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8 Feb 2010
About us
Established 1990 Aberdeen, Canterbury & New York
offshore
Market research & analysis Commercial due-diligence Business strategy & advisory Published market studies
power
onshore
>600 projects completed for: government agencies energy majors and their suppliers investment banks & PE firms the leading independent provider of commercial DD to OFS investors
downstream
renewables
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Brazil huge blackout. Half the country left without electricity g y y South Africa fear of return of power cuts UK peak d k demand could exceed capacity b 2017 d ld d it by Australia Victoriaelectricitydemandnearedarecordpeak China cold weather electricity rationing continues UK gas supplies for businesses turned off gas off Venezuela key industries halted by hydroelectric crisis
Press reports since November 2009
Nuclear 6% NIMBY concerns Long plant build time 5x gas powergen Capex
Gas 21% Abundant but local shortages Expensive to transport Off-the-shelf powergen plant Emits half CO2 of coal
World Energy Consumption
Source: Douglas-Westwood /IEA 2009
95% 55%
population growth
1 billion cars worldwide. Production capacity 86 million p.a. (2008) Electric cars will help efficiency (eventually) But how long to change the world car fleet (>20 years?) Meantime China and Indias growing populations will motorise And cause a huge growth in oil demand and prices Can the global economy handle this?
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3.0 30 1.4 0.8 1.3 13 0.6 0.6 1.5 15 1.1 0.4 4.9 3.8 4.0 3.5 4.0 4.3 6
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Chinareaches USin2018
Were China to follow Koreas path of development - as it largely has to date its oil demand would more than double in the next decade. By 2030, Chinese consumption could exceed 50 mbpd
source: Douglas-Westwood analysis using EIA, IMF, and US Census Bureau data
China is the key driver of global oil demand growth China oil consumption up 4.9% y on y , 7.3% in December p p year year, Vehicles sold: China 13.6 m vs. US 10 m in 2009
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Exports +17.7% YOY, (4.0% forecast) Imports +55.9% ( p (31% expected) p ) Industrial output +25% YOY (Dec) GDP growth in Q4 exceeded 11% The world's biggest car market in 2009. 13.6 million
sold compared with 10 million in the US Car sales forecast to rise 15% in 2010 Imports from Asia soar. S Korea +94%, Taiwan +91%, Malaysia +53% (Nov) China to move from 5th to 2nd largest economy overtaking Japan Oil imports +14% i D i t 14% in December, up 4 9% YOY b 4.9%
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Venezuela: $8 bn
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March 1999
April 2009
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Offshore Oil
Southern Europe Other NW Europe Norway United Kingdom
Source: Energyfiles
Offshore gas
Southern Europe Other NW Europe Norway United Kingdom
UK
UK
Offshore Europe has lost 50% of its oil production in a decade Massive dependency on Norwegian gas
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BIOFUELS CTL
GTL OIL SHALES OIL SANDS REFINERY GAIN OFFSHORE DEEP OFFSHORE SHALLOW ONSHORE
Global fields reserves declining at 6.7% p.a. (2007 estimate was 3.7%!) IEA Global peak revised down by 4 Mbpd to 89 Mbpd Total CEO 16 Feb 09 CEO,16 09 Need to find and get into production one NEW Saudi Arabia every THREE years!
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Offshore oil currently accounts for 33% of global output: 35% by 2020 2020. Deepwater share of offshore production to grow rapidly over the next decade. Deepwater 3% of production in 2002, 6% in 2007, 10% by 2012. After 2012, deepwater is the only sector to continue to grow.
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The offshore market has seen a number of activity cycles since 1969 1969. Oil price volatility has been a major driver for this behaviour.
The 2005-2008 cycle was also particularly driven by the move to deepwater (W.Africa, B il & G M) (W Af i Brazil GoM)
The 2009 recession will not be the end of the offshore oil & gas market. But
reserves are getting harder to find and more challenging to produce. What will be the key themes for the Offshore market?
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NOCs to control 55% of 2010 non-US spend And 80% of the worlds remaining reserves world s Note PetroChina market cap now larger than Exxon! Gazprom boe reserves equals the rest of the top-10 players by mar cap p q p p y y p So what is the long-term role of the major international oil companies?
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Peak Year
Peak oil is a reality, not just for the majority of the producing countries
but b t perhaps f the majority of th t producers. h for th j it f the top d Offshore is one of the few remaining places where the oil majors can increase production
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400 350
C Capex & Opex ($billions) x
Africa Asia Australasia Eastern Europe & FSU E t E Latin America Middle East North America Western Europe
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Global Capex falls in 09/10 but Opex sees long term growth Most regions to see overall growth But W Europe to decline Particularly UK needs incentives Norway has longer term prospects
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It can take 5-10 years to get a major deepwater field to full production
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Expenditure ($billions) )
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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$ billion
8 6 4 2 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Global Floating Production Expenditure 2004-2013
Source: Douglas-Westwood
Material decrease in orders in 2009; but market has bottomed Impact of project delays $14 billion of projects slipped Gl b l FPS market to be worth $50 billion over 2009 2013 period Global k tt b th billi 2009-2013 i d Increasing share of market to leased FPSOs. Consolidation likely Market still well below pre recession levels pre-recession Long term >200 prospects exist and growth will recover
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1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
Subsea processing orders were hard hit in with the recession Pl Players revenues reasonably stable due to backlog bl t bl d t b kl Orders bottomed in Q4 2008 Trend suggests 2010 will recover to normal levels normal FMC is subsea market leader 2009 Q1-3 by order value
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Africa Asia-Pacific Eastern Europe & FSU Latin America Middle East North America Norway UK Rest of Europe
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: The World Offshore Operations & Maintenance Market Report 2010-14 Douglas-Westwood
>7,000 fixed & >200 floating platforms 7 000 fi d 200 fl ti l tf Spend to exceed $330 billion over the next five years Plus demand for major modifications Subsea IRM 10% CAGR as subsea installations increase
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100 90 80 70 60 50 40 30 20 10 0
Africa Asia Australasia Eastern Europe & FSU Latin America Middle East North America Western Europe
Middle East
1930 1937 1944 1951 1958 1965 1972 1979 1986 1993 2000 2007 2014 2021
Source: Energyfiles
Natural gas production currently dominated by E Europe & Russia Middle East, Latin America, Africa & Asia to see significant growth But local supply issues e.g. in Europe Deepwater gas and LNG to be of growing importance And unconventional gas US shale gas, coal bed methane, etc
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Africa Asia-Pacific FSU Middle East South America North America Western Europe
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
33 additional installations forecast, incuding19 new facilities 53 new LNG import terminals and a number of expansions to expected p p p
to be completed in the next five years
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$120
170 160 150 140 130 120 110 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$80
$60
$40
$20 $
$0
Cost Inflation has tracked oil prices closely over the past 10 years. Costs cooled somewhat in 2009 but remain high. BUT Oil prices are on the move again. BUT i th i Another flurry of offshore activity may well trigger a similar cost inflation
scenario. Major challenge for the industry to manage costs in the supply chain over the next five years.
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$/bb bl
Technology-driven
IOCs will be under increasing pressure for new discoveries and expanded production mostly from deepwater OECD countries are unlikely to sustain oil prices much above $80 Threat of recurring recession, sluggish growth, possibly stagflation China and other emerging economies will tend to absorb incremental oil production p If we find the oil, can we afford to lift it? Natural gas has to take up some of the load
Cost will be an important driver Oil supply will be insufficient to meet future needs Both innovation and cost will be critical drivers in the years ahead Challenging times ahead, but the global economy will absorb all oil
volumes that can be produced at affordable prices
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onshorewindoffshorewindbiomasssolarhydrowavetidal
There is no magic bullet. None are ideal: many are very high cost &/or technically immature / impractical / location specific / unproven /conflicting interests, etc
nuclearCCScarboncap&tradeconservation
Middle East Oil Other Conventional Oil Deepwater Venezuela's Orinoco Belt Candadian Oil Sands (new dev.) Coal to Liquid Oil Shale European Biodiesel US Corn Ethanol Brazilian Sugar Cane Ethanol Coal with CCS Traditional Coal Nuclear
Tidal energy costs 0.15 kWh, wave energy 0.25, coal-fired electricity costs 0.05. 0 05 The Carbon Trust Feb 2010
R Renewables
Coal
Biofuels
Source:FT12/08
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UK 3%
US 22%
158GW
India 7% China 16% Spain 12% Germany 16%
2009: world installed capacity grows by 31% China +100% to 25GW; US by 39% to 35GW Europe +54% of which UK added1MW +36% Wind is a green solution and an important part of the energy mix But best locations are remote & major NIMBY issues in some countries Offshore has major attractions: out of sight & a better wind regime
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2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Douglas-Westwood
UK is the worlds leading market Germany to follow China emerging (and exporting monopiles)
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36
200 152 1 2
Capex ($ billion)
140 120 100 80 60 40 20 0 0.2 0.6 Marine Renewables 2 5.2 Of f shore Wind All Wind Of f shore O&G 47 2009 2012
Offshore renewables small but with strong g g growth Wind power is EU supply chain dominated Marine renewables is new with great future potential But will UK invest or will see a repeat of the windpower situation
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Rest of world ld
2.5
2.0
1.5
1.0
0.5
0.0
1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Carbon capture & storage has not yet been achieved on a large scale
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38
28 under construction in China Nuclear suited to centralised grids The cheapest large scale, low carbon
electricity source EDF
Newbuild takes 8-10 years & 5 bn euros French EPR design safety issues raised f Finland reactor 3 years late and several
billion euros over budget New [UK] sites at risk from lack of subsidies (CEO EDF) Level playing field with wind needed
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The Negawatt
Picture: www.eagleshieldinc.com/
The need to invest in less Average UK home emits 5.5 t CO2 p.a. twice as much as a car Reducing thermostat by 1 degree saves 10% of heating costs I a typicall B iti h h In t i British home 1/3 of th h t i l t th f the heat is lost through roof & walls h f ll
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4 February 2010
British h B iti h households h ld risk unaffordable energy bills Ofgem bills, warns
Households and businesses face the risk of unaffordable energy bills unless radical action is taken to safeguard Britain s supply Britain's supply, the regulator Ofgem warned today.
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If existing station closure programme is implemented How will new capacity impact ? p y p
Source:TheUKPowerGenerationExpenditureReport20102030.DouglasWestwood
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Wind, Wind 2% Gas turbines and oil engines, 6% Coal & Coal Others, 35%
Source:TheUKPowerGenerationExpenditureReport20102030.DouglasWestwood
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6 5 4 3 2 1 0
Total annual new plant additions of 1-7 GW per annum 2010-17 additions: >50% gas, 44% wind (mainly offshore) A new UK dash for gas with security of supply implications
Source:TheUKPowerGenerationExpenditureReport20102030.DouglasWestwood
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Solar PV Biomass Hydro Wave & Tidal Onshore Wind Offshore Wind Nuclear Coal Gas
NUCLEAR OFFSHORE WIND
7 6 5 4 3 2 1 0
COAL +CCS
Total period gas spend 8% (CCCT is the cheapest option) Clean coal spend begins 2021? (online 2024 earliest) Nuclear spend begins 2012 (online 2018 earliest) total >42 billion Annual Capex rises from 1.7bn in 2008 to >9 billion in 2020
Source:TheUKPowerGenerationExpenditureReport20102030.DouglasWestwood
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Massive investment in a
European super-grid is essential
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Figure 27: An Interconnected Electricity System Source: Parliamentary Office of Science and Technology
The smart grid can also enable smart appliances to be used Appliances can switch on at cheapest power times 200,000 x 40 kW cars can quickly provide 8 GW of power to the grid S th Korea plan $24b smart grid with nearly 30 000 electric vehicle South K l $24bn t id ith l 30,000 l t i hi l
charging stations by 2030
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Required capital investment 149 billion (range 124bn Plus major grid investment! Could total 264 bn in the next decade!
to 167 bn)
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4% 1%
5% 3%
7%
hydro
Biggest five European countries need to spend: 300bn to meet environmental targets 470bn on replacement & renewal A massive growth in renewable energy is required
Source: DWL & FT 3 Feb 2010
ren newables
nuclear
coal
oil
gas
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Towards change
Some successes:
Japan Top Runner Programme Denmark carrots & sticks (taxes (taxes,
wind power, cogeneration, etc.)
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Thank you
This presentation can be downloaded from www.douglas-westwood.com www.douglas53