Energy 2024 Outlook

Energy 2024 outlook
Balancing cyclical and structural support with

the dark side of “higher for longer”
Global Markets Research

MUFG EMEA | Commodities Network
Commodities Research ECA, Commodity & Structured Relationship
Trade Finance Management
Ehsan Khoman
Head of Research – Commodities, ESG Jean-Marie Le Fouest Atakan Akkaya Michele Peduzzi
and Emerging Markets Research Head of ECA, Commodity & Head of Commodity Head of Energy Coverage
ehsan.khoman@ae.mufg.jp Structured Trade Finance Finance michele.peduzzi@uk.mufg.jp
Jean-marie.le_fouest@uk.mufg.jp Atakan.akkaya@uk.mufg.jp
Ramya RS
Analyst Corporate Advisory
ramya.rs@ae.mufg.jp
Francois-Xavier Reignier Sandie Hessing Timothy Madden
Head of ECA & Structured Head of Structured Director
EMEA Structured Finance Office Trade Finance Trade Finance
timothy.madden@uk.mufg.jp
francois-xavier.reignier@uk.mufg.jp Origination
Stephen Jennings sandie.hessing@uk.mufg.jp
Head of Energy
stephen.jennings@uk.mufg.jp
ESG Business Coordination

& Strategy
Amanda Kavanaugh
Director
amanda.kavanaugh@uk.mufg.jp
Confidential | page 2
Contents
1 Executive summary 03-04
2 2024 energy thesis 05-08
3 Global oil markets 09-19

• Price outlook 09-13
• Fundamentals 14-17
• Refining 18-19
4 Natural gas markets 20-39

• Europe 20-30
• USA 31-35
• LNG 36-39
5 Commodities forecasts 40-41
6 MUFG Global Markets Research credentials 42-44

page 3
Executive summary | Energy 2024 outlook
• Energy was the worst performing commodity sub-group in 2023. A confluence of concerns surrounding demand from higher
Energy was the
for longer rates, recession obsession fears, manufacturing destocking, oil supply beats and favourable weather for gas
big loser in 2023
markets dominated the energy landscape.
• We classify the year 2024 for the energy complex as one of balance with bearish skews.
Our energy • Global oil markets will remain supported by tight micro fundamentals (moderate deficits), OPEC+ driven carry and effective
complex hedging value against negative geopolitical supply shocks. Meanwhile, remarkably high European gas inventories, no net US
conviction is one gas demand growth and benign conservation efforts across both sides of the Atlantic, will keep gas markets in good order.
of balance with • Juxtaposed against this constructive picture are taxing downside risks anchored on the dark side of “higher for longer”
bearish skews in interest rates. Until core inflation firmly settles down, an on-hold Fed with rates remaining higher for longer than markets are
2024 pricing is a real risk in 2024. Such headwinds will continue weighing in on energy demand. Succinctly, the landing has been
very soft so far, but will get bumpier in 2024.
• Having said that, as we catalogued in our commodities 2024 outlook (see here), we critically caution that the supply-
Our supercycle
constrained decades-long supercycle is merely delayed – not derailed – given the structural underinvestments miring the
thesis is merely
energy complex. We hold conviction that these long-term structural challenges facing energy markets remain unresolved and
delayed – not
will move top of mind as soon as the current macro headwinds are in the rear-view mirror. Put differently, cyclical bearish
derailed
headwinds today, structural bullish tailwinds tomorrow.
We recommend • Examining energy sub-groups, a large degree of heterogeneity mires the complex that warrants a tactical approach in 2024:
tactical o Crude oil (neutral). Active OPEC+ market management will aim to maintain the USD80-100/b oil corridor, with a
positioning USD80/b floor from the OPEC+ put from its inelastic pricing power, and a USD100/b ceiling from the group’s
across the reluctance to push timespreads to extreme levels that would bring forward demand destruction for its own barrels.
energy sub- o European natural gas (neutral-to-bearish). Higher-than-average gas inventories and another mild winter will offset
groups with a a modest rebound in industrial demand as well as skittishness in pricing in geopolitical risk premium.
large degree of
o US natural gas (bearish). Balances remain oversupplied, driven by a higher storage starting point, lower annualised
heterogeneity
power burns and benign gas production growth – as such, US Henry Hub gas price risks skew to the downside.
December 2023|| Source: MUFG Research
Confidential
October page 4
Contents

• Refining 18-19

• Europe 20-30
• USA 31-35
• LNG 36-39

page 5
Energy 2023 performance | worst performing commodity subgroup
Energy was the worst performing commodity sub-group in 2023. A confluence of concerns surrounding demand from higher for
longer rates, recession obsession fears, manufacturing destocking, oil supply beats and favourable weather for gas markets
dominated the energy landscape.
After two years of consecutive outperformance, Across the commodity complex, EU and US natural gas
energy trailed cross-commodity classes in 2023 performed worst in 2023, followed by gasoline and crude oil
Cross-commodity performance (rebased 100 = January of each year) Total return of the Bloomberg commodity (BCOM) index with
subcomponents in 2023 year-to-date (%)
2021 2022 2023
200
Hard Coking Coal
190 Sugar
+14% Iron Ore
180 Coffee
+50%
Gold
170 Live Cattle
Silver
160 Copper
Cotton
150 Agriculture
Global commodities
140 Aluminium
WTI Crude
130 Brent Crude -9%
EU ETS EUA
120 Platinum
-21% Precious Soybean
110 metals Gasoline -15%
Commodities Zinc
100 Heating Oil
aggregate Lean Hogs
90 Grain Index
Agriculture
Wheat
80 Base metals Corn
Energy -39%
US Natural Gas
70 EU Natural Gas
-43%
Nickel
Nov-21
Mar-22
Mar-23
Mar-21
Sep-22
Nov-22
Sep-23
Nov-23
Sep-21
Jan-21
May-21
Jan-22
May-22
Jan-23
May-23
Jul-22
Jul-23
Jul-21
Palladium
-50 -40 -30 -20 -10 0 10 20 30
December 2023|| Source: Bloomberg, MUFG Research

Confidential
October page 6
Energy 2024 outlook and top trade ideas | neutral with a bearish skew
We classify the year 2024 for the energy complex as one of balance with bearish skews. Global oil markets will remain supported by
tight micro fundamentals (moderate deficits), OPEC+ driven carry and effective hedging value against negative geopolitical supply
shocks. Meanwhile, remarkably high European gas inventories, no net gas demand growth in the US and benign consumer
conservation across both sides of the Atlantic, will keep global gas markets in good order*.
Energy Quarterly average forecasts
Signal Rationale
subcomponent Q1-24 Q2-24 Q3-24 Q4-24
Energy subcomponent
Active OPEC+ market management will aim to maintain the USD80-100/b

conviction in 2024
oil corridor, with a USD80/b floor from the OPEC+ put, and a USD100/b
Crude oil Neutral 81 80 86 89
ceiling from the group’s reluctance to push timespreads to extreme levels
that would bring forward demand destruction for its own barrels.
Higher-than-average gas inventories and another mild winter will offset a
EU natural Neutral-
45 41 40 48 modest rebound in industrial demand as well as skittishness in pricing in
gas to-bearish
geopolitical risk premium.
Balances remain oversupplied, driven by a higher storage starting point,
US natural
gas
Bearish 2.8 2.3 2.4 2.7 lower annualised power burns and benign gas production growth – all
teaming up to crush any chances of tight inventories.
Trade Description Rationale

Commodities top trade
Oil, oil products and key base metals are best positioned to benefit from a
Long BCOM energy and long
ideas in 2024
2024 deficits supportive cyclical backdrop and structural factors including OPEC+ pricing power,
BCOM base metals
refinery tightness and green metals demand.
OPEC+ pricing Short Brent Jun-24 80-100 strangle, Oil sustained in USD80-100/b corridor supported by solid demand, low OPEC+
power corridor long Jun-24 90-95 call spread supply and modest deficits, with ample spare capacity limiting upside**.
Summer gasoline Long Aug-24 EBOB Gasoline-Brent Beyond underlying refining constraints, gasoline faces the additional issue of
tightness cracks secondary unit constraints**, that limit the ability to produce high-octane gasoline
December 2023|| Source: Bloomberg, MUFG Research; * Until the next wave of eagerly awaited LNG supply capacity increases in 2025; ** Isomeration
Confidential
October page 7
units and alkylation units and reformers. Although these constraints did bind in 2022-23, market forwards do not reflect a repeat
despite limited investment to prevent a repetition.
Energy thesis | balancing cyclical/structural support with higher for longer
At the best of times, the future trajectory of energy markets has ample uncertainties – 2024 will be no different, with the tilt skewed to
the downside.
Cyclical and structural The dark side of higher

supportive factors for longer
1 Monetary policy drag Not all aspects of tightening is swift 1
The heaviest blows from monetary tightening are Transmission of monetary policy tightening differs:
behind us – more core disinflation implies real 1. Corporates – net interest payments have increased
disposable incomes will rise, and the Fed will be disproportionally slowly so far
willing to deliver insurance cuts if growth slows 2. Households – average mortgage rate paid in Europe
has only increased 0.8%, while new mortgage loan
2 Fading recession fears rates are up by 2.7%
The drag from financial conditions on GDP growth 3. Governments – interest rate payments are increasing
is easing, which will support energy demand growth but at relatively low levels
3 Geopolitical supply risks Next phase of pain from tightening 4

3 wars – land (Russia-Ukraine), cold (US-China) and hot We emphasise two dimensions of whats to come:
(Israel-Hamas) – signals heightened supply-side shocks 1. While the relationship between rates for new
loans and average debt burden was more
synchronised in previous hike cycles, the initial effect
4 OPEC+ driven carry on debt burdens has been muted (thus the impact of
OPEC+ will continue exerting its inelastic pricing power*
hikes will be spread out)
to keep forward curves in backwardation, defending its
2. Discrepancy between base rates and the average rate
fiscal breakeven levels ~USD80/b (the OPEC+ put)
paid in the economy – thus as central banks ease,
average interest payments could still be rising and so
5 Tight micro fundamentals – moderate deficits part of the tightening effect would still be coming
Energy markets remain in structural scarcity (backwardation)** through the pipeline, dampening monetary easing
December 2023|| Source: Bloomberg, MUFG Research; * Ability of OPEC+ to raise prices without significantly hurting its demand – reflecting its elevated page 8
Confidential
October
market share, and relatively inelastic non-OPEC supply given US shale financial discipline; ** In real physical spot assets, scarcity is best expressed
not through higher prices, but through steep forward curves – best indicator of market tightness as they price fundamentals (not expectations)
Contents

• Refining 18-19

• Europe 20-30
• USA 31-35
• LNG 36-39

page 9
Oil price outlook | USD80-100/b corridor led by OPEC+ management
130
Brent crude price (USD/b) Cap on oil prices at USD100/b …
120
Protecting long run OPEC demand
110 • OPEC is unlikely to push timespreads to
extreme levels because the 2022 energy
97 98
100 92
crisis shows that extreme prices destroy
89 90 long-term residual demand for its barrels
86
90 84
81 80 High OPEC+ spare capacity
80 • Substantial OPEC+ spare capacity of ~6m
b/d offers comfort that this capacity could
70 return should prices surge
US shale is not dead
60
• While structurally lower reinvestment rates
50 show that US producers remain more
+/- 2 stdev bands capital disciplined than a decade ago, rig
40
+/- 1 stdev bands
counts have been quietly edging up
30 Brent crude (USD/b)

... and floor on oil prices at USD80/b
OPEC+ put
20
• In today’s underinvested environment,
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
OPEC+ has inelastic pricing power* to
19 19 19 19 20 20 20 20 21 21 21 21 22 22 22 22 23 23 23 23 24 24 24 24 25 25 25 25
defend its fiscal breakeven levels ~USD80/b
USD/b Less US energy policy room
Q1-24 Q2-24 Q3-24 Q4-24 Q1-25 Q2-25 Q3-25 Q4-25 2024 2025
(averages) • Depleted SPR suggests the US has less
MUFG 81 80 86 89 92 90 97 98 84 94 room left to fight high gasoline prices
Soft landing**
Consensus 87 87 87 88 89 90 92 94 87 91 • Soft landing probabilities have risen with
less risk on disposable incomes
December 2023|| Source: Bloomberg, MUFG Research; * We define high OPEC+ pricing power as the ability to raise prices without significantly hurting
Confidential
October page 10
its demand. High OPEC+ pricing power reflects its elevated market share (through the Russian alliance), and relatively inelastic non-
OPEC supply given US shale financial discipline; ** Where core inflation returns towards target with limited damage to labour demand
USD80/b price floor and USD100/b price ceiling | three reasons for both
OPEC+ is set to ensure that Brent oil prices remain in the USD80-100/b corridor in 2024 by fuelling a moderate deficit and leveraging
its inelastic pricing power* – this range should offer investors robust spot and carry returns.
The OPEC+ put current sits ~USD80/b Historical lessons signals +USD100/b destroys demand
Oil price on day prior to OPEC+ output cut/extension (USD/b) Global oil consumption (% of GDP) vs Brent (USD/b)
100 5.5 120

Demand destruction territory with
90 5.0 110
While the rise in spare capacity implies that the oil north of USD100/b
80 OPEC+ put is less strong than a year ago, fiscal 4.5 100
breakevens dictate an ~USD80/b OPEC+ put Oil consumption 90
70 4.0 % of global GDP Brent
60 80
3.5 oil
50 70
3.0
40 60
2.5
30 50
2.0
20 40
1.5 30
10
1.0 20
0
0.5 10
17-Dec-08
07-Dec-18
05-Oct-22
14-Dec-06
05-Sep-23
26-Nov-98
17-Mar-01
30-Mar-98
23-Mar-99
29-Mar-00
24-Sep-03
28-Sep-16
30-Nov-16
11-Sep-06
05-Mar-20
24-Jun-98
04-Jun-23
12-Dec-02
10-Feb-04
24-Oct-08
06-Dec-19
09-Apr-20
02-Apr-23
0.0 0
2000
2002
2006
2008
2020
2022
2004
1990
1992
1994
1996
1998
2010
2012
2014
2016
2018
Brent oil is unlikely to sustainably drop below USD80/b in 2024 due to: Brent oil is unlikely to sustainably exceed USD100/b in 2024 due to:
1 The OPEC+ put currently sits ~USD80/b – the level it aims to 1 OPEC is unlikely to push timespreads to extreme levels as extreme
defend its fiscal breakeven thresholds for its core members prices destroy long-term residual demand for its barrels
2 Global economy is approaching a soft landing – core inflation 2 Substantial OPEC+ spare capacity of ~6m b/d offers comfort that
returns to target with limited damage to labour or oil demand this capacity could return should prices surge
Depleted SPR suggests the US has less room left to fight high While US producers remain more capital disciplined than a
3 3
gasoline prices decade ago, rig counts have been quietly edging up
December 2023|| Source: Bloomberg, MUFG Research; * We define high OPEC+ pricing power as the ability to raise prices without significantly hurting
Confidential
October page 11
its demand. High OPEC+ pricing power reflects its elevated market share (through the Russian alliance), and relatively inelastic non-
OPEC supply given US shale financial discipline
Stress testing the USD80-100/b price range | three scenarios
We street test our conviction that oil prices will hover in a USD80-100/b range in 2024 by estimating the effect of three key risks on
our Brent 2024 average and year-end forecast of USD84/b and USD89/b, respectively. Absence OPEC+ becoming significantly less
assertive (downside price risk) or if OPEC+ is prevented from deploying its spare capacity (tail upside price risk), we envisage oil prices
remaining in the USD80/100/b corridor
Scenario analysis to stress test our USD80-100/b corridor* OPEC+ response to most envisioned scenarios is set to
keep prices in the USD80-100/b corridor
1 Hard landing (-USD20/b under OPEC+ response) Q4 2024 year-end Brent oil prices under stress scenarios (USD/b)
• This scenario assumes a hard landing type OECD recession starting in
110
Q1 2024, lasting 4 quarters, with spillovers to non-OECD economies. In
this scenario, we consider key OPEC+ countries (Saudi Arabia, Russia, 100
UAE, Kuwait, and Iraq) would likely not gradually raise production (as
our baseline assumes). 90 MUFG expected USD80-100/b corridor in 2024
• If output from these 5 countries stays flat at its Q4 2023 level, then
Brent would be ~USD20/b lower than in our baseline, and reach 80
USD67/b in Q4 2024. Current
70
futures
curve
2 Non-OPEC+ supply beats (-USD12/b under OPEC+ response) 60
• This scenario assumes that global supply excluding core OPEC+, Iraq,
50
and Russia, Iran beats our expectations in 2024 by the same magnitude
as in 2023. In this scenario, extensions of the extra Saudi cut through 40
2024 and the group cut announced in April 2023 through 2025Q1
appear likely. On net, we estimate that Brent would then be USD12/b 30
lower than in our baseline, and reach USD77/b in Q4 2024.
20
3 Supply disruptions (+USD10/b under OPEC+ response) 10

• This scenario assumes a 0.5m b/d rise in unplanned production
0
disruptions to the 2011-2023 average of 1.8m b/d starting in Q1 2024. In
Hard landing Non-OPEC+ supply Supply disruptions
this scenario, we see Saudi Arabia unwinding its extra cut Q2 2024 (vs. beats
our Q4 2024 baseline). On net, we estimate that Brent would be
OPEC+ response No OPEC+ response
USD5/b higher than in our baseline, and reach USD94/b in Q4 2024.
December 2023|| Source: Bloomberg, MUFG Research; * While we see a severe supply downside risk scenario, such as a potential interruption of trade
Confidential
October page 12
through the Strait of Hormuz, as highly unlikely, the resulting rally would likely be sizable. Specifically, we estimate that oil prices in this
tail scenario where core OPEC+ cannot deploy its spare capacity initially rise 20% above our baseline in the first month of interruption.
Two oil pricing regimes | “supply-constrained” market
To contextualise the impact that the energy trilemma is inflicting on oil markets, the frequency distribution of oil prices offers a useful
framework. The low price regime has occurred when markets were well supplied. The high price regime is one where supply growth is
insufficient, and the market needs to balance by eroding demand. The outlook for the oil market in the years ahead is that a
recalibration in the energy trilemma warrants higher prices*.
Double-humped nature of distribution over the last 15 years points to two oil pricing regimes
Distribution of inflation adjusted Brent crude prices over the last 15 years (USD/b and daily frequency)
5.0% Low price regime in a “demand constrained” market High price regime in a “supply constrained”
anchored between ~USD50-80/b market anchored between ~USD100-120/b
4.5%
Well supplied market and
Supply scarcity with the
4.0% new production needed
market needing to balance
to be held back to
through “demand
3.5% prevent further market
destruction”
loosening
Daily frequency
3.0% Price impact: market searches

Price impact: price that
“destroys” supply is the Current for the demand erosion price
2.5% – this regime is
marginal cost of oil price where the market has resided
production
2.0% since mid-2020s
1.5%
1.0%
0.5%
0.0%
10 20 30 40 50 60 70 80 90 100 110 120 130 140
Brent crude price (USD/b)
December 2023|| Source: Bloomberg, MUFG Research; * Is this a high price in a market that is fundamentally in the low price regime? Or is it a low price page 13
Confidential
October
in a market that is fundamentally in the high price regime? Despite the large increase in prices during the 2022 energy crisis and the 8%
pick-up in global real oil investment, it nevertheless remained about 10% lower than in 2019, and about 40% lower than in 2014.
Contents

• Refining 18-19

• Europe 20-30
• USA 31-35
• LNG 36-39

page 14
Oil market fundamentals | ongoing deficit keeps oil markets tight in 2024
Oil fundamentals to stay tight in 2024 and only soften by 2025 Three drivers of the deficit
Global oil demand, supply and overall balance (m b/d) We expect that robust demand, lower
OPEC+ supply and slowing US supply
107 3.0
Forecast growth to result in a moderate deficit of
106 2.5 0.7m b/d in 2024:
Surplus
105 2.0 1 Robust demand growth

• We see solid 1.6m b/d oil demand growth
Global in 2024 led by a (i) smaller drag from
1.5
104 demand monetary tightening, (ii) a recovery in
1.0 services activity, (iii) an increased willingness
103 Global of central banks to deliver insurance cuts,
supply 0.5 (iv) structural EM increases and, (v) more jet
102 fuel recovery
0.0
101 2 Lower OPEC+ supply for longer
-0.5 • We believe that OPEC+ supply cuts since
100 late 2022 reflects a structural shift to a more
Overall -1.0 assertive approach of keeping inventories
balance low and pursuing backwardation* – we see
Deficit
99 -1.5 OPEC+ in no rush to revive output
98 -2.0
3 Slowing US supply growth
• We expect supply growth ex-OPEC+ at
97 -2.5 1.5m b/d in 2024 (2.6m b/d in 2023) with
Jan-24
May-24
Jul-22
Jan-23
Jul-23
Jul-25
Nov-22
Nov-23
Jul-24
Nov-24
Nov-25
Jan-22
Mar-22
Jan-25
Mar-24
May-22
Sep-22
Mar-23
May-23
Sep-23
Sep-24
Mar-25
May-25
Sep-25
the US at 0.5m b/d in 2024 vs 1.4m b/d in
2024 – US oil rig counts remain tepid, US
producers remain capital disciplined and
Overall balance (demand - supply) (m b/d, Right Axis)
underlying well productivity in the Permian
Global supply (m b/d, Left Axis)
has stopped increasing (geological
Global demand (m b/d, Left Axis) constraints)
December 2023|| Source: Bloomberg, MUFG Research; * OPEC+ pursues backwardation given – (i) it preserves the option value of spare capacity, which page 15
Confidential
October
also discourages non-OPEC+ investment; (ii) OPEC+ can generate larger moves in prices with a given adjustment in output when inventories are low;
(iii) while OPEC+ is too large to sell its output forward and is thus exposed to spot prices, shale producers often sell at forward prices through hedging.
Oil demand | record levels on robust services GDP (70% of oil demand)
Weakness in global manufacturing is raising concerns about oil demand, while growth in the services sector remains resilient. What do
the weakness in the goods sector and this goods-services divergence imply for global oil demand? We don’t think that today’s weak
goods sector data will prevent global oil demand from growing. For one thing, the services sector is still growing at a robust pace as
the recovery has some further room to run (including China). Our key finding is that services GDP drives ~70% of global oil demand.
Still solid services GDP is driving robust oil demand Demand to moderate in 2024 but remain firm
Oil demand (m b/d) vs global PMI manufacturing and services Cumulative change in oil demand since Q4 2023 (m b/d)
60 107 3.0
Forecast Forecast
59 106 2.5
58 105
2.0
57 104
1.5
56 103
1.0
102
55 Global oil demand
101 0.5
54
100 0.0
53
99 -0.5
52
Global services 98 -1.0 Middle East
51 PMI 97 Rest of non-OECD
-1.5
50 96 Rest of OECD
Global -2.0 US
49 95
manufacturing PMI OECD Europe
48 -2.5
94 India
47 93 -3.0 China
Global oil demand (% y/y)
May-22
May-23
May-25
Sep-20
Sep-21
Sep-22
Sep-23
Sep-24
Sep-25
Jan-22
Jan-23
Jan-24
May-24
Jan-25
Jan-21
May-21
-3.5
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
22 23 23 23 23 24 24 24 24 25 25 25 25
The prominent role of services in oil demand mostly reflects the ~70% We expect global demand growth to slow from a very rapid 2.5m b/d
share of services in global GDP, but also the higher oil intensity of pace in 2023, to a still solid 1.6m b/d in 2024, with the largest gains in
services – than of goods production. In fact, transportation drives 60% India, China, and non-OECD APAC. Critically, 2023 will mark the last
of global oil demand, and directly contributes to services GDP*. year of COVID normalisation.
December 2023|| Source: Bloomberg, EIA, IEA, JODI, OPEC,, MUFG Research; * When produced in the market (e.g. airline services). When households
Confidential
October page 16
drive their own car, trips often go hand in hand with services activity too, especially retail trade, leisure and hospitality, and education
services.
Oil supply | lower OPEC+ supply for longer whilst US oil output to slow
On the supply-side, lower OPEC+ supply for longer and a slowdown in US supply growth to ease global oil supply to 1.3m b/d in 2024
(from 1.5m b/d in 2023). OPEC+ supply cuts in late 2022 reflect a structural shift to an assertive approach of keeping inventories low
and pursing backwardation, keeping additional OPEC+ supply off markets until Q3 2023. Meanwhile, US producers remain capital
disciplined and underlying well productivity in the Permian (key US growth engine) has stopped increasing (deteriorating geology).
We assume only mild Saudi unwind in its cuts in 2024 US shale producers remain capital disciplined
Saudi Arabia and US oil production (m b/d) US shale reinvestment rate: capex as a share of cash flow (%)
12.0 22 140%
11.5
US 21
120%
11.0
10.5 20
100%
10.0
19
9.5 80%
Saudi
18
9.0 Arabia
60%
8.5 17
8.0 40%
16
7.5 Forecast
20%
7.0 15
Sep-20
Sep-22
Sep-23
Sep-24
Sep-25
Sep-21
Jan-24
May-24
May-21
Jan-20
May-20
Jan-21
Jan-22
May-22
Jan-23
May-23
Jan-25
May-25
0%
2000
2002
2003
2005
2006
2008
2009
2020
2022
2023
2004
2007
2001
2010
2012
2013
2014
2015
2016
2017
2018
2019
2021
2011
Saudi Arabia (m b/d, Left Axis) US (m b/d, Right Axis)
We assume that Saudi Arabia unwinds its unilateral productions cuts Despite benign production growth in 2023, US shale producers remain
only gradually starting in Q3 2024 by 0.25m b/d every two months capital disciplined**. Reinvestment rates – capex as a share of cash flow
because its appears determined to lower inventories and support – of US shale players remain in a 40-60% range, well below the
elevated funding needs*. historical average of ~70-85%.
December 2023|| Source: Bloomberg, EIA, IEA, JODI, OPEC,, MUFG Research; * Our forecast for low OPEC supply is also consistent with our statistical
Confidential
October page 17
finding that the group is in no rush to boost production because commercial OECD stocks remain only slightly below their historical average;
** US shale producers remain laser focused on deleveraging, returning cash to shareholders and continuing to rebuild their balance sheets
Contents

• Refining 18-19

• Europe 20-30
• USA 31-35
• LNG 36-39

page 18
Oil refining | catch-22
While there is ample spare capacity in upstream crude oil production, the downstream refining system remains the tightest sector of
the oil industry, implying persistently elevated refined product margins and timespreads. At its heart is underinvestment in the
refining sector – exacerbated by closures and disruptions – which remain unresolved.
The refining system is structurally tight Structural tightness reflects four key factors
Global refining utilisation rate (%)
86% 1 Closures and disruptions
Forecast • 7mb/d of disruptions and pandemic-related closures
85% Rising utilisation implies since the late 2010s have depressed refining capacity
tightening supply-demand
84%
2 Refined products demand at records
83% • Demand for refined products has reached an all time
high – reflected with depleted gasoline/diesel inventories
82%
81% 3 Quality of crude supply

• Divergence between the quality of crude supply and the
80% type of refined products in demand are straining the
system in unusual ways
79%
78%
4 Structural underinvestment
• The combination of elevated long-run demand
77% uncertainty and the very long cycle of refining
Declining utilisation implies
investments has limited investment in new refineries*
76% loosening supply-demand
75%
While high prices usually tend to cure high prices, the
duration mismatch between investment and returns
74% precludes such a natural rebalancing. This dynamic–
refining’s Catch-22 – will likely cement a refining bull market
2005
2006
2007
2008
2009
2020
2022
2023
2025
2004
2024
2010
2012
2013
2014
2015
2016
2017
2018
2019
2021
2011
until EV-penetration scales significantly.
December 2023|| Source: Bloomberg, MUFG Research; * We estimate that the median DM refinery is now 50 years old, with payback periods of more
Confidential
October page 19
than two decades
Contents

• Refining 18-19

• Europe 20-30
• USA 31-35
• LNG 36-39

page 20
EU natural gas | mission “storage fill” done but macro risks front of mind
350
EU natural gas TTF (EUR/MWh) +/- 2 stdev bands
Cap on prices at EUR60/MWh on
325
+/- 1 stdev bands
benign inventory builds …
300
EU nat gas (TTF) (EUR/MWh)
Mild winter weather
275 • A second mild winter is driving voluntary
250 demand destruction with storage ~100%
full and limited inventory draws
225
Robust LNG inflows continues
200 • Europe continues to attract global LNG
175 flows with China’s reopening not driving
material cargoes away from the continent
150
De-industrialisation is quietly rising
125 • Industrial demand has collapsed with
100 firms curtailing output not being able to
cope with still “not cheap” gas prices
75
46 45 41 40 48 40
50 28 30 32
… and floor on prices at
25
EUR30/MWh on supply squeeze*
0
Asian competition for LNG to increase
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
• Asia is set to be the premium market for
19 19 19 19 20 20 20 20 21 21 21 21 22 22 22 22 23 23 23 23 24 24 24 24 25 25 25 25 LNG deliveries – EU competition to rise
EUR/MWh Slow transition to renewables

Q1-24 Q2-24 Q3-24 Q4-24 Q1-25 Q2-25 Q3-25 Q4-25 2024 2025 • Poor wind and solar conditions for
(averages)
renewable power generation and/or
MUFG 45 41 40 48 40 28 30 32 44 33 supply hiccups driving lower inventories
Next wave of LNG supply only in 2025
Consensus 49 46 41 41 47 45 40 37 44 42 • It’s only 2025 that the next wave of global
LNG supply can end market imbalances
December 2023|| Source: Bloomberg, MUFG Research; * Our view is that this coming winter remains vulnerable to weather shocks and a plethora of
Confidential
October page 21
supply uncertainties. Accordingly, we recommend that consumers of gas and power that can make their margins work at current
forward TTF levels take advantage of that to hedge their winter exposure.
Gas inventories | déjà vu all over again in 2024 with “tank tops” in play
Mild weather, demand destruction and healthy LNG imports has helped Europe comfortably navigate the first two and half months of
the current gas heating season (from 1 October). Based on our modelling of supply and demand fundamentals, we estimate that
storage levels will end the winter period (31 March 2024) at 45% full – comfortably above the five year average of 31%. We further
forecast that by the end of summer next year (September 2024), the continent’s storage will be 88% – below the record level of 96%
observed this year but still close to the European Commission’s target (90%) to withstand the 2024/25 winter period. This all but sets
up 2024 to be a repeat of 2023’s summer “tank tops” with inventories near 100% full.
Our base case* envisages EU gas inventories to remain comfortably with historical averages with risks of
“tank tops” by the start of the winter 2024/25 heating season in October 2024
EU gas inventories (Bcm, 76.8Bcm = 100% full*)
90
80 Maximum capacity 77.4Bcm = 100% full GY23 high demand

destruction
70
GY23 base case
60
GY23 low demand
92% full today
50 destruction
40
30
20 GY23 base case: 44% full by

end-March 2024
10
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
December 2023|| Source: Bloomberg, Eurostat, IEA, MUFG Research; * GY = gas year is the 12 month period starting from 1 October
Confidential
October page 22
Weather risks | second “spring this winter” season has kept prices capped
Despite plentiful supplies and soft demand outlook, the weather risks have still not disappeared. Yet, for a second consecutive year,
“spring-like” weather for the first two and a half months of the gas winter heating season (from 1 October) is keeping gas
consumption low and inventories high. All in, the risk of cold winter weather pushing inventories to low levels is increasingly minimal.
Europe is witnessing a second consecutive lucky spell of mild weather this winter thus far though the rest of
the heating season appears to hover around historical averages – ultimately the vagaries of the weather
should not the basis for future planning
Northwest Europe weather, actuals and forecasts (degrees celsius)
18
16
14
12 Actual
10
8
30 year Three month
6 average ahead forecasts
4
-2
11-Mar
09-Feb
01-Nov
16-Nov
21-Nov
11-Dec
05-Jan
20-Jan
25-Jan
30-Jan
14-Feb
06-Mar
07-Oct
12-Oct
27-Oct
06-Dec
26-Dec
04-Feb
19-Feb
24-Feb
10-Jan
15-Jan
01-Mar
16-Mar
21-Mar
06-Nov
11-Nov
26-Nov
01-Dec
16-Dec
21-Dec
31-Dec
02-Oct
17-Oct
22-Oct

Confidential
October page 23
Supply side | thanks to tepid China, LNG continues to fill Russia’s void
Russian gas shipments to Europe are at near depletion. Encouragingly LNG inflows into Europe are filling the void but a lack of LNG
regassification terminals signals infrastructure constraints with the eventual Chinese full rebound will spur competition for LNG flows. If
LNG imports into Europe were to persist at the current level of ~200mcm/d, we estimate that inventories would overshoot capacity
by ~3.5-4Bcm. If inventories end up full, that volume would need to be stored elsewhere (and needs floating LNG storage) as well.
Russia has left the building but LNG flows into Europe has been filling the vacuum
European imports of natural gas and LNG (mcm/d)
8,500 War in Ukraine period
8,000
7,500 2021 average 2022 average
7,000 2023
6,500 average
6,000 Impressive LNG
5,500 imports into the
5,000 EU despite
Global LNG inventories near
4,500
4,000 “tank tops”
3,500 UK Others
3,000 Algeria
2,500
2,000
1,500
1,000 Norway
500
Russia
0
Jan-21
Nov-23
Aug-22
Nov-22
Jan-23
Mar-23
Aug-23
Mar-21
Nov-21
Jan-22
Feb-22
Mar-22
May-21
Aug-21
Sep-21
Apr-22
May-22
Sep-22
Feb-23
Apr-23
May-23
Sep-23
Feb-21
Apr-21
Jul-21
Jul-22
Oct-22
Jul-23
Jun-21
Dec-21
Jun-22
Dec-22
Jun-23
Oct-23
Dec-23
Oct-21
December 2023|| Source: Bloomberg, BP, CEIC, Eurostat, IEA, MUFG Research
Confidential
October page 24
Long-term supply outlook | awaiting the next supply wave in 2025+
The EU is on track to add 46mtpa of LNG regassification capacity by end-2023 (a 24% increase from the 170mtpa at the start of
2022), largely through Floating Regasification and Storage Units (FSRUs) rather than fixed onshore terminals. Whilst welcomed, this is
still dwarfed by the magnitude of Russian gas the EU has lost since 2021 (~91mtpa out of ~117mtpa historical imports). Critically, EU
regasification capacity helps debottleneck the internal EU “plumbing” but does little to solve the fundamental issue that there is
insufficient liquefaction capacity before 2025.
EU LNG regasification capacity is booming Little relief from new global LNG supply before 2025
Cumulative incremental LNG regasification capacity (mtpa) LNG supply (approved/potential) and LNG demand (mtpa)
120 60
110 The global gas market will flip into
100 50 oversupply from 2025 onwards as
Historical Russian gas exports to the EU new LNG supply comes onstream
90 ~117mtpa dwarfs the incremental EU 40 (especially from the US and Qatar)
80 LNG capacity coming online
70 30
60
20
50
40 10
30
0
20
2013
2027
2017
2020
2021
2022
2023
2025
2026
2028
2015
2016
2018
2019
2024
2014
10
Middle East LatAm
0
East Africa Russia/Europe
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Canada US
22 22 23 23 23 23 24 24 24 24 25 25 25 25 26 Asia NW Africa
Netherlands Germany Finland/Estonia France Spain Italy Australia/PNG 2007-19 demand growth
An additional 46mpta of EU regasification capacity by Q4 2023, rising Tight market until 2025 given a lack of new project start-ups over 2022-
to 70mtpa by Q1 2026 is unprecedented in speed – yet EU lags Asia in 24 with a loosening of supply-demand balances from 2025 driven by
signing new long-term LNG contracts. significant additions from the US and Qatar.
December 2023|| Source: Bloomberg, BP, CEIC, EIA, Eurostat, IEA, Woodmac, MUFG Research
Confidential
October page 25
Demand side | gas price risks remain second order to macro risks
What started as a gas price crisis in 2021-22 has catapulted to a structural macro concern. Our conversations with industrial users of
gas and power suggest the issue is no longer one of gas prices, but rather of weak end-user demand. Across the continent, many
energy-intensive companies have either closed or reduced production after not being able to cope with higher energy prices*.
European gas demand to hover ~15% y/y lower European energy intensive industry worse off than COVID
European natural gas demand (mcm/d) Europe overall and energy-intensive industries (indices, 2015 = 100)
50 5%
110
0 0% European overall
105 industry
-50 -5% 100
-100 -10% 95
-150 -15% 90
-200 -20% 85
-250 -25% 80
75
-300 -30%
Forecast European energy
70
-350 -35% intensive industry
65
Aug-22
Aug-23
Aug-24
Jun-22
Jun-23
Jun-24
Oct-22
Feb-23
Feb-24
Apr-24
Apr-22
Dec-22
Oct-23
Apr-23
Dec-23
60
G2P Industrial 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
LDZ (Residential and Commercial) EC target (Left Axis)
European manufacturers still using less energy (gas demand, mcm/d)
Total % change (Right Axis)
2020
Our analysis points to four reasons of the collapse in gas demand 2021
despite cheaper gas prices – (i) more energy efficient companies; (ii) 2022
exercising caution in light of velocity of price surge in 2022; (iii) weak 2023
global macro environment that has affected domestic and export
markets (thus lower operating rates); and (iv) competitive losses due to 0 25 50 75 100 125
Chemicals Refining Metals and minerals
relocations, mainly to the US (Inflation Reduction Act – see here).
Construction Paper and F&B Others
December 2023|| Source: Bloomberg, European Commission, Eurostat, MUFG Research; * Europe is defeating its energy crisis thanks to the pressure on page 26
Confidential
October
its industrial heartland. Whilst it was high gas/electricity prices that initially depressed energy intensive industrial production (IP) last year
relative to Europe’s broader manufacturing complex, de-industrialisation owing to favourable US IRA-led incentives is driven lower IP.
EU de-industrialisation through surveys | one-third examining relocation
Germany's industrial base is being hollowed out. Surveying industrial entities on their business appetite paints a bleak picture with
one-third considering relocation abroad – and the picture is similar across the rest of the continent.
The German Chamber of Commerce and Industry survey More than half of industrial companies believe the energy
suggests 32% of industrial companies plan to relocate transition is negative / very negative to their business
Share of German industrial companies considering relocation Share of German industrial companies viewing the energy transition
32% relocation conversations of which … Very positive

Planning to relocate Positive
Very negative
4%
5% 20% 9%
Actioned 16%
relocation Neutral
35%
11%
Underway to 32%
relocate Negative
32% of industrial companies are considering to relocate capacities More than half of the companies see the energy transition as negative
abroad. Of those, 16% have already realised those measures, 10.5% are or very negative for the own business, which is the highest proportion
underway and 5.2% in the planning process. since the survey began in Q1 2021.
December 2023|| Source: Association of German Chambers of Commerce and Industry, ZEW, MUFG Research; * Similarly, a survey among businesses
Confidential
October page 27
done by the ZEW highlighted that Germany now ranks 18 of 21 countries in terms of attractiveness as business location (down from 14
in 2020 – ranked on energy, taxes, labour (costs, productivity, human capital), regulation, financing, infrastructure and institutions.
Mapping EU de-industrialisation | tracking shutdowns*
Sites shown are plants most significantly impacted
from gas costs or low demand levels. Capacities Norway Germany
impacted in ‘000 tonnes/year put next to product in
Yara Porsgrunn Ammonia
red, plants colour coded by country BASF Ludwigshafen Caprolactam (95), Ammonia (880), Adipic Acid (270), Cyclohexanone (279),
(500), utilisation at 65%
TDI (300), Melamine (65), Soda Ash, Cyclohexanol, shutdown on high production costs
DOMO Leuna Acetone & Phenol (27, 9, 45), reduced rates
Netherlands Finland Yara Brunsbuettel Ammonia (750), utilisation at 65%
Dow Leuna & Schkopau Polyethylene (385), 15% reduction in rates
Yara Sluiskil Ammonia & Urea (1700, 1300), reduced rates, Borealis Porvoo Acetone & Kronos Leverkusen & Nordenham Ti02 (73), moderated rates
ammonia utilisation at 65% Phenol (42, 68, 25), Venator Duisburg Ti02 (50), moderated rates
OCI Sittard Ammonia (550), rates increased since 2023 reduced rates Oxxynova Luelsdorf DMT (240), shutdown
OCI BioMCN Methanol (900), shutdown on gas costs
INEOS Nitriles Dormagen ACN (100), one line shutdown
Dow Terneuzen Polyethylene (910), 15% reduction in rates
UK Poland Lithuania
Grupa Azoty Pulawy Capro & Lifosa Fertilisers (3241), to suspend
CF Fertilisers Ammonia & AN (1000), to permanently close Melamine (70, 96), capro production operation from October 2023
ammonia plant, AN production to continue shut until further notice
Versalis Grangemouth BR & S-BR (80, 60), reduced rates Grupa Azoty Kedzierzyn Nitrogen, Romania
nitrogen production cut to 43%
Belgium Synthos Oswiecim E-SBR (180), Azomures Ammonia, AN, NPK, UAN,
reduced rates Urea (1300, 497), running at 10%
Yara Tertre Ammonia(420), utilisation at 65%
INEOS Antwerp Acetone & Phenol (680, 421),
outage
Czech Republic Austria
OBC Ostend PA (30), reduced rates Synthos Kralupy E-SBR (110), ceased Atmosa Petrochimie PA (15), operating
production in Q2 2023 rates at 75%
France
Hungary
Yara Gonfreville Ammonia (400), utilisation at
65% Nitrogenmuvek CAN & Ammonia (1300, 497), shutdown
INOVVYN Tavaux ECH (52), rates acutely reduced
Borealis Rouen Ammonia, reduced rates Serbia
Seqens Acetone & Phenol (42, 2, 70), reduced
rates MSK Kikinda Methanol (200), shutdown
Italy Bulgaria
Spain Polynt Bergamo & S.G. Valdarno PA (108, 72), Neochim Ammonia (450), production restarted gradually
reduction rates at Bergamo, shutdown at S.G. Turkey
Dow Tarragona Polyethylene (605), 15% reduction in rates
Cepsa Huelva Cyclohexane (180), shutdown
Valdarno
Polyynt Ravenna MA (30), reduced rates
Croatia
Petkim Aliaga CAN (110),
Cepsa Algeciras PA (35), shutdown Versalis Mantova Styrene (150), shutdown reduced rates in April 2022 Petrokemija Urea (500), shutdown
December 2023|| Source: Bloomberg, European Commission, Eurostat, Fertilisers Europe, ICIS, Natural Earth, MUFG Research; * The company sites (for
Confidential
October page 28
chemical, fertiliser and steel entities) shown are the plants most significantly impacted from permanent shutdowns, high gas costs, weak
demand or more energy efficiency.
BASF | downsizing “permanently” in Europe and looking at IRA incentives
“ The European chemical market has been

growing only weakly for about a decade.
The significant increase in natural gas and
power prices is putting pressure on chemical
value chains. Moreover, uncertainties due to
the enormous number of regulations
planned by the EU are weighing on the
chemical industry. These challenging
framework conditions in Europe endanger
the international competitiveness of
Dr. Martin
European producers and force us to adapt Brudermüller
our cost structures as quickly as possible and Chairman of the
also permanently. We, as a company, must Board of Executive
act now. We are looking at incentives that
”
Directors of BASF SE
come with the [US] Inflation Reduction Act.
2023 | Source: BASF SE, MUFG Research
Confidential
December page 29
EU gas market risks | balanced but subtle moves cause heavy volatility
Bullish risks Bearish risks

A one standard deviation colder-than- Acute pressure is reinforced if the winter
Weather average heating season would impact is warm given (i) the mild autumn; and
storage by ~6bcm (8% of total storage) (ii) ongoing demand destruction
Quantum of demand Higher gas consumption given

consumers’ reticence to change
Greater consumer willingness to
voluntarily reduce consumption and/or
destruction behaviour and/or less severe contraction more industry fuel substitution (to coal)
Speed of China Acceleration in Q4 2023 and into 2024

owing to a robust drag from inventory
Property downturn deteriorates rapidly,
hampering sentiment, activity with
rebound destocking and more policy easing piecemeal policy support continuing
Return of any Russian Shutdown of the remaining gas arteries

(via Ukraine and Turkey) into the EU –
Rapprochement with Russia may raise
flows back into the EU – though repair
flows? legal disputes or infrastructure damage to infrastructure damage needs time
State-led demand State driven measures to support

demand (subsidies, price caps, tax cuts)
A reversal of the large quantum of
energy-related fiscal measures – given
defence measures reduces incentives to conserve energy concerns over the debt profile
Cold weather may propel targeted, Higher than expected electricity output
Power sector spillages short/controlled “load shedding” in from non-gas sources (nuclear, hydro,
certain EU regions (eg south Germany) wind, power)
2024
The still tight market global LNG market (to last until 2025) and uncertainties
Same uncertainties over Russian gas flows, support higher for longer EU gas prices
with less angst The key difference between 2023 and 2024 for EU gas markets is the
continued ramp-up of LNG regasification facilities across Europe
December 2023|| Source: Bloomberg, BP, CEIC, EIA, Eurostat, IEA, MUFG Research
Confidential
October page 30
Contents

• Refining 18-19

• Europe 20-30
• USA 31-35
• LNG 36-39

page 31
US natural gas | oversupply with storage congestion lingering
10
US natural gas Henry Hub
+/- 2 stdev bands
Cap on prices at USD3.5/MMBtu on
9
(USD/MMBtu)
+/- 1 stdev bands
oversupply …
US nat gas (Henry Hub) (USD/mmBtu)
Higher gas production and inventories
8
• Permian-led higher output has led to
robust gas storage inventory levels to sail
7
through winter – key is storage congestion
6
risks with end winter balances set to be well
north of the five year average
5 4.4 Mild El Nino driven weather
4.1
3.8 • This winter’s El Nino weather pattern is set
4 to cause a warmer than average heating
3.1 3.0
2.8 2.7 season, spurring demand destruction,
3 2.3 2.4 particularly in the power sector
2 … and floor on prices at

USD2.0/MMBtu on demand support
1
Feedgas demand to offset supply in Q3 2024
0 • Q3 2024 is set to see a significant amount
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 of new feedgas demand offsetting supply –
19 19 19 19 20 20 20 20 21 21 21 21 22 22 22 22 23 23 23 23 24 24 24 24 25 25 25 25 this not only has the ability to offset but
USD/MMBtu also outpace regional supply growth
Q1-24 Q2-24 Q3-24 Q4-24 Q1-25 Q2-25 Q3-25 Q4-25 2024 2025
(averages) Regional dislocations matter
• Regional dislocations across the US –
MUFG 2.8 2.3 2.4 2.7 3.0 3.8 4.1 4.4 2.6 3.8 critically the need for regional balances
for the southeast – will be one of the
Consensus 3.1 3.3 3.1 3.3 3.8 3.8 4.0 4.1 3.2 3.9 most important drivers for US Henry Hub
prices in 2024*
December 2023|| Source: Bloomberg, MUFG Research; * Whether a regional balance serves a Northeast producer in understanding how much natural
Confidential
October page 32
gas they can flow given constrained transport or for a producer to understand if a gas glut could emerge hampering wellhead
economic, there is a greater need for regional balances.
US natural gas fundamentals | softening balances is price bearish
The combination of warmer-than-average weather in the current winter season (resulting heating demand destruction) and stronger-
than-expected gas production has softened US gas balances (despite overall strength observed across gas demand). From mid-2025
onwards, the tide could be turned by a wave of new LNG terminals positioned to start consuming feedgas.
Looseness in the US natural gas market to linger until the next wave of LNG supply coming online in 2025
US natural gas market supply and demand balance (Bcf/d)
Forecast
160 106
104
140
102
120 100
Total demand (Bcf/d)
Total supply (Bcf/d)

100 98
96
80
94
60 92
40 90
88
20
86
0 84
Mar-24
Jul-24
Jul-21
Mar-21
Nov-22
Nov-23
Nov-21
Jan-21
Jan-22
Mar-22
Jan-23
Mar-23
Jan-24
Nov-24
Jan-25
Mar-25
Sep-21
May-21
May-22
Jul-22
Sep-22
May-23
Jul-23
Sep-23
May-24
Sep-24
Exports to Canada LNG exports Power Burns
Industrial consumption Rescom consumption Exports to Mexico
Plant Fuel Pipe Losses Total supply* (Right Axis)

Confidential
October page 33
Gas production and inventories | surging output supports loose storage
Surprisingly strong US gas production, weaker power burns and warmer-than-usual weather (and with it heating demand
destruction) have teamed up to crush any prospects of tight inventories for the end of winter 2025.
US gas production is adding significantly to the market US gas inventories to remain loose well into 2025
US natural gas production (ex Alaska) (Bcf/d) US natural gas inventories (Bcf)
108 5,000
Forecast 4,750
106 2024
4,500
104
4,250
102 4,000
100 3,750
3,500
98
3,250 2023
96 3,000 2025 2022
94 2,750
92 2,500
2,250
90
2,000
88 1,750 Five year
86 1,500 average storage
1,250
84
1,000
Jan-23
Jan-24
Oct-24
Jan-25
Jan-21
Oct-21
Jan-22
Oct-22
Jul-21
Apr-23
Oct-23
Jul-24
Apr-22
Jul-22
Jul-23
Apr-24
Apr-21
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
US gas production has witnessed a massive surge. Projects such as US gas storage remains markedly loose, driven by heating demand
Transco’s Regional Energy Access Expansion (0.83Bcf/d) in Appalachia, destruction due to warm weather and strong production growth.
Kinder Morgan’s Permian Highway expansion (0.55Bcf/d) and MPLX’s Increased power burns due to lower gas prices and higher industrial
Whistler Pipeline (0.5Bcf/d) expansion in the Permian have helped demand help offset some of the looseness though we expect storage
debottleneck production*. levels to remain above historical averages well into 2025.
December 2023|| Source: Bloomberg, MUFG Research; * In addition, the Bakken and Rockies have surprised with a considerable increase in production
Confidential
October page 34
going into the winter.
LNG feedgas demand | two new US facilities in 2024
We anticipate Golden Pass and Plaquemines to begin consuming feed gas in August 2024 and September 2024, respectively. The
addition of these facilities will provide an additional 4.1Bcf/d of peak nameplate export capacity. As the facilities start up, feed gas
consumption is set to increase by 1.31Bcf/d in October 2024.
Two new US LNG facilities to begin operations by end of summer 2024

US LNG feedgas consumption (Bcf/d) Peak forecast feed gas
Sabine Pass Golden Pass and
October 2023 witnessed the
consumption
15 Freeport shutdown maintenance Plaquemines start lowest feed gas consumption
levels of summer 2023. The
14
lower demand is driven by train
13
maintenance occurring at
12
Sabine Pass, Calcasieu Pass and
11 Cove Point. This would be the
10 second maintenance event for
9 Sabine Pass this year, following
8 June 2023 work. Modelled train
7 maintenance at Elba Island is
6 June also contributes to the
5 feed gas demand drop during
4 the month.
3 Freeport LNG is yet to meet its
2 net 2.37Bcf/d peak nameplate
1 capacity, but the facility has
0 quickly ramped up operations –
feed gas consumption reached
Aug-22
Sep-22
Nov-22
Jan-23
Aug-23
Nov-23
Mar-24
Aug-24
Apr-22
Feb-23
Mar-23
May-22
Apr-23
Jan-24
May-23
Sep-23
May-24
Sep-24
Feb-24
Apr-24
Jul-22
Jul-23
Jul-24
Jun-22
Oct-22
Jun-24
Dec-22
Jun-23
Oct-23
Dec-23
Oct-24
over 2Bcf/d as of April 2023,
following initial startup
Sabine Pass Cove Point Corpus Christi Cameron Freeport
challenges.
Elba Island Calcasieu Pass Golden Pass Plaquemines

Confidential
October page 35
Contents

• Refining 18-19

• Europe 20-30
• USA 31-35
• LNG 36-39

page 36
Global LNG balances | APAC drives demand, US dominates supply
The global LNG balance appears fundamentally loose, with high volumes on water and weak demand. APAC LNG demand is
recovering this winter, driven by China’s return and growth in EMs. On the supply-side, winter LNG supply growth is set to be
propelled by the return of Freeport in the US and new liquefaction plants across the Atlantic and Pacific Basin.
China leads winter demand growth in 2024, whilst lower US to lead supply growth with the return of Freeport, whilst
competition from Europe leaves more for EM Asia supply from all regions (bar Qatar) will increase in 2024
Global LNG demand (MMT) Global LNG supply (MMT)
Other markets
42 40 40 42
39 39 NWE+Italy 39 39 39
38 38 37 37
36 36 37
35 35 36 35 35 35
36
33
34 34 35 35 34 34 Americas 36 34 34 34 34 35 Atlantic Basin
32 32 32 33 33
32 32
30 Middle East US
30 30
Other Europe West Africa
24 Turkey 24
Russia
18 Spain
18 Other MEA
Southeast Asia
Qatar
12 12
South Asia
Pacific Basin
6 Taiwan 6
Australia
Mainland China
0 0
South Korea
Oct 23
Nov 23
Jan 24
May 24
Jun 24
Oct 24
Jan 25
Feb 24
Jul 24
Dec 23
Apr 24
Dec 24
Feb 25
Mar 25
Sep 23
Mar 24
Sep 24
Nov 24
Aug 23
Aug 24
Oct 24
Jan 24
May 24
Jun 24
Jul 24
Jan 25
Oct 23
Feb 25
Dec 23
Feb 24
Apr 24
Dec 24
Sep 23
Sep 24
Aug 23
Nov 23
Mar 24
Aug 24
Nov 24
Mar 25
Japan
China is set to lead global LNG demand growth, followed by EM Asia The US is set to see the most global LNG supply growth, supported by
(especially India and Bangladesh), as healthy inventory levels in Europe the return of operations at Freeport in Texas. EM Asia is expected to
lower the competition for spot cargoes. follow, driven by the long-delayed start up of Tangguh in Indonesia.

Confidential
October page 37
Spot LNG prices | bullish wildcards could derail Europe’s smooth sailing
Weather, uncertainty over China’s LNG demand and Europe’s gas demand, as well as potential disruptions to supply could drive LNG
price deviations in 2024.
Factors that could drive LNG prices higher in 2024 LNG futures curves point to an oversupplied contango
market though wildcards may drive price volatility
1 Europe could demand more LNG imports than planned JKM futures curves (USD/MMBtu)
• Europe’s gas demand in 2024 will depend on demand destruction 26
levels – we anticipate residential and commercial sector demand to be
13% below the 10 year weather-sensitive model.
24
• In our base case, Europe’s storage ends the winter period (31 March
2024) at 44% full.
• Yet in a scenario where both North Asia and Europe experience cold 22
weather, Europe’s storage could end winter markedly lower – likely
triggering discontent in European buyers and in-turn raising prices. 20
2 APAC may complement shortfalls in energy sources with LNG 18

• In China, lower-than-expected pipeline gas imports from Central Asia
could boost LNG imports by up to 1.9m tons and raise spot prices.
• Such a scenario may arise if Kazakhstan and Uzbekistan experience 16
strong domestic heating demand due to a cold wave. Stronger-than-
anticipated economic growth could play out similarly by boosting gas 14
demand from industry, raising spot LNG demand.
12
3 Disruptions could lower total supply
• Potential strikes in Australia could remove 1.1m tons of supply if two of 10
Chevron’s export plants shut down completely for two weeks. The lost
Mar-23
Mar-23
Sep-23
Nov-23
Aug-23
Jun-23
Jan-23
Jan-23
May-23
May-23
Oct-23
Oct-23
Feb-23
Jul-23
Jul-23
Apr-23
Dec-23
volumes would prompt Asian buyers to source more LNG from the spot
market, raising prices.
• Any exceptional weather event, such as a hurricane, could cut LNG Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24
supply from the US. In addition, Russia’s Arctic LNG 2 could ramp up
slower than assumed.
Confidential
October page 38
Global LNG risks | production disruptions and weather are key concerns
Winter 2022-23 Winter 2023-24 Summer 2024
What happened? What could happen? What could happen?
• Freeport LNG in the US was offline Base case – key assumptions
Outages until a restart in mid-January 2023, • Egypt’s output will resume in winter 2023-24, but it will have limited
totalled -8.1m removing 6.3m tons of supply from LNG exports in summer 2024, similar to summer 2023.
last winter.
tons (-4% of • Nigerian production is expected to stay low throughout the winter
• Major maintenance at Cove Point in period and gradually recover going into summer 2024.
world total)* the US resulted in no exports last • Venture Global’s Calcasieu Pass in the US has ramped up (November
October, compared with a two year 2024) to run near full capacity in winter 2023-24.
average of 0.2m tons for that
month. Downside risks Downside risks
• Nigeria LNG’s force majeure on • Potential Australian strikes (1.1m • Flooding and prolonged upstream
flooding and upstream issues tons of supply). issues at Nigeria LNG cannot be
removed 1.7m tons from last winter. • Hurricanes and inclement weather resolved and extend to 2024
• There was an overall limited impact posing risks to US LNG. (hampering 0.6m tons of supply).
from a pipeline leak-related force • Slow pace of Arctic LNG 2 in Russia • Malaysia not being able to restart
majeure and fire on the Sabah- and shipping capacity constrained. the Sabah-Sarawak gas pipeline.
Sarawwk gas pipeline at the Bintulu
LNG complex in Malaysia. Upside risks Upside risks
• Prelude in Australia went offline in • Calcasieu Pass solves its steam • Early commercial operation of
December 2022 for a month after a generator issue and produces at a Calcasieu Pass versus the previously
small fire. higher utilisation rate. anticipated late 2024 start date.
• Ramp up of US’s Golden Pass
New • Capacity additions in 2022 totaled • Capacity additions of 11.1m tons in • Capacity additions all from the US,
capacity** 22m tons a year the Atlantic Basin and 3.8m tons in totaling 31.4m tons a year
the Pacific Basin
December 2023|| Source: Bloomberg, MUFG Research; * Volume impact associated with outages calculated from prior season’s levels (winter 2021-22);
Confidential
October page 39
** Capacity additions consider the entire nameplate capacity of the facility coming online.
Contents

• Refining 18-19

• Europe 20-30
• USA 31-35
• LNG 36-39

page 40
Commodity price forecasts | as of December 2023
Commodity Unit / USD Quarter Averages Annual Averages
BBG Ticker
BCOM Index Weight Q4-23 Q1-24 Q2-24 Q3-24 Q4-24 Q1-25 Q2-25 Q3-25 Q4-25 2023 2024 2025 2026
1 Energy BCOMENSP Index 39.8%
2 WTI Crude CLA Comdty USD/b 79.32 76.00 75.00 81.00 84.00 87.00 85.00 92.00 93.00 77.38 79.75 89.25 92.00
3 Brent Crude COA Comdty USD/b 83.12 81.00 80.00 86.00 89.00 92.00 90.00 97.00 98.00 81.43 84.00 94.25 96.00
4 US Natural Gas NGA Comdty USD/MMBtu 3.38 2.80 2.30 2.40 2.70 3.00 3.80 4.10 4.40 3.09 2.55 3.83 4.00
5 EU Natural Gas TZTA Comdty EUR/MWh 48.51 45.00 41.00 40.00 48.00 40.00 28.00 30.00 32.00 49.86 43.50 32.50 38.00
6 EU ETS EUA MOA Comdty EUR/MT 77.79 73.00 75.00 79.00 81.00 82.00 85.00 87.00 89.00 85.49 77.00 85.75 95.00
7 Metals BCOMIN Index 28.1%
8 Copper LMCADS03 Comdty USD/MT 8,172 8,400 8,150 8,350 8,500 8,800 8,950 9,050 9,150 8,639 8,350 8,988 9,250
9 Aluminium LMAHDS03 Comdty USD/MT 2,219 2,200 2,180 2,225 2,250 2,350 2,400 2,425 2,475 2,400 2,214 2,413 2,545
10 Zinc LMZSDS03 Comdty USD/MT 2,501 2,400 2,320 2,475 2,490 2,520 2,400 2,425 2,475 2,835 2,421 2,455 2,530
11 Nickel LMNIDS03 Comdty USD/MT 17,748 16,250 16,000 16,350 16,850 17,150 16,850 17,250 17,400 22,424 16,363 17,163 18,150
12 Gold GCA Comdty USD/Troy Oz 1,987 2,080 2,250 2,180 2,350 2,150 2,070 2,100 2,075 1,976 2,215 2,099 2,050
13 Silver SIA Comdty USD/Troy Oz 23.51 24.20 25.20 24.80 25.90 26.00 25.40 25.00 25.70 23.79 25.03 25.53 26.50
14 Platinum PLA Comdty USD/Troy Oz 905.79 980.00 950.00 1,020 1,045 1,015 1,045 1,060 1,075 973.15 998.75 1,049 1,090
15 Palladium PAA Comdty USD/Troy Oz 1,094 1,070 1,100 1,125 1,180 1,150 1,225 1,090 1,165 1,344 1,119 1,158 1,195
16 Bulk Commodities
17 Hard Coking Coal IACA Comdty USD/MT 323.99 310.00 330.00 320.00 345.00 350.00 345.00 340.00 355.00 290.96 326.25 347.50 320.00
18 Iron Ore ISIX621U Index USD/MT 124.58 120.00 115.00 110.00 120.00 125.00 130.00 145.00 140.00 118.39 116.25 135.00 155.00
19 Agriculture BCOMAG Index 32.1%
20 Soybean S A Comdty USD cen/lb 1,326 1,300 1,285 1,250 1,230 1,260 1,285 1,345 1,380 1,359 1,266 1,318 1,360
21 Wheat W A Comdty USD cen/bush 599.45 640.00 650.00 690.00 725.00 700.00 680.00 780.00 810.00 665.07 676.25 742.50 765.00
22 Corn C A Comdty USD cen/bush 493.68 480.00 495.00 450.00 520.00 555.00 520.00 510.00 525.00 547.49 486.25 527.50 550.00
23 Cotton CTA Comdty USD cen/lb 83.17 80.00 85.00 82.00 81.00 84.00 85.00 87.00 90.00 83.26 82.00 86.50 91.00
24 Coffee DFA Comdty USD cen/lb 2,378 2,500 2,450 2,550 2,525 2,580 2,620 2,500 2,510 2,325 2,506 2,553 2,600
25 Sugar SBA Comdty USD cen/lb 26.75 24.80 25.20 25.50 26.00 26.50 27.00 26.20 26.50 24.03 25.38 26.55 27.00

Confidential
October page 41
Contents

• Refining 18-19

• Europe 20-30
• USA 31-35
• LNG 36-39

page 42
MUFG research solutions | stay connected
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October page 43
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Confidential
October page 44
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Energy 2024 Outlook

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Energy 2024 outlook

Balancing cyclical and structural support with

Global Markets Research

ESG Business Coordination

2 2024 energy thesis 05-08

3 Global oil markets 09-19

4 Natural gas markets 20-39

5 Commodities forecasts 40-41

6 MUFG Global Markets Research credentials 42-44

2 2024 energy thesis 05-08

3 Global oil markets 09-19

4 Natural gas markets 20-39

5 Commodities forecasts 40-41

6 MUFG Global Markets Research credentials 42-44

December 2023|| Source: Bloomberg, MUFG Research

Active OPEC+ market management will aim to maintain the USD80-100/b

Trade Description Rationale

Cyclical and structural The dark side of higher

3 Geopolitical supply risks Next phase of pain from tightening 4

2 2024 energy thesis 05-08

3 Global oil markets 09-19

4 Natural gas markets 20-39

5 Commodities forecasts 40-41

6 MUFG Global Markets Research credentials 42-44

30 Brent crude (USD/b)

100 5.5 120

3 Supply disruptions (+USD10/b under OPEC+ response) 10

3.0% Price impact: market searches

2 2024 energy thesis 05-08

3 Global oil markets 09-19

4 Natural gas markets 20-39

5 Commodities forecasts 40-41

6 MUFG Global Markets Research credentials 42-44

105 2.0 1 Robust demand growth

2 2024 energy thesis 05-08

3 Global oil markets 09-19

4 Natural gas markets 20-39

5 Commodities forecasts 40-41

6 MUFG Global Markets Research credentials 42-44

81% 3 Quality of crude supply

until EV-penetration scales significantly.

2 2024 energy thesis 05-08

3 Global oil markets 09-19

4 Natural gas markets 20-39

5 Commodities forecasts 40-41

6 MUFG Global Markets Research credentials 42-44

EUR/MWh Slow transition to renewables

80 Maximum capacity 77.4Bcm = 100% full GY23 high demand

20 GY23 base case: 44% full by

December 2023|| Source: Bloomberg, MUFG Research

32% relocation conversations of which … Very positive

“ The European chemical market has been

Bullish risks Bearish risks

Quantum of demand Higher gas consumption given

Speed of China Acceleration in Q4 2023 and into 2024

Return of any Russian Shutdown of the remaining gas arteries

State-led demand State driven measures to support

2 2024 energy thesis 05-08

3 Global oil markets 09-19

4 Natural gas markets 20-39

5 Commodities forecasts 40-41

6 MUFG Global Markets Research credentials 42-44

2 … and floor on prices at

Total supply (Bcf/d)