bloomberg

Bloomberg ®Charts

1 - 1

Discounts for U.S. Crude Expected to Narrow

FLDSY 14 Index (Bloomberg Fair Value Price/Lig)
.IMPBKNDF U Index (Cal14ImpliedBakkenDiff)

The 2014 LLS forward curve suggests a $4.00 premium to WTI, a substantial discount to 2013’s average of $9.35. Using a rail transport cost of
$12.25 to the US Gulf Coast implies a Bakken value of $8.25 under WTI.
The bullish outlook for U.S. Gulf Coast refining combined with improving
rail and pipeline logistics supports the narrower Bakken discount.

Source: Bloomberg

Bloomberg ®Charts

1 - 1

1 2 3 4 5 6 7 8 9 10 11 12



Verbatim: Production Focus

7

Compiled By Jessica Resnick-Ault

Exxon Sees Global Shale Lagging; Newfield Sees U.S. Shale Projects on the Rise
Shale developments, obstacles to production
and predictions for 2014 dominated executives’
remarks at conferences and on calls in December and January. Below is a compilation of
recent quotes on the sector by oil companies’
management teams. Comments have been
edited and condensed. For full transcripts from
outlook calls and conferences, enter
TNI OIL TRANSCRIPT<GO>

“Unconventional resources do exist in
lots of other places around the world.
And we and many other companies are
working with these countries to help
develop those resources. And yet what
you’ll see is most of those tend to come
in later in the outlook, because for lots
of reasons including the legal structure, it’s going to take time to develop
those resources in other places and it’s
going to be very country specific. So
if you look at our outlook, you do see
significant growth and unconventional
resources everywhere in the world, but
it comes in later as they kind of follow
North America.”

— Exxon Mobil Vice President of Strategic Planning, William Colton, speaking on the company’s
conference call on its global outlook.

“In 2014, we have a bit of a unique opportunity, because we are going into a

year where we do not have major turnarounds. We do have maintenance. The
numbers will ebb and flow but not like
you’ve seen in the last several years. So
it’s going to be a fantastic opportunity for
our team to be able to demonstrate some
of the progress that we’ve made.”

— Suncor Vice President of Oil Sands & in Situ,
Mark Little, speaking on the company’s analyst
day teleconference.

“We look at it a couple of different ways.
Our Mississippian and Permian and
other zones that we’re finding in our midcontinent business have matured to a
point where we are ready to invest more
capital in it. So why do this now versus
later? We think a couple things. The Gulf
of Mexico, it’s a higher risk, more volatile
business in our earnings stream. It was
masking some of the growth in our onshore business, and we’re at a point now
where we’re ready to redeploy that capital. Our job as managers is to deploy the
shareholders’ capital where we think we
can get the best risk-adjusted return. So
for us, taking this and putting it back into
our mid-continent and onshore business
we think is the right move longer term for
shareholders.”

“When you look at our production in 2013
in the third quarter, we grew sequentially
14 percent over Q2 and year-over-year
we’re at nearly 300 percent volume
growth. We’ve given guidance that we’ll
be at 18 rigs on average for 2014. I’m
going to guess we’ll probably be at 18
rigs by the middle of the first quarter. So
we are ramping up there. We have some
examples of some recent completions.
We’re currently at 320,000 net acres
under lease. We’re still leasing.”

— Continental Resources Senior VP Richard
Muncrief, speaking at the Capital One SouthCoast
Energy Conference.

“As far as our execution, as I’ve already
said, we brought forward what I remember in February being described as a
robust, aggressive, lofty plan of growth
over the next three years, and we’ve
made the numbers. I think we raised
guidance three times throughout the
year. And again, when you actually think
of our individual cost structure, in every
single item we either made it or beat it in
2013. And we worked very hard to make
sure that trend is going to continue in
2014 and 2015, and now, also in 2016.”

— Newfield Exploration COO Gary Packer,
speaking at the CapitalOne Southcoast
Energy Conference

— SandRidge CEO James D. Bennett, speaking
on the company’s conference call about selling its
Gulf of Mexico assets.

Analysts’ Estimates for Oil Production and Earnings: EEO <GO>, enter ticker, and then 4<GO>.
Market Cap (in Billions)

2013 GAAP EPS Estimate

2013 Production 2013,
KBOE/D

Analysts’ Production
Forecast in KBOE/D

Exxon Mobil Corp.

$434.97

$7.42

4,239

4,251.00

Chevron Corp.

$235.47

$11.39

2,610

2,657.40

Royal Dutch Shell

$229.59

$3.27

3,262

3,220

PetroChina

$224.74

$0.11

3,697

NA

BP Plc

$151.72

$1.22

3,310

3,522

Total SA

$140.84

$6.33

2,300

NA

Gazprom

$99.06

$1.45

8,771

NA

Eni SpA

$86.63

$2.50

1,701

1,718

ConocoPhillips

$85.35

$6.85

1,578

1,523

Company

Source: Bloomberg

1 2 3 4 5 6 7 8 9 10 11 12


OPEC WATCH


8

Compiled by Deirdre Fretz

OPEC Production Declined 3.4 Percent in 2013 on Lower Demand, Disruptions in Libya
Output in the 12-member Organization of Petroleum Exporting Countries
declined to an average of 30.7 million
barrels a day in 2013. That’s 3.4 percent
less than 2012.
Saudi Arabia’s output varied from a low
of 9 million barrels per day in February
when it implemented a program aimed
at curbing excess supply and supporting

prices, to a 24-year high of 10 million b/d
in September to make up for lost production elsewhere.
Libyan output fell to 832,000 barrels
per day for the year, a 39 percent decline
from a year ago as the new government’s
efforts to revive the oil industry were stymied by feuding militias and protests.
Production in Venezuela declined 8.8

OPEC Output Declined with Global Oil Demand
35

Millions of Barrel/Day

30

Ecuador
Algeria
UAE

Venezuela
Nigeria
Kuwait

Libya
Qatar
Iraq

percent in December to 2.45 million b/d.
The nation may add to the fluctuations in
OPEC output in 2014.
“The economic situation in Venezuela
is very bad and the non-petroleum sector
is in desperate need of dollars, causing
PDVSA to have to dedicate more money
to the Central Bank,” said Carlos Rossi,
president of EnergyNomics on Dec. 31.

Libya 2013 Production Fell Below 2012 Recovery

Angola
Iran
Saudi Arabia

2013
2012

Libya

2011

OPEC Ex-Libya

25
20
15
10
5
0

J
F
M
Source: Bloomberg

A

M

J

J

A

S

O

N

D


Kuwait and the UAE increased their production by 5.3 percent and 4.7
percent, respectively, in 2013 to make up for some of the shortfalls as
Libya, Iran and Nigeria pumped less oil. Algeria’s output declined by 6
percent to 1.16 million b/d from 1.23 million b/d in 2012.

Ninety days of protests at Libya’s 300,000 b/d Sharara fields ended in
December, raising chances for increased production in 2014. Disruptions
at the nation’s ports and oilfields pushed production to 210,000 b/d in
November and December, from a 2013 peak of 1.4 million b/d in March.

Iran’s Oil Exports Plunged on U.S., EU Sanctions

‘Incessant’ Theft, Sabotage Curb Nigerian Output

2013
2012
2011

2013

Iran

2012

OPEC Ex-Iran

2011

Nigeria
OPEC Ex-Nigeria



Iran’s oil exports plunged to about 1 million barrels a day last year from
2.5 million before sanctions started in 2012 that barred banks and insurers
from handling sales of the fuel. The plan to ease the reinsurance ban is
scheduled to take effect on January 20.

“Incessant crude oil theft” reduced Nigerian oil production to 1.89 million
b/d in the third quarter of 2013, according to a central bank report. Sabotage related to political unrest also reduced output, prompting Chevron
and several other foreign producers to seek buyers for their oil leases.

1 2 3 4 5 6 7 8 9 10 11 12


Demand

9


By Vincent G. Piazza, Bloomberg Industries

Modest Demand Seen in the Face of Rising Production From Shale in 2014
U.S., Europe, China Drive Incremental Oil Demand
60

50
% of World Oil Demand
% of World Total

Major themes affecting the crude oil
industry include more modest demand
caused by shifting demographics and
fuel efficiency in the developed economies, as well as tepid demand in China,
which may be brought upon by more
measured GDP growth. The U.S., Europe
and China account for more than 50
percent of global GDP and roughly 47
percent of oil demand. Oil demand in
the U.S. and Europe has been steadily
declining, given the maturation of the
population and fuel efficiency standards.
In China, incremental oil demand growth
may have peaked as attempts are made
to neutralize the impact of pollution and
modernize its fossil fuel-based economic
structures. In the long term, this may
suggest lower oil demand.

% of World GDP

40
30
20
10
0
China

U.S.

OECD Europe

Rest of World

Source: IEA, IMF

Major Projections All Suggest Crude Supply Will Outpace Demand Again in 2014
Oil Supply Forecast to Outrun Demand in 2014
1.8

Incremental Barrels Supply

1.6

Incremental Barrels Demand

1.4
Million Barrels

Projections of incremental crude oil supply
from OPEC, the IEA and the EIA all suggest supply will outpace demand in 2014.
Incremental crude oil supply grew by 1.3
million barrels a day in 2013 compared
with incremental demand of 0.8 million
barrels a day, according to the IEA. Higher
supply is also expected in 2014 and
should suppress an oil price rise absent
exogenous events such as extended geopolitical hostilities, which tend to depress
interim crude oil capacity. Key crude oil
industry indicators continue to point to
higher supply, driven by growth in North
America. U.S. crude oil output has risen
17 percent from a year earlier. Crude oil
inventories remain above historical averages both globally and in the U.S.

1.2
1
0.8
0.6
0.4
0.2

0
OPEC

IEA

EIA

Source: OPEC, IEA, EIA Bloomberg


1 2 3 4 5 6 7 8 9 10 11 12

CPLY

<GO>



Refining outlook


10

By Vincent G. Piazza and Philipp Chladek, Bloomberg Industries

The U.S. Shale Boom Has Caused a Decoupling of Refiners’ Margins, Favoring U.S. Players
Global refining margins, known as the
3-2-1 crackspread, have historically been
linked, with North America, Europe and
Asian margins following a similar pattern
until 2011. Margins have since decoupled
due to the rapid growth of U.S. light sweet
crude oil production, along with transport
and refining capacity bottlenecks in the
U.S. Lower-cost crude feedstock due to
plentiful domestic volume output, less
expensive natural gas powered by shale
production, higher plant complexity and
a more developed infrastructure offers
U.S. refiners a profound and sustainable
competitive advantage relative to peers
across the Atlantic and other regions. This
advantage may be more defensible longer
term given closures of legacy, mature
capacity and the difficulties in constructing
new plants.

CRKS321C Index (Bloomberg WTI Cushing Crude Oil 321 Crack Spread/US Gulf Coast)

CRKS321M Index
Minas Crude Oil 321
Refiners(Bloomberg DatedSimilar321 Crack Spread/Northwest Europe) Manufacturing Costs
Have Brent Crude OilCrack Spread/Asia)
Processing and
CRKS321B Index (Bloomberg


Bloomberg ®Charts

1 - 1

Growth From New Markets May Trump Taxes Weighing on European Refiners
With dependable and less costly domestic
production of both crude and shale gas
increasing, U.S. refiners possess a margin
advantage relative to foreign peers. For
European refiners, bulls focus on growing
demand in Turkey and Russia, as well as
new marine fuel sulfur content regulations that may boost diesel needs. Bears
counter that new taxes may lower diesel
demand, while U.S. shale removes an
important export market. Less gasoline
use and biofuel competition may lead to
further plant closures. An end to the politically motivated boycott of Iranian crude oil
purchases may reopen a substantial supply source for nearby refiners, especially
in the eastern Mediterranean.

OLCATWLD Index (BP Statistical Review Global Crude Oil Refinery Capacity)

OLCATEUR Index (BP Statistical Review Europe Crude Oil Refinery Capacity)
Overcapacity Weighs on Margins as Plants Remain Open
OLCATFSU Index (BP Statistical Review Former Soviet Union Crude Oil Refinery Capacity)


Bloomberg ®Charts


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CPLY

<GO>


1 - 1


LNG OUTLooK


11

Compiled by Deirdre Fretz

U.S. to Shift From Importer to Exporter After Becoming First in Global Natural Gas Production
The U.S., the world’s largest producer
of natural gas since 2012, will become
the third-largest exporter of LNG by 2020,
Morgan Stanley estimates.
There are 50 proposed and operating
LNG terminals in the U.S. designed to
import the fuel for proprietary use or for
wider distribution. Many are now planning
to retool their facilities for export.

Cheniere Energy Inc.’s terminal at
Sabine Pass, Louisiana, this year became
the first in the U.S. lower 48 states to obtain all the licenses required to export gas.
“The major driver that supports exports
is the differential between natural gas in
the U.S. versus Asian LNG pricing,” said
Bobby Gaspard, vice president of LNG
marketing at Freeport LNG Development

LP, which is planning a Texas export terminal for 13.2 million tons by 2019.
Natural gas prices in Japan were about
$16.90 per million Btu at the end of 2013,
or about four times the price in Texas.
When the newly widened Panama Canal
opens in 2015, it will reduce the cost of
shipping LNG from the U.S. Gulf Coast to
Asia, furthering the flow of exports.

LNG Imports to China Rise, Shipments to the U.S. Decline (Volume, in billions of cubic meters)
Location
Asia
to China
to Japan
to South Korea
Europe
to Spain
to United Kingdom
North America
to Mexico
to United States
to South America

2013
210.575
21.203
107.933
48.725
50.557
15.611
9.369
11.664
6.055
2.598
12.963

2012
225.672
20.023
118.504
49.308
70.438
21.764
14.468
14.105
4.640
4.987
12.543

2011
206.654
16.612
107.065
49.927
89.515
24.015
24.927
18.657
4.188
10.155
9.673

2010
180.367
13.477
95.299
44.371
88.070
28.483
18.633
22.659
5.675
12.702
8.587

Source: DTN

1 2 3 4 5 6 7 8 9 10 11 12

2009
154.137
7.506
87.708
34.230
72.312
27.796
11.043
19.590
3.175
12.902
2.182

2008
161.614
4.556
94.124
38.905
58.671
30.187
1.197
14.562
2.659
10.013
0.526



12

Q & A
Watch EOG and Pioneer in 2014 Amid Permian Growth, Eagle Asset’s Ed Cowart Says
Ed Cowart, portfolio manager and managing
director at Eagle Asset Management, spoke with
the Oil Buyer’s Guide’s Jessica Resnick-Ault
about the outlook for 2014 and beyond. Cowart
is an energy sector specialist and oversees Eagle’s Equity Income program, including holdings
such as Chevron Corp., Occidental Petroleum
Corporation, ConocoPhillips and Honeywell.

Q: We’ve started 2014 with very cold
weather. What does this mean for oil
companies and production?
A: This is really going to disrupt some
production in the colder areas — this
is, afterall, an outdoor activity and at
some point you can’t put people outside
when it gets too cold. Sometimes it gets
too cold for the infrastructure as well —
sometimes things freeze up. In terms of
working these into an investment thesis,
this is really a non-event. There will be
some service companies — Weatherford,
Baker Hughes and Halliburton — that I
suspect will reference the cold weather in
their earnings reports. The projects will be
deferred, but business is not lost because
of this, infrastructure isn’t destroyed. It’s
like a strike. They pass, and then business
goes back to usual.
Q: For 2014, how do you expect the
spread to develop? Do you expect U.S.
crudes to continue to be discounted?
A: I think it stays pretty wide. If we get
Libya, Iraq, maybe even Iran back online,
which I think is a low odds probability, but
is not out of the question, that will tend to
squeeze the Brent price down a bit. But it
doesn’t look like the market is anticipating
a lot from any of those three countries.
What we have on the other side is pretty
strong demand from emerging markets.
The story there is still energy intensity,
which is still below what the developed
markets are seeing. In terms of the
spread, I don’t think we go back to $20 but
$8 to $12 is a pretty good number for the
next few months. That’s more of a guess
than a forecast.
Q: What’s your outlook for the shale
revolution?
A: We know that there’s not any other
province out there in terms of black oil. I

think there’s a limit to how much domestic
production is going to rise. While that is
going on, we’re going to have pressure
on domestic prices, because of a lack of
infrastructure. No one had expected we
would need to take crude from the middle
of the country to the edges.
Q: Do you think the Keystone XL pipeline will get approved?
A: The odds are slightly in favor, but I
don’t think it’s a slam dunk. The Keystone
goes through an area that’s already covered in pipelines. I don’t believe there is a
principled objection to Keystone.
Q: As we look at the different shale basins, there’s been a lot of talk about the
Permian. What’s your take on that?
A: I like the Permian a lot, too, because
it is such a complex geologic formation.
The industry has known that there was
oil in the Permian if not for 100 years
than for close to 100 years. You can think
of the Permian as kind of a wedding
cake — it’s got multiple layers, there’s
different producibility in each one of the
layers, you have to use different production techniques, but you can stand on a
point in the Permian and just depending upon which basin you’re in — the
Midland or the Delaware — you might
have five or six different intervals that you
can test and produce from a single drilling pad. That’s something no one in this
industry thought they would see. I think
the Permian is like a riddle out in West
Texas. People just keep finding new and
interesting things about the geology out
there. The game changer in the industry
is the technology.

Q: What’s the next big development in
shale for 2014 and beyond?
A: I think shortening the frack stages —
instead of doing it every 200 yards, doing
it every 100 yards or so. You take the
same hole, the same drill bore, and frack
it at shorter intervals, which is something
EOG has been working on for a long time.
The great cosmic opportunity that the
industry has is to get more of the hydrocarbons that we know are in place back to
the wellbore and produce, rather than that
we’re going to find a new source of oil in
the lower 48 states.
Q: You mentioned EOG. What other
companies should be watched in 2014?
A: EOG is one, I think Devon is one —
there’s been a great flurry around the
Permian basin names, like Diamondback,
which is a small name out there. Pioneer
is the best known. We’ve been reluctant to
get involved with single-basin names. We
like a little more diversity. Our style is a
little more conservative, I suppose. I would
look at EOG, I would look at Pioneer.
There’s no telling. There may be names
that are off the radar screen right now that
will end up with a great production versus
the size of the company. Once you get too
big, it’s hard to move the needle. That’s
the problem a lot of the big major companies have right now. They can get some
big production, but their legacy holdings
are declining at 10 or 12 percent per annum, so it’s difficult for these big companies to really move the needle.

Age: 65
Education: Dartmouth College, Bachelor’s Degree
Recent Read: Private Empire, about the history of Exxon Mobil, which explains
about how the greatest planning company in the world planned for all the
wrong things, like high natural gas prices and low oil.
Warm-Weather Vacation Spot: South Florida — we’re not all the way down
south — but this is a place people like to come in the winter! But I don’t mind
visiting winter as long as I know I can leave.

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