Ministerial Session: Responding to the new challenges of the oil sector

Nobuo Tanaka Executive Director International Energy Agency

9th International Oil Summit Paris, 10 April 2008
OECD/IEA 2008

What is driving high oil prices.

110 100

Periods of strong correlation between gross index fund flows and oil price (RSQ>0.80)=1

1.1 0.9 0.7 RSQ 0<.80 1=>.80

Price
90 $/bbl 80 70 60 50 3-Jan-06 3-Apr-06 3-Jul-06 3-Oct-06 3-Jan-07 3-Apr-07 3-Jul-07 3-Oct-07 3-Jan-08

Periods with RSQ>80

0.5 0.3 0.1

-0.1

The IEA views current prices as too high, especially for developing countries and considering threats to economic growth worldwide Little doubt that the oil market has been affected by financial crisis Weaker dollar explains some of the higher price But oil prices are higher in all currencies Analysis of fund flows gives different results we really do not have enough data financial and fundamental
OECD/IEA 2008

More work needed

Source: IEA Oil Market Report 2

The Outlook for Spare Capacity

m b/ d

Medium-Term Growth Balance

3.0

2.0

1.0

0.0 2007 2008 2009 2010 2011 2012

No n-OP EC Gro wth (excl. B io fuels) OP EC NGLs Gro wth Wo rld Demand Gro wth Lo w Demand 2

B io fuels Gro wth OP EC Capacity Gro wth High Demand

Global oil demand-supply balance projected to tighten through the medium-term

OECD/IEA 2008

Reference Scenario:

New Light-Duty Vehicle Sales in China

18 16 14 12 mill illion 10 8 6 4 2 0 1995 2000 2005 2010 2015 2020 2025 2030 Overtake Japan sales Overtake US sales

Chinas oil imports jump from 3.5 mb/d in 2006 to 13 mb/d in 2030 as car ownership increase 7-fold to 140 per 1 000 people
OECD/IEA - 2008

Key Challenges to the Oil Sector

Huge Capital Investment Requirements Mounting Above-Ground Risks The Response to Climate Change

OECD/IEA 2008

Slide 5 of 12

Reference Scenario:

Cumulative Investment in Energy-Supply Infrastructure, 2006-2030

Exploration and development Refining Other

73% 22% 5%
Oil 24% Electricity 53%

49%

Power generation Transmission and distribution

51%

$5.4 trillion
Biofuels 1%

$11.6 trillion

$4.2 trillion
Gas 19% Coal 3%

Exploration and development LNG chain Transmission and distribution

55% 8% 37%

90% 10%

Mining Shipping and ports

Total investment = $21.9 trillion (in $2006)

OECD/IEA - 2008

Almost half of all investment needs to 2030 of $22 trillion are in the oil and gas sectors, primarily upstream.

AboveAbove-ground Risks are Mounting

Complex reservoirs Decline rates

Weather

Rebel attacks
Industrial unrest

Reserve risk

BELOWGROUND

FORCE MAJEURE

Above ground risks are key in current market

Access restrictions

Project complexity

SECTOR MATURITY

Slower capacity expansion

HOST GOVERNMEN T

Fiscal changes

Impact is the same - higher costs, project delays and lower output

Ageing infrastructure & outages Tight drilling & service capacity

INDUSTRY CYCLE
Output policy Labour & raw material shortage Pipeline delays

Environmental regulation

but some above ground risks are reversible

Credit squeeze?

OECD/IEA 2008

The Impact of Possible New Policies to Improve Energy Security and Sustainability

Scenarios for OPECs Oil Production to 2030

70 60 50 mb/d 40 30 20 10 0 2007 Reference Scenario Market Share Reference Scenario 2015 2030 54% 52% 50% 48% 46% 44% 42% 40% share of OPEC in World oil production

Alternative Policy Scenario Market Share Alternative Policy Scenario

In any feasible scenario, there will be increasing demand for OPEC oil. Although the situation in 2030 is less certain, decisions that will deliver supply at that time need not be taken today.
OECD/IEA - 2008

A New Energy Revolution.

Cutting Energy Related CO2 emissions
70 60 50 G Gt CO2/yr 40 30

62 Gt

CCS industry and transformation 9% CCS power generation 10% Nuclear 6% Renewables 21% Power generation efficiency & fuel switching 7% End-use fuel switching 11% End use electricity efficiency 12% End use fuel efficiency 24%

27 Gt
20 10

14 Gt

0 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Improved efficiency and decarbonising the power sector could bring emissions back to current levels by 2050. To achieve a 50% cut we would also have to revolutionise the transport sector.
OECD/IEA 2008

INTERNATIONAL ENERGY AGENCY

AGENCE INTERNATIONALE DE LENERGIE

Key Messages
The world is facing twin energy-related challenges:
ensuring secure, affordable energy; and managing the environmental consequences of producing, transforming and using that energy

These challenges can be overcome through:

Boosting energy sector investment Improve energy efficiency and promoting new energy technologies Committing to producer-consumer dialogue

In any feasible scenario, there will be demand for oil, and new opportunities will emerge for the oil industry in a low carbon economy WEO-2008 will examine mid-to-long term oil and gas supply prospects and uncertainties
OECD/IEA 2008