IEEJ:June 2018 IEEJ2018 Amy Myers Jaffe David M. Rubenstein Senior Fellow for Energy and The Environment Council On Foreign Relations Presentation to

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1 Amy Myers Jaffe David M. Rubenstein Senior Fellow for Energy and The Environment Council On Foreign Relations Presentation to IEEJ-APERC Conference Session on Global Energy Governance U.S. Perspective Tokyo, Japan

2 Trumpian Tweets and Oil Geopolitics Reading the tea leaves of Presidential tweet Preparing for May decision making on Iran, Venezuela Rising risks of Yemen war Expressing expectations of U.S.-Saudi alliance 2

3 Emerging Threat of Asymmetric Warfare Sub-national groups joining the fray Drone attacks in Mideast on the rise Yemeni rebels declare intention to target Saudi oil facilities Cyber breach raises stakes 3

4 U.S Energy Dominance Concept Flexibility of U.S. foreign policy improved by more favorable U.S. oil and gas trade balance U.S. new energy stature enhances U.S. influence, removes key strategic vulnerability U.S. energy exports facilitate American diplomatic initiatives U.S. energy exports curtail capacity of Russia, Iran and others to leverage energy weapon 4

5 U.S. rapidly moving towards net exporter status 5

6 U.S. crude and products exports reached 8.3 million b/d in April 2018, including over 2 mb/d crude oil exports. U.S. crude oil production to average 10.7 mb/d in DOE projects rise to over 12 mb/d by end

7 U.S. natural gas surplus will be extensive. Texas alone is currently flaring 1 bcf/d, equivalent to peak winter demand levels for all of New England. Source: Cornerstone Macro 7

8 Rising U.S. LNG to Become Major Market Factor Permian Basin moving toward zero shadow price U.S. LNG exports expected to continue to rise significantly in 2018 to 2025 timeframe 8

9 Technology Revolution is ushering in exponential gains in productivity, via transportational logistics, automation, big data, material science and biotech, artificial intelligence, 3-D printing. This revolution will further lower costs of U.S. shale development. 9

10 IEEJ June 2018 IEEJ2018 For Energy, the biggest energy impact may be when Digital and Manufacturing 4.0 meets the supply side in the Permian SOURCE: MCKINSEY & CO. Water management optimized basin wide, run from a digital control tower keeping trucks moving and safe Digital "Industrial Amazon like supply chain dropping off Conex boxes in advance of drilling, and delivering OCTG pipe just in time from mill to well never hits the ground Drones read gas levels and look for irregularities Teams use VR/AR goggles to inspect equipment and wells and safely communicate hands free Streamlined digital drilling workflows driven by ipads and augmented reality Autonomous robots strengthen safety by inspecting, alerting operators and intervening in emergencies RPA enabled finance to manage royalty calculations and all daily profit calculations Digital workforce management to ensure right people at the right places Digital procurement ensuring standard materials show to site on time, consistent with contract Digital gas / oil separation, pipeline flow and quality management maximizing value from each molecule Digital wells with sensors for real time safety and compliance monitoring and AI driven predictive maintenance Subsurface advanced analytics, digital drilling rigs, and downhole tools to create learning engine for manufacturing oil; Digital ESP/SRP to improve initial production and reduce decline rates

11 Energy in U.S.-China Relations China becoming major importer of U.S. oil and gas U.S. trade policy focused increasingly on China 2025 industrial strategy China s strategic oil importer disadvantage prompting green energy pivot advanced, vehicles challenge 11

12 U.S. Energy Governance - Conclusion U.S. leveraging Middle East energy ties to deal with changing oil market conditions U.S. integrating rise of U.S. oil and gas exports into diplomatic approaches and trade policy Trump administration showing new interest in advanced nuclear technologies and CCS but focus is mainly on petroeconomy Trump Administration sees China green energy pivot through lens of trade and economic competition 12 Contact :report@tky.ieej.o