ASIA IN THE WORLD ECONOMY - Encarnation€¦ · c. Vertical Integration, ... Saudi Aramco 8.6 ExxonMobil 2.6 Crude Oil ... ASIA IN THE WORLD ECONOMY Class #7: Energy Supply

ASIA IN THE WORLD ECONOMY

Section II:Energy

Classes & Topics

6. Energy Demand7. Energy Supply8. Case Study: China

Where Supply & Demand Meet9. Energy & The Environment


Class #7:Energy Supply

Topics:

1. Sources of Energya. Feedstocksb. Location of Stocksc. Destination of Flows

2. Value Chainsa. Upstream Value Addedb. Downstream Value Addedc. Vertical Integration, Market Fragmentation

3. Supply Linesa. Nationalb. Regionalc. Global

4. Energy Securitya. Macroeconomicb. Defensec. Risk

SOURCES OF ENERGY: FEEDSTOCKS

Source: John Holdren, ENR-302 - Energy Policy: Technologies, Systems and Markets

050

100150200250300350400450500

1850 1875 1900 1925 1950 1975 2000

EJ/

year

GasOilCoalNuclearHydro +Biomass

The ‘Big 3’ Feedstocks Are Oil, Coal & Natural Gas

World Energy Use 1850-2000

QUESTION: SOURCES

WHAT ARE THE PRINCIPLE DETERMINANTSOF ENERGY SOURCES?

LOCATION OF ‘BIG 3’ FEEDSTOCKS

Source: BP, Energy Statistical Review, 2008.

Global Energy Resource Distribution: ‘Big 3’(proved reserves, 2007)

LOCATION OF ‘BIG 3’ FEEDSTOCKS

Coal is More Ubiquitous Globally than Oil & Gas--Only Europe & theFormer Soviet Union Have Abundant Reserves of All Three


SOURCES OF ENERGY: REGIONAL VARIATION

Source: Sarah Emerson, Energy Security Analysis, Inc.

Global Primary Energy Demand: Consumption by Fuel(% of total fuel consumption, 2007)

Local Availability is a Major Determinant of Supply

DESTINATION OF ENERGY FLOWS

Global Energy Markets: Domestic vs. Cross-Border Flows(% of total production, 2007)

The geographic markets for energy feedstocks vary widely:Among the ‘Big 3’, oil is the most widely traded across nationalborders given the different location of markets vs. sources ofsupply. Coal, by contrast, is the least traded, since it is oftenfound near major markets. Prevailing technology also plays a

role: Cross-order electricity trade, for example, requirescontiguous borders.

62%38%Oil

26%74%Natural Gas (via pipeline & liquified)

17%83%Coal

< 5%95+%Hydro/Nuclear Electricity

ExportedSold DomesticallySource of Energy


DESTINATION OF FLOWS: ASIA

Net Imports

Asia’s Production and Consumption of Energy(as % of world levels)



Topics:





QUESTION: VALUE CHAIN

What are the principal factors of production at each stage in the valuechain? Who owns these factors?

OIL & GAS VALUE CHAIN: UPSTREAM

2.3Shell2.3KNPC (Kuwait)

2.5BP3.8NIOC (Iran)

2.6ExxonMobil8.6Saudi Aramco

Crude OilProduction

(million barrels/day, 2005)

International OilCompanies (IOCs)

Crude OilProduction

(million barrels/day, 2005)

National OilCompanies (NOCs)

National Oil Companies Currently Dominate the Upstream Value Chain

Land, Capital, & Technology-Intensive

OIL & GAS VALUE CHAIN: UPSTREAM

And in the future, National Oil Companies (NOCs) will continue todominate upstream sources of supply

UPSTREAM OIL PRODUCTION

Leveling Supply

Oil Production (1987-2007)

Declining Supply


OIL & GAS VALUE CHAIN: DOWNSTREAM

BP

Shell

ExxonMobil

InternationalOil Companies(IOCs)

3.9

5.2

5.7

RefiningCapacity(million barrels/

day, 2005)

156%48%1.1KNPC (Kuwait)

226%39%1.5NIOC (Iran)

219%29%2.5Saudi Aramco

Refining‘Intensity’(percentage of

crude production)

Refining‘Intensity’(percentage of

crude production)

RefiningCapacity(million barrels/

day, 2005)

National OilCompanies(NOCs)

International Oil Companies Dominate the Downstream Value Chainin a System of ‘Tapered Vertical Integration’

Capital,Technology, &

Marketing-Intensive

DOWNSTREAM OIL REFINING

Refining is concentrated in downstream markets

Refining Capacity

ASIAN DOWNSTREAM MARKETS

High levels of fragmentation across downstream markets

Variation Across Asian Energy Markets



Topics:





QUESTION: SUPPLY LINES

WHAT ARE THE PRINCIPLE SUPPLY LINES FOR ENERGY FEEDSTOCKS?

DOMESTIC VS. EXPORT MARKETS

Global Energy Markets: Domestic vs. Cross-Border Flows(% of total production, 2007)

Most energy sources are sold where they are produced.

62%38%Oil

26%74%Natural Gas (via pipeline & liquified)

17%83%Coal

< 5%95+%Hydro/Nuclear Electricity

ExportedSold DomesticallySource of Energy


INTRA-REGIONAL & CROSS-REGIONAL SUPPLY LINES

7 Largest Cross-Border Flows of Fuels

Asia Has Limited Regional Sources of Fuels, in Marked Contrast to Europe and North America, Leaving It Exposed To The Risks of

Longer Supply Lines Crossing More Unstable Parts of the World

Cross-National Flows*Exports

(US$ million) Annual Change

2006 2000-06 2005 2006

Middle East to Asia $ 323.3 161% 42% 181%

Intra-Europe $ 196.7 19% 44% 24%

Intra-Asia $ 177.2 146% 39% 18%

CIS to Europe $ 139.2 25% 50% 28%

Intra-North America $ 120.9 120% 38% 10%

Africa to Europe $ 80.9 15% 47% 22%

Middle East to Europe $ 59.5 11% 42% 14%Source: WTO, 2008. Notes: *This figure includes limited mining products

REGIONAL SUPPLY LINES: US ENERGY SOURCES

North American Sources (US, Canada, Mexico) = 50%North + South American Sources = 64%

Atlantic Basin Sources (Americas + West Africa) = 79%

Source: BP Statistical Review of World Energy, June 2008.

GLOBAL SUPPLY LINES: MIDDLE EAST

Dependence on Middle East Oil(% of total oil consumption, 2007)

Wide Variation in Relative Exposures to the Risks of Longer Supply Lines & Middle East Instability, with Asian Economies

More Directly Exposed


ASIAN SUPPLY LINES: MIDDLE EAST & AFRICA

Source: Energy Security Analysis, Inc., 2007.

The Source of Crude Oil Imports in the 4 Largest Asian Economies

(% of total crude oil imports, 2007)

For Asian Importers, The Security of Energy Supply Lines Originating In The Gulf and, Increasingly, Africa is Essential for Continued Growth

ASIAN SUPPLY LINES: MIDDLE EAST EXPORTERS

Source: BP Statistical Review of World Energy, June 2008.

For Middle East Exporters, The Security of Long Supply Lines Is Essential to Their Continued Economic Growth



Topics:




4. Energy Securitya. Macroeconomicsb. Defensec. Risk

QUESTION: ENERGY SECURITY

WHAT ARE THE PRINCIPLERICKS ASSOCIATED WITH ENERGY SUPPLY?

HOW ARE THESE MANAGED & MITIGATED?

WEALTH & ENERGY CONSUMPTION, 2007

Source: IMF & World Bank, April 2008; US Department of Defense, 2007.

91FRANCE10. 1.8ITALY10.

97BRAZIL9. 1.8BRAZIL9.

8.

7.

6.

5.

4.

3.

2.

1.

99SAUDI ARABIA 2.0FRANCE8.

108SOUTH KOREA 2.1RUSSIA7.

113GERMANY 2.1UK6.

126RUSSIA 2.8GERMANY5.

129INDIA 2.8INDIA4.

229JAPAN 4.3JAPAN3.

368CHINA 7.0CHINA2.

943USA13.8USA1.

704EU14.7EU

3,953WORLD64.9WORLD

2007 GDP AT PPP FX RATES(US$ trillion)

2007 OIL CONSUMPTION(million tons)

The Geographic Concentration Of Wealth & Of Oil Consumption Are Highly Correlated--8 Of The Top 10 Are The Same--

So The Security of Oil Supplies is Essential to Economic Growth

WEALTH & MILITARY SPENDING, 2007

Source: IMF & World Bank, April 2008; US Department of Defense, 2007.

22INDIA10. 1.8ITALY10.

24SOUTH KOREA9. 1.8BRAZIL9.

8.

7.

6.

5.

4.

3.

2.

1.

25SAUDI ARABIA 2.0FRANCE8.

36GERMANY 2.1RUSSIA7.

41JAPAN 2.1UK6.

45FRANCE 2.8GERMANY5.

55UK 2.8INDIA4.

59RUSSIA 4.3JAPAN3.

122CHINA 7.0CHINA2.

644USA13.8USA1.

307US ALLIANCES14.7EU

1,367WORLD64.9WORLD

2007 GDP AT PPP FX RATES(US$ trillion)

2006-07 MILITARY BUDGETS(US$ billion)

The Geographic Concentration Of Wealth & Of Military Spending Are Also Highly Correlated--Again, 8 Of The Top 10 Are The Same--

So Military Security is Essential for Economic Growth

MILITARY SPENDING & ENERGY CONSUMPTION

Source: IMF & World Bank, April 2008; BP Statistical Review of World Energy, June 2008.

91FRANCE10. 22INDIA10.

97BRAZIL9.24SOUTH KOREA9.

8.

7.

6.

5.

4.

3.

2.

1.

99SAUDI ARABIA25SAUDI ARABIA8.

108SOUTH KOREA 36GERMANY7.

113GERMANY41JAPAN6.

126RUSSIA 45FRANCE5.

129INDIA 55UK4.

229JAPAN 59RUSSIA3.

368CHINA 122CHINA2.

943USA644USA1.

704EU307US ALLIANCES

3,953WORLD1,367WORLD

2006-07 MILITARY BUDGETS(US$ billion)

2007 OIL CONSUMPTION(million tons)

The Geographic Concentration Of Military Spending & Oil Consumption Are Very Highly Correlated--

This Time, 9 Of The Top 10 Are Identical

NEXT CLASS

Section II:Energy

Classes & Topics

6. Energy Demand7. Energy Supply8. Case Study: China

Where Supply & Demand Meet9. Energy & The Environment

ASIA IN THE WORLD ECONOMY - Encarnation€¦ · c. Vertical Integration, ... Saudi Aramco 8.6 ExxonMobil 2.6 Crude Oil ... ASIA IN THE WORLD ECONOMY Class #7: Energy Supply

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