1. © 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

2. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 2 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

3. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 3 Impact of Assumptions on Forecasts U.S. DOE Annual Outlooks 1978-2002

4. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 4 1850190019301940195019601970198019902000 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, measurement while drilling, offshore below 1,000ft IT Pathway Mainframes Minis Micros Work Stations ? 4-d seismic, offshore below 5,000ft Offshore below 10,000ft Oil discovered at Spindletop (Texas), 1901 U.S. Example: Impact of Technology and Frameworks Cumulative U.S. Oil & Gas Production, MMBOE (Includes Alaska) Not to scale Hydrates? GTL? On a BOE basis, production has not yet peaked

5. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 5 Energy Efficiency – Existing Technology THERMAL Oil 4 Coal 13 Gas 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

6. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 6 Energy Efficiency – What Can Change the 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

7. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 7 Driving Forces Global distribution of energy resources relative to demand

8. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 8 OIL AND GAS RESERVE TERMINOLOGY Recoverable Resources (Society of Petroleum Engineers) Total Oil and Gas Resource DiscoveredUndiscovered Non recoverable Resources Recoverable Resources Reserves Cumulative Production Proved Reserves Unproved Reserves Probable Reserves Possible Reserves

9. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 9 World Oil Reserves Source: BP Statistical Review of World Energy 2004.

10. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 10 World Oil Producing Regions Source: BP Statistical Review of World Energy, 2004.

11. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 11 Petroleum Geography Source: BP Statistical Review of World Energy, 2004

12. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 12 World Oil Production Source: BP Statistical Review of World Energy 2004.

13. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 13 U.S. Crude Oil Replenishment (billion barrels)

14. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 14 World Crude Oil Replenishment (billion barrels)

15. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 15 World Oil Consuming Regions Source: BP Statistical Review of World Energy, 2004.

16. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 16 World Oil Demand 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.

17. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 17 World Gas Reserves Source: BP Statistical Review of World Energy, 2004. Geographic Distribution of Resources

18. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 18 World Gas Producing Regions Source: BP Statistical Review of World Energy, 2004. Geographic Distribution of Resources

19. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 19 Natural Gas Geography Source: BP Statistical Review of World Energy, 2004 Geographic Distribution of Resources

20. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 20 World Natural Gas Production Russian production is 85% of FSU Source: BP Statistical Review of World Energy 2004. Geographic Distribution of Resources

21. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 21 U.S. Natural Gas Replenishment (trillion cubic feet) Geographic Distribution of Resources

22. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 22 Canadian Natural Gas Replenishment (trillion cubic feet) Geographic Distribution of Resources

23. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 23 World Natural Gas Replenishment (trillion cubic feet) Geographic Distribution of Resources

24. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 24 World Gas Consuming Regions Source: BP Statistical Review of World Energy, 2004.

25. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 25 World Natural Gas Demand Sources: BP Statistical Review of World Energy 2004

26. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 26 Is Natural Gas the Future?

27. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 27 Distribution of Coal Reserves Source: BP Statistical Review of World Energy, 2004.

28. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 28 World Coal Producing/Consuming Regions Source: BP Statistical Review of World Energy, 2004.

29. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 29 World Coal Replenishment (billion short tons)

30. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 30 World Net Electricity Generation 2002 Total = 15,291 Billion Kwh Source: U.S. EIA

31. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 31 World Net Thermal Electricity Producing Regions Source: EIA

32. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 32 World Net Hydroelectric Producing Regions Source: EIA

33. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 33 World Net Nuclear Producing Regions Source: EIA

34. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 34 Driving Forces Global distribution of energy resources relative to demand Energy and economy

35. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 35 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 Growth Energy GDP Source: BP Statistical Review of World Energy, 2004.

36. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 36 State of the World 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 Source: BP Statistical Review of World Energy, 2004.

37. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 37 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

38. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 38 Economic Growth Requires Energy 145 Countries

39. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 39 Economic Growth Requires Energy 140 Countries (excluded five richest and/or largest energy users)

40. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 40 Energy per Capita Increases with Wealth 139 countries

41. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 41 Energy Intensity Decreases with Wealth

42. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 42 Some Correlations 19901991199219931994199519961997199819992000average Total E & GDP0.87 0.83 0.840.85 0.860.870.88 0.86 Total E & GDP per capita0.300.320.30 0.28 0.29 E per capita & GDP0.220.210.200.190.200.21 0.20 0.21 E per capita & GDP per capita0.570.540.520.500.520.590.600.58 0.610.600.56 E per GDP & GDP-0.05-0.06-0.09 -0.08 -0.09-0.11-0.08 E per GDP & GDP per capita-0.12-0.11-0.20 -0.19 -0.20-0.21-0.25-0.19

43. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 43 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!

44. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 44 Energy Use Per Unit GDP U.S. MMBtu per dollar Gross Domestic Product, using market exchange 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. India Russia Turkey OPEC China

45. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 45 Energy Intensity & Income Medlock & Soligo (Energy Journal, 2001)

46. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 46 Growth of the Middle Classes Purchasing Power Parity based income in U.S. Dollars Population in millions ChinaIndiaBrazil Greater than $20,000279 $10,000 to $20,000606315 $5,000 to $10,00033012527 Less than $5,000800700105 Source: “The End of Corporate Imperialism” by Prahalad & Lieberthal, Harvard Business Review, July-August 1998, pp. 69-79.

47. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 47 Energy and Economic Growth: Mexico Case Source: Luis Lopez, 1997

48. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 48 Driving Forces Global distribution of energy resources relative to demand Energy and economy Key factors impacting energy demand

49. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 49 Energy Disparity I Source: www.bp.com/centres/energy2002/

50. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 50 Energy Disparity II Source: www.bp.com/centres/energy2002/ Primary energy consumption per capita Source: www.bp.com/centres/energy2004

51. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 51 Plus Ça Change, Plus C’est la Même Chose??? Source: 2004 International Energy Outlook, EIA

52. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 52 Developing World is Key

53. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 53 Regional Differences Source: www.bp.com/centres/energy2004

54. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 54 The Asian “Gulp”: Asia is Swing Demand Sources: BP Statistical Review of World Energy, 2004 As Asia’s share grows, economic cycles in the region will have a bigger impact.

55. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 55 Development means cars!

56. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 56 Is Oil Becoming a Niche Fuel? Sources: U.S. EIA IEO 2004 As oil is concentrated in the transport sector, new technologies will have a larger impact.

57. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 57 Electricity is Vital for Economic Development

58. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 58 We Prefer Gas for Power Gen Energy Prices 2002-4 Coal Oil Gas $/boe Source: BP Statistical Review of World Energy, 2004.

59. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 59 Driving Forces Global distribution of energy resources relative to demand Energy and economy Key factors impacting energy demand Key factors impacting energy supply

60. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 60 Energy Sector Investment Requirements: Who Will Invest? Source: IEA Global Investment Survey 2003

61. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 61 Access to Resources is Limited Source: IEA Global Investment Survey 2003

62. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 62 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

63. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 63 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

64. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 64 Typical IOC Stock Ownership* Employee stock plans to build incentives Institutions 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

65. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 65 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.

66. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 66 Comparative Risks and Returns: Electricity Lags Oil & Gas Source: IEA Global Investment Survey 2003

67. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 67 Driving Forces Global distribution of energy resources relative to demand Energy and economy Key factors impacting energy demand Key factors impacting energy supply Critical uncertainties: –Role of OPEC –Energy sector restructuring –Geopolitics –Environment

68. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 68 U.S. domestic first purchase price (real $) Source: U.S. EIA. Oil & Gas Investment Hinges on Price Expectations What kind of business are we in??? With OPEC Without OPEC “Cheap Oil” “Oil Crisis”

69. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 69 Historical Perspective Source: BP Statistical Review of World Energy, 2004.

70. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 70 Price Means Change Over Time $25.93 $21.54 $22.01 $20.77 Spot WTI in 1996 $

71. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 71 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

72. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 72 Oil Prices Revert to a Mean, Eventually “We must be rational beings after all.”

73. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 73 OPEC Share of World Oil Production Sources: BP Statistical Review of World Energy, 2004 The larger its share, the greater is OPEC’s impact on oil markets. Impact of FSU

74. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 74 Do Cartels Succeed in the Long Run? Nominal cartel commodity prices, U.S.$, indexed Sources: Industry trade publications and U.S. EIA

75. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 75 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

76. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 76 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 Colombia Venezuela Brazil Peru Argentina S. Africa England Rest of W. 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”

77. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 77 Liberalization Uncertainties *Denotes specific Energy Institute white papers, publications, commentary

78. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 78 Liberalization Uncertainties *Denotes specific Energy Institute white papers, publications, commentary

79. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 79 Closer Look: Latin American Gas Sector Reform Uncertainties Notes: CRE and CREG also regulate electricity. ** Regulator exists only for electricity; effort underway to add gas

80. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 80 Energy Geopolitics ca. 1990s to Present U.S. China Japan S 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 Flashpoints Petroleum Heartland (OPEC, FSU, Non-OPEC Africa) Russia

81. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 81 Climate Change Dominates Environmental Uncertainties

82. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 82 Developing World is Key!

83. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 83 But Rich Countries Face Internal Hurdles

84. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 84 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 and Greenland cooling, sediment coring; solar cycles, magnetism and atmospheric water vapor Sources: Doran, et. al., Nature, 2002. Richard Alley, Penn State, GSA, 1999.

85. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 85 “Green” Energy is more than Renewables Our Energy & Emission Efficiency PastPresentFuture Decarbonisation of Fuels Renewables Fuel Cell Vehicles Gas replacing Coal Hydrogen Economy Novel Low Energy Processes CO 2 Capture pv Solar Solar thermal Energy Efficiency DGI & Hybrids Wind Reduce Flaring & Venting Source: BP

86. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 86 Projected Capacity of Renewable Power Sources Investment is growing in Renewables 0 50 100 150 200 250 300 350 20002005201020152020 Installed Capacity (GW) Solar thermal electric PV Geothermal Small hydro Wind Biomass Source: ADL estimates Source: BP

87. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 87 Renewable Energy Germany Spain USA Denmark India Rest of world Total: 40.3 gigawatts MW per annum Installed Wind Generation Capacity - end 2003 Global Solar PV production Source: BP Statistical Review of World Energy, 2004.

88. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 88 World Wind Power Installed Capacity

89. © 2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved. 89 World Carbon Emissions Index Index (1990 = 100) World World (exc China and FSU) Annex 1 Annex 1 (ratified countries) Source: BP Statistical Review of World Energy, 2004.