Global Energy, Economic Interdependence, Iraq And the Gulf

The Center for Strategic and International StudiesArleigh A. Burke Chair in Strategy

1800 K Street, NW • Suite 400 • Washington, DC 20006Phone: +1-202-775-3270 • Fax: +1-202-457-8746

Web: www.csis.org/burke

Global Energy, Economic Interdependence, Iraq And the Gulf

Anthony H. CordesmanArleigh A. Burke Chair

Revised: September 2007

2

Scoping the ProblemNot every "catastrophe" is a catastrophe. Short-term problems can lead to long-term gains. Turbulence, panics, price rises, interruptions = substitutions, new technologies, diversification, conservation and efficiency.

Supply shortfall models are outdated, very uncertain, and very sharply by country.

Many key security decisions are domestic: Nuclear, coal, conservation, social policy, environmental issues, efficiency, stockpiles, level of dependence on single energy sources.

Not a “zero sum game” between consuming nations or consumers and suppliers: Global interdependence means energy must be shared to sustain trade, and exports. Cheaper to cooperate and rely on market forces than compete or fight.

Energy costs as a percentage of total GDP, or in terms of economic dependence, leave considerable elasticity.

A very unpleasant present could have serious political and economic costs, but could mean a better future.

2

3

The 19th Century Myth of Global Resource Competition

The world does not run out of oil and gas, it simply becomes progressively less affordable.No mechanism for global trade and globalism works better than open market prices for exports.Substitution effects work best if price driven, with limited intervention by governments.Demand-driven high prices are fair prices.The World adapts over time.

4

Reality is Global InterdependenceMajor industrialized states and emerging economies dependent on global trade.US and Europe “import” oil through Asian manufactures.Global stability dependent on global economic growth and stability.Environment, Supply, Conservation, Efficiency evolve forward on global basis.Market forces most efficient and secure method of pricing and distribution for all major powers.

5

0 1 000 2 000 3 000 4 000 5 000 6 000

20302004

20302004

20302004

MtoeProduction consumed within each region Traded between regions

Oil

Coal

Gas

11%

15%

48%

54%

11%

20%

trade as % of world demand

World Fossil Fuel Supply: The Globalism Factor

Source: IEA, World Energy Outlook, 2006

6

The Challenge of “ElasticityElasticity in demand: Economic growth, response to price, global economic conditions.Elasticity in supply: Quantity, price, and comparative advance of petroleum, gas, coal, nuclear and otherElasticity in Conservation: Ability to reduce demand in current uses of energy and through social change. Which are gaining influence?Elasticity in Efficiency: Ability to reduce demand for energy and achieve the same output.

7

Sudden change or long slope toward rising scarcity?

Sudden critical changes tend to breed more tension and conflict.Slow rises in scarcity lead to market-driven and substitution responses.E.g. running out of oil: Have been running out since before anyone here was born, but actual major shortfalls have been very different.Substitution, however, is time and cost sensitive. Can’t change housing, workplace, public transportation, or vehicle fleets quickly.

Even more true of social behavior and values.National security interests create different sensitivities.

Some Chinese literature sees future oil crisis in these terms. “Horse blinders” are also a problem. May not look in right place for alternatives or focus too narrowly on one aspect of resource.

Technology is a predictive nightmare.Always get availability, cost, effectiveness. Comparative desirability wrong.By definition, cannot predict a technological breakthrough, although they do occur.

8

Crisis points or substitution effects and social and economic change?

Major global shortage of whale oil has been real. Past concerns with strategic metals, oil have not been. Neither has matteredMarginal value of resources changes radically in cost and use as resources become more scarce.Substitution effects come from scarcity but also technological change and other factors.Efficiency and conservation are key options, but are driven by economic realties and not ideology, social and political goals, or anticipation.Mid and long term elasticities are extremely difficult to predict.Many key shifts in resources involve complex social and economic shifts, not simply shifts in direct use of resource. Housing patterns and residential distance from work versus gas mileage.Drinking water vs. agricultural imports

9

Driven by Geopolitics/Geoeconomics or Market Forces?

Even market-driven adaptation can be very unpleasant, particularly for the most dependent and poorest nations.

No one ever really runs out of anything, it simply becomes progressively more unaffordable.

Globalism does not make life fair, it simply does a better job of rewarding the successful.Does not really matter whether multinational, state/state company, or private entity if collectively react to market driven forces.Historically, conflict occurs when perceived scarcity leads to geopolitical or geoeconomic concepts that can lead to conflict.Greed, ambition, nationalism have historically been more of a source of conflict and tension than actual scarcity.

Japanese scrap Iran and oil crises of 1941.Synfuels versus oil access in World War II.

10

Elasticity in Demand

11

Resource Limits or Demographic Pressure?

Global and local/regional population growth are a key factor putting pressure on resources. Growth estimates are slowing, but still of major impact.Globalization, hyperurbanization, development, and rising living standards are equal pressures. In broad terms, resource pressure increased with national and personal income.Emerging powers and regions like China, India, SE Asia create combined pressures on resources.As the past shows, existing uses of resources are virtually never viable unless they reach a stable, long-term equilibrium, which is the exception and not the rule.

12

Demographic Pressure(U.S. Census Bureau Estimate of World Population in Billions)

2.63

3.7

4.5

5.3

6

6.8

7.6

8.3

8.99.3

0

1

2

3

4

5

6

7

8

9

10

In billions

In billions 2.6 3 3.7 4.5 5.3 6 6.8 7.6 8.3 8.9 9.3

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

13

Demographic Dynamics3 billion total in 1959, 6 billion total in 1999: +100% in 40 yearsGrow to 9 billion by 2042: +43% in 50 yearsGrowth rate projected to drop from pace of 2% in 1960s to 1% by 2020, 0.5% by 2050. (Maybe!)Annual increment dropping from 88 million in 1990 to 78 million in 2020 to 47 million in 2050.80% of growth in 2007-2027 projected to be in poor countries.Nearly 50% of growth occurs in 8 countries, only one of which isdeveloped.51 countries lose population by 2025, and “age.” 25% of Western Europe will be 65 or over, vs. 4% in Sub-Saharan Africa.By 2025, urbanization will reach 60% of population -- 3.9 billion.Source: US Census Bureau, World Population estimates, and CSIS, Seven Revolutions

14

Growth of Global Energy Demand Consumption of Energy in Quadrillion BTUs: 2004 vs. 2030

0

100

200

300

400

500

600

700

800

Quad BTU 447 702 240 298 207 404 83 145 101 131

World 2004

World 2030 . OECD

2004OECD 2030 .

Non-OECD 2004

Non-OECD 2030

. China 2004

China 2030 . US

2004US

2030

Adapted from DOE/EIA, IEO 2007, Table A1 Reference Case . In Quadrillions of Btus.

15

Growth of China and US Energy DemandConsumption of Energy in Quadrillion BTUs: 2004 vs. 2030

0

20

40

60

80

100

120

140

160

3-D Column 2 101 131

Quad BTU 83 145

. China 2004 China 2030 . US 2004 US 2030

Adapted from DOE/EIA, IEO 2007, Table A1 Reference Case . In Quadrillions of Btus.

16

Urban Growth Patterns will be another key: 2006-2020

By 2020, population of world’s 100 Largest Cities will grow by 191 million90% of that Growth in Developing World

Source: Frank Verrastro, CSIS

0.0

20.0

40.0

60.0

80.0

100.0

Africa

Asia-P

acific

Europe

US/Can

ada

MENASou

th Asia

Latin

Ameri

ca

2006

-202

0 Po

pula

tion

Gro

wth

, M

illio

ns

0

5

10

15

20

25

Num

ber o

f Citi

es in

Top

100

17

Money Means Major Shifts in Resource Use - Car Ownership in 2004

Potential of increased ownership in China and India, is huge

Source: OECD/IEA (2006)

18

Average Annual GDP and Population Growthfor Selected Regions, 2004-2030

-0.5

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

UnitedStates

OECDEurope

Japan SouthKorea

China India Africa MiddleEast

Russia Brazil

Per

cent

per

Yea

r

GDPPopulation

Source: EIA, IEO2007

19

Non-OECD Asia Dominates the Growth in Demand

Source: DOE/EIA IEO 2007

20

0

10

20

30

40

50

60

70

1990 1995 2000 2005 2010 2015 2020 2025 2030

Reference Low Price

High Price

ProjectionsHistory

Low Growth

High Growth

Net Import Share of U.S. Liquid Fuels Consumption, 1990-2030percent

21

Elasticity in Supply

22

Global Demand and Risk Involves Far More Than Oil: IEA Estimate

Oil

Coal

Gas

BiomassNuclear

Other renewables

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

1970 1980 1990 2000 2010 2020 2030

Mto

eGlobal demand rises 50%+ in 25 years, most in coal

Source: IEA, World Energy Outlook, 2006

23

World Marketed Energy Use by Fuel Type: 1980-2030The EIA Estimate

0

50

100

150

200

250

300

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Qua

drill

ion

Btu

Liquids

Natural Gas

Coal

Renewables

Nuclear

History Projections

34%

8%

28%

6%

Share of WorldTotal

24%38%

26%

23%

7%

6%


24

World Nuclear Generating Capacity by Region, 2004 and 2030

8

65

72

92

114

131

5

42

15

61

134

112

0 50 100 150

Other Non-OECD

Non-OECDEurope

Non-OECD Asia

OECD Asia

OECD Europe

OECD NorthAmerica

Gigawatts

20042030


25

Comparative Fossil Fuel Demand Consumption of Energy in Quadrillion BTUs: 2004 vs. 2030

0

50

100

150

200

250

300

Coal 114.5 199.1 46.6 59.3 67.9 139.8 53.6 119.3

Natural Gas 103.4 170.4 53.1 72.3 50.3 98.1 8.9 29.3

Liquids 168.2 238.9 98.9 114.4 69.3 124.4 30.6 61.5

World 2004

World 2030 .

OECD 2004

OECD 2030 .

Non-OECD 2004

Non-OECD 2030 .

Non-OECD Asia 2004

Non-OECD Asia 2030

Adapted from DOE/EIA, IEO 2007, Table A2.Reference Case. In Quadrillions of Btus.

26

World Coal Consumption, 2004-2030

0

50

100

150

200

250

2004 2010 2015 2020 2025 2030

Qua

drill

ion

Btu

IndiaChinaUnited StatesRest of World


27

World Natural Gas Production by Region, 2004-2030

0

20

40

60

80

100

120

140

160

180

2004 2010 2015 2020 2025 2030

Trilli

on C

ubic

Fee

t

OECD RussiaMiddle East Other Non-OECD


28

Elasticity in Efficiency and Conservation

29

Energy Intensity by Region: 1980-2030

Source: DOE/EIA IEO 2007.

30

Non-OECD Energy Intensity : 1980-2030


31

The “Wild Card:” Global Warming and Carbon Dioxide Emissions

(Relative to 1980)

32

OECD Carbon Dioxide Emissions(Average Annual Growth in Percent Per Year from 2004-2030)

33

Non-OECD Carbon Dioxide Emissions: (Average Annual Growth in Percent Per Year from 2004-2030)

34

Global Oil Dynamics

35

Oil Reserve UncertaintiesTrue nature of reservesCanadian tar-sandsVenezuelan bitumen depositsImpact of technological gainAbility to substitute for current super-giant and giant fieldsRate of decline in fieldsRate and size of new developments and discoveriesInaccuracy of 3-D seismic modeling

Introduction

36

Running Out of Oil? Trend in Reserves: 1980-2030


37

World Oil Proven Reserves

1984 1994 20060

200

400

600

800

1,000

1,200

1,400

Middle East 430.8 661.7 742.7Europe & Eurasia 96.70 80.30 144.40S& C America 36.30 81.50 103.50Africa 57.80 65.00 117.20N. America 101.90 89.80 59.90Asia Pacific 38.10 39.20 40.50

1984 1994 2006

12%

61%

10% 3% 5%9%

Oil Proven Reserves Trends (In Billion Barrels)

Oil Proven Reserves 2006 (In % of Total)

Note: If Canadian tar-sands are included, the North American total rises to 236 billion (18%)

Source: BP Statistical Review2007

38

Oil Reserves-to-Production Ratios

Source: BP Amoco Statistical Review of Energy 2007

39

Oil Production Uncertainties“Sustainable” spare capacityElasticity in importer conservation, efficiency, and alternative supply and time/uncertainty lagsFeasibility of production at given pricesTechnological gains in the upstream industry“Sustainable” inflow of foreign investment

40

World Oil Production Trends

1983 1994 20060

10

20

30

40

50

60

70

80

90

Middle East 11.841 20.118 25.599Europe & Eurasia 16.343 13.657 17.563S& C America 3.539 5.347 6.881Africa 4.865 7.004 9.991N. America 14.838 13.807 13.699Asia Pacific 5.171 7.184 7.941

1983 1994 2006

Source: BP Statistical Review2007

17%

8%

22%

31%

12%

10%

Source: BP Statistical Review

Oil Production 2006 (In Percent)

Oil Production Trends (In MMBD)

41

Shift in Global Oil DependenceGeostrategic uncertaintiesLack of good estimatesDecay and natural decline vs. technology growthAlternative energy supply, efficiency, and conservation?The need for investment.

42

World Liquids Consumption by Region, 2004 vs. 2030

0 5 10 15 20 25 30 35

Africa

Non-OECD Europe/Eurasia

Middle East

Central and South America

OECD Asia

OECD Europe

Non-OECD Asia

North America

Million Barrels per Day

20042030


43

Asian Liquids Consumption in theEIA Reference Case, 1990-2030

0

5

10

15

20

25

30

35

40

45

Milli

on B

arre

ls O

il E

quiv

alen

t per

Day

Aus/NZ 0.8 1 1 1.1 1.1 1.2 1.2 1.3South Korea 1 2.2 2.1 2.2 2.5 2.6 2.7 2.8Japan 5.2 5.5 5.4 5.2 5.2 5.2 5.2 5.2India 1.2 2.3 2.5 2.7 3.2 3.6 4 4.4Other 3.1 5.7 6 6.7 7.6 8.3 9 9.8China 2.3 5.6 6.4 9.4 10.5 11.9 13.6 15.7Total Asia *13.7 *22.3 *23.3 *27.3 *30.1 *32.7 *35.7 *39.1World *66.5 *79.8 *82.5 *90.7 *97.3 *103.7 *110.4 *117.6% Total *21% - *28.2 - - - - *33%

1990 2003 2004 2010 2015 2020 2025 2030

History Projections

Source: EIA, IEO2007, Appendix A, p. 88

44

0

10

20

30

40

50

60

70

1990 1995 2000 2005 2010 2015 2020 2025 2030

Reference Low Price

High Price

ProjectionsHistory

Low Growth

High Growth

Net Import Share of U.S. Liquid Fuels Consumption, 1990-2030percent

45

0

20

40

60

80

100

1990 1995 2000 2005 2010 2015 2020 2025 2030

Reference

High Price

Low Price

ProjectionsHistory

2005 dollars per barrel

World Oil Prices in Three Cases, 1990-2030

Average world oil prices in 2030 are $36, $59, and $100 per barrel in 2030

46

Oil Price Sharply Affects Global Demand for All Liquids

(Millions of Barrels Per Day - Source: EIA, International Energy Outlook, 2007,

0

20

40

60

80

100

120

140

160

HistoryLow PriceReferenceHigh Price

History 66.3 84.3Low Price 93 112.9 133.7Reference 90.7 103.8 117.7High Price 87.7 91.6 103.4

1990 2005 2010 2020 2030


47

How Oil Price Could Affect Energy Demand by Type in 2030

Source: EIA, IEO 2007pg. 13.


48

World Unconventional Liquids Production as Percent of Total: 2005-2030

Source: DOE/EIA AEO 2007.


49

World Unconventional Liquids Production in theReference Case, 1980-2030

0

2

4

6

8

10

12

Mill

ion

Bar

rels

Oil

Equ

ival

ent p

er D

ay

Other Gas-To-LiquidsCoal-To-LiquidsBiofuelsUltra Heavy CrudesCanadian Oil Sands

Other -0.03 -0.03 0.19 0.18 0.01 0.01 0.01 0.03 0.04Gas-To-Liquids 0 0.03 0.33 0.29 0.23 0.51 0.81 0.95 1.17Coal-To-Liquids 0.01 0.09 0.13 0.08 0.26 0.59 1.1 1.78 2.38Biofuels 0.05 0.15 0.21 0.35 1.25 1.43 1.5 1.62 1.66Ultra Heavy Crudes 0 0 0.2 0.57 0.86 0.98 1.15 1.43 1.65Canadian Oil Sands 0.15 0.38 0.67 1.09 1.9 2.3 2.7 3.2 3.6

1980 1990 2000 2004 2010 2015 2020 2025 2030

History Projections

Note: “Other” includes shale oils and other unidentified sources of unconventional liquid fuels. Source: EIA, IEO2007

50

Oil Production Risks

51

Market is Only Part of the Story: Impact of Oil Disruptions

51

The following outlines key oil supply disruption incidents:

1956: the Suez War caused 1.0 MMBD supply shortages for 4 months.1967: The ’67 Arab-Israeli War caused 2.0 MMBD supply shortages for 2 months.1974: The October War caused an oil embargo that cut the supply by 2.6 MMBD for 6 months. During that disruption, the world oil price tripled, from about $4 a barrel to about $12 a barrel. 1979: the Iranian Revolution caused 3.5 MMBD supply shortages for 6 months.1980: the Iran-Iraq War caused 3.3 MMBD supply shortages for 3 months.1990: the Iraqi invasion of Kuwait caused the loss of 4.3 MMBD or 13% of the world export market. This led to a doubling in the world oil price from July to October 1990, from about $16.50 to about $33 a barrel. 2002: strikes and unrest in Venezuela caused 2.1 MMBD supply shortages for 3 months.2003: unrest in Nigeria caused 0.3 MMBD supply shortages for 6 months2003-Present: Iraq War caused on average 1.0 MMBD supply shortages. Iraq’s oil production is still lower than pre-war levels2006: unrest in Nigeria caused 0.4 MMBD supply shortages.

52

0

5

10

15

20

25

30

35

40

19701971

19721973

19741975

19761977

19781979

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

Cur

rent

US

Dol

lars

Oil Embargo

Iranian Revolution

Iran-Iraq War: Starts

Iran-Iraq War: End

Gulf-War Starts

Gulf-War: Ends

Oil Crash Starts

Iraq-War: Starts

Nigerian Unrest

The 911 Attacks

Desert Fox

al-Qaeda attacks in Saudi start

KatrinaVenzuelan Strikes and Unrest

Oil Crash Ends

Source: EIA, “Crude Prices by Selected Type 1970-2005,” available at: http://www.eia.doe.gov/emeu/aer/txt/ptb1107.html. Note: These prices are averages of several types: Saudi Light, Iranian Light, Libyan Es Sider, Nigerian Bonny Light, Indonesian Minas, Venezuelan Tia Juana light Mexico Maya, and UK Brent blend

52History of Oil Shocks: 1970-2005Overtimes: more incidents, more frequent volatility, higher risk of asymmetric attacks, and more geopolitical uncertainties.

http://www.eia.doe.gov/emeu/cabs/World_Energy_Hotspots/Overview.html

53

Current DOE/EIA Oil and Gas “Hotspots”

Thousands of BB/D

Country/Region in 2004 in 2010

Algeria (Gas and Oil) 1,900 2,000

Bolivia (24 Tcf) 40 45

Caspian Sea (Gas & Oil) 1,800 2,400-5,000

Caucasus Region (Gas & Oil) ( pipeline transit)

Columbia 351 450

Ecuador 535 850

Indonesia (Oil shifting to Gas) 900 1,500

Iran (Gas and Oil) 4,100 4,000

Iraq 2,025 3,700

Libya Gas and Oil) 1,600 2,000

54

Current DOE/EIA Oil and Gas “Hotspots” II

Thousands of BB/D

Country/Region in 2004 in 2010

Nigeria 2,500 2,600

Russia (Gas & Oil) 9,300 11,100

Saudi Arabia (gas & Oil) 10,400 13,200

Sudan 344 530

Venezuela 2,900 3,700

Total “at Risk” 38,895 45.475

Adapted from DOE/EIA, “World Energy Hostpots,”

http://www.eia.doe.gov/emeu/cabs/World_Energy_Hotspots/Overview.html

55

Global Chokepoints 1Bab el-Mandab Closure could keep tankers from Gulf from reaching the Suez Canal/Sumed pipeline complex, diverting them around the southern tip of Africa

• Oil Flows: 3 million bbl/d• Destination of Oil Exports: Europe, United States, Asia

Bosporus Export routes for production from the Caspian Sea region pass westwards through the Black Sea and the Turkish Straits en route to the Mediterranean Sea and world markets.

• Oil Flows: 3.1 million bbl/d• Destination of Oil Exports: Western and Southern Europe

Strait of Hormuz The Strait of Hormuz is by far the world’s most important chokepoint: Oman/Iran; connects Persian Gulf with the Gulf of Oman and the Arabian Sea

• Oil Flows: 17.0 million bbl/d• Destination of Oil Exports:Japan, United States, Western Europe

55

56

Global Chokepoints: 2Malacca: Connects the Indian Ocean with the South China Sea and the Pacific Ocean.

• Oil Flows: 11.7 million bbl/d• Destination of Oil Exports:Japan, South Korea, China, other Pacific Rim countries

Panama Canal: United States is not heavily reliant on the Panama Canal for its petroleum imports.

• Location: Panama; connects the Pacific Ocean with the Caribbean Sea and Atlantic Ocean• Oil Flows): 0.5 million bbl/d; Trans-Panama pipeline 0.1 million bbl/d

Suez/Sumed: Closure of the Suez Canal and/or Sumed Pipeline would divert tankers around the southern tip of Africa , adding greatly to transit time.

• Oil Flow): 3.8 million bbl/d northbound, and 0.4 million bbl/d southbound. • Destination of Sumed Oil Exports: Predominantly Europe; also United States.

http://www.eia.doe.gov/cabs/World_Oil_Transit_Chokepoints/Full.html

57

Gulf Oil Dynamics

58

Gulf Energy as Percent of World

0

50

100

Crude Oil Reserves 55Natural Gas Reserves 40Oil Production Capacity 32Oil Piduction 28Excess Oil ProductionCapacity

83

Source: IEO 2007

59

Gulf Proven Natural Gas Reserves

0

200

400

600

800

1000

1200

TCF 993 895 249 214 112 63 17 3% of World 15.5 14 3.9 3.3 1.7 1 0.3 NA

Iran Qatar Saudi UAE Iraq Kuwait Yemen Bahrain

(In Trillions of Cubic Feet)

Source: BP Statistical Review, 2007

60

Gulf Proven & Undiscovered Conventional Oil Reserves

0

50

100

150

200

250

300

350

400

% of World Proven 22.10% 11.10% 9.70% 8.30% 8.20% 1.30% 0.50% 0.10% 0.05%% of World Undiscovered11.90% 7.30% 6.20% 0.50% 1.10% 0.50% 0.50% 0.00% 0.10%Undiscovered 87.09 53.11 45.10 3.84 7.70 3.62 3.45 0.00 0.90Proven 264.30 137.50 115.00 101.50 97.80 15.20 5.60 2.50 ?

Saudi Iran Iraq Kuwait UAE Qatar Oman Neutral Zone Bahrain

(In Billion Barrel of Oil)

Middle East

Source: BP 2005, USGS 2000, EIA 2005

61

Gulf Oil Production: 2005-2030(In MMBD in EIA/DOE Reference Case in IE0 2007)

0

5

10

15

20

25

30

35

40

45

UAESaudi ArabiaQatarOmanKuwaitIraqIran

UAE 2.8 3.3 3.8 4.5 4.7 4.9Saudi Arabia 10.7 8.9 9.4 10.4 12.9 16.4Qatar 1.1 1.6 2 2.4 2.6 2.9Oman 0.6 0.6 0.5 0.5 0.5 0.5Kuwait 2.7 2.8 3.2 3.9 4 4.1Iraq 1.9 2.5 3.3 4.2 4.8 5.3Iran 4.2 4.2 4.3 4.5 4.8 5

2005 2010 2015 2020 2025 2030

61


62

Gulf Share of Global Oil Production: 2005-2030

(In Percent in EIA/DOE reference case in IE0 2007)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Persian Gulf

OPEC

Global Total(MMBD)

Persian Gulf 28% 26% 27% 29% 31% 39%OPEC 42% 42% 43% 45% 46% 48%Global Total (MMBD) *84.3 *90.7 *97.4 *103.8 *110.4 *117.7

2005 2010 2015 2020 2025 2030

62


63

Gulf Oil Production: 2005-2030(In MMBD in EIA/DOE high price case in IE0 2007)

0

5

10

15

20

25

30

35

UAESaudi ArabiaQatarOmanKuwaitIraqIran

UAE 2.8 3.1 3.1 3.4 3.6 3.7Saudi Arabia 10.7 7.6 8.3 8.4 10.1 11.6Qatar 1.1 1.5 1.8 2.2 2.3 2.8Oman 0.6 0.6 0.5 0.5 0.5 0.5Kuwait 2.7 2.7 2.6 2.9 3 3.1Iraq 1.9 2.4 2.7 3.2 3.6 4Iran 4.2 4 3.5 3.4 3.6 3.8

2005 2010 2015 2020 2025 2030

63


64

Gulf Share of Global Oil Production: 2005-2030

(In Percent in EIA/DOE high price case in IE0 2007)

0%

10%

20%

30%

40%50%

60%

70%

80%

90%

100%

Persian Gulf

OPEC

Global Total(MMBD)

Persian Gulf 28% 24% 25% 26% 27% 28%OPEC 42% 40% 40% 40% 41% 42%Global Total(MMBD)

*84.3 *87.7 *88.4 *91.6 *97.6 *103.4

2005 2010 2015 2020 2025 2030

64


65

MENA Oil Infrastructure

66

Gulf Chokepoints 1Strait of Hormuz: Entrance to Gulf from Indian Ocean: The Strait of Hormuz is byfar the world’s most important chokepoint: Oman/Iran; connects Persian Gulf with the Gulf of Oman and the Arabian Sea

• Oil Flows: 17.0 million bbl/dBab el-Mandab: Entrance to Red Sea From Indian Ocean: Closure could keep tankers from Gulf from reaching the Suez Canal/Sumed pipeline complex, diverting them around the southern tip of Africa

• Oil Flows: 3 million bbl/dEast-West Pipeline: Abqaiq to Yanbu on Red Sea:

. Oil Flows: 5 million bbl/d.Abqaiq-Yanbu NGL: Abqaiq to Yanbu on Red Sea:

. Oil Flows: 0.55 million bbl/d.Trans-Arabian: Saudi Arabia to Jordan:

. Oil Flows: 0.05 million bbl/d.

66

67

Gulf Chokepoints 2IPSA: Iraq to Saudi Arabia: Link from Southern Iraq closed. Saudi Arabia used it to carry gas to Yanbu.

• Oil Flows: Conversion possible to 1.65 million bbl/dIraqi Strategic Pipeline: North-South Pipeline in Iraq. Two parallel lines from Rumalia to Kirkuk to Turkey. Only one complete.

• Oil Flows: Not functioning. 700,000 bbl/d with growth to 1.5 million bbl/d.Iraq-Turkey Pipeline: Kirkuk in Iraq to Ceyan in Turkey on the Mediterranean. Sporadic use.

. Oil Flows: Two parallel lines with 1.5 million bb/ld design capacity and 300,000 near term with repairs.

Iraq-Syria-Lebanon Pipeline: Connects Kirkuk oil area to Banias in Syria. Use halted after 2003 invasion. Two pipelines with combined capacity of 700,000 bbl/d. Once carried 450,000-600,000 bbl/d/

. Oil Flows: 200,000 bbl/d before 2003Gulf Strategic Pipeline: Plan to build lines to ports in Oman on Red Sea.• Oil Flows: 1.5 million bbl/d plus.

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68

Asymmetric Warfare: Iran as a Case Study

Three “Kilo” submarines with long-range wire-guided and homing torpedoes, bottom mines (?), anti-ship missilesSmart mines, bottom mines, influence mines.Ship, land, air anti-ship missiles.Small, “stealth” missile patrol boats20,000 men in Naval Guards Branch.Small craft armed with ATGMs, recoilless rifles, RPGs.Any ship is a mine layer.Floating mines.“Single round” attacks by infiltrator, sea, or air.

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Global Gas Dynamics

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Gas Modeling and Vulnerability Still Limited

Costs of expansion of capacity very uncertain on global level as is technology gain.Expect to become major source of global exports-imports.Many pipeline and LNG project have very uncertain timing, cost and viability.Competitiveness with other energy sources and oil exports very uncertain

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Proved Natural Gas Reservesat End 2006

Source: BP Amoco Statistical Review of Energy 2007

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Key Gas Producers: 2003-2030(In TCF in EIA/DOE reference case in IE0 2006)

0

5

10

15

20

25

30

35

40

45

OECD N. AmericaOECD EuropeOECD AsiaRussiaMiddle EastOther Asia

OECD N. America 27.1 26.4 29.3 30.4OECD Europe 10.7 10.9 10.7 10.3OECD Asia 1.5 2.4 3.9 4.8Russia 21.8 26.8 33.5 41.5Middle East 9.1 14.2 19.8 26.2Other Asia 9.7 12.9 19.9 27.4

2003 2010 2020 2030

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The Russian Gas and Energy IssueCritical European Dependence

• Gas reserves of 1.680 TcF, Prod 22.4 Tcf, Exp 7.1 TcF.• Oil reserves of 60 billion proved+67 billion prob/poss.

Uncertain ability to reach projected production.• Gas rises from 21.8 TCF in 2003 to 41.5 in 2030.• Oil from 8/5 MMBD to 11.6 MMBD.

Cost of investment to reach these levels unknown.Major pipeline issues to Europe. China, and control of Caspian and Central Asia.Bypass Eastern Europe?

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European Dependence on RussiaPercentage of total natural gas consumption in order of total volume imported. EIA,

IEO 2006

0

20

40

60

80

100

120

GermanyItalyTurkeyFranceHungaryFinlandSlovakiaPolandCzechAustriaBulgariaRomaniaGreeceSwiss

Germany 44Italy 29Turkey 65France 26Hungary 72Finland 100Slovakia 100Poland 60Czech 82Austria 83B l i 94

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Asian Gas DependenceNon-OECD Asia accounts for much of the growth in natural gas demand projected for the non-OECD region. Led by demand in China and India, natural gas consumption in non-OECD Asia expands by 5.1 percent per year on average from 2003 to 2030. In both China and India, natural gas is currently a minor fuel in the overall energy mix, representing only 3 percent and 7 percent, respectively, of total primary energy consumption in 2003; Both countries are rapidly expanding infrastructure to facilitate natural gas consumption, as well as natural gas imports. In the reference case, natural gas consumption grows at an average annual rate of 6.8 percent in China and 5.9 percent in India.

Source: DOE/EIA, IEO 2006, “Natural Gas”

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Asian Natural Gas Consumption in theEIA Reference Case, 1990-2030

0

5

10

15

20

25

30

35

40

Trilli

on C

ubic

Fee

t

Aus/NZ 0.8 1.1 1.1 1.2 1.4 1.5 1.6 1.7South Korea 0.1 0.9 1 1.1 1.2 1.3 1.4 1.5Japan 1.9 3 3 3.6 3.9 4 4.2 4.3India 0.4 1 1.1 1.8 2.1 2.6 3.2 3.9China 0.5 1.1 1.4 2.8 3.7 4.6 5.7 7Other 2 5.6 6 7.9 10 12 14.1 16.5Total Asia *5.7 *12.7 *13.5 *18.4 *22.3 *26.1 *30.2 *34.9World *73.4 *96.0 *99.6 *115.9 *129 *141.1 *152 *163.2% Total *8% - *14% - - - - *21%

1990 2003 2004 2010 2015 2020 2025 2030

History Projections

Source: EIA, IEO2007, Appendix A, p. 89

Documents

Global Energy, Economic Interdependence, Iraq And the Gulf