 Hi, good morning. My name is Sarah Ladislaw. I'm the Director of the Energy and National Security Program here at CSIS and welcome to everybody here this morning. We are very, very pleased to have Antoine Hoff, our good friend, from the IEA here once again to do the midterm oil market review. You know, we're just saying before the session we've had a lot of IEA folks in town recently, both for the midterm gas market review, but then also the energy technology perspectives. But that's actually not all the stuff you've put out recently. So you have a big investment study that was put out, a big strategic stock study that was put out. So things are busy in Paris, huh? So anyway, but this midterm oil market review couldn't come at a better time. We're certainly in a period where oil markets are doing a lot of interesting things, things that we probably wouldn't have predicted sort of three or four months ago and you can look three or four months ahead and things may not look the way that we're predicting them to right now. So we are very, very pleased to have you here today to talk us through some of that. Antoine will give a brief presentation and then we'll have an open discussion. So thank you very much for being here. Thank you. Thank you very much for having me. Thank you for coming on a summer morning. And yes, we're having many publications these days. Probably too many. We actually have many meetings these days at the IAEA to see how we can reduce our number of publications. But so very grateful. It's great to be able to be here to share some of our findings and also to get your feedback. And this report, unlike the Rio, for instance, has not so far been peer reviewed. It's kind of an extension of the oil market report, which we keep very much confidential until the release. But the confidentiality need for this report may not be as obvious as for the oil market report. It's not as commercially sensitive. So I think in future, we will probably try to get it a little bit more peer reviewed before publication. But now we're having peer reviewed after publication, I guess. So I just want to share some of the findings, some of the key messages, I guess, that came out of our work. This is an exercise we do every year, but since we've done it for the last six or seven years. And as Sarah said, now we also do the same for gas, renewable, coal, and even efficiency. So here are some of the key takeaways, if you'd like. Basically, if we compare our forecasts for the next five years to the end of this decade with the forecast we put out just last year. The story has changed in some ways, and it's similar in some other ways. So we continue to see an increase in supply a little bit faster than the increase in demand. So we continue to forecast kind of easing of balances and a little bit of an increase in at least on paper the amount of spare capacity that we think will be available from OPEC, even though this has to be qualified and there's many caveats that go with that. But the increase in capacity and the easing of the market is not quite as pronounced as we thought last year. And this reflects a couple of changes. Just the fact that the forecast goes out one more year to 2019 instead of 2018 changes things because we see many things happening at the very end of the forecast period, at the very tail end, both on the supply side and on the demand side. So we feel that we're kind of getting close to an inflection point later this decade. And 2019 will be very different from 2014, for instance. And this is both on the supply side and on the demand side. And also the other things that changed the tonality of the forecast since last year is just everything that's happened since then over the last year. We kind of changes our expectations of the next few years. So in terms of supply, the story continues to be driven by the North American supply revolution, U.S. light-title, first and foremost. Also Canadian sans, Canadian light-title comes into the picture towards the end of the forecast in particular. And also we see some growth in Brazil, delayed growth, the growth that we had been expecting for many years. We see that coming this year and the next few years as well. But what changes I think a little bit from last year is that we see the growth in North American supply easing a bit towards the end of the forecast period as the U.S. supply comes closer to what I think our colleagues in the U.S. team see as a plateau somewhere in the 2020s. But at the very end of forecast period, we see other countries catching up on the light-title story and starting to develop their own resources in a meaningful way. Not huge in 2019, but not insignificant in just the beginning of a trend that we think we pick up momentum in the 2020s. So the light-title story and the fracking story becomes kind of a global story instead of just a U.S. story. The offset to that growth in basically what we still call unconventional supply is the slowdown in conventional supply growth and particularly the risks in OPEC production. So our forecast of OPEC production is somewhere around 2 million barrels of slightly more of additional capacity over the next five years. This is not inconsistent with the trend, the historical trend, but what's very unique in the next five years is that this is a very lopsided growth because most of it is from one country, which is now at significant risk, which is Iraq. So Iraq in our forecast, and this is a forecast we did before the ISIS, the beginning of the ISIS offensive, so it doesn't reflect the latest developments in the north and the move towards a possible falling apart or splitting apart of the country, but it reflects problems that we had seen before that. So we have downgraded the Iraqi forecast, but we still see Iraq in this forecast as accounting for most of the OPEC supply growth. So that's obviously something that's very much at risk now. In terms of demand, we use the IMF forecast as an input, so we continue to see acceleration in global economic growth in the next few years as the recovery picks up momentum. So we see a pickup in the pace of demand growth, moderate pickup 2014, 2015, maybe 2016, but beyond that, we start seeing the impact of other factors offsetting the role or the effect of economic growth and population growth. So we see a bit of an inflection point, not in demand, we continue to see demand growth and we see demand reaching 100 million dollars per day by the very end of the forecast period, but we see the pace of growth slowing down as efficiency gains become more significant, as there's more emphasis on environmental regulations cutting oil consumption to some degree and more fuel switching away from oil towards other fuels and in particular natural gas as well as at the margin calling and renewables also. And then we pay a lot of attention in the forecast, not just on supply and demand, but across the supply chain at the midstream sector, at the downstream sector, at trade flows and at product supply and this year we've done a fairly extensive product supply forecast. So there the story is the continuation of what we had sketched last year, which is kind of a redrawing of the crude trade map with the shift completely eastward. North America now of you becomes a net oil exporter by the end of the decade and Asia is really the magnet for pretty much all the global crude trade. But we see a little bit of a decline in the volume of crude being traded internationally and a little bit of an increase in product trade, a shift from crude to product with very significant increases in refining capacity, mostly in east of serious countries, countries in Asia and in the Middle East, upgrading of capacity in Russia, continued creep in North America and the US. So we see more, we see the emergence of very large merchant refineries, basically refining hubs, sending out products to the global market and we see Europe coming under very significant pressure. We do see some problems in terms of product supply because of the imbalance between the crude slate, the quality of the crude being produced and the nature of the demand barrel. So we see most of the growth coming from the middle distillate segment and this in our view becomes a problem because at some point there's a risk that the global refining system, we put out too much gasoline and too much NAFTA and that there won't be a market for that and finding an outlet for that very light supply, we become a constraint on supplying the market with the products that the market really needs. So that's kind of in a nutshell the key points. So looking at the map of global demand growth, broken down by region, Asia continues to be the region where in our view most of the all-demand growth will come from but we do see continued slowdown in the pace of Asian demand growth. So it's number one source of growth but it's a region where demand growth starts slowing down and that's particularly driven by China. We see China as entering a new phase of development, new phase of economic growth, a bit slower and a type of economic activity that's less energy intensive. A lot of emphasis on energy savings in China, the government is very determined to rein in consumption growth, to rein in emissions growth and pollution. There's a lot of fuel switching away from oil in transport sector in China which has an effect at least at the margin. So we see a slowdown there. That's part of the story why we see demand growth globally slowing down a bit towards the end of the decade forecast period. The Middle East on the other hand continues to grow. So we've adjusted a little bit since then our expectations for the short term at least for Iraq for obvious reasons but as a as a region we see continued growth in Middle East demand that's a very significant source of growth. Africa we see as booming so it's booming from a very low base obviously but the African economies have been among the best performing economies since the financial crisis. There's scope for continued growth in this is not fully captured in statistics by the way it is captured in statistics to some degree but we think that the real growth is even larger than what's captured in statistics because of the lack of statistical capacity and because so much of the economy also and the rate are not fully above ground but in terms of the anecdotal information that we gather about product imports in Africa for instance it's phenomenal. So we see very strong growth there and we see moderate growth in the FSU but we see declines in Europe not quite as steep as in the last five years but continued small declines and some growth in the Americas. Now broken down by by products or by sector demand remains mostly driven by transportation by the transportation segment that accounts for more than 50% of the demand barrel. Demand for stationary users like heating or electricity generation industrial users in our view we continue to decline everywhere with one exception which is the Middle East where we see growth in power generation demand for oil just because the region is not expected to succeed in ramping up enough gas production to really generate enough electricity without producing more oil fired electricity as well and what we do see is a significant increase in demand for non-energy users specifically for petrochemicals so very strong growth in petrochemical demand for oil the petrochemical sector becomes more integrated with the rest of the oil sector in other words petrochemical plants are getting increasingly integrated with the refining sector and refining margins really are getting very difficult to assess now without looking at the petrochemical margin as well so we're not fully actually up to speed on trying to you know upgrade our assessment of margins we continue to look at refining margins looking at refined products not really taking the petrochemical downstream into account but really that that really ought to be done to really capture the economics of refineries because they are really now increasingly joint integrated refining and petrochemical plants but we see significant growth in petrochemical demand and that's driven by demand by consumer demand in places like Asia where there's no very fast-growing demand for petrochemical base products plastics and so on but also in North America is driven by the supply side the availability of very cheap feedstock which make North America very competitive in this sector we do see more than before competition against oil in the transport sector so this is something we had kind of picked up last year in the forecast last year for the first time but we see the pace of penetration particularly of gas in the transport sector as slightly faster than what we had even expected last year so this is something we expect in the US for economic reasons because gas is cheap and looking for market but also for policy or environmental reasons particularly in places like China where there's a very strong need to cat back on emissions clean up the air around big cities so there's a very strong push there for converting bus fleets truck fleets to gas and GCNG and so on in terms of a supply really there's a very strong contrast is still a non-opaque driven supply story we see supply capacity growing to 105 a million bars per day but this is very nominal because we don't this include opaque capacity some of which we don't think we'd be really available to the market last year we had not we had kind of down the way with the idea of trying to assess effective opaque capacity as opposed to nominal opaque capacity in our medium-term forecast because we introduced this a few years ago this idea of effective capacity the capacity that's really there to the market because of the increase in disruptions that we had experienced in last three years but and we used the sort of rolling average of recent disruptions as an adjustment factor but we thought last year Libya had come back from the Civil War was producing at near full capacity we thought it doesn't make sense to apply major disruptions like the Libyan Civil War to the next five years well now this year we think it doesn't make sense to apply it so we reintroduced it but it's kind of a it's kind of a symbolic it's kind of a token in a way adjustment because it's very difficult to determine on what basis to make that adjustment so we have an adjustment she's about 1.5 million miles per day so we think that real capacity would be at least 1.5 below the nominal capacity but most of the growth we come from non-opaque region and most of the growth we continue to come from from the Americas it's going to be the big driver in in opaque we've taken down our forecast of capacity somewhat we've taken down the forecast from Iraq but as you see on this graph so we've taken down significantly especially at the tail end of the front end of the period then it catches up towards the end but the the distribution of growth among opaque countries is very very contrasted so very steep growth in Iraq compared to the other ones and we do see flag growth in places like Iran or Libya in Iran this is an improvement on the what we had expected last year which was contraction we're not forecasting here and a lifting of sanctions we've assumed that sanctions remain in place so that could be adjusted in in case of an easing of sanctions but what we the reason for the more positive outlook for Iran is the election of Rani and the fact that the the management of the oil resource in Iran is is being taken back from the revolution regards which had become very dominant under Ahmadinejad and had not been very effective at running the oil sector to say the least so we see a move towards a more professional way of managing the oil resource this is why we are moving from contraction to kind of flat flat production but this again this does not account any easing of sanctions for any easing of sanctions in Nigeria and and Kuwait we see contraction so Kuwait was not happy about the forecast and this is maybe a little bit counter-intuitive because Kuwait has not been in the news very much in terms of political turmoil or insecurity compared to some of its neighbors but what we see in Kuwait is is political gridlock is a lack of opening project Kuwait is still has been talked been talked about for 30 years is still not making headway we just haven't seen any projects in Kuwait we can't we can't identify any projects so I realize this is sensitive issue in Kuwait and maybe we're understating the potential but this is our best estimate based on all the information that we had available and we spoken to to all companies which privately have been also very pessimistic but Kuwait some of the consultancies are more optimistic most of the consultancies do have Kuwait as a client but the companies privately that we spoke to were more pessimistic so looking at Iraq again this was a forecast done in before the events of June we tried to account a little bit for the events on June in the wording of our report we had to redraw some sections just before the release day but the the numbers we couldn't change and we wouldn't know exactly what basis to change it so they haven't they haven't changed but the forecast is very much a reflection of the situation today most of the growth that we expect in Iraq capacity we see coming from the south so the south has been seen as more insulated from the violence of the last few weeks than the north obviously nobody I think expects Sunni insurgents to really move into this the sheer south and we for that reason maybe there's some confidence that some of these growth will happen in Iraq but of course that doesn't mean that the south is is completely safe from from attacks there's this significant risk even without moving into the south that the ISIS or the groups could disrupt the south in other ways so and then the we haven't really applied here any kind of upgraded expectations applying from the north many analysts are now feeling confident that there's probably more growth coming from the KRG or the northern part of the world right we haven't done any we haven't applied any of this in this forecast in in terms of none of the supply again it's it's largely dominated by North America so the kind of caramel color area in this graph represents OECD America so that's mostly US and Canada but the the share of this North American component of supply growth kind of diminishes towards the end of the period and we see more growth coming from from Latin America and some growth coming from other places as well so again we see a little bit of a of a pick up in the in the pace of in terms of light type of supply outside of North America just at the time when growth in North America in our view we start slowing down a bit so we see we see growth in in Canada growing to 400 from a smaller amount today and we see some growth in Russia and Argentina which around a hundred thousand miles per day each but just the beginning of a very steep ramp up we think in the in the next decade and a tiny bit of growth in Australia and Mexico but a very large potential in those two countries so you know there's been many discussion a lot of discussions about why you know light title has come in the in the US and not elsewhere and where they can be replicated elsewhere and many people have pointed out that the US is very unique because it has both the resource it has the the entrepreneurial culture it has the right investment framework the right legislation the right subsoil ownership rights design infrastructure is there the skilled labor all those factors we agree mean that the light title supply could not have happened anywhere else than in the US but in our view that doesn't mean that other countries once the technology improve continues to improve cannot adopt this technology and apply it to their own resource so it could not have happened in Russia it could not have happened in Argentina but it can be taken to Russia and it can be taken to Argentina and what we see is that many countries are kind of backtracking from the trend in resource nationalism that had been dominant in the last decade or last 15 years places like Argentina and Russia had been increasing taxes royalties kicking companies out more or less forcibly now we see a turn around as those countries trying to create the conditions to make an investment in in non-conventional in light I thought possible so the the Russians have adjusted the tax regimes in the Bajanov play to attract investment and this is succeeding many companies are now investing in in the Bajanov Argentina settled its dispute with Repsol in a hurry this year to attract investment and this is I think we make the country more hospitable more attractive for investment and we help speed up development of the resource we do see a lot of NGL production this is largely driven by the US with all the shade gas associated with NGLs and maybe NGLs driving the shape gas production to a large degree but we also see NGLs coming from OPEC there as an associated byproduct of gas being developed for power generation so we see a significant amount of NGLs coming from Iran we do see gas production growth in Iran and I think Anne-Sophie was might have talked about this last week or when she was here but you know Iran has been successful in in increasing investment in development of gas sector and like the oil sector under the sanctions regime so we see that continuing creating more more NGLs more NGLs from other countries in the Middle East and of course from from the US in a big way so in terms of trade as I mentioned we see it really shifting eastward North America in our view becomes a net oil exporter by the end of the decade so this is about 10 years sooner I think that we had forecast last year but we see that we see so we're not really clear you know is it going to be exporting products is it being exporting crude we've been dancing around this issue a little bit because of the uncertainty surrounding US crude exports but we think on balance is going to be a net oil exporter we see some exports of crude coming from Canada even without any changes in the US legislation so in these forecast we see about half a million buyers of crude exports out of Canada by the end of the decade roughly 200 to Europe and 300 to Asia but we we see of course product exports on the large scale coming from North America China really this year takes over from the US as the largest crude importer in the world and Asia as a whole really becomes the magnet for global crude trade in a very large way so by 2019 we think 65% of crude internationally traded ends up in Asia which is a big increase from today even today is very large but it continues to increase exports from the Middle East decrease in our view crude exports decrease because more crude in the Middle East in the UAE in Saudi is really is refined domestically but the Middle East remains the largest crude exporter in the world as a region in the US obviously more crude that's being refined in the US is sourced domestically or in Canada so there's less need for imports is packing out imports so that's this movement into into the US that's kind of obvious I guess we do see an increase in product trade though in terms of refining capacity we've downgraded our forecast of refining capacity so last year we had a forecast of about nine million bars per day of new capacity now it's down to seven plus which is just about the same as the increase in demand but even though our forecast of capacity increases matches the forecast of demand growth we see an increase in over capacity because more products are now being produced from NGS or from biofuels bypassing the refining sector so we see over capacity increasing by about two million bars per day assuming no assuming that the existing capacity remains flat and we we feel that in order to for refining margins to go back for in order for utilisation rates of refining capacity to go back to the level of around 2008 which is the last time global refining margins were pretty healthy across the board we would need to reduce capacity by almost five million bars per day and this could be mouth-bullying or shutdown of obsolete or old refining capacity or this could be cancellation of projects or delays in projects further delays in projects we have reduced the Chinese forecast by by significant amount we have reduced her by I think almost two million bars per day from this is where most of the reductions coming from and this is kind of a new development because until recently in China the tendency was once a project was approved it was going forward there was no going back on it and in the last year we've seen a significant amount of going back on projects both by Chinese companies CNPC Sino-Peg and by the John Venture partners moving out of China delaying investment cancelling investment in the downstream sector so that's that's a significant adjustment we still see China is becoming a net exporter being long products but more by accident and by design they're trying not to be an exporter this is not their strategy this is more like something that may be temporary demand eventually we catch up but there may be a net exporter for some period of time India is an exporter by design it's an industrial activity it's a business model the US is a very large exporter we see growth in in other Asia that's India but that's also some of the other smaller countries the other region where we cut back the we shaved the the forecast of refining capacity growth is Latin America and that's mostly Brazil because Petrobras is overstretched spending too much money on the on the sub-sort of development projects and also overstretched in by importing high-priced international gasoline and selling it domestically at subsidized or controlled prices so we see very significant delays you know there's some projects moving on moving forward but many significant delays in Brazil which kind of changes the picture because we see now Latin America as remaining a net importer of products which was last year was more imbalance so so big changes there and now looking at product supply we try to model product supply based on our expectation of refining capacity could supply including good quality and refining capacity by type of capacity conversion depth and then demand by product and what we see is is very significant growth in distilled production capacity coming from the US from the Middle East and from the from Russia as well as from Asia but we see very dramatic increases in European imports Europe becomes even more dependent on on the DCT imports like this today this raises all kinds of security issues for for Europe which are very much on the front burner today and we're trying to think around and try to articulate but we haven't fully spin spin out all the security implications but there's very significant implications today it looks like the DCT market is pretty sloppy there's already kind of over capacity over the forecast period there may be times when the market is more or less tight or more less sloppy right now there's there's a lot of DCT capacity there's a big uncertainty factor there in terms of how tight the market really be which has to be with how quickly the shipping industry will adjust to new software requirements the effective date of which is still unclear so the IMO has planned to tighten software standards dramatically worldwide but nobody is sure whether it's going to be 2020 or 2025 and most of the people we spoke to said 2025 but they were talking their book I don't think anybody is sure and I think there's a very strong case for saying it's 2020 so there's different ways in which the shipping industry can adjust to this to these new standards and those include installing scrubbers on ships retrofitting ships and putting scrubbers on the on the deck and to scrub out the emissions software emissions or moving to low software distillates or some kind of distillate from from with it or moving to LNG and we think it's probably going to be a combination of the three we're a little bit unclear about the timing the timing is very hard to pin down right now but in the event of a fast and large scale move from residual fuel or to distillates we could have a significantly tighter market than otherwise for distillate so there's some uncertainty there in gasoline on the other hand it's a lot pretty much everywhere the only country that's a large importer of gasoline in our view by the end of the decade is Asia the only region you know Africa on a small scale but there's a massive build up in our view of light distillates gasoline and after in in in North America continued length in in Europe despite the reductions in refining capacity that we've been through and that we might go through in the next five years and and a build up in gasoline supply in Russia and in the Middle East as well so finding a home for all these light supply is going to be a challenge and could really be a constraint on refining activity and on the production of other products as well and this is kind of a snapshot that tried to capture the balance in terms of the implications for opaque capacity and so the columns represent the nominal capacity and that's we see that is increasing to about six billion dollars per day for the last three years of a forecast that's a little bit less than what we had forecast last year but it's very steep but if we make an adjustment to that of 1.5 then we have a top capacity that's pretty much the same as we had in 2009 after the financial crisis but again this capacity is very much at risk it's very unclear that all the growth we see from Iraq will happen and there's also scope for problems in other countries Venezuela Algeria significant political security security issues that could cause problems and could cause capacity to be not quite as comfortable as this this slide implies great well Anton thanks very much you've certainly given us a bunch to think about while everyone thinks of your questions I wanted to ask one particular question about about the global refining sector I recall last year when we were sort of talking this through there was a perception that not only was there the possibility of sort of over capacity in global refining markets but a lot of the new capacity builds were being by by being built by companies well that one perhaps weren't necessarily as responsive to market signals but two we're doing what you you sort of alluded to or you talked directly to in your remarks which was they're they're more complex they're integrated with the you know sort of large large-scale petrochemical facilities it's much harder to sort of gauge their competitiveness and their response to the need to drive out you know maybe five million barrels a day of refining capacity so in in in light of that sort of that discussion where do you think refineries will be particularly under pressure in that new sort of competitive environment and what might the response be and then the second sort of I can to build off on that is is clearly there's a discussion here about sort of competitiveness of u.s. refiners depending on what we do with our crude export laws so how do you think of those things together when you look at the outlook well in terms of which refineries are gonna be under pressure I think it's it seems fairly clear that refineries in Europe and also in Japan would be under pressure so Japan is just completed in March a first round of refinery consolidation with several closures and immediately as soon as the the run was over they immediately announced a new run of consolidation and they're planning another 400 or close to half a million barrels of new new closures in the next few months so there's clearly in Japan is pretty unique because it's really policy driven there's a government policy support for refining closures the motivations behind the policy maybe complex maybe not exactly there's different views of what the motivations really are I mean one of the one of the drivers clearly is the increased competition from from China against a context of slowing demand growth or diminishing demand in OECD Asia so Japan has been an importer product both an exporter to places of Korea and now finds itself competing against very competitive Chinese refineries so it's closing down capacity Europe is clearly very much at risk Europe is suffering from a perfect storm of a contracting demand high energy cost compared to North American refineries which benefit from cheap natural gas could supply problems with Libya out of the market on and off North Sea in decline Russia moving is quick exports more East and exporting more products to compete with European refineries so it's facing competition is facing problems and and refiners have not really on the globally speaking I mean to speak broadly speaking have not really invested very much in European capacity for many years refiners were comfortable depending on the US demand for gasoline to dispose of their excess gasoline production and kind of deferred investment and now it's coming back to bite them and the refineries are obsolete very old not very performant and so on so there's there's clearly pressure there that doesn't mean that all refiners will will be in the same boat and there's going to be winners and losers and recently Exxon just announced a very large investment program in the end for refinery which in a way could seem counterintuitive but but clearly some some refiners we come out on top in Europe and others would be under pressure so there's new just just in the last week or two and I announced some closures we're going to see more of the same we think and there's concerns political concerns in European countries about what this means and you know the job losses and the problems in terms of energy supply security but it's it's not so much that the governments can do it's really corporate driven now in terms of US competitiveness I think the US competitiveness is US refineries are clearly at a very strong advantage and in my view that's going to continue even if there's some relaxation of exports benefit from you know economies are scared still of the art access to market easy easy logistical connections cheap natural gas cheap energy costs so the long list of competitive advantages the question is going forward I mean in the last few years as US move from being a net importer to being the largest net exporter of products in the world US has find easy markets to export the products because the European European refineries were a weak a weak competitor and then there was growing demand in Latin America Mexico has not been investing in Mexico in refining capacity has been importing more and more other Latin American finaries countries even if they have had domestic goals of expanding domestic capacity I've found it that was cheaper to just bring in products from competitive US refineries but looking forward it's not so clear that there will be so much more room to accommodate further increase in US product exports because US exporters we compete now much more fiercely with this new capacity coming from the Middle East coming from Asia and also coming from Russia Russia is not so much spending capacity as upgrading capacity they're changing the tax regime so that it to incentivize the export of light products as opposed to reside and we've seen over the last few years a very significant growth in Russian product exports to Europe last year they grew by 14 percent there's more growth coming this year there's probably a lot more growth coming next few years so Europe for instance has been one of the top two destinations for US decision exports where the US will have to compete very very aggressively against Russian exports to Europe in the next few years so it's not clear that the refining model that the ability to depend on refining to to move out the the growth in domestic supply in the US we continue to be the way to go in the next year and quickly just because we're in North America and switching to the upstream you mentioned that you have an outlook that sort of matches with what your Rio colleagues are doing in terms of US light tide oil production that begins to sort of plateau and or decline sort of you know towards the end of the decade but you've now been doing this for several years right and so could you talk a little bit about what the basis for view on US production trends in light tide oil is just because it's a it's kind of a moving ball and we're all all tracking it do you take the AEO outlook or do you in which one and how do you look at that sort of how has it changed over the last few years well so so we do I mean we look at the AEO outlook we look at why start we look at some at Bentech we look at some of the companies and consultancies and so on what what the data is available market we're not trying to replicate what the US is doing I think the EIA is really putting up a tremendous effort to to upgrade their statistical collection to reflect a new supplier reality we can't there's no point in us replicating that so we kind of depend on that to a large degree we look at production trends we've been revising I mean we've got like many others we've been revising upwards our forecast for the last few years the scope of the revisions has kind of slowed a bit it's less slightly less embarrassing and dramatic than it was it was in previous years but it continues to we continue to revise what we do see is a little bit of a shit in investments I mean the land grab period of light at that development has kind of come to an end we see companies not not buying land anymore acreage but trying to improve the cash flows and so we assume that there's going to be some implications for supply growth in terms of the pace of growth on that it's actually a good sort of add on to that question you have a lot of your production outlook that is sort of predicated on sort of geopolitics political stability and existing policy but there's also with most of the companies that we watch there's been a lot of a lot of discussion about sort of capital discipline it did that work its way and to sort of your your upstream outlook for this time around yeah I mean yeah clearly clearly that's been has been one of the factors curbing a little bit the growth in places outside the US okay we've got some ground rules please identify yourself and your affiliation and if you can make your question in the form of a question that'd be great also wait for do we have microphones for today wait for microphone because we also have we're webcasting as well so anyone want to start wow they're shy so well why you think of some questions one of the things that I also wanted to ask about was you you you didn't talk in depth about Libya and so you did talk about Iraq maybe if we could do a quick sort of overview of a couple of those of those countries first I think you had quite quite honestly mentioned that you know you rock sort of happened in an opportune time point for your your publication cycle which everybody sort of understands I do think the steel may have gone ahead and reduced their outlook by about what 300,000 barrels a day so if you had to do it over today what do you think you might interpret for Iraq and and Libya probably also falls into that same category right it sort of fooled us all by coming back quicker than expected but then coming off again and so how do you think about the outlook for Libya as well so for Libya we have we have a kind of a flat production growth from capacity growth for the period we do see Libya coming back we're not expecting the country we remain completely out of commission but looking at the short term we're kind of perhaps a bit more skeptical than the market seems to be a lot people seem very confident supply we come now that the rebel groups have agreed to leave the blockade on the terminals where we're not so sure I mean there's still many many uncertainties going forward we have to wait for the result of the council elections which I think is coming out July 20th or around there it's not clear that the outcome of the elections would be to the liking of the parties there it's not clear the election would be viable many constituencies could not even vote some candidates may be disqualified after the fact because the the vetting of the candidates really took place taking place after the election not before so we might end up with a council with only 200 elected members out of 250 and that might really jeopardize the I mean it's difficult to speculate about the outcome but I just want to emphasize the uncertainties that remain and then the the troops the the the fighters if you like we the militias which had located the the terminals have not left the terminals they agreed not to blockade and now under federal payroll but they're still there so in the event of a rekindling of disagreements physically it wouldn't be very difficult to blockade the port okay so we're not really sure and then it will take some time for exports to resume and for production to resume there's going to be a need to do maintenance on the terminals to make sure that the product that's in in storage has not be contaminated could this is going to take some time then we're not really sure the extent of the field damage what whatever long lasting damage might have been inflict inflicted on the fields from more or less controlled shutdowns or extended shutdowns so there's there's still many question marks we don't really anticipate a quick ramp up in in Libyan supply we think it's coming in the best of cases gradual and pretty slow but we we assume that it's going to come back eventually and what about you rock I mean you you the question of where the sort of you know 300,000 barrel a number would come from obviously that might have something to do with the pipeline repair work that will likely not get done in the north but but also sort of medium-term speculation about what kind of investment might not come on line in terms of two is or too early to tell from your perspective I think it's a bit early to tell because it's very difficult to to say which way things would move I mean there's a lot of speculation that the KRG we now consolidate is control of Kirkuk and we'll be able to ramp up production Kirkuk and export it via the pipeline it's not really clear to us that the KRG can even hold on to Kirkuk it's not it's not guaranteed and then there's uncertainties about the future of the government back that so there's there's too many question marks I think too I think I would agree that there's going to be a freeze in investment or companies gonna be on the fence and not thinking not not pouring a lot of money into into mark right now they've been removing personnel even from the south even Chinese companies have been moving personnel and when Chinese companies moved personnel out of Libya it didn't play out very well in Beijing they came out a lot of luck in a lot of luck for that in Beijing so the fact that they're taking people out in in Iraq even inside in Iraq today I think says a lot about the perception of uncertainty and risk and certainly we in the best of cases move things delay things but I think surely to say whether the greater KRG independence with and not more supply from the north or go south but if the Iraqi army truly disintegrates the only option in the south will be the Iranian ground troops and that that suggests a much broader regional conflict so the question is how you reconcile the Saudi concerns and the Qatari support devices so that's that's a big question I want to ask you about Sahel in Africa sub-Saharan Africa there's a spread of radical Islamist forces from Nigeria to Mali to Niger but at the same time there's a potential there there's some geology some discoveries that suggest that they're more oil than we expect do you have any assessment about Sahel and is that going to be a viable territory and as large as it is thank you well you know for Iraq I mean it's a number of worst case scenarios that one can come up with for Iraq and you outlaw one of them you could you there could be other you know worst case development it's difficult to speculate about those so we we kind of constraint especially as a as the IES international organization we're less perhaps free to speculate about potential outcomes than a think tank or a consultancy or even a bank so we're when we haven't gone there and we're kind of winning watching our forecast is basically based on what we know about investments what we know about regulations what we know about demand trends and access to capital economic growth it's not it's not based on the potential political outcomes and we don't do scenarios we leave scenarios to the world energy outlook but we try to do is our best case best guess given all other things we know for the next five years which correspond more or less to the next business cycle so we should basically know everything we need to know to come up with a guess that's that's how that's the nature of our exercise if you'd like yeah just maybe just the question about sub-Saharan Africa we we don't have too much growth coming from there we think a lot of the investment is being moved to secure market to mature markets and actually one of the perhaps unexpected or counter-intuitive consequences of light I told revolution in the US is that it's it's pouring more investment into very mature place like the North Sea or mature fees in Russia as some of the technologies are applied to those to those conventional fields and there's and also there's more investment just in in North America but this is taken away some investment in our view from from frontier markets which are don't have the same tradition of all development and where there's also a risk of very significant cost increases yes good morning John Kines with hard energy research and consulting appreciate your comments here two questions really about main one is do you see further partnering if you will between China and Russia they've got a major gas deal do you see that on crude the second question is in the US the surplus of products nap the condensates etc what are the markets going to be for those exports is it all going to go to Asia yeah I think we have to look for more corporations between Russia and and China and it serves both sides interests I mean the Chinese need energy they need to diversify their supply sources and the Russians are increasingly interested in moving the exports eastwards as opposed to westward and there's capacity to do so in oil in gas there's constraints on how much Russian export can be ramped up to China just because of gas that's produced in the West cannot be easily moved eastward but for all this it's a little bit easier there's a lot of over capacity in the transport network in China there's in Russia there's more options more optionality just by virtue of ordering easier to transport so we're looking for more integration or more partnership if you'd like and the other question was yeah condensate I mean condensate you know there's not domestic market for condensate in the US is limited which is why we've been we've seen such a ramp up in condensate inventories in the Gulf Coast but can't say demand in Asia is booming so it's kind of a match made in heaven there between North American supply and Asian demand but there's other potential users for condensate for instance in Venezuela NAFTA can be used to mix with the bitumen and make bitumen exportable and that's a model that could be a cheap substitute for building very expensive upgraded plants in Venezuela that has been done in the late 90s instead of building you know very capital intensive and come to some plant upgraders you could just mix NAFTA and that's what I think Venezuela has been doing whenever the upgraders go down for maintenance they bring up more NAFTA from the US and again condensate in in Canada as well for same reasons and the ruins that's supporting heavy heavy on production Michelle Mellton CSIS energy program I have two distinct questions the first is about frontier energy specifically if you could talk a little bit about the Arctic and potential for development there I know it's not in the medium term and I apologize for making you speak to the long term and the second question is about Iran assuming that there is some sort of deal in the next six months what the prospects are for actually the physical prospects for ramping up oil how fast that can come online how much we're talking about in over what time period thank you but the Arctic as you said it's kind of a longer-term prospect so we haven't really built in any expectation from Arctic production in a significant way in the in the medium term that's something that the real team is looking at and which would be addressing the world energy outlook that we come in come out in November and Iran there's a great deal of uncertainty because I don't think anybody is really sure how the the fields have responded to the prolonged shutdown of capacity as a result of the sanctions so there's different views out there and it may depend field by field something that the shutdowns have really caused permanent damage capacity permanent reductions in in long-term capacity there's a contraion or opposite view that in fact it's allowed fields to rest and they're going to come out in better shape from the sanctions than they were before and again it might it might be both answers more both both views might be right depending on which fields we're talking about but we don't we really don't know for sure what we think is it's going to take some time for Iranian production to come back even if there's an easing of sanctions because it's going to take time to just build up the capacity to get the revolution regards out of the picture completely to bring investment back in so we think it's going to be a fairly slow and gradual process which is why it's partly why we haven't really built any any expectation of supply I mean we made the assumption that the sanctions remain in place because it seemed the the safer course or for lack of a better alternative but even if we assume some it's going to take time to remove the sanctions and not all the sanctions have been put in place at the same time some we'd be easier to remove than others and then it's going to take time to bring investment to bring capacity to build capacity to bring production back online thank you as always excellent presentation especially without notes it looked to me like the refinery sector margins could be even more pessimistic than than you were alluding to because of so much of the new liquids outside of the refining system you go from 91 million demand globally to a hundred about a hundred in the five years how much of that nine it's actually crude it has to run through the crude distillation units you had you probably had it on one of those charts but I didn't I didn't know exactly what that number might be we think we think the increase is about seven north of seven and of that two million is going to be met by products that don't go through refinery including by fuel and an NGS and maybe a little bit more refinery gains as refineries become more performing so yes it's significant pressure hi I'm a Tracy Liao from Brookings Institution you talk a little bit about the conventional oil development in North America and also Latin America can you expand that a little bit to talk about like what do you think of the convention unconventional oil like prospects in Asia and other places world thanks yeah well you know as I said I mean what do you mean by unconventional like title or pre-sold is conventional by your definition or unconventional well like like oil probably yeah like title as I mentioned we think there's we think it's going to start picking up production we pick up outside the US I don't think we see too much light I told coming from Asia you know we see some some from Australia beginning in the end of the decade but more in the in the next decade we're not really expecting too much from China because we see the resources to to challenging there and and also other other types of problems so I think and Sophie was seeing some some shade gas coming from China but on the other side we don't we're not really seeing much there so I think for the next five years really it's really at the tail end of the forecast and outside of North America including Canada it's really it's really mostly Argentina and Russia now if you because this the resource is so huge companies are committed are invested want to want to develop it and this political will in the country is to make it happen and the investment climate has been changed to accommodate that so that's that's where we see a change Mexico of course has a has a huge potential but we we're not really seeing huge growth until the next decade because we think you know the secondary legislation has to be approved and passed and then it's going to take some time then we see easy the low-hanging foods being picked in the next couple of years but then it's going to take a few years for investment to come to fruition and we see actually maybe a bump in supply in the next couple of years a little bit of a drop and then a pick up again towards the end of the period but the real growth in our view we've been in the in the next decade and their share potential or like I thought potential on the other side of the Eagle Fort but it's kind of a rough neighborhood there so we're not really we don't really expect investment to pour in very quickly there what of build on that for one second I had noticed in your in your non-OPEC supply chart you did have two fairly sizable bumps in Latin America South America in 2015 and 2017 is that basically Brazil pre-salt 2015 and 17 is as well okay great presentation I'm just going back to the question on the Arctic I was reading something about how oil interests are almost rooting for the progression and worsening of climate change so that they could exploit the market market in the Arctic so that you know they can't put the refineries on moving pieces of ice and if they melt then it's easier to get the oil out of there is that connection at all accurate and you know yeah that that's my question you also just your name and sure my name is Jake and I'm an intern for the American Council on renewable energy great well there's clearly a lot of interest and especially in Russian Arctic we've seen companies exon spending money there so so no doubt this is a very attractive prospect and but we're not seeing it just now we think it's gonna take some time more than five other questions one of the other things I wanted to look and ask you about is you you talked about how China obviously China's demand growth forecast being such a big part of your outlook and there's been a lot of discussion including recently at the China strategic economic dialogue about one improving the data that we have and share on on sort of Chinese consumption figures but then also on on what has been sort of theorized to be a big part of their demand poll for this year which is filling the SPR right so how does how does that sort of lack of information I guess if you will about what the rate of SPR fill the long term out the long term the medium term outlook for that how does that sort of affect how you gauge Chinese genuine sort of oil demand from a consumption perspective versus what they're doing from a more strategic perspective so we kind of distinguish it to we the way we calculate the way we assess Chinese demand is we don't look at crude imports per se we look at refinery runs and product imports so we do of course monitor Chinese crude imports and we do follow crude trade in general but we don't consider we don't we don't factor the SPR building in China within the demand figures it's separate so yes we we we try to come up with an assessment I mean we look at the crude imports we look at refinery runs we look at the reported commercial stock changes in China which is difficult to interpret with confidence because those those changes are expressed in percentage terms but we don't really know what the baseline is and presumably the baseline has changed a lot of the last few years but there's no information about this so given these uncertainties we try to assess you know the difference so in the line in the second quarter we've seen a huge huge increase in stock bills not accounted but what looks like the reported commercial stock and this is I think about 75 75 million barrels which is a huge amount we're not expecting that that level of stock building continue you know at a steady pace over the next or the foreseeable future this probably was a bit of a one-off because a bunch of of capacity storage capacity was just completed that can accommodate this this rise and then the Chinese buying patterns for SPR buildings seem to be fairly market opportunistic and they might have seen an opportunity during the second quarter when demand typically drops a bit to do this and demand is demand is obviously also an uncertainty and we've been kind of flip-flopping a little bit based on the latest numbers but I think the trend is towards a slowdown in economy and a slowdown in demand growth and a very significant increase in or decrease in oil intensity and increase in efficiency just staying on the data point for a minute as well as you had sort of mentioned in your in your presentation that you don't feel like you have adequate numbers on African energy demand growth growth rate and in you know in the early 2000s not having adequate numbers in terms of Chinese oil demand was actually ended up being a big surprise both for the market and for analysts do you look at sort of the situation in Africa as being similar is that something that was a particular feature of the Chinese market given its size and the rate of growth now we look at it I mean what one key I mean China I think the big surprise in China back in the 2000s was the when the power plants were being overextended and there was blackouts and brownouts and there was this huge surge in demand for diesel for backup generators in late 2003 2004 which when demand increased by about one million dollars per day so we've seen some of that I mean this increase in backup generators is something that's worldwide it's not just China and actually Chinese producers of backup generators are now exporting I was in Pakistan last year and there's a entire souk of backup generators and Chinese companies very active there because the market at home has shrunk as power generation has caught up so there's massive difficult to assess demand for that we try to to follow it as closely as we can and in a place like Nigeria for instance there was a huge surge in backup generators a few years ago but in the last two or three years we've seen a decline we've seen a drop and there seem to be the Nigerians seem to have achieved some success in increasing power generation from from power plants including from natural gas and that's really seem to have taken a little bit of an edge of the diesel demand so but it's very difficult to track country by country and this very poor data on this but we're trying to we're trying to monitor you know exports of backup generators and that sort of thing well when I may perhaps maybe one final question would be you you mentioned on sort of the the spare capacity figures that you were coming up with and you'd also sort of talked about your outlook for production in in Kuwait and typically in a lot of different outlooks there the combined sort of effective spare capacity ends up being in not effective seasoning spare capacity ends up being in combination of Saudi Arabia and Kuwait if you don't if you don't see more production or more project growth in in Kuwait in particular do you think over over the forecast period that has any sort of impact in anticipated spare capacity in Kuwait we hope based on our conversation recent conversations with Kuwait since the the report came out we hope that we'd be able to upgrade our forecast of Kuwaiti capacity next year not now we have contraction we're not we're not expecting to see more contraction we're hoping that we'd be able to revise upwards and show more more growth in capacity or less decline and one final sorry I know I said that before one additional question you know we always love your trade flow charts and I know that you you talked a little bit about it that the energy information administration conference earlier this this week do you get any sort of different sort of strategic outlook or insights from looking at the world's not necessarily in terms of net balances but in terms of overall trade flows and the reason I ask that is what as we're sort of looking at the sort of new US energy posture this view of us being a net exporter and a huge product exporter is really it is a helpful view right and it's it's certainly one part of the story but it isn't sort of the total it isn't the total story right and so when you look at sort of gross trade flows even within North America it's a much more complicated picture you could actually find the United States being an importer and an exporter on a much more significant basis given sort of those broader shifts towards Asia more trade and product versus crude do you see a much more complex sort of trade regime emerging as a result of that and and was there anything that came out in that recent IEA strategic stocks review discussion that sort of alludes to positioning for a world where there's more product trade than crude I don't know if I'm being clear but it's kind of complicated I mean it's it's much more difficult to forecast or to model product rate flows than crude rate flows and you have to use a lot of assumptions and make a lot of guesses so there's a lot more uncertainty there that no doubt about it many more moving parts and questions there are some things that I think are making product trade simpler in a way and that's a little bit of a convergence in specs you know the market is be extremely fragmented with non-OCD countries having you know leather gasoline and high sulfur and OCD countries being at various levels of clean products we see a lot more convergence Chinese specs are looking a lot more like US specs and a lot more like European specs so there's a bit of a modernization of a spec to some degree at least for the basic products maybe not the final retail product but the basic products and then there's a bit of a change in the global infrastructure with the emergence of major terminal hubs you know where you can preposition products and redistribute them depending on market trends so in a place like the Caribbean's right here outside the US where there's always been very large storage capacity for crude and for residual we've seen lately in the last five years a shift some that capacity being converted to diesel or to gasoline and and also expanded so there's a massive now capacity to store gasoline preposition gasoline diesel in the Caribbean's the same is happening in you know the Rotterdam area in the Fajera area in Asia this is an ongoing trend it it's it's also challenging because we have often limited information about stock levels in those countries so when we look at US stocks of products we look at the US 50 we don't look at what's going on in Ruba or the Bahamas but in fact Ruba and the Bahamas are very very much part of the supply picture for the US and we're missing a tremendous piece of the of the of the picture if we don't take that into account but right well Antoine thank you very much for coming you always give us a great deal to think about and certainly we'll be looking for your update next year and hope that you'll come back to talk with us again thank you thanks very much