One Year Later - The National Petroleum Council - An Oil ...Sep 17, 2008 · Oil and gas prices rose sharply and remain volatile ... Global GDP estimates are higher, U.S. share decreasing

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Global Oil and Gas StudyNPC

One Year LaterOne Year Later

An updateAn updatepresented to thepresented to the

National Petroleum Council National Petroleum Council

September 17, 2008September 17, 2008

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The 2007 Study QuestionsThe 2007 Study Questions

•

What does the future hold for global oil and natural gas supply ?

•

Can incremental oil and gas supplies be brought on-line, on-time, and at a reasonable price to meet future demand without jeopardizing economic growth ?

•

What oil and gas supply strategies and / or demand-side strategies does the Council recommend the U.S. pursue to ensure greater economic stability and prosperity ?

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Unprecedented Report ReceptionUnprecedented Report Reception

●

Over 1.5 million downloads from the website

●

Over 8,200 hard copy reports distributed

●

Over 180 presentations and briefings

●

Executive Summary in seven languages:

●

English ●

Japanese ●

Arabic ●

Russian●

Chinese

●

Spanish●

French

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Events and Trends in the Last YearEvents and Trends in the Last Year

•

Oil and gas prices rose sharply and remain volatile

•

Higher energy prices are slowing demand growth

●

Geopolitical issues are widespread: •

Middle East ●

Russia/Caucasus•

Nigeria ●

Venezuela

●

Focus on carbon management has increased

●

Energy Independence and Security Act enacted

●

Energy is a high-profile topic in the political debate

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Task Group Updates Task Group Updates

•

Demand –

Jim Burkhard

•

Supply –

Don Paul

•

Geopolitics and Policy –

Frank Verrastro

•

Technology –

Rod Nelson

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Key Findings from the 2007 Report Reinforced

•

Demand for fuel and power to grow significantly, requiring increases in efficiency, and expansion of all economic energy sources

•

Increasing risks to the expansion of conventional liquids supplies

•

Significant additions of unconventional liquids supply are projected

•

Recent studies report a larger oil and gas resource endowment

•

Exploration and production expenditures have increased dramatically

•

Growing pressure on cost and availability of project resources is hindering the ability to expand energy production capability

•

Pressures to address carbon emissions and energy security are increasing

To meet the accumulating risks, all

recommendations of the 2007 Report require implementation with increased urgency

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The Hard TruthsThe Hard Truths

Coal, oil, and natural gas will remain indispensable to meeting total projected energy demand growth.

•

Growth of economic activity and population in developing world expected to drive increased energy demand

•

Non-OECD demand likely to exceed OECD

•

U.S. and G-8 share of world economy decreasing

•

Updates project that coal, oil and gas fossil fuels will supply substantial majority of energy through 2030

8


Economic and Energy ProjectionsEconomic and Energy Projections

Global GDP estimates are higher, U.S. share decreasing

Global GDP estimates are higher, U.S. share decreasing

0%

5%

10%

15%

20%

2006 Proj 2007 Proj 2008 Proj

EIAIEA

U.S. Share of 2030 World GDP

New outlooks within original Study’s range

New outlooks within original Study’s range

400

500

600

700

800

900

2010 2020 2030

QBTU

World Energy Outlooks

2007 Study High

2007 Study Low

2008 Range

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9

0

100

200

300

400

500

Oil

Gas

Coal

NuclearRenewables

Projected Demand IncreaseProjected Demand Increase

Source: DOE EIA 2008 International Energy Outlook.

World Energy

2005

2030

QBT

Us

•

Developing world projected to drive the demand increase•

Coal, oil, and gas continue to supply ~80% of total energy

OECD OECDNon-

OECD

Non-

OECD

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The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically. These risks create significant challenges to meeting projected demand.

● Increasingly apparent accumulation of risks to expansion of conventional liquids

● Resource estimates are growing, but turning resources into supplies is an increasing challenge

● Where resource is accessible, cost and availability of materials and human resources are hindering projects

● Constraints to expansion of first-generation biofuels are more apparent

11


Liquids Production ProjectionsLiquids Production Projections

•

New projections are mostly within last year’s range when normalized

•

Lower projections may reflect reduced demand assessment rather than supply limitation

•

For petroleum liquids alone, the Shell scenarios show flat-to-declining production after 2020

All data from published sources.

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0

20

40

60

80

100

120

140

4-7% Production Decline

IEO 2008 Demand Range

201530 – 45 MBOE/D

203070-100 MBOE/D

The Growing Liquids Supply ChallengeThe Growing Liquids Supply Challenge

Existing ProductionCapacity

Conventional OPEC

Conventional non OPEC

Unconventional and biofuels

2007 2015 2030

Required New Capacity

Increasing demand and natural production decline create growing need for significant new production capacity

MIL

LIO

N B

ARR

ELS

PER

DAY

13


13

Investment has dramatically increased ...... with years required to increase production

13

0

25

50

75

100

125

0

100

200

300

400

Investment, Capacity, and Time (2008 dollars)Investment, Capacity, and Time (2008 dollars)

WORLD OIL CAPACITYOIL PRICE

E&P EXPENDITURE

Sources: BP Statistical Review, IEA, Citigroup, 2008 dollars.

1970 1975 1980 1985 1990 1995 2000 2005

MIL

LIO

N B

ARR

ELS

PER

DAY

BIL

LIO

NS

OF

DO

LLA

RS

BIL

LIO

NS

OF

DO

LLA

RS

DO

LLAR

S/BB

L

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To mitigate these risks, expansion of all economic energy sources will be required, including coal, nuclear, biomass, other renewables, and unconventional oil and natural gas. Each of these sources faces significant challenges...

●

Continued efficiency improvement increasingly important

●

Increased unconventional liquids, biofuels, and unconventional gas necessary

●

Access to resources critical to augmenting U.S. supply

●

Simultaneous pursuit of multiple energy sources increases pressure on cost and availability of project resources

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15

Energy Efficiency Energy Efficiency

0

300

600

900

1,200

1,500

2005 2010 2015 2020 2025 2030

Projected Energy Consumption (EIA 2008)

Energy Consumption at 2005 Intensity

Energy Intensity Reduced

Intensity is unit of energy per unit of economic outputSource: EIA’s 2008 International Energy Outlook.

Total World Energy

Without energy efficiency improvement, projected energy use would be substantially higher

QU

AD/Y

EAR

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World Unconventional LiquidsWorld Unconventional Liquids

Source: EIA IEO2008 reference case.

Unconventional liquids needed to meet forecast demand in most projections

Development of unconventional sources requires significantly increased investment levels, continued technology advancements, and potentially large carbon management infrastructure

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0

4

8

12

16

2010 2015 2020 2025 2030

Coal-to-Liquids

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U.S. Unconventional Liquids PotentialU.S. Unconventional Liquids Potential

Total inEIA AEO 2008

Reference Case for 2030M

ILLI

ON

BAR

REL

S PE

R D

AY

Sources: Strategic Unconventional Fuels Task Force, DOE and USDA, ARI and other.

Combination of Aggressive, Unconstrained Forecasts

Tar Sands

Aggressive forecasts reflect development of significant unconventional resources

Biofuels

Heavy OilOil Shale

CO2

EOR

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U.S. Unconventional GasU.S. Unconventional Gas

0

2

4

6

8

10

12

2005 2010 2015 2020 2025 2030

U.S. Unconventional GasProduction

U.S. LNG Imports

2008 AEO

2006 AEO

2006 AEO

2008 AEO

Technology and price have increased unconventional gas drilling and production

Source: EIA’s 2006 and 2008 Annual Energy Outlook.

TCF/

YE

AR

19


19

Restricted ResourcesRestricted Resources

Access to significant U.S. oil and gas resources restricted

Production TimelineOnshore: 1 to 8+ yearsOffshore: 3 to 10+ yearsAlaska: 8 to 12+ years

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Biofuels Growth To ContinueBiofuels Growth To Continue

•

1st

generation biofuels have become an integral component of fuel supply

•

2nd

generation not yet demonstrated at scale

EIA IEO 2008 Reference

EIA IEO2008 Reference Case World Biofuel Production with USDA's 2007 Ethanol Production Forecast by Country

Source: USDA Agricultural Projections to 2017 from Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices July 23, 2008.

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Power Generation GrowthPower Generation Growth

•

Wind and solar projected to grow strongly worldwide, contributing 2-3% of U.S. power in 2030

•

Geothermal and hydropower grow at lower rates, with U.S. hydro declining slightly

•

34 nuclear power plants are under construction worldwide

•

Strong global coal growth forecast ex carbon constraints•

Growing resistance to new U.S. coal power plants poses a risk to meeting projected demand

•

Carbon constraints will increase power generation costs to consumers

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World Coal ConsumptionWorld Coal Consumption

Source: EIA, IEO 2008.

Global and U.S. resources and reserves estimates remain very large relative to production requirements

Strong global growth forecast –

will pressure greenhouse gas concerns

0

50

100

150

200

250

QU

AD

RIL

LIO

N B

TU

India

China

United States

Rest of World

1990 2000 2010 2020 20302005 2015 2025

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Indicators of Increasing Risks to Production GrowthIndicators of Increasing Risks to Production Growth

•

Limited increases in supply capacity in spite of unprecedented investment rates

•

Major development projects suffering increased costs and delays

•

Most forecasts project significant increases in unconventional liquids production which require major new investments and technology advances

•

First-generation ethanol supply is predicted to flatten by 2015

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“Energy Independence” should not be confused with strengthening energy security. The concept of energy independence is not realistic in the foreseeable future, whereas U.S. energy security can be enhanced by moderating demand, expanding and diversifying domestic energy supplies, and strengthening global energy trade and investment.

•

Growing revenues enable resource-owning countries to pursue national interests incompatible with increasing supply

•

Subsidies for energy use distorting market and becoming significant political challenges in energy-consuming countries

•

Improved understanding of food, fuel, and environmental balance is increasing the complexity of the energy debate

•

Heightened sense of accumulating above-ground risks

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0

100

200

300

400

500

600

700

800

900

1975 1980 1985 1990 1995 2000 2005

25

Increasing Oil Revenue FlowsIncreasing Oil Revenue Flows

Source: EIA.

OPEC Net Oil Export Revenue

BIL

LIO

N $

Wealth transfer enables resource nationalism

REAL 2008 $

NOMINAL $

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Heightened and Accumulating RisksHeightened and Accumulating Risks

Latin AmericaResource

Nationalism

U.S. Access, Carbon,

Hurricanes

EuropeGas

Supplies

Iraq Sabotage

NigeriaCivil Unrest

IranNuclear Threat

Strait of Malacca Piracy

AsiaEnergy

Subsidies

RussiaState Re-Control

Caspian Transit Vulnerability

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A majority of the U.S. energy sector workforce, including skilled scientists and engineers, is eligible to retire within the next decade. The workforce must be replenished and trained.

•

Increased awareness of the issue

•

Enrollments in petroleum engineering have doubled since 2005

•

Starting salaries are up

•

Academic capacity may be limited by faculty

•

Professional societies have increased involvement

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U.S. Petroleum Engineering Enrollment

0

200

400

600

800

1,000

1,200

1,400

1993 1996 1999 2002 2005 2008

ACADEMIC YEAR

FRESHMANMASTERDOCTORFACULTY

28

U.S. Petroleum Engineering EnrollmentU.S. Petroleum Engineering Enrollment

Enrollment is increasing, but faculty could be a limitS

TUD

EN

TS, #

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Policies aimed at curbing carbon dioxide emissions will Policies aimed at curbing carbon dioxide emissions will alter the energy mix, increase energyalter the energy mix, increase energy--related costs, and related costs, and require reductions in demand growth.require reductions in demand growth.

•

Discussions of carbon constraints have intensified, yet understanding of scale and cost is superficial

•

Policy uncertainty has hindered construction of new U.S. fossil fuel power plants, increasing the risk of a supply gap

•

Some progress made on demonstrating CCS, but legal/regulatory and economic frameworks do not exist

30


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Source: DOE Climate Change Technology Program.

Enormous Challenge to Reduce Carbon EmissionsEnormous Challenge to Reduce Carbon Emissions

TechnologyTechnology

•• CoalCoal--fired power plantsfired power plants

•• Geologic sequestrationGeologic sequestration

•• NuclearNuclear

•• EfficiencyEfficiency

•• Wind energyWind energy

•• Solar Solar photovoltaicsphotovoltaics

•• BiofuelsBiofuels for transportfor transport

•• COCO22 storage in forestsstorage in forests

How big is a How big is a GigatonGigaton

of Carbon?of Carbon?

Actions that provide 1 Actions that provide 1 GtGt/yr of Carbon Mitigation/yr of Carbon Mitigation

Build 1,000 Build 1,000 ““zerozero--emissionemission”” 500 MW power plants500 MW power plants

3,700 sequestration sites the size of Norway3,700 sequestration sites the size of Norway’’s s SleipnerSleipner

Build 500 new nuclear plants, each 1 GW in sizeBuild 500 new nuclear plants, each 1 GW in size

Deploy 1 billion new cars at 40 mpg vs. 20 mpgDeploy 1 billion new cars at 40 mpg vs. 20 mpg

Install 650,000 wind turbinesInstall 650,000 wind turbines

Install 6 Million acres of Install 6 Million acres of photovoltaicsphotovoltaics

Convert an area 20 times that of Iowa to new biomassConvert an area 20 times that of Iowa to new biomass

Convert to new forest a barren area 9 times that of the Convert to new forest a barren area 9 times that of the state of Washingtonstate of Washington

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Expanding COExpanding CO22 Sequestration Plans Sequestration Plans

Larger sites which plan on injecting more than 700,000 tons CO2 per year

Proposed CCS sites for the UK

Smaller injection sites –

proposed or active

32


The Five Core StrategiesThe Five Core Strategies

•

Moderate growing demand by increasing efficiency of transportation, residential, commercial, and industrial uses

•

In the U.S., expand and diversify energy supply, moderate oil and gas production decline, and increase access to new resources

•

Strengthen global energy trade and investment•

Enhance science and engineering capabilities

•

As CO2 emissions

reductions are considered, promote a global framework for carbon management to establish: •

Transparent, predictable, economy-wide cost •

Legal / regulatory structure to enable CCS

All recommendations must be pursued

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Progress on the StrategiesProgress on the Strategies

• 2007 Energy Independence and Security Act raises CAFE and promotes improved building, industrial, and appliance efficiency

• Increased access for U.S. oil and gas production being debated

• More global discussion on responses to volatile energy prices

• U.S. investment increasing for oil, gas, and renewables

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Progress on the StrategiesProgress on the Strategies

2000 2010 2020 2030

MIL

LIO

N B

ARR

ELS

PER

DAY

30

Source: EIA Reference Case / NPC Global Oil and Gas study survey.

Illustrative View

15EXPAND & DIVERSIFY

YEAR

U.S. LIQUID FUELS DEMAND

U.S. LIQUID FUELS

GLOBAL TRADE (NET IMPORTS)

50% DEMAND MODERATION

MODERATE

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Summary ConclusionsSummary Conclusions

•

Increasing evidence of accumulating risk to adequate supply •

Growing pressure on cost and availability of project resources hindering ability to develop energy resources

•

Geopolitical risks are widespread

•

Technology investments are increasing for energy efficiency, diversification, alternatives, and carbon management

•

Clear legal and regulatory framework for carbon management needed •

Carbon constraints will alter energy mix

•

Energy related costs will increase

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Thank you for listening to this presentation on: “Facing the Hard Truths About Energy”

For information, please refer to the NPC Website for a complete list of available resources:

http://www.npc.org

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One Year Later - The National Petroleum Council - An Oil ...Sep 17, 2008 · Oil and gas prices rose sharply and remain volatile ... Global GDP estimates are higher, U.S. share decreasing