Oil and Natural Gas Outlook and Drivers for Committee on Earth Resources National Academies of Science, Engineering, and Medicine

Oil and natural gas -- outlook and drivers for Committee on Earth Resources National Academies of Science, Engineering, and Medicine May 4, 2016 | Washington, DC by Howard Gruenspecht, Deputy Administrator U.S. Energy Information Administration www.eia.gov Independent Statistics & Analysis

Global supply has consistently exceeded demand since the start of 2014; EIA forecasts a return to market balance in the second half of 2017 implied stock change million barrels per day World supply and demand million barrels per day 100 6 Forecast Implied stock change and balance (right axis) 98 5 World production (left axis) 96 4 World consumption (left axis) 94 3 92 2 90 1 88 0 86 -1 84 -2 82 -3 2011-Q1 2012-Q1 2013-Q1 2014-Q1 2015-Q1 2016-Q1 2017-Q1 Source: EIA, Short-Term Energy Outlook, April 2016 2 NAS | Oil market outlook and drivers, May 4, 2016

EIA expects WTI oil prices to remain low compared to recent history, but the market-implied confidence band is very wide WTI price dollars per barrel 120 100 80 60 Historical Spot Price STEO Forecast 40 NYMEX Futures Price 20 Current 95% NYMEX futures price confidence interval 0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 2017 2015 2016 2013 2014 Source: EIA, Short-Term Energy Outlook, April 2016 3 NAS | Oil market outlook and drivers, May 4, 2016

The U.S. has experienced a rapid increase in natural gas and oil production from shale and other tight resources U.S. tight oil production million barrels of oil per day U.S. dry shale gas production billion cubic feet per day Sources: EIA derived from state administrative data collected by DrillingInfo Inc. Data are through February 2016 and represent EIA s official tight oil & shale gas estimates, but are not survey data. State abbreviations indicate primary state(s). 4 NAS | Oil market outlook and drivers, May 4, 2016

Crude supply trends outside the United States (red areas below) are key to future oil market balance: geopolitical developments, exporter decisions, and the timing and magnitude of supply effects stemming from reduced investment all matter Source: EIA, Short-Term Energy Outlook and Drilling Productivity Report, April 2016; International Energy Agency 5 NAS | Oil market outlook and drivers, May 4, 2016

U.S. outlook NAS | Oil market outlook and drivers, May 4, 2016 6

Increased production of tight oil and greater fuel efficiency drive decline in petroleum and other liquid imports U.S. liquid fuels supply million barrels per day History Projections 2013 2020 2040 25 20 17 % 21 % 14% 33% 21% 15 Natural gas plant liquids Net petroleum and other liquids imports 14% Tight oil production 29% 22 % 10 17% Other crude oil production (excluding tight) 27 % 5 25% 23% 12 % 12% 14% Other 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Note: Other includes refinery gain, biofuels production, all stock withdrawals, and other domestic sources of liquid fuels Source: EIA, Annual Energy Outlook 2015 Reference case 7 NAS | Oil market outlook and drivers, May 4, 2016

Resource and technology assumptions have major implications for projected U.S. crude oil production beyond the next few years U.S. crude oil production million barrels per day 2013 2013 2013 History 20 High Oil and Gas Resource Low Oil Price Reference 15 U.S. maximum production level of 9.6 million barrels per day in 1970 10 Tight oil 5 Lower 48 offshore Other lower 48 onshore Alaska 0 1990 2000 2010 2020 2030 2040 2020 2030 2040 2020 2030 2040 Source: EIA, Annual Energy Outlook 2015 8 NAS | Oil market outlook and drivers, May 4, 2016

U.S. reliance on net imports of petroleum and other liquids is virtually eliminated by 2035 in High Oil and Gas Resource case net crude oil and petroleum product imports as a percentage of total U.S. supply percent 2013 History Projections 70 60 50 40 Low Oil Price 30 20 10 Reference 0 High Oil Price -10 -20 High Oil and Gas Resource -30 2005 2010 2015 2020 2025 2030 2035 2040 Source: EIA, Annual Energy Outlook 2015 9 NAS | Oil market outlook and drivers, May 4, 2016

Takeaways Natural gas North American natural gas production is more likely to be limited by demand than supply U.S. natural gas demand growth is likely to be concentrated in electricity and industrial uses; natural gas exports and use in the transportation sector, where little natural gas is used today, are also likely to grow Potential challenges to natural gas demand growth include Slow growth in U.S. electricity demand Competition from offshore stranded gas for global LNG exports and siting of gas-intensive industries. Long-term cheap oil would be another significant challenge to LNG exports Extent and nature of global price convergence in natural gas markets Future policies that target particular sources or uses of energy or energy-related emissions can really matter for future natural gas demand 10 NAS | Oil market outlook and drivers, May 4, 2016

Natural gas consumption growth is concentrated in electricity generation and industry; gas use rises in all sectors except residential U.S. dry gas consumption trillion cubic feet billion cubic feet per day History Projections 35 90 Commercial Residential Transportation** Electric power Industrial* 30 80 70 25 10.9 60 8.9 20 50 9.4 15 40 8.2 30 10 0.9 3.3 1.6 3.6 20 5 10 4.9 4.2 0 0 1995 2005 2013 2020 2025 *Includes combined heat-and-power and lease and plant fuel **Includes pipeline fuel 2030 2035 2040 Source: EIA, Annual Energy Outlook 2015 Reference case 11 NAS | Oil market outlook and drivers, May 4, 2016

Shale resources remain the dominant source of U.S. natural gas production growth U.S. dry natural gas production trillion cubic feet billion cubic feet per day History Projections 2013 40 100 35 90 30 80 70 25 Shale gas and tight oil plays 60 20 50 15 40 30 Tight gas 10 Other lower 48 onshore 20 Coalbed methane 5 10 Alaska Lower 48 offshore 0 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Source: EIA, Annual Energy Outlook 2015 Reference case 12 NAS | Oil market outlook and drivers, May 4, 2016

Projected U.S. natural gas exports reflect the spread between domestic natural gas prices and world energy prices U.S. natural gas imports and exports trillion cubic feet billion cubic feet per day History Projections 2013 2013 40 2013 16 Lower 48 states LNG exports 30 12 Alaska LNG exports 20 8 Pipeline exports to Mexico 10 4 0 0 Pipeline imports from Canada -10 Pipeline exports to Canada -4 High Oil and Gas Resource Reference Low Oil Price LNG imports -20 -8 2000 2010 2020 2030 2040 2020 2030 2040 2020 2030 2040 Source: EIA, Annual Energy Outlook 2015 13 NAS | Oil market outlook and drivers, May 4, 2016

Global outlook NAS | Oil market outlook and drivers, May 4, 2016 14

Economic activity and population drive increases in energy use; energy intensity (E/GDP) improvements moderate this trend average annual percent change (2012 40) percent per year Source: Current Thinking 15 NAS | Oil market outlook and drivers, May 4, 2016

Renewables grow fastest, coal use plateaus, natural gas surpasses coal by 2030, and oil maintains its leading share world energy consumption quadrillion Btu Source: Current Thinking 16 NAS | Oil market outlook and drivers, May 4, 2016

Passenger-miles per person will rise as GDP per capita grows; travel growth is largely outside the OECD passenger-miles per capita (left-axis) and GDP per capita (horizontal-axis) for selected country groupings 2010 40 12,000 OECD 10,000 8,000 China 6,000 4,000 India Africa Other non-OECD Asia 2,000 0 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 Source: EIA, International Energy Outlook 2016 17 NAS | Oil market outlook and drivers, May 4, 2016

Most of the growth in world oil consumption occurs in the non-OECD regions especially Asia world petroleum and other liquid fuels consumption million barrels per day Non-OECD Asia Middle East Non-OECD Americas Non-OECD Europe and Eurasia 2012 2020 2040 Africa OECD Americas OECD Asia OECD Europe 0 10 20 30 40 Source: EIA, International Energy Outlook 2016 18 NAS | Oil market outlook and drivers, May 4, 2016

Liquid fuels supplies from both OPEC and non-OPEC producers increase through 2040 world production of petroleum and other liquid fuels million barrels per day Source: Current thinking 19 NAS | Oil market outlook and drivers, May 4, 2016

LONGER TERM PERSPECTIVE: Can OPEC cohere? Change in world liquid fuel balances for two 12-year historical periods with EIA projections for 2013-25 from AEO2015 (million barrels per day) Projected Actual AEO 2015 Reference & HOGR Cases 1973 85 +3 -4 +7 2000 12 +12 -2 +15 2013 25 +12 to +13 +1 +11 World Liquids Demand OECD Non-OECD World Liquids Supply Non-OPEC Supply OPEC Production -1 +13 -14 +12 + 6 + 6 +11 to +12 +10 to +15 -3 to +2 Source: EIA, Annual Energy Outlook 2015, April 2015 20 NAS | Oil market outlook and drivers, May 4, 2016

Non-OECD nations account for of projected growth in natural gas consumption world natural gas consumption trillion cubic feet Source: Current Thinking 21 NAS | Oil market outlook and drivers, May 4, 2016

Non-OECD Asia, Middle East, and OECD Americas account for the largest increases in natural gas production world change in natural gas production, 2012 40 trillion cubic feet Source: Current thinking 22 NAS | Oil market outlook and drivers, May 4, 2016

Shale gas, tight gas, and coalbed methane become increasingly important to gas supplies, not only for the U.S., but also China and Canada natural gas production by type trillion cubic feet Note: Other natural gas includes natural gas produced from structural and stratigraphic traps (e.g. reservoirs), historically referred to as conventional production. Source: Current thinking 23 NAS | Oil market outlook and drivers, May 4, 2016