1. Strategic Forecasting, Inc. 1 Energy and You

2. Strategic Forecasting, Inc. 2 Why Petroleum? What is Energy? Energy vs. Commodities What Makes Energy Geopolitical? –Volatility –Transport and Location –Wars and Crises Beyond Petroleum

3. Strategic Forecasting, Inc. 3 Why Petroleum: Calories per Pound Petroleum is also superior in terms of density, even burning and manageability

4. Strategic Forecasting, Inc. 4 Shipping/Transport

5. Strategic Forecasting, Inc. 5 Military “High Tech”

6. Strategic Forecasting, Inc. 6 And a few other things too... Industrialization (and industrial scaling) Metallurgy Electrification Refrigeration Materials processing and manipulation Agriculture Result: Population growth

7. Strategic Forecasting, Inc. 7 What is Energy: oil fuel oil (electricity), gasoline, diesel, jet fuel, waxes, sulfuric acid, asphalt, tar, lubricants, petrochem

8. Strategic Forecasting, Inc. 8 Characteristics: Oil Many different types –Heavy vs. Light –Sweet vs. Sour A question of refining and specialization

9. Strategic Forecasting, Inc. 9 What is Energy: Natural Gas electricity, heat, polymers, agriculture, petrochem

10. Strategic Forecasting, Inc. 10 All the same damn stuff: cow farts (methane) Since either burned or used as chemical building blocks, needs to be pure for all applications – so purified very close to the point of extraction Characteristics: Natural Gas

11. Strategic Forecasting, Inc. 11 Energy: Nuclear and Alternative Only of use in generating electricity

12. Strategic Forecasting, Inc. 12 What is Energy: Transport Oil vs. Natural gas vs. electricity

13. Strategic Forecasting, Inc. 13 What is Energy: the Numbers Sizable projects –Oil (reserves): 500 million barrels –Oil (production: 250,000 barrels per day –Nat gas (reserves): 100 billion cubic meters –Nat gas (production): 1 billion cubic meters/year –Electricity: 1 gigawatt Common conversions –1 metric ton of crude = 7.3 barrels –1 metric cubic meter of nat gas = 35.3 cubic feet –1 metric ton of LNG = 1415 cubic meters of nat gas –1 bbl of oil equivalent = 170 cubic meters of nat gas (the cheat sheet)

14. Strategic Forecasting, Inc. 14 Energy vs. Commodities: What Makes a Commodity a Commodity? Characteristics, Tests and Examples Relatively easy to ship and store Obvious, limited uses Easily exchangeable for cash Fungible Quality largely irrelevant Has substitutes Arbitrary price mark- ups difficult unless there is scarcity Market risk typically lies with the producer Iron ore Aluminum Copper Corn Wheat Pipes DRAMs Non-flashy cellular phones Bangledeshis Bucket Garlic Hooker Bailing wire Pizza Taco Oatmeal Suicide bomber

15. Strategic Forecasting, Inc. 15 What Makes Energy Different from Other “Commodities” Oil Not fungible Quality is everything Many, many uses Few substitutes Natural gas Not easily transportable Many uses Few substitutes Electricity Not storable Not transportable (merely transmittable) Omniusage No substitutes Result: Risk typically lies with the consumer Price markups eeeeeeeeeeeeeeeeasy

16. Strategic Forecasting, Inc. 16 What Makes Energy Geopolitical? Volatility: Increasing Costs Increased role of FSU requires mammoth – and costly – transport corridors More players mean greater chances of disruptions Increasing percentage of non- conventional or deepwater production Ever more massive outlays required to launch new production When something bad happens, it impacts a very large amount of already-sunk capital

17. Strategic Forecasting, Inc. 17 What Makes Energy Geopolitical? Volatility: Inelastic Demand Oil’s role as a power fuel – an elastic demand source – has been nearly eliminated 96 percent of transport fuels – an inelastic demand source in the developed world – are oil- derived As the developing world develops, their oil demand patterns become more akin to the United States Only 2 percent of global GDP used to pay for oil in 2002

18. Strategic Forecasting, Inc. 18 What Makes Energy Geopolitical: Volatility: Shrinking Buffer

19. Strategic Forecasting, Inc. 19 Location, Location, Location In 1973 8% of global GDP was spent on oil In 2002 the figure was under 2% In 2008 the figure will likely be 5%

20. Strategic Forecasting, Inc. 20 Natural Gas Transport Globally Volumes over 30 bcm/year

21. Strategic Forecasting, Inc. 21 Oil Transport Globally Volumes over 500k bpd/year

22. Strategic Forecasting, Inc. 22 Wars and Crises 1945: WW II –German USW and the UK blockade were designed to starve the other of oil –Germany invaded Romania and USSR for oil –Japan launched its war for Indonesian oil –EU’s formation is the Coal and Steel Community

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24. Strategic Forecasting, Inc. 24 Beyond Petroleum: installation cost ($) per kw of capacity (Electricity generation)

25. Strategic Forecasting, Inc. 25 Beyond Petroleum: Problems and Possibilities (20 years) Locked into carbon-based transport fuels –Batteries not yet practical even if electricity were cheaper –Fusion needs at least 30 years –Solar and tidal only of marginal use (huge up front costs, environmentally disruptive) –Biomass nice, but limited Hybrid automobiles –No obstacles save sticker Wind –Only regionally applicable Conserve natural gas Cellulosic ethanol –Gathering of raw materials –corrosive Nuclear –NIMBY Oil shale –Extraction