The New Geopolitics of Energy: Challenges and Opportunities

July 24, 2014

1

Carlos Pascual Special Envoy and Coordinator for International Energy Affairs

U.S. Department of State Bureau of Energy Resources

0

100

200

300

400

500

600

700

800

1993 1997 2001 2005 2009 2013

Gas Supply and Demand (bcm)

Consumption

Shale Gas

Tight Gas

Lower 48 Offshore Conventional

Coalbed Methane Alaska

Lower 48 Onshore Conventional

U.S. Oil and Gas Production Growth

Source: EIA, Short Term Energy Outlook (2014)

Biofuels

Tight Oil Other Onshore

Offshore

Alaska Other

0

5

10

15

20

25

1994 1999 2004 2009 2014

2006 Imports = 60%

2014 Imports = >30%

Liquids Supply and Demand (mbd)

Consumption

U.S. CO2 emissions in 2012 dip as gas beats coal

Source: EIA Monthly, June 2014

U.S. Carbon Dioxide Emissions in the Electric Power Sector, 2004-2013

Mill

ion

met

ric

ton

s o

f C

O2

0

500

1000

1500

2000

25001

97

3

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

Coal Natural Gas

Source: EIA 2013 IEO, IEA 2014 WEIO

World Energy Consumption Forecast

4

0

100

200

300

400

500

600

700

800

900

2005 2015 2025 2035

TotalNon-OECDTotalOECD

Power investment in Asia (GW)

Ch

ina

Ind

ia

SE A

sia

EU USA

Mid

dle

Ea

st

Bra

zil

Jap

an

1600 1200 800 400 0 -400

Total Primary Energy (Quads)

0

5

10

15

20

25

30

35

40

45

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Energy Demand Energy Supply Energy Exports

Fossil Fuel Subsidies Distorting Signals for Demand and Supply

Source: BP Statistical Review 2014, BP Outlook 2035, 2014, : IEA World Energy Outlook 2013

Fossil fuel subsidies by fuel (USD billion) Fossil fuel production and exports in the Middle East (mboe/d)

10 20 30 40 50 60 70 80 90

0

5

10

15

20

25

30

35

40

45

50

0

10

20

30

40

50

60

70

80

90

100

1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013

Nu

mb

er

of

Pro

du

cin

g C

ou

ntr

ies

Mill

ion

Bar

rels

of

Oil

pe

r D

ay

OPEC and Non-OPEC Shares of Production

Source: BP Stat Review 2014.

Note: Prior to 1989, Russia, Turkmenistan, Azerbaijan, Uzbekistan were counted together as the Soviet Union

Oil production is diversifying

44 Producers in 2013

30 Producers in 1973

Non-OPEC

OPEC

Number of Suppliers

49%

51%

58%

42%

Disruptions at Historic Highs

Source: EIA

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Unplanned Global Oil Supply Disruptions (mbd)

Iran

Libya

Iraq

Nigeria

Syria

Yemen

Sudan/S.Sudan

Other Non-OPEC

Source: IEA 2013 WEO, New Policies Scenario

Iraq Leads Global Oil Production Growth

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

Saudi Arabia

United States

Kazakhstan

Canada

Brazil

Iraq

mbd

Major contributions to global oil supply growth to 2035

32%

24%

44% Non-OPEC

Rest of OPEC

Iraq

Sub-Saharan Africa energy access and hydrocarbons production

Source: EIA, IEA WEO 2013

Nigeria

Angola

Mozambique

Tanzania

Oil Production (kbd) Gas Reserves (tcm) Electrification Rate

2013 2008 2013

5.1 5.1

0.27 0.37

0 2.8

0 0.57

48%

38%

20%

15%

2,370

1,830

0

0

0

20

40

60

80

100

120

140

160

180

Qatar Australia U.S. Canada

Bill

ion

Cu

bic

Met

ers

/ Y

ear

Additional LNG Export Capacity by 2020

Source: PIRA, BNEF, University of Calgary

Operational Under Construction Licensed Proposed

Diverging Gas Prices, Spot Deals Lead Growing LNG Trade

Source: EIA, PIRA, GIIGNL. Spot cargos are defined as deals that are done for four years or less.

Price ($/mmbtu) LNG Imports (bcm)

0

2

4

6

8

10

12

14

16

18

0

50

100

150

200

250

300Total Spot

Total Long-Term

HH

NBP

Asia - AverageSpot Price

Estimated Present Price

Europe gas imports by pipeline and LNG

Source: Gas Infrastructure Europe and IEA Medium-Term Gas Market Report 2010,2014

Trinidad and Tobago, others

LNG Terminals • Existing or Under Construction • Proposed Gas Flows • Pipeline • LNG

2010 2013 2019

bcm

OECD Europe Demand

567 504 504

LNG Imports 86.2 45.8 68

Pipeline Imports 301.2 296.3 270

Global Power Sector Investments, Cumulative (2014-2035)

More than 40% of global investment in the power sector goes to transmission and distribution. Nearly two-thirds of investment is in the non-OECD to meet growing demand.

New Investment in Electricity Generation, 2014-2035 ($ billion)

OECD Non-OECD World

Coal 367 1,162 1,528

Gas 471 583 1,054

Oil 14 38 295

Total Fossil 852 1,783 2,635

Total Nuclear 389 672 1,061

Bio-energy 371 268 639

Hydro 303 1,204 1,507

Wind 1,112 876 1,989

Solar PV 720 556 1,276

Other* 230 218 446

Total Renewable 2,736 3,122 5,857

TOTAL GENERATION 3,977 5,577 9,553

Source: IEA, WEO 2014, New Policies Scenario * Includes geothermal, concentrated solar, and marine

58% 11%

31%

Power:$16.4 Trillion

Generation

Transmission

Distribution

Global growth in coal demand from 2013 to 2018 is dominated by Asia

China 58%

India 20%

ASEAN 14%

Korea 3% Japan

2% ROW 3%

Source: IEA Medium Term Coal Report, 2013

Mtce Projections of coal demand 2013-2018

Growth in global in coal demand 2013-2018 (817Mtce)

Levelized Cost of Energy: Capital Costs, O&M, Performance and Fuel

Source: OpenEI, NREL, DOE

$0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60

Wind-Onshore

Solar- PV

Hydro

Gas -CCGT

Coal- IGCC

Nuclear

USD/kWh

USD million

+1 year

+33%

20%

50 USD/MWh

-10%

26%

120 USD/MWh

-3 500 -3 000 -2 500 -2 000 -1 500 -1 000 - 500 0 500 1 000

Construction duration

Construction cost

Load factor

Electricity price

Wind- Onshore

2011 2030

2.7 Billion

Investment for Access

$1.5 Trillion

$48 Billion

1.3 Billion

People Investment

Source: IEA

600 Million

(3% of total investment needed by 2030)

De-risking Energy Access

INVESTMENT FUNDS

LARGE PROJECTS

LOCAL INTERMEDIARIES (e.g., BANKS)

SMALL PROJECTS

National

Global/Regional Currency Risk

PPAs

Capitalization Capacity

Repayment Risk

Quality Risk Utilities

Dynamic Global Energy Landscape

U.S. Energy Revolution

Structure of Demand

Diversity in Oil Supply

Energy Finance and

Poverty

Competition in Natural

Gas

Fuel Mix and Climate

Change