How should we cope with the energy challenges? 7th...Celtic Exploration(‘13) Enterprise Oil(‘02) Amoco(‘98) Atlantic Richfield(‘00) Burmah Castrol(‘00) Texaco(‘01) Unocal(‘05)

(c) 2016, Eiichi Hasegawa

How should we cope with

the energy challenges?

June 10, 2016

Eiichi HASEGAWA

Special Advisor to the Prime Minister

Agenda


0. To begin with

1. What has happened thereafter?

2. Parameters to be highlighted

3. Conclusions

1

To begin with


“Conclusions” from 2014

It is the case in a consumer country, particularly one with scarce indigenous natural resources, that once investments for energy efficiency are introduced, its energy saving effect will be long-lasting.

Also, we must be careful of high volumes of money awash globally, as this can make the oil market highly sensitive to an unexpected event. Efficient energy consumption structures help a consuming country to be more independent and immune from the unpredictable and fluid environment.

2

To begin with


“Conclusions and proposals” of 2015

Slowing down of development of new oil. Political turmoil in oil supplying countries. Increase of domestic oil consumption in oil supplying countries.

(1) Possible decline of oil-supply

(2) Lessons from past oil cycles Sharp and protracted swings in oil prices do not last forever. The

current down cycle is already the longest peak-to-trough (more than three hundred days).

The opportunities and threats typically emerge quickly.

(3) Individual or corporate level Introduction of energy-conserving equipment Streamlining production line, minimizing inventory Relocating factories, minimizing transporting parts and semi-

complete products, and upgrading logistics

3

To begin with


“Conclusions and proposals” of 2015

(4) Societal level Re-engineering social structures, such as the introduction of a mass-

transport system Upgrading the electricity supply chain and minimizing disruption, to

say nothing of outages

(5) What could we gain? Reduction of the consumption of oil Reduction of wasted time Improvement of the quality of service Improvement of the macro-economic balance Reduction of the clout of oil-supplying countries

4

5

Agenda


0. To begin with



3. Conclusions


(1) Supply-side

U.S. oil production has nearly doubled since 2008, and thus, its oil imports have dramatically reduced, which has had a significant impact on some countries in South America and Africa.

OPEC, since it was agreed upon in November of 2014, does not look to reach consensus.

Iran, with the fourth largest oil reserves, may step up production.


Quote: BP Statistical Review of World Energy 2014

0

10

20

30

40

50

60

70

80

90

100

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

World Oil Production

(million barrel per day)

( OPEC Production )

6


Oil price changeand its consequences New projects have been suspended

Source: Baker Hughes

Which countries have huge oil reserves ?

298

266

174

157

150

102

98

93

49

44

Venezuela

Saudi Arabia

Canada

Iran

Iraq

Kuwait

U.A.E

Russia

Libya

U.S.

Proven oil reserves

In billions of barrels

Source: The Wall Street Journal

(1) Supply-side


Max. 1,609(Oct. 10, 2014)

Min. 316(May 27, 2016)

Active Oil Rigs in US

7


(4) What happened to the oil price?

Dramatically declined since the fall of 2014, and has slightly rebounded recently.

Brent price was $50 /barrel on June 1, 2016, while its peak had been $114 /barrel in 2014.


20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016

$/barrel International Oil Price

WTI

Brent

8


Oil Demand Oil-demand growth forecast for major consuming countries

Source：IEA, Medium-Term Oil Market Report

(2) Demand-side


Source: “Oil-Flow Shift Poses Price Threat,” The Wall Street Journal February 11, 2016

Note: * Projection

-1

0

1

2

3

4

5

10 15 10 15 10 15

IEA medium-term oil demand growth forecasts, by year of report

Middle East

BRIC

million barrels a day

U.S.

9


(3) Oil-related industries

M & AAn example is Royal Dutch Shell PLC’s purchasing of BG Group PLC.

Due to the recent plummeting oil price, the asset value of oil-related companies has generally decreased, thus making the purchase of their stocks less costly.

Source: The Wall Street Journal(c) 2016, Eiichi Hasegawa

$70.0billion

82.0

25.0

52.0

25.5

38.0

18.3

Royal Dutch Shell

Exxon

BP

Chevron

BG(2015)

Duvernay Oil(‘08)

Celtic Exploration(‘13)

Enterprise Oil(‘02)

Amoco(‘98)

Atlantic Richfield(‘00)

Burmah Castrol(‘00)

Texaco(‘01)

Unocal(‘05)

Atlas Energy(‘11)

Mobil(‘99)

XTO Energy(‘10)

5.4

5.0

3.1

4.7

4.5

Net Income as of 2015Shell $ 1,939 mil.BG $ 1,697 mil.

Net Income as of 1998Exxon $ 6,370 mil.Mobil $ 1,704 mil.

Net Income as of 1997BP $ 4,051 mil.Amoco $ 2,720 mil.

Net Income as of 1999BP $ 2,070 mil.Amoco $ 1,177 mil.

10


(3) Oil-related industries

Petrostates need to sell oil at a certain price in order to balance their budgets.

Based on current crude prices many could be facing deficits this year.


Source: “Oil’s Long Plunge Upends Global Order,” The Wall Street Journal, January 20, 2016, modified.

Note: Brent price. Projections for 2016

$49.72 barrelJun. 1

11

12

Agenda

0. To begin with



3. Conclusions




(1) G7 Ise-Shima Summit

Ensuring swift and successful implementation of the Paris Agreement including the long-term aims on mitigation, adaptation, and finance

Investment in supporting innovation in energy technologies and encouraging clean energy and energy efficiency. Energy investments, in particular, investments in quality energy infrastructure and upstream development

Is the low price of energy helpful to G7 countries, the majority of which are net energy importing countries, or not?

13



(2) COP 21

Commitment to reducing global warming gas emission by not only developed countries but also large developing countries such as China

Energy conservation, and not only de-carbonization, but also innovating the social energy consuming structure

--- Increasing renewable energy, natural gas, and safe nuclear energy

14



(3)Dynamics within OPEC member countries

New policy initiative of Saudi Arabia---reducing dependence on oil

To what extent will Iran accommodate other member countries ?

Some financially strapped countries

15



(4) To be noted in some countries China

Reform Initiative vs. Slowing growth pace - Excess producing capacity such as steel- Surplus power generating capacity- Highly polluted atmosphere- Continuous demand in growth of transport

IndiaBrisk growth of economy

- Highly polluted atmosphere- Accelerated construction of roads- Continuous demand in growth of transport

Unanticipated production disruptionsSuch as militant attacks in Nigeria, wildfires in Canada, and political

unrest in Libya16

17

Agenda

0. To begin with



3. Conclusions


3. Conclusions

(2) Diversifying energy sources

Infrastructure

Innovation

Note 1 : Energy consumption per GDP

(1) Raising energy efficiency

(c) 2016, Eiichi Hasegawa 18

3. Conclusions


Sufficient electricity for critical usage such as medical care, financial and other IT networks, and public utilities (supply of water and etc.)

(3) Securing redundant supplies in some cases

(4) Predicting mid-and long-term scenarios

together with scenario B

19

1.626

1.721

1.812 1.753

1.802 1.849

1.984 1.914

1.606

1.456

1.692 1.670

1.428

1.185

1.336

1.080

901 823

776 708 677

621 584 570 551

513 455

376 300 281 253

218 201 191

0

500

1000

1500

2000

2500

Turkey

China

Saudi Arabia

UAE

United State

Japan

3. Conclusions

Energy consumption per GDP has generally improved. There is a significant gap in the pace of improvement among

countries.

Note 1 : Energy consumption per GDP


279 275

324

355 372

341 324 320

311

268

198 200 196 186

246

209 211 208 198

206 217

266

246

200

161

136 137 118

102 119

106 105 111 105

455

376

300 281

253

218 201

191 213

188 201

187 186 174

119 101

88 91 96 85 79

70 65 62 71 78 84 77 72

81 86 79 74 75 79 78 65 62 58 53 52

63

0

100

200

300

400

500

Turkey China Saudi Arabia

UAE United State JapanEnergy Consumption per Unit GDP

Source: IEA “Energy balances of OECD/NONE-OECD countries” (Consumption), IMF (GDP)

tonnse of oil equivalent (toe)/ million dollars of GDP

20

3. Conclusions

Regardless of the oil-price trend, oil consumption in non-OECD countries keeps rising.

Note 2 : Forecast in Oil Demand


Source: “Outlook Dims for Global Oil Use,” The Wall Street Journal, October 22, 2015

Note: Historical demand estimated, and forecast.

21

Documents

How should we cope with the energy challenges? 7th...Celtic Exploration(‘13) Enterprise Oil(‘02) Amoco(‘98) Atlantic Richfield(‘00) Burmah Castrol(‘00) Texaco(‘01) Unocal(‘05)