production decline has risen. if you very sharp eyes you will notice in three of the four regions the decline in production from legacy wells is actually started to decrease in recent months as shown by the upturn at the end of the lines. this reflects the decline in the decline rates, second derivative, the decline of the decline rates of legacy wells as they age and that's particularly true as the legacy group includes fewer and fewer new wells with steep declines at the start of their production profiles. remember because fewer new wells are being drilled. so it is, if you do the notion of sort of like your production, riding a bicycle into the headwinds of legacy declines, what's kind of interesting is that the headwinds are sort of slackening a little bit.

so the bottom row shows the summary outcome taking into account both new well and legacy production, production in all areas but permian is decline and the permian itself is not turning. we have at about is your change in march 2013. march 2016, excuse me. so again this is like another sort of more legible picture of the same thing. hopefully the bolder lines in the middle are the same lines as shown in the chart above saw it areas on the bottom chart of we get a thought experiment which compares those bold lines which we consider to be the, historically that is the actual projection history professor and march of this year. we compared it to what alternative that holds the rig count in each region at its

october 2014 level and those are the dotted lines. not surprisingly they are higher than the bold the line. another alternative where no new wells are drilled, work or after october 2014. in the permian basin where the vertical rigs are less productive than the horizontal ones have really borne the brunt, the dotted line is not too much higher than the bold line. so really does the vertical rigs were not getting us that much, and begin the horizontal rig production of sort of held up, starting to fall off. it's a very different picture in the other two players, eagle ford showed the largest gap between the top and bottom lines. the difference between production with october 2014 rate counts sustained by the time to get up to march 2016 it's roughly 800,000 barrels a

day higher than what we believe to be the actual production. and i think the bakken folsom in between with the bold line about and the middle of the continue drilling at the rate of october 14 and no drilling at all passed the fourth quart of 2014. so enough, just as i said earlier, when we think about the oil markets, it's natural for us here today grade retention to what has happened and what might happen with domestic title about a very strong case can be made that those interested in estate of oil markets would do best to turn their attention elsewhere. so i violate aia rules by using high grass but it didn't how else to do. it puts the components of u.s. -- adam is out of the country so i can violate the rules.

graphic which the close of u.s. oil production in the context of overall crude oil supply in u.s. and eia short-term energy outlook for this term and next. they are similar to each other. really when we talk about tight oil or shale we're talking about the blue areas which we have about 4.74 million barrels a day in 2016 and 4.46. the state of the oil market will depend on crude supply development and the rest of the world. that's the red area of these pies. this is just crude oil. that's why doesn't add up to something like 90 something, 93, 94 million barrels a day because that would include all the natural gas liquids and

refinery. i was looking at crude oil. in looking at the red areas, i think the rest of the world, three distinct issues merit attention. one is geopolitical events and we don't model them. we don't have a model of the stability of venezuela or of other things that might happen. we don't project anything about that. but clearly there's opportunity for geopolitical events in all kinds of places. oil market conditions are putting extreme pressure on countries that rely on oil exports to support programs that may be important, social stability. clearly a change that disrupted a significant portion of the red supply could have a very significant and immediate effect on the state of the oil markets. the second is exporter decisions. frank i think touched on his view of some of the recent things that we have been seeing, whether it's real or not real,

whether it means anything. but many analysts accord a large role in the crude oil market situation to exporter decisions, including a decision by saudi arabia in late 2014 to maintain its production at high levels rather than reduce the production to help restore the balance between supply and event in oil markets, a role that is often played in the past. a future decision by major exporter taken change their strategy cannot be rolled out. i happen to agree with frank that's what happens or doesn't constitute such a decision at such a change in the were to occur could affect the market. the third big thing affecting the red in my view, is investment. and unlike geopolitical events and exporter decisions which are often quite idiosyncratic and extremely difficult to foresee or model, i think investment has really changed in this sector.

there's been tremendous cuts in the amount of investment he made. now, if the red was like shale, you would see the ethics of those cuts pretty quickly because of shale has a very short period of sort of from investment to production. for the more conventional and traditional oil investments in major projects, it's a much longer period. and at least and is forecast we are not seeing significant falloff in the red production through 2017. but at some point this drop off and assessment does have an effect. there was a lot of work done by the iaea and others about natural decline rate in conventional oil. they are pretty significant. investment has not stopped completely, but it's been cut very substantially and at some

.1 would expect that to show up income is showing up in the blue because again the nature of investment cycle for sale but at some point it will start to show up in the red. and a few percentage points in the red is a lot of oil. and helped to bring coming whether it's a good thing or bad thing is that the question but that effect and have a very significant effect on the balance and world market. i'm not a washington capitals fan. i'm a die hard it's burping when that's a don't advocate rocking the red or other such foolishness but as oil market analyst we should be watching the red very carefully. the other thing i should note, want to turn to demand and then i think i will stop. i don't want to monopolize the time but another way at the

beginning we said that was sort of two things you to look at, supplanting the spent a lot of talk that supply. rank rightly said that we should also consider demand. so here's our view of demand. we do see some i may, 2016 and 2017, we see continued demand growth about 1.25 million barrels a day in 2016. 1.45 million barrels a day in 2017. combined with outlook for relatively stagnant global supply encompassing both the u.s. and the rest of the world, that underlies our production for more balanced markets by the second half of 2017. that's way back on the first slide. you probably forgot about that. demand really matters. of course eia's of you is not the only perspective on demand growth. it happens to be similar to that of the international energy

agency, which i think in its most recent oil market outlook has lowered what was a much higher outlook for demand growth, something much closer to what we have. it just so happens again we're not trying to do that but it happens that opec has similar view in their latest stock events but again some private banks and others, i won't quote them by me, have significantly different views. looking back at last it was a wide range of views when \mr.{-|}\mister 205 2050 i thina was at 1 million barrels a day growth in 2015. of course what it now prices what they were. it ended up being somewhat higher but there was a range among people on the demand side. it's important to say we don't know. it's very important and over 2016-2017 in this picture at least you get 2.5 million barrels growth and it does help you with your sort of balance situation. then i think the last one i want

to look at economists like to draw supply and demand curves and diagrams, quantities on one axis and prices on the other. this is not that but it's important to keep in mind that demand at least as much as a function of price but it's also a function of economic growth which itself has a powerful independent influence from prices, particularly in developing countries. this is a bit of tale of woe. eia is very transparent and what this shows you is, starting in january 2012 we started with the first blue line, we started in our short-term outlook looking at 2013 oil markets. at the beginning of 2012, we had

growth outside and the non-oecd countries that about 6%. over the course of the. we kept on looking at 2013, you will notice that fits almost six fell to under four. really toward the end of 2013 we kind of had most of 2013 in the can so we knew what the number actually was. we started a look at 2013 with a higher outlook for the economy and the rest of the world that actually came to pass. if you look at the same thing when we started with 2014 on the brown line or 2015 on the green line, or 2016 on the black line, and then a little stub of 2017 at the far end, all those kurds have a downward slope. we have been starting out our views of what demand might be in recent years with economic growth that has been too high. so with that data no think we

have to keep an eye on, especially in view of what frank and others have had to say. one more slight but i don't think i will do it. i should do it? i should do. he told me about time. i'm worried about time. okay, i'm paranoid about my -- i want to hear about my college. this is one that people, in addition to watching the effects of investments on what's happening in the rest of the world, the other thing i would watch, 10 exporters cohere? this looks at the lessons of history because i'm an old version. there were two periods and then there's something out of our annual energy outlook 2015. the important thing to note is that like in the first 12 year, 73-85 which ended with i guess

describe saudi arabia which has been cutting oil production in 85 the production got to be very, very low, in the immortal words of roberto said no moss it in the beginning of 1986 the kind of changed their policy. but here's what happened to the world on the demand side world liquid demand connector increased by 3 million barrels a day. oecd went down, non-oecd went of the% increase in not opec supply. opec supply went down. part of it was sort of saudis cutting production the part was also iran-iraq doing all the things that they've done so well for so many years.

non-oecd demand went up like 15 million barrels a day over that period. and much different thing on the production side. we kind of need a 12 million barrels more. six came from not opec, six came from opec. we had pretty high prices, 2012 we had historically high sustained prices. maybe not the peak level that was reached in july of 2008 but it was very high price. so two very different outcomes the one in in low oil prices them when india and high oil prices likely will be interesting to look at what does this say about what might happen in 2013-2025? we had the outlook for demand. again i don't know, it may be too strong. one thing i noticed, at least we

have a plus one on oecd demand, and the last two periods it was negative but okay. it is what it is. we have an overall demand of increase plus 12, plus 13. then in this picture, and really the only difference is we had the non-opec supply growing by 10 to 15. really all we get there was 10 or 15 on barrels a day. but we did there was carried two different versions of the u.s. picture to get that spread to two different views. and then look at the implication i guess what's often called the call on opec. do the math, we ended up with a minus three to plus two, which interestingly is summit between those two prior historical.

period together thing that's going on of course is that opec itself is quite different. you have a situation where iraq is clearly getting back in the game, which it hasn't been in for some period of time. under the previous regime. you have iran also getting back and the game. you can just read off the numbers like it's closer to the plus six and to the minus 14. because wit within exporter grof countries you have more people who want to produce. there's a real interesting question i guess of what will happen there. this is something, personal hobby horse of mine that i've been kind of watching, and i don't know how it's going to come out. but i think it's a useful way of thinking about maybe this sort of longer-term issue. but if iran and iraq both really want to significantly increase their production, the implication for the rest of

opec, if they were going to fit in in this kind of system, is very challenging. so with that i really am done and i thank you very much. [applause] >> [inaudible conversations]

-- sorry about that. the message that david and i had, i'm surprised frank had us back. enforcement, for the story i'm going to be telling this year is worse than last year. anyway i'm going to start this -- [laughter] that was funny, frank. i've used this tired old metaphor 2.0 as part of the presentation not because it was very original but i think it captures what we are seeing today in the markets for gas and crude oil an ngo. i will start with a slide that is a version of the slide out of your flesh and it shows the price cycles that we've seen since the inception of the show revolution. even going back before that. appreciate of era back in those days, crude oil and natural gas and natural gas liquids moved in lockstep. one went up when the commodity price went up in 2008.

the all right up. a meltdown they all ran down. that was the way a lot of folks thought it was going to work but, of course, by that point in time shale had come into its own. show production had increased. when crude oil and natural gas liquids increased after the meltdown, gas prices didn't go alone. they held them. so what the producers do? they started to shift their budgets over to drill for lots of natural gas. crude oil didn't come all that quickly so what happened next? gas stay down. still in oversupply but we started to produce too many natural gas liquids, propane, butane. those prices came down just exactly like prices had a natural gas a few years before. then what do producers do? they start shifting more of their drilling budgets to drill for crude oil and then that got us to that final phase of crude

oil prices come down along with everything else. what does that mean? that's when i defy the world up into 1.0 and 2.0. 1.0 is the country between 2009 after shale started to have an impact on the marketplace and basically thanksgiving in 2014 when crude oil prices crashed. what made that shale 1.0 is that every time a commodity crashed come every time something went down, the producers that the next logical thing, they move to the next commodity. guess what. we are out of commodities. now produces are doing with what i'm calling shale 2.0, and shale 2.0 simply says i cannot solve my problem as a producer and more by moving to the next commodity. my only choice is to deal with the situation however have to deal with it, lower cost,

smarter drone or cutting my capital budget or whatever it may be. the there's one of aspect of shale 1.0 that will be with us for quite some time. see a little bit more detail of what happens since 2000 like to know. now i will give you a metaphor you might able to envision what that might look like and look back on it a few years from now. i wonder if we will look back on that a few years from now and think of this period that we've just been through as they bubble. a bubble that drew in billions of dollars for producers and for midstream companies that now has to be worked off just exactly the way we had to work off the inventory of houses and housing

price and exactly the women to work off the inventory of dot com companies when the dot com bubble bursting on the question is happen. i'm guessing that's an interesting thing to think about. let's come to terms with exactly what's happened the last few years. this is crude oil production peaking at about 9.7 million barrels a day. now not much of a decline given 70% to -- and pricing. what we've done extended these out beyond to look at what's happening based on pipelines. what that says is we were down a little bit in production the first part of this year but right now over the past two weeks we've hit all time record levels natural gas production in

the united states. so it is just blowing and going right now even with prices right now well below two bucks. natural gas liquids, lpg, propane and butane, the fastest growing energy commodities on the planet, nothing slowing down there at all again is on the best eia statistics that we can come up with. so what does that mean in terms of the relationship between the production volumes and what's going on out in the market? it's part of the market behaving the way you think it would be. and that is the relationship of oil price and we can't. pretty close correlation to oil prices go up, week out goes the. oil prices come down, recount comes down just exactly the way the economist will tell you. same thing on the gas i. -- side. we do so looking at production of those two different commodities increasing at the

same time we are seeing huge crashes in the recount. what's going on. the answer is part of david. this is a version of the part of today's like i showed last of which are updated and it's worth looking at the update. this is the eagle ford performers from 2011-2015 to get to than 20 today's to drill a well in 2011. now it takes a little less than eight days. all we do is take those numbers and divide them into 365, say how many wells can a given rig to drill. it was 16, now it's up to 47. those wells are a lot more productive. drilling less wells but they are considerably more productive, 88% more productive. , a lot higher on those wells. all the going to do is do the

math of doing 60 miles times 533 and then 247 was times 1002 see a much production a given rig can produce over and above what it can produce i guess ago. the answer is 407% per activity improvement, 9000 barrels a day up to 47,000 barrels a day from a single rate. that is where all that production is coming from. we love the productivity report because it shows the same thing and we don't have to do the math. they have done all the math for us. 276% improvement on the eagle ford, a two under 31% improvement on the bakken. a 578% improvement on the niobrara. those are all oil plays, and then 500% improvement on the marcellus in utica. what does that tell you? a single rig began to five times

the work from five years ago. so the fact we don't have very many rigs drilling is not that big a deal when you look at how productive these rigs are now, at least from the standpoint of the market. of course, if you are in the of dealing with those rigs it may be a very big deal for you. so looking at that 500% improvement on natural gas on the marcellus in utica i always like to say let's look at the marcellus and utica grove such unique situation. the way i like to do that is cut total production from the northeast and split it from everything else in the united states. this is everything else in the united states, total production lower 48 everything else in the united states dropping from 2011 to 2016. what must be happening, yes,

that's the northeast. just absolutely skyrocket. up from less than five to about 20 bcf a day. the amount of gas that is coming from the northeast is just absolutely action angle. that's one of the reasons why we have prices so low today. even though of course it hasn't been that cold in winter up to now. so what happens next? how does this all plays out? to enter that you need to know something about what is going to happen -- forgot. one last thing. that is demand in the northeast. so big deal what happened at the end of, the middle of 2015 is that total production in the northeast grew greater than average and a demand in the northeast making the northeast a net producing region. that makes it a big deal. now to go back to where i was

before. what's going to happen next? like howard said you've got to have a view on prices. we like to do price forecast as much as anybody else but, unfortunately, we don't believe our price forecast for that matter we don't believe anybody else's price forecast be the. in the time honored position of our consultants can we use scenarios. we are going to pick three scenarios and call them growth, cut back and contraction. -medium and low. with the growth forecast is that we will get back up to $45 in 2016 on average equity get all the way up to 60 bucks by 20 to one. the fact that sugar high case right now is just mind-boggling. on the low case, 30 bucks, up to 40 bucks something like what a lot of people tend to expect and then the following cover somewhere between the redline and yellow line. that's natural gas. the same sort of thing with

natural gas prices getting up to above $3 up to $4. i didn't know what he may believe that but let's just see what happens to production if that were to happen and then the contraction case down just a little over $2, getting up to about $2.50 by the time we got to 2021. what we're going to do is work through economics can produce economics based on those curves. we also want to look back at what happened in the past. we are going to drop back and say what happened back in the good old days when crude oil was one-to-one bucks oxides are, crude oil was 100 bucks. in order to to that we will take that same productions, same price scenarios where looking at a few minutes ago but put them on a different scale because they won't fit on those grants were just looking at. that's what crude oil prices

look like in july 2014 when the front month was $100 a barrel. remember we were, prices in the forward carver falling down. then fast forward to me 2015 when the curve was $50. we look at production economics all of those cases. same thing on gas. that's the curve back in july 2014 for gas and that's the curve in 2015. every same day that we had those crude oil curves. that is history. $100 case, $50 case, and then our three seniors that we have. as you can imagine there's a big impact for what happens to produce economics depending on which one of those priced centers we are on. but there's two other variables

changing to in order for us to be able to look at produce returns, not only do we have to look at price, we have to look at what has changed with two other variables. those are extremely important. number one volume. how much in volume as a given well produced? number two, what is the cost of that while? those things have changed his has dramatically as prices have. well productivity, eagle ford type occurs again bia numbers out of report it has did i think last thursday showing what a type occurs look like for each of the major basins. a great piece of these guys did. and so those are the numbers straight out of that report which basically says that initial production rates for the eagle bird were somewhere around 100 barrels a day in 2010. now they're up approaching 450 barrels a day. exact same productivity report april but we look at a few

minutes ago. most of the major basins are seeing that exact same kind of improvement over time in the volume that comes out of the well. if you drill into two or three times more volume than you did three years ago, obviously the economics i have a lot better. drilling and completion costs, exactly the same thing. versus 2014 drilling and completion costs were down by an average of about 25%. different basins different rates of decline but down by about an average of 25%. at an average of about another 10% from 15 to this first part of 2016. so costs are way down. volume is up, costs down. price is down to what does that mean to economics? let's fast-forward to these economics. you guys have copies of the

slides. what's it really mean? back to 2014 crude oil prices were $100, natural gas and 385. crude oil rates of return were in the '40s. natural gas liquids rates of return were in the '30s. and dry gas the low teens and sometimes in the single digits. ..

these guys are still making money. these rates of return and not including the cost of buying leases and everything clicked into these clicked into the same spirit are the producers better off drilling them not drilling if they have the money to do so? these numbers say yes. i think they are better off drilling than not drilling. 2017 so on and so forth, the 11, 10, 17 range. last year we still make money. $201,645 as a growth scenario. this year's costs, this year's tight curves and prices if you

assume the growth scenario back up to 45 and 325, everybody still in good shape. here's the $45 case in the $38 case. we are still in the positive double digits in crude oil, the positive double digits are single digits and natural gas and natural gas liquids. only if we get back to you a $30 case and $2.10 gas scenario, we are close to where we are today to make it down to single digits for crude oil, but not zero. not low zero. not if you've been able to get your volumes up and you have a way to get the stuff to market. the single digits or wet gas and

low single digits for dry gas. you've got to be in the right place. this is not traditional stuff. this is all shale drilling and you have to really hammer your service providers in order to get prices down that much. if you did, and that is the rate of return viewers in. that doesn't mean you like your financials date them. it does mean the economics don't look so bad. crude oil production that are three cases on this thing. if things still look good to get 10 million barrels a day by the time i get to 2021 an increase of 160 barrels a day each year if we are on the contraction case because the traditional production all enough, so much of the volume falling off, we still have the decline of 225 barrels a day in the low case. the main point is that doesn't fall off the face of the earth.

it declines, but it doesn't decline to the level of anymore where we were a couple years -- two, three years back at natural gas production same thing. we were increasing at a rate we may per year until the shelf and kicked in. one point to send them. trackback scenario flat and contraction scenario is a decline in the lower 48 down to 60 b.c. s. a day. it doesn't fall off the face of the club. where could this go? my logic is that we don't trail, we know where the welfare in the production as and if we don't drill these affect the blade, it is like archer carbon storage. if prices go back up, those

wells are going to be produced in what we are written as a trading range. if prices go up on the economics will improve. when the economics of print, volume so combat and push prices back down again. we have seen this before. it did happen before. i was a traitor during this point in time when in time when i worked for texaco. i did one position in the market and i was not a happy camper. what happened? prices start from 30 10 batsmen then came back up to the dollars and for the most part except for operation desert dorm, stated that he had between $15.22, a $7 range for two years. could it happen this time around? i don't know. certainly not that bad, but you multiply the price right there bites you and i can build you a case that is exactly what we would see.

with the next phase of the show revolution, show to point out. producers have to do with the improvement. even with the low prices, some producers are economically better off trilling rather than not drilling. assuming they have the cash to do so. so if they don't drill, someone also pick up up those properties in trail. crude oil prices and gas prices hit $3.4 they will come back at lower prices. there is no guarantee the lower prices are going to result in higher prices because the production progresses -- prices kicked back up. by the way, frank told me i could plug my book, so my last flight is a book plug. if you want to know more about this come is only $14.95 or some thing like that on amazon. thank you very much.

[applause] >> now i have to bring us more into the world stage as last year i think a lot of the things you are hearing from rusty absolutely reflect my view and what i think are key drivers. howard was saying while there is the rest of the world, obviously we have to look at it all. but i go back to the beginning of my talk last year that it really is all about shale. that is what is different in this world. a few other things we need to pay attention to, but in terms of the market dynamics in the state of the oil market today, and it is about shale. we could have -- do i have to hit a button, sir?

next-paragraph he didn't. -- next presentation? i can actually do that. there we go. thank you, mariah. so as i said, we need to remember what causes and whether or not users though relevant or not. how are the rules of the key players changing? obviously we saw one opec when it started, a different outback as of november 26 the 2014th. do we see it back to the old opec now as qatar in february 26 dean or not? i think not. so where are we in this overall adjustment process? the term lower for longer that

if we didn't invent it we were pretty early and using it at energy intelligence. but how much lower at how much longer are obviously key questions and i'm a bit on rusty said. maybe 14 years as a little long, but it isn't 14 months and it certainly isn't 14 days. global balances for 2016 i think i'm a bit on the pessimistic side compared to some of the other guys. i will show you some comparisons panel type about shale, but i don't have to do too much because that's been really well covered. i will reinforce a couple points made by frank. the other question lurking in the background and i will bring it in a very sort of tangential way. caught 21 and csi assets and a

lot of very good working green that opinion on that. i just focus on one thing and that is to change the way saudi arabia thought about its resource in the long run? i happen to think it does. they haven't stepped up and said that, but that has a huge impact on the way they behave in the medium term. and let outside influences affect the market, which we need to keep in mind. you have a bio already. let's go back and remember why this price decline happening. it wasn't because opec had decided to leave its market share really the market managed zero. it happened because of the birth of the shale era and it is coming of age in 2012, 23rd team. at the end of 2014, the size of

the resource was becoming a major issue. there are a number of myths out there, which i mentioned last year that this was not the result of the $100 crisis. this is not the result of anybody finding anything. this was not the result technologies. we all played a role of peter, but it really was a change in how geologists thought about their job. a guy who knew how to figure out what was up. that changed for the coming-of-age. the outsourced product is absolutely essential to understanding the future of global markets as well as the u.s. so this is a very large resource, but it's also a very new resource in terms of commercial value.

saudi arabia looks at that. as i said last year, they couldn't change that knowledge of the resource base that was a cap i was out of the back but they chose to change it or not and that is sort of where we are in things right now. how are people doing? obviously, i like you miss to an opera or a ballet that there is a dance and saudi arabia is in the role of prima ballerina. a different role, by the way, for saudi arabia. they like being in the shadows and now they are sorted in the lead of this taking a lot of the spotlight. is there going to be an agreement? i don't think so. but is there a lot of pain in the market that would maybe cause an agreement? yes. it is a horse race at this moment.

the other thing that is going on with the end of each of the acts of these areas dances at who visited who and whatever, there is a round of applause from the bairstow polling on frank slide and a little bit of jump up in the price of oil. maybe that is what this is about. just getting a bit of relief in state since bats but not giving up on the overall market share strategy. a way to be sure that 25 years from now saudi arabia is an ending up with the biggest standard assets in the history of the planet in terms of unproduced oil reserves. let's look at the size of the cuts that actually required, which we haven't done yet in these presentations. by my numbers, it is two to 3 million barrels a day just to take care of the daily surplus.

i will show you the quarterly numbers and a couple slides time. on top of that, we have somewhere between 500 million a billion barrels of oil that have gone into inventory. some of that oil, strategic reserves in the pipelines and stuff like that. i think we are still talking about a cut on the order of 5 million barrels a day to fix both as to the problem. stock overhang and the daily imbalance. is that a number of tech help to with very challenging things. so this freeze is not even close to getting that done. it continues to build the surplus. so let me move on actually. i know we are a little bit behind time. where you process and then i'll get some numbers, which i know a

number of you love. obviously, we've seen the price decline, the story to twin pronged strategy developed out of bed that not only affect you the economics in the patch, it is clearly affecting the level of financial pain in the market, both producers and countries. that means that there are two options are to successes that you might see for the saudi market share strategy. if you drive enough production to get the daily balance is really not that good the other is to get people at the table to agree on a production cut. whether the cut works as a second order thing. right now it is not even the existence. it is the discussion, the

possibility that those market. having spent 15 years on wall street it doesn't matter whether it's true or not. and others at the other guy thinks it true and how fast you get your money into the market versus the other guy. that's how you make money. i have a friend that told me early in my career it is very dangerous being smarter than the market because you can does a pile of money that way. the other quote i think i mentioned last year i like even better because i did it. i was on the crude oil advisory committee in the 80s and i said that max is the most efficient as processor and misinformation in the history of western economics. remember the number of times you have the king of saudi arabia is dead? but he isn't and prices go up. why wouldn't they go down? if you try to invest in the truth of those things coming you just lost money.

something to keep in mind. as we know, the slides are there. let's look at what these balances look like. and it isn't all about prices. a lot of other stuff that is going on here. you will see i have started at level forecasts. this is my colleagues that puts those numbers together. we will look at how we compare to other people in a minute. clearly i am an optimist that is the category on the supply side for all the reasons that you just heard about. so we looked at a surplus last year as separate million barrels a day in the first quarter and grew to something between two and 2.5 by the fourth quarter. this year we start off with a surplus that is well over two

and it just continues throughout the year. part of that is the story about there are people still make you money. we focus way too much on averages and particularly on the bottom end of the producer spectrum. the money i think somebody might have said before. i've been using the term economic darwinism in the shale patch and we talked about the shale bob being about to explode, which is the bubble scenario that rusty had brought a period the important thing is how many of those companies or how much of the production from the shale patch comes from the lower tier of the financially challenged companies and more importantly in a way is how many of the big banks are a major exposure and that is still kind

of up in the air. remember that oil prices are a huge factor in figuring out what the reserve base is for reserve base loves. a lot of this staff is reserved they send those are still the re-determinations could get ugly. in a way that banks don't necessarily want to see how bad it is either. was applicable in september and it may be in a pro with these re-determinations. if we do lose a few of the dumber players, let's be frank about it in the shale business, that is good. there is a process by which is called economics by which people who do badly tend to lose their assets to people who do better. we are waiting and waiting and it is sort of slower for longer

how this whole bankruptcy and asset reallocation process is going to work out in the mark it. it certainly is not going to happen very fast at the people involved in trying to improve their level in the bankruptcy terminations are just waiting for the price increase to come and bail them out. i talked to a bankruptcy legal shop in month or so ago and i said my question is what is the side of this market looking to you? are you singing some of the hedge fund money taking a look in his eyes i am not been anybody. i know there's a little stuff going on, but it is a major transfer of shale at the grundy economically or mentally challenged but call it people in

the business to deep-pocketed smart investors. you wake up with a whole different picture. a picture that looks like the upper curve in the presentation. the same technology is going to be in place. the same people if it happens relatively soon are still going to be available in the same location there's going to be quite friendly. certainly the eagles birdies were if birdies were a pirate thought i would put the shale bear because it is a great place for shale. the refineries are right next door. the people love you. the state is very hands-on. job, but it doesn't do it in a particularly disabling way. permits different, but also a big mix of conventional and non-conventional dose. there is a quick picture of what

i could the overall supply demand situation is. i will share with you also a look at not just the u.s. in terms of the adjustment taking place. it is a fairly broad set of countries being affected not only by the lower oil prices, but also by a whole different that of circumstance is be the sanctions come and be they geological age like mexico with sanctions for russia. the geological age for china. i had a feeling the change had been held at you and yours at no field that has been very heavily -- not a field, an area, but the reserves in that area has been abused. i do go with the that he might be able to tell us some stories about that. it is going to hit in a bunch of place. when you get to the end of the

common i still have half a million barrels a day of growth in non-opec supply and i'll show you in a minute up with me in a fairly different group. and i said, the numbers are there. if you look at oil and you've heard a bit about this before and i have on the right to face with timber table that we did for oil market intelligence, and then we have a recent one. you will see we were the only ones. and i should have died because i do the supply work for all of mine.

and all of those as we know from being delayed if not canceled. the thing that i have, y and then commission as opposed to the iaea and opec is because of waiting for the information that the declines are really there. i saw one set of pictures from howard in a completely different set of pictures from rusty in terms of the relation of the productivity gain and what their impact is on the overall production level. so i need to wait to be proved

wrong about how deep those declines are. we do a conference every year in london and a number of you have been regular participants did not like i the mothers. -- like ims that matters. at that meeting, for years one of the really successful companies told us we were going to have a 700,000-barrel a day u.s. year on year decline by january. and i had to deal with that. i have huge respect. he's out there in the business. he saw what we were using to show you what was going on for eog. the good side of the business and it needs to be looked at. that didn't happen. it doesn't mean that it isn't going to happen in the future, but things are going to come down. as long as you see the nuts and bolts of the product to be of the new wealth and the wealth that are trailed but i'm completely lurking behind their,

you'll see oil production growth. and that is why i am there. well, last year i made a forecast and i will show you the forecast in a minute. i said it was my forecast and men as of the lake is going to be right, it all of a sudden became the dig forecast and they sent me out to show people what i thought. almost all of them said that about 2016? i said i can't tell you about that yet. i have a forecast in here it is. my company doesn't know if it's going to be right or not. so i have to say that is the david knapp forecast of oil prices. for that from almost $100 to $50 for the grant price and a similar decline, basically losing half of the value.

and now i see it going more or less sideways. this is on the left-hand side a very choppy thing. one of the things we talk seriously about was shaped that came off in a couple slide. it is absolutely critical declaring on the market every month to have a place where the oil doesn't fit with the supply demand balance is to go. if you have a price curve, and to justify on that storage and ultimately floating storage as well, it's going to go away. as soon as you flatten the curve come you go back out and it goes back down in the economics comeback of oil goes back in. that is when i see it like a fish going through the water. i've been down and up and down. you end up at the end of the day

still in the low 30s. a lot of people say that's just too low. the economics require 40 or 50 or 60. i had to guide the research institute same prices have to go up. i say why? they say because of the pain. i said he was paying. just look around. venezuela, iran. iraq. and i said since when does saudi arabia treat pain and many of those three paces of the negative. i mean, part of their gain might in fact be about the level of pain within no pack and hey, let's put russia in there. they are somebody who is in our best friend either. when you look at the strategy, there is the geopolitics you have to consider. if you look at the price forecast that i've made here as

a second set of those curves that it was basically every month i was making a little update on the forecast and handling the blips and all they did exactly what allow producers to hedge it much more fun levels than they have now and it created a bit of fluff on the upside. i mentioned also in geopolitics. there are no geopolitics that the surplus. we say that so the middle east has never had a higher degree than today. i absolutely believe that. that makes for a nice day's discussion and all that. but guess what? the production to the middle east has never been higher than it is today and the rest of the world has plenty of oil, too. do i care about geopolitics? i do in an academic way, but not

much in a commercial way. as soon as the market gets tighter, we will be talking a lot about sudan and yemen and syria,. if we look longer-term and this is sort of a combination of a couple things you heard earlier from howard in particular that there is another fact we kind of talked about but i think needs to be reinforced, finding and development costs are much bigger. the adjustment to it short-term from shutting it sure feels because the cost of gotten so low that they are below operating costs are very much smaller than what is this an cancellation of longer-term projects. those that are very concerned that don't have much completed or those that you have done had.

if you don't get that oil on the non-opec side, you are going to end up with a deficit probably as early as 2019 or 2020. maybe a lead in my numbers in 2018. i have some very soft expansion path for saudi arabia in this. the other thing i said about the long-term part of the policy, being sure that oil has a market share that we would keep it cheap enough we keep our role. we keep our energy rose against other fuels. we keep our will within the oil market against other producers that that is what fills the gap. can the saudi's do it? the saudi's and absolute to do it. they have the ability. we don't think they are all drilling for shell gas. i think they are preparing to bring on more capacity and use that capacity and that is what

those in the cat. do they do it without an impact on prices? probably not. there's an upside for oil prices towards the end of the decade. as i said, i will skip through some of the shell and the slides will be available. i had to do that ego fared is not as adult as we think it is and there has been a long-term discussion among some of us about the drilling products. i absolutely agree with what was said iraqi and i thank howard for the work that gets done. i will be talking to them tomorrow. the idea of not fully segregating the shale stone, ego foraged shales and some of the other, sugarcane and briscoe ranch means that what we might be seen by measuring things in terms of shale counties is an

accelerating conventional decline. texas has more stripper wells that anybody and that anybody knows their economics really been challenged. there is a lot of inertia in shale production. just reclamation costs and other things that would keep things on for longer. uncle charles needed 12.5% or whatever that some of these small operations. i think that the ego for it has not gone down quite as much, but clearly it's gone down. my price forecast was higher than what we've now seen for most of this year. i am continually making adjustments but i will go back to what i said before that i need to be prescribed about the the continued growth in particular. an eastside -- let me go back. this is just to remind us how

changes have in the whole shale revolution. you look at what is happening to a lot of these dates were you long-term to find a bunch of the state of mouse that and this is something i just put into keeping in mind. if we look at u.s. production mix, the only thing i add to what was that before is the main shales dates in the fair mixes of conventional in shale production. if the gulf of mexico and ngos. we think the ngo market will continue to look pretty good. and encourage rusty is a little bit of that going on at well at least in his area. the only thing on his note is the difference between the conventional deposits, that being produced like it was shale. you can segregate that out, but it's going down and it's still

going up through this year. if you look at the permian power to new mexico, it is even more stark. and then you will see that you turn over in the picture on the bottom right. i will talk about that. i won't talk about new mexico or colorado. let me just finish with the idea that there's a lot of things going on in his oil market. global oil market is an island. paper markets have changed a lot of things that certainly what you see with market psychology, we see asset allocations going on with this. do you like oil better than other commodities were commodities at all, basically not. that affects the good physical market interactions become much more intense. we are the global village and all that kind of stuff. the speed of every thing.

the flash voice is a great book. is all about speed and things change very quickly. another rule that is also going to change permanently so you get a lot of temporary episodes of things. a few other points i'm not. we try to track the relationships between audio and between economic s&p and oil. isn't this interesting. low oil prices and declining economic growth prospects. what happens there? is about the complicated linkages and interactions within toilet habits in general that caused these strange correlations to happen. it also is about the speed with which oil prices decline and the volatility of from those declines. those are all adding to uncertainty which makes business decisions more difficult, which then cause economic problems as

well as the low oil price, which may be having demand affect, but they are not big enough to cover up what else is going on. physical markets with a shift to the thesis you have players. as a whole day's worth of stuff to do while not. the financial market drivers at times dominate what goes on in the physical market. in fact, most of the dominate. when you see changes in the price, are you looking at were you looking mostly at psychology. i've left a couple of slides here which give details and then i'll go back to your because i don't like that anyway. sitting in the middle of all of

those is the pore refiner that has to do with not only the complications in the crude oil market sheepherding the first was odds, but there are product market. a total surplus that proves it to post products. there is now a new exporter in the world. it's actually several of them, but the u.s. and saudi arabia have changed a lot of the dynamics. let's hear about what we're trying to direct you. [applause] has moderated before. >> i promised a content rich since we started away. we will not take away from your time. wu catastrophe questions with ease. >> well, i will try to be very efficient with my time. frank, thanks for inviting me and for attending and for your attention. i guess we look at this thing loaded and as soon as we do i'll talk about a part of the business that actually makes

money. can you hear me? did i not get it? down here. there we go. let's go back. i'm actually going to talk about the things that makes money. let's get on with that. we have seen and heard a lot from this guy in the last few can probably see and hear a lot from him going forward. we know he loves winning. he thinks the u.s. isn't doing enough winning, but the u.s. has been doing quite a bit lately, especially against your competitors to japan, europe and south america. i'm trying to get to the basics. what determines who wins in the game of refining? obviously, the environment is important. i have colored coded this so that means dumping refineries and sales can't do a whole lot about. you can't do a whole lot about refined product demand for both

regionally and globally. they are stuck with what the market gives them. they can't do a whole lot about the supply. we have seen the last two or three weeks fairly timely responses from refiners in the u.s., primarily in the midwest, some on the east coast and gulf coast and trimming back to respond to growing seasonal product supply. i think we will work through it. the seasonal product, you know, growth and take off at certain levels. they can make more viable products. they've been doing that trying to make these are more in demand and gasoline growth returned. they also make investments to access markets with better supply demand talent is.

more attractive markets. location, location, location is also important. refiners are located close to these titled masons that were growing and it got to the situation in get those out of the area. they experienced double-digit discounts in the crucified god according to the international designer. there's other stocks as well not as an orton is crude but access to cheaper intermediates. both coast refiners have intermediates a plus, ask us to cheaper ethanol and natural gas line in the gasoline pool, those are all pluses. the changing qualities that they will run in the last several years, be able to run the late condensates coming out at the

eagle ford. they've made significant investment to run growing volumes of latin and canadian did they also make investments that improve access to crude. east coast refiners don't have -- didn't have direct access. they make significant investments in rail facilities. operating cost per line item in manufacturing operation and natural gas is the most important variable cost in the refinery use to generate hydrogen for refining processes. what we heard today, shell gas in the u.s. is in a boom for u.s. refiners, access to gas and guys that have to bring in lng guys and russian gas.

sizes import when it comes to costs. fires can do some things about it. the merger acquisition activity has been largely justified by being able to reduce redundant cause, both at the refinery level in the corporate level. they can also invest in projects to increase energy efficient the in operating efficient to you. refiners do a better job of managing costs are more successful than the guys that don't. finally, regulatory environment by some washington about that. if there is not just country to country, that state to state and intense mentality to municipality. location, location, location. these regulations can impact demand in the regular way, increased cost, make access to supply. they can impact their ability to

execute projects on a timely cost effective basis. a lot of people here on k street that try to mold and shape those legislations to at least limit the potential disadvantages to refiners and sometimes they are successful, sometimes they're not. decision making in terms of compliance regulations in place can differentiate between a winner and a loser, also making life-and-death and to make appliance more cost-effective. just looking at demand and not from howard and obviously the developing countries were all the demand has been in the last 10 years. we have increased the total world demand by 9.2 million in the last 10 years and that includes the impact of the global recession in 2008 and 2009, which were two years of increased demand.

the developing economies loss product demand. the u.s. share declining demand. we've seen a bit of a change in the low price environment. 45% of the product demand growth in the last year came from europe and we've seen slower growth in producing countries with low prices of negatively impacting their economies. the u.s. on a regional basis, kind of the same story. most of the 1.4 million supply and demand in the last 10 years he won the east coast. more they can as well in the

cottman of the west coast, where is the gold coast and the rocky mountains actually showed positive, although slight, at least positive demand growth, partially aided by this drug energy areas. again, similar to what happened worldwide, dickens in parts of the country showed the greatest demand growth year in 2015 responded to the low prices of the east coast and the west coast and more subdued growth levels in the midcontinent and the gold coast declined. partially related to the impacts of the low down in the energy business. you build refineries were the demand grows generally. he generally build capacity to match the demand growth. we know in the last 10 years we have been fairly well matched to the ninth .2 billion barrels a day building about 11 million of

additional refining capacity and when you consider normal utilization rate, that is an 11% increase over that 10 year period. as you would expect, most of that came in areas where demand was growing. asia, 80% of the capacity goes to asia. middle east is so strong refining capacity growth in many grassroots refineries the next mansion that tape place. one exception is latin america, even though there's strong demand growth, the actual capacity went down by 200,000 that the effective capacity with countries where demand is following, in europe and developed parts of asia, they have to rationalize capacity and in the last 10 years one

exception is the u.s. despite the band followed in the u.s. as it did in europe and developed asia, we had over 900,000 barrels a day of refining capacity. so why is that? the big reason we increase our level of competitive winners at the donald with dave. under my because winters had the really a free market in the oil business and maybe we don't think so at times, but it's economically and politically stable. and it is. it wasn't always the case. we had some pretty misguided energy policies in the 1970s where we control the price of

crude oil and by the early 1980s that are very refining system in the u.s. over 300 refineries operating average capacity lessons to 2000 barrels a day, a lot of them on crude set-aside. when reagan deregulated new to any kind of process and it did go through a real survival of the fittest kind of process over the next 25 to 30 years. and that was in the end. for the refining industry. they shut down so wasn't good for the people that worked there. in the end, even though we shut down 180 refineries, with a capacity greater than where it

was in 1982. it has evolved into the most advanced complex set of refineries in the world. four to five times as much as refiners and the rest of the world. two to three times as much upgrading capacity and turn it into gasoline and diesel is refineries and the rest of the world. heavier and more difficult to more highly valued products and higher throughput rates and reliability rate than anywhere else in the world. we also have the deepest and most talented set of labor pools all the way from management all the way from technical down to the skilled people. and that allows refiners to run this refineries at higher reliability is an allows them to have lower operating cost despite the high wage rates.

it also allows them to execute projects at lower cost than anywhere else in the world. almost without exception you can build or add to our expander may capital improvement in the gold coast cheaper than anywhere else in the world. to put the final frosting on the cake has been what is happening. the low gas prices have been a boon to u.s. refineries. the recruit prices have been a boon to u.s. refiners. just to take a look at the magnitude of that, as you can be the natural gas price in the average u.s. refinery that u.s. refinery tablet pcs versus refiners in europe and singapore's knee. ecb shall cast shall cast them up 2009, 2013, gas prices skyrocket in those areas, especially in singapore and asia

where they have high costs of lng and it actually went down and stayed below $4 stayed down below those levels of the hole. increasing our advantage compared to refiners in this area. now with the decrease in energy prices, there has been a compassionate that it damaged. if you look at the table on the left, you can see how that trend led to an operating costs at the refinery level. 2013 the u.s. refiners had anywhere from eight to $22.50 per barrel crude process due to lower gas prices. that went down to somewhere in $1.50 range in 2014 and has gone on further to maybe around a dollar depending where you are preparing and in 2015. crude prices environment is also

a big advantage prior to the boom in domestic production this is compared to last at st. james and they traded at import on the gold coast that basically meant als is priced between $3.5 a barrel be about -- and about. as we started displacing these import and domestic and we had a period of time from 2011 through 2013 where was essentially zero. it is volatile but it averaged right with each other.

during that same time from a regional crude differentials really blew out with wti, grows to $20 a barrel below the price below grant, canadian henley, rocky mount-based cruz, refiners and good access made huge margin said they could get their feet back at a huge discount because the crews could make it to market. as we build pipelines to the gulf coast refiners to access them, the discount move to the gold coast for some period of time. now is the crude price environment has changed, you know, obviously the production had declined during much, but it's declined and we moved back towards trading at the same level of depending what do you look at it, probably moving more towards an important level depending what happened over the next couple three years.

all of this has driven a huge change in the product between the u.s. and the rest of the world. the u.s. is always the world are just importer of refining projects. by 2006, we reached levels where we were a net importer of product. but that increasing competitiveness combined with domestic demand and the increase allowing us to access and take market share away from other world refiners, particularly european refiners and feel the growing refined product is not the america that we saw has allowed us to completely reverse pattern. they come from the world's largest importer to the world or just export of finished project and total export a project. a search of 5.5 million barrels a day, which is huge.

the u.s. is a big country. we have by far anywhere else in the world and certainly the most challenge of these goes, most challenge of the sectors while the rest of the u.s. is increasing pasadena, they lost some capacity. but based at the loss by being able to access making investments to access some of those titles of building rail facilities. it is still very competitive market and their disadvantaged with the crude exports, the european refiners could get crews in the gold coast cheaper than the refiner in the east coast of the u.s. they benefited the most from the crude surplus in the refiners are experienced at mythic and this counts as we does guess. a lot of the advantages come away as it's been built to note that crude further down the line. it's also gone the way and the

crude price environment. if he was out there by itself, would be the largest refining system in the world. 's prospects depend on what part you're talking about. guys are the best access early on tuesday before production in the panhandle with tax and tax is a very well and they realized some of those domestic does counts. a significant infrastructures have been built though most of the pack now cannot as those crews. the big thing is they become very dependent on product exports. that's where products are exported from. 35% of those produced vote to export markets right now. as for his very small, by far the lowest deal. their advantage by the supply and demand standpoint to impact production of crude exceeded impact consumption of crude and

products. they are also having good access to the growing market. canadian production which has been growing in good access to the production next door. demand has been pretty good and stable until recently. but limited room to do much there as far as any expansions that would have been related to regional demand. a lot of potential used to be the most profitable refining area in the country and the last year but very challenging environmental environment, regulatory environment. they've had declining demand until recently. that moves the region itself from being a small deficit to be in a small surplus when all refineries were running is the key is not all refineries run all the time and we had major outages last year. the facility was down for most

of the year and is still down. so it has significant gasoline shortage there that is difficult to replace product if they had to bring endeavors these. it's not connected very well. in times like that you enjoy very good market like we saw last year. the indigenous production if you have for the last also is declining and have limited access to the production. last week we heard blair was applying for permits to build a rail facility and that got turned down by the local planning commission. like i mentioned, it is a challenging environmental regulatory environment and that will always be a challenge for them. what is not meant for margins? the golden age for refinery was kind of demand driven in 2,522,008 were refineries express what they ever had. all regions in the u.s. did really well there.

the financial crisis in the world of the way hurt margins and demand. but the golden age to come in the supply driven to manage that took place in 2011 until now was even better. 2015, even as margins have declined a bit, they were still very good and driven by strong demand cap incentivized at low prices gave u.s. west coast had a particularly strong margin because of the supply shortages. the margins have gone down so far this year. this is the winter season as they typically go down. i personally think it is relatively temporary. the west coast is still strong. we can see those margins contract to some degree. ..

the independent producers did the worst until the quickest. it to, majors move towards being more upstream or you. they also decline. midstream held her own until recently. right now all three of those segments are below on an average

basis below what they were in 2013. only the refiners have been better. they've taken a hit in the last three or four months as marches have contracted to some degree. comparing the integrated majors to the independent refiners, you can see net income driving the growth in equity values has been driven by positive margins which has led to a positive net income. as crude prices fell and demand went up. just the opposite is true of integrated majors. they are so upstream focused, whatever profits they made in refining was more than subsumed by the losses they experienced on the production side and their net income is down to 80%. that does include some special items. and by the way, the independence, the seventh largest independence, integrated

or the four majors, exxon, shell, bp and chevron. as i said the integrated have been moving towards getting rid of their refineries and going more towards the production side. that strategy worked well for them back in 2007 and eight when prices were up. they did a good job, over 80%. they did well. this latest production boom, i get over 80% of the earnings come from upstream side, less than 20% from downstream, excluding so many ancillary businesses and corrections and adjustments. but here in 2015 that's been completely reversed. over 80% of the earnings came from what refineries they still have remaining. that wasn't enough to compensate for their loss from the upstream side because it becomes so upstream focused. so some final thoughts on some key issues. lower for longer, i don't know,

that's an overused phrase but it simply everybody is in agreement with going to be there, lower for longer. it's pretty clear those are not good for the upstream segment, for the midstream. more complex for the downstream. there's positives, low prices, incentivize demand, low prices could lead to higher margins on products that don't track crude prices. most of the bank from that as prices fall in the first year or two satan to a little west bank, demand bank out of those low prices as we go forward as prices to stay lower longer. there's also a negative. get the impression of crude benefits, as we've seen already as magic as cost benefits versus the rest of the world. it's regionally specific. in regions where the product demand is somewhat related to the help of the oil industry,

that's bad for refiners as well and also bad for the ability to ask is crude at bigger discounts. we have seen that not just in the u.s. but across the world. lifting of the crude export ban, almost all the time in the last couple of years that i spent in washington, it was related to the issue to a lot of people did a lot of study on this. it was a big, big deal. hundreds of thousands, millions of dollars were spent on studies showing why it's good, why it's about. when it finally happened in december it went down with a whimper because of the market change. there's no incentive to to export. it will be limiting in the near-term, midterm even potentially. longer-term it will matter. we will get back to crude production growth. there will be a market where exports are incentivize. it will prevent these large domestic discounts materialize, otherwise might have. it also removes the incentive to

build of these so-called crude to product projects that otherwise would've been built to get around the ban. one thing to note these goes refiners are disadvantaged. all market distortions have not been removed. acy in rotterdam can get a barrel of crude from the gulf coast cheaper than acy in philadelphia can. regulations always going to be important. rfs standards being revisited as we hit the blend wall. they can either, we can either go beyond that and go towards 50% or more of ethanol. i can displace them petroleum-based material and gasoline pool or we can remove that. people have talked about that some knows what's going to happen. and other incentives for alternative fuels. carbon tax, other petroleum

focus of taxes. we had one thrown out recently which probably would not see the light of day and a republican caucus by 2016-for setting could be a different story. the ability to respond to regulations to allow time that is regulated on a local basis. so more stringent environmental regulations are going to go forward regardless of election results. tier three gasoline will go to 10 parts per million is already in effect. that will increase costs to refiners to some degree. it will make octane more expensive as you reduced octane. the low sulfur bunker fuels what impact on both the residual markets and the diesel market. product demand is very key. we don't ever hear about peak oil anymore but when people to talk about peak demand. howard showed that eia doesn't believe in peak demand.

petroleum is here to stay for a while. it's harder and harder to predict where it's going to be. it does relate to economic growth. it's hard to predict that economic growth. it's going to return, demand will be stronger than in developed countries because of demographics, economic maturation levels. allies don't changes are going to be very important particularly in developing economies. work from home, reorganization, things like that work to suppress product demand. it's going to be impacted by technology breakthroughs potential in alternative fuels even though i don't see on the horizon. a breakthrough as a breakthrough because nobody can foresee it so who knows. autonomous vehicles keep getting talked about. what impact it will have on demand is hard to see. could increase, decrease, i don't know. that's a difficult one to judge. could be other factors. overall i believe u.s. refiners will continue to be winners in the world of refining. their ability to maintain and

even grow product exports can be key because domestic demand is only seen a short-term renaissance in this low-price environment. it will essentially be fairly stagnant going forward. especially critical for the u.s.-gulf coast guys and this challenge by the additional refining capacity, not just in places that import our product but also as i think david mentioned that construction of refineries in exporting countries, some come online. the benefits of domestic growth is there and have been muted now but help the upstream industry, healthy midstream industry will help take a healthier refining industry. i did skip over that point about regulations, but that's a key one. for us to continue to be leaders we have to make sure that regulations don't handicap us too much.

that's always a possibility could. this is a huge trade balance issue for the u.s. it's the most important manufacturing industry in the u.s. in terms of trade balance when it comes down to if you look at the numbers. the one thing i didn't expect if these things goes we expect, there would be more rationalization and other developed countries, japan, oecd, issue. without i'm done. iran over a little bit but that's okay. [applause] >> we promised you a lot of content very it was delivered with an exceptional amount of insight, little bit of humor. let me take to question before we call it a day. the only roles we have here is identify yourself, wait for a microphone and ask a question in the form of a question, and then we can wrap up. john, right down here in front.

>> howard, a couple major pieces of legislation require strategic between reserves to sell a lot of oil. what assumption do you have in your projections for sales in 2017? >> i think we have a very, very small, at the beginning of fiscal 18, which is the last three months of 2017, i think one of the sales starts to kick in. but the sales are very backloaded. in the budget legislation, largely backloaded, so there's not much. i forget the numbers so i don't want, but i remember it being in the thousands or low 10 thousands, very low 10 thousands

of barrels per day. so it does not make a big effect in 2017. it actually got out to 2024, 2025 where the larger things appear, they get to be more material. >> anyone else? >> any thoughts on how punitive privatization of saudi aramco may affect the production and the management of? thank you. >> and let me take a stab at that. this is part of a sort of makeover image of the saudi royal family decision-making, which has been always very quiet as i mentioned earlier. they are taking a higher profile through the to mohammed, but

particularly mohammed bin solomon. he was the one that proposed this. i think it's to say that we are, we want to be part of the commercial world war than we are today. is the outside message. the inside message is we want to distribute the income around from probably our major asset to the saudi people. and i would be very interested to see what kind of restrictions they may put onto kids to own it. they will trade on the saudi exchange, so getting onto the exchange first which seems to be a doable thing is not all of it. obviously, it doesn't go over 49%. so in terms of, and i would be surprised if it went over 10 or 15%. a model is some of the downstream refining joint

venture arrangements. so it's a sharing. it can bring in some money, which is not a small thing for them. remember that wasn't 800 billion pilots stuff which is now more like 600 billion in terms of just the current account funding that is required at these lower oil prices. i do not think, others have made a point, that this is a major part of their decision-making is look at the financial position. i don't agree with it. not only is it a big pile but there's so much more behind that. i mean, al all of us would loan money to saudi arabia. we don't get interest but we get a fee so it's okay. >> so this discussion today as lab fodder for future session. thank you all for coming, and please help me join in welcoming and thinking our panel. [applause]

[inaudible conversations] >> notre dame university law professor says the program increases national security threats.

>> this weekend booktv has 48 hours of nonfiction books and authors on c-span2. here are some programs to watch for. >> and my personal experience of growing up with an african-american family attending black church, also living in an all white down, i've been crisscrossing lines a lot working in inner cities going to stanford, yale.

it just showed us across the deadlines the divide how united we are. >> watch booktv all weekend and the weekend on c-span2, television for serious readers. >> supreme court chief justice john roberts recently sat down for a conversation at new england law school in boston to talk about the inner workings of the supreme court, the confirmation process, leadership and politics. he also offered advice to the law students in the audience about preparing briefs and oral arguments. this is about 50 minutes. this is healthy for the death of justice scalia. -- this event was held before the death of justice scalia. [applause]

>> [inaudible conversations] >> welcome ladies and gentlemen, and our honored guest, chief justice john roberts. it is a privilege and great honor to have chief justice roberts as our honored guest tonight. chief justice roberts brilliant career as a lawyer and judge is detailed in our program, and a more formal introduction and appreciation will take place after this conversation here i know that our students and faculty here at new england law boston have been thrilled to meet with chief justice roberts over the past two days come and all of us have been looking forward to this chance to hear

his views on a variety of issues. but before we begin the conversation and on behalf of our entire community, i thank you, mr. chief justice, for being so generous with your time and visiting new england law boston. [applause] all right. i've read some surveys that have caught my attention. one from the annenberg center at the university of pennsylvania shortly after you would confirm. it pointed out that 15% of those polls could identify you as chief justice. [laughter] 66% could identify at least one judge from an "american idol." [laughter] more recently a survey by the

american council of trustees and alumni, a four year educated college americans, found that a significant number, 10%, identified judge judy as a member of the u.s. supreme court lascourt. [laughter] so, how is she doing? >> she's doing great. >> seriously, what do you make of this lack of knowledge of the court? and does it concern you? >> it frankly doesn't bother me very much that people can't identify who the particular members of the court are. one reason we wear black robes is because we should be anonymous and assembly articulating what the law is and not occupy any role in which our personality is pertinent.

so that part doesn't bother me. what does concern me and i know concerns a lot of the other members of the court is that people don't have a very good understanding of what the court does. in particular, they don't have a good understanding of how we are different on the political branches of government. people, when we issue a decision, it is usually discussed as you are in favor of this or you are in favor of fact, when, in fact, are willing often is whoever does get to decide this or that is allowed to do it and it's not unconstitutional, consistent with law. but we often have no policy views on the matter at all. and that's a very important distinction between how we function, and i think it's one that people often lose sight of. >> during your confirmation hearing, it seems you were more than candid in discussing your views as to the proper role of a

judge. yet others have described the confirmation process as less than edifying. what is that, do you think? >> well, i do think it's, i'm not sure if the senate to click i think about it, but i do think the process is not functioning very well. i mean, you look at two of my colleagues, justice scalia and justice ginsburg, for example. i think they were confirmed, a be there were two or three dissenting votes between the two of them. and now to look at my more recent colleagues, all extra and well qualified for the court, and the vote were i think strickland on party lines for the last three of them, or close to it. that doesn't make any sense. that suggests to me that the

process is being used for something other than in shoring the qualifications of the nominee -- ensuring. it's a process now where the members of the committee frequently asked questions they know it would be inappropriate for us to enter. thankfully, we don't answer the questions. it's a forum i think they have different agenda when they participate in the hearings. it's not something it's easy for us to change it i don't see how we would do that. it is certainly up to them to conduct the hearings as they see fit, but it doesn't seem to me to be very productive these days. there's a problem with the way it comes out, and it sort of relates to my first answer. when you have a sharply political devices during process, it increases the danger that whoever comes out of it will be viewed in those terms.

if the democrats and republicans have been fighting so fiercely about whether you're going to be confirmed, it's natural for some number of the public to think you must be identified in a particular way as a result of that process. that's just not how come we don't work as democrats or republicans. i think it's a very unfortunate perception that the public might get from the confirmation process. >> whether it's the confirmation process or occasionally campaigning, sometimes the process seems more like speechmaking, and sometimes criticism of either the nominee or the court itself. and as the leader of the court, does that trouble you? are you ever tempted to reply or to respond to some of these criticisms? >> criticism of the court doesn't bother me at all.

i think that's important because it's a big part of our job really not to care what people think about what we do. at least in terms of the merits, of our decisions. people object to have a court is being run or something like that. that's something else. i certainly have no trouble with people doing that. but again it's often based on a misunderstanding or county later perception about what we are up to. if we uphold particular political decision, that remains the decision of the political branches. the fact that it may lead to criticism of us is often a mistake. we do have to be above or apart from the criticism because we, of course, make unpopular decisions. very unpopular decisions.

a case like the westboro baptist case which involved