the energy security drivers for alternative energy investments

The energy security drivers

for alternative investments

Jeremy Leggett

We are living through a triple crunch

Credit …the credit crunch

Carbon …the climate crunch

Oil …the energy crunch

October 29th 2008

The first multi-company attempt to sound an

alarm bell on premature peak oil

www.peakoiltaskforce.net

US-48

0

5

10

15

20

25

30

1930 1950 1970 1990 2010 2030 2050

Dis

cove

ry G

b

010002000300040005000600070008000900010000

Prod

uctio

n kb

/d

Productionbilli

ons

of b

arre

ls

Source: ASPO

USA 48 production versus discovery

US-48

0

5

10

15

20

25

30

1930 1950 1970 1990 2010 2030 2050

Dis

cove

ry

010002000300040005000600070008000900010000

Prod

uctio

n kb

/d

Production

Source: ASPO

billi

ons

of b

arre

ls USA 48 production versus discovery

US-48

North Sea oil production

Source: Oil Drum Europe

0

10

20

30

40

50

60

1930 1950 1970 1990 2010 2030 2050

billi

ons

of b

arre

ls

Past discovery Future discovery Past production

?

Expectation of future production

Concerns:

• Collapsing giant-field discovery

• Collapsing giant field production

• Flow rates fall from 2013

Global production versus discovery

-4000

-2000

0

2000

4000

6000

8000

10000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

total 3 month S lip 0.9 4.5% Depletion Net

Source: ITPOES 2008

Flow rates versus depletion

Total

Net

4.5% depletion

3 month slip

0.9

10

8

6

4

2

0

-2

-4

mbd

0

10

20

30

40

50

60

1930 1950 1970 1990 2010 2030 2050

billi

ons

of b

arre

ls

Past discovery Future discovery Past production

?

Expectation of future production

• Lead times average 6-7 yrs

• EOR only slows production drop

• Phantom reserves

Global production versus discovery Concerns:

• Collapsing giant-field discovery

• Collapsing giant field production

• Flow rates fall from 2013

Real Discovery Trend

0

10

20

30

40

50

60

1930 1950 1970 1990 2010 2030 2050

Past discovery Future discovery Past production

Expectation of future production

Future production

billi

ons

of b

arre

lsGlobal production versus discovery

Source: ASPO

0

10

20

30

40

50

1930 1950 1970 1990 2010 2030 2050

Pro

duct

ion,

Gbo

e/a

Non-con Gas

Gas

NGLs

Polar Oil

Deep Water

Heavy

Regular

Concerns:

• Investment shortfall

bill

ion

ba

rrel

sGlobal production of oil and gas

0

20

40

60

80

100

120

140

160

S eries 1

S eries 2

Oil price160

140

120

100

80

60

40

20

2004 200720062005 2008

Marginal cost tar sands production$Marginal cost offshore Angola production

Falling real investment in exploration

1999-2006

0

10

20

30

40

50

1930 1950 1970 1990 2010 2030 2050

Pro

duct

ion,

Gbo

e/a

Non-con Gas

Gas

NGLs

Polar Oil

Deep Water

Heavy

Regular

• State of aged infrastructure

• Tar sand flow rates too low

• CTL flow rates too low

• GTL flow rates too low

• Absence of oil shale technology

• Gas needed for power

• Age skew and skills shortage

bill

ion

ba

rrel

sGlobal production of oil and gas Concerns:

• Investment shortfall

0

10

20

30

40

50

1930 1950 1970 1990 2010 2030 2050

Pro

duct

ion,

Gbo

e/a

Non-con Gas

Gas

NGLs

Polar Oil

Deep Water

Heavy

Regular

Source: ASPO

bill

ion

ba

rre

lsGlobal production of oil and gas

75000

80000

85000

90000

95000

100000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Thou

sand

b/d

C rude s upply D emand (1.6% /yr)

Supply versus demand

Source: ITPOES 2008

mbd

100

95

90

85

80

75

Gulf of Mexico• Russia

• Saudi Arabia

• Iraq

• Iran

• Kuwait

Key countries

Gulf of Mexico• Russia

• 5 months of falling production

• ex-government officials and current Lukoil officials say they are past peak

Key countries

“I keep no secret from you that, when there were some new fields, I told them ‘no, leave it in the ground, with grace from God, our children need it’.”

King Abdullah, 2008

• Saudi Arabia

• Former head of E&P says they are near peak

• Plan to get 20 GW electric power in next 5 years ….mostly from oil

Gulf of Mexico• Iraq

• ….IOC concerted entry doubtful without a Petroleum Law agreed

Key countries

• Kuwait

• government admitted in 2007 that they have less than half the “proved” reserves quoted for years now

• parliament believes they should use what remains at home

• Iran

• the highest domestic growth rate in the world ….so fast analysts say it will threaten export potential soon

Who to believe?

oil

gas

gas

oil

“as long as the music is playing, you’ve got to

get up and dance.

We’re still dancing.”

• ..\y My Pictures\untitled.bmp

Dubai 1990

• ..\y My Pictures\untitled.bmp

Dubai 2007

No combination of non-fossil technologies will be able quickly to close the post peak-oil energy gap

31003100

Oil 35%79

Coal 25.3%

Gas 20.7%

Nuclear 6.3%

Combustible renewables and waste

10%

Hydro 2.2%

Wind, geothermal, solar, etc 0.5%

Source: IEA

Gulf of Mexico

UK Government

strategic energy review press release 4 February 2002

“We could achieve a virtually zero carbon energy system in the long term …this is technologically

and economically feasible …”

“….solar energy alone could meet world energy demand using less than 1% of land now under crops and pasture…”

The potency of low carbon technologies

15% above current EU consumption

The ultimate resource potential of renewables in a world of 10 billion people

Source: Shell Energy Scenarios 2001

“Oil fields have a declining curve – you find one, it peaks and starts downhill, you’ve got to find another one to replace it. It drives you crazy! With wind, there’s no decline.”

T. Boone Pickens

South Yorkshire Housing Association

McDonough and Partners

FT, 21st Oct 2006

Mobilisation rates

Climate change policy response scenario

Peak oil “descent” scenario

Peak oil “collapse” scenario

End goal for replacement of oil use

Within 42 years

Within < 20 years

Within < 10 years

Annual rates of oil replacement with respect to 2008

2.38% c. 5% >10%

Source: ITPOES 2008

N

um

bers

Time

The Law of the Few

The Stickiness Factor

The Power of Context

“Look at the world around you. It seems like an immovable, implacable place. It is not. With the slightest push – in just the right place – it can be tipped.” Malcolm Gladwell

TIPPING POINT

The “seeing is believing” effect

Join us

• UK ITPOES will continue its work

…net energy next

• Industry stakeholder engagement is needed in other countries

• Investor leadership is needed in the “green new deal”

1989 - 1997 1998 - 2005

Thank you

jeremy.leggett@solarcentury.com

www.solarcentury.com

www.solar-aid.org