EY Price Point: global oil and gas market outlook

EY Price Point:
global oil and gas
market outlook
Q4 | October 2019

Q4 overview
In September, an attack on the Abqaiq processing facility in Saudi Arabia resulted in a supply outage of 5.7
million barrels per day, approximately 6% of global oil production. Historically, similar events have led to
significant price movements and impacted the market’s view on supply and demand fundamentals. Not this
time. Although prices spiked by approximately 18% as markets opened on 16 September, prices returned to
pre-attack levels within one week. The market’s attention has quickly returned to the demand-side risks caused
by slowing world economic growth and the impact of energy transition.
In part, the muted response was due to news flow from Saudi Arabia that downplayed the impact of the attack,
as well as the availability of inventories to maintain supply. However, the response reaffirms the fact that oil
markets have moved away from the scarcity paradigm.
Gary Donald
EY Global Oil & Gas Assurance Leader
gdonald@uk.ey.com
Andy Brogan
EY Global Oil & Gas Leader
abrogan@uk.ey.com
Q4 | October 2019 EY Price Point: global oil and gas market outlookPage 2

Q4 theme
The theme for this quarter is resilience. A 6% supply outage in September was unable to push Brent prices
above US$70/bbl. Demand concerns, driven by slowing world economic growth and the need to decarbonize,
quickly retook the stage despite output from Venezuela and Iran being hindered by political turmoil and
international sanctions.
Technology enhancements are a significant contributor to the market’s sanguine attitude towards supply
disruption. Operators are able to produce greater volumes, quicker, and at a lower cost. That trend can only
continue.
LNG markets continue to mature as traders play an increasing role in directing cargoes and setting prices. The
pipeline for LNG projects remains healthy as market participants aim to establish a position in a market that is
seen as the best opportunity for growth in oil and gas.
• Is there any conceivable event that could move oil prices to pre-downturn levels?
• When will the long-standing expectation of slowing oil demand be realized?
• Could liquidity at LNG trading hubs rival those at its established oil and gas counterparts?
?

Q4 trends
Middle East
tensions drive
some (but not
much) price
volatility
An attack on oil processing facilities in
Saudi Arabia had a significant, but fleeting,
effect on oil prices in September.
The operational response has been swift
and repeated shocks to the system have
given the markets confidence in the supply
chain’s capacity to pick up the slack.
Decarbonization
focus escalating
The market’s focus on decarbonization is
growing at an accelerating rate and the
oil industry is responding. Pressure is
mounting from capital markets, equity
markets, activist investors, governments
and the general public.
Demand
concerns
weigh on
prices
In August, IEA lowered its 2019 demand
growth forecast by 100 kbpd to 1.1 mbpd.
Since 2010, IEA demand growth forecasts
have averaged 20% below actuals. Oil
producers will be hoping that trend
continues in 2019.
LNG volumes traded on a spot basis or
under contracts of less than five years
have grown by 11% and 41% since 2017
and 2010, respectively. Although traded
volumes are well below more established
oil and gas benchmarks, signs of
structural change that should drive LNG
liquidity are abundant.
LNG spot
market liquidity
on the rise

Market fundamentals
Source: Thomson Reuters Datastream Source: IEA
• Brent and WTI averaged US$61.96 and US$56.38 per bbl, respectively,
during the third quarter. Average prices in 3Q19 represented a fall of
10% and 6% in Brent and WTI, respectively, from the previous quarter.
• Escalating trade tensions between the US and China pushed prices
downward throughout July and August amid demand concerns.
• An attack on Abqaiq, a key processing facility in Saudi Arabia, resulted in
a price spike of approximately US$12/bbl (18%) on 16 September as the
market feared the impact of supply outages.
• However, the effects were short-lived as Saudi Arabia played down the
impact of the attack and the US announced that its Strategic Petroleum
Reserve was available to ensure markets remained supplied. Price gains
were eliminated by the end of the same week.
• Year-on-year, the factors driving the global oil supply and demand dynamic
remain the same as reported in prior quarters. Demand growth (although
slowing) and OPEC supply restraint continue to offset growing output from
North America. The numbers change from quarter to quarter, but the same
themes persist.
• Questions remain over demand, both in the short term (trade wars and
economic growth) and the long term (vehicle electrification and carbon
reduction). Aided by sanctions on Iran and turmoil in Venezuela, OPEC
production restraint has supported prices in the face of growing North
American production.
• No one knows the extent to which North American oil production can
continue to grow. Capital markets appear to be resolute in insisting that
capital spending is self-funded. Oil majors will be the key to further growth
in North America.
The impact of extraordinary events are short-lived Supply and demand: the story remains the same
40
45
50
55
60
65
70
75
80
Apr-2019 May-2019 Jun-2019 Jul-2019 Aug-2019 Sep-2019
US$/bbl
Brent
WTI
(2.50)
(2.00)
(1.50)
(1.00)
(0.50)
-
Starting balance Demand growth OPEC North America Other End Balance
millionbarrelsperday
Movement to oversupply
Movement to undersupply

Market fundamentals
Source: EY analysis of quarterly earnings call transcripts
• As a group, oil and gas majors received only one question that related to
carbon emissions and investments in renewable energy when presenting
their 2Q18 earnings to equity analysts. One year later, that number grew by
13 times, representing 4.5% of total questions raised during the 2Q19
earnings season.
• Pressure is not just coming from equity analysts. Activist groups have been
frequent attendees at oil and gas major shareholder meetings recently and
a number of hedge funds are opting to shed fossil fuels from their portfolios.
• Acceptance of the need for change is spreading and the majors are
listening. The majors’ investment in assets capable of producing clean
energy is climbing, albeit still a small percentage of total spend.
• Cost, reliability and storage capabilities of renewables remain under
question. Many believe gas will support renewables in the short to medium
term. The rate at which renewables output will grow remains
up for debate. The need for change is not.
Middle East turmoil fails to sustain a climb in prices Decarbonization focus growing at an accelerating rate
• In September, an attack on a key processing facility in Saudi Arabia shut
in approximately 6% of the world’s oil production. We are told that
capacity will be back to normal shortly, but questions remain over the
vulnerability of oil supply infrastructure.
• When compared with the impact on prices that similar events have had
in the past, the response was muted. In a period in which output from
Iran and Venezuela is restricted by sanctions and political turmoil, an
outage of 6% of global oil production was unable to lift prices beyond
US$70/bbl.
• The market appears convinced of the ability of producers to satisfy
demand despite outages. Bearish sentiment over the outlook for oil
demand in the short and medium term could provide further reason for
the muted response.
Source: EY analysis of Oilprice.com data
Arab embargo
(1973)
Outbreak of Iran/Iraq war
(1980)
Iraq invasion of
Kuwait (1990)
Venezuela oil strike
(2002)
Drone attacks on
Abqaiq (2019)
0%
50%
100%
150%
200%
250%
-7.0%-6.0%-5.0%-4.0%-3.0%-2.0%-1.0%0.0%
Oilpriceimpact
Supply disruption
0
2
4
6
8
10
12
14
2Q18 3Q18 4Q18 1Q19 2Q19
Numberofquestions
European IOCs
US IOCs

Market fundamentals
Source: International Gas Union and GlobalData
• In August, IEA lowered its 2019 demand growth forecast by 100 kbpd to
1.1 mbpd due to “evidence of an economic slowdown” and worsening
“prospects for a political agreement between China and the United States
on trade.”
• Forecasting oil demand is easy if you can accurately forecast economic
growth, which is incredibly hard to do.
• Actual demand growth has equaled or exceeded IEA’s estimate in each of
the past four periods. Oil producers will hope the recent trend of actual
demand growth exceeding IEA’s estimate continues.
IEA demand forecasts revised downward LNG liquidity on the rise
• In 2018, LNG volumes traded on a spot basis or under contracts of less
than five years reached 99 million tonnes and 31% of total LNG trade,
representing growth of 11%, 41% and 464% since 2017, 2010 and 2000,
respectively.
• Destination flexibility and contract standardization are promoting LNG
commoditization. The relative bargaining power of buyers and sellers is
also a factor. Following a period of weak demand, capacity additions have
outpaced demand growth, resulting in a number of new LNG facilities
turning to the spot market.
• By 2025, liquefaction capacity is expected to rise by 136% to 1,075 million
tonnes per annum with the race to sanction new capacity fueled by
expectations of demand growth in Asia. FIDs indicate that the capital
markets believe in the outlook for LNG demand growth.
Source: IEA
(1.5)
(1.0)
(0.5)
-
0.5
1.0
1.5
2.0
2.5
3.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Y-o-Ychange(millionbblperday)
Actual crude demand growth
IEA forecast crude demand growth
Variance (IEA forecast minus actual)
0
5
10
15
20
25
30
35
0
10
20
30
40
50
60
70
80
90
100
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
%oftotalLNGtrade
Milliontonnesperannum
Volume (Mtpa)
% of total LNG trade (right hand axis)

Brent futures
Brent futures remain in
backwardation. However, more
importantly, the angle of
backwardation continues to
steepen. In fact, Brent's 6-
month backwardation has risen
to its highest level since
September 2013 as concerns
over near-term supplies
increased due to the impact of
outages in Saudi Arabia.
Futures data is effective as of
20 September 2019.
Source: Thomson Reuters Datastream
40
45
50
55
60
65
70
75
80
85
US$/bbl
Historical Brent
Brent futures - March 2019
Brent futures - June 2019
Brent futures - September 2019

Oil price outlook
For both benchmarks, consultants
(on average) forecast higher oil
prices throughout the period.
Consultants focus primarily on the analysis
of a long-term sustainable oil price, but the
banks and brokers balance their views on
the basis of current market conditions.
The outlook for crude prices have shifted
downward since the previous quarter. We
have not included price forecasts published
in US EIA’s Annual Energy Outlook 2019
within our analysis given that market
conditions have evolved significantly since
the publication’s release in January 2019.
In the long term, we note high relative
forecasting uncertainty given the proven
ability of identified risk factors to move the
price significantly in a short period of time.
Consultants’ forecasts result in averages of
US$73.4/bbl and US$68.8/bbl vs. banks’
and brokers’ averages of US$63.0/bbl and
US$57.2/bbl for Brent and WTI,
respectively, in 2023.
This data is effective as of
20 September 2019.
Brent:
Brokers’ and consultants’ price estimates, ranges
and averages
WTI:
and averages
Source: Bloomberg, banks’/brokers’ reports, consensus economics, consultants’ website
US$63.0 US$72.8 US$57.2 US$68.0Brent:
Average price per
bbl forecast in
2023
WTI:
Average price
per bbl forecast
in 2023
Bank/broker Bank/brokerConsultants Consultants
45
50
55
60
65
70
75
80
85
2019 2020 2021 2022 2023
US$perbarrel
Bank/Broker range Consultants range
Bank/Broker average Consultants average
45
50
55
60
65
70
75
80
85
2019 2020 2021 2022 2023
US$perbarrel

Gas price outlook
Consultants predominantly forecast
(on average) higher Henry Hub gas
prices than banks and brokers. The
trend is reversed for NBP.
The outlook for NBP prices has been
adversely impacted by the reduction in gas
prices noted in 3Q19, predominantly
driven by the diversion of LNG cargoes
from Asia to Europe. The range of NBP
consultant forecasts has increased
significantly since the previous quarter.
One consultant now forecasts that prices
will remain broadly flat at 35p/therm
throughout the forecast period.
We have not included price forecasts
published in US EIA’s Annual Energy
Outlook 2019 within our analysis given
that market conditions have evolved
significantly since the publication’s release
in January 2019.
NBP price estimates are scarce with only
four and three forecasts released by
banks/brokers and consultants,
respectively.
This data is effective as of
20 September 2019.
Henry Hub:
and averages
UK NBP:
Brokers’ and consultants’ price estimates, ranges and
averages
US$2.8 US$3.2 £51.4 £47.9Henry Hub:
Average price per
mmbtu forecast in
2023
UK NBP:
Average price per
therm forecast in
2023
Bank/broker Consultants Bank/broker Consultants
Source: Bloomberg, banks’/brokers’ reports, consensus economics, consultants’ website
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
3.8
4.0
2019 2020 2021 2022 2023
US$permmbtu
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
2019 2020 2021 2022 2023
GBppertherm

Appendix
Brent oil price estimates
This data is effective as of 20 September 2019.
Source: Bloomberg, banks’/brokers’ reports
Source: Consultants’ websites, Oxford Economics
Bank/broker 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl) 2023 (US$/bbl)
High 70.0 72.8 72.0 72.0 71.5
Average 64.7 62.5 62.7 64.9 63.0
Median 65.0 62.0 61.0 65.0 62.5
Low 57.0 53.0 55.0 55.0 58.0
Consultant 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl) 2023 (US$/bbl)
High 70.0 72.0 73.0 74.5 75.9
Average 65.9 66.3 68.8 70.5 72.8
Median 64.8 65.3 70.1 72.3 75.2
Low 63.4 62.0 62.2 63.0 64.8

Appendix
WTI oil price estimates
Bank/broker 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl) 2023 (US$/bbl)
High 65.0 63.0 66.0 66.0 68.0
Average 57.6 57.2 57.4 56.3 57.2
Median 57.2 57.0 55.1 55.0 55.0
Low 53.0 51.0 50.0 50.0 53.0
Consultant 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl) 2023 (US$/bbl)
High 63.0 67.0 70.0 71.4 73.1
Average 58.2 60.3 63.5 65.6 68.0
Median 57.7 61.2 65.0 68.3 71.4
Low 56.2 54.5 53.9 54.7 56.2

Appendix
Henry Hub gas price estimates
* Where brokers have reported figures in $/mcf, we have used a conversion ratio of 1.037 for mcf conversion to MMBtu.
Bank/broker 2019 (US$/MMBtu) 2020 (US$/MMBtu) 2021 (US$/MMBtu) 2022 (US$/MMBtu) 2023 (US$/MMBtu)
High 3.0 3.5 3.1 2.9 3.0
Average 2.7 2.7 2.7 2.7 2.8
Median 2.7 2.7 2.7 2.7 2.8
Low 2.5 2.4 2.5 2.5 2.7
Consultant 2019 (US$/MMBtu) 2020 (US$/MMBtu) 2021 (US$/MMBtu) 2022 (US$/MMBtu) 2023 (US$/MMBtu)
High 2.8 3.0 3.3 3.3 3.4
Average 2.6 2.7 3.0 3.1 3.3
Median 2.6 2.8 3.0 3.2 3.3
Low 2.6 2.5 2.7 2.8 3.0

Appendix
NBP gas price estimates
Bank/broker 2019 (GBp/therm) 2020 (GBp/therm) 2021 (GBp/therm) 2022 (GBp/therm) 2023 (GBp/therm)
High 52.0 50.0 53.2 55.8 55.8
Average 43.1 46.9 48.5 51.4 51.4
Median 41.0 46.8 47.5 51.4 51.4
Low 38.6 44.0 45.8 47.0 47.0
Consultant 2019 (GBp/therm) 2020 (GBp/therm) 2021 (GBp/therm) 2022 (GBp/therm) 2023 (GBp/therm)
High 50.0 52.3 53.8 55.8 57.3
Average 41.7 45.3 45.9 46.9 47.9
Median 39.5 50.0 50.0 51.0 52.0
Low 35.6 33.6 33.8 33.9 34.3
* Where brokers have reported figures in $/mcf, we have used a conversion ratio of 1.037 for mcf conversion to MMBtu and the broker’s forecasted FX rate.
* Where consultants have reported figures in US$/MMBtu, we have used the particular consultant’s forecast FX rate for the purpose of our conversion.

Key contacts
Important notice
Price outlook data included in this publication is effective as of 20 September 2019. Given the rapidly evolving nature
of the market and views of market participants, analysis can become quickly outdated. It should be noted that our
analysis is not for the purpose of providing an independent view of the outlook for oil and gas prices. Instead, we are
collating the views of market participants.
Price outlook data should not be applied mechanistically. Instead, careful consideration should be given to the purpose
of any value assessment with price forecasts assessed in the context of the other key assumptions, such as resources
and reserves classification, production rates, discount rates and cost escalation rates together with an appreciation of
the key sensitivities in any such analysis.
Jeff Williams
EY Global Oil & Gas
Advisory Leader
+1 713 750 5916
Gary Donald
EY Global Oil & Gas
Assurance Leader
+44 20 7951 751
Derek Leith
EY Global Oil & Gas
Tax Leader
+44 12 2465 3246
Andy Brogan
EY Global Oil & Gas
Leader
+44 20 7951 7009
John Hartung
EY Global Oil & Gas TAS
Leader
+1 713 751 2114

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