Economic Industry Overview

William C. Dunkelberg Owl Fund

October 25th, 2014

Economic Analysts:
Robert Kost Vicky Magginas
rkost@theowlfund.com vmagginas@theowlfund.com
Darmesh Patel GhishlainGuiebo
dpatel@theowlfund.com gguiebo@theowlfund.com

Company Overview

CVX is one of the largest major integrated oil companies in the world and has many businesses
including upstream, midstream and downstream petroleum operations including: exploring and
producing crude oil, transporting crude via pipelines, railcars, and marine vessels, and refining crude oil
into petroleum products such as gasoline, commodity petrochemicals, and plastics for industrial use, as
well as natural gas storage and natural gas to liquids projects. The company's revenue is split about 70%
downstream and 30% upstream, with 41% from the US and 59% internationally.

Demand for Crude Oil

The United States is currently the world's third largest producer of oil. In the latest report from the
Energy Information Association the 2015 forecast represents the higher annual average level of oil
production since 1972. The recent development of the oil shale fields in North Dakota, Texas and
Western Canada has changed the equation when it comes to Americas dependence on overseas oil
production. While oil production is booming in the US, demand for oil is decreasing internationally.
Weaker growth in China and the recessionary conditions in Europe underline the slowing global
economy. Lower oil prices in the US means higher prices in other countries which helps the dollar to
strengthen. A stronger dollar can reduce overseas demand for US exports. The graph below shows that
US demand for crude oil has increased 2.42% while global demand has increased 0.67 % year to date.



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Chevron

Exchange: NYSE | Ticker: CVX | Sector: Energy

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Rail transportation of crude oil has increased as the pipeline falls short. While most crude oil is still
transported by pipelines, rail transportation has been gaining ground. According to the Association of
American Railroads, the United States rail system transported 407,642 cars of crude oil in 2013, up from
9,500 cars in 2008.




Demand for Gasoline

Average gas and diesel prices at the pump have fallen to their lowest levels in October in over four years.
After the end of the so-called summer driving season, demand tails off, and prices typically drop after
Labor Day. As supply has increased, demand also has decreased. Even though the U.S. Energy
Information Administration predicted this month that Americans will consume 2 billion more gallons of
gasoline this year than previously expected due to the economy picking up steam, global demand overall
has been weak as the EU is growing at a zero or slightly negative rates, the U.S. is very slow and Japan is
contracting.

Demand is expected to fall in the US another 15% between 2014 and 2025. Global petroleum and liquid
consumption may rise by 1.4% this year based on EIA data. Much of the increase depends on growth in
China and other developing economies. Chinas economic and petroleum consumption growth has been
tempered relative to levels prior to 2012.
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Demand for Petrochemicals

According to Chevron technology marketing, the petrochemical industry represents a value of about $3
trillion in economic output with most of the demand coming from Asia especially China and India, the
Middle East and Latin America. Demand for petrochemicals which has become an indispensable part of
the manufacturing and consuming is expected to grow 3.8% in 2014, although the recent price of oil s
resulted in a decline in the price petrochemicals. The United States have gained market share in
petrochemical production of liquefied petroleum liquid as Asian petroleum firms who traditionally used
naphtha are now switching liquefied petroleum gas. The demand in liquefied petroleum liquid has been
spurred by rising supply of oil production from the United States driving the price of naphtha and
liquefied petroleum gas below the price offered by Asian petroleum firm usual suppliers located mostly
in the Middle East. Asia now accounts for more than a quarter of all United States liquefied petroleum
gas exports and is expected to grow.

Energy Consumption Growth by Region


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Energy Consumption by Sector



Consumption by Fuel



Among fossil fuels, gas is the fastest growing (1.9% p.a.) and the only one to grow more rapidly
than total energy. Oil (0.8% p.a.) shows the slowest growth, with coal (1.1% p.a.) only slightly
ahead.

In that final decade, gas is the largest single contributor to growth; but non-fossil fuels in
aggregate contribute even more than gas, accounting for 39% of the growth in energy in that
period.


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Natural Gas Demand


Global demand for natural gas will is projected to grow by 1.9% p.a. over the outlook period,
reaching 497 Bcf/d by 2035, with non-OECD growth (2.7% p.a.) outpacing the OECD (1%
p.a.).

In the OECD, gas is expected to overtake oil as the dominant fuel by 2031, reaching a share of
31% in primary energy by 2035. But in the non-OECD, gas is projected to remain in third place,
behind coal and oil, with a 24% share of primary energy by 2035.

The fastest growing sector is transport (7.3% p.a.), but this is from a small base. In volume terms
the largest growth comes from industry (71 Bcf/d, 1.9% p.a.) and power (63 Bcf/d, 1.9% p.a.).


Global gas supply is expected to grow by 1.9% p.a. or 172 Bcf/d over the outlook period,
reaching a total of 497 Bcf/d by 2035. Shale gas is the fastest growing source of supply (6.5%
p.a.), providing nearly half of the growth in global gas.
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Gas supply growth is projected to be concentrated in the non-OECD (126 Bcf/d or 2.1% p.a.)
accounting for 73% of global growth. Almost 80% of non-OECD growth is from non-shale
sources. OECD supply growth (1.5% p.a.) comes exclusively from shale gas (5.1% p.a.), which is
projected to provide nearly half of OECD gas production by 2035.

Shale gas supply is dominated by North America, which accounts for 99% of shale gas supply,
expected to last until 2016 and for 70% by 2035. However, shale gas growth outside North
America should accelerate, and by 2027 will overtake North American growth. China is the most
promising country for shale growth outside North America, accounting for 13% of world shale
gas growth; together, China and North America will account for 81% of shale gas by 2035.

Trends

US domestic gas production has been revitalized by the shale gas revolution. US shale gas
output by 2029 will exceed the highest level ever achieved by conventional gas production in the
US. By 2035, shale gas production will be just short of US total gas output in 2012.















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DISCLAIMER
This report is prepared strictly for educational purposes and should not be used as an actual investment guide.
The forward looking statements contained within are simply the authors opinions.
TUIA STATEMENT
Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for his
tireless dedication to educating students in real-world principles of economics and business, the William C.
Dunkelberg (WCD) Owl Fund will ensure that future generations of students have exposure to a challenging,
practical learning experience. Managed by Fox School of Business graduate and undergraduate students with
oversight from its Board of Directors, the WCD Owl Funds goals are threefold:
Provide students with hands-on investment management experience
Enable students to work in a team-based setting in consultation with investment professionals.
Connect student participants with nationally recognized money managers and financial institutions

Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costs
and partial scholarships for student participants.