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ASIA IN THE WORLD ECONOMY
Section II:Energy
Classes & Topics
6. Energy Demand7. Energy Supply8. Case Study: China
Where Supply & Demand Meet9. Energy & The Environment
ASIA IN THE WORLD ECONOMY
Class #7:Energy Supply
Topics:
1. Sources of Energya. Feedstocksb. Location of Stocksc. Destination of Flows
2. Value Chainsa. Upstream Value Addedb. Downstream Value Addedc. Vertical Integration, Market Fragmentation
3. Supply Linesa. Nationalb. Regionalc. Global
4. Energy Securitya. Macroeconomicb. Defensec. Risk
SOURCES OF ENERGY: FEEDSTOCKS
Source: John Holdren, ENR-302 - Energy Policy: Technologies, Systems and Markets
050
100150200250300350400450500
1850 1875 1900 1925 1950 1975 2000
EJ/
year
GasOilCoalNuclearHydro +Biomass
The ‘Big 3’ Feedstocks Are Oil, Coal & Natural Gas
World Energy Use 1850-2000
LOCATION OF ‘BIG 3’ FEEDSTOCKS
Source: BP, Energy Statistical Review, 2008.
Global Energy Resource Distribution: ‘Big 3’(proved reserves, 2007)
LOCATION OF ‘BIG 3’ FEEDSTOCKS
Coal is More Ubiquitous Globally than Oil & Gas--Only Europe & theFormer Soviet Union Have Abundant Reserves of All Three
Source: BP, Energy Statistical Review, 2008.
SOURCES OF ENERGY: REGIONAL VARIATION
Source: Sarah Emerson, Energy Security Analysis, Inc.
Global Primary Energy Demand: Consumption by Fuel(% of total fuel consumption, 2007)
Local Availability is a Major Determinant of Supply
DESTINATION OF ENERGY FLOWS
Global Energy Markets: Domestic vs. Cross-Border Flows(% of total production, 2007)
The geographic markets for energy feedstocks vary widely:Among the ‘Big 3’, oil is the most widely traded across nationalborders given the different location of markets vs. sources ofsupply. Coal, by contrast, is the least traded, since it is oftenfound near major markets. Prevailing technology also plays a
role: Cross-order electricity trade, for example, requirescontiguous borders.
62%38%Oil
26%74%Natural Gas (via pipeline & liquified)
17%83%Coal
< 5%95+%Hydro/Nuclear Electricity
ExportedSold DomesticallySource of Energy
Source: BP, Energy Statistical Review, 2008.
DESTINATION OF FLOWS: ASIA
Net Imports
Asia’s Production and Consumption of Energy(as % of world levels)
ASIA IN THE WORLD ECONOMY
Class #7:Energy Supply
Topics:
1. Sources of Energya. Feedstocksb. Location of Stocksc. Destination of Flows
2. Value Chainsa. Upstream Value Addedb. Downstream Value Addedc. Vertical Integration, Market Fragmentation
3. Supply Linesa. Nationalb. Regionalc. Global
4. Energy Securitya. Macroeconomicb. Defensec. Risk
QUESTION: VALUE CHAIN
What are the principal factors of production at each stage in the valuechain? Who owns these factors?
OIL & GAS VALUE CHAIN: UPSTREAM
2.3Shell2.3KNPC (Kuwait)
2.5BP3.8NIOC (Iran)
2.6ExxonMobil8.6Saudi Aramco
Crude OilProduction
(million barrels/day, 2005)
International OilCompanies (IOCs)
Crude OilProduction
(million barrels/day, 2005)
National OilCompanies (NOCs)
National Oil Companies Currently Dominate the Upstream Value Chain
Land, Capital, & Technology-Intensive
OIL & GAS VALUE CHAIN: UPSTREAM
And in the future, National Oil Companies (NOCs) will continue todominate upstream sources of supply
UPSTREAM OIL PRODUCTION
Leveling Supply
Oil Production (1987-2007)
Declining Supply
Source: BP, Energy Statistical Review, 2008.
OIL & GAS VALUE CHAIN: DOWNSTREAM
BP
Shell
ExxonMobil
InternationalOil Companies(IOCs)
3.9
5.2
5.7
RefiningCapacity(million barrels/
day, 2005)
156%48%1.1KNPC (Kuwait)
226%39%1.5NIOC (Iran)
219%29%2.5Saudi Aramco
Refining‘Intensity’(percentage of
crude production)
Refining‘Intensity’(percentage of
crude production)
RefiningCapacity(million barrels/
day, 2005)
National OilCompanies(NOCs)
International Oil Companies Dominate the Downstream Value Chainin a System of ‘Tapered Vertical Integration’
Capital,Technology, &
Marketing-Intensive
ASIAN DOWNSTREAM MARKETS
High levels of fragmentation across downstream markets
Variation Across Asian Energy Markets
ASIA IN THE WORLD ECONOMY
Class #7:Energy Supply
Topics:
1. Sources of Energya. Feedstocksb. Location of Stocksc. Destination of Flows
2. Value Chainsa. Upstream Value Addedb. Downstream Value Addedc. Vertical Integration, Market Fragmentation
3. Supply Linesa. Nationalb. Regionalc. Global
4. Energy Securitya. Macroeconomicb. Defensec. Risk
DOMESTIC VS. EXPORT MARKETS
Global Energy Markets: Domestic vs. Cross-Border Flows(% of total production, 2007)
Most energy sources are sold where they are produced.
62%38%Oil
26%74%Natural Gas (via pipeline & liquified)
17%83%Coal
< 5%95+%Hydro/Nuclear Electricity
ExportedSold DomesticallySource of Energy
Source: BP, Energy Statistical Review, 2008.
INTRA-REGIONAL & CROSS-REGIONAL SUPPLY LINES
7 Largest Cross-Border Flows of Fuels
Asia Has Limited Regional Sources of Fuels, in Marked Contrast to Europe and North America, Leaving It Exposed To The Risks of
Longer Supply Lines Crossing More Unstable Parts of the World
Cross-National Flows*Exports
(US$ million) Annual Change
2006 2000-06 2005 2006
Middle East to Asia $ 323.3 161% 42% 181%
Intra-Europe $ 196.7 19% 44% 24%
Intra-Asia $ 177.2 146% 39% 18%
CIS to Europe $ 139.2 25% 50% 28%
Intra-North America $ 120.9 120% 38% 10%
Africa to Europe $ 80.9 15% 47% 22%
Middle East to Europe $ 59.5 11% 42% 14%Source: WTO, 2008. Notes: *This figure includes limited mining products
REGIONAL SUPPLY LINES: US ENERGY SOURCES
North American Sources (US, Canada, Mexico) = 50%North + South American Sources = 64%
Atlantic Basin Sources (Americas + West Africa) = 79%
Source: BP Statistical Review of World Energy, June 2008.
GLOBAL SUPPLY LINES: MIDDLE EAST
Dependence on Middle East Oil(% of total oil consumption, 2007)
Wide Variation in Relative Exposures to the Risks of Longer Supply Lines & Middle East Instability, with Asian Economies
More Directly Exposed
Source: BP, Energy Statistical Review, 2008.
ASIAN SUPPLY LINES: MIDDLE EAST & AFRICA
Source: Energy Security Analysis, Inc., 2007.
The Source of Crude Oil Imports in the 4 Largest Asian Economies
(% of total crude oil imports, 2007)
For Asian Importers, The Security of Energy Supply Lines Originating In The Gulf and, Increasingly, Africa is Essential for Continued Growth
ASIAN SUPPLY LINES: MIDDLE EAST EXPORTERS
Source: BP Statistical Review of World Energy, June 2008.
For Middle East Exporters, The Security of Long Supply Lines Is Essential to Their Continued Economic Growth
ASIA IN THE WORLD ECONOMY
Class #7:Energy Supply
Topics:
1. Sources of Energya. Feedstocksb. Location of Stocksc. Destination of Flows
2. Value Chainsa. Upstream Value Addedb. Downstream Value Addedc. Vertical Integration, Market Fragmentation
3. Supply Linesa. Nationalb. Regionalc. Global
4. Energy Securitya. Macroeconomicsb. Defensec. Risk
QUESTION: ENERGY SECURITY
WHAT ARE THE PRINCIPLERICKS ASSOCIATED WITH ENERGY SUPPLY?
HOW ARE THESE MANAGED & MITIGATED?
WEALTH & ENERGY CONSUMPTION, 2007
Source: IMF & World Bank, April 2008; US Department of Defense, 2007.
91FRANCE10. 1.8ITALY10.
97BRAZIL9. 1.8BRAZIL9.
8.
7.
6.
5.
4.
3.
2.
1.
99SAUDI ARABIA 2.0FRANCE8.
108SOUTH KOREA 2.1RUSSIA7.
113GERMANY 2.1UK6.
126RUSSIA 2.8GERMANY5.
129INDIA 2.8INDIA4.
229JAPAN 4.3JAPAN3.
368CHINA 7.0CHINA2.
943USA13.8USA1.
704EU14.7EU
3,953WORLD64.9WORLD
2007 GDP AT PPP FX RATES(US$ trillion)
2007 OIL CONSUMPTION(million tons)
The Geographic Concentration Of Wealth & Of Oil Consumption Are Highly Correlated--8 Of The Top 10 Are The Same--
So The Security of Oil Supplies is Essential to Economic Growth
WEALTH & MILITARY SPENDING, 2007
Source: IMF & World Bank, April 2008; US Department of Defense, 2007.
22INDIA10. 1.8ITALY10.
24SOUTH KOREA9. 1.8BRAZIL9.
8.
7.
6.
5.
4.
3.
2.
1.
25SAUDI ARABIA 2.0FRANCE8.
36GERMANY 2.1RUSSIA7.
41JAPAN 2.1UK6.
45FRANCE 2.8GERMANY5.
55UK 2.8INDIA4.
59RUSSIA 4.3JAPAN3.
122CHINA 7.0CHINA2.
644USA13.8USA1.
307US ALLIANCES14.7EU
1,367WORLD64.9WORLD
2007 GDP AT PPP FX RATES(US$ trillion)
2006-07 MILITARY BUDGETS(US$ billion)
The Geographic Concentration Of Wealth & Of Military Spending Are Also Highly Correlated--Again, 8 Of The Top 10 Are The Same--
So Military Security is Essential for Economic Growth
MILITARY SPENDING & ENERGY CONSUMPTION
Source: IMF & World Bank, April 2008; BP Statistical Review of World Energy, June 2008.
91FRANCE10. 22INDIA10.
97BRAZIL9.24SOUTH KOREA9.
8.
7.
6.
5.
4.
3.
2.
1.
99SAUDI ARABIA25SAUDI ARABIA8.
108SOUTH KOREA 36GERMANY7.
113GERMANY41JAPAN6.
126RUSSIA 45FRANCE5.
129INDIA 55UK4.
229JAPAN 59RUSSIA3.
368CHINA 122CHINA2.
943USA644USA1.
704EU307US ALLIANCES
3,953WORLD1,367WORLD
2006-07 MILITARY BUDGETS(US$ billion)
2007 OIL CONSUMPTION(million tons)
The Geographic Concentration Of Military Spending & Oil Consumption Are Very Highly Correlated--
This Time, 9 Of The Top 10 Are Identical