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The Future for Energy – Focus on Alt ti F lAlternative Fuels
Andrew Pincott, Partner, Energy IndustryM h 2008March 2008
Copyright © 2008 Accenture. All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.
Introduction1. Context of the world we are in
2. Impacts on Supply and
3. Role of alternative fuelsSupply and
Demandalternative fuels
World Oil Demand by Region - 2006 vs. 2030
40.0
45.020062030
mmbpd
Energtical
14.8 4.6 4.0 2.7 1.8 0.70.3
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Asia Pacific Middle East NorthAmerica
LatinAmerica
Africa Europe Eurasia
Kuwait
gy IndustryGeo-
Polit
i
LeverageRespo
nd
Manage
World Oil Supply by Region - 2006 vs. 2030
-2.6 -3.510.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0 20062030
mmbpd
Macro-Economic12.0 6.7 4.5 4.1 0.2
-10.0
-5.0
0.0
5.0
Total MiddleEast
TotalEurasia
Total Africa Total LatinAmerica
Total AsiaPacif ic
TotalEurope
Total NorthAmerica
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Th ld i h iThe world is changing…
Economic and political power is becoming increasingly dispersed between developed andbetween developed and emerging countries…
There will be multiple centres of gravity that will The rise of the now define and shape the future of the world…
The rise of the multi polar world
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The future context…what’s different?
•Rising energy demand to be met
•Economic interdependency
•Multi polar world
•Continued dominance of
•Security of supply
•Climate change
interdependencyhydrocarbons
•Lighter global product slatey pp y
Kuwait
•Rising cost of capital and talentManageKuwait
Macro-Economic
Manage
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•Political interference
•Oil dependency
•Domestic fuel demand
• Intense media scrutiny
The geopolitical landscape
• Growing energy insecurity with increased l b l t th tglobal terror threats
• Climate change concern gains momentum and responsesresponses
• Increased political volatility in energy producing nationsproducing nations
• Rise of Multi-polar world • Sophistication of stakeholder activism• Sophistication of stakeholder activism
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9/11: Attacks in US
• US-Iran conflict?Al Qaeda attacks
Invasion of Iraq
Electric ThinkCaron sale
• US-China trade war?
• Formation of stable Palestinian state?
• Civil war in Pakistan?
The macro economic landscape
• Dispersion of economic power
• Both economic liberalisation and regulation
St i i t d d• Stronger economic interdependency
• Globalisation and dispersion of innovationp
• Geographic specialisation
• Multi directional capital flows
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9/11 and fear of global slump
•China becomes world’s largest economy?US sub prime crisis •Wave of protectionist legislation?
China’s GDP growth over
10% per year
•Global recession?
The energy landscape
Demand:• Asia Pacific dominates:15 million
World Oil Demand by Region - 2006 vs. 2030
35 0
40.0
45.020062030
mmbpd
barrels per day of additional demand in 2030
• The key driver for oil demand is transportation
10.0
15.0
20.0
25.0
30.0
35.0
Supply:• The Middle East plays the pivotal
14.8 4.6 4.0 2.7 1.8 0.70.3
-
5.0
Asia Pacif ic Middle East NorthAmerica
LatinAmerica
Africa Europe Eurasia
p y prole in supplying additional oil to meet market demand
• As the divergence between the oil-producing and oil-consuming
i i t ifi l b l il t d
World Oil Supply by Region - 2006 vs. 2030
25.0
30.0
35.0
40.0
45.0 20062030
mmbpd
regions intensifies, global oil trade flows are magnified along with security of supply concerns
12.0 6.7 4.5 4.1 0.2
-2.6 -3.5
0.0
5.0
10.0
15.0
20.0
25.0
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-10.0
-5.0 Total MiddleEast
TotalEurasia
Total Africa Total LatinAmerica
Total AsiaPacif ic
TotalEurope
Total NorthAmerica
Source: CERA, Accenture analysis
The energy landscape
• Alternative energy gains attractiveness and gy gpace
• Players battle to strengthen position and• Players battle to strengthen position and accessU d t d h t• Unprecedented shortage
• A structural, upward cost shift
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Chavez nationalises
Orinoco •China exceeds US as location of highest primary energy demand?
Oil at $147 per barrel
•Successor to Kyoto protocol signed?Conoco and Phillips merge
Oil at $30 per barrel
•Non OPEC supply declines? •50% Europeans driving hybrid cars?
The world is addicted to oil…and its love affair with transportation will continue…
Source: FT Martin Wolf
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Source: FT Martin Wolf
New consumers - transportation will be the key driver of oil demand to 2030
• Transportation global 50
60
Global Oil Demand by Sector (mm b/d)
demand…rise to nearly 60 million b/d over next 2 decades
10
20
30
40ResidentialCommercial
Industrial
Transportation
Electricity
• Bulk of demand …gasoline and diesel
0
10
2004 2010 2015 2020 2025 2030
Global Oil Demand by Region (mm b/d)…gasoline and diesel
• China’s transport fuel demand quadruples 3
3.5
4
Global Oil Demand by Region (mm b/d)
from 2005 to 2030…vehicle fleet grows by 230m to 270m in 2030
0 5
1
1.5
2
2.5
9Copyright © 2008 Accenture All Rights Reserved.Source – IEA and EIA
0
0.5
NA Eur Pac Rus Ch Ind ME Afr LA ROW
The Downstream PictureThe Downstream Picture is Changing….
Crude feedstocks… heavier 32
3334
1
1.1Non-Opec Crude Quality
heavier303132
1 2 3 4 5 60.8
0.9
2000 2001 2002 2003 2004 2005Specific Gravity (left) Sulfur Content (right)y ( ) ( g )
10
12
14mb/d Cumulative Additions by Refinery Type*
Refineries… greater complexity 4
6
8
10
complexity
-4
-2
0
2
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1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Hydrocracking Coking VisbreakingCatalytic Cracking Hydrosk/Lubes CDU Capacity Growth
*: Includes re-classification of refineries to more complex type, following installation of upgrading capacity
And transportation is one of the reasons the world is not on course to achieve athe world is not on course to achieve a sustainable energy future…
Petroleum supplies 95% of the total energy used by world transportworld transport.
Transport was responsible for 23% of world energy-related GHG emissions with about three quarters coming from road vehiclesvehicles.
Over the past decade, transport’s GHG emissions have increased at a faster rate than any other energy using sector
11Copyright © 2008 Accenture All Rights Reserved.Source:Working Group III Report "Mitigation of Climate Change" 2007
Strategies around the Wedge…
12Copyright © 2008 Accenture All Rights Reserved.Source:Working Group III Report "Mitigation of Climate Change" 2007
…our link with Alternative Fuels…
1. Reducing the loads (weight, rolling and air resistance and accessory loads) on the vehicleaccessory loads) on the vehicle, thus reducing the work needed to operate it
2. Increasing the efficiency of converting the fuel energy to work, by improving drive train efficiency
d t i land recapturing energy losses
3. Changing to a less carbon-intensive fuel
4. Reducing emissions of non-CO2 GHGs from vehicle exhaust
13Copyright © 2008 Accenture All Rights Reserved.Source:Working Group III Report "Mitigation of Climate Change" 2007
Fuel Economy will improve…
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Fuel economy and GHG emission standards
The technology for pure electric t t ti d i t i i t i dtransportation drive trains is maturing and new products like the Think City is already commercially available…
History
• Norwegian entrepreneurs bought company in 2006 after Ford and others had invested heavily in
Think City
after Ford and others had invested heavily in development and production facilities but experienced heavy losses since 1999
• Now backed by clean tech investment players like DFJ Element RockPort Capital Partners and HazelDFJ Element, RockPort Capital Partners and Hazel Capital LLP
• New model launched November 2007, on sale now
S i i• 100% electrical drivetrain, zero CO2 emission
• High energy density Zebra battery, based on SodiumNickelChloride chemistry
Strategic impact
• Made from 16% recycled materials and is 95% recyclable
• Steel frame with plastic chassis
• 2 +2 seats, 3 doors
• Top speed 100 kph
• Three times as energy efficient as traditional combustion engines
• New business model based on lease of battery to avoid costly replacement
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• 180 km maximum range
• 10 hrs charge time, 230 VAC
y p
• In London, Think Cars are exempt from congestion charge and in Italy open to zero emission city zones
…new fuels will emerge…its not just an ethanol future…
16Copyright © 2008 Accenture All Rights Reserved.Source:Working Group III Report "Mitigation of Climate Change" 2007
Development is needed in someDevelopment is needed in some areas to create a truly global biofuels industry
RegulationFeedstock Consumers
Di t ib tiDistribution -Oil
CompaniesOEMs
High performance in a global and competitive
biofuels industry
Financial MarketsInfrastructure TechnologyMarkets
On track“Watch”, as it continues to evolveC h ll h d d ffi i k
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Current challenges are the ones needed to create an efficient marketFuture challenge/ wild card
Technology currently supports the development of biofuels as the dominant palternative fuel, but it is competing with game changers
SupportingStretching • 40% improvements in
sugar cane and corn• Significant cooperation and
investment into 3rd Gen Biofuels Game
Competing
1st
Generation Biofuels
sugar cane and corn yields since the 80’s • Technologies such as Artificial
Photosynthesis, Algae Biodiesel & Synthetic Biology
• Different science and players
Game Changing 3rd Generation Biofuels
Incremental Introduction of 2nd
• 16 plants by 2010, capacity of over 1.1 bn litres
• US target 5.5bln litres by
• LCFS California - with plug-in hybrids widely available ~2010
• Projects to build electric` charging spots at parking locations and battery Electric
Generation Biofuels
Di i
g y2015
• OEMs fuel cell activity
spots at parking locations and battery exchange stations (EdF, Project Better Place)
Diversity of Future Biofuels Pathways
• Multiple Biofuels technology pathways are at various stages of development
• “ExxonMobil is currently pursuing ground breaking research in hydrogen generation…that overcomes challenges faced by alternative approaches”
Competition from Hydrogen
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p(eg. butanol)
approaches• 10+ years away; estimated US$ 500k
to adapt one pump station
Governments are beginning to address the long term issues from climate change…
Bali – UNFCCC meeting to discuss post Kyoto legislationCurrent UK target of
UK government proposal to raise 2050 target to 80% reduction
German renewables target of 45% by 2030
California – 60%
g60% GHG reduction by 2050
reduction
Oregon – 75% GHG reduction by 2050
J T t f 50% GHGgreenhouse gas reduction by 2050
APEC* calls for
Kansas department of environment rejects
l t
Virginia – 30% GHG reduction by 2030
Japan– Target of 50% GHG reduction by 2050
EU target of 20% EU target of 20%
APEC* calls for a post-Kyoto international agreement that ‘strengthens, broadens and Argentina adopts a
l i i
power plant proposals on basis of CO2 (2007)
Florida – 80% GHG reduction by 2050
U ta get o 0% renewables by 2020
Australia – targets
emissions reduction by 2020
deepens the current arrangements’
voluntary emission reduction target of 2 to 10% below baseline forecasts for the Kyoto period
19Copyright © 2008 Accenture All Rights Reserved.• Selection of current and proposed legislation on greenhouse gas targets
*APEC – Asia Pacific Economic Cooperation
Australia targets under discussion
…..businesses are taking a more prominent role on climate change….
Guiding regulation• Business leaders globally lobby
policymakers to include climate change legislation into markets and trade1 Policy Recommendations
• Voluntary targets on car efficiency in Europe (ACEA)
• Growth of voluntary carbon markets in
1. Long-term, stable international emissions market for power and industry• Growth of voluntary carbon markets in
the USA 2. Minimum efficiency requirements for buildings and transport
New consumer offerings• Carbon neutral businesses
R bl l t i it t iff
3. International systems for agriculture and deforestation
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• Renewable electricity tariffs 4. Mechanisms to drive key technologies down the learning curve
Source: 1. Combat climate change, Nov 2007
…and consumers recognise transportation as a significant contributor to CO2 emission increases
“What are, according to you, the 3 most important reasons for the atmospheric carbon emissions increase?”
33%
Major energy usersindustries (e.g.
29%
33%
Transportation (carsplanes trucks railways
ships)
( gchemicals mining
refining etc.)
30%
40%
50%
11%
19%
Energy use in
Electricity generation(coal and gas plants)
Deforestation
10%
20%
3%
3%
Energy use in thehome
(Residential/domestic)
gycommercial buildings(commercial officesshops hospitals etc.)
0%
ajor
ene
rgy
user
snd
ustr
ies
nspo
rtat
ion
fore
stat
ion
Elec
tric
ityge
nera
tion
ergy
use
inom
mer
cial
build
ings
ergy
use
inhe
hom
e
Agr
icul
ture
2%Agriculture (use of
machines andchemicals fertilizers)
Ranking based on first mention
Ma in
Tran Def
Ene
co b
Ene t A
North America Japan / Australia Higher proportion than in the other regions
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Europe Emerging Countries Lower proportion than in the other regions
% First mentionSource: Accenture Global Consumer Survey on climate change, October 2007 - 7,500 respondents from 17 countries
3 Recent Ages of3 Recent Ages of Transportation Fuels
1980’s 1990’s 2000+1980’s 1990’s 2000+Differentiated Fuels
Rise of Diesel Alternative FuelsWorld Product Demand 1980-2006 Fuels
Middle Distillates
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New players in the transportation fuels are changing the competitive dynamics of fuel retailing
Main-grade
Premium 1st Gen Bio 2nd Gen Bio GtL CNG/ Auto LPG
Electric Hydrogen 3rd Gen Bio
In 10 years
IOC
NOC
Independ.(PE/Banks)
Agri-business
Farmer-coop
Automotive/OEMs
R t ilRetailers
Chemicals
Utilities
23Copyright © 2008 Accenture All Rights Reserved.
Govt/Public
New players in the transportation fuels are changing the competitive dynamics of fuel retailing
Main-grade
Premium 1st Gen Bio 2nd Gen Bio GtL CNG/ Auto LPG
Electric Hydrogen 3rd Gen Bio
In 10 years
IOC
NOC
More sophisticated consumersIndepend.(PE/Banks)
More sophisticated consumersMore government involvementM i l tilit d i k
Agri-business
More price volatility and riskMore alliances, partnering
Farmer-coop
Automotive/OEMs
R t il
More pressure on product portfolio/pipeline
Changing infrastructureRetailers
Chemicals
UtilitiesDifferent competitive landscape
Changing infrastructure
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Govt/Public