1. ASPO WORKSHOP - PARIS Jean-Marie Bourdaire ENERGY SUPPLY CONDITIONS & OIL PRICE REGIME May 26-27, 2003

2. WARNING The following analysis is drawn from the World Energy Council (WEC) study “Drivers of the Energy Scene”. This study, prepared in the context of the WEC 2002-2004 studies programme, is not completed, nor endorsed, by WEC yet. Views expressed in this paper do not reflect an official WEC viewpoint and are presented under my sole responsibility.

3. CONTENTS

4. PART I. THE TILTING OF PAST ENERGY TRENDS

5. ENERGY DEMAND VS. TIME

6. ENERGY DEMAND VS. GDP (PPP)

7. ZOOM ON TPER VS. GDP (PPP)

8. USA: PRODUCTIVITY OR ?

9. CHINA: PRODUCTIVITY OR ?

10. ACTUAL CHINESE GROWTH?

11. HOW TO EXTRAPOLATE? Whatever the chosen scale, energy growth has become a convex, i.e. decelerating, curve Will the deceleration continue because of slowing GDP or/and falling energy intensity? All existing scenarios put an exponential future: wishful thinking or reality?

12. THAT IS THE QUESTION

13. PART II. WHAT DOES THE 1973 CHANGE REVEAL?

14. PAST OIL PRICE PATTERNS Sudden steep increases in case of oil scarcity (perceived or real) Followed by long periods of decline at 3% per annum (constant $) thanks to economies of scale and technological progress Pre-1973 oil price series reveal:

15. THE SAME REPEATED SHAPE

16. THE CAUSE OF 1973 SHOCK

17. WHY HAS US OIL DECLINED?

18. THE IMPACTS OF 1973 Prior to WWII, oil & gas shares were small. Oil price had little impact on GDP growth The growth of oil & gas shares explain why oil price had such an impact on GDP in 1973 Since 1973, oil (accompanied by gas) has become the price setter for all energies Since 1973, each energy scarcity impacts oil price up, and GDP growth down

19. GROWING WEIGHT OF HC

20. ENERGY PRICE-SETTING

21. THE NEW ENERGY SCENE Energy demand starts to decelerate after its acceleration since the industrial revolution (energy curve turns from concave to convex) Oil becomes the energy “at the margin”, and the price-setter (direct or indirect) of energy, replacing coal in its former role With its new price set on oil and being very volatile, energy now impacts GDP directly but dissymmetrically

22. PART III. IMPLICATIONS FOR THE FUTURE TRENDS

23. DRIVERS OF FUTURE TRENDS GDP growth: will it continue to slow down because population growth is slowing down? Energy prices: will energy policies push the use of fossil fuels down? Energy imbalances: even with a large “tank”, will the “tap” allow enough production?

24. AN EXAMPLE: 1999-2000

25. NA GAS PRODUCTION

26. AS FOR OIL, PRODUCTIONS MIMIC DISCOVERIES

27. WE GAS PRODUCTION

28. RUSSIAN GAS EXPORTS First problem: domestic Russian prices are too low and their rise would push inflation up. Hence no incentive to reduce waste Second problem: because of these low prices, Russian cannot offer attractive prices to Caspian republics for their own gas Third problem: full costs to bring new gas from Yamal peninsula or Northern Barents sea to Europe exceed 4-5 $/MBtu

29. 1999/2000 CIRCUMSTANCES After the 1998 wrong signal of the IEA “lost barrels”, 1999 revealed a tight situation NA/WE gas supply (~950 Mtoe) were peaking Middle-East over-capacities became small Non Middle-East oil was stable during 1997/99 after having hardly grown from 1986 (42.1 Mb/d) to 1997 (44.6 Mb/d) Higher oil prices were needed to bring new energy supplies such as LNG for NA & WE. Does that explain the price rise in 2000?

30. NON-ME OIL TO FALL IN 2010?

31. QUESTIONS FOR OPEC M-E Middle-East fields are aged Weighted average age of producing fields is more than 50 years. They look like “Marathon men” Can they accelerate swiftly in ~2010? This is possible but not very likely. If they cannot, oil & energy prices will surge again Even Middle-East will peak some day. That may take 10, 20, 30 years at most. The decline of oil will call for another price surge

32. CONCLUSIONS (1) What might be the marginal fuel and price setter for mobility and power generation? Will energy price increase much and lead to a low growth / low energy future? How will affordable modern energy be provided to the 2 billion poor? Questions for the end of the oil age

33. CONCLUSIONS (2) Three breakthroughs for an H2 economy: - Capacity to produce H2 cheaply - Infrastructure to transport/store/deliver H2 - Availabilty of cheap fuel cells to use it Synthetic liquid fuels are easier & cheaper: - Coal/gas/biomass may be used (FT process) - No need for a new costly infrastucture - One continue to rely on traditional engines After the coal and the oil age, the next age might be that of synthetic liquid fuels