slide set 1 - global scan.ppt

© 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 1

PMRE/BUET & UH IELE WORKSHOP

Global Scan

Dhaka, Bangladesh. January 9-12, 2005


Why Conduct a Global Scan?

• Importance of questioning, understanding our assumptions for energy outlooks

• First rule of scenario analysis, “understand the present”

• “Backcasting” reveals errors in data and analysis that influence forward thinking

• Models are static, behavior is dynamic• Technology, innovation are difficult to

predict


Impact of Assumptions on Forecasts

0

20

40

60

80

100

120

140

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

1999

$/B

BL

ACTUAL

U.S. DOE Annual Outlooks1978-2002


1850

1900

1930

1940

1950

1960

1970

1980

1990

2000

•Oil discovered in Titusville, Pennsylvania, 1859; natural gas replaces town gas, 1870s

•Advances in drilling, early seismic, shallow offshore E&P

•Long-line pipeline transmission•Directional drilling, offshore below 250ft water depth

•Pipeline trenching and welding, compression,pressure control, metering; national grid develops

•3-d seismic, horizontal drilling, measurementwhile drilling, offshore below 1,000ft

IT Pathway Mainframes Minis Micros Work Stations ?

•4-d seismic, offshore below 5,000ft

•Offshore below10,000ft

•Oil discovered at Spindletop (Texas), 1901

020,00040,00060,00080,000

100,000

120,000140,000160,000180,000200,000

50 54 58 62 66 70 74 78 82 86 90 94 98 2

U.S. Example: Impact of Technology and

Frameworks

Cumulative U.S. Oil & GasProduction, MMBOE(IncludesAlaska)

Not to scale

•Hydrates? GTL?

On a BOE basis, productionhas not yet peaked


Energy Efficiency – Existing Technology

THERMALOil 4Coal 13Gas 4

Nuclear 6

Hydro 8

Other

Combustion Heat and/or mechanical

energy

Generator system

Photovoltaic

Fuel Cell

Electricity

Input: 35 MBOE/D

Output: 11 MBOE/D or 6,825 TWh/yr


Energy Efficiency – What Can Changethe Equation???

• Technologies and price signals to facilitate demand-side response

• New energy conversion technologies• New fuel sources• New grid materials (superconducting)• Facilitating frameworks to support market

signals, choice, and innovation


Driving Forces

• Global distribution of energy resources relative to demand


OIL AND GAS RESERVE

TERMINOLOGYRecoverable Resources

(Society of Petroleum Engineers)

Total Oil and Gas Resource

Discovered Undiscovered

Non recoverableResources

RecoverableResources

Reserves CumulativeProduction

ProvedReserves

UnprovedReserves

ProbableReserves

PossibleReserves


World Oil Reserves

Source: BP Statistical Review of World Energy 2004.


World Oil Producing Regions

Source: BP Statistical Review of World Energy, 2004.


Petroleum Geography

Source: BP Statistical Review of World Energy, 2004


World Oil Production

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03

Th

ou

san

d b

/d

Non-OPEC

OPEC



U.S. Crude Oil Replenishment

(bil l ion barrels)

20

157

31

020406080

100120140160

1944 Reserves 1945-03Production

2003 Reserves


World Crude Oil Replenishment

(bil l ion barrels)

68

906

1148

0

200

400

600

800

1000

1200


2003 Reserves


World Oil Consuming Regions



World Oil Demand

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03

Th

ou

san

d b

/d

Non-OECD

OECD

Source: BP 2004. OECD region includes all of Western Europe; Poland, Hungary and the Czech Republic; Turkey; Australia and New Zealand; Japan and South Korea; North America.


World Gas Reserves


Geographic Distribution of Resources


World Gas Producing Regions




Natural Gas Geography

Source: BP Statistical Review of World Energy, 2004



World Natural Gas Production

0

50

100

150

200

250

300

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02

Bcf

/d

Rest of WorldFSUU.S.

Russian productionis 85% of FSU




U.S. Natural Gas Replenishment(tr i l l ion cubic feet)

147

905

185

0

200

400

600

800

1000


2003 Reserves



Canadian Natural Gas Replenishment(tr i l l ion cubic feet)

46

118

59

0

20

40

60

80

100

120


2003 Reserves



World Natural Gas Replenishment(tr i l l ion cubic feet)

1041

2322

6204

0

1000

2000

3000

4000

5000

6000

7000


2003 Reserves



World Gas Consuming Regions



World Natural Gas Demand

0

50

100

150

200

250

300

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03

Bcf

Rest of World

FSU

Rest of OECD

U.S.

Sources: BP Statistical Review of World Energy 2004


Is Natural Gas the Future?


Distribution of Coal Reserves



World Coal Producing/Consuming Regions



World Coal Replenishment(bil l ion short tons)

256

188

1081

0

200

400

600

800

1000

1200


2002 Reserves


World Net Electricity Generation

2002 Total = 15,291 Billion Kwh Source: U.S. EIA

2002

Fossil Fuel64%

Nuclear17%

Hydro17%

Others2%


World Net Thermal Electricity Producing Regions

0 500 1000 1500 2000 2500 3000 3500

North America

Asia and Oceania

East Europe and FSU

West Europe

Africa

Middle East

Central and SouthAmerica Billion Kw

200219911982

Source: EIA


World Net Hydroelectric Producing Regions

0 100 200 300 400 500 600 700

North America

West Europe

Asia and Oceania

Central and SouthAmerica

East Europe and FSU

Africa

Middle EastBillion Kw

200219911982

Source: EIA


World Net Nuclear Producing Regions

0 100 200 300 400 500 600 700 800 900 1000

West Europe

North America

Asia and Oceania

East Europe and FSU

Africa

Central and SouthAmerica

Middle East Billion Kw

200219911982

Source: EIA


Driving Forces


• Energy and economy


State of the World

Energy is necessary for economic growth– Energy resources and

industries have been considered strategic and/or national

– Energy industries have been vertically integrated

– But, there is now deregulation or restructuring

GDP & Energy GrowthGDP & Energy Growth

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2001 2002 2003 2004

Energy

GDP



State of the World

World Primary Energy Consumption 2003

Oil38%

Coal26%

Nuclear6%

Hydro 6%

Other12%

Natural Gas24%

Fossil fuels have been the major source for generating energy, but– These resources are

increasingly concentrated in politically sensitive parts of the world

– Burning of these fuels are increasingly blamed for a variety of environmental problems



State of the World

• How can environmental concerns be addressed in a more competitive industry?– Fossil fuels-based technologies have cost

advantages to “clean” alternatives– Developing economies want to use these

technologies and their fossil resources– Developed economies do not want to risk

slow-down with heavy regulation


Economic Growth Requires Energy

Correlation = 0.88 (2000)

0

20

40

60

80

100

120

0 2,000 4,000 6,000 8,000 10,000

GDP (Billions of 1995$)

To

tal E

(Q

uad

s)

145 Countries


Economic Growth Requires Energy


0

3

6

9

12

15

0 250 500 750 1,000 1,250 1,500 1,750 2,000

GDP (Billions of 1995$)

To

tal E

(Q

uad

s)

140 Countries (excluded five richest and/or largest energy users)


Energy per Capita Increases with Wealth


0

50

100

150

200

250

300

350

400

450

500

0 5 10 15 20 25 30 35 40

GDP per capita (1,000 1995$)

E p

er c

apit

a (M

MB

tu)

139 countries


Energy Intensity Decreases with Wealth

Correlation = -0.30 (2000)

0

25000

50000

75000

100000

125000

0 5 10 15 20 25 30 35 40

GDP per capita (1,000 1995$)

EI (

Btu

per

199

5$ o

f G

DP

)


Some Correlations

-0.19-0.25-0.21-0.20-0.19-0.19-0.20-0.20-0.20-0.20-0.11-0.12E per GDP & GDP per

capita

-0.08-0.11-0.09-0.08-0.08-0.08-0.08-0.08-0.09-0.09-0.06-0.05E per GDP & GDP

0.560.600.610.580.580.600.590.520.500.520.540.57E per capita & GDP

per capita

0.210.210.210.200.200.210.210.200.190.200.210.22E per capita & GDP

0.290.280.280.280.280.280.280.300.300.300.320.30Total E & GDP per

capita

0.860.880.880.870.860.850.850.840.830.830.870.87Total E & GDP

average

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990


Implications

• Greater GDP more energy consumption.• Greater GDP more energy consumption per

capita.• Richer countries consume more energy.• Richer countries also consume more energy per

capita but the ratio is not 1:1.• As countries get richer, energy intensity declines,

i.e., they use less energy to generate an additional dollar of GDP!


Energy Use Per Unit GDP

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

U.S.

MMBtu per dollar Gross Domestic Product, using marketexchange rates in 1995 U.S. dollars, as of 2000

Tajikistan

Burma

Canada

Mexico France, Germany

Japan

Sources: U.S. Energy Information, International Energy Agency, BP

U.K.

IndiaRussia

Turkey

OPEC

China


Energy Intensity & Income

0.0

0.1

0.2

0.3

0.4

0.5

0.6

Low Lower Middle Upper Middle High

Income ClassificationGDP per capita

1985 international $

Energy Intensity kg oil eq. per $GDP Share of GDP

AgricultureIndustryServices

38%22%41%

19%30%51%

11%34%55%

3%31%65%

0-1000 1001-3000 3001-10000 10001-

Sample of 83 countriesSources: World Bank Development Indicators, Penn World Tables

Figure 1: Energy Intensity by Income Grouping (1995)

Medlock & Soligo (Energy Journal, 2001)


Growth of the Middle Classes

105700800Less than $5,000

27125330$5,000 to $10,000

156360$10,000 to $20,000

972Greater than $20,000

BrazilIndiaChina

Population in millionsPurchasing Power Parity based income in U.S. Dollars

Source: “The End of Corporate Imperialism” by Prahalad & Lieberthal, Harvard Business Review, July-August 1998, pp. 69-79.


Energy and Economic Growth:Mexico Case

60

80

100

120

140

160

180

50 52 54 55 57 59 61 62 64 65 67 69 70 72 74 76 77 79 81 83 84 86Population (millions)

100

150

200

250

300

350

GDP(actual)

GDP(calculated)

Tons of Oil Equivalent

1971-1991

Gross Domestic Product (U.S.$, billions) Tons of Oil Equivalent (millions)

Source: Luis Lopez, 1997


Driving Forces


• Energy and economy• Key factors impacting energy demand


Energy Disparity I

Source: www.bp.com/centres/energy2002/


Energy Disparity II

Source: www.bp.com/centres/energy2002/

Primary energy consumption per capita

Source: www.bp.com/centres/energy2004


Plus Ça Change, Plus C’est la Même Chose???

Source: 2004 International Energy Outlook, EIA


Developing World is Key


Regional Differences

Source: www.bp.com/centres/energy2004


The Asian “Gulp”: Asia is Swing Demand

0

5,000

10,000

15,000

20,000

25,000

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3

Th

ou

san

ds

b/d

0%

5%

10%

15%

20%

25%

30%

35%

Per

cen

t o

f W

orl

d

Asia Pacific

% Asia

Sources: BP Statistical Review of World Energy, 2004

As Asia’s share grows, economic cyclesin the region will have a bigger impact.


Development means cars!


Is Oil Becoming a Niche Fuel?

Sources: U.S. EIA IEO 2004

As oil is concentrated in the transportsector, new technologies will havea larger impact.


Electricity is Vital for Economic Development


We Prefer Gas for Power Gen

Energy Prices 2002-4Energy Prices 2002-4

0

10

20

30

40

Jan-02 Jan-03 Jan-04

Coal

Oil

Gas$/boe



Driving Forces


• Energy and economy• Key factors impacting energy demand• Key factors impacting energy supply


Energy Sector Investment Requirements: Who Will Invest?

Total investment: 16 trillion dollars

Oil 19%

Electricity60%

Coal 2%Gas 19%

OtherRefining

E&D 72%

13%15%Other

Refining

E&D 72%

13%15%

E&D

LNG Chain

T&D and Storage

55%

37%

8%

E&D

LNG Chain

T&D and Storage

55%

37%

8%

Power generation

T&D54%

46% Power generation

T&D54%

46%

Mining

Shipping and ports

12%

88% Mining

Shipping and ports

12%

88%

Source: IEA Global Investment Survey 2003


Access to Resources is Limited

National companies only (Saudi Arabia,

Kuwait, Mexico)35%

Limited access - National

companies 22%

Production sharing

12%

Concession21%

Iraq10%

1,032 billion barrels



Typical NOC* Structure

• Single Shareholder -- state• Link to national budget• Direct reporting to ministry level• Vertical integration

– Exploration and production to refining and marketing

• Large employment base• Non-energy responsibilities* NOC = national (sovereign owned) oil company


Typical, IOC** Structure

• Many shareholders -- concept of “publicly-held” private companies

• No link to national budgets• No direct reporting to ministry-level• Shift away from vertical integration

– Joint ventures for value chain participation• Relatively small employment base• Focus on core business** IOC = International oil company


Typical IOC Stock Ownership*

12%

48%

40%• Employee stock plans to

build incentives• Insti tutions are major

investors (insurance companies, pension funds, etc.)

• Individual ownership is both individual stocks and mutual funds

• All publicly-held companies tend to have similar ownership structures

Employees

Institutions

Individuals

100 percent total equity* Based on a major U.S. oil company


Ownership Implications

• Shareholders’ expectations with respect to returns on equity drive the investment portfolios of IOC, publicly-traded, private companies.– In order to increase shareholder equity value, IOCs must

achieve profits from their investments equal to or greater than the expected growth in value of shares.

• NOCs are dominated by the “golden share”– Issue of political control interfering with commercial

requirements

• IOCs will only invest if ROR is sufficient to meet shareholder expectations. NOCs will only invest to the extent that political masters allow.


Comparative Risks and Returns: Electricity Lags Oil & Gas

0

2

4

6

8

10

12

14

16

Oil and gas upstream Electricity Gas downstream

per c

ent

OECD Non-OECD



Driving Forces


• Energy and economy• Key factors impacting energy demand• Key factors impacting energy supply• Critical uncertainties:

– Role of OPEC– Energy sector restructuring– Geopolitics– Environment


$0

$10

$20

$30

$40

$50

$60

50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01

U.S. domestic first purchase price (real $)

Source: U.S. EIA.

Oil & Gas Investment Hinges on Price Expectations

What kind of business arewe in???

With OPEC

Without OPEC

“Cheap Oil”

“Oil Crisis”


Historical Perspective



Price Means Change Over Time

$10

$15

$20

$25

$30

$35

$40

$45

$50

$55

82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01

$25.93

$21.54$22.01

$20.77

SpotWTI in 1996 $


OPEC Power

• Last few years, OPEC has been able to sustain some cohesion with the help of few non-OPEC countries

• Still, as compared to the 1970s, prices are lower

10

15

20

25

30

35

40

45

50

55

1982 1985 1988 1991 1994 1997 2000 2003

spot 27.57 23.3223.44 22.98


Oil Prices Revert to a Mean, Eventually

6 10 14 18 22 26 3034 38 42 46

0

10

20

30

40

50

60

70

80

Frequency

Price

91:02-03:12

86:02-03:12

82:01-03:12

“We must be rationalbeings after all.”


OPEC Share of World Oil Production

20%

25%

30%

35%

40%

45%

50%

55%

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03

Sources: BP Statistical Review of World Energy, 2004

The larger its share, the greater isOPEC’s impact on oil markets.

Impact of FSU


Do Cartels Succeed in the Long Run?

0

2

4

6

8

10

12

14

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98

Cocoa Coffee

Sugar Tin

Copper Oil

It depends on how muchof the market they control and:- Group cohesion- Market anticipation vs. policy action- Data transparency

1997 and 1999-00 wereOPEC influenced

Nominal cartel commodity prices, U.S.$, indexed

Sources: Industry trade publications and U.S. EIA


An Effective Cartel Requires:

Minimum conditions:• Narrowly defined target• A good with no easy substitutes• An entry cost for new producers that is

very high relative to the marginal cost of cartel producers

• Incentives to cooperate


Strongest progress toward markets

No real progress toward marketization

Progress made, but weak institutions and/or tendency to backtrack; political risk

Canada/U.S.

Mexico

Chile

ColombiaVenezuelaBrazilPeruArgentina

S. Africa

England

Rest ofW. Europe

C/E Europe

Russia and Other CIS

China

Petroleum Heartland

India

Northeast Asia

Australia

New Zealand

Southeast Asia

W. Africa

Uncertain regulatory response on price reporting and standard market design is inhibiting investment

In general, where options for private investment upstream are limited, midstream/downstream marketization is also limited

Gas/Power “Marketization”


Liberalization Uncertainties

Region or Country Issues

Canada* Monopoly Crown corporations for electricity, cost ofelectricity restructuring, market design, regulatorycoordination (provincial, federal); Quebec secession

U.S.* Costs of electricity restructuring, market design, regulatorycoordination (state, federal)

Mexico* and LatinAmerica*

Role of national energy companies; independence ofregulators, market depth; northern Andes political risk

Western Europe Monopolies (non-UK), market design, regulatory authority,role of ECJ*

Central, EasternEurope

Market design, monopolies, market depth, economic risk

CIS Market facilitation, national energy companies, marketdepth, economic and political risk – Russian influence

*Denotes specific Energy Institute white papers, publications, commentary


Liberalization Uncertainties

Region or Country Issues

Middle East Market facilitation for downstream infrastructure investment,economic and political risk – regime stability

South Africa Market design, natural gas entry, regulatory authority,market depth; political stability

India Market facilitation, economic and political risk (role of stateelectricity boards), market depth

China Market facilitation, national energy companies, economicand political risk – Central and NE Asia BOP

Japan Market facilitation, monopolies, regulatory authority, regionalcooperation and coordination

Australia* Market design, regulatory coordination across jurisdictions(state, federal)

*Denotes specific Energy Institute white papers, publications, commentary


Closer Look: Latin American Gas Sector Reform Uncertainties

UpstreamParticipation

IndependentRegulator Issues

Mexico No Yes (CRE) Role of NECs;political/market risk

Colombia Yes Yes (CREG) Political risk

Venezuela Yes **Yes(CREE)

Political/market risk

Brazil Yes Yes (ANP;ANEEL)

Transition path

Argentina Yes Yes (ENARGAS;ENRE)

Market risk

Bolivia Yes Yes (SIRESE) Political/market risk

Peru Yes **Yes (CTE) Political/market risk

Chile NA Yes (CNE) Market riskNotes: CRE and CREG also regulate electricity. ** Regulator exists only for electricity; effort underway to add gas


Energy Geopolitics ca. 1990sto PresentU.S.

China

JapanS and SE Asia

Europe

NIS

Turkey

Iran

• Dominance• New Great Game (Central Asia pipelines)

• Competition for Petroleum Heartland supply• Pacific region role and the “Middle Kingdom”

• New Great Game• Northeast Asian affairs

S Korea

N Korea

00s Flashpoints00s Flashpoints

PetroleumHeartland

(OPEC, FSU,

Non-OPEC Africa)

Russia


Climate Change Dominates Environmental Uncertainties


Developing World is Key!


But Rich Countries Face Internal Hurdles


But…Contrarian Viewpoints

“Paleoclimatic data also show the great complexity of Earth's climate system, including large (1/3-1/2 of the entire glacial-interglacial amplitude), abrupt (order of a decade), and widespread (to hemispheric or broader scale) climate changes that are not explainable directly by changes in greenhouse gases.”

Science epicenters: Antarctic andGreenland cooling, sedimentcoring; solar cycles, magnetismand atmospheric water vapor

Sources: Doran, et. al., Nature, 2002. Richard Alley, Penn State, GSA, 1999.


“Green” Energy is more than Renewables

Our Energy & Emission Efficiency

Past Present Future

Decarbonisation of Fuels

Renewables

Fuel Cell Vehicles

Gas replacingCoal

Hydrogen Economy

Novel Low Energy ProcessesCO2 Capture

pv Solar Solar thermal

Energy Efficiency

DGI & Hybrids

Wind

Reduce Flaring& Venting

Source: BP


Projected Capacity of Renewable Power Sources

Investment is growing in Renewables

0

50

100

150

200

250

300

350

2000 2005 2010 2015 2020

Inst

alle

d C

apac

ity

(GW

)

Solar thermal electric PV Geothermal Small hydro Wind Biomass

Source: ADL estimates

Source: BP


16%

19%

8%

5%

16%

36%

Renewable Energy

Germany

SpainUSA

Denmark

India

Rest of world

Total: 40.3 gigawattsTotal: 40.3 gigawatts0

100

200

300

400

500

600

1994 1996 1998 2000 2002

Rest of worldUSAEuropeJapan

MW per annum

Installed Wind Generation Installed Wind Generation Capacity - end 2003Capacity - end 2003

Global Solar PV productionGlobal Solar PV production



World Wind Power Installed Capacity


World Carbon Emissions Index

90

100

110

120

130

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Index (1990 = 100)

World

World (exc China and FSU)

Annex 1

Annex 1 (ratified countries)


slide set 1 - global scan.ppt

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