INTERNATIONAL ENERGY AGENCY WORLD ENERGY INVESTMENT OUTLOOK 2003 INSIGHTS

INTERNATIONAL ENERGY AGENCY WORLD ENERGY INVESTMENT OUTLOOK 2003 INSIGHTS

Global Strategic Challenges Security of energy supplies Threat of environmental damage caused by energy use Uneven access of the world s population to modern energy Investment in energy-supply infrastructure

Global Energy Investment Outlook

World Energy Investment 2001-2030 Total investment: 16 trillion dollars E&D 72% 46% Power generation Refining Other 13% 15% Oil 19% Electricity 60% 54% T&D E&D LNG Chain T&D and Storage 55% 8% 37% Gas 19% Coal 2% 88% Mining 12% Production accounts for the majority of investment in the supply chain except for electricity Shipping and ports

Energy Investment by Region 2001-2030 4,000 cumulative investment (billion dollars) 3,500 3,000 2,500 2,000 1,500 1,000 500 20 15 10 5 share in global investment (%) 0 0 OECD China OECD Other Asia Africa Russia Middle East OECD Other Latin India Other Brazil North Europe Pacific America transition America economies OECD Europe will account for around 15% of global energy investment needs of $16 trillion

Energy Investment Share in GDP 2001-2030 Russia Africa Other transition economies Middle East China India Other Asia Latin America OECD World average 0 1 2 3 4 5 6 per cent The share of energy investment in the economy is much higher in developing countries and the transition economies than in the OECD

Global Oil Investment

World Oil Production 120 100 80 mb/d 60 40 20 0 1980 1990 2000 2010 2020 2030 OPEC - Middle East Non-OPEC OPEC - Other Non-conventional oil OPEC countries mainly in Middle East will account for almost all the increase in world oil production to 2030

World Oil Investment 1,200 1,000 billion dollars 800 600 400 200 0 2001-2010 2011-2020 2021-2030 Exploration & development Non-conventional oil GTL Refineries Tankers Pipelines Upstream will continue to dominate oil investment, but the shares of tankers and GTL increase over projection period

Oil Investment by Region Asia Latin America Africa Transition economies Middle East OECD 0 5 10 15 20 25 30 35 billion dollars per year Exploration & development Non-conventional oil Refineries Most investment outside the OECD will be needed in the Middle East and the transition economies mainly in the upstream

250 Oil Production and Capacity Additions 200 150 mb/d 100 50 0 2000 2030 2001-2030 Production Expansion to meet demand growth Replacement to maintain capacity The bulk of additions to crude oil production capacity will be needed simply to maintain capacity

Investment Uncertainties & Challenges

Uncertainties & Challenges Opportunities and incentives to invest Oil prices and rates of return Investment regime and risk Access to reserves Role of NOCs Restrictions on foreign investment Licensing, fiscal and commercial terms Environmental regulations and ethical concerns Demand-side impact Impact on access to reserves and drilling costs Remaining resources and technology Iraqi production prospects Middle East production and investment policies

Global Upstream Oil and Gas Investment & Crude Oil Price 35 150 30 25 100 $/barrel 20 15 50 10 5 0 1999 2000 2001 2002 1990 1991 1992 1993 1994 1995 1996 1997 1998 1985 1986 1987 0 1988 1989 Investment WTI price (right axis) Upstream investment is sensitive with a lag of a year or so to movements in oil prices billion dollars

Access to Oil Reserves Concession 21% Iraq 10% National companies only (Saudi Arabia, Kuwait, Mexico) 35% Production sharing 12% Limited access - National companies 22% 1,032 billion barrels Access to much of the world s remaining oil reserves is restricted

Iraq Oil Investment Scenarios 60 2030 cumulative investment (billion dollars 50 40 30 20 10 0 2010 201 0 2 3 4 5 6 7 8 9 10 production (mb/d) Restoration of production capacity Reference Scenario 2020 2030 2020 2010 2030 2020 Slow production expansion Rapid production expansion Iraq will need to invest around $5 billion to raise oil production capacity to almost 4mb/d by 2010 in the Reference Scenario

Restricted Middle East Oil Investment Scenario

Restricted Middle East Oil Investment Scenario OPEC Middle East Share in Global Oil Supply 50 40 per cent 30 20 10 0 1970 1980 1990 2000 2010 2020 2030 Restricted Investment Scenario Reference Scenario OPEC Middle East s share of global oil production is assumed to remain flat at under 30% in Restricted Investment Scenario

OPEC Oil Revenues, 2001-2030 Restricted Investment vs Reference Scenario 12,000 billion dollars 10,000 8,000 6,000 OPEC Reference Scenario OPEC Middle East Restricted Investment Scenario Oil revenues in OPEC Middle East producers are substantially lower in the Restricted Investment Scenario

Oil Concluding Remarks Global investment of $3 trillion needed in 2001-2030 Investment more sensitive to decline rate than rate of demand growth most investment needed just to maintain current production level Major uncertainties about opportunities and incentives to invest, notably Access to reserves and production policies OPEC (and Iraq) Oil prices Production costs and investment risks Lower investment in Middle East oil would raise global investment needs, lower OPEC revenues & harm global economy Enhanced consumer-producer dialogue to help facilitate capital flows

Natural Gas Investment Outlook

Gas E&D Investment & Incremental Production 2001-2030 Othe 20% Africa 9% E&D Investment OECD 48% Incremental Production OECD 10% Other Transition 32% economies 18% Middle East 8% Transition economies 15% Africa 17% $ 1.7 trillion 2,767 bcm Middle East 23% OECD countries will account for almost half total upstream gas investment, but only 10% of additional production

Net Inter-regional Trade & Production bcm 5,400 4,800 4,200 3,600 3,000 2,400 1,800 1,200 600 0 2001 2010 2020 2030 Production LNG trade Pipeline trade A growing share of gas will be traded between regions, much of it in the form of LNG

LNG Shipping Fleet 400 350 number of ships 300 250 200 150 100 50 0 On order } in 2001 in operation (2001) additions 2002-2030 Liquefaction project developers LNG buyers Oil & gas companies Ship owners Projected A 6-fold increase in LNG trade between 2002 and 2030 will call for massive investment in new carriers

Indicative LNG Unit Capital Cost 700 600 dollars per tonne of capacity 500 400 300 200 100 0 Mid-1990s 2002 2010 2030 Liquefaction Shipping Regasification The recent dramatic fall in LNG costs is expected to continue

Levelised Cost of LNG Imports into US Gulf Coast 3.50 3.00 Henry-Hub average price, 1998-2002 $/MBtu 2.50 2.00 1.50 1.00 0.50 0.00 Trinidad Nigeria Venezuela Egypt Qatar Upstream Liquefaction Shipping Regasification Lower capital costs are making LNG imports more economic and more competitive with domestic supply projects

Gas Investment Uncertainties Balanceofriskandreturn priceiskey Complexity of financing very large-scale projects especially in developing countries Access to reserves and fiscal regime most new investment will be private Impact of market reforms on investment risk long-term contracts will remain necessary These factors could lead to shortfall in investment, supply bottlenecks and higher prices in some cases

Electricity Investment Outlook

Electricity Sector Investment by Region 2001-2030 2,500 2,000 billion dollars 1,500 1,000 500 0 China Other Latin Africa Middle US and European OECD Other Russia Rest of Asia America East Canada Union Pacific OECD TE China will need more electricity investment than any other country or region

Average Age of Power Plants in the OECD 1,000 800 600 GW 400 200 0 <20 years >20 years Fossil Nuclear

U.S. Privately Owned Utilities Profit Margin 12% 10% 8% 6% 4% 2% 0% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Profit margins have fallen sharply in recent years

Electricity Investment Uncertainties in US Investment needs will increase over next 3 decades Demand growth of 1.6% Many old plants including most nuclear reactors will be retired Shifttohigherunitcostrenewables Tightening reserve margins Gas prices and capital costs of coal stations & renewables are key drivers of future investment in generation Wind power will be primary renewable source calling for investment in voltage regulation & network reinforcement New capacity investment may be delayed as investors wait to see what environmental policies including possible climate action are enacted Higher investment costs for new capacity may delay decommissioning of old plants and raise emissions

Power Generation Capacity Additions in Developing Countries 1971-2000 1,200 1,000 800 GW 600 400 200 0 1971-1980 1981-1990 1991-2000 2001-2010 2011-2020 2021-2030 Developing countries will need to add increasing amounts of new generating capacity over the next three decades

Electricity Investment as Share of GDP 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% OECD China India Indonesia Russia Brazil Africa 1991-2000 2001-2010 Medium-term electricity sector investment needs will increase relative to GDP in almost all non-oecd regions

Power Sector Private Investment in Developing Countries billion dollars 50 45 40 35 30 25 20 15 10 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Developing countries will need to reverse the slump in private capital flows if projected investment is to be forthcoming

Energy Investment Challenge Total investment requirements are modest relative to world GDP, but challenge differs by region Energy and financial resources are sufficient, but increasing competition for capital and higher risk Capital needs are largest for electricity Half total energy investment is needed in developing countries where financing will be hardest Production accounts for the bulk of investment more than half just to replace old capacity

Broader Policy Implications: Wake-Up Call for Governments Increasing emphasis on creating right enabling conditions and lowering barriers to investment Less direct intervention as lender or owner Governments should monitor and assess the need to adjust regulatory reforms in network industries Policymakers need to ensure basic principles of good governance are applied and respected including costreflective pricing Fiscal and regulatory incentives to develop advanced technologies carbon sequestration, hydrogen, fuel cells, advanced nuclear reactors, etc. could speed their deployment and dramatically alter energy investment patterns and requirements to 2030