>> i feel pretty confident that i understand you don't like the set-top box nprm. i'm a little confused as to what you think the fcc should be doing in light of the fact that it is a mandate in 629, right, and as you point out refers to equipment and devices and boxes and hardware type thing. and yet you want the box to go away and be replaced by a nap. what should the commission do with this section of six when i mandate, just ignore it? >> i will not ignore the provision. there are provisions in the statute that you become dated overtime. and in your if we're talking about application world covered by the statute that i think that provision doesn't apply. the question becomes what's the best out of an indicator order i think we should, it started from a dstac provision picketed nap the next piece that congress did not agree the commission mandate

a requirement for the commission to do anything on this. pages that provide recommendations and that was accomplished. that congress can consider what's best to do and i believe in the capable hands. if there are things we can provide advice on on on this work is changing am happy to participate in. i think there's value in that. at i'm not going to supersede their role. >> i would agree and i think it highlights one of the approaches to assist ladies to take on the supreme court which is simple, if you think the law is outmoded than the solution is not to force regulatory changes to an administrative agency, it's to go back to congress to get them to update the law. strictly speaking if you look at the texas 629 be sec shall adopt regulations hoosiers a commercialization of certain devices. we have regulations on the books. the majority is funny a strict constructionist approach to the statute.

they say look our hands are tied. the statute a says we have had these regulations is completely wrong. we do have regulations that have not solve the problem. only made the problem worse. what we are saying is why do we simply encourage the development of this second dstac approach, much better, reduce cost, wouldn't am-pro the fcc trying to herd cats for a number of years and isn't going to satisfy the purpose of the original statute. >> and my question is for a commissioner o'rielly. i went to a little bit more about what your concerns were with the notice of inquiry on the independent programmers issue. i think you make it look like it was a regulatory push. i was hoping you could expand on that a little bit. >> i think you a chance to read my statement in no. what i said the item is present had a tilt to it. in a direction that they saw. i think my colleague and i had

very good effect in trying to bring language to make it more neutral and get the basic questions. that will hopefully facilitate some type of record at some point, whether some action should be action or no action should be taken. i was highlighting, the point was made it's the beginning of the conversation. a couple of my clicks and we're starting a conversation. this conversation has been going on for decades. this is not a new conversation. i highlighted six different examples of many where we've already looked at this issue, congress settled to this issue. it's been tied to merger conditions. it's not something that's new. we will continue to have this conversation going forward it i was getting to the point and get my colleagues wouldn't take a simple modification to the language and say we seek information instead of beginning a conversation that began befo before.

>> set-top box rentals bring in a lot of revenue to the mvpds. absent some fcc rulemaking what would be the motivation for them to step away from that? you could argue some of these trials that have just been rolled out might just be motivated by the fact the fcc is considering rules in this area. what would their motivation be to move away from a highly lucrative rental situation right now? >> part of the motivation isn't technically difficult and expensive to maintain these boxes. it's not a growth industry for most companies. they would much rather move that functionality to an app-based platform especially in an ip world where you can accomplish for a fraction of the cost with the set-top boxes do. their efforts predates any suggestion that the fcc might have made in this notice by a number of years. it's been a couple of years since we've seen that. will i think they're doing it

because they simply prefer the business and serendipitously good for a number of consumers. i think about how i consume the overtime. i go to mine and watch different short clips. there are so many different ways to get content now that this conversation just smacks of 1996 as opposed to 2016. >> i would agree with what my colleagues at and add to it, a number of cable companies have been testing no box for quite a bit of time. i remember at a cable show last your two years ago they were looking at trying to find is this direction we should go, what are the technical issues. that's a thoughtful conversation, had nothing to do with what we adopted today. they are trying to move to the universe. the number of financial industry analysts have argued that they are already tried to get rid of

the box industry on their balance sheets going for but it's not something we created a. at my colleague and i think it's something that has been talked about for quite a bit of time and activity of the day was just stunned that problem. [inaudible] >> i know there is something called b be held na which into that kind of thing. they have members that include a lot of companies i talk to them a few weeks ago. it was written of a brief conversation but their message was generally yeah, we're falling with the sec is doing and we be interested in, paraphrasing, but you guys seem like really is a high likelihood is testing won't work out but it seems like there's something that we could work with.

what am i missing? >> i think this is a good example of what my former law professor said an incomplete device agreement. if you start at 60,000 tsa wouldn't it be great if we understand body will be could reach consensus? everyone would say yes, let's get involved in that conversation. when it comes time to put pen to paper a year from now and you have to of these highly technical and specific decisions made, that is where the rubber meets the road. i think that's what the tenor of the conversation we have seen the up to this notice is going to be brought to bear. if you think these highly disparate actors with disparates pretentious artists in the country consensus, great. the dstac results suggest that's not going to be the case but if you do think that than the notices tailor-made for you. i think you have a view based on the reality of the situation, it's highly unlikely that's

going to happen. >> i have two parts. one, not at the entities had an opportunity to meet with the commission as before to of interested in your thoughts but i agree with my colleague. we are talking about a universe much different envisioned and what people been talking about. if you read the dstac report is isa good internet sticky when i see a kumbaya moment where industry is in agreement. you are seeing a fractured fairy combat of discussion that will take years and so i disagree that the industry body magically will come together and find a solution. >> if i could add a plug for commissioner our mother. he has been large -- long leading the charge for the public release. i think this does is a good example of why. a lot of these questions would not be asked if you yourself could see it before we voted on it. the whole questioning about the

insertion or removal of advertising is a great case in point. there's nothing in this document represents a third party from removing the ad from a programming stream or layering over another add on another part of the screen. there's nothing in the. i've read it. commission on behalf of the. the best way to prove us wrong would be to release the document and until then we're simply having battles the talking points. there's no way to resolve the. i wish we would embrace the openness and transparency of the agency as the american people expect us to. >> we talk about this question over whether, over equipment or software. i want to make sure i understand the upshot of this. are you going so far to say the fcc is not within its statutory authority here or are you just using this argument to say it's a misguided effort? >> it's an npr in. asked the question what authority we have. to have a vision of would want

to go on arguing the statute as a provider for the language that's been provided. i was there can work on this. my boss was the lead author of this provision in the '96 act celebrity fully with we were not thinking of the app universe. we talk about converter boxes equipment is not an application structure. do we have authority to go in this direction. they have a conclusion they want to go in this direction. >> the commissioner briefly weighed in on this a little bit ago but just wanted the egregious sort of maybe elaborate on where you stand here in terms of the reading of 629. >> i defer to my colleague of that. he was well-versed in the legislative history having worked on a.

but my point was simply the notion that six when it is a mandate that in 2016 went to adopt these intrusive regulations to cover every aspect of this marketplace is a mistake and they don't think there's some government mandate the sec has to act. if it were otherwise the case then we would've been in breach of that obligation for almost two decades. >> given your skepticism about the ability of stakeholders to come together and find a solution, and considering the fact that the chairman seems to view this two-year adoption period as a way to put a backstop on this proposal, in your view what happened at the end of the two years this is no consensus? what do you anticipate the commission will do? you expect some kind of technological mandate to come down, or what is the alternative? >> in our some sad emojis on

twitter. i'm not sure if the contents of but it doesn't reach consensus. everything depends on the. sort of the scenic one of this entire proceeding. i'm not sure what, if anything, fcc would do a couple of years there's not a solution on the table. >> i would only respond and say two years i imagine a different shaped commission. they may have different reaction to any type of agreement that is probably not going to be reach reached. >> if the fcc didn't do anything in this proceeding that was launched today and as you say in tv these are on their own accord moving towards an app based record just they don't want these boxes on their book. they're making a dollar -- >> i didn't get the impression everyone was. >> but anyway, so what is your vision of what, you're not

making business decisions for them but as a consumer i'm picturing, i paid $8 per month for an app and with no choice but to a different app for the same function because it's not like there's a lot of different navigational maps that i could put my tablet. there's only one app that will give me the content. i'm already paying for from my mvpd. so is that a good outcome? and mike too pessimistic and mvpd will be giving away outs for freeze and the world would be nice? >> it's always difficult to predict the future. it's hard to say whether things will be in a couple of years, i think we are involving to a place where consumers will be able to get rid of the set-top box and use apps almost exclusively to access video content. whether it's in in the beauty proprietary app or a third party

app, i mention crackle for example. a lot of consumers simply cut the cord and use apps like data access video content they want. i don't think it's a choice of saint e. the consumer will be locked into the set-top box purgatory forever or have this grand slew of competition with third party set-top box manufacturer products flooding homes. i think to be an applet-based economy that will take over. what the shape of it is i don't know. >> the chairman said, indicated or alluded to the fact some cable companies maybe rethink the apps today. i'm not aware of that occurring. but i also would describe it as universe which i'm not predicting, i do wan want to geu thinking what i'm describing a universe that may occur and that is where you're going to record to the program.

qc this sports leagues consider offering the contract over the top. skipping the need for an mvpd. there's a universe without programming may already be come he gets on the program today. i can go to cbs anchor program separate from having, confirm subscription with my cable provider. so i can see a universe that are not going so i'm going to predict the universe but i can see that we were the programmers don't need an mvpd mood for a we are not talking about a universe potentially come not talking channels anymore. the conversation we talk to consumers you talk to millennials. that's the speed new growth. if you want to know what's going to happen in the workplace could talk to someone between 14-24. i do that. what are you using today? they are not mvpd subscribers. they are not even loyal to a particular children like a particular program. duell petsch watch on a number of different things.

they have different viewing habits and i think that's a possibility for the market may go. >> on advertising placement, obviously as you noted we have nprm but when chairman wheeler says the safety of the program will be protected, can't wrap ads around it or we entered the. there's nothing in there right now that goes to the point at all. >> the sec does not propose any measures that would guarantee the sanctity of that programming. >> do they propose any measures regarding that? >> i think that the verbiage used is market forces. there isn't, there so sanctity come it's not considered. it's just left up to the market forces which gently i appreciate the concept of market forces that here it's used as a complete punt. so it doesn't answer the question that he perceived to answer. >> okay. thanks everyone.

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[inaudible conversations] [inaudible conversations] >> fcc commissioner our planet wrapping up final moments of the fcc's meeting this afternoon. if you missed any of the meeting was a news conference you can watch it in our video library. go to c-span.org. some news out of the white house. present obama and michelle obama

will be traveling to cuba next month. the president and his wife will journey to the island nation on march 21 and 22nd. they will stay in argentina for two additional days. it will mark the first visit to cuba by a sitting u.s. president in 80 years since the trip by president calvin coolidge. the trip as another demonstration of the president's commitment to chart a new course for u.s. and cuba relations back in the u.s. and cuban citizens. that story taken from the "washington post." deputy national security advisor been roads is addressing reporters questions about the president's trip right now during the white house briefing. you can watch that on our companion network c-span3. c. spend road to the white house coverage will continue today with governor john kasich who will speak to townhall supporters in clemson.

>> with congress on practice week we are featuring booktv program in prime time. tonight its books on u.s. history starting at eight. >> this weekend booktv has 40

hours of nonfiction books and authors on c-span2. here some programs to watch for. my personal experience growing up with an african-american family, attending black church also live in an all white town, crisscrossing minds a lot working in inner cities going to stanford, yale, just showed me as i crossed the lines are united we as a country are.

>> watch booktv all weekend every weekend on c-span2, television for serious readers. >> the u.s. energy information administration deputy administrator spoke about geopolitics and have, in fact, the oil market. today csis touched on other charges including low oil prices and supply and demand. of energy experts also took part in the discussion. >> so good morning and welcome to csis. i'm frank verrastro, senior vice president here and had the honor of holding the chair in energy and geopolitics. a couple of administrative items. in the event of an evacuation which we don't expect that we had before, since you came in the front and we are on the second floor it's down the steps out of the front a symbol across the street from the hotel. you can also take a left going out the doors, come out the back to the other and that brings you don't like national geographic.

so we are good. this morning's session i'm really kind of excited about. in august or september of 2014, so call it here at csis -- colleagues -- were a couple of items that people are still talking about the v that we are going to come out of this turnaround a lot quickly. we are looking at the opportunity pool and did look at what we thought was kind of bleak demand, we were starting to build overhang and inventory system and didn't see how you could work this off that quickly. over that time production has continued to increase. stocks have continued to be built and the economic situation on the demand side has gone a little bit weaker and cost us all concerned. about a year ago we assembled a panel similar to this and it was such a huge success, in fact almost everyone on the panel mail to this right, much to the

chagrin of some of the investors and also the pain that's going on in the industry. i've been through a couple of years and it's not fun, believe me. we understand that. but how long will it take to move out of this? the session and the timing of it we totally time this with doha and tehran. only kidding. but we saw that the market moved up to date and just don't see how you can get that kind of an agreement. they freeze we are producing more than the world demands means stop continue to build and the iraqis have said the northern area in kurdistan doesn't count. we haven't seen the iranians never yet and the saudis are pegged at 10.1 or can point to. really a tactical move. we change the narrative from getting rid of oversupply to let's freeze and an oversupply situation. and yet the markets moved up a couple dollars over the weekend. so we will see how that goes. this session we have today though i would describe this as kind of the dream team, oil

market analyst and we're excited to have him. collectively, and i'm being kind, they have over 100 years of experience in oil markets, refining and economics. they are also personal friends and one of the real benefits of this job is when you're able to do good in substance and you'll get a content rich presentation or set of presentations today. but also do with people you enjoy and you're able to engage in that conversation. we are changing the schedule of it. howard gruenspecht will still start things off. howard is i think the longest-serving deputy administrator at eia. over the past 35 years is built up an extensive resume doing economic modeling, energy and environmental work. we used to get adam but we are especially pleased to know that they let power out and we can have howard with us here today. rusty braziel is a president ceo of rbn energy. he had seen it before.

it's the leading energy market analysis and advisory firm. before he created rbn, rusty was an executive at chevrontexaco, the co-owner come a just published a new book, should've had a copy of it, i'm sure he will provide a copy of it, and it's a bestseller called the domino effect. i would urge you all to read it but it's a great primer on markets and seeing how the markets operate. david knapp is another longtime friend becky's chief energy economist and senior editor of global market analysis at energy intelligence. is also an old alumni. he was with the eia before that. he did market analysis. and then tried one of them might go to guy on we finally. this guy knows it perfectly. he is executive vice president of tournament set and a refining downstream expert, and he started his career with exxon. so we think we've got a bunch of

slides we can present to you since c-span is covering this all of this with the permission of our presenters the we will put them in pdf format and make them available but we can get distorted. i thought i would do although the framing to get us going. so the bulls and bears. 2014-2015 to is a fight about are we in a bear market or are we ended bull-market? we think the bears win, bears win. there's a lot to be said for what's going on but we're looking to continue this but when you look at gdp growth and oecd, not oecd countries it's hard to see demand overtakes supply anytime soon. when you look at the actual market to hear a lot from rusty and david and howard today on the supply-side. so notwithstanding what's going on in the discussion of opec production is to ohio. u.s. is resilient and we'll talk about the economics of the rollover and what that

investment means. we spent sometime leisure talking about stupid money where every company thought that investment in their competitors that didn't have as robust a balance sheet or it's good enough properties was going to problem down the road and that's coming to fruition. probably sometime in april we will do financial markets which we think will be a really good discussion. on the demand side since these guys do a lot of supply, on demand side me to look out for both the not oecd countries with a big growth was going to occur, that seems to be slowing down, and then what that means for banks and lenders. that's kind of a key going forward. even though on the globe there's a lot of risk whether it's syria, iran, iraq, venezuela, nigeria, we have come -- we have become complacent to that. we think we're living in a different world. this is the chart of doom. this was supposed to listen a lot of laughter. the problem here is when you look at the oecd countries you look at the eu, look at russia,

japan at the united states and china seem to be the only ones that are doing well. but when you look at the estimates and trend lines for where china's economic growth and u.s. growth, when we started we were in the threes, now down to about 2.2. china started in the midst of inspectors some people who think china isn't at 6.2. really 5.9. what does it mean for the global economy and economic downturn? when you start looking at the rollover, why the rollover on the supply-side has been so resilient, it's not only the properties and the geology but it's the investment and the fact we've reduced the cost structure. we got a lot of great place in united states but at $30 people are not making money. so this is not sustainable. the long not sustainable. alone committed as we've seen time and time again means that prices will rise come and what does that mean to become and

what does that mean for a price strike for the industry coming back? this is one of our slides and howard will talk about but everyone will touch on the. it's willing to supply and demand come back into balance? window we start getting into the inventory and start withdrawing the overhang so we can bring to market back in balance? we are in a situation where as we get to the third quarter you can still be to be adding to the inventory are starting to withdraw. ..

>> by the department or other federal agencies. now, i can say anything i want. so in 1850, almost a decade they produce in pennsylvania, seems directly politicable to oil markets.

annual income 20 pounds, annual expenditures, 19 pounds result happiness. annual expenditure 20 pounds ought and fix result misery. dickens recognized that the balance could be dependent on a fairly thin margin. so his outcome depends critically on whether his expenditures lie to the right or to the left of his supply of income. so we're here to discus the state of current oil markets rather than literary classics. oil supply is not inalastic but yet to be reduced in response to the sharp slide in price that is

we began in mid 2014, demand thatly talk about a little bit also, is also fairly in the short run. so unlike mccober and oil produc er's misery, exporters around the world can be an oil consumers bliss. it's fun when you go to the gas station but the economy is not doing that great with it. i do see some happy faces when i stop near the foot of the key bridge to fill up my car or for the first time in many years a price with a one rather than two or three or even a four. even the national price of diesel fuel has fallen below $2

of gone in eia survey. diesel has been more expensive than gasoline. a little bit more about prices later. so well, here it is. you've already seen this. frank stole it from me. but that's fine. unlike mcaber, the balance for production and demand plays out repeatedly. since early 2014 eia has accounted and exceeded demand as reflected by the difference between the blue and the brown lines. the blue being supply shown by the green bars measured against the light, the right axes. product has been steadily building, iia forecast continues through 2017, but lowered quarterly rates than experienced

throughout 2015. in the first half of 2015 supply exceeded demand by about 2 million-barrels a day. that dropped to about 1.6 or 1.7-barrels a day in the second half, but that's still a pretty big contribution to -- to global inventory bills. so for many in the -- on both sides of the oil market prices are often viewed as the most important summary statistic, so oil price forecasting is, of course, a fools errand. this is for better or for worse, we have about $38 a barrel in 2016 and $60 a barrel 2017.

however, those should be taken with a grain of salt as best demonstrated by the value of options and future's contracts for delivery for oil in the next one or two years that imply that a very wide range, ranging from the dotted lines on that figure ranging from about $20 per barrel to over $100 per barrel by the end of 2017 is required to capture a 95% confidence span for the market's expectation of prices. it's not a statistical calculation. it's based on the value of options and futures, and again markets shown by those dotted lines. why are players with skin in the game uncertain about the future price path even over three to 21-month period shown here?

some reasons why prices might be higher or lower than conventional wisdom, whatever that is, you know, oil demand growth on the higher price end or oil demand growth to the upside, that could be either economically driven by economic growth, i think frank mentioned that, prospects look pretty dim there but, you know, could surprise to the upside. you know, key opec producers actually do something with respect to output, there are some significant disruptions in production that are not built in to the kind of outlook we have for supply, social unrest and oil dependent countries lead to disruptions. nonopec slows than expected. a lot reasons why prices could be higher and reasons for prices to be lowered.

some demand driven and some economic driven. i think frank touched on the productions are pretty anemic but it could be worse. you know, despite the discussions of freezing productions at very high rates, productions could rise, they could be a reduction in unplanned outages and there's a pretty big set of them that are there and still built in to our outlook. you know, maybe iran could do better than we expect they do with sanctions being lifted. again, there are clearly -- supposing what's driving those dotted lines, but the market is providing those dotted lines. now i would like to move away from prices and look a little bit at the underlying supply-and-demand situation

beginning with supply. starting outlook with u.s. supply which attracted lots of interest both at home and globally, i think too much, if it's possible too much attention paid to domestic developments, but they are important and we do a lot of work in the area so that combination is going to lead me to talk about it. this is our latest forecast for u.s. supply to fourth quarter of 2014, an interesting picture, average 2015 production shown by the -- put all the components shown by the blue line was about 150,000-barrels a day above the level on the left quarter of 2014. if you look at the blue line, you can see that eia's forecast expects u.s. production to be roughly 800,000-barrels per day lower than the fourth quarter 2014, leveled by the fourth quarter of this year and remain

close to that in 2017. looking at the components of production which is pretty important we see very different trends of different parts of u.s. production, so lower 48 production, that's the yellow line which notably includes the tight oil that everybody talks about, has been the source of certainly production growth from 2011 through the beginning of 2015, is where all the adjustment is occurring and you see we see quite a big, you know, in early 2015 we are about 200,000-barrels a day above the fourth quarter of 2014 and we see that lower 48 production dropping by more than a million barrels a day relative to the fourth quarter of 2014 levels. so a very big drop there. alaska production, the brown line continues on a shallow

declining trend with some seasonal effects there for when they do maintenance. and then the green line is the gulf of méxico production, continues to rise as projects which major investments were made before they came online. some of them came online in 2015 and more on 2016 and 2017. the blue line is sort of the sum, if you will, of those three other lines. so again, we see u.s. production pretty weak at least over the next two years relative to where it was at the end of 2014. so i'm not going to give a quiz on this one, i don't see why it got to be slide 13 because it isn't slide 13. so, again, beginning on october

october 2013, eia has provided monthly drilling report that focuses on key shell production regions for oil and natural gas. here i'm only mercifully if they would put up slides of four of them where the oil is. and this is from this current drilling productivity report and, again, it's really a good thing but just let me offer a few summary observations, oh starting with the first row, it's no surprise that rig counts, the black line, and this goes all the way back to the start of the shell world and these graphs from 2007 even though i can't read along the screen. yeah, 2007 all the way through now, all the way through march of 2016. you can see that from 2014, you know, rig counts have declined dramatically, black lines on the top row.

however, new oil productivity per rig shown by brown line has continued to rise. turning to the second row, legacy well, oil production declines have generally been increasing over time as shown by the brown lines which again the top line on the brown is zero. at the beginning, there's not much of a legacy well production decline because there's not that many legacy wells, but at the time, legacy well production declined has risen, however, if you have very sharp eyes, you'll note that in three of the four regions the decline in production from legacy wells has actually start today decrease in recent months as shown by the upturn at the end of the lines. this reflects the decline in the decline rates -- the decline and the decline rates of legacy

wells as they age, and that's particularly true, fewer and fewer new wells with steep declines at the start of their production profiles. remember, fewer drills are being drilled. if you view the notion of sort of like your production, you're riding a bicycle into the head winds of legacy declines, what's kind of interesting is that the head winds are sort of slackening a little bit over time. so the bottom row shows a summary outcome taking account of both new well and legacy production, production and oil areas but declining and it's now turning. we have about zero change in march 2013 -- march 2016, excuse me.

again, this is sort of a legible picture of the same thing. hopefully the bolder lines in the middle are the same lines as shown in the charts for those relevant areas on the bottom chart. we did an excerpt -- experiment which compares and historically with projection of february and march of this year and compared it to one alternative that holds rig count at each region in 2014 level and those are the dotted lines. not surprisingly they are higher than bold lines. and alternative no new wells were drilled. and vertical rigs that are less productive, the dotted line is not toomuch higher than the

bold line. so really those vertical rigs weren't getting us that much and again the horizontal rig production has sort of held up, start to go fall off. it's a very different picture. largest gap between top and bottom lines. rig counts sustained by the time you get out to march 2016, it's roughly 800,000-barrels a day higher than what we believe to be the actual production. and the -- i think somewhere in between in the middle of continued drilling at the rate of october 2014 and no drilling at all past the fourth quarter of 2014. so enough because as i said

earlier, i think -- when you think about the state of the oil markets, it's very natural for us here to pay great attention to what has happened or what might happen with domestic tight oil but a very strong case can be made that those interested in the state of oil markets would be best to turn their attention elsewhere, so this is these pies and i violated eia rules but i didn't know how else to do it, puts the components of u.s. adams out of the country so i can violate the rules. u.s. oil production in the context of overall crude oil supply in eia short-term outlook for this year and next. pie charts are pretty similar to each other. really, when we talk about oil or shell, we are talking about the blue areas which we have about 4.7 million barrels a day

in 2016 and 4.46, wouldn't trust the last digit, maybe not even the second to last digit. but that's what we are looking at, but arguably the state of the oil markets between the eia forecast period and beyond will depend on crude supply on the rest of the world and that's the red area of these pies. and again, this is just crude oil, that's why it doesn't add up to something like 90-something or whatever 93, 94 million barrels a day because that would include all the national liquids and and refinery gains. i'm just looking at crude oil. three distinct issues merit attention. one is geopolitical events and we don't model them, you know, we don't have a model of the stability of venezuela or 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 fund their governments and support programs that may be important for social stability. clearly a change that disrupted a significant portion of the red supply could have a very significant and immediate effect on oil markets. the second is exporter decisions. so frank, i think, touched on a few of the recent things that we've been seeing, you know, whether it's real or not real, whether it means anything, but many analysts certain accord a large role to exporting decisions, including decision by saudi arabia to maintain production at high levels rather than reduce production to help restore the balance between supply and demand. a role that's often played in the past. a few decision by major

exporters to change strategies cannot be ruled out. i tbree -- agree with frank but such a change if it were to occur, could affect the markets. and the third big thing affecting the red in my view is investment and unlike geopolitical events and exported decisions which are often quite sincratic and difficult to model, investment has really changed in this sector. it's been tremendous cuts in the amount of investment being made. now, if the -- if the red was like shell, you know, you'd see the effects of those cuts pretty quickly because shell has a very short period sort of from investment to production. for the more conventional or traditional oil investments and

major projects, much longer period and at least in this forecast, you know, we are not seeing significant falloff in the red production through 2017. but at some point this dropoff in investment does have an effect, you know, there was a lot work done by the eia, they're pretty significant. investment has not stopped completely but it's been cut very substantially and at some point one would expect that to show up in the, you know, it is showing up in the blue because, again t nature of the investment cycle for shell. but at some point it would start to show up in red and a few percentage points in the red is a lot of oil and that helps to brings, whether it's a good thing or a bad thing is another

question, but that effect can have a significant effect on the balance of world markets, so, you know, i'm not a washington capitol's fan, i'm a die-hard pittsburgh penguin fan. we should be watching the red very carefully. so the other thing that i should note, i want to turn to demand and i think i'll stop. but another, way at the beginning we said there was sort of two things that you had to look at supply and demand, we spent a lot of time talking about supply. frank said that we should also consider demand and so here is our view of demand. we do see some, you know, 2016 and 2017 we see demand growth about 1.25 million-barrels a day

in 2016. 1.5million-barrels a day in 2017 and combined with our outlook for relatively stagnate global supply encompassing the u.s. and the world, that underlies our projection by the second half of 2017. that's way back on the first slide. you have probably forgotten about that. but demand really matters and, of course, eia's view is not the only perspective on demand growth. it happens to be similar of the international agency which, i think, in most recent oil market outlook has lowered what was much higher outlook for demand growth or something much closer to what we have. it just oh so happens, again, we are not trying to do this, opec has a similar view in their latest documents, but again, some private banks and others, i won't quote them by name have significantly different views.

again, looking at last year there was a wide-range of views. when i started, eia was a million in growth. we didn't have prices where they were. it ended up being somewhat higher. there was significant range on the demand side and so it's real important to say that we don't know but it's very important and over 2017, in this picture at least you get two and a half million barrels demand growth and that does help you with your sort of balance situation. and then, i think, the last one i want to look at, economist like to draw supply-and-demand curves and prices on the other. this is not that, but it's very important to keep in mind that demand at least is not just a function of price, it's also a function of economic growth which itself has a powerful

independent influence from prices particularly in developing countries. so this is a little bit of a tale eia's very transparent and what it shows you starting january 2012 we started the first blue line, we started in a short-term outlook looking at 2014 oil markets and at the beginning of 2012 we had growth outside at about 6%, but over the course of the period that we kept on looking at 2013, you'll notice that that six, almost six felt under four really by toward the end of 2013, we kind of had most of 2013 in the can so we knew what the number actually was. we had started looking 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 the 2016 on the black line and then there's little 2017 at the far end, all those have a downward slope. so we have been starting out our views what demand might be in recent years with economic growth that has been too high. so with that, that's another thing we have to keep an eye on specially in view of what frank and others have had to say. so there's one more slide but i don't think i'll do it. i should do it? you tell me about time. i'm worried about time. okay. i'm paranoid. i want to hear about my colleagues. this is one that people -- i think i used it here. it's a much longer term. so in addition to watching the

effect of investment on the -- what's happening on the rest of the world, another thing that i would watch exporters and there's a 12-year actual periods and something in outlook 2015, the important thing to note is that like in the first 12-year period, 73 to 85 which ended with, i guess, just grab saudi arabia which had been cutting oil production in '85 their production got to be very low, and in words of roberto durán, he said, no mas. this is what happened to the world on the demand side,

increased by 3 million-barrels a day. oecd went down and nonoecd went up. opec supply went down. part of it was iran, iraq, doing all the things that they have done so well for so many years, you know, changing a little bit now and ended with a big price decline. the next historical period is 2000 to 2012 and, again, we see consumption went down but nonoecd went up over that period. a much different thing on the production side, so we kind of needed 12 million barrels more and six of it came from nonopec and six from opec and we have

pretty high prices, you know, in 2012 historically high-sustained prices. maybe not the peak level in july 2008 but high price. two historical periods and very different outcomes. one ending in lower oil prices and one ending in higher oil prices. what does this say what might happened in 2013 to 2025, we've had the outlook for demand. i don't know, maybe too strong. one thing i notice is outlook at least we had 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 of plus 12 to plus 13. in this picture really the only difference is we had the nonopec supply drawing by 10-15, really

all we did there was 10-15 million-barrels a day. all we did was carry two different versions of the u.s. to get that spread to different views, and then kind of looked at the impolitic -- implication and we ended with a minus three and plus two, interestingly in between the two prior historical periods. the other thing that's going on, of course, is that opec itself is quite different, so you have a situation where, you know, iraq is getting back in the game, which it hasn't been in for some period of time under the previous regime. you have iran al -- also getting back in the game. you can't just trust read off the numbers, within the exporting group of countries you

have more people who want to produce, and there's a real interesting question of what will happen there. and this is something, you know, a personal hobby horse of mine that i have have been watching. i don't know how it's going to come out but a useful way of thinking about maybe sort of a long-term issue. but if iran and iraq both want to significantly increase production, the implied, you know, implication for the rest of opec, you know, if they were going to fit in in this kind of system is, you know, very challenging, so with that i really am done and i thank you very much. [applause]

>> sorry about that. after the message that david and i had last year when we were here i was kind of surprised that frank had his back. unfortunately i'm afraid that the story that i'm going to be telling this year is worse than last year, so anyway, i'm going to start this. [laughter] >> that was funny, frank. so i've used this tired old metaphor certainly not because it was very original, i think it

captures what we are seeing today in the markets for gas and crude oil and ngl's and i will start with a slide that -- a version of the slide that i used last year, it shows the price cycles that we have seen since the inception of the shell revolution, smart -- as a matter of fact, before that. crude oil and natural gas and natural gas liquids moved in lock step. when one went up with commodity price went up in 2008, they all ran up and with the meltdown they all ran down. and, you know, that's the way that a lot of folks thought it was going to work. of course, by that point in time shell had come into its own, shell production had increased. when crude oil and natural gas liquids increased after the meltdown, gas prices didn't go along with them. gas prices held down there. what did producers do?

>> they start today -- started to shift their budgets, so what happened next? well, gas stayed down, still in oversupply, but we started to produce too many natural gas liquid, propane, ethane and those prices came down too just exactly like prices had in natural gas a few years before. well, what did producers do? they started shifting drilling budgets to drill for crude oil and then that got us to that final phase there of crude oil prices coming down along with everything else. so what does that mean? well, that's what when i divide the world in 1.0 to 2.0. time period between 2009 after shell really started having an impact in the marketplace and basically thanksgiving in 2014 when crude oil prices crashed. and what made that shell 1.0 is

that every time a commodity crashed, every time something went down, the producer did the next local -- logical thing, they moved to the next commodity. guess what, we are out of commodities. shell 1.0 and shell 2.0 says i cannot solve my problem by moving to next commodity. my only solution is to deal with the situation, smarter drilling, or cutting my capital budget or what are it may be. one other aspect of shell 1.0 that's going to be with us for quite some time and i will call that the aftermath. so we are going to look at this slide and it's going to be exact same oil crude slide that we looked on the previous slide. it has all the clutter taken out

of it so you can see more detail. now i give you a visual that you might be able to envision what that might look like as we look back on it a few years from now. i wonder if we'll look back a few years from now and think of this period as we've been through as a bubble, a bubble that drew in billions of dollars for producers and mid-stream companies that now has to be worked off just exactly we had to work the inventory of houses and the inventory of dot com companies. i'm not saying that's going to happen, i'm just saying it's an interesting thing to think about. let's come to terms with what happened in the last few years. oil production 90 billion barrels a day. these are all your numbers. hopefully you recognized the

numbers. they must be right. declining $9.2 billion a day now, not much a decline. this is lower 48 dry-gas production and what we've done extended the volumes out beyond numbers to look at what's happening based on data and pipeline and basically what that says, we were down -- we were down a little bit in production at the first part of this year, but right now with the past two weeks we have add all-time record-levels in the united states and it's blowing and going right now even with prices well below two bucks. natural gas liquids, fastest-growing energy commodities. nothing slowing down again based on the best eia statistic that we can come up with. so what does that mean in terms of the relationship between the -- the production volumes and

what's going on out there in the market? well, actually part of the market that's behaving the way you would think it would be, that is the relationship of oil price and rig could want. pretty close correlation between the two. oil prices go up and rig goes up. just exactly the economist will tell you, same thing on the gas side. pretty close correlation between the two prices. so just a second, we got through looking at production of those two different commodities, increasing at the same time we are seeing huge crashes in the rig count. so what's going on and, of course, the answer there is productivity. this is a version of a productivity slide that i showed last time i was here, updated for a year and it's worth looking at the update. this is eog's performance from 2011-2015. it took them 22 days 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, how many wells can i give in rig drill and it was 16 in 2011, now it's up to 47. the wells that they are drilling are more productivity, 88% more productivity, up to a thousand barrels a day. a lot more ip rate is a lot higher on those wells. so all we are going to do is just do the math of doing 16 wells time 533 and then do 47 wells times a thousand to see how much production a given rig can produce over and above it could produce five years ago, and the answer is 407% productivity improvement, 9,000-barrels a day from a single rig, up to 47,000-barrels from a single rig. that is where all the production is coming from. of course, we love the eia

productivity report because it shows the same thing and we don't have to do the math, they've done all the math for us. 276% improvement, 231% improvement, 578% improvement, that is -- those are all oil plays, 500% improvement on the marcelas. what does that tell you? that tells you a single rig can do five times the work that a rig could do five years ago. so the fact that 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 markets. of course, if you're in the business of drilling with those rigs, it may be a very big deal for you. so looking at that 500%

improvement on natural gas in the macelas, i always like to say let's look at the marcelas and the way i like to 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 about 5bcf from 2011 to 2016. so total production is up, what must be happening, yup, that's the northeast. that's on the right-hand scale, by the way. up to more than -- it's about 22bcf a day. so the amount of gas that's coming from the northeast is just absolutely as tron --

astronomical. so what happens next? how does this all play out? well, to answer that question you need to know something about what is going to happen -- oh, oh, forgot, one last thing. one last slide. that's demand on the northeast, big deal what happened at the end of -- the middle of 2015 is that total production in the northeast grew greater than average making northeast a net producing region. that makes a big deal in the northeast region. to go back to where i was before, you have to have a view on prices and we would like to do price forecast as much as anybody else. we don't believe our price forecast and for that we don't believe anybody else's forecast either. we use scenarios. so we are going to pick three scenarios.

we are going to call them growth cut back and contraction. high, medium and low. the fact that that should be our high case right now is just mind boggling. on the low case, 30 bucks get ugh up -- getting up to 40 bucks. the curve is somewhere between the red line and the yellow line. that's natural gas. so same sort of thing with natural gas prices getting up to above $3 this year, up to $4 in the growth case. again, nobody may believe that, 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 when we get out in 2021. what we are going to do is work

through economics based on those curves. you also want to look at what's happened in the past. we are going to draw back and say what happened back in the good-old days when crude oil was 21 bucks, i'm sorry, crude oil was 100 bucks and in order to do that we will take those same -- that same -- same price scenarios that we were looking at a few minutes ago but i have to put it on a different scale. that's what crude oil prices looked like in july of 2014 when the front month was a hundred bucks a barrel. then we are going to fast-forward to may of 2015 when the curve was 50 bucks and 285. we are going to look at production economics on all of those cases and we are going to do the same thing on gas, those are the same scenarios that we

looked at a few minutes ago. that's the forward curve back in july for gas and that's the curve in 2015. very same day that we had those crude oil curves. that is history. it's a 100-dollar case, 50-dollar case and our three scenarios that we have there. so as you can imagine, there's a big impact for what happens to producer economics depending on which one of those price scenarios we are on, but there's two other variables changing. not only do we have to look at price, we have to look at what's change with two other variables and are extremely important. number one is volume, how much of a volume does a given well produce and number two, what is the cost of that well, those things have changed just as dramatically as prices have. well productivity, this is equal

for curves, again, this is our -- eia numbers out of a report that you guys did last thursday showing what the curves look like. a great piece that these guys did and so those are the numbers straight out of that report, which basically says that the initial production rates for the eagle ford were somewhere around $100 a barrel in 2010, now approaching 450-barrels a way and that report improvement that we looked at a few minutes ago out of the dpr in the first place. most of the major are seeing that same kind of improvement over time and the volume that comes out of the well. you drill a well and you get two or three times more volume than you did three years, obviously the economics are heck of a lot better. drilling incompletion costs, exactly the same thing. this is for the utica versus 2014 drilling in completion

costs were down by an average or were down by average about 25%, different rates of decline by down average about 25% from 14 risk & reward 14 to 15 so costs are way down. volume is up, price is down, what does that mean to economics? let's fast-forward through the economics and you guys are going to have copies of the slides so i'm not going to do a lot of detail about this, what does it mean, crude oil prices were 100 bucks on what we were looking at a few minutes ago. natural gas 365. crude oil rates of return were in the 40's, natural gas liquids rates of return in the 30's and dry gas plays were in the low teens and sometimes in the single digits.

now notice, if you would, up there in the macellas we have tw different rates of return, the reason is prices in that region are extremely low if you are stuck with taking prices in the region. a lot of have taken capacity out of the region and therefor if they're lucky enough, they are getting the rate of return at the top. if they didn't they are getting rate of return at the bottom. so those were the good-old days. crude oil price is cut in half. 50 bucks. natural gas at 2.85. remember we had cost coming up hard and when that happened, guess what, these guys were still making money. what i'm saying money, i'm not including all of the costs of buying leases and everything else that's plugged into these things. are the producers better off drilling or not drilling if they have the money to do so, this

money says yes. that doesn't mean they're going to like their financial systems, they are better drilling than not drilling. wet-gas plays in the 2017 so on and so forth. dry gas plays in 11-17-type range. in other words, last year you could still make money at $50, $201,645, that's the 325, that's our growth scenario. this is -- this year's cost, this year's curves, this year's prices, if you assume this growth scenario we are back to 45 bucks in 325u everybody is still in good shape. what happens if we are in one of those lower scenarios? well, here's the 45-dollar case and there's the 38-dollar case, 38-dollar case, we are still in the positive double digits in crude oil or positive double digits or single digits in

natural gas and natural gas liquids. only if we get back to 20 -- 30-dollar case and the 2.10 gas scenario which is close to where we are today, do we get down to single-digits for crude oil but not zero, not below zero, not if you're drilling costs are down, not if you've been able to get your volumes up and you have a way to get this stuff to market, single digits for wet gas and -- and low single digits for dry gas. so you have to be in the right place. this is not traditional stuff. this is a shell drilling and you had to really hammer your drilling and your service providers in order to be able to get prices down that much. but if you did, that's the rates of return that you're seeing. one more time, that doesn't mean you're going to look the financial statement. it does mean that the economics of these wells don't look so

bad. what does that mean for crude oil production, we do three cases out of this thing, if we are on the growth case and things still look good, we get up to 10 million-barrels a day, increase of 160-barrels of day for each year, if we are on the contraction case because of traditional production falling off, because of so much of the volume coming off, we still have 20 million barrels a day. it doesn't fall the face of the earth, it declines but doesn't decline down to the level of any more where we were a couple of -- two or three years back. natural gas production, same thing. up until the shell thing really kicked in. 1.2. i'm hurrying, frank.

contraction scenario is a decline and this is lower 48 down to about 60bcf a day. it's a decline but certainly doesn't fall the face of the globe. so last thing to mention in that, so where could this go, so my logic is is if we don't drill these wells, we know where these wells are and we know where the production is and if we don't drill effectively it's like hydrocarbons in storage. those wells are going to be produced. if prices go up, economics on these wells are going to improve. when the economics improve, volumes are going to come back and push prices right back down again. well, we've seen this before, it did happen before. i was a trader in this point in time right when i worked for texaoc. i was not a happy camper. so what happened, prices dropped

from the 30's down to 10 bucks and then came back up to $15 and for the most part for operation desert storm, if you multiply the price by two and i can build you a case that that's exactly what we would see. so conclusions, next phase of the shell revolution. 2.0, producers have to deal with the situation. productivity continues to improve even with today's low prices some producers are economically better drilling rather than not drilling, that's assuming if they had to cash to do so. if they don't drill, then somebody is going to pick up those properties an drill them. crude oil prices could rebound to 40-$60, gas prices increased and production growth is going

to come back at lower prices than they don't, but there is no guaranty that those lower prices are going to result in higher prices because whenever prices kick back up production is going to kick right back up again. and by the way, frank told me that i could plug my book, my last slide is a book plug, if you want to know more about this, it's only 14.95 or something like that on amazon. thank you very much. [applause] >> well, now i have to bring this more on to the world stage as last year, i think a lot of the hearings that you're hearing from rusty absolutely reflect my view and what i think are key drivers. howard was saying, well there's the rest of the world and 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 shell. that's what is different in the world. there's a few other things that we need to pay attention to but in terms of the market dynamics and the state of the oil market today, it's about shell. if we could have the -- do i have to hit a button? no? [inaudible] >> next presentation. [laughter] >> i can actually do that, but no. there we go. thank you, mariah. so as i said, we need to remember what caused this and whether or not these are still relevant or not, how are the

roles of the key players changing, obviously we saw one opec when it started, we saw a different opec as of november 26th of 2014, do we see back to the old opec now as gutter in february of 2016 or not. i think not. and i think most of us would agree on that. so where are we in this overall adjustment process? i think the term lower for longer that if we didn't invent it we were pretty early in using it in energy intelligence, but, you know, how much lower and how much longer are obviously key questions and i'm a bit on rusty's side, maybe 14 years is a little long but it isn't 14 months and it certainly snt 14 -- isn't 14 days. the global balances for 2016, i

think i'm a bit on the pessimistic side compared to some of the other guys and i will show you some comparisons, and i will talk a little bit about shell, but i don't have to talk too much because it was really well covered. the other question is lurking in the background and i will bring it in a very sort of way but 21 and csis has done very good work in bringing opinions on that. i just focus on one thing, did it change the way saudi arabia thought about its resource in the long run? i happen to think it does. that has a huge impact on the way that they behave in the medium term and what outside influences affect the market which we need to keep in mind. you have a bio already.

now, let's go back and remember why this price decline happened. it wasn't because opec had decided to leave its market share or its leave its market management role as a production cutter, it happened because of the birth of the shell era and it's sort of coming of age in 2012-2013, so by the end of 2014, the size of the shell 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-dollar prices. this was not the result of anybody finding anything. this was not the result of new technologies. i mean, they all played a role in the speed of things but it

really was a change in how geologist thought about their job. he didn't care where it started. that changed with the shell era of age. .. doing?

obviously i liken this is there a lot of pain in this market that would cause an agreement? it is the horse race at this point. get and these various dances, look who or what ever, there is a round of applause from the bears who are still pulling on frank's slide and a little bit of jump up in the price of oil. whether there's any relief from

oil cases. in a way to be short 25 years from now saudi arabia ends up with the biggest assets in the history of the planet in terms of soy oil resources. let's look at the size of the cut that is required which we haven't done yet in these presentations. by my numbers it is 2 to 3 million barrels a day just to take care of the daily surplus and i will show you the quarterly numbers in a couple slides time but on top of that we now have somewhere between 500,000,001 billion barrels of oil in inventory. and we are talking about a cut on the order of $5 million a day, to fix both parts of the

problem, the daily imbalance. is that a number of opec went on which is a very challenging thing. it is not even close to getting that done. it continues to build a surplus which was pointed out before. let me move done. we are a little behind. where are we in the process? i will get to some numbers which a number of you love. you have seen the price decline. this has sort of twin from the strategy developed out of it that is not only affecting the economics of the past in the catch, clearly is affecting the level of financial pain in the

market for producers and countries, not nice to be in venezuela these days. that means there are new options you might see for the saudi market share, to drive the daily balance and start beating out stock and you get people to agree on a production cut. weather that cut works is a second quarter thing. right now it is not even the existence of the cut but a discussion of the possibility of a cut that moves, and it doesn't matter if it is true or not. it matters whether the other guy thinks it is true and how fast you get your money into the market versus the other guy. i have a friend who told me earlier in my career is dangerous being smarter than the

market because you can lose a pile of money that we. the other quote i mentioned last year i like even better because i did it. when i was on the crude oil advisory committee in the 80s and i said nymex is the most important processor of misinformation in history of western economics. you remember of times you heard 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 either of those things you just lost money. something to keep in mind. let's look at what these balances look like. isn't all about race. there's a lot going on here. you will see that i have mid

level forecasts, my colleague in stewart put those numbers together and we will look at how they compare to other people in a minute but clearly i am an optimist in the category of the supply side for all the reasons you just heard about. we look at surplus over 1 million barrels a day in the first quarter, crude is between 2-2/1/2, we start off with a surplus well over 2 and it continues throughout the year, and is roughly a story about people are still making money. we tend to focus too much on averages on the bottom end of the producer spectrum. and i have been using the term

economic darwinism in the shale patch. the shale bomb about to explode. that rusty had brought up, any of those companies -- how much of the production comes from the lower tier of the financial challenge companies, how many big banks are major exposure? that is still up in the air because remember oil prices are a huge factor in figuring out what the reserve base is for a reserve for, a lot of this stuff is reserve based. the determination could get ugly but in a way the banks don't necessarily want to see how bad it is, the term kick the can

down the road certainly was applicable in september and may be applicable when we get to april with these determinations. if we do lose a few of the dumber players, let's be frank about it, in the shale business, that is good and there is a process by which it is called economic, people that do badly tend to lose their assets and we are waiting and waiting and waiting and it is lower logger, how this asset reallocation process is going to work out in the market. it certainly is not going to happen fast if those are improved in the capital stack in the bankruptcy terminations just waiting for that price increase to come and bail them out.

i talk to a bankruptcy legal shop a month or so ago and i said my question is what is this side of the market looking like? are you seeing private equity guys? are you seeing hedge fund money taking a look? he says i am not seeing anybody. there's a lot of stuff going on but as on major transfer of shale assets from the economically or mentally challenged, and smart investors, a picture that looks like the upper curve, in rusty's presentation, the same technology in play, the same people if it happens relatively soon, the same locations probably going to be quite

friendly and if i were god i would have put the shales there because it is a great place for shale, refineries are next door, the people love you, the state is very hands off, does its job but doesn't do it in a particularly disabling way. the big makes of conventional and non conventional stuff. there is a quick picture of what i think the overall supply-demand situation is and i will share with you also a kind of a look not just at 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 set of circumstances

be they sanctions and geological age, the sanctions for russia, geological age for china. i had a feeling for a couple years that change was held up by mirrors, it was very on appeal, and it is here -- it is going to hit in a bunch of places but at the end of it, have a million barrels a day of growth supplied this year, and a fairly different group. if you look at who is thinking what about oil, and you heard about this before, on the right i have a sept. paper that we did

for oil market intelligence, and you see -- i should say aye, we now had some growth and have a bit more growth, and howard and rusty, in the gulf of mexico, mostly completed facilities, i am quite nervous about the future of the gulf and the greenroom, and the oil service people like telling me there's literally no exploration going on in the gulf of mexico so what we have sort of in the queue to be produced, not all of those from buckskin being delayed if

not canceled, the thing that i have, why i am in this position as opposed to the iea and opec is because waiting for the information that is really there. i saw one set of pictures from howard but i saw different set of pictures from rusty. in terms of the relation of the productivity gains and what their impact is on the overall production level on the shale component, i need to wait to be proved wrong about how deep those declines are. we do a conference every year in london called oil and money and a number of you have been regular participants in that. at that meeting, mark, who for years was running geo gee, one of the really successful companies, told as we going to have a 700,000 barrels a day

u.s. year on year decline by january. i had to deal with that. i have huge respect for him. what we were using to show you what is going on, that is the picture of the good side of the business and needs to be looked at. that did happen. doesn't mean it isn't going to happen in the future or things won't come down but as long as you see the nuts and bolts of the productivity of the new wells and the wells that are drilled but not completed, you will still see oil production growth. that is why i am there. last year, i made a forecasts and i will show you the forecast in a minute and i said it was my forecasts, it looked like it was going to be right and all of a sudden became the eig forecast

and they sent me to show people and what about 2016? i can't tell you about that yet, i have a forecast and here it is but my company doesn't know if it will be right from now so all i have to say is that is the forecast of oil prices. it is kind of sideways. we went from almost $100 to $50, a similar decline losing half the value and now i see it going sideways. this is on the left-hand side. very choppy tight of thing. that is volatility and one of the things we didn't talk seriously about is the shape of the oil and price, came up pinnaces couple slides but absolutely critical to clearing the market every month to have a place where the oil that dozens

fit with the supply balance doesn't go, if you have a sufficiently upwards sloping price curve, it is enough to justify on land storage, and floating storage as well, the oil is going to go away. as soon as you flatten the curve the oil comes back out. different end of the curve goes down and economic come back. and cut and down and up and down. we are still on the low 30s, a lot of people said that is just too low. i had a guy in the research institute saying prices have to go up and i say why? because of the pain and i said whose pain? just look around. venezuela's payne.

iran's paying. iraq's payne. i said since when did saudi arabia treat pain in any of those three places as the negative? part of their gain might in fact be about the level of pain within opec, and let's put russia in there. there is somebody who is not our best friend either. and the forecast that and every month making the little update on the forecast. and much more fun levels than they have now. and it created a bit on the upside. and it came down. the determination since september that i mentioned also, i thought there would be

geopolitics? geopolitics matter. we say the middle east. and the production, and the rest of the world has plenty of oil to. and i don't care much about it. and sudan and yemen and syria and other stuff. and not this surplus. and this is sort of a combination of a couple scenes you heard earlier from howard in

particular, there is another fact that needs to be reinforced, finding development costs much better the operating costs. said the adjustments you get short-term in oil markets from shutting in fields because the costs have gone so low they are above operating costs are very much smaller than what you losing cancellation of longer-term projects, those who don't have much completed or that are not done yet. part of the arctic and all that. if you don't get that oil on the non-opec side, the deficit as early as 2019 or 2020, maybe a little bit in my numbers in 2019 but i have a soft expansion for saudi arabia in this and the other thing i said about long-term part of the saudi market share policy being shore oil cheap is cheap enough to

keep the role as a factor of global production and keep a particular role on energy markets and other fuels, and the oil market, from other producers and can the saudis do it? they can absolutely do it. they have the ability. there are a lot of rates in saudi arabia and they are not drilling for shale gas. they are preparing to bring on more capacity and use that capacity and that fills in this gap. they do it without an impact on prices? probably not, there's an upside for oil prices toward the end of the decade it. i will skip through the shale and slides will be available. i have a view that the eagle furred is probably not as bad off as we think is and there has been a long term discussion

among some of us about the product to report, i absolutely agree with what was said by rusty and i thank howard for the work that gets done. i will be talking with them tomorrow. the idea of not fully segregating the shale stuff that comes from shale zones, the eagleford shale and sugarcane and briscoe range means what we might be seeing in shale counties is an accelerating convention decline. there are a lot of stripper wells in east texas and those are economics that are really being challenged. there is a lot of inertia in shale production. reclamation costs and other things that can keep things on longer like charles and eating his 12.5% and small operations.

so i think eagleford has not done down as much. my price forecast was higher than we have now seen for most of this year's so i am continually making adjustments but i will go back to what i said before about i need to be proved wrong about continued growth in non opec supply and where that u.s. is. these -- let me go back. this is just to remind us how change causing volt shale revolution is, you look at what happened to a lot of these, long-term decline, a bunch of shale states have stepped up and this is something i just put in to keep this in mind indeed if we look at the u.s. production makes the only thing i would add to what was said before is beside the main jail states, these are mixes of conventional

and shale production, gulf of mexico and we think the n g l market is going to continue to look pretty good. and they have a bit going on in the middle scenario. the only thing of note at the bottom is the difference between the bottom which is not shale but is actually conventional deposits like shale so you can look at shale, but it is going down. it is still going up through the cheer. if you look at the new mexico -- even more stark. you will see that things turn over in the picture on the bottom right. i won't talk about new mexico or colorado but that me just finish with the idea that there is a whole lot of things going on in

this oil market, no oil market is an island, paper markets have changed a lot of things, certainly what you see in the oil market have to do with market psychology. we see asset allocation things going on, we like oil better than other commodities. they like commodities at all, basically not. that is where you put your money and physical market interactions are becoming much more intense, we are global village and all this kind of stuff. speed of everything is a great book, michael lewis's book is all about speed and things change very quickly and another rule of that is they are going to change particularly permanently so you get a lot of temporary episodes and things. a few other points un that. we try to track the relationships between currencies

and oil between economic, s&p and oil, isn't this interesting? low oil prices and declining economic growth prospects. what happens there? we regret the economics book? it is about the complicated linkages interactions between oil and markets in general the cause these strange correlations to happen. it also is about the speed with which oil prices decline and volatility around those decline. those are adding to uncertainty which make business decisions more difficult and then cause economic problems as well as low oil price which may be having demand affects but they are not big enough for what is going on. physical markets more complex, the shift to the east has changed the players, there is a whole day worth of stuff, the financial market drivers at times dominate what goes on in

the physical markets, mostly, changes in the w. t. i nymex price, are you looking at real world or are you looking at psychology and mostly about psychology. left a couple slides here with details on supply-demand and i will go back here because i don't like that anyway. and sitting in the middle of this segway. and the poor refiner the deals not only with complications in the crude oil markets in the first three talks but there are product markets. bears a global surplus of crude but a global surplus of products. there is now a new export product in the world, there's actually several of them but the u.s. and saudi arabia have changed a lot of the dynamics so