HOUSE_OVERSIGHT_016148.jpg

next five years, namely Iran and the UAE. As for Libya, the current turmoil needs to come to an end, while the scale of any Iraqi long-term output increase remains the biggest uncertainty. Chart 38: We estimated that demand will grow by 5.9mn bpd in 2015- Chart 39: Other than Saudi Arabia, some OPEC countries will also expand 20 their capacity in the next five years, namely Iran the UAE Global oil consumption BofAML OPEC capacjty growth, 2015-2020F 105 Kuwait mn bpd fcast uwai 100 , Algeria 95 Qatar 90 Venezuela Angola 85 3 Ecuador 80 Nigeria 75 UAE 70 Libya 65 Iran Saudi Arabia 60 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 -0.3 -0.1 0.1 0.3 05 Source: IEA, BofA Merrill Lynch Commodities Research Source: IEA, BofA Merrill Lynch Commodities Research Saudi plans to keep capacity flat add to medium term tightness Saudi Arabia has 12.5mn bpd of crude production capacity, according to the government, and the country suggested within the NTP that it plans to maintain capacity at the current level to 2020. Saudi Arabia is the only material holder of spare crude oil production capacity around the world. Spare capacity currently sits at c2mn bpd, which is one of the lowest levels ever. Even if Saudi Arabia did start investing today, it would take a number of years to be completed and would unlikely be ready before 2020 in any case. Hence, as Saudi ramps up production over the medium-term by digging into its spare capacity, the risk premium in the oil market will rise as the market becomes increasingly less able to handle future supply disruptions. Chart 40: The supply side in oil faces a lot of disruptions linked to Chart 41: Saudi Arabia has 12.5mn bpd of crude production capacity, geopolitics and broad economic mismanagement and currently is c2.0 of spare capacity over current production Major oil supply disruptions 45 Saudi Arabia spare crude oil production capacity 6 > an bid (excluding disruptions due to OPEC policy changes) mn bid 5 post Arab spring ions Kuwait, —— 4 35 Venezuela, Nigeria 30 Iraq unrest : oil strike cut ig o5 J 90 91 92 93 94 95 96 97 98 99 00 01 03 04 05 06 07 08 09 10 11 12 13 14 16 1:5 | Iraq, civil war = Libya, civil war | @ Nigeria, oil theft @ Syria, civil war 1.0 4 m Yemen, civil war mlran, US/EU embargo Jan-09 Nov-09 Sep-10 Jul-11 May-12 Mar-13 Jan-14 Nov-14 Sep-15 Source: IEA, BofA Merrill Lynch Commodities Research Source: IEA, BofA ML Commodities Research. IEA estimates Saudi production capacity at 12.2mn bpd If Saudi gas production gets off the ground, it could crowd out oil demand... The Saudi NTP plans to grow domestic gas production by 50% to 18 bcf/d by 2020, and to use most of this gas to meet a 30% rise in domestic power demand and moreover boost gas’ share in power generation to 70%, up from 50% currently. This implies that oil burned for power generation could drop by 30% or 300 thousand bpd by 2020, most of which would likely be crude which is more valuable in the export market than the 38 GEMs Paper #26 | 30 June 2016 38 Merrill Lynch HOUSE_OVERSIGHT_016148