One Year Later

An update
presented to the
National Petroleum Council

September 17, 2008

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 The 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 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 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

• 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 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

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 Economic and Energy Projections

U.S. Share of 2030 World GDP World Energy Outlooks

QBTU
20% 900
2007 Study High
800
15%
700
10% EIA 2008 Range
IEA 600

5%
500 2007 Study Low

0% 400
2006 Proj 2007 Proj 2008 Proj 2010 2020 2030

Global
Global GDP
GDP estimates
estimates are
are higher,
higher, New
New outlooks
outlooks within
within original
original
U.S.
U.S. share
share decreasing
decreasing Study’s
Study’s range
range

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 Projected Demand Increase
• Developing world projected to drive the demand increase
• Coal, oil, and gas continue to supply ~80% of total energy
World Energy
500
2030
400 Renewables
Nuclear
300 2005
Coal
QBTUs

200
Gas
100
Oil
0
OECD Non- OECD Non-
OECD OECD

Source: DOE EIA 2008 International Energy Outlook.

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 The Hard Truths

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
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 Liquids 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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 The Growing Liquids Supply Challenge
Increasing demand and natural production decline create growing
need for significant new production capacity
140

120
MILLION BARRELS PER DAY

d Range
2 00 8 Deman Unconventional
100 IEO and biofuels
Required New
80 2015 Capacity
30 – 45 MBOE/D Conventional
2030 non OPEC
60
70-100 MBOE/D

40 4-7%
P roduc Conventional
tion D OPEC
Existing Production eclin
e
20 Capacity

0
2007 2015 2030
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 Investment, Capacity, and Time (2008 dollars)

Investment has dramatically increased ...

... with years required to increase production

125 400
MILLION BARRELS PER DAY

BILLIONS OF DOLLARS
100
300
DOLLARS/BBL

OIL PRICE WORLD OIL CAPACITY

75
200
E&P EXPENDITURE
50

100
25

0 0
1970 1975 1980 1985 1990 1995 2000 2005

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

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 The Hard Truths

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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 Energy Efficiency

Without energy efficiency improvement, projected

energy use would be substantially higher

1,500
Total World Energy

1,200 Energy Consumption at Energy Intensity

QUAD/YEAR

2005 Intensity Reduced

900

600
Projected Energy
300 Consumption (EIA 2008)

0
2005 2010 2015 2020 2025 2030
Intensity is unit of energy per unit of economic output
Source: EIA’s 2008 International Energy Outlook.

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 World Unconventional Liquids

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

Source: EIA IEO2008 reference case.

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 U.S. Unconventional Liquids Potential

Aggressive forecasts reflect development of significant unconventional resources

Combination of Aggressive, Unconstrained Forecasts

MILLION BARRELS PER DAY

16

Biofuels
12

Coal-to-Liquids
8
Oil Shale
Tar Sands
Heavy Oil
4
Total in
CO2 EOR EIA AEO 2008
0 Reference Case
for 2030
2010 2015 2020 2025 2030

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

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 U.S. Unconventional Gas
Technology and price have increased unconventional gas
drilling and production

12 U.S. Unconventional Gas

Production
2008 AEO
10

8 2006 AEO
TCF/YEAR

6
2006 AEO
4 U.S. LNG Imports

2
2008 AEO

0
2005 2010 2015 2020 2025 2030
Source: EIA’s 2006 and 2008 Annual Energy Outlook.
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 Restricted Resources

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

Production Timeline
Onshore: 1 to 8+ years
Offshore: 3 to 10+ years
Alaska: 8 to 12+ years

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 Biofuels Growth To Continue

• 1st generation biofuels have become an integral component of fuel supply

• 2nd generation not yet demonstrated at scale
EIA IEO2008 Reference Case World Biofuel Production
with USDA's 2007 Ethanol Production Forecast by Country

EIA IEO 2008 Reference

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 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 Consumption

Global and U.S. resources and reserves estimates remain very large relative to
production requirements
Strong global growth forecast – will pressure greenhouse gas concerns

250
India
China
200
United States
QUADRILLION BTU

Rest of World
150

100

50

0
1990 2000 2005 2010 2015 2020 2025 2030
Source: EIA, IEO 2008.
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 Indicators 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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 The Hard Truths
“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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 Increasing Oil Revenue Flows

Wealth transfer enables resource nationalism

OPEC Net Oil Export Revenue

900
800
REAL 2008 $
700

600
BILLION $

500

400
300
200

100 NOMINAL $
0
1975 1980 1985 1990 1995 2000 2005
Source: EIA.

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 Heightened and Accumulating Risks

Russia
Europe State Re-Control
Gas
Supplies Caspian
Transit Vulnerability

Iraq Iran Asia

U.S.
Sabotage Nuclear Energy
Access, Carbon,
Threat Subsidies
Hurricanes
Nigeria
Civil Unrest
Strait of Malacca
Latin America Piracy
Resource
Nationalism

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 The Hard Truths

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

Enrollment is increasing, but faculty could be a limit

U.S. Petroleum Engineering Enrollment

1,400
1,200
STUDENTS, #

1,000
800
FRESHMAN
600 MASTER
400 DOCTOR
FACULTY
200
0
1993 1996 1999 2002 2005 2008
ACADEMIC YEAR

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 The Hard Truths

Policies aimed at curbing carbon dioxide emissions will

alter the energy mix, increase energy-related costs, and
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

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 Enormous Challenge to Reduce Carbon Emissions
How big is a Gigaton of Carbon?
Technology Actions that provide 1 Gt/yr of Carbon Mitigation

• Coal-fired power plants Build 1,000 “zero-emission” 500 MW power plants

• Geologic sequestration 3,700 sequestration sites the size of Norway’s Sleipner

• Nuclear Build 500 new nuclear plants, each 1 GW in size

• Efficiency Deploy 1 billion new cars at 40 mpg vs. 20 mpg

• Wind energy Install 650,000 wind turbines

• Solar photovoltaics Install 6 Million acres of photovoltaics

• Biofuels for transport Convert an area 20 times that of Iowa to new biomass

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

• CO2 storage in forests
state of Washington
Source: DOE Climate Change Technology Program.
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 Expanding CO2 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
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 The 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 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 Strategies
50% DEMAND MODERATION
30
U.S. LIQUID FUELS DEMAND
MILLION BARRELS PER DAY

MODERATE

GLOBAL TRADE
(NET IMPORTS)
15
EXPAND & DIVERSIFY

U.S. LIQUID FUELS

2000 2010 YEAR 2020 2030

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