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Oil and Gas Markets in Turmoil: Implications for AustraliaDr. Fereidun Fesharaki, Chairman

22nd Annual South East Asia Australia Offshore & Onshore Conference

September 14-15, 2016

This presentation material contains confidential and privileged information intended solely for the recipient. The dissemination, distribution, or copying by any means whatsoever without FGE’s prior written consent is strictly prohibited.

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Oil Price Outlook: Three Critical Legs

Oil Price

Short Term: Supply/Demand

OPEC/SaudiStrategy

Long Term: Where will the market “hang

its hat?”

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Evolution of Market Surplus: 2016 vs. 2015

-0.6

-0.1

0.4

0.9

1.4

1.9

2.4

mm

b/d

Oil Market Surplus (2016 vs. 2015)

0.2- 0.3

0.2- 0.5

1.4

0.6

0.3 - 0.3

- 0.3

- 1.5

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Evolution of Market Surplus: 2017 vs. 2016

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

mm

b/d

0.2

- 0.5

Oil Market Surplus (2017 vs. 2016)

0.2

0.6

0.2

0.2

- 1.6

- 0.4

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More Detail: Asian Demand Moderating, But Still Solid Growth

-400

-200

0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015 2016

kb/d

Asia Pacific Main Product Demand Growth

Rest of Asia South Korea Japan India China

Total Oil Demand* Growth, kb/d

2013 2014 2015 2016

China 477 400 595 278

India 54 246 290 333

Japan -174 -238 -181 -172

South Korea

3 2 117 101

Rest of Asia

260 105 276 284

Total 620 515 1,098 824

*Including other products and direct crude burn for Japan

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US Gasoline StrengthAll data 12-Month Moving Average

240

245

250

255

260

265

2012 2013 2014 2015 2016

Billion Driven Miles

22.0

22.5

23.0

23.5

24.0

24.5

25.0

25.5

26.0

2012 2013 2014 2015 2016

New Vehicle Fuel Economy (MPG)

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

2012 2013 2014 2015 2016

Gasoline Pump Price (US$/gallon)

8.5

8.6

8.7

8.8

8.9

9.0

9.1

9.2

9.3

2012 2013 2014 2015 2016

Gasoline Demand (mmb/d)

48%

50%

52%

54%

56%

58%

60%

2012 2013 2014 2015 2016

Truck Share in New Registrations

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2012 2013 2014 2015 2016

Hybrid/Electric Share in New Registrations

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Oil Prices Will Fluctuate Around US$80/bbl (Real Price)

Note: 2005-2015 actual, forecasts in 2016$ thereafter.

30

40

50

60

70

80

90

100

110

120

US$

/bb

l

Brent Outlook Through 2030

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By 2020, Global LNG Supply Will Grow By 40% Due to Australia and US LNG Projects

• LNG supply additions from Australia and US Gulf Coast will increase current global LNG supply (250+ mmtpa) by more than 40%.

45

76

85

11

54

57

48

411

55

4

0

20

40

60

80

100

120

mm

tpa

eq

uiv

ale

nt

Incremental LNG Supply* to 2020

*Numbers reflect LNG output per quarter in mmtpa equivalent. Note: All the above shaded areas are FGE's project start-up dates assumptions and FGE's utilization rates assumptions.

Source: FGE estimates

PFLNG Dua

Yamal LNG

Corpus Christi LNG

Wheatstone LNG

Ichthys LNG

Cove Point LNG Freeport LNG Cameron LNG

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Massive Pre-FID LNG Supplies are Planned to Start-up Post-2020

Source: FGE LNG Online Data Service (ODS)

0

200

400

600

800

1,000

1,200

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

mm

t

World Liquefaction Capacity and LNG Demand

Operating Under Construction Planned Possible Speculative Global LNG Demand

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Although Europe Acts as the Near-Term LNG Sink, Asian LNG Demand Continues to Surpass Other Regions

Note: The above units are all in mmt of LNG.

182 221310

2016 2020 2030

Asia

4088 99

2016 2020 2030

Europe

17 19

35

2016 2020 2030

MENA

18 19 21

2016 2020 2030

Americas

LNG being pushed into Europe in 2020. Declining domestic production requires increasing LNG imports in the later years.

Pipeline gas imports from US to Mexico reduces LNG imports requirement, while the newer importers such as Uruguay and Colombia pushes up LNG demand.

Growing LNG demand as domestic production cannot keep up with requirement. Potential new demand creation during period of low prices.

Reform of subsidized domestic gas prices allows for further LNG imports.

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However, Despite Strong Incremental LNG Demand Growth, Asia as a Whole is Over-Contracted Until 2021

• Asia is over-contracted over 2018-2020, due to Japan, South Korea, and China.

• However, opportunities still exist in markets such as India and Taiwan over this period.

-20

0

20

40

60

80

100

120

140

160

mm

t

Asian Uncontracted LNG Demand

Japan South Korea Taiwan China IndiaIndonesia Malaysia Singapore Thailand Pakistan

Notes: Only considered existing LNG importers with their firm and likely contracts.

-6-4-202468

101214161820

mm

t

Aggregated Asian Uncontracted LNG Demand

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Asian Pull on LNG Disappear in 2018, Closing the Arbitrage Between Asian and Atlantic Markets

• In 2018, Asia does not need to pull any flexible ME supplies into the region as Asian supply and ME contracted supply meets the Asian LNG demand. As a result, Asian spot LNG prices are also expected to reach a low in 2018 as the arbitrage between Asian and Atlantic markets closes.

0

50

100

150

200

250

300

350

mm

t

Asian's Potential LNG Supply/Demand

Uncontracted/flexible supplies from Middle East US volumes contracted to Asian buyers

Contracted supplies from Russia (excluding Sakhalin II) and Africa Contracted supplies from Middle East into Asia

Asian LNG supply (including Australasian supply projects and Sakhalin II) Asian LNG demand

Note: Only SPAs and equity volumes are taken into consideration for contracted suppliesExcludes portfolio LNG sales to Asian buyers

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“4 Chains” Weigh Down the LNG Market: The View Today… Something’s Gotta Give!

Note: *Only for higher priced contracts (slope >13%).**Uncommitted volumes, equity offtake, and potential volumes re-entering market from ‘middleman’ buyers.

Unsold US LNG**

Uncommitted Qatari LNG

Buyers Performing Below Contract Levels*

Australian LNG Looking for a Home**

Volumes To Be Re-offered To Market (mmtpa)

2018 2020

US 16 32

Qatar 25 25

Below DQT* 8 9

Australia 20 20

TOTAL 69 86

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Weakening the Old Strongholds: The Real Problem Behind Perception of “Oversupply”

Supply Pool

ENN, Huadian, JOVO, Beijing Gas Group, etc.

GS Energy, SK E&S, KOMIPO, POSCO, etc.

Old Strongholds Who Typically Contract for LNG

Selected Independent Players

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0

2

4

6

8

10

12

14

16

18

US$

/mm

Btu

Asian LNG Price Forecasts

New Japan Oil-Linked LT Range Japan Spot Range New Japan Oil-Linked LT Japan LNG spot Japan Average Existing Contract

15

New Long-Term Contracts and Spot LNG Prices in Asia Remain Disconnected in the Near-Term Due to an Oversupplied Market

Both spot and LT prices rise to around US$10/mmBtu by 2026 as oil price rises, giving a reasonable return to the next tranche of LNG supply.

Post-2023, the market becomes tighter and the global LNG surplus clears, due to a lack of liquefaction FIDs, resulting in gradually closer spread between spot and contract prices.

Note: The above prices are in 2016$ real terms.

Japan average existing contract price remains significantly higher than the forecasted prices for new contracts. Asian spot prices remain disconnected from new oil-linked LT prices this decade as the market remains oversupplied due to the start-up of new liquefaction projects.

Asian spot prices are expected to start recovering slowly post-2018 as Asia becomes less over contracted.

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For Buyers and Sellers to Meet, LNG Price Levels and Contractual Flexibilities Need to be Adjusted

Pricing Adjustments

• Lower price expectations (lower slopes, removal of constants)

• More regular price reviews (~3-5 years)

• Move to other indexations such as JLC/JKM

Non-Pricing Adjustments

• Destination flexibility

• Volume flexibility (higher UQT/DQT)

• Seasonal delivery schedule

• Alliances between buyers/sellers

• Shorter long-term contracts

• Geographical swaps

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