Business Outlook 2020 - Markets & Investments

74% oil

in 2019

on imports

DRAFT v2

BUSINESS OUTLOOK 2020

Total Global Demand Strong domes�c oil and gas produc�on helps minimise the UK’s dependence on imports OPEC+ countries are planning to increase produc�on, adding to the supply and demand imbalance Total Global Supply

There are more than Domes�c produc�on was enough to meet 51% of gas demand The average NBP gas price was 35 p/th in 2019 – the lowest average for over a decade 2 billion boe in company plans without commi�ed investment and 74% of oil products in 2019 The industry is important for energy security and can also help advance the path to net zero – government and regulatory support is vital E&Ps will take steps to preserve cash flow Any new investments will receive increased scru�ny due to market condi�ons – with reduc�ons in ac�vity and investment expected

Any new investments will receive increased scru�ny due to market condi�ons The UKCS may be in a cash-loss posi�on this year for only the third �me in 40 years NBP gas prices fell by 50% during 2019 and hit a low of 20 p/th in early 2020 50% Delivering Roadmap 2035 will help reduce UK’s reliance o energy imports – delays and deferrals are expected £ The industry is important for energy security and can also help advance the path to net zero – government and regulatory support is vital E&P revenues could fall by almost 50% compared with two years ago, due to lower commodity prices The industry is now producing 20% more for 30% lower costs

Oil Market Dynamics The continued spread of the Coronavirus has impacted the global economy significantly. In early March the International Monetary Fund (IMF) reported that growth expectations in 2020 would now be lower than the 2019 rate of 2.9 per cent, with the potential for further downward revision. The OECD base case is now 2.4 per cent but also outlines that the impact of Coronavirus could ultimately cut growth rates by half this year (to 1.5 per cent). This would represent the slowest rate of growth since 2009. Consequently, the International Energy Agency (IEA) has slashed its oil demand forecast for 2020 — indicating that it now expects the first annual decline in oil demand since 2009. First-quarter demand is expected to be around 2.5 million barrels per day (bpd) lower than last year and the IEA low case outlines the potential for demand to be at least 730,000 bpd lower across the full year. This drop in demand resulted in a fall in Brent to below $50/bbl in late February — before the further impact of an increase in supply. Throughout 2019 and early 2020 OPEC+ countries had already restricted output by 1.7 million bpd in order to bring equilibrium to the market, prior to the impact of Coronavirus on demand. This action was crucial in supporting prices at more than $60/bbl and it had been anticipated that further constraints would be put in place to counter the recent demand fall. The failure to reach agreement and subsequent collapse of existing supply restrictions mean that OPEC+ countries are now free to increase supply from The Brent price has fallen by 55% in 2020 to $30/bbl – with a lack of equilibrium in the market Strong domes�c oil and gas produc�on helps minimise the UK’s dependence on imports and 74% of oil products in 2019

51% gas

110

105

100 The Coronavirus outbreak has reduced global oil demand

74% oil

significantly and 2020 could see the first annual decline since 2009

95

There are more than

90

Global Oil Supply / Demand (Million bpd)

85

2 billion boe in company plans without commi�ed investment

80

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: IEA, EIA

Domes�c produc�on was enough to meet 51% of gas demand

the start of April. There are expectations that supply from these countries could increase by around 4 million bpd — potentially resulting in an unprecedented differential between supply and demand of 5–6 million bpd in early Q2. These unique market conditions resulted in the most severe price decline since that seen during the Gulf War in 1991. E&P rev nues c uld fall by almost 50% 51% gas

compared with two years ago, due to lower commodity prices

Many supply chain companies

Supply chain co will come under increased press

74% oil

£

have seen significant

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