1. Capital expenditure on oil exploration and production will continue to stagnate in 2009

The global financial crisis will continue to impact oil exploration & production projects in 2009. We expect more projects to be delayed as companies respond to a lack of available capital, higher financing costs and fears of a lower return on investment from a lower oil price.

2. Oil price volatility to continue in the short term but likely to stabilize within a lower narrow band by the end of 2009

Over the past year, oil prices have been extremely volatile. There have been considerable movements in the oil price in 2008, initially increasing rapidly and later decreasing by more than 50% from its high. The increase in the oil price was generally attributed to supply bottlenecks, increased demand and speculation. The trend of higher oil prices has now reversed as demand eases in OECD countries especially the US. Lower oil prices will continue in the short term We expect OPEC, which accounts for about 40% of the total oil production, to further try to control supply and reduce production with cuts of up to 1.5 million barrels per day likely from November 2008.

3. Clean energy projects will play a crucial role in the long term energy needs of the world although there will be reduced investment in 2009

In the recent years, clean energy projects such as wind, hydro, solar and geothermal has attracted considerable attention. We expect various governments to continue to seek to diversify their energy sources, reduce dependence on imported oil and gas and seek to reduce carbon emissions in response to global warming and the need to comply with the deadlines set by the Kyoto Protocol. All these factors have driven levels of investment in clean energy. The shift of investment in renewables remains an immediate and ongoing trend, however we expect the current financial crisis to slow the rate of investment growth due to a reduction in available capital and higher potential capital costs. We expect this to impact a number of projects in 2009.

4. New investments in unconventional oil and gas projects will decline in 2009

The unconventional energy sector saw unprecedented growth in recent years as suppliers sought to alleviate or exploit higher oil prices by increasing supply from unconventional sources. Capital investments on extracting oil from oil shales, oil sands, enhanced oil recovery technologies, coal derived liquids and heavy oil had become attractive. The global financial crisis and the decline in crude oil price to below $50 per barrel have made many new investments unfeasible. Canada alone, which has one of the largest reserves of oil sands, has seen more than $45 billion worth of investments in oil sand projects placed on hold. In the short term, this trend is expected to continue in 2009. Nonetheless, the peaking of the conventional oil and gas supply and advancements in technology in extracting oil from unconventional sources are likely to have a positive impact on the industry. In the long term, investments in the unconventional oil and gas projects are likely to return.

5. Coal will continue to be the highest consumed energy source in 2009 despite a shift towards nuclear and alternative sources

Coal remains the major source of energy worldwide. According to the EIA, coal accounted to around 27% of the world energy consumed in 2007 and is expected to increase by 2.6% yearly till 2015. Roughly two-thirds of the coal produced was used for electricity generation while about 23% was used for industrial purposes. Residential and commercial sectors accounted for the remainder of the produced coal. Even though coal is the most carbon intensive energy resource it remains popular due to the low cost and wide availability in resource rich nations like India, China and the US. The consumption of coal is expected to increase to 3530.5 million tons of oil equivalents (mmtoe) in 2009 and further to 3680 mmtoe by 2010.

6. Nuclear energy will play an increasing role in meeting the global energy needs even though some new projects might be delayed in 2009

At the beginning of 2008, more than 30 nuclear plants were under construction and another 100 projects were being planned along with new proposals for around 200 plants. We expect nuclear power to increase in importance as countries seek to diversify supply and move towards reduced greenhouse gas emissions, though the current economic climate will result in project delays and a slow down in the rate of new construction.

7. European countries will continue to increase efforts to reduce their dependence on Russian natural gas in 2009

The European Union currently relies on Russia for almost 38% of its natural gas imports. Natural gas accounts for about 24% of the total EU energy source and a desire to reduce coal consumption has resulted in an increase in the use of natural gas which is likely to continue. The EU has a heavy reliance on Russian natural gas and currently lacks other major supply options. Consequently the European countries are potentially vulnerable to any perceived or actual supply disruptions. As demand for natural gas increases particularly from non EU countries such as China we expect this to provide opportunities for Russia to potentially raise the price for central and western European countries To counter this, there have been major efforts to build pipelines that minimize the dependence on Russia, The Nabucco pipeline backed by the EU being one and Iran recently proposed to build the Pars pipeline, in competition to the Nabucco and the South Stream pipelines. European countries are also looking at options of building LNG re-gasification terminals which may become a more reliable substitute for securing future natural gas supplies.

8. Demand for natural gas to continue to increase in 2009

There has been an increased usage of natural gas in the recent years as an energy resource throughout the world. World natural gas consumption was 2637.7 mmtoe in 2007 and is expected to increase by 1.0% per year for OECD countries and 2.3% for non-OECD countries. According to EIA estimates, the US natural gas consumption is expected to increase by 2.7% in 2008 and 2.2% in 2009. Of the total world consumption of natural gas, industrial sector accounted for 43% while electricity generation accounted for 35%. Natural gas consumption in OECD Europe is expected to increase by 1.4% per year till 2015 in line with increased demand for electricity generation. Natural gas is the least carbon intensive energy source among the fossil fuels thereby making it attractive for governments trying to reduce green house gas emissions. With increased environmental focus and volatile oil prices the demand for natural gas is expected to continue to increase in 2009. As a word of caution, transportation of the natural gas and geopolitical factors would act as a challenge for the easy supply of natural gas.

9. Electricity generation capacity to grow in 2009 while distribution and transmission would require further investments

World electricity generation is increasing steadily and is expected to continue to grow in 2009. The worldwide electricity generation in 2007 was 19.9 trillion KWh which is expected to increase to 21 trillion KWh in 2010. The main driver for the growth is from non-OECD countries. Coupled with this increased demand, will be a need to expand and invest in the distribution and transmission systems as power generation shifts to broad based and localized renewable sources. As a result we expect there to be continued interest in smart grid technologies.

10. Rise in construction costs will delay projects in the refining sector

The refining sector has witnessed a considerable investment in the past two years, mainly in the Middle East and Asia. Global refining capacity in 2007 was 4378 million tones per annum (mtpa) and is expected to increase to 4599 mtpa in 2009. A capacity crunch in the refining industry and a move to diversify away from oil production to delivering end products saw a surge in new refinery projects in the Middle East. However, this coincided with huge investments in other infrastructure sectors leading to a shortage of essential raw materials such as rebar, cement. Due to this there was a shortage of raw material availability and governments even stopped exporting to ensure they could meet their local demand. Jubail and Yanbu refinery in Saudi Arabia, Paradip refinery in India, Qinzhou refinery in China are only a few of the new refineries that have seen an increase in their capital costs. This trend is expected to continue in the future as well due to the reduced capital availability. Reduced capital availability due to the financial crisis coupled with increasing project costs will lead to delay in a number of refining projects. In addition, the refining sector will also witness a greater shift towards semi-complex and complex refineries especially in the Middle East and Asia.