SIMMONS & COMPANY INTERNATIONAL E Investment Bankers to the nergy Industry Colin Welsh Chief Executive Officer Simmons & Company International Limited Thursday, 27 October 2005
“Conventional Energy Wisdom” – Dec 2004 • Demand falls as energy costs rise • Demand increases are due to Chinese growth which cannot be sustained • There is no shortage of oil reserves, so why worry? • Oil prices will inevitably fall back to $18-$20 per barrel historic averages • Alternative energy sources will drive down the future price of oil
Simmons View In 2004 • Demand is a “runaway train” • Global energy production may be close to peaking • There has been a paradigm shift in the pricing of energy (which the market has yet to recognise) • Potential for physical shortages
Where Were We In Dec 04? WTI Oil Price, Spot And Forward
U.S. Total Oil Demand U.S. Total Oil Production(Alaska & Lower States)
Quality of Important Crude Types U.S. Crack Spreads
Conclusion • The principles of supply and demand dictate that lack of refinery capacity will result in an inability to satisfy the worlds increasing demands for refined products. • So we can expect significantly higher refined product prices – US gasoline prices have risen by 30%, but more significantly we can expect physical shortages. • That will be good news for investment in alternative energy and new technologies – unconventional oil, GTL, clean coal and natural gas. • But it may be bad news for the world economy as spiralling transportation costs drive inflation and dampens demand. • So predictions for next year:- • Continued high commodity prices, • Very high petrol, diesel and heating oil prices, • Record investment in the sector.
E Investment Bankers nergy to the Industry SIMMONS & COMPANY INTERNATIONAL