2015 JET FUEL PRICE FORECAST

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2 2015 JET FUEL PRICE FORECAST Airlines The prospects for airlines are dependant on economic recovery. There is little to indicate an early end to the downturn. It will be a grim And while prospects may improve towards the end of the year, expecting a significant recovery in 2010 would require more optimism than realism. Combined with an industry debt of US$170 billion, the pressure on the industry balance sheet is extreme we are structurally sick. Giovanni Bisignani, IATA Director General

3 2015 JET FUEL PRICE FORECAST Oil Companies Expectations are that the worst of the recession is over, but who can be sure of that? The global economy is on a sugar high because of the stimulus spending. If the recession lags, oil prices could plummet again, discouraging oil companies from investing in exploration and new drilling and discouraging governments from introducing new alternative-energy programs. Edward Chow, senior fellow in the Energy and National Security Program at the Center for Strategic and International Studies in Washington.

4 2015 JET FUEL PRICE FORECAST The Future The markets for renewable energy are the fastest growing energy markets in the world today. Successfully promoting renewables over the period to 2030 will prove less expensive than business as usual within any realistic range of real discount rates. The G8 should give priority to efforts to trigger a step change in renewable energy markets. G8 Renewable Energy Task Force

5 2015 JET FUEL PRICE FORECAST Fundamentals Plenty of Crude But Shrinking Refiners Profit Centered Refiners - Show Me The Money Longer Supply Lines - New Export Refineries More Product Competition Alternative Fuels Reduced Airline Demand Fuel Efficiency Geopolitical More Reliance as U.S. 2 nd Largest Oil Importer, Mexico, Production Down 30%

6 2015 JET FUEL FORECAST Financials Euro vs. Dollar $/BL

7 2015 JET FUEL FORECAST Financials Crack Spreads & Volatility $/BL

8 2015 JET FUEL FORECAST Financials Airline Profits Less Capacity Consolidation C/Gal Billion $ Ancillary Revenues Economic Recovery

9 2015 JET FUEL FORECAST Financials Oil Company Refining Margins Less Capacity $/BL Consolidation Climate Change Legislation Taxes and Penalties

10 FIVE MAJOR TRENDS Major Market Consolidation Government Intervention Jet Fuel Infrastructure Crisis Alternative Jet Fuels Emerging Markets

11 MAJOR MARKET CONSOLIDATION Less Competition, Reduced Flexibility, Higher Prices Monopoly Marketers Larger But Fewer Merchant Refiners Pure Play Downstream Distress Margin Pressures No Capital Investments

12 MONOPOLY MARKETERS 1990

13 MONOPOLY MARKETERS 2009

14 MERCHANT REFINERS PURE PLAY Our goal is to be the leading independent refiner and supplier of unbranded petroleum products in Europe and to be an industry leader in returning value to our shareholders. We are a 'pure-play' refiner without the obligation to supply retail outlets or the cost of supporting a retail brand. As a result, we are free to supply our products into the distribution channel or market that we believe will maximize profit. Petroplus Website

15 MERCHANT REFINERS PURE PLAY

16 MERCHANT REFINERS MARGIN PRESSURES The Largest independent refiner in the U.S., said it is shutting down unprofitable units at its 182,000 b/d Delaware City facility until market conditions improve. Valero reiterated that it would keep its refinery in Aruba off line and release 700 contract workers. The San Antonio company also said a shutdown of units at its Corpus Christi, Texas refinery would continue. Global Refining could drop below 80% capacity. Clearly, there is huge overhang of capacity. Bill Klesse, Valero CEO Valero the world s largest independent refiner with 16 plants in the U.S. Canada and Caribbean refining 2 million barrels per day lost $250 million in the second quarter of 09.

17 GOVERNMENT INTERVENTION It began [this week] with the White House's announcement that it will impose the first-ever limits on greenhouse gas emissions from cars and trucks. It ended with a House committee approving a comprehensive energy and global warming bill - an important first step on legislation that seeks to reduce America's dependence on foreign oil, reverse emissions of carbon dioxide and create millions of clean energy jobs. The New York Times (5/22/09), "Leadership Long Delayed" The new climate change legislation in the U.S. House, if passed, will be bad for refiners. I could see 25% of U.S. refining capacity dropping out due to the cost of compliance and the current profit picture. That will lead to higher petroleum product prices Thomas O Malley, Petroplus CEO

18 GOVERNMENT INTERVENTION Taxes O2 and Carbon Footprint Airline and Airport Oil Windfall Profit Environmental Mandates Efficiency Requirements Climate Change and Emissions Alternative Fuels Incentives Tax Incentives No Capital Investments No Incentives, Penalties Instead Why Invest?

19 JET FUEL INFRASTRUCTURE Accidents and Incidents Buncefield Spills and Contamination Pipelines and Allocations Product and Price Competition Sydney Canada Capital Requirements Who Pays Tight Credit Management Experience Lacking

20 ALTERNATIVE JET FUELS Promise or Panacea Resources, Governments, Media Rushing In Money and Resources for 10% of Demand Global Warming The True Religion The Real Impact Higher Prices?

21 EMERGING MARKETS Have the BRIC S S Arrived? Brazil, Russia, India, China New Oil Finds in Brazil Russia Passes Saudi as World s s Largest Exporter India Building Large Export Refineries China Now World s s Second Largest Energy User

22 FORECAST THROUGH 2015 Factors That Argue For Price Stability Year Over Year Jet Fuel Demand Down 8 15% OPEC and Russia Overproduction Western Markets Oil Demand Peak in 2008 Energy Conservation and Alternative Fuels Airline Capacity Reductions and Efficiency Gains

23 FORECAST THROUGH 2015 Factors That Argue For Increased Price Volatility Geopolitical Crises Major Oil Companies Shed Downstream Assets Growing Refinery Control of Pure Play Refiners Government Taxes and Climate Change Mandates OPEC - Jet Fuel Demand 8 m/b/d 25% Higher in 2020 Competition From Alternative Fuels Oil Infrastructure Capital Investments Ignored

24 FORECAST THROUGH 2015 Airlines Airline Set Up For Lengthy Period Of Profits Consolidation, Higher Yields, Efficiencies, Ancillary Revenues Oil Companies Oil Companies Enter Volatile Period Upstream/Downstream, Merchant Refiners, Mandates & Margins Markets Economic Recovery Promises Widespread Growth Prices Airline Pricing Power, Higher Jet Fuel Prices, Regional Volatility

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