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Ron Minsk's presentation at the April 24th, 2012 Boston Security Analysts Society session on the electrification of transportation
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The Electrification Coalition Revolutionizing Transportation and Achieving Energy Security
EIA Slide From December 1998
.
1
Department of Energy was concerned that oil prices, which had fallen
sharply from historic levels, would not recover for years
Economist Cover, March 1999
.
2
“ . . . a normal market price might now be in
the $5-10 range.”
“$10 might actually be too optimistic. We may be heading for $5.”
Conventional wisdom was that oil was plentiful and likely to remain cheap
for the foreseeable future
The United States is the world’s largest oil consumer, accounting for one-
fifth of global oil demand. The majority—70 percent—is used in transport.
› At 19.1 million barrels
per day, the U.S. was
the world’s largest
consumer of petroleum
in 2010, with oil
accounting for 37
percent of primary
energy demand.
› The U.S. transport
sector alone consumes
more oil than any
national economy in
the world—13.0 mbd.
TOP WORLD OIL CONSUMERS, 2010
3
Iran
Mexico
Canada
South Korea
Germany
Brazil
Saudi Arabia
Russia
India
Japan
China
U.S.
0 5 10 15 20
Million Barrels per Day Source: BP, plc., Statistical Review of World Energy 2011
Global Oil Market Dynamics—Demand
U.S. Transport
Rising demand for mobility in emerging markets has placed substantial
strain on oil suppliers in recent years. This trend is expected to accelerate.
CHINESE LIQUID FUEL DEMAND (HISTORICAL) LIGHT-DUTY VEHICLE SALES AND STOCK
› Chinese oil demand increased by 90 percent 2000-2010. The increase was equivalent to adding another Japan to the market.
› Passenger vehicle sales and vehicle stock are soaring in emerging markets. Non-OECD stock is on pace to surpass the OECD around 2030.
4
Source: IEA, World Energy Outlook 2011
Global Oil Market Dynamics—Demand
0
200
400
600
800
1000
1200
0
20
40
60
80
100
120
2010 2020 2030 2035 2010 2020 2030 2035
OECD Non-OECD
Millio
n V
eh
icle
s M
illi
on
Ve
hic
les
Sales (Lhs) Stock (Rhs)
0
2
4
6
8
10
1990 1995 2000 2005 2010
Mil
lio
n b
arr
els
per
Da
y
Others Fuel oil
Middle distillates Light distillates
Source: BP, plc.
5
Global Oil Market Dynamics—Demand
WORLD OIL CONSUMPTION (HISTORICAL AND FORECAST)
Oil consumption within the world’s most developed economies has peaked.
Emerging markets account for 100 percent of demand growth going forward.
› World oil demand is
set to grow by about 22
percent over the next
20 years.
› One hundred percent
of that growth is in
China, India, and other
emerging economies.
And 97 percent of it is
in transportation.
0
20
40
60
80
100
1980 2010 2015 2020 2025 2030 2035
Mil
lio
n B
arr
els
per
Da
y
OECD China and India Other Non-OECD Other
Source: International Energy Agency, World Energy Outlook 2011
6
Global Oil Market Dynamics—Supply
WORLD LIQUID FUEL PRODUCTION (HISTORICAL AND FORECAST)
Conventional oil production outside of OPEC is reaching a plateau.
Increases in regions like North America are being offset elsewhere.
› Going forward, most
mainstream scenarios
rely on increases in
OPEC supplies to meet
rising demand.
› Two key questions
illustrate the downside
risk to growth in future
liquid supplies:
1. Who will have access
to low-cost
conventional reserves?
2. What will reserves
replacement cost for
IOCs?
0%
10%
20%
30%
40%
50%
60%
0
20
40
60
80
100
120
1980 2010 2015 2020 2025 2030 2035
Mil
lio
n B
arr
els
per
Da
y
OPEC Non-OPEC OPEC ShareSource: IEA
Oil prices are set in an open market, but that does not mean there is a free
market for oil supply.
TOP OIL AND GAS FIRMS BY PROVED RESERVES (2007)
7
Source: International Energy Agency, World Energy Outlook 2008
ExxonMobil
Petronas
CNPC
LNOC
Sonatrach
NNPC
KPC
PDVSA
Adnoc
QP
INOC
Gazprom
Saudi Aramco
NIOC
0 50 100 150 200 250 300
Billion barrels oil equivalent
› More than 90 percent of
global proved oil reserves
are held by national oil
companies (NOCs) that
are either partially or fully
controlled by
governments.
› While a handful of NOCs
operate like private firms,
many function essentially
as a branch of the central
government, depositing
oil revenues in the
treasury from which they
are diverted to social
programs instead of being
reinvested in new projects.
Global Oil Market Dynamics—Supply
8
PRODUCED MIDDLE EAST
NORTH
AFRICA
OTHER CONV.
OIL
EO
R
CO
2 -
EO
R
DE
EP
WA
TE
R
AR
CT
IC
HEAVY OIL &
BITUMEN
OIL SHALES
GAS TO LIQUID
COAL TO LIQUID
Pro
du
ctio
n C
ost
s (R
eal $
20
08
per
Bar
rel)
Resources (billions of barrels)
Oil Supply Cost Curve
LONG TERM OIL SUPPLY COST CURVE
Resources in the Middle East and North Africa will be the least expensive to
produce. However, they may also be the least accessible to IOCs.
Source: International Energy Agency, World Energy Outlook 2008
9
0
20
40
60
80
100
120
0 5 10 15 20 25 30 35 40 45 50
Pro
du
ctio
n C
ost
s (D
olla
rs p
er B
arre
l)
Oil Production (million barrels per day)
Budget requirements have ballooned in recent years in OPEC nations and
Russia, essentially incentivizing higher oil prices for much of global supply.
Source: International Energy Agency, World Energy Outlook 2011
VE
NE
ZU
EL
A
QU
AT
AR
KU
WA
IT
UAE
LIB
YA
SAUDI ARABIA
AL
GE
RIA
IRAQ
AN
GO
LA
NIG
ER
IA
EC
UA
DO
R
IRAN RUSSIA
Budget
Breakeven
Production
Breakeven
BREAKEVEN COSTS FOR SELECTED PRODUCERS (MID-2011)
Oil Supply Cost Curve
Petroleum fuels account for approximately 40 percent of U.S. primary
energy demand, more than any other fuel.
› Approximately 70 percent of U.S. oil consumption occurs in the transportation sector, with
40 percent in light-duty vehicles.
› Transportation is 94 percent reliant on oil-based fuel for energy, with no scaled substitutes.
10
U.S. PRIMARY ENERGY DEMAND, 2009 PETROLEUM FUEL DEMAND BY SECTOR, 2009
U.S. Oil Dependence
39% Oil
27% Natural Gas
23% Coal
9% Nuclear Energy
3% Hydro electric
Source: BP, plc., Statistical Review of World Energy 2010
20% Autos
24% Light-trucks
28% Other Transport
22% Industrial
2% Commercial
4% Residential
1% Electric Power
11
U.S. Oil Dependence: Imports
U.S. OIL CONSUMPTION (HISTORICAL AND FORECAST) › Net imports, once a
small fraction of
U.S. supplies, still
meet half of total
U.S. liquid fuel
demand.
› Amid rising
domestic liquids
production and flat
demand, net import
volumes have
declined
substantially since
their peak in 2005.
U.S. oil supplies are acquired from a variety of sources, including domestic
crude oil and natural gas liquids, biofuels, refinery gains, and imports.
-
5
10
15
20
25
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Mil
lio
n B
arr
els
per
Day
Net Imports Adjustments and Domestic BiofuelsProcessing Gain and Stock Changes Domestic NGLsDomestic Crude
Source: DOE, EIA, AER 2010
12
U.S. Oil Dependence: Macroeconomic Costs
U.S. TRADE DEFICIT IN PETROLEUM AND OTHER GOODS AND SERVICES › The portion of the
trade deficit driven by
petroleum imports
generally exceeds the
imbalance we run in
other goods and
services with trade
partners like China,
NAFTA, and the EU.
› A high trade deficit
exerts downward
pressure on the dollar,
which in turn may be
helping to prop up oil
prices, resulting in a
vicious circle.
Since January 2007, the United States has run an aggregate $1.4 trillion
deficit in crude and petroleum product trade, exporting vast capital abroad.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
10
20
30
40
50
60
70
80
2000 2002 2004 2006 2008 2010
Pe
trole
um
Sh
are
of T
ota
l Tra
de D
efic
it
Mo
nth
ly T
rad
e D
efi
cit
($
bil
lio
ns
)
Deficit in Petroleum Deficit in Goods and Services
Petroleum Share of Total Trade Deficit
Source: U.S. Census Bureau, Office of Foreign Trade Statistics
13
U.S. Oil Dependence: Price Volatility
FUEL VOLATILITY INDEX (HISTORICAL) › Oil price volatility is
driven by events in the
global oil market, and oil
is priced at the margin—
meaning that even if the
U.S. produces more
domestically, it cannot
avoid volatility.
› All liquid fuels are
affected, including
biofuels.
› The solution has to be to
transition toward non-
liquid fuels where
economically rational.
The volatility of liquid fuels is the key threat from an economic security
perspective. This volatility is driven by events beyond our control.
-
1.0
2.0
3.0
4.0
5.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Crude Oil - WTI
Diesel
Gasoline
Ethanol (Nebraska Rack)
Electricity
Index: Jan 2000 = 1
Source: DOE, EIA
› Household spending on
gasoline increased by
$2,008 dollars between
2001 and 2008.
› Income tax cuts over the
same period increased
household income by
$1,900. Thus, rising fuel
prices fully offset the benefit
of tax cuts.
› We saw the same effect in
2011 with the payroll tax cut,
which increased Americans
income by $110 billion while
spending on gasoline
increased by $104 billion.
U.S. Oil Dependence: Household Impact
The average U.S. household spent a record $4,000 on gasoline in 2011.
Since 2000, the increase in spending has offset numerous stimulus efforts.
14
AVG. HOUSEHOLD SPENDING ON GASOLINE (2000-2011)
Source: DOE, EIA, Annual Energy Review 2010; ORNL, Transportation Energy Data Book; SAFE Analysis
Incre
ase
d g
as
sp
en
din
g
-
1,000
2,000
3,000
4,000
5,000
0.00
0.75
1.50
2.25
3.00
3.75
2000 01 02 03 04 05 06 07 08 09 10 2011
Do
llars
(No
min
al)
$/g
al
Gas Spending/Household
Gasoline Price (Lhs)
15
0%
2%
4%
6%
8%
10%
0.0
0.3
0.6
0.9
1.2
1.5
1970 1975 1980 1985 1990 1995 2000 2005 2010
Co
nsu
me
r Expe
nd
iture
s on
Pet. Fu
els, Sh
are o
f G
DP
Bar
rels
of
Oil
pe
r $
1,0
00
GD
P
Oil Spending, Shareof GDP
Barrels of Oil per$1,000 GDP
Source: EIA, AER 2010; Department of Commerce, Bureau of Economic Analysis; SAFE Calculations
20
11
Est
imat
e
Recessionary Period
High oil prices experienced throughout 2011 contributed to weak consumer
spending and slow economic growth in the United States and elsewhere.
U.S. Macroeconomic Costs: U.S. Oil Intensity
and Spending on Oil
› At more than 6 percent of
GDP, consumer spending
on petroleum fuels
reached levels typically
associated with recession
in 2011.
› Increased spending on
gasoline by consumers—
particularly in Q1 and
Q2—crowded out other
spending.
› Price volatility
contributes to an
uncertain investment
climate for businesses.
U.S. Oil Dependence: Total Economic Costs
The economic costs of U.S. oil dependence reached nearly $500 billion in
2008. Since 1970, total economic damage exceeds $5 trillion (real dollars).
› In addition to staggering wealth transfers, high and volatile oil prices generate significant
uncertainty for households and businesses. The result is lost economic opportunity.
16 Source: DOE, EERE; ORNL
ECONOMIC COSTS OF U.S. OIL DEPENDENCE
0
100
200
300
400
500
600
1970 1975 1980 1985 1990 1995 2000 2005 2010
Bill
ion
s (
$2
00
8)
Wealth Transfer Transfer Dislocation Losses Losses Loss of Potential GDP
› Electricity is generated from a diverse portfolio of domestic fuels.
› The power sector has substantial spare capacity.
› Electricity prices are stable.
› The network of infrastructure already exists.
Electrification Overview
17
Electrification of transportation is the best solution for reducing U.S. oil
dependence, insulating consumers and businesses from oil price volatility.
49% COAL
22% NUCLEAR
17% NATURAL GAS
11% RENEWABLES
1% PETROLEUM
38% RESIDENTIAL
37% COMMERCIAL/OTHER
24% INDUSTRIAL
1% TRANSPORTATION
Source: EIA, AEO 2010
U.S. ELECTRICITY GENERATION BY FUEL, 2010 U.S. ELECTRICITY DEMAND BY SECTOR, 2010
Electrification Overview: Challenges
› Batteries and Vehicles
With the advent of lithium-ion battery technology, the largest obstacle to widespread
consumer adoption of these vehicles will be cost, though performance and raw material
supply chains are also important to consider. Need innovative business models,
manufacturing scale in gen-1/2, and R&D for Gen-3.
› Charging Infrastructure
A profitable business model for public charging points has not been reliably demonstrated,
and we do not yet know how much public charging will be needed.
› Electric Power Sector Interface
While “smart” charging will make electric vehicles an asset to the grid, “dumb” charging
will make them a liability.
› Consumer Acceptance
GEVs represent a significant shift in technology. In order to change mainstream consumer
attitudes, GEVs must offer a compelling alternative to conventional IC engines on either
cost or performance grounds.
18
While electrification has promise as an energy strategy, it can only succeed
if GEVs are attractive to the mass market and can integrate into the grid.
Electrification Overview: Power Sector
A 2007 DOE study found that existing offpeak electrical generating capacity
could power 158 million vehicles for up to 33 miles of driving per day.
PJM CAPACITY AND LOAD (7-1, 7-2, 2009) CHANGE IN RETAIL ENERGY PRICES (2000-PRESENT)
› PJM Interconnect: The 61 gWh of excess available capacity in a typical summer week could charge 62 million Nissan Leafs each night.
› Petroleum prices have exhibited significant volatility for the past several years. In contrast, retail electricity prices have been stable.
19
0
20
40
60
80
100
120
140
0
20
40
60
80
100
120
140
160
180
12:00AM
6:00AM
12:00PM
6:00PM
12:00AM
6:00AM
12:00PM
6:00PM
$ P
er M
egaw
att Ho
ur
Gig
awat
ts
Wholesale Real Time PriceInstalled CapacityAvailable CapacityLoad
Source: PJM Source: DOE, EIA
-
1.0
2.0
3.0
4.0
5.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Crude Oil - WTI
Diesel
Gasoline
Ethanol (Nebraska Rack)
Electricity
Index: Jan 2000 = 1
Electrification Overview: Battery Costs
We are nearing the end of the first phase of battery cost reductions related
to today’s EVs and PHEVs. Scale and volume production are key today.
Source: EC Roadmap; PRTM Analysis
LARGE FORMAT LITHIUM ION BATTERY COST ($/KWH)
20
$0
$200
$400
$600
$800
$1,000
$1,200
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
$/k
Wh
Stage 1 - Limited Capacity - Limited Suppliers - Pilot Volumes
Stage 2 - Over-capacity - Slow Volume Ramp-up - New Market Entrants - Technical Advances
Stage 3 - Sustainable industrial volumes - Consolidated Competitors - Operational Improvements - Continued Technical Advances
› The cost of the battery contributes as much as one-third of the cost of light-duty
electric vehicles. The share is higher in truck applications.
Charging Infrastructure: Getting Ready for
Plug-In Vehicles
Where vehicles spend their time
21 Source: SAE
Charging Infrastructure: Business Model
22
Investment in widespread public (shared) charging infrastructure is a risky
proposition. The appropriate strategy and business models are unknown.
Source: EC Roadmap; PRTM Analysis
PAYBACK PERIOD FOR A SINGLE PUBLIC CHARGER IN A ‘BUSINESS AS USUAL’ CASE
TEPCO Fast Charge Experiment
Source: TEPCO R&D Center Study 2008
Infrastructure Is Critical for EV Adoption, Even if it is Not Used Extensively
Electrification Overview: Vehicle Supply
Automakers worldwide are developing plug-in hybrid and electric vehicles.
By 2013, more than 30 models could be available to consumers.
EXPECTED PEV LAUNCHES BY MAJOR GLOBAL OEMs ANNOUNCED PRODUCTION CAPACITY OF GLOBAL OEMs
24
Source: Bloomberg New Energy Finance Source: Bloomberg New Energy Finance
1
5
8
3 1
1
6
2
2010 2011 2012 2013
PHEV
EV
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
2011 2012 2013
PHEV
EV
› Global automakers are rolling out a
substantial number of PEV option in the
coming years.
› Production volumes are expected to scale up
as supply chains become mature and
consumer demand becomes predictable.
Electrification Overview: Vehicle Demand
As the market for the current generation of PEVs enters its second full year
of sales, there have been some encouraging signs amid obvious challenges.
GM VOLT WAITLIST BY STATE—TOP 20 U.S. MARKETS U.S. SALES OF PEVs: 2011
25
› There are currently 23,698 GM Volt
customers on waitlists throughout the
United States.
› U.S. PEV sales were 17,813 in 2011. This total
exceeded the number of traditional hybrids
sold in 2000—HEVs first full sales year.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
CA
TX
FL
MI
NY IL
PA
OH
WA
VA
NJ
AZ
GA
NC
MD
MA IN
CO
MN
MO
0
2,000
4,000
6,000
8,000
10,000
12,000
Chevy Volt Nissan LEAF Smart ED Mitsubishi i
26
U.S. Hybrid and Plug-In Vehicle Sales
-
50
100
150
200
250
300
350
400
1999(2010 for
PEVs)
2000(2011 for
PEVs)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Tho
usa
nd
HEV
s
Mercedes S400
Mercedes ML450
Mazda Tribute
Honda CR-Z
Ford Lincoln MKZ
BMW X6
BMW ActiveHybrid 7
Sierra/Silverado
Lexus HS 250h
Mercury Milan
Ford Fusion
Dodge Durango
Chrysler Aspen
Cadillac Escalade
Chevy Malibu
GMC Yukon
Chevy Tahoe
Saturn Aura
Lexus LS600hL
Saturn Vue
Nissan Altima
Toyota Camry
Lexus GS 450h
Mercury Mariner
Toyota Highlander
Lexus RX400h
Honda Accord
Ford Escape
Honda Civic
Toyota Prius
Honda Insight
PEVs
The Electrification Coalition Revolutionizing Transportation and Achieving Energy Security
› Online
www.electrificationcoalition.org
› Download Reports
www.electrificationcoalition.org/electrification-roadmap.php
› Office Contact
1111 19th Street, NW
Suite 406
Washington, DC 20036
202.461.2360
28
Global Oil Market Dynamics—Reserves
GLOBAL OIL RESERVES BY SOURCE
Proved conventional oil reserves have generally declined in most developed
economies over the past several decades. OPEC reserves have grown.
› OPEC’s share of global
oil output (40 percent)
sharply lags its share of
reserves (80 percent).
› This might make sense
if OPEC resources were
highest cost, but in fact
the opposite is true.
› Geopolitical issues,
cartel politics, and
weak investment
regimes are key
challenges.
0%
20%
40%
60%
80%
100%
0
200
400
600
800
1,000
1,200
1,400
1,600
1980 1984 1988 1992 1996 2000 2004 2008
Bill
ion
Ba
rre
ls
OPEC Other non-OPEC
OECD OPEC Share of Reserves
OPEC Share of ProductionSource: BP, plc