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WORLD OIL AND NORTH AMERICAN NATURAL GAS OUTLOOK November 2006. 1. PETROLEUM INDUSTRY FUNDAMENTALS. Depletion is relentless. Explorationists seek largest and most profitable deposits first. Production rises initially, peaks and irreversibly declines.

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WORLD OIL AND NORTH AMERICAN

NATURAL GAS OUTLOOK

November 2006


1

PETROLEUM INDUSTRY FUNDAMENTALS

  • Depletion is relentless.

  • Explorationists seek largest and most profitable deposits first.

  • Production rises initially, peaks and irreversibly declines.

  • United States crude oil production rose 50 percent from 1945 to 1970, peaked and declined almost 50 percent since.


2

OIL SUMMARY CONCLUSIONS

  • World crude oil production is peaking and will decline irreversibly.

  • Security and stability concerns are growing in exporting countries – Saudi Arabia, Russia, Venezuela, Iraq, Iran, Nigeria – which account for over 40 percent of world crude oil supply.

  • Liquids from the growing international natural gas industry will supplement crude oil supplies.

  • High prices are required to constrain consumption. There is no such thing as scarcity and no such thing as surplus. There is only price.

  • 100,000 barrel per day supply change moves the price $1 per barrel.

  • Transportation is the dominant growing use for oil.

  • High cost oil will be replaced with cheaper natural gas and other substitutes in stationary fuel use in developing economies as occurred in OECD countries in the last oil crisis.

  • The world oil industry will continue to operate essentially at capacity with permanent major price volatility.


3

GAS SUMMARY CONCLUSIONS

  • North American natural gas production has already peaked.

  • LNG imports will grow.

  • Canadian imports will decline.

  • Total supply will decline.

  • High prices will drive substitution of lower cost fuels in industrial and power generation use.

  • Nuclear power expansion is the logical long-term solution.


Petroleum

Natural Gas

Coal

Renewables

Nuclear

25%

23%

21%

18%

31%

Petroleum

Petroleum

38%

41%

United States % of

World Population

6%

Natural Gas

Natural Gas

23%

24%

Coal

Coal

22%

24%

Renewables

Renewables

8%

6%

Nuclear

Nuclear

8%

6%

4

WORLD AND UNITED STATES

ENERGY CONSUMPTION

2003

Million Barrels

Per Day

Oil Equivalent

United States

% of World Energy

Consumption

World

United

States


Billion

Barrels

Annual Discovery

Annual Production

5

WORLD CRUDE OIL DISCOVERY RATES


UNITED STATES CRUDE OIL DISCOVERY RATE

Lower 48 States Onshore

Billion

Barrels

Annual Discovery

Annual Production

Oil fields larger than 100 million barrels

6


2004 $

Per Barrel

Era of Plenty

& U.S. Control

Era of Transition

& OPEC Control

Era of Scarcity &

Price Rationing

Price?

U.S. Production

Peaked

World Production

Peaking

$36 Average

$13 Average

1870

1970

2004

2030

7

CRUDE OIL PRICE

WTI Or Equivalent


Million Barrels

Per Day

$/Barrel

Actual Forecast

Production

(Left Scale)

Arabian Light Price

(Right Scale)

8

WORLD CRUDE OIL PRODUCTION


Million Barrels Per Day

Actual Forecast

EIA

Forecast

80.2

78.0

Other *

75.6

68.7

NGL **

62.7

OPEC Crude Oil

39.9

36.0

Eastern Europe Crude Oil

25.5

28.9

Other Non-OPEC Crude Oil

* alcohols, coal liquefaction, and gas to liquids

** condensate, natural gasoline, butanes, propane, and ethane

9

WORLD PETROLEUM PRODUCTION


Percent of

Global Gross

Domestic

Product

OIL EXPENDITURES

Crises of

1970’s & 1980’s

Current at $60

per Barrel Oil

10

OIL EXPENDITURES RELATIVE TO

GLOBAL ECONOMIC ACTIVITY


Million Barrels

Per Day

United

States

World

Transportation

51%

Residential &

Commercial

10%

Raw Material

12%

Transportation

67%

Industrial & Power

27%

Residential &

Commercial

7%

Raw Material

16%

Industrial & Power

10%

11

WORLD PETROLEUM USE BY SECTOR


Consumption

Production

12

UNITED STATES PETROLEUM

PRODUCTION AND CONSUMPTION

Million Barrels Per Day


13

OIL AND GAS IMPORT COST

Billions of Dollars


14

CHINA & INDIA PROJECTED ECONOMIC GROWTH

Cumulative

Percent

8% per yr


15

ENERGY COST

ENERGY CONSUMED FOR ENERGY PRODUCTION

Energy Consumed

Percent Of Gross

Energy Input

Ethanol

From Corn

Gas to

Liquids

Oil From

Oil Sands

Oil

1985

LNG

Oil

1970


Billion Cubic Feet

Per Day

$/MMBTU

Actual Forecast

Consumption

Imports

& Other

Production

LNG

Average Wellhead Price

(Right Scale)

16

U.S. NATURAL GAS CONSUMPTION,

PRODUCTION AND PRICE


Actual Forecast

Price Controls

Section 29 Tax Credits

17

UNITED STATES NATURAL GAS PRODUCTION

Bcfd

Onshore Lower 48

Conventional

(Non-Associated)

Offshore

Tight

Associated

Coalbed

Canadian

Imports

LNG


18

UNITED STATES NATURAL GAS

DRILLING AND PRODUCTION

Average

Wellhead

Price

$/MMBTU

Gas

Production

Bcfd

Gas Well

Completions

Total Production

Well Completions

Average

Wellhead

Price


Average First Year

Production Per

New Well - Mcfd

19

UNITED STATES NATURAL GAS

DRILLING PRODUCTIVITY


Bcf/d

$/MMBTU

Actual Forecast

60.8

59.6

Boiler Fuel

& Other

46.9

42.0

Fuel Use Act

21.7

Residential &

Commercial

24.3

Average Wellhead Price

(Right Scale)

20

UNITED STATES NATURAL GAS CONSUMPTION

Billion Cubic Feet Per Day


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