Hydrocarbons to Fuel the FutureChoices and Challenges
Dr. Iván Martén
Vice Chairman Energy Practice
December 6, 2016
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 1
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Two distinct worlds are starting to emerge
3,000
2,000
1,000
0
TPED (mtoe)
+1%
2040203520302025202020152000
Baseline
GDP growth
CAGR
2,000
1,500
1,000
500
0
TPED (mtoe)
-11%
2040203520302025202020152000
0
2,000
4,000
6,000
8,000
203520302025202020152000 2040
+53%TPED (mtoe)
2.2% 1.7% 5.1%
Source: IEA (New Policy scenario), BCG Energy Scenario Model
OECD Americas OECD Europe Non-OECD Asia
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 2
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How can we deliver hydrocarbons to sustain growth?
How could oil demand evolve?
How will the interplay of gas and coal play out?
How can Governments collaborate in a world focused
on sustainability?
How can energy efficiency help meet the
growth challenge?
E&P cost
versus return
Oil substitutes
emerging
Gas & Coal usage
trade-off
Sustainability
requires
collaboration
Efficiency to be a
key focus area
5
The hydrocarbon industry faces 5 key choices & challenges
1
2
3
4
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 3
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0
5
10
15
20
2000 2002 2004 2006 2008 2010 2012 2014
$/boe
"E&P cost versus return"
Producers continuously spending more for very little return
Exploration results not hitting the mark
despite high E&P spend......leading to increased Production cost
0
20
40
0
15
30
45
60
2015
2014
2013
Bn boe$Bn
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
TOTAL
Statoil
RD/Shell
Repsol
ExxonMobil
Eni
ConocoPhillips
Chevron
BP
LHS graph for all active companies (371 companies); RHS graph for Big Oil companies: Chevron, ExxonMobil, Shell, Total, BP, ConocoPhilips, Statoil, Eni, RepsolSource: LHS: IHS 2016; RHS: UBS Global Oil & Gas Analyser (Sep, 2015)
1
Liquid volumes
Gas volumesExploration
spend ($Bn)
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 4
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"E&P cost versus return"
Cost of recent LNG projects also reflects this trend1
198019751970 2020200520001995 201519901985 2010
DarwinAtlantic 1
ADGAS
Pluto
$/tpa
Ichthvs
PNG
NLNG Exp
QC
LMLNG
Brunei
Gorgon
APLNG
GLNG
Donggi
Sabine Pass
MLNG T9
QG4NLNG Peru
ELNG 2
QG3
YemenNWS
QG2MLNG Exp
ELNG 1
Oman
Kenai
RG3
Atlantic 2&3
QG1
Snohvit
Angola
Start-up date
Greenfield
Brownfield Recent
"high-cost"
projects
Evolution of Liquefaction Development Costs
0
500
1.000
1.500
2.000
Skikida exp.
Recent LNG projects have dramatically changed
the LNG cost structure
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 5
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Oil substitutes emerging
Today, Transport is about Oil & Oil is largely about Transport2
CoalOil ElectricityGasRenewables Nuclear
Biomass
Road Transport
Air TransportTransport
Transport
Transport
Maritime Transport
Non-OECD
OECD
Source: IEA, BCG Analysis
Other
Space Heating
Power Generation
Feedstock
Industry
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 6
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Oil substitutes emerging
Tomorrow, Transport is poised for disruption2
Technology development...
...drive and is driven by
substitution dynamics
150
125
100
75
50400 300 200 100
Oil price ($/bbl)
Battery cost ($/kWh)
CNG
Gasoline
or diesel
Electricity1
US$ per kWh,
normalized
202520202015
2013
2012
Estimates from 2010 Realized
2010
Tesla
225
600500
1,105
0
300
600
900
1,200
2014
Forecast of Ion-Lithium battery costs
Source: BCG analysis, IEA, Advanced Automotive Batteries, Boston Consulting Group, Deutsche Bank, Electrification Coalition, National Research Council, and Pike Research, SolidEnergy, Scientific American, UBS Q-Series report: "Global Utilities, Ausos & Chemicals" – cost through Umicore, AABC Tesla & UBS estimates,
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 7
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Oil substitutes emerging
Peak oil demand may be likely before 2030
3,500
0
4,000
4,500
5,000
20352025
mtoe
+0.3%/yr
2020
-5%
2015 20402030
Source: IEA, BCG Energy Scenario Model
2
Global Oil Consumption
-8%
-17%
Baseline (New Policies)
GDP @ 3.0%/yr
EV (high)
ICE Effiency (High)
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 8
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Gas & Coal usage trade-off
Left to its own devices non-OECD Asia may gravitate to coal
Country Gas Coal Trend
China 13.9 5.9Cost advantage for Coal, new build focused on inland areas
India 7.3 5.9Coal to remain dominant
Indonesia 7.2 8.9Both coal and gas to gain share in power mix, Coal to remain dominant
Thailand 7.5 6.2Share of Coal in power mix to increase
Malaysia 4.4 6.9Gas price reforms and coal supply security to decide share in power
Vietnam 6.1 6.8Gas & Coal import prices to decide share in power, Coal likely to dominate
Philippines 8.4 8.4Share of Coal in power mix to increase
Note: Including capex & opex, US cents/kWhSource: Coal and gas competition in power generation in Asia, IEA Feb-15 ; Press search ; BCG analysis
Average power generation cost of coal/gas fired power plants
3
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 9
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20
5
15
20
40
0
20
40
60
80
100
Electricity
& heat generation
%
Agriculture, Forest
and Land Use
BuildingsTransportIndustry
Global GHG Emissions 2015
Source: BCG Energy & Emissions model; IPCC report; IEA; WRI
Gas & Coal usage trade-off
GHG emissions driven by 5 sectors3
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 10
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Gas & Coal usage trade-off
COP 21 may prioritize Gas over Coal
1997 Kyoto Protocol
Reduce carbon by 30% below 1990 level
by 2020
Fight global climate change
Quantitative reduction targets agreed to in a
wide range of countries
Carbon market as the most fitting mechanism
for controlling emissions
Possibility of generating profits through
emissions reduction projects (CDM)
Climate change strategies based on mitigation
Signatories representing 15% of emissions
2015 Paris Protocol objective
Firm emissions reduction target by 2050 to
avoid "2 degrees" scenario
Fight global and local climate change
National contributions defined per country in
light of its national circumstances
Different mechanisms being developed
(taxes as the most used mechanism)
No outside support for emissions reduction
projects
Climate change strategies based on both
mitigation and adaptation
Signatories representing 97.1% of emissions
Vs.
Vs.
Vs.
Vs.
Vs.
Vs.
3
Vs.
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 11
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Sustainability requires collaboration
Fast, global & radical action needed to offset global warming
World TPED
(mtoe)
fossil
non-fo
ssil
2050-2DS
15,318
36%
64%
2000
10,084
80%
20%
1971
5,546
85%
15%
Fossil demand
(mtoe)
OE
CD
Non-O
EC
D
2040 New
Policies
14,415
26%
74%
Non-OECD
Increase
4,290
OECD
Reduction
-570
2013
10,696
40%
60%
Non-
OECD
115% of
demand
increase
Note: asset lifetimes are subject to substantial longevity differences depending on region, specs, and economics. Lifetimes can be prolonged or shortened depending on commodity economicsSource: Velocity suite, British Hydro, Shell, Rystad, Lazard, BCG nuclear database, Morgan Stanley, Wind Energy Update, US government, press search, IEA WEO, BCG
0
20
40
60
80
100
20602050204020302020201020001990
CO2 Emission
(GtCO2)
Current
trajectory
2°C
Curve needs to
break
Natural death of
2015 coal plant
4
FastNeed results by 2030
GlobalOECD to support non-OECD
RadicalFossil needs to decline
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 12
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Sustainability requires collaboration
Countries showing good intentions
Renewables: Positive announcements
Green Climate Fund
International Solar Energy Alliance
Aggressive renewable strategy
co-exists with increasing CO2
175
186
246
430
200
400
600
Gas
Coal
Other
FY 2022
533
FY 2016
303
Installed Capacity (GW)
Renewables
10
100
Allocated (as
of Oct 2016)
Pledged (as
of Sep 2016)
10
Announced (per
annum amount)
100
$ billion
To mobilize USD 1 trillion by 2030 for
deployment of affordable solar energyMotive
Source: BCG Research; Installed Capacity graph: CEA; Note: Other = Hydro, Nuclear & Diesel
4
2022 generation mix will
increase CO2 by ~30% in India
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 13
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Sustainability requires collaboration
OGCI – a leading example of collaboration4
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 14
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Sustainability requires collaboration
Producing "more energy, for more people, with fewer GHGs"4
O&G companies
Service companies
Institutions &
Associations
1. Clean cooking solutions including LPG
2. Mini-grids solutions
3. Utilization of gas flaring for energy access
4. Distribution of off grid electricity products
5. Gas to Power for communities, especially
local communities
6. Ecosystem and markets
Working together... ...to find practical solutions
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 15
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Efficiency to be a key focus area
Efficiency will play a major role in meeting growth challenge
Residential lighting (2012) Large home appliances (2012)
0.04
0.03
0.02
0.01
0.00
GJ/m2
-57%
2.5
2.0
1.5
1.0
0.5
0.0
-61%
GJ/unit
Source: IEA BCG analysis
What if the US was as energy efficient as Germany?
230+ TWh saved (>40 coal power plants)
5
20161201_Petrotech_2016_HCs_to_Fuel_Future_Global_v1.pptx 16
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Opportunity to move to a new operating model based on lean
operations, portfolio focus, supplier collaboration & a culture based on
cost consciousness & continuous improvement
Opportune time for oil & gas players to re-think their strategy and
response to a potential disruption in the transportation sector
Balanced intervention required to facilitate a shift towards natural
gas in the growing non-OECD Asian markets
Opportunity for governments and companies to come together
in an over-supplied hydrocarbon market to explore how to achieve
sustainability objectives
Focus on energy efficiency necessary for prudent management
of demand to sustainable levels
E&P cost
versus return
Oil substitutes
emerging
Coal & Gas usage
trade-off
Sustainability
requires
collaboration
Efficiency to be a
key focus area
5
Summary
Some actions and opportunities emerging for the industry
1
2
3
4
Hydrocarbons to Fuel the FutureChoices and Challenges
Dr. Iván Martén
December 6, 2016