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Agenda
DOLLARS AND DISTILLATES DRIVE CRUDE
October 2010
STRICTLY PRIVATE AND CONFIDENTIAL
QE and high liquidity risk inflation short term, but will add supply when rates rise
After the Liquidity Cycle Gold $/troz
Gold prices are a good barometer of interest rates, liquidity 1400
and inflation risk 1200
QE risks weakening the US dollar, adding a further 1000
stimulus to North American and Emerging Market growth 800
600
Linking of Fed policy to price levels, rather than growth a
key change in policy – could spark inflationary expectations 400
and cause money to flow into commodities 200
0
Low interest rates enable the oil market to hold high levels
1983 1988 1993 1998 2003 2008
of inventory – currently a stabilizing feature, but could
Source: JP Morgan Energy Strategy, Bloomberg
become a driver of rising prices
Oil Price is Cheap When Measured in Gold US Dollar and Crude Oil Correlation to Resume
$/bbl $/EU
Bbl / troz
0.16 160 Brent Crude USD/EUR 1.7
0.14 140 1.6
0.12 120
1.5
0.1 100
0.08 80 1.4
LATEST MARKET OUTLOOK
0.06 60 1.3
0.04 40
0.02 1.2
20
0 Oil priced in Gold
0 1.1
1983 1988 1993 1998 2003 2008 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10
Source: JP Morgan Energy Strategy, Bloomberg Source: JP Morgan Energy Strategy, Bloomberg
2
Base case price forecast: Potential for major disruptions from all directions
Old World: Forward price solidly anchored
■ Prior to the 2004-2008 price run-up and subsequent In US$/bbl
$140
collapse, the forward curve was anchored around $120
$20/bbl
$100
■ $20/bbl was thought to be the marginal cost of
$80
supply
$60
■ Short-term disruptions had minimal impact on long-
$40
term price views
$20
■ OPEC sought to manage market through inventories
$-
'99 '01 '03 '05 '07 '09 '11
Source: JPMorgan Energy Strategy
■ Over 2004-2008 worries about long-
New World: Disruptions will transmit across the forward price curve term supply escalated
■ In 2008-2009 there was concern about
Event/shock (US$ Impact) Front Back (Dec 2012) the duration of the recession
Global economic shock (+ or -) +20/-30 +10/-15
■ In both cases, long-term concerns
Iraqi collapse or shock +30/-5 +15/-5 directly impacted short-term prices
Iran turmoil +40 +20
■ The past year has seen a period of
China take-off or collapse +15/-20 +15/-15 relative stability with the market poised
LATEST MARKET OUTLOOK
Substantial interfuel substitution -5 -10 at $70-80/bbl
Substantial change to costs +5/-5 +10/-20 ■ Is this the calm realistic?
Unknown supply disruption +5 to +50 +0 to +30
■ Will prices ratchet up again as we saw
Other? ? ? over 2004-2008?
Source: JPMorgan Energy Strategy
3
Flexible LNG seeks to push into high value market for oil substitutes
Oil-linked Asia provides the highest value for LNG
■ Asian LNG imports grew by close to 30 percent in
August versus the same period last year
Competing Fuels US$/MMBtu (approx) ■ Korea was up over 80% yoy
US Natural Gas 4
■ Demand was weak in 2009 due to the crisis, but
UK Natural Gas 7 new LNG supply is pushing into the Asian market
Asia Spot LNG (Japan) 9
■ Spot LNG is certainly competitive with oil...sellers
Asia Long Term LNG (Recent) 12
seek to place flexible LNG in high value niche
LSWR FOB Indonesia 12.50 markets in place of oil (e.g., India, Kuwait)
Fuel Oil 180CST FOB Singapore 11.50
Naphtha CFR Japan 16
Minas Crude Oil 15
Global Gas Prices: What will Qatar do with its flexible volumes?
Source: JPMorgan Energy Strategy, Bloomberg
Push into Asia
■ A huge question is what Qatar will do with
over 30 MTPA of ―flexible‖ LNG initially
targeted at the US and UK which is now
$3-5/MMBtu $3-8/MMBtu $9-13/MMBtu
ramping up
■ This has important implications for the oil How will Qatar adjust to
new market realities?
market as it is 740 kbd of oil equivalent
LATEST MARKET OUTLOOK
■ Will it push into low value markets to
compete with coal, or will it get pulled into
Asia as a substitute for oil?
■ The Middle East is the latest region to
emerge as a surprise LNG
Source: JP Morgan
importer...replacing oil
4
Oil demand is robust, poised to move into supply deficit
Global Demand Growth Profile and Forecasts by Region, 2009-2011 ■ World oil demand growth to moderate
461 87 75 80 to 1.6 mbd in 2011
44
-99 ■ Still seen above trend, driven by
-
252 Emerging Market demand
- 1
1 82
- 911
285 281
FSU ■ China imports easing
883 Europe
2272
OECD North America 166
757
■ But signs it is drawing on stocks
1631 521
263
211 ■ Structural risks:
82
157
119
Middle-East ■ Natural gas substitution
Latin America
59
Asia Pacific
■ Efficiency
Africa
World Oil Balance
-1218
2009 2010 2011 92.0 +10.0
Global
+8.0
Source: JPMorgan Energy Strategy 90.0
+6.0
■ OPEC output has stabilised at 29.1 mbd, even 88.0 +4.0
assuming rising OPEC supplies, a market deficit +2.0
LATEST MARKET OUTLOOK
is seen 86.0 +0.0
■ Still see trend GDP growth -2.0
84.0
■ Receding risks of double-dip recession -4.0
■ But Eurozone problems show they have Stock Change To Balance Total Product Demand Supply
82.0 -6.0
not gone away Jan 08 Jan 09 Jan 10 Jan 11
Source: JPMorgan Energy Strategy
5
Rising oil demand reflects infrastructure strains, comfort with high prices
US Port Traffic Vehicle Fuel Consumption and Oil Prices
800 MPG $ bbl
22.0 120
750
700
650
21.5 80
600
550
500
21.0 40
450
400
350
Total Loaded Inbound 20.5 Average Miles Per Gallon 0
Crude Oil Prices $/bbl
300
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: JP Morgan Energy Strategy, Port Authority Long Beach and LA
Source: JP Morgan Energy Strategy, US Bureau of Transport, EIA
Global Air Traffic Indicators World oil demand is coming in stronger than
economic growth indicators suggest
Miles Index
40 Robust demand from Emerging Market
30 economies due to growth straining infrastructure
20 - much in the same way as 2004 and 2008
LATEST MARKET OUTLOOK
10
Signs that initial conservation response to high
0
prices is waning – not surprising considering oil
-10 prices have averaged $75 bbl for five years now
Freight Traffic
-20
Passenger Traffic
Subsidies being removed in emerging markets,
-30
2003 2004 2005 2006 2007 2008 2009 2010 but likely to be re-imposed if prices rise
Source: JP Morgan Energy Strategy, IATA
6
Distillate will provide the marginal demand barrel in 2010
Non-OECD Product Demand Year-on-Year Change Global Product Demand Year-on-Year Change
mbd mbd
3 Light Ends Middle Distillate Fuel Oil 4 Light Ends Middle Distillate Fuel Oil
2
2
1
0
0
-2
-1
-2 -4
Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10
OECD Product Demand Year-on-Year Change Dramatic divergence in product demand growth trends
between Emerging Markets and OECD post recession
mbd
2 Light Ends Middle Distillate Fuel Oil
Light ends have driven the market higher, led by the
petrochemical sector
Decline in light ends reflects weaker gasoline
0 demand and end of petchem restocking
LATEST MARKET OUTLOOK
Maybe too bearish
-2 Middle distillate demand (gasoil, diesel, jet and
kerosene) has shown signs of improvements in the past
few months
-4 Strong gasoil/diesel cracks and is good news for
Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 complex refiners
7
In an industry running at 93% capacity there is little margin for error
Peak Oil Projection International Energy Agency Concern
There is a need to find 3-4 mbd of new oil every year just to stand still
But we have been doing that for the past decade
When we are less successful or demand surges, prices spike
When we are marginally better, there is a downward bias to prices
LATEST MARKET OUTLOOK
Future project analysis only provides clarity for the next 3-4 years
Reality is there are plenty of hydrocarbons around
The real questions are the price to produce them and the price to curtail demand
A major concern is that even with the highest level of spare capacity for a decade, the industry is
running at 96% of capacity 8
There is little margin for error
Meeting emerging market growth will be a challenge
Growth in Emerging Markets Indexed Global Oil Demand Growth
EM economies pull more oil for every extra dollar earned OECD China/India/Brazil Other Non-OECD
than mature economies. 250
EM’s have been the driver of oil demand for much of the 200
last decade, but now that they make up nearly half the
150
world oil economy
100
Forecast of Chinese demand for 2010 is up 10.4%, plus
another 5.3% in 2011. It will surpass the US as the worlds 50
largest consumer by 2020
0
Demand growth for 2011 from India and Brazil with yoy
increases of 4.4% and 4.8%, respectively.
Chinese Oil Demand Growth Percent Share of Global Oil Demand
30
2001 Average 2013 Forecast
25
Chinese Oil Demand …
20 Other Non-
OECD Other Non-
26% OECD
Mln Barrels per Day
30%
LATEST MARKET OUTLOOK
15 OECD
50%
OECD
10 China/India/ 62%
Brazil
12% China/India/
5
Brazil
20%
0
2000 2004 2008 2012 2016 2020 2024 2028
Source: JP Morgan Energy Strategy, JODI, IEA Source: JP Morgan Energy Strategy, JODI, IEA
9
High price and better equipment availability allows production to grow
Over the past year, 2010 non-OPEC supply projections Per country Revisions (% and Vol) to 2010 Supply-ex FSU
by the International Energy Agency have been revised
up by 770 kbd 1 150
0.8
Russia and Azerbaijan were two major FSU 100
0.6
forecasting issues, which cancelled each other out
Russia higher to new projects 0.4
50
Azerbaijan to ongoing project delay 0.2
0 0
Supply revised higher in 41 countries, lower in 23
-0.2
Decline (and forecasting error) has not gone away -50
-0.4
-0.6
Volume supply revisions kbd (RHS) -100
-0.8 Percentage supply revisions (LHS)
-1 -150
Number of countries with revisions Russia and USA alone present upside risk to 2011
forecast non-OPEC supply growth of 0.5 mbd
Corporate guidance suggests Russian output
growth of 350 kbd, JPM forecast 80 kbd
Downward
US growth could be revised up on:
LATEST MARKET OUTLOOK
Revisions,
23 lower drilling impact to Gulf of Mexico
Upward Rapid shale oil development
Revisions,
41
Strong pace of development in West Africa
Iraq, Brazil provide two-way risks
10
OPEC will let oil prices swing between $55 and $100 per barrel
Prompt WTI Price OPEC uncomfortable with prices below $70 bbl, but
would only act if prices dipped below $65 bbl
90 The time taken to gather a response could see
prices dip to $55
80
Saudi budget needs $70 to balance – with social
70 spending growing rapidly, Saudi will be comfortable if
prices rise gradually
60
Outside of a significant downward price shift, OPEC is
50 WTI
not likely to change current quotas. Additional output
10 day MAV
40 20d MAV
from Iraq/Nigeria. Still concerned about high prices
30
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10
Source: JP Morgan Energy Strategy, JODI, IEA
Geopolitical flashpoints
High geopolitical risks over next six months
Attacks on Iraqi northern pipeline have been stepped
up during political impasse
Nigerian elections risk positioning by Niger Delta
LATEST MARKET OUTLOOK
rebels
Iranian sanctions seem to be having economic effect,
but international patience wearing thin
Venezuelan elections already causing surge in diesel
demand as president seeks to avert rolling blackouts.
Source: JP Morgan Energy Strategy, JODI, IEA
11
Refinery Crude Runs
Post-Summer Runs and Margins NYMEX product cracks
Heat Crack Gas Crack Fuel Oil Crack
Refining runs are being supported by the bottom $/bbl
half of the barrel 20
15
US refining runs have remained high despite
10
impending maintenance
5
Diesel and fuel oil demand for power generation 0
has been higher than years prior -5
Diesel demand forecast has been adjusted up -10
by 150 kbd globally. Fuel oil adjusted up by a -15
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10
similar amount – more significant effect due to
smaller pool US Refinery crude runs
2010 2009 2008 2007
Surge in demand is reflected in prompt cracks
rising to above $15/bbl for ULSD in Europe, its 17.0
highest level since late June 16.0
15.0
Northern hemisphere winter heating demand
could keep inventories tight in coming months 14.0
LATEST MARKET OUTLOOK
13.0
Market will be reluctant to draw inventory prior to
12.0
1Q11
11.0
10.0
J F M A M J J A S O N D
Source: JP Morgan Energy Strategy, EIA
12
Global crude demand peaked in the summer: winter rebound seen in 4Q10
Crude Market Balance
m b/d mb
Crude Market Balance
74.0
150
100
73.0
50
-
72.0
-50
71.0 -100
-150
70.0 -200
-250
69.0 -300
Jan-08 Jan-09 Jan-10
Stock Change (rhs) Crude Demand Crude Supply
LATEST MARKET OUTLOOK
Material upward revisions to supply estimates suggest market less tight than previously thought
Crude market tightness still seen peaking in July/August
Thereafter seasonal maintenance points to renewed build., before year-end ramp-up in runs start the next draw
13
World product supply potential points to distillate-led tightness
Tighter Fuel Oil to Pressure Upgrading Margins
mbd
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
LPG Naphtha Gasoline Jet/kero Gasoil/Diesel Fuel Oil
2009 2010 2011 2012 2013
Source: JP Morgan Energy Strategy
■ Robust economic growth in Emerging Market economies, Asia in particular, underpins distillate-led demand growth
LATEST MARKET OUTLOOK
■ By contrast rising supplies of ethanol and NGL volumes will pressure gasoline cracks
Continued robust naphtha demand growth provides some support to light distillate markets
■ A similar picture of rising supplies (OPEC NGL volumes) is evident in LPG markets
■ By contrast diesel/gasoil markets look set to tighten despite distillate-focused upgrading investment
14
Reported Crude Stocks have fallen by 10% from early 2009 peak
OECD Commercial Crude Inventories and Floating Storage
In mb
1.25 Floating OECD Land-based
1.20
1.15
1.10
1.05
1.00
0.95
0.90
LATEST MARKET OUTLOOK
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10
OECD land-based crude stocks and global floating crude storage has
fallen by over 100 mb since the peak in April 2009
15
Medium-term risks to near-term prices
Spare capacity starts to fall sharply from 2011
mbd mbd
100 7
Pace of economic growth
and Iraqi oil field
6 development are the real
95
uncertainties as we move
5 forward
90
4 Financial stresses and
unemployment could drive
3
85 efficiencies, but policy and
high prices will be more
2
effective and permanent
80
1
Electric vehicles are unlikely
to have a significant impact
75 0
2009 2010 2011 2012 2013 2014 2015 on demand until post 2015 at
best
Supply Capacity (LHS) Demand(LHS) OPEC Spare Capacity (RHS)
JPMorgan Medium Term Crude Oil Price Forecast
1Q10 2Q10 3Q10 4Q10 2010 2011 2012 2013
LATEST MARKET OUTLOOK
Nymex WTI Crude ($/bbl) 78.88 78.05 76.00 81.00 78.50 82.50 92.50 102.50
Price forecast assumes OPEC will try to moderate increases
but will the market rise much faster, to prevent a supply crunch happening?
All Forecasts are period averages. Actual to date prices for 1Q10 and 2Q10 are as of July 30, 2010
16
J.P. Morgan – Global Refinery Analysis Model
J.P. Morgan’s Global Refinery Analysis Model (GRAM) is a bottom-up analysis of existing refinery capacity and
confirmed investment projects
The analysis covers more than one thousand individual new units adding to the existing 750 detailed refineries in
the model
Regional crude slates and volumes are forecast based on typical regional consumption patterns and forecast
changes to crude quality
NGL supply volumes are assumed to be a substitute for crude in the global crude market
Implications for the residue balance in particular
Supply analysis assumes OPEC will maximize production of non-quotas barrels ahead of crude
The GRAM uses 50 crude assays to analyze output from the initial distillation of the crude. The model then runs
these outputs through secondary processing units and aggregates the output into seven finished product
categories
Model assumes that most capital intensive units are filled first
i.e. cokers are filled before visbreakers
METHODOLOGY & REFINERY OUTLOOK
The impact of the new capacity additions are shown through a comparison of total product supply of these seven
product categories against JP Morgan’s detailed product demand model
Regional and global product market balances are then calculated including other sources of supply including
NGLs and biofuels
17
Regional refining capacity growth: the Americas; EMEA; Asia-Pacific
Global refining industry set for substantial growth in 2010-
Global Refining Capacity Growth 2010-2014 (mbd)
2014 period
Growth is led by regional champions
China in Asia 1.7 3.0
1.5 2.3
Saudi Arabia in the Middle East 1.6
1.9
The US and Brazil in the Americas
Ongoing investment in upgrading capacity will
Further boost the supply of light clean products
Continue to tighten fuel oil markets
Puts upgrading margins under pressure CDU Upgrading
Regional variations will become critical to refinery
profitability Source: JP Morgan Energy Strategy, Wood Mackenzie
European and Japanese refineries faces the
greatest pressure to close capacity
Falling regional demand keeps profit generation
under intense pressure
METHODOLOGY & REFINERY OUTLOOK
Rising biofuels supplies globally will further
undermine potential returns
18
Regional upgrading capacity growth: the Americas; EMEA; Asia-Pacific
Global Crude Distillation Capacity Growth 2010-2014 Global Upgrading Capacity Growth Profile 2010-2014
1.0 1.5 1.0
1.0 1.0 1.0
0.5 1.0 0.5
0.5
0.5 0.5
- 0.5 - -
2010 2012 2014 2010 2012 2014 2010 2012 2014
- -
- 2010 2012 2014 2010 2012 2014
2010 2012 2014
Source: JP Morgan Energy Strategy, Wood Mackenzie Source: JP Morgan Energy Strategy, Wood Mackenzie
■ Asia Pacific and Middle East lead CDU capacity increase
METHODOLOGY & REFINERY OUTLOOK
Driven by supply security concerns in China, India
OPEC expansions driven by:
■ Energy security
■ Desire to maximize revenue from the barrel
■ Market control
■ Brazil, Mexico and the US bolster the Americas
■ Upgrading capacity additions concentrated in next three years
19
Oil market outlook : Conclusions
Linking of Fed policy to price levels, rather than growth a key change in policy – could spark
inflationary expectations and cause money to flow into commodities
Low interest rates enable the oil market to hold high levels of inventory – currently a stabilizing
feature, but could become a driver of rising prices
The recent decision to allow output to drift higher and lower stock levels adds weight to extreme
views on higher underlying decline rates and lower spare capacity
World oil demand growth of 2.2mbd will moderate to 1.6 mbd in 2011
Still seen above trend, driven by Emerging Market demand and healthy EM GDP growth.
Light ends have driven the market higher, led by the petrochemical sector
Middle distillate demand (gasoil, diesel, jet and kerosene) has overtaken gasoline/naphtha
as transportation gain become the dominant feature of world oil demand growth.
A major concern for the industry and OPEC is that even with 6mbd of spare, the industry is
running at 93% of capacity; suggesting there is little margin for error
OPEC output has stabilised at 29.1 mbd, and upcoming OPEC meeting is unlikely to see any
departure from current script.
The market seems happy to anchor prices in the $80-100/bbl long-term, but is this rational?
LATEST MARKET OUTLOOK
Supply and demand shocks could quickly force a re-appraisal of long-term equilibrium prices if
circumstance change.
20
North American capacity expansion driven by the US
US refiners continue to adapt to rising supplies of heavy sour crude/bitumen from Canada, rising Shale Oil production
and the Middle East’s increasingly sour crude slate
Nearly 75% of US capacity additions relate to projects to increase the ability to process heavy sour crude
Key projects include:
Motiva Port Arthur—325 kbd new crude US Coking Capacity Growth Projects
capacity in 2012
Marathon Garyville—180 kbd new crude
capacity on stream in 2010
Projects involve substantial expansion of
upgrading units
However, these investment decisions, while
still robust in term of potential economics
ignore the changing landscape of the US
crude market—notably the rise of better
quality oil from the emerging shale oil plays
METHODOLOGY & REFINERY OUTLOOK
Source: JP Morgan Energy Strategy, Wood Mackenzie
21
World product supply potential points to distillate-led tightness
Tighter Fuel Oil to Pressure Upgrading Margins
mbd
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
LPG Naphtha Gasoline Jet/kero Gasoil/Diesel Fuel Oil
2009 2010 2011 2012 2013
Source: JP Morgan Energy Strategy
■ Robust economic growth in Emerging Market economies, Asia in particular, underpins distillate-led demand growth
■ By contrast rising supplies of ethanol and NGL volumes will pressure gasoline cracks
PRODUCT BALANCES
Continued robust naphtha demand growth provides some support to light distillate markets
■ A similar picture of rising supplies (OPEC NGL volumes) is evident in LPG markets
■ By contrast diesel/gasoil markets look set to tighten despite distillate-focused upgrading investment
22
North American supply potential — gasoline imports to diminish
North American Gasoline Market to Become More Balanced
mbd
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
-1.2
-1.4
LPG Naphtha Gasoline Jet/kero Gasoil/Diesel Fuel Oil
2009 2010 2011 2012 2013
Source: JP Morgan Energy Strategy
■ Regional gasoline import requirement diminishes due to falling demand (despite Mexico)
■
PRODUCT BALANCES
Rising ethanol supplies help rebalance market
■ Current diesel exports are eroded by strong economic growth supporting diesel demand
■ However we have assumed US refiners do not radically alter their operating mode – i.e. they remain focused
on max gasoline
23
Upgrading capacity to tighten the fuel oil balance in the coming years
Global Fuel Oil Supply and Demand Balance
mbd
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
2009 2010 2011 2012 2013
Source: J.P. Morgan Energy Strategy
With the move towards cleaner/lower sulfur fuels, demand for the bottom cut of the barrel has continued to
trend lower over the years despite strength in other product groups
However, we expect the fuel oil balance to tighten considerably over the next several years as the current
refinery buildout cycle is expected to add a considerable amount of upgrading capacity
Much of the new refining capacity (the bulk in non-OECD Asia) is expected to be rather sophisticated, with
the ability to reprocess much of the fuel oil produced into more desirable (and higher priced) middle and
light end products
In Europe and North America, the inability to build new greenfield refineries has led to additions of
secondary units to existing infrastructure to produce a lighter product slate, reducing fuel oil yields
European supply potential — gasoline exports remain a threat to region
Diesel-Biased Demand Leaves Region Vulnerable to Rationalization
mbd
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
LPG Naphtha Gasoline Jet/kero Gasoil/Diesel Fuel Oil
2009 2010 2011 2012 2013
Source: JP Morgan Energy Strategy
■ Despite lower crude run assumptions, declining regional demand leaves European refineries exposed to
PRODUCT BALANCES
competition from rising Asian export volumes (particularly from India)
■ In contrast to North America, Europe’s product balance moves more out of line with demand
■ Capacity rationalization remains a real risk given low complexity many regional refineries
24
Conclusions: global refining and product supply
Refiners globally are over-investing in new capacity, and particularly upgrading capacity
This is the area that has provided strong returns over the past 20 years, but by virtue of
overinvestment will provide less of a competitive advantage in the future
World refinery capacity and upgrading expansions to constrain refining margins for the next five
years
Upgrading capacity to keep fuel oil margins tight and narrow differentials between light/sweet, and
heavy/sour crude oil prices
Bulk of new capacity taking place in Asia and Middle East—the area of greatest demand growth
Low clean freight rates to open up wider scope for product trade when Asia becomes over-supplied
Refining profitability is therefore likely to be strongly influenced by location factors—particularly
access to low cost crudes
Atlantic Basin crude supplies to be tightened by ongoing draw from Asia, Russian preference for
supplies via ESPO pipeline, ongoing decline in North Sea
US refiners continue to adapt to rising supplies of heavy sour crude/bitumen from Canada, rising
shale oil production and the Middle East’s increasingly sour crude slate
Significant investment in additional coking capacity will allow refiners to run heavier crude slates—
PRODUCT BALANCES
positioning themselves to capture lower cost feedstock’s on the Gulf Coast and potentially the US
Midwest
But many of these investment plans were signed off before the recent surge in shale oil production
25
Agenda
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October 2010
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J.P. Morgan Covers Commodities Across the Supply Chain
Research Global Commodities Futures & Options
Metals, Bulk Commodities OTC Metals, Energy and Ags Listed Futures and Options
Energy and Power Warehousing Risk Specialist Trading Desks
Grains and Agricultural Structured Products Global Clearing Solutions
Technical Analysis Long Dated Contracts Electronic Trading
Energy and Base Metals Precious Metals Agricultural Weather Environmental Plastics
Power Markets
Steel Gold Cattle Temperature Ethylene
Coal Carbon
Dairy Precipitation Polyethylene
Nickel Silver allowances and
Electricity Grains offsets (e.g.,
Zinc Platinum Wind Polypropylene
Soybeans
RGGI; EUAs;
Natural Gas
Tin Palladium Hurricanes CERs; VERs)
Gasoline Wheat
Copper Sunshine Sulphur Dioxide
GLOBAL COMMODITIES OVERVIEW
Corn
Crude Oil
Aluminium Crop Yields Nitrogen Oxides
Softs
NGLs
Lead Coffee Renewable
Transportation Energy Credits
Aluminium Alloy Sugar
Freight
NASAAC Cotton
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J.P. Morgan – Oil Trading
Global Oil Trading Headcount by Location – 24 hour coverage
London 18
Stamford 12
Calgary 6
New York 13 Geneva/ Zug 5
Houston 4
PHYSICAL AND FINANCIAL OIL CAPABILITIES
Singapore 16
In addition, there are over 20 waterborne and pipeline logistics experts spread across these locations
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Global Footprint
Worldwide Locations
From metals and energy to environmental and agricultural commodities, our nearly 2,000 professionals in more than 10
countries operate at the center of the commodity markets. In addition to our office locations, our Henry Bath warehousing
franchise operates more than 100 individual warehouses locations in 11 countries
Liverpool
Oxford
Oslo
London*
Stamford
Stockholm
Calgary Holland
New York* Beijing
Germany
Washington DC Shanghai
Chicago Seoul
Maryland
Hong Kong
Tokyo
Houston* Madrid Istanbul
Singapore*
Geneva
GLOBAL COMMODITIES OVERVIEW
Sao Paulo** Dubai
Zug
Mumbai
Italy
Combined Location
JPM GCG Only Center
Johannesburg**
Sydney
RBS-S Only Center
* Major hub
** Expected in 2nd half of 2010 31
J.P. Morgan’s Global Oil Physical Asset Overview
London
New York
Calgary
Geneva/ Zug
Houston
PHYSICAL AND FINANCIAL OIL CAPABILITIES
Time Chartered Vessels Singapore
Storage Facilities
J.P. Morgan can provide physical off take, delivery, storage, shipping and blending solutions across most petroleum products,
enabled by strong trading, operational, and functional support expertise
Unique market position because much of the physical activity cannot be achieved in the financial market (e.g., float a ship
without a sale, unmatched physical longs and shorts in different market areas, trade non-hub locations)
Participate in both wet and dry freight
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Select Oil Team Members
Jeff Frase, Jeff Frase joined J.P. Morgan and the GCG management team in October 2008 as the head of Global Oil Trading, based in New York. He joins
us from Lehman Brothers, where he ran Global Oil Trading for one year. Prior to Lehman, Jeff was a part of Goldman Sachs' Commodities
Managing Director franchise for 17 years, where he had most recently been head of Global Crude Oil and Derivatives trading.
Ken Krug, Ken Krug joined J.P. Morgan in July 2010 and will run the North American physical crude oil trading business. Prior to joining, he spent four years
at Goldman Sachs running the North American physical crude oil business. Ken also started the Canadian physical crude oil trading business
Executive Director during his time at Goldman. In addition, Ken has worked in the refining space doing supply and trading at Suncor Energy.
Dean Bristow, Dean Bristow joined J.P. Morgan in 2010 with the acquisition of Sempra. He has spent the past year at Sempra running the Canadian Crude Oil
book, trading Canadian physical grades, and managing the physical storage portfolio. Previously at Sempra, Dean managed business
Executive Director development for North America physical oil and the Canadian wellhead business. Dean has over 21 years in the energy business.
Kirk Kinnear joined J.P. Morgan in 2010 with the acquisition of Sempra. He has over 30 years experience in oil trading with Phibro Energy, Hess
Kirk Kinnear, Energy Trading and Sempra. Kirk was responsible for supplying crude to refineries in the mid-continent with Farmland, and the US Gulf Coast
Executive Director with Phibro USA. He has worked on the trans-Alaska Pipeline and has experience as a lease crude buyer in the Mid-Continent and the Rockies.
Kirk currently serves as Secretary on the Board of Directors and NYMEX Foundation.
Jay Miller joined J.P. Morgan in 2010 with the acquisition of Sempra. He has been in the oil industry since 1975 and began his career trading at
Jay Miller, ConocoPhillips. Jay helped start the crude oil trading group at Drexel, Burnham, Lambert until the energy trading operations were sold to Sempra
Executive Director Energy. Jay has spent most of his career managing domestic crude oil trading operations and has extensive experience on both the physical and
financial side of the business. Jay is also a member of the Board of Directors of the New York Mercantile Exchange.
David Scholten, David Scholten joined J.P. Morgan in 2010 with the acquisition of Sempra. He joined Sempra in 2005 as domestic crude oil trader. Prior to that,
David was with Shell Trading US Co where he held various positions as a domestic crude oil trader. Before trading, David spent 8 years in
PHYSICAL AND FINANCIAL OIL CAPABILITIES
Executive Director refining as a chemical engineer with Star Enterprise.
Ira Eisenstein, Ira Eisenstein joined J.P. Morgan in April 2008 as a crude oil trader. Ira started his career as a trader at Phibro Energy and also worked in the
Executive Director tanker industry. Prior to joining J.P. Morgan, Ira was an Executive Director responsible for crude oil trading at Morgan Stanley for 17 years.
Andy Kelleher, Andy Kelleher joined J.P.Morgan in August 2009 as the head of North American Products, bringing with him 30 years of extensive experience
trading physical crude and products. His previous roles include President of ConocoPhillips Supply and Trading, Vice President of Tosco Supply
Managing Director and Trading, Phillips Petroleum Company, Sunoco Supply and Trading, and The Marc Rich Trading Company.
Greg Hebrank, Greg Hebrank joined J.P. Morgan in 2010 with the acquisition of Sempra. At Sempra, Greg managed North American light products trading
(gasoline, ethanol, distillates, jet) for the past 6 years. Prior to Sempra, Greg worked for BP, Koch, Shell and El Paso Corporation in light
Executive Director products trading.
Max Strongin, Max Strongin joined J.P. Morgan in 2010 with the acquisition of Sempra. Max joined the Sempra fuel oil desk in 2002 and traded financial fuel
Executive Director oil. Max is currently an Executive Director at J.P. Morgan trading financial and physical fuel oil based in Stamford.
Dean Craig, Dean Craig joined J.P. Morgan in 2010 with the acquisition of Sempra. He has been with Sempra for five years, and currently runs the physical
Natural Gas Liquids book. Dean has traded Natural Gas Liquids for 10 years. Prior to that, Dean traded refined products including unleaded
Executive Director gasoline, jet, and distillate for 8 years. In total, Dean has been in the trading business for 20 years.
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J.P. Morgan named ―Derivatives House of the Year‖ by EnergyRisk
Energy Risk’s Derivatives House of the Year Recognized Products
J.P. Morgan won EnergyRisk’s Derivatives House of the Year in Several structured transactions, in particular, showcased J.P.
June, 2010 Morgan’s ever-growing leadership in commodities
Strategic fuel hedge programme for the Republic of Panama
The magazine highlighted ―a year of innovation in which it
executed a number of ground-breaking deals‖ as key Rainfall-contingent power hedge for a South American-based
components of J.P. Morgan’s industry dominance utility company
―Organic growth and a raft of acquisitions‖ have led to a ―growing Expansion of price-making capabilities throughout Asia
foothold‖ in the commodities industry Tokyo Commodity Exchange
Bear Energy Japanese crude cocktail
ClimateCare Regional crudes
UBS Canadian energy and global agriculture businesses Agriculture products
EcoSecurities Regional coal
J.P. MORGAN GLOBAL COMMODITIES CREDENTIALS
Sempra global metals and oil businesses Regional Power
"What's starting to change are clients' views of J.P. Morgan.
We didn't just flip a switch and one day it happened. We have
been deliberate in our growth strategy. We are now in parts
of the world that hadn't been a major focus for our
commodities team, such as Central and Latin America, the
Middle East, Africa and Asia. Over the course of the past few
years, our focus in energy and other commodities has really
been extending beyond financial and flow products to more
physical and structured transactions.“
-Mike Camacho, Global Head of Commodity Sales
EnergyRisk; June, 2010
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