e&p venture management short course energy industry trends renato t bertani tel 713 653 8747 cel...

E&P Venture ManagementShort Course

Energy Industry Trends

E&P Venture ManagementShort Course

Energy Industry Trends

Renato T BertaniTel 713 653 8747 Cel 713.962.1699

[email protected]

Renato T BertaniTel 713 653 8747 Cel 713.962.1699

[email protected]

Pennsylvania, 1859

Where it all started...Where it all started...

21.2m or 69ft TOTAL DEPTH

Introduction

The energy industry short and long term scenarios

− Past and presente energy scenario

− Energy supply and demand drivers

− Energy future perspectives

− Latin American Perspectives

− Biofuels

− Environmental constraints

− Kyoto protocol, carbon trade market

PAST AND PRESENT ENERGY SCENARIOPAST AND PRESENT ENERGY SCENARIO

USEFUL LINKS:USA Energy Information Administrationhttp://www.eia.doe.gov/

International Energy Agencyhttp://www.iea.org/

International Emissions Trading Associationhttp://www.ieta.org/ieta/www/pages/index.php

BP Statistical Reviewhttp://www.bp.com/productlanding.do?categoryId=6842&contentId=7021390

BP Carbon Footprint Calculatorhttp://www.bp.com/extendedsectiongenericarticle.do?categoryId=9008204&contentId=7015209


The IEA is a multilateral organism that congregates 26 of the 30 OECD countries. Its goal is to promote policies and best practices to ensure affordable and sustainable availability of energy for the world.IEA Member Countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Korea, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, Unites States.

CHALLENGES:

OPPORTUNITIES:

CHALLENGES:

OPPORTUNITIES:

“The energy future that we are creating is unsustainable”Claude Mandil, Executive Director International Energy Agency World Energy Outlook 2006

“The energy future that we are creating is unsustainable”Claude Mandil, Executive Director International Energy Agency World Energy Outlook 2006

“The main petroleum supply challenge is deliverability, not availability”Ali Al Naimi, Minister of Petroleum, Saudi ArabiaWorld Petroleum Congress, South Africa, 2005

“The main petroleum supply challenge is deliverability, not availability”Ali Al Naimi, Minister of Petroleum, Saudi ArabiaWorld Petroleum Congress, South Africa, 2005

OPEC Members FOUNDERS: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela JOINED: Indonesia, Qatar, Libya, United Arab Emirates, Nigeria, Algeria, Angola, Ecuador (returned 2007), Gabon (left in 1994)

CHALLENGES:

OPPORTUNITIES:

CHALLENGES:

OPPORTUNITIES:

PAST AND PRESENT ENERGY SCENARIOSPAST AND PRESENT ENERGY SCENARIOS


Energy Sources Energy Sources?

BONUS!!1 mcfg = 1 mm BTU 1 boe = 6 mcfg 1 boe = 6 mm BTU 1 mm boe/d = 2.2 to 2.4 quadrillion BTU/yr

BONUS!!1 mcfg = 1 mm BTU 1 boe = 6 mcfg 1 boe = 6 mm BTU 1 mm boe/d = 2.2 to 2.4 quadrillion BTU/yr


Nominal

2006 USD

$20

$40

$60

$80

StableAffordable

DisruptionsUnaffordable

What isnext??


WORLD PRIMARY ENERGY PRODUCTION – BY SOURCE


WORLD PRIMARY ENERGY PRODUCTION – REGION


WORLD OIL AND GAS RESERVES, 2005

The Price Factor and the Uncoventional Oil Resources

How much oil can be added to the reserves

The Price Factor and the Uncoventional Oil Resources

How much oil can be added to the reserves


WORLD OIL AND GAS RESERVES, 2005


WORLD OIL PRODUCTION – BY COUNTRY

WORLD OIL PRODUCTION kb/day


MarketDestruction!

Crude Oil Production

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

P2006

Th

ou

san

d b

/da

y

USA

Middle East

WORLD


Source: Energy Information Administration

(including liquids)

Producer/Consumer UNmatchProducer/Consumer UNmatch



WORLD GAS PRODUCTION

NATURAL GAS PRODUCTION

0.0

20.0

40.0

60.0

80.0

100.0

120.0

19801984

19881992

19962000

2004

TC

F/y

ear

USA

Eurasia

WORLD



Past and Present Energy ScenarioPast and Present Energy Scenario


WORLD GAS CONSUMPTION

Producer/Consumer dynamic: Long term connectionLNG & GTL future perspectives

Producer/Consumer dynamic: Long term connectionLNG & GTL future perspectives

Country Population Consump/Capita Average Consump million b/capita/yr mmb/dayWORLD 6,581 4.15 75USA 301 25.1 20.7CHINA 1,316 1,77 6.4 12 43

ENERGY SUPPLY & DEMAND DRIVERSENERGY SUPPLY & DEMAND DRIVERS

OPEC Spare Capacity Is Extremely Tight Right Now

0

5

10

15

20

25

30

35J

an

-90

Ja

n-9

1

Ja

n-9

2

Ja

n-9

3

Ja

n-9

4

Ja

n-9

5

Ja

n-9

6

Ja

n-9

7

Ja

n-9

8

Ja

n-9

9

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Mil

lio

n B

arr

els

pe

r D

ay

OPEC Crude Oil Production

Spare Capacity

UNITED STATES PRODUCTION/CONSUMPTION (MMB/DAY) 2006 2030PRODUCTION 5.10 4.7CONSUMPTION 20.7 26.8

UNITED STATES PRODUCTION/CONSUMPTION (MMB/DAY) 2006 2030PRODUCTION 5.10 4.7CONSUMPTION 20.7 26.8

Source: U.S. Energy Information Administration estimates.


UNITED STATES PRODUCTION/CONSUMPTION (TCF/YEAR) 2006 2025PRODUCTION 18.5 21.8CONSUMPTION 21.8 30.5

UNITED STATES PRODUCTION/CONSUMPTION (TCF/YEAR) 2006 2025PRODUCTION 18.5 21.8CONSUMPTION 21.8 30.5

Source: U.S. Energy Information Administration.

USA NATURAL GAS PRODUCTIONBCF/DAY

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002


KATRINA EFFECTS - 2005PLATFORM EVACUATED 645RIGS EVACUATED 90OIL SHUT-IN (MBD) 1,427GAS SHUT-IN (MMCFD) 8,798


ENERGY FUTURE PERSPECTIVESENERGY FUTURE PERSPECTIVES

BALANCING THE SUPPLY AND DEMAND DRIVERS


Perspectives for the Oil and Gas Industry

SUPPLY DRIVERS DEMAND DRIVERS

1) Fossil fuel addiction 6) Enormous demand growth potential in developing countries

2) Steady growth of global oil and gas production, demand always met (with few disruptions)

7) World economic growth resilient while prices increased from $20 to $80/b, but higher prices harming economic growth

3) Spare production capacity marginally higher than demand

8) Energy efficiency high in OECD countries, potential gains in developing countries

4) Potential for sudden significant disruptions

9) The world economic growth will demand increasing amounts of energy

5) Plentiful of oil and gas resources still available, alternative sources of energy will have increasing, but limited, contribution to the supply

10) CO2 emissions will have to be drastically reduced



$80

$160??

STABILITY

VOLATILITY

GAS PRICE

$/BOEGAS PRICE

$/BOE

OIL PRICE$/BO

$40

Long Term Price Scenarios Long Term Price Scenarios

Supply, Demand & Price Trends

Supply, Demand & Price Trends

Gulf of MexicoUltradeep WaterGulf of Mexico

Ultradeep Water

Recent major discoveries in the US Gulf of MexicoSame geologic trends continue into Mexican deep watersRecent major discoveries in the US Gulf of MexicoSame geologic trends continue into Mexican deep waters

??

Source: Caribbean has overlooked hydrocarbon potential on North America’s doorstep; Keith James, Oil and Gas Journal, May 2008

Underexplored Caribbean BasinsUnderexplored

Caribbean Basins

ORINOCOBELT

ORINOCOBELT

Extra Heavy Oil ResourcesExtra Heavy

Oil Resources

Oil and Gas Resources in Subandean ProvincesOil and Gas Resources

in Subandean Provinces

Proved Gas in Situ: 8 TCF 400 mmblTotal Potential: 11 TCF

Camisea Gas FieldBlock 67 heavy oil fields

Fields: Paiche, Pirana, DoradoPeak Production: 100,000 b/dOil Density: 12-16 API

Lower Aptian reconstitution (122 m.y.)

Giant oil and gas fields• Rift phase lacustrine source rocks• Pre and Post salt worlclass reservoirs

New ExplorationFrontiers

New ExplorationFrontiers

LATIN AMERICA PERSPECTIVES

OPPORTUNITIES• HUGE UNDEVELOPED RESOURCE BASE • INCREASING MARKET DEMAND (domestic and exports)• HIGH ENERGY PRICES

CHALLENGES• FINANCIAL RESOURCES• TECHNOLOGICAL REQUIREMENTS• ENVIRONMENTAL PROTECTION• HUMAN RESOURCES• CONTRACTUAL STABILITY

LATIN AMERICA PERSPECTIVES

OPPORTUNITIES• HUGE UNDEVELOPED RESOURCE BASE • INCREASING MARKET DEMAND (domestic and exports)• HIGH ENERGY PRICES

CHALLENGES• FINANCIAL RESOURCES• TECHNOLOGICAL REQUIREMENTS• ENVIRONMENTAL PROTECTION• HUMAN RESOURCES• CONTRACTUAL STABILITY

Challenges and OpportunitiesChallenges and Opportunities

• ETHANOL

sugarcane

switchgrass

Ethanol TrendsEthanol Trends

SUGAR CANE

JUICESTALK

WINE

ETHANOL

CR

US

HIN

G

ENERGY

ENERGYPO

WE

R P

LA

NT

ENERGY

FERMENTATION

DISTILLATION

Harvesting EnergyHarvesting Energy

● DRIVERS TO DEMAND● Oil and gasoline prices● Energy security and supply diversification● Legislation and policies● Environmental requirements (MTBE phase out)

● DRIVERS TO SUPPLY● Increasing competitiveness● Production incentives (and protectionism)● Land and labor availability● Sugar market

Supply & Demand PerspectivesSupply & Demand Perspectives

● CLEAN AIR ACT AMMENDMENT 1990● Required gasoline for big cities to be oxygenated to reduce CO

and other smog forming emissions (Reformulated Gasoline – RFG)

● 33 cities targeted● 2.7% oxygen content by weight required● RFG orignally used MTBE● Later on found that MTBE contaminated water supplies● Some states switched to ethanol in 2005

● ENERGY BILL 2005● Denied liability exemptions to MTBE refiners/distributors● Double ethanol consumption (to 8 bn g/yr) by 2012● In Jan07 US ethanol production reached 5.7 bn g/yr ● Market, rather than legislation, drove fast production growth

● ENERGY BILL 2007● Mandates 36 billion gallons by 2022● Of which 21 billion gallons from cellulosic ethanol


THE FLEX FUEL CAR ERATHE FLEX FUEL CAR ERA

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

units

Jan

-03

Feb

-03

Mar

-03

Ap

r-03

May

-03

Jun

-03

Jul-

03

Au

g-0

3

Sep

-03

Oct

-03

No

v-03

Dec

-03

Jan

-04

Feb

-04

Mar

-04

Ap

r-04

May

-04

Jun

-04

Jul-

04

Au

g-0

4

Sep

-04

Oct

-04

No

v-04

Dec

-04

Jan

-05

Feb

-05

Mar

-05

Ap

r-05

May

-05

Jun

-05

Jul-

05

Au

g-0

5

Sep

-05

Oct

-05

No

v-05

Dec

-05

Jan

-06

Feb

-06

Mar

-06

LIGHT VEHICLES TOTAL SALES

Ethanol Gasoline FFV

FUEL ETHANOL MARKET SHAREAccording to policies and regulations

0

10

20

30

40

50

60

70

Brazil USA China India Japan EU

%

Current Target



FUEL ETHANOL AND GASOLINE CONSUMPTION (Kb/day)

Year Ethanol Gasoline

Brazil 2007 286 345

USA 2007 456 9500

World 2005 579 20500

FUEL ETHANOL AND GASOLINE CONSUMPTION (bn gallon/year)

Year Ethanol Gasoline

Brazil 2007 4.38 5.3

USA 2007 7 145

World 2005 8.9 315

Fuel Ethanol and Gasoline ConsumptionK bbl/day

286 456 579345

9500

20500

0

5000

10000

15000

20000

25000

Brazil USA World

Fuel Ethanol

Gasoline

Fuel Ethanol % Market Share

46

4.6 3

0

10

20

30

40

50

Brazil USA World


347

424

42

BRAZIL 07 USA 07 REST of WORLD06

FUEL ETHANOL PRODUCTION Thousand barrels/day

FUEL ETHANOL PRODUCTION

Yearbn

gal/yr k

b/day

Brazil 2007 5.31 347

USA 2007 6.5 424

Ethanol plants in the USA•114 in operation•78 under construction

Ethanol plants in the USA•114 in operation•78 under construction

FUEL ETHANOL PRODUCTION/CONSUMPTION TARGETS

Thousand barrels/day

2280 2350

190456414

28661

0

500

1000

1500

2000

2500

Brazil07

Brazil13

USA 07 USA 17 USA 22

Consump Exports

ENERGY BALANCE FOR ETHANOL PRODUCTION

ENERGY DELIVERED/ENERGY USED

BIOMASS BALANCE

Wheat 1.2

Corn 1.3 –1.8

Sugarcane 8.9

Ethanol cost in Brazil is about 0.87 USD/gallon, against 1.1 to 1.8 USD/ gallon in other countries

HOWEVER:• ENERGY TAX ACT 78: 0.51 US$/b Excise Tax Exemption >>> US$ 1.4 bn/year in subsidies• TARIFF BARRIER: 0.54 US$/g

Productivity Sugarcane Corn

ton/ha 85 10

g/ha

g/acre

1576

640

926

375

g/ton

b/ton

20.9

0.48

105

2.5

$/ton 13- 15 143

3.63/bushel

$ of raw/b 27-31 57

Economic ConsiderationsEconomic Considerations

Economic ConsiderationsEconomic Considerations

MEETING THE USA TARGET• At today’s sugarcane productivity• 22 MMha of arable land• Not feasible in the USA

• Crop displacement• Increase cost of corn flour

CURRENT AGRICULTURE USE: 62 MM ha SUGARCANE: 5.5 MM ha SUGARCANE FOR ETHANOL: 2.6 MM haPASTURE: 220 MM haIDLE 101 MM ha

PLANNED INVESTMENTS: US$ 7.2 bn in agriculture (duplicate current sugarcane production of 385 mmton by 2013) US$ 12 bn in industrial facilities (91 new plants planned/implemented)

Land IssuesLand Issues

FUEL ETHANOL PRODUCTION/CONSUMPTION TARGETS

Thousand barrels/day

2280 2350

190456414

28661

0

500

1000

1500

2000

2500

Brazil07

Brazil13

USA 07 USA 17 USA 22

Consump Exports

Environmental ImpactsEnvironmental Impacts

THE ENVIRONMENTAL ISSUETHE ENVIRONMENTAL ISSUE

ENVIRONMENTAL CONSTRAINTSENVIRONMENTAL CONSTRAINTS

CO2 Emissions (bn ton of C eq)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

China USA EU-15 FSU India Brazil

2000 2025 proj

Source: The Economis, Sept06

CO2 emissions by origin2000, %

Trans, 13.5

Electricity, 24.5

Other, 12.9Industrial, 13.8

Deforestation, 18.2

Agriculture, 13.5

Waste, 3.6

Source: The Economis, Sept06


WORLD CO2 EMISSSIONS FROM ENERGY CONSUMPTION

The latest Intergovernmental Panel on Climate Change (IPCC) report concluded that,

"Most of the observed increase in globally averaged temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations."

The latest Intergovernmental Panel on Climate Change (IPCC) report concluded that,

"Most of the observed increase in globally averaged temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations."


THE KYOTO PROTOCOLThe Kyoto Protocol to the United Nations Framework Convention on Climate Change is an amendment to the international treaty on climate change, assigning mandatory emission limitations for the reduction of greenhouse gas emissions to the signatory nations.

Open for signing: Dec 11, 1997Parties: 169Entered into force: Feb 15, 2005Conditions to enter into force: 55 parties and at least 55% of Annex I countries emissions

THE KYOTO PROTOCOLTHE KYOTO PROTOCOL

GLOBAL WARMING POTENTIAL OF GHG REGULATED BYTHE KYOTO PROTOCOLCarbon dioxide has a Global Warming Potential of 1 Methane has a GWP of 21 Nitrous oxide has a GWP of 310 Halocarbons (HFC) has a GWP of 140 to 11,700 Sulphur Hexafluoride has a GWP of 23,90


KYOTO PROTOCOL PRINCIPLES• Underwritten by governments and governed by enacted legislation by the UN• Two groups of countries:

Developed (Annex I) countries commit to GHG reductions Developing (Non-Annex I) countries do not have GHG reduction obligations

•Annex I countries commit to reduce emissions to 5.2% below 1990 level, by 2008-2012, which is around 29% if the emissions projected for 2010 without any emission reduction initiatives.

• Clean Development Mechanism – CDM: Annex I countries can meet their targets by buying credits from Non-Annex I countries which invested in GHG emission reduction projects;

• Credits must be certified by the CDM Executive Board.


KYOTO PROTOCOL PRINCIPLES• Flexibility Mechanism - Annex I countries can also obtain credits through trading of carbon credits among themselves; or• Joint Implementation projects: joint investments in reductions with other developed countries

• The European Union Emissions Trading Scheme: became effective in 2005• Established national caps

• Allowances and caps handed out to companies with largest emissions• Companies can buy allowances from other companies• Companies can by credits from Non Annex 1 countries

• Established a trading market• In 2005 362mmton of CO2 were traded for 7.2bn euros.• Market priced peaked at 30E/ton, came down to below 10E/ton, but is expected to rise again after 2008 (first year for Annex I countries to reach their targets).


KYOTO PROTOCOL PRINCIPLES• Canada: signed up for 6% reduction, is 23% higher than 1990 level• Japan: signed up for 6% reduction, is 24% higher than 1990 level• UK, Germany, France: on or near target

• Annex 1 Countries will be about 3.5 bn tonnes above target• Huge potential for Carbon credit sellers • HFC, an industrial gas, offer huge opportunities (reductions cost $1 per ton of Ceq)• European companies are passing costs on to consumers


Long Haul Flight: 3650kg CO2Cost: 60 poundsCarbon Sequestration: 5 broad leaf trees



ALTERNATIVES FOR REDUCTION OF EMISSIONS

Energy Efficiency Biofuels

Sequestration Go nuclear

New technologies

ALTERNATIVES FOR REDUCTION OF EMISSIONS

Energy Efficiency Biofuels

Sequestration Go nuclear

New technologies

KEY MESSAGESKEY MESSAGES

Energy demand will increase about 50 – 60% by 2030

Fossil fuel will remain as main sources of energy

Renewable sources becoming more important, still limited

Massive investments will be required

New technologies essential

Human resources one of the key factors for the industry

Energy and Environment: key issues for manking

Energy demand will increase about 50 – 60% by 2030

Fossil fuel will remain as main sources of energy

Renewable sources becoming more important, still limited

Massive investments will be required

New technologies essential

Human resources one of the key factors for the industry

Energy and Environment: key issues for manking

OIL PRICE IN 2012OIL PRICE IN 2012

Your view: _______$/b

NYMEX: ________$/b

Your view: _______$/b

NYMEX: ________$/b

http://www.nymex.com/lsco_pre_agree.aspx

e&p venture management short course energy industry trends renato t bertani tel 713 653 8747 cel...

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