Milken Institute: Center for Accelerating Energy Solutions

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2 Milken Institute: Center for Accelerating Energy Solutions Center for Accelerating Energy Solutions Promotes policy and market mechanisms to build a more stable and sustainable energy future Identifies ways to overcome the risks and barriers that hinder R&D, commercialization and delivery of cleaner energy technologies Focus areas: Modernizing the electric grid Energy efficiency Biofuels Solar, wind and geothermal energy The potential of natural gas Oil production in stable regions Recent studies: Developing Innovative Energy Infrastructure Financing Scaling Enterprise Finance: The Future of Biofuels The Grid, Renewables and Beyond Financing the Residential Retrofit Revolution

3 How is the world powered? Primary global energy consumption, 2008 Renewables 10.2% Nuclear Electric Power 5.4% Fuel Source Petroleum 34.3% Coal 27.5% Natural Gas 22.6%

4 Non-OECD countries are the primary drivers of energy growth Global primary energy consumption, Quadrillion Btu Total *Projections start in Non-OECD OECD

5 Petroleum to remain largest source, but renewables grow fastest Global primary energy consumption by fuel, Quadrillion Btu 250 Petroleum Coal Natural Gas Renewables Nuclear *Projections start in 2009.

6 The U.S. leads in total fossil fuel reserves, but most of this is coal Percentage of global fossil fuel reserves (in barrels of oil equivalent) by country, 2011 Percentage of proved reserves 20.0% 17.5% 15.0% 12.5% 10.0% 7.5% 5.0% 2.5% 0.0%

7 Middle Eastern countries lead in crude oil proved reserves Percentage of global proved oil reserves by country, 2011 Percentage of proved reserves 20.0% 17.5% 15.0% 12.5% 10.0% 7.5% 5.0% 2.5% 0.0%

8 Russia leads in natural gas proved reserves Percentage of global proved natural gas reserves by country, 2011 Percentage of proved reserves 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

9 The U.S. leads in coal reserves Percentage of coal proved reserves by country, 2011 Percentage of proved reserves 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

10 Petroleum consumption continues to exceed renewables Consumption by geographic region, 2009 Asia and Oceania Africa Middle East Eurasia Europe Petroleum Renewable energy Central and South America North America Quadrillion btu Source: U.S Energy Information Administration

11 Growth in petroleum consumption coming from non-oecd countries Global petroleum consumption, Quadrillion Btu Total Non-OECD OECD *Projections start in 2009.

12 Oil price volatility Global weekly oil prices US$ per barrel

13 Iran s oil production has decreased since notice of sanctions Iran crude oil production Million barrels per day /09 10/09 3/10 8/10 1/11 6/11 11/11 4/12 Source: Bloomberg.

14 Increased production by Saudi Arabia has offset declines from Iran Crude oil production in Iran vs. Saudi Arabia Million barrels per day Million barrels per day Saudi Arabia (left) Iran (right) /09 9/09 1/10 5/10 9/10 1/11 5/11 9/11 1/12 5/ Source: Bloomberg.

15 Closure of the Strait of Hormuz would impact seaborne traffic 2011 Strait of Hormuz traffic data 17 million barrels per day in 2011 (6 percent increase from 2010) 14 crude oil tankers per day 35 percent of global seaborne trade 85 percent of exports to Asian markets

16 U.S. crude oil production has increased by 12 percent since 2008 Annual percentage changes in U.S. crude oil production Annual percentage change

17 U.S. crude oil imports have steadily declined since 2005 U.S. crude oil imports since 2000 and projections Million barrels per day Projected *Projections start in 2012.

18 Global natural gas consumption on the rise Non-OECD nations will lead the way Trillion cubic feet TOTAL Non-OECD OECD *Projection start in 2010.

19 U.S. shale gas withdrawals increased by 95 percent from 09 to 10 U.S. natural gas withdrawals by source, 2010 Non-associated offshore 9% Coalbed methane 9% Alaska 2% Tight gas 26% Associated with oil 10% Non-associated onshore 21% Shale gas 23%

20 New wells and low-cost extraction increase shale gas production U.S. domestic shale gas proved reserves and production Trillion cubic feet 100 Production 80 Proved Reserves Shale gas makes up 23 percent of current U.S. production EIA estimates that production could double or triple over the next 25 years

21 Where does shale gas come from?

22 Major shale basins around the world

23 Increased shale gas production has contributed to low U.S. prices U.S. natural gas wellhead prices US$ per thousand cubic feet Projected *Projections start in 2011.

24 Low natural gas prices have changed the U.S. electricity mix U.S. electricity generation by fuel, Jan. July 2011 versus Jan. July 2012 Hydro 9% January - July 2011 Other Renewables 5% Hydro 8% January - July 2012 Other Renewables 6% Nuclear 19% Coal 43% Nuclear 19% Coal 36% Petroleum 1% Petroleum 1% Natural Gas 23% Natural Gas 31%

25 Natural gas is the least polluting fossil fuel Pollutant breakdown of fossil fuels Thousand pounds per billion btu Coal Oil Particulates (down) Sulfur Dioxide (down) Nitrogen Oxides (down) Carbon Monoxide (down) Carbon Dioxide (top) Natural Gas Pounds per billion btu

26 Natural gas displacing coal has helped lower U.S. CO 2 to 1993 level U.S. energy-related CO 2 emissions during 1 st half of year, Million MT CO

27 U.S. natural gas price declines have not been matched elsewhere Natural gas prices by region, August 2008 and August 2012 $/MMBtu U.S. - Henry Hub U.K. - NBP Germany - NGC Japanese LNG August 2008 August 2012 U.S. natural gas prices have dropped by two-thirds in the last 4 years U.K. and German gas prices have remained roughly constant in GBP and Euro terms Japanese LNG import prices have increased by about 30%

28 New nuclear capacity likely concentrated in China, Russia and India Capacity of nuclear electricity generation, 2008 and 2035 Gigawatts Non-OECD countries are projected to account for 75% of new nuclear capacity China Russia India Other Non- OECD OECD China, Russia and India alone are expected to account for 60% of capacity growth OECD capacity may actually decline if recent plans in Japan and Europe to scale down nuclear power are realized

29 China is now the world leader in installed wind energy capacity Cumulative wind energy capacity by country, 2011 Denmark 1.7% Canada 2.2% United Kingdom 2.7% Italy 2.8% France 2.9% India 6.7% Spain 9.1% Source: National Renewable Energy Laboratory. Rest of World 13.6% Germany 12.2% China 26.3% United States 19.7%

30 The U.S. has less capacity than China but leads in wind generation Wind energy production by country, 2010 Rest of World 14.4% Canada 2.4% Italy 2.5% France 2.9% United States 28.3% United Kingdom 3.0% India 6.1% Germany 10.9% Source: National Renewable Energy Laboratory. Spain 13.0% China 16.5%

31 Germany leads the world in installed solar energy capacity Cumulative solar energy capacity by country, 2010 Czech Republic 6% U.S. 8% France 3% China 2% Italy 10% Germany 49% Japan 10% Spain 12% Source: National Renewable Energy Laboratory.

32 U.S. leads the world in clean energy investment Clean energy investments by leading countries US$ billions U.S. China Germany Italy India U.K. Japan Spain Brazil Source: Bloomberg New Energy Finance and Pew Environmental Group.

33 China is leading the world in renewable energy capacity growth Top 10 countries by growth in capacity from Rank Country Increase in renewable energy capacity 1 China 92% 2 Turkey 58% 3 Brazil 49% 4 Italy 47% 5 Argentina 46% 6 South Korea 43% 7 France 41% 8 Canada 32% 9 Australia 29% 10 United States 28% Source: Bloomberg New Energy Finance and Pew Environmental Group.

34 Underlying Demand Ordinary Demand Modera.on Energy supply and demand balance Ordinary Supply Development

35 Signals & Signposts Intensified economic cycles and the end to modera.on Heightened & social instability We have entered an era of vola*le transi*ons Significant demographic transi.on urbanisa.on New forms of consensus building a mini- lateral world Challenged environmental boundaries