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United States Oil and Gas Report Q4 2008

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Report Summary

The latest US Oil & Gas Report from BMI forecasts that the country will account for 89.87% of North American regional oil demand by 2012, while contributing 65.63% to supply. In North America, overall oil consumption reached 23.00mn b/d in 2007. It is set to rise to around 23.04mn b/d by 2012. In terms of natural gas, North America in 2007 consumed 747bn cubic metres (bcm), with demand of 826bcm targeted for 2012, representing 10.6% growth. Production of 730bcm in 2007 should rise to 733bcm in 2012, which implies net imports rising to some 93bcm by the end of the period. The US share of gas consumption in 2007 was 87.42%, while it provided 74.82% of production. By 2012, its share of gas consumption is forecast to be 87.26%, with 74.35% of production.

In Q208, we estimate that the OPEC basket price averaged just under US$115 per barrel – up around 24% from the Q108 level. The OPEC basket price had exceeded US$127 on May 22, slipping back towards US$121/bbl later in the month. In June 2008, we assumed an average of around US$120, to deliver our quarterly estimate of US$114.98/bbl. The estimated Q208 average prices for the main marker blends are now US$118.63 for Brent, US$119.61 for WTI and US$115.89/bbl for Russian Urals (Mediterranean delivery). Our projections for 2008 as a whole have been revised upwards from the last quarterly report.

We are now assuming an OPEC basket price average of US$106 per barrel for 2008, compared with the US$81 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$109.71, WTI averaging US$110.64/bbl, and Urals at US$106.88/bbl.

US real GDP growth is now estimated by BMI at 1.2% for 2008, down from 2.2% in 2007. We are assuming an average annual 2.5% growth in 2008-12. Average US oil and liquids production is now estimated at 7.08mn b/d in 2008. By 2012, we are forecasting output of 7.35mn b/d. Our estimate for 2008 US oil demand is now a lower 20.20mn b/d, thanks to the impact of higher prices on consumption.

We now see US oil consumption hitting 20.71mn b/d by 2012. This would require crude imports of 13.36mn b/d.

Between 2007 and 2018, we are forecasting an increase in US oil production of 14.1%, with output peaking at 7.92mn b/d in 2017. Given oil consumption forecast to increase by 4.5%, imports ease from 13.82mn b/d in 2007 to 13.79mn b/d during the forecast period. Gas production should rise from the 2007 level of 546bcm to 570bcm in 2018. Demand is forecast to rise from 653bcm to 747bcm, requiring net imports rising to 177bcm, in the form of pipeline volumes and LNG. Details of the new BMI 10-year forecasts can be found in the appendix to this report, which provides global, regional and country-specific projections.

Our long-term political rating is 85.2, well above the global average of 64.0, and just below the Developed Markets average of 86.4, but well beneath Canada’s 93.3. Our long-term economic rating is 71.2, which compares with a global average of 59.1, the Developed Markets average of 72.2 and again puts the US well behind Canada (80.9). Our business environment rating is 75.2, which is the thirdhighest of the Developed Markets group. The US is a de-regulated, highly competitive and relatively mature energy market. There are numerous international and domestic companies operating at all levels, from exploration, through pipelines, refining and retailing. The market is dominated by US-based organisations, with Britain’s BP the biggest foreign investor, followed by Royal Dutch Shell.

Table of Contents

Executive Summary ........................................................................................................................................7
SWOT Analysis................................................................................................................................................9
US Political SWOT ............................................................................................................................................................................................... 9
US Economic SWOT............................................................................................................................................................................................. 9
US Energy Market Overview .........................................................................................................................10
Global Oil Market Overview..........................................................................................................................15
Table: Global Oil Consumption (000b/d) ........................................................................................................................................................... 17
Table: Global Oil Production (000b/d)............................................................................................................................................................... 18
Oil Price Outlook ...........................................................................................................................................19
OPEC Intransigence ................................................................................................................................................................................................ 19
Table: Crude Price Assumptions 2007/08........................................................................................................................................................... 21
Revised Forecasts .................................................................................................................................................................................................... 21
Table: Oil Price Forecasts.................................................................................................................................................................................. 22
Regional Energy Market Overview ...............................................................................................................23
Oil Supply And Demand........................................................................................................................................................................................... 23
Table: Developed Markets Oil Consumption (000b/d)........................................................................................................................................ 24
Table: Developed Markets Oil Production (000b/d)........................................................................................................................................... 25
Oil: Downstream ..................................................................................................................................................................................................... 26
Table: Developed Markets Oil Refining Capacity (000b/d) ................................................................................................................................ 26
Gas Supply And Demand ......................................................................................................................................................................................... 27
Table: Developed Markets Gas Consumption (bcm)........................................................................................................................................... 27
Table: Developed Markets Gas Production (bcm).............................................................................................................................................. 28
Liquefied Natural Gas.............................................................................................................................................................................................. 29
Table: Developed Markets LNG Imports/(Exports) (bcm) .................................................................................................................................. 29
Industry Forecast Scenario ...........................................................................................................................30
Oil and Gas Reserves............................................................................................................................................................................................... 30
Oil Supply and Demand........................................................................................................................................................................................... 30
Gas Supply and Demand.......................................................................................................................................................................................... 31
LNG......................................................................................................................................................................................................................... 32
Refining and Oil Products Trade ............................................................................................................................................................................. 34
Revenues/Import Costs............................................................................................................................................................................................. 35
Table: US Oil & Gas – Historical data & Forecasts .......................................................................................................................................... 36
Other Energy ........................................................................................................................................................................................................... 37
Table: US Other Energy – Historical data & Forecasts ..................................................................................................................................... 38
Key Risks to BMI’s Forecast Scenario..................................................................................................................................................................... 38
Long-Term Oil & Gas Outlook ................................................................................................................................................................................ 38
Macroeconomic Outlook ...............................................................................................................................40
Table: United States - Economic Activity............................................................................................................................................................ 41
Regional Case Study.....................................................................................................................................42
US Election Focus - Obama To Usher In New Energy Era................................................................................................................................. 42
Competitive Landscape................................................................................................................................45
Executive Summary.................................................................................................................................................................................................. 45
Table: Key Players – US Oil And Gas Sector ..................................................................................................................................................... 46
Overview/State Role................................................................................................................................................................................................. 46
Table: Key Upstream Players ............................................................................................................................................................................. 51
Table: Key Downstream Players ........................................................................................................................................................................ 51
Company Monitor..........................................................................................................................................52
BP – Summary ......................................................................................................................................................................................................... 52
ExxonMobil – Summary........................................................................................................................................................................................... 54
Chevron – Summary................................................................................................................................................................................................. 56
ConocoPhillips – Summary...................................................................................................................................................................................... 57
Shell – Summary ...................................................................................................................................................................................................... 59
Marathon – Summary .............................................................................................................................................................................................. 60
Valero – Summary ................................................................................................................................................................................................... 61
Anadarko – Summary............................................................................................................................................................................................... 61
Western Refining – Summary................................................................................................................................................................................... 62
Gazprom – Summary ............................................................................................................................................................................................... 62
StatoilHydro – Summary.......................................................................................................................................................................................... 63
Glossary of Terms.........................................................................................................................................65
Oil & Gas Ratings: Revised Methodology ...................................................................................................66
Introduction ............................................................................................................................................................................................................. 66
Ratings Overview..................................................................................................................................................................................................... 66
Table: BMI Oil & Gas Business Environment Ratings: Structure ....................................................................................................................... 67
Indicators................................................................................................................................................................................................................. 68
Table: BMI Oil & Gas Business Environment Upstream Ratings: Methodology................................................................................................. 68
Table: BMI Oil & Gas Business Environment Downstream Ratings: Methodology ............................................................................................ 69
Oil & Gas Outlook: Long-Term Forecasts ...................................................................................................71
Global Oil Demand.................................................................................................................................................................................................. 71
Global Oil Demand (000b/d) .............................................................................................................................................................................. 71
Global Oil Production (000b/d).......................................................................................................................................................................... 72
Global Oil Supply .................................................................................................................................................................................................... 72
Global Gas Demand ................................................................................................................................................................................................ 73
Global Gas Demand (bcm) ................................................................................................................................................................................. 73
Global Gas Supply................................................................................................................................................................................................... 73
Global Gas Production (bcm)............................................................................................................................................................................. 74
Regional Oil Demand .............................................................................................................................................................................................. 74
North America Oil Consumption (000b/d) .......................................................................................................................................................... 74
Regional Oil Supply................................................................................................................................................................................................. 75
North America Oil Production (000b/d) ............................................................................................................................................................. 75
Regional Refining Capacity ..................................................................................................................................................................................... 75
North America Oil Refining Capacity (000b/d) .................................................................................................................................................. 75
Regional Gas Demand ............................................................................................................................................................................................. 76
North America Gas Consumption (bcm) ............................................................................................................................................................. 76
Regional Gas Supply................................................................................................................................................................................................ 76
North America Gas Production (bcm) ................................................................................................................................................................ 76
US Country Overview .............................................................................................................................................................................................. 76
US Oil & Gas – Long-Term Forecasts................................................................................................................................................................ 77
US Other Energy – Long-Term Forecasts........................................................................................................................................................... 78
Methodology & Risks To Forecasts ......................................................................................................................................................................... 78
BMI Forecast Modelling................................................................................................................................79
How we generate our industry forecasts .................................................................................................................................................................. 79
Energy Industry ....................................................................................................................................................................................................... 80
Cross checks ............................................................................................................................................................................................................ 80
Sources .................................................................................................................................................................................................................... 80