Speakers
James Burkhard Managing Director IHS CERA (Chair)	Olivier Abadie Director IHS CERA
Edgard Habib Chief Economist Chevron	Marianne Kah Chief Economist ConocoPhillips
Edward Morse Managing Director & Head of Commodities Research Citi Group (Effective May 2011)

IHS CERA Managing Director James Burkhard opened Tuesday afternoon's Strategic Session on the future of oil demand and markets by noting the several tumultuous years of exceptional oil price volatility and a global recession. These events have drastically affected demand and the structure of global markets. Future oil demand is difficult to project, since demand is subject to the volatility of economic growth, government policy, and technological innovations--all topics in this session.

Edgar H. Habib, Chief Economist, Chevron, set the stage for his fellow panelists with an overview of the global economy and oil demand, both past and future. He quoted the earlier address by Hon. Steven Chu, US Secretary of Energy, who said that "the train has left the station" regarding energy and climate change policy; but   Mr. Habib noted it could take as long as ten years to see the total impact. Instead, he suggested analyzing the historical correlation between oil demand and economic growth, and applying it to the context of both where we are right now and future economic growth. He subscribes to the triple "L-U-V" economic recovery path, which calls for a flat recovery in the euro zone, moderate recovery in the United States, and a sharp recovery in China. In the current environment he considers debt and credit as the biggest issues in the near term. Debt levels affect capital expenditure trends and employment levels, while on the other side "no credit leads to no growth" and a lack of confidence in the economy. Ultimately, the $2.4 trillion in foreign reserves that China holds and the emergence of the middle class in Asia will lead to a "rebalancing of world demand tilting to Asia." In addition, commodities have gone global and are in a bull market structure which has also led to a tilt toward Asia. To conclude he discussed the future of the US dollar by stating, "There is no alternative to the dollar."

Marianne Kah, Chief Economist, ConocoPhillips, approached the discussion by talking about what economic growth means to the future of oil demand in the OECD and non-OECD. Two areas of concern in the OECD include long-term economic growth and what happens if debt levels get too high; regarding debt some countermeasures could create higher taxes and excessive regulation that choke off growth. In the non-OECD China's ability to move away from an export economy will have an impact on energy demand growth patterns. The shift in economic consequence from advanced to developing nations, in particular China, has lead to a loss in the OECD of roughly 4 mbd since 2007. A combination of benign economic growth, new policy legislation, and demographics has led to a peak in oil demand in the OECD. On the product side, demand in the OECD equals the end of "destocking," with industrial production in a recovery, which spurs diesel demand. Regarding gasoline demand she commented that price has been elastic, comparing the growth of vehicles miles traveled, economy, and price. In addition hydrocarbon gasoline demand is not expected to grow and will "hit a blend wall" as it will be difficult for ethanol blending mandates to be met. Electric vehicle interest and sales will depend on a combination of battery cost and consumer preference; she compared studies in which electric vehicle sales ranged between 2 percent to over 50 percent by 2030. In the non-OECD population and income growth will be the main drivers of demand for personal passenger vehicle ownership as "China and India can expect exponential passenger vehicle growth." Rising urbanization will also play a role in increasing non-OECD oil and energy consumption.

Edward Morse, Head of Global Commodity Research, Credit Suisse, took a macro perspective by asking what historical trends tell us about oil demand and what this means for the future. The global recovery currently under way will lead to higher oil demand, but doesn't necessarily mean higher prices. He said that in the historical relationship between gross domestic product (GDP) and oil demand growth over the past two decades, you could take the GDP growth rate and subtract 2.3 to get a proxy for oil demand growth. Global oil consumption has fallen after every price spike; in Europe and Japan after 1973, Korea in 1998, and now it appears in the United States also. Looking to the future three critical markets affecting oil demand will be the Middle East, China, and the United States. Post-2003, the Middle East was a pillar of demand growth as regional product demand grew by 40 percent during 2000-08, propelled by high GDP, demographic growth, and price subsidies. Fuel oil was a significant driver as power demand for the construction of large development projects increased; however, he did not expect a similar increase in regional power demand in the future. In China the latest data show no growth in middle distillate demand in the past year as the country focuses on doing away with subsidies for energy-intensive production. The main driver in Chinese demand has been the agreement between government and companies to lock in a permanent surplus in refining capacity and margins, which will ultimately lead to higher crude imports and product exports. He agreed with Ms. Kah's comments on the United States.

Olivier Abadie, Director IHS CERA, concluded the panel by discussing the oil and gas price relationship, and the impact this could have on future demand. In fact, natural gas matters more to oil demand than biofuels, which have only reduced oil demand by slightly more than 1 mbd over the past decade compared with the 4 mbd that were replaced by natural gas. The high oil-to-gas price ratio could eventually support strong natural gas vehicle sales as a component of transportation sector. In terms of fuel availability, because natural gas can be considered a cleaner fuel compared to gasoline, emissions policies come into play to support greater use.

The panel answered questions on the downside risks in the return of global economic growth, the past and future oil price path, downstream rationalization, spot prices, two-speed demand growth, and possible defaults in Europe, among other topics.