Transcript Froggatt presentation

Sustainable Energy Security
Strategic Risks and Opportunities for Businesses
Antony Froggatt ([email protected])
Energy, Environment and Development Programme, Chatham House
High Level Meeting on Climate Change, Peak Oil and Energy Security
University of Winchester
19th November 2010
Background
• Chatham House is an
independent international
affairs think tank. Within the
EEDP programme we have
expertise in oil and gas
sector, renewable energy,
energy and carbon markets,
impacts of climate change
and regional energy and
climate security.
• Lloyds of London is the
world’s leading insurance
market. Lloyds publish a
series of reports under it “3600
Risk Insight” programme.
2
Momentous Times
In some cases, the surprise element is only a matter of
timing: an energy transition, for example is inevitable; the
only questions are when and how abruptly or smoothly
such a transition occurs. An energy transition from one
type of fuel (fossil fuels) to another (alternative) is an
event that historically has only happened once a century
at most with momentous consequences .
(US National Intelligence Committee 2008)
3
“Peak oil presents the world with a risk management
problem of tremendous complexity”
US Dept. of Energy, 2007
•
Some studies suggest the “peak” has already occurred, others maintain it is
either impossible to predict or shows no sign of appearing.
•
Predicting further than a decade ahead presents many uncertainties:
availability and cost of extraction technologies; substitute technologies;
pricing systems in major economies; carbon legislation.
•
A two-year, comprehensive study by the UK Energy Research Centre
(UKERC) ( Aug. 2009) found that:
 a peak in conventional oil production before 2030 appears likely and there is a
significant risk of a peak before 2020.
 just to maintain current production levels would require the equivalent to a new
Saudi Arabia coming on-stream every three years.
 as giant fields pass peak production levels, there is a shift to smaller, more
difficult-to-produce fields with faster depletion rates and the rate of decline will
accelerate
4
IEA – Raising the alarm
“Crude oil output reaches an undulating plateau of around 68-69 mb/d, by 2020,
but never regains its all-time peak of 70mb/d reached in 2006.”
Source: IEA 2010
5
Growth in non-OECD oil demand
Annual Growth in Oil Demand
(mtoe)
•
150
100
50
0
•
-50
-100
-150
China
Source: BP 2010
rest of world
China
– it is hard to overstate the
growing importance of China
in global energy markets.
(IEA)
– Domestic oil production in
China is expected to peak in
2013, while demand could
more than double by 2030.
Saudi Arabia
– Last April, Saudi Aramco’s
CEO, Khalid al-Falih, warned
that Saudi Arabia’s crude
export capacity would fall by
about 3 million b/d to under 7
million b/d by 2028 unless the
kingdom’s domestic energy
demand growth was checked6
Changing oil market between East and West
25000
20000
Middle
East
surplus
15000
Asia
Pacific
deficit
10000
5000
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
0
1975
A tipping point likely in 2015 when
countries in Asia-Pacific need more
imported oil in total than the Middle
East (including Sudan) can export.
30000
1970
•
By 2008 non-OECD countries led by
China and India for the first time took
the biggest share of world energy
demand.
Middle East oil surplus versus Asia-Pacific deficit
1965
•
Advanced economies remain the
biggest consumers of primary energy
per person, but lower population
growth, de-industrialisation, greater
efficiency, higher fuel prices and
concern for the environment are
lowering demand.
000 b/d
•
Year
Source: John Mitchell 2010
7
New oil becomes more expensive and riskier
• Recognition of limitations of conventional oil driving
exploration and development of new resources in
riskier environments:
 Deep water: “Some 30 per cent of existing global oil, and
nearly 50 per cent of new supplies by 2015, needs to be
sourced from offshore, much of it from deep water,” IEA
 The Arctic estimated to hold a quarter of the worlds
undiscovered oil and natural gas (US Geological Survey).
 Non-conventional: Heavy oil, tar Sands, oil shale (higher CO2
emissions, water use, pollution)
 Coal to liquids and gas to liquids: Significantly higher resource
requirements and C02 emissions
8
Oil supply and demand trends
Short-term price spikes, volatility
• Price volatility and
unavailability of capital
reduces investment
Bank of America/Merrill Lynch
(range)
250
Barclays Capital
200
Paul Stevens, Chatham House
USD per barrel
• Growth in demand and
lower outputs may
result in tightening of
markets and ‘price
spike’
150
Deutsche Bank
EIA 2009 reference (2007 USD)
100
IEA IEO 2009 reference (2007
USD)
50
• A ‘yo-yoing’ of oil prices
probable as old
institutions unable to
balance supply
OPEC (high)
0
OPEC (low)
2010
2015
2020
2025
2030
Source: Chatham House
9
Growth in coal driven by Asia
Global Coal Consumption (Mtoe)
3500.0
3000.0
2500.0
2000.0
Total Asia Pacific
Total Africa
1500.0
Total Europe & Eurasia
Total S. & Cent. America
1000.0
Total North America
500.0
Source: BP 2010
0.0
• Major source for new electricity generation in developing
countries, Asia plans 546 GW in 10 years
• China and India import coal, invest abroad: while major resources
exist, logistical problems increasing with mining and shipping
• Significant CO2 emissions associated with use
10
Natural gas – a reliable ‘bridging fuel’?
• Often described as ‘bridging fuel’ because:
– Lower CO2 emissions (half that of coal) associated with use
– Flexible power plants – balance intermittent renewables or
base-load coal or nuclear
• Liquid Natural Gas (LNG) aiding development of global
gas market – has diversified potential sources and
created new markets
• Depletion in major gas fields lead to investment in
replacement with new conventional and nonconventional resources
• Shale gas in US has changed the global market
• Created huge investment uncertainties (Stevens 2010)
11
Energy investment requirements for 2 degree
target
•
•
Reference Scenario it will be in the order to $26 trillion, by 2030 or 1.4% of global
GDP per year.
The investment costs associated with this ‘450 Scenario’ requires an additional
$10.5 trillion but with reduced energy cost of around $8.6 trillion by and a total
saving over the lifetime of the structures of $17 trillion.
12
Growth in renewable energy
• Renewables supply technology
that delivers climate and energy
security objectives simultaneously
• IEA ETP forecast 17% of
emissions reductions from RES
• Some regions RES now
dominates new electricity capacity
(2009 60% of EU)
• Accelerated deployment still
needed
Source: New Energy Finance 2010
13
Conclusions: A shifting energy security landscape
• Energy security is now inseparable from the transition
to a low carbon economy and business plans should
prepare for this new reality.
• Traditional fossil fuel resources face serious supply
constraints and an oil supply crunch is likely in the
short-medium term with profound consequences for the
way in which business functions today.
• A "third industrial revolution" in the energy sector
presents huge opportunities but also brings new risks.
Of particular importance for new technologies is the risk
of constraints on raw materials such as rare earth
metals as scarcity may drive up costs
14
• Increasing energy costs as a result of reduced
availability, higher global demand and carbon pricing
are best tackled in the short term by changes in
practices or energy efficiency.
• The sooner that business reassesses global supply
chains and just-in-time models the better.
• While the vast majority of investment in the energy
transition will come from the private sector,
governments need to create the necessary investment
conditions and incentives.
15
Back-up Slides
16
Will shale gas change the game in Europe?
“A major new factor – unconventional natural gas – is moving to the fore in
the US energy scene…it ranks as the most significant energy innovation so
far this century. It has the potential, at least, to cause a paradigm shift in the
fuelling of North America’s energy future.” HIS Cera, 2010
• Shale accounted for 1% of
natural gas in US in 2000,
today 20%; forecast to reach
50% by 2035.
– Already impacting on electricity
sector
– Potentially accelerate movement
to LPG and electric vehicles
– Significantly reducing need for
LNG import and impacting global
trade
• European potential still
unclear – much smaller
exploration infrastructure
• Key questions determining
extent of global impact:
– How large is potential economically
available resource?
– What are limiting environmental
impacts, water contamination etc?
– Rate of depletion of fields is
undocumented.
– Impact on price and exploration rate
for conventional gas
– How far will gas be used in nonelectricity sectors?
– Chevron “price tag is too high” to
justify the investments required
Nuclear power: big plans, little progress
Source: Mycle Schneider Consulting 2010
18
Meeting the challenges of climate change
• 97–98%of the climate researchers most actively publishing in the
field support the tenets of anthropogenic climate change outlined
by the Intergovernmental Panel on Climate Change
19
Examples of minerals and metals required for a low carbon economy (1)
Problem
Solutions
Raw materials (application)
Future energy
supply
Fuel cells
Platinum
Palladium
Rare earth metals
Cobalt
Hybrid cars
Samarium (permanent magnets)
Neodymium (high performance magnets)
Silver (advanced electromotor generator)
Platinum group metals (catalysts)
Alternative energies
Silicon (solar cells)
Gallium (solar cells)
Silver (solar cells, energy collection /
transmission, high performance mirrors)
Gold (high performance mirrors)
Energy storage
Lithium (rechargeable batteries)
Zinc (rechargeable batteries)
Tantalum (rechargeable batteries}
Cobalt (rechargeable batteries)
20
Source: Materials Innovation Institute, November 2009
Further examples (2)
Energy
conservation
Advanced cooling technologies
Rare earth metals
New illuminants
Flare earth metals (LED. LCD. OLED); Indium
(LED. LCD. OLED); Gallium (LED. LCD.
OLED)
Energy saving tyres
Industrial minerals
Super alloys (high efficiency jet
engines)
Rhenium
Emissions prevention
Platinum group metals
Emissions purification
Silver; Rare earth metals
High precision
machines
Nanotechnology
Silver; Rare earth metals
IT limitations
Miniaturisation
Tantalum (MicroLab solutions); Ruthenium
(MicroLab solutions)
New IT solutions
Indium (processors); Tungsten (high
performance steel hardware)
RFID (hand-held consumer
electronics)
Indium; Rare earth metals; Silver
Environmental
protection
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Source: Materials Innovation Institute, November 2009
Vulnerability of major energy infrastructure to
environmental change
• Energy production relies on complex, interlinked, expensive and
transnational infrastructure. Long life-spans.
• As climate changes, constants become variables
“We’ve had our third “once-in-a-hundred-year” storm so far
this year” North Sea oil industry exec.
• Sites chosen in 1980s may be relied upon for next 100 years or
more
• Problems for hydropower, nuclear power, offshore & coastal
production, gas pipelines
• Hurricane Katrina – shut
off around 19% of US
refining capacity, huge
damage to pipelines and
drilling platforms
- Oil price spike follows
• Summer 2003 heat-wave
in France – 17 nuclear
power shut down due to
heat and water problems
Rig beaches on Dauphin Island after Hurricane Katrina. Source:
AP/ Photo/Peter Cosgrove
- Cost to EDF = €300million
Risk for the business sector in general
24
Risks for the energy sector
25