1. AUSTRALIAN ENERGY SUMMIT IIR Conferences Sydney, March 2005 Keynote Address: World Energy Market Developments and Their Impact on Australia Robert Pritchard ResourcesLaw International

2. ResourcesLaw: What We Do (1) We work on policy, strategy, opportunities, transactions and risks across the energy sector and the dynamics of the interplay of these issues on investment decisions We work on policy, strategy, opportunities, transactions and risks across the energy sector and the dynamics of the interplay of these issues on investment decisions Half of our work is offshore, half of it onshore Half of our work is offshore, half of it onshore Half of our clients are public sector, half of them private Half of our clients are public sector, half of them private

3. ResourcesLaw: What We Do (2) Our practice covers all energy forms: oil, gas, coal, nuclear, hydro, biomass, wind and solar Our practice covers all energy forms: oil, gas, coal, nuclear, hydro, biomass, wind and solar We factor sustainability and climate risk into all of our thinking We factor sustainability and climate risk into all of our thinking We maintain extensive international networks through the World Energy Council and other affiliations We maintain extensive international networks through the World Energy Council and other affiliations We are affiliated with the Piper Alderman law firm, with offices in Sydney, Melbourne, Brisbane and Adelaide We are affiliated with the Piper Alderman law firm, with offices in Sydney, Melbourne, Brisbane and Adelaide

4. The Four Energy Gods Monopolus Monopolus Competitus Competitus Regulatus Regulatus Sustainabus Sustainabus

5. The 3 Current “Big Picture” Issues in World Energy 1. Energy Security 2. Climate Change 3. Growing Energy Demand

6. The First “Big Picture” Issue in World Energy: Energy Security

7. Main Causes of Energy Supply Insecurity 1. Over-dependence on any single form of primary energy 2. Over-dependence on any single source 3. Over-dependence on any single energy infrastructure facility NOT a shortage of resources!

8. The Myths of “Peak Oil” and Peak Other Fossil Fuels Reserves-to-Production Ratios Oil: 41 years Oil: 41 years Gas: 67 years Gas: 67 years Coal: 192 years Coal: 192 years Source of data and graphs in this presentation: BP Statistical Review 2004

9. Oil Reserves-to-Production (R/P) ratios

10. Natural Gas Reserves-to- Production (R/P) ratios

11. Where Are the Energy Security Risks? Increasing reliance on imports of oil, largely driven by demand from US and China Increasing reliance on imports of oil, largely driven by demand from US and China Increasing dependence on Middle East Increasing dependence on Middle East Doubts about production capacity Doubts about production capacity Decreasing value of IEA emergency stockpiling system Decreasing value of IEA emergency stockpiling system Transport fuels are 95% dependent on oil Transport fuels are 95% dependent on oil

12. Where Are the Energy Security Risks? (contd) Increasing dependence on reliability of transportation and storage infrastructure Increasing dependence on reliability of transportation and storage infrastructure Terrorism / maritime terrorism (especially in Strait of Malacca) Terrorism / maritime terrorism (especially in Strait of Malacca) Modern emphasis on efficient use of capital / “just-in time” management of inventory costs (NB: this is a self-imposed risk) Modern emphasis on efficient use of capital / “just-in time” management of inventory costs (NB: this is a self-imposed risk)

13. The Second “Big Picture” Issue in World Energy: Climate Change

14. Conclusions of World Energy Congress, Sydney 2004 The “new renewables” will be inadequate* The “new renewables” will be inadequate* * Wind power is the star performer and recently achieved 47,000 MW worldwide installed capacity. However, the WEC 2003 Survey of Energy Resources predicts that the new renewables will only have achieved a total share of primary energy of 5% by 2030.

15. Kyoto will not have a material effect on emissions reduction Kyoto will not have a material effect on emissions reduction All energy options must be kept open and no technology should be idolised or demonised All energy options must be kept open and no technology should be idolised or demonised Conclusions of World Energy Congress, Sydney 2004 (contd)

16. The Third “Big Picture” Issue in World Energy: High Energy Prices

17. Effect of High Prices In 2004/05, the price hike has been very much demand-driven (mainly the US and China) In 2004/05, the price hike has been very much demand-driven (mainly the US and China) Since 1973, every sustained oil price hike has lowered global GDP growth and reduced energy intensity for the following 2 years Since 1973, every sustained oil price hike has lowered global GDP growth and reduced energy intensity for the following 2 years

18. Source: WEC

19. Current high prices are a spur to cross- border coal and gas trade (especially LNG trade) Current high prices are a spur to cross- border coal and gas trade (especially LNG trade) Nonetheless, there is nothing to prevent an energy price-induced economic recession - this is not yet predicted but it is not entirely fanciful to imagine one either Nonetheless, there is nothing to prevent an energy price-induced economic recession - this is not yet predicted but it is not entirely fanciful to imagine one either Effect of High Prices (contd)

20. How is Our Part of the World Organising its Response to the 3 “Big Picture” Issues in World Energy? OPEC (Indonesia will have to quit) OPEC (Indonesia will have to quit) IEA (stockpiling only a temporary solution) IEA (stockpiling only a temporary solution) IEF (new producer-consumer dialogue) IEF (new producer-consumer dialogue) APEC Energy Security Initiative (emphasis on expanding LNG trade but nuclear power also back on the agenda) APEC Energy Security Initiative (emphasis on expanding LNG trade but nuclear power also back on the agenda)

21. ASEAN Energy Cooperation (“ASEAN Vision 2020” and the second 5-year energy plan) ASEAN Energy Cooperation (“ASEAN Vision 2020” and the second 5-year energy plan) ASEAN + 3 (includes China, Japan and Korea) ASEAN + 3 (includes China, Japan and Korea) ASEAN + 3 + 2 others (includes Australia and New Zealand) ASEAN + 3 + 2 others (includes Australia and New Zealand) How is Our Part of the World Organising its Response …? (contd)

22. How Should Australia as a Nation Respond to the 3 “Big Picture” Issues in World Energy? 1. Reaffirm our commitment to open global energy markets 2. Adopt a diversified portfolio of interchangeable energy forms and energy supply sources 3. Increase interconnection of energy systems

23. How Should Australia as a Nation Respond …? (contd) 4. Encourage timely investment in energy production, transportation and storage facilities Note: An ABARE/ResourcesLaw International study for the APEC Energy Working Group on the costs of energy supply disruptions will be released in May 2005

24. Finally, How Should Australian Businesses Respond? 1. Don’t rely on financial hedges 2. Consider investment in inventory - weigh up the possible cost of being caught short against the actual cost of the sunk capital 3. Look at alternatives (dash for gas, look at renewables and practice DSM) 4. Prepare your contingency plans for a possible oil price-induced recession 5. If you are an exporter of energy, lock in your markets for as long as you can