The New Geopolitics of Energy

Carlos PascualDACOR

USAID Alumni Association

December 17, 2014

Price Trends

Source: EIA, Brent prices

Crude Oil Price (Brent) in USD

Global Oil Supply and Demand

86

87

88

89

90

91

92

93

94

95

96

mb

/d

Demand

Supply

Source: IEA Oil Market Report

Disruptions at Historic Highs

Source: EIA

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan

20

11

Mar

20

11

May

20

11

Jul 2

011

Sep

201

1

No

v 20

11

Jan

20

12

Mar

201

2

May

20

12

Jul 2

012

Sep

201

2

No

v 20

12

Jan

201

3

Mar

20

13

May

20

13

Jul 2

013

Sep

201

3

No

v 20

13

Jan

20

14

Mar

20

14

May

20

14

Jul 2

014

Sep

201

4

mb

/d

Unplanned Crude Oil Production Disruptions

Other OPEC

Other Non-OPEC

Yemen

Syria

Sudan / S. Sudan

Iraq

Nigeria

Libya

Iran

Where Will the Market Go?

$80 – 85/ barrel

Disruptions?Iraq, Libya,

Nigeria

Additions?Iran, Russia, Saudi Arabia

SupplyNorth American

Growth

DemandAsia- slowing?

OECD flat

Operator Performance Analysis

Compares operator

production in similar

acreage

The best operators

have 3x the

production of the

worst operators

Operational efficiencies can have a dramatic impact on productivity outcomes

Breakeven Prices: Average vs. Best In Class Operator

Source: Drillinginfo, DI Analytics, $7.5MM well cost

China Oil Imports Passing Through Major Chokepoints

Source: NYU Center on International Cooperation

Stealing & selling: 50-60,000 bpd

ISIS Revenue: approx. $2 million/ day

Iraq Oil: 2013 and Beyond2Iraq 2020

Target2013 Avg.

Total Exports

South

North(Kirkuk)

(KRG)

Domestic

Total Production

2.4

2.2

0.2(0.2)

(<0.1)

0.6

3.0

3.3

2.7

0.6(0.3)(0.3)

0.7

4.0

9.4

8.0

1.4(0.4)(1.0)

1.0

10.4

Factors

Fall2014

2.9

2.6

0.3(0.15)(0.15)

0.6

3.5

1Iraq 2014Target

1. Ministry of Oil Projection from February 2014 Energy JCC, and industry reporting

2. Iraq’s Integrated National Energy Strategy, base case scenario, and industry reportingSource: Iraq SOMO

Southern Iraq Oil Export Rehabilitation

• Offshore loadings have been constrained:– Two existing single point

moorings (SPMs) were together at 800 Kb/d effective capacity (<50% of nameplate).

– Nationwide output in December 3 Mb/d.

• Initial Work Completed:– Central Metering-Monitoring

Platform (CMMP) installed.– Adding up to 900 Kb/d of export

capacity from the two existing SPMs.

– Two new SPMs added.

• Other maintenance and upgrades ongoing– New offshore pipelines,

connecting to new SPMs.– ABOT/KAAOT rehabilitation.– Additional pumping/storage.

Source: USG, Iraq Ministry of Oil, IEA, Reuters, Iraq Oil Report

SENSITIVE BUT UNCLASSIFIED

Kurdistan Region: Production and Revenue Scenarios

*Revenue in billions of dollars

Price

A B C

Production Revenue* Production Revenue* Production Revenue*

Kurdistan Region

$80200,000

5.8300,000

8.7400,000

11.6

$100 7.3 10.95 14.6

Kirkuk$80

200,0005.8

300,0008.7

400,00011.6

$100 7.3 10.95 14.6

Total$80

400,00011.6

600,00017.4

800,00023.2

$100 14.6 21.9 29.2

Border Crossings

Sell to local consumers for small-scale generation

Sell to black market at $26/barrel

Transport fuel to Mosul, triple prices

Processed in makeshift refineries in Raqqa, Syria (ISIS ‘capital’), sent to Iraq or smuggled to Turkey

Source: Institute for the Study of War… also sells to Syrian gov’t

European Gas Imports by pipeline and LNG

Source: Gas Infrastructure Europe and IEA Medium-Term Gas Market Report 2010,2014

Trinidad and Tobago, others

LNG Terminals• Existing or Under Construction• ProposedGas Flows• Pipeline• LNG

2010 2013 2019

bcm

OECD Europe Demand

567 504 504

LNG Imports 86.2 45.8 68

Pipeline Imports 301.2 296.3 270

Ukraine Gas Balances (bcm)

2013/2014 2014/2015 10 years

Consumption 50 42 45

Production 20 20 30

Reverse Flow 2 7 15

Supply Gap 28 15 0

Storage 16 16 16 - 10 = 6 30 30

Russia 28 5 Price?

Eastern Ukraine: Russian Intent?

Ukraine

Russian Economic DevelopmentsExchange Rate Plummets Inflation Rises

FX Depreciation Helps Exports People are Poorer

Source: EIA 2013 IEO, IEA 2014 WEIO

World Energy Consumption Forecast

18

0

100

200

300

400

500

600

700

800

900

2005 2015 2025 2035

TotalNon-OECDTotalOECD

Power investment in Asia (GW)

Ch

ina

Ind

ia

SE A

sia

EU

USA

Mid

dle

East

Bra

zil

Jap

an

1600

1200

800

400

0

-400

Total Primary Energy (Quads)

Energy Demand and CO2 Emissions

Source: IEA, World Energy Outlook 2013

Global growth in coal demand from 2013 to 2018 is dominated by Asia

China58%

India20%

ASEAN14%

Korea3%Japan

2%ROW3%

Source: IEA Medium Term Coal Report, 2013

Mtce Projections of coal demand 2013-2018

Growth in global in coal demand 2013-2018 (817Mtce)

Levelized Cost of Energy: Capital Costs, O&M, Performance and Fuel

Source: OpenEI, NREL, DOE

$0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60

Wind-Onshore

Solar- PV

Hydro

Gas -CCGT

Coal- IGCC

Nuclear

USD/kWh

USD million

+1 year

+33%

20%

50 USD/MWh

-10%

26%

120 USD/MWh

-3 500 -3 000 -2 500 -2 000 -1 500 -1 000 - 500 0 500 1 000

Construction duration

Construction cost

Load factor

Electricity price

Wind- Onshore

Global Capacity Flows 2014-2035

2035 generation

(TWh)

Other renewables

Source: IEA, World Energy Investment Outlook 201416%

16%

12%2%

22%

33%

IEA New Policies Scenario

Energy poverty by country: percentage of population vs. total number of people

Energy, Employment & Economic Growth

Dynamic Global Energy Landscape

U.S. Energy Revolution

Structure of Demand

Diversity in Oil Supply

Energy Finance and

Poverty

Competition in Natural

Gas

Fuel Mix and Climate

Change