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Sixth&IEA&IEF&OPEC&Symposium&on&Energy&Outlooks Impact'of'a'low'oil'price'environment'on'supply'and'demand,' stability'and'economic'growth'in'KSA Eugene&C.&McQuaid – Saudi&Arabian&General&Investment&Authority Interactive'Session February&2016

Scope&&&Outline& 1. Macroeconomic&Performance&&&Outlook&– Salient&Indicators The&Macro&Economy&at&a&Glance • The&Macroeconomic&Fundamentals& • 2. Storage&Utilization,&Rig&Counts&and&Supply&Security 3. WTI&&&Brent:&Price&Convergence&and&Divergence 4. Hydrocarbons&&&Price&Elasticity&of&Demand&(Part&1&&&2) 5. Energy&Price&Equivalent&Ratios 6. Knightian Uncertainty 7. Energy&Content&Argument 8. …….&&&MacroYFiscal&Energy&Equivalent&Pricing&Model

Macroeconomic$Performance$&$Outlook$– Salient$Indicators Key$Indicator$ 2005$(Base$Year) 2015$(Estimated) 2016 (Projected) Real%GDP%Growth 7.3% 2.8% 2.4% (Constant prices) Nominal%GDP%Growth 5.1% (Est%CAGR) D13.7% 7.1% (Current%prices) Population (millions) 23.3 31.4 32.0 Inflation 0.7% 2.0% 2.45% Unemployment N/A 11.7 12.0 Economic'Sector'' 2015'%'of'GDP' 2005'%'of'GDP' Shift:''05715' Manufacturing+ 12.23%+ 9.45%+ ++2.78%+ Construction+ 6.84%+ 4.74%+ ++2.1%+ Wholesale+/+Retail+&+Leisure+ 11.52%+ 6.27%+ ++5.25%+ Transportation+&+Communications+ 6.36%+ 3.54%+ ++2.82%+ Finance+ 12.57%+ 8.8%+ ++3.77%+ Oil+ 25.45%+ 46.47%+ H+21.02%+ +

The$Macro$Economy$at$a$Glance$ Macroeconomic*landscape*is*in*transition*driven*by* private(sector(development,(economic(diversification and* FDI5led(investment . ! Stable(and(progressive(economy( in*real*terms*– A*5%*(compound*average)*real*GDP*in*the*past*decade*underpinning**sustainable*growth. ! Headline(and(core(inflation(are(consistent( with*growth*and*employment*targets*– Price*control*is*reinforced*by*the*dollar*peg*providing*a*robust* ! anchor*for*monetary*policy. Downstream$non4hydrocarbon$ produce*[petrochemicals,*minerals*etc.],*in*a*low*oil*price*environment are$ increasingly*important*for*employment* ! and*contribution*to*growth. Infrastructure(projects( E the*metro*rail*projects,*aviation,*marine,*lifestyle*&*access*infrastructure*E are*accelerating*and*supporting*investment* ! opportunities* E i.e.*US$50*billion*capital*spend*in*2005*to*US$180*billion*in*2014. Investment*Flows*– KSA*attracted*US$8bn*in*2014*[equates*to*18%*of*total*FDI*into*greater*Arab*region]*E KSA*FDI*stock*(US$215.9bn)*as*a*%*GDP*is* ! 28.7%*which*benchmarked*against*the*world*average*FDI*(%*of*GDP)*is*33.6%. Gradual*transition*to*a* Knowledge(Society( through*sector*focused*diversification*including*manufacturing,*health,*transport,*financial*services,*and* ! ICT. Non5traditional(sectors( are*also*propelling*investment*development*opportunities*i.e.*Finance,*agriculture*sector*and*food*exports.* ! National(Transformation(Program((NTP) :*To*accelerate*real*economic*growth*and*ongoing*diversification*efforts: ! Led*by*the*Council*for*Economic*Development*and*Affairs, " Public*financial*and*fiscal*management*development*framework*at*Ministry*of*Finance, " Public*debt*management,*local*and*foreign*currency*bond*issuance,*liquidity*control*and*capital*market*enhancements*projects*at*SAMA. "

MACROECONOMIC$ The$Real$Sector$– Consumer$Price$Index$ FUNDAMENTALS Consumer Price$Index$(Including$Estimates$Fy2016) Index,$2006=1 4 Consumer)&)produces)prices)remain) 3.8 moderate)&)manageable)in)the)medium) 3.7 term:) 3.5 3.5 3 2.9 2.7 Headline(inflation(remains(subdued(at( • 2.5 2.4 2.0%(in(2015,(and(will(ease(to(a(‘steady( state’(of(2.45%(in(2016. 2 2.0 • Retreating(from(the(recent(global(trend(s)( 1.5 in(disinflation(and(deflation…. core( inflation,(which(excludes([the(volatile( 1 components](food(and(rental(and( housingJrelated(services,(underlies( 0.5 headline(rates(as(anticipated. 0 2010 2011 2012 2013 2014 2015 2016 Source: (1)$IMF$Article$IV$Consultation$2015.$(2)$SAGIA$Planning Department( Assessment.

MACROECONOMIC& KSA’s&GDP&Profile FUNDAMENTALS By&Sector:&Public&/&Private&&&Oil GDP4by4Institutional4Sectors4(At4Current4Prices)444 In4nominal4terms4KSA’s4macro4economy4is4 60 converging4in4such4that4both4the4oil4and4 non4oil4sectors4are4contributing4robustly4 50 to4overall4growthJ all4be4it4that4lower4 average4oil4prices4has4reduced4 40 Percentage hydrocarbon4contributions.4 30 This4convergence4is4driven4by4private4 sector4development4through4economic4 20 diversification,4 construction/manufacturing4and4 10 downstream4hydrocarbon4economic4 0 activity. 2010 2011 2012 2013 2014 Axis4Title The4Government4sector4remains4steady4 Oil4Sector Private4Sector Government in4its4contribution4to4GDP.44 Data&Source:&CDSI&National&Accounts&2014

MACROECONOMIC$ GDP$at$Current$and$Constant$Prices$ FUNDAMENTALS Strong'GDP'economic'growth'in'Fy2015/16: GDP$%$Growth$at$Constant$and$Current$Prices 45 Real%GDP%growth%of%3.5%%in%2014%– • Real$GDP Nominal$GDP experienced%a%‘levelling%out’%at%2.8%%in% 35 2015%and%estimated%to%sustain%at%2.4%%for% 2016. 25 Fluctuating%longHterm%hydrocarbon%pricing% • arrangement,%impacting%fiscal%revenues,% 15 remain%a%key%influencer%in%current% 7.1 economic%growth%levels%– 3.5 5 2.8 2.7 2.4 1.4 0.3 Diversification%and%private%sector% • F5 development%are%critical%in%KSA% transformational%planning%trajectory. F15 F13.7 The%National%Transformation%Planning%and% • infrastructure%development%sectors%acting% F25 2013 2014 2015 2016 as%a%primary%catalyst.%

MACROECONOMIC* Hydrocarbon*&*Non*Hydrocarbon*Sector*Growth* FUNDAMENTALS Real%GDP%Growth:%Hydrocarbons%and%nonhydrocarbons%(%)% 20 Dedicated(government/led(transition(to(diversify( economy(through(private(sector(development: Oil0GDP Non0Oil0GDP Real0GDP Linear0(Real0GDP) 15 Non$hydrocarbon,private,sector,growth,is, • estimated,at,3.4%,2015,and,3.8%,in,2016,$ Driven,in,principle,by,financial,&,manufacturing, 10.0 sectors. 10 12.2 Operationalization,of, Tawadul will,deepen,the, • 6.4 5.4 8.1 5.0 equity,market,and,broaden,investor,base,– 5 3.5 3.1 Morgan,Stanley,Composite,Index,(a,rating, 5.5 2.8 2.7 2.4 1.5 2.4 system,of,global,stock,exchanges),currently, 1.2 3.3 5.1 entering,the,assessment,phase,for,emerging, 0 market,status,(currently,KSA,is,frontier,status). &1.6 Future,potential,lies,in,the,SME,,tourism,&, • &5 hospitality,,diverse,financial,services,, 2011 2012 2013 2014 2015 2016 IT/telecoms,and,export$driven,industrial, Source: (1)*IMF*Article*IV*Consultation*2015.*(2)*SAGIA*Planning*Department*Assessment. activity.

MACROECONOMIC& KSA’s&Foreign&Trade&Profile FUNDAMENTALS Foreign&Trade:&Exports&&&Imports 1600000 Non1oil1exports1are1reflecting1a1modest1 • increase1in1private1sector1focused1trading1 1400000 patterns. 1200000 Petrochemicals1&1minerals1dominate1the1 • RIYALS1(Millions) non1oil1exports1– however1revenues1from1 1000000 such1will1be1muted1as1the1dollar1continues1 800000 to1appreciate1and1the1US$1/1SAR1peg1 remains1in1place.1 600000 The1US$1appreciation1trend1continues1to1 • 400000 support1lower1import1prices1which1are1 200000 reflected1in1the1current1CPI1index.111 0 Oil1exports1values1will1remain1challenged1 • 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 under1current1volume1/1production1levels. Exports Imports Non1Oil1Exports Data&Source:&CDSI&Import&&&Export&Trade&Statistics&2014

MACROECONOMIC' Current'Account'Balance FUNDAMENTALS Current'Account'as'a'%'GDP 800 744.0 746.0 In0US$0billions as0%0of0GDP 734.0 690.0 670.0 700 644.0 600 Current'account'surplus'narrowed'to'a' • healthy'10.9%'of'GDP'in'2014. 500 Anticipated'by'a'further'trajectory'into' • 400 deficit'(B0.9%)'in'2015'as'a'result'of' 300 volatile'hydrocarbon'revenues. 200 This'will'be'shorted'lived'as'a'return'to'a' • 100 moderate'and'acceptable'surplus'during' Fy2016B20'is'forecast.' 23.7 22.5 18.2 10.9 2.4 0 -0.9 2011 2012 2013 2014 2015 2016 -100 Source: (1)'IMF'Article'IV'Consultation'2015.'(2)'SAGIA'Planning'Department'Assessment.

MACROECONOMIC) Current'Account'+ Component'Breakdown FUNDAMENTALS Current'Account'Components'(%'of'nominal'GDP)' 60.0 The)components)of)the)current)account,)in) Goods particular)the)trade)balance)emphasize: Services 36.5 40.0 33.6 Income 29.9 Exports:) Volatile)hydrocarbon)prices)are) • 25.2 reducing)export)value)and)fiscal)revenues. Transfers 20.0 14.4 13.0 It)is)accepted)that)Non)hydrocarbon) • 3.6 2.8 2.2 1.8 1.4 1.5 exportJdiversification)is)the)key)economic) 0.0 driver)for)future)growth)in)KSA. J4.1 J4.4 J4.8 J5.2 J5.2 J5.0 J8.5 J8.7 J9.9 J10.7 J11.3 J11.5 J20.0 Imports:) The)appreciation)(US$))over)an) • extended)period)has)ensured)that) J40.0 imported)goods)are)cheaper)and)thus)a) catalyst)to)increase)personal)expenditure)/) consumption . J60.0 2011 2012 2013 2014 2015 2016 Source: (1)'IMF'Article'IV'Consultation'2015.'(2)'SAGIA'Planning'Department'Assessment.