Energy trends: The emerging world at the centre of supply and

Alicia García-Herrero

Hong Kong, April 2013

Energy trends: The emerging world at the centre of supply and demand

2


Key take-aways

• Emerging economies will continue to drive global growth with center of gravity in Emerging Asia

• Rapid economic growth and higher purchasing power behind substantial increase in energy demand in the emerging world

• Efficiency gains will just soften -but not curb – huge demand pressure.

• Energy mix may change but demand will continue to be overwhelming for oil and gas

• Oil and gas production and, especially reserves, concentrated in emerging economies, which will increase institutional and business uncertainties

• Given supply and demand developments, energy security will become much more relevant in the Middle East –China sphere

3


Summary

Section 1

The changing map of world growth: BBVA EAGLEs Section 2

Consumption trends in energy markets

Section 3

Energy dependency and supply factors

REFER TO IMPORTANT DISCLOSURES ON PAGE 35 OF THIS REPORT

4


The changing map of world growth: BBVA EAGLEs

New economic activity focused on the Pacific connection: Asia and America

Incremental GDP between 2012 and 2022 by region (%) Source: BBVA Research and IMF/WEO

10.9

Latin America

Africa Australia

New Zealand

North America

Asia (ex.Japan)

Japan

7.5

6.8

4.9

Eastern Europe

56.4 1.7

1.0

6.4

Western Europe

Middle East

4.5

+

5



Summary: the emerging world to lead growth in the next decade

Contribution to GDP world growth (percentage points) (over PPP-adjusted 2012 USD) Source: BBVA Research and IMF/WEO

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

80s 90s 00s pre-crisis Global crisis 2012-2022

RoW G6 US Nest EAGLEs WORLD

6



Vulnerabilities have also decreased substantially during the last decade

Public and private debt-to-GDP ratios (2012) Source: BBVA Research

Sovereign rating* for EAGLEs and Nest countries (end of period) (2000-2012) *Numerical average for Fitch, S&P and Moody’s ratings, rounded-up to zero decimals Source: BBVA Research and rating agencies

0

20

40

60

80

100

120

140

160

Public debt Private debt:Households

Private debt:Non-final

corporations

External debt

G7 EAGLEs&Nest

DCC

CCC-CCC

CCC+B-B

B+BB-BB

BB+BBB-BBB

BBB+A-A

A+AA-AA

AA+AAA

Tai

wan

Chile

Chin

aK

ore

aPola

nd

Mal

aysi

aS.

Afr

ica

Thai

land

Mex

ico

Per

uBra

zil

Russ

iaIn

dia

Colo

mbia

Indones

iaPhili

ppin

esTurk

eyBan

gla

des

hN

iger

iaV

ietn

amEgyp

tU

krai

ne

Pak

ista

nA

rgen

tina

Investment grade

Prime grade

7


-4

-3

-2

-1

0

1

2

3

Can

ada

UK

US

Chile

Japan

Ger

man

yFr

ance

Tai

wan

Pola

nd

Mal

aysi

aS.

Afr

ica

Kore

aG

CC

Ital

yC

olo

mbia

Per

uBra

zil

Thai

land

Turk

eyM

exic

oC

hin

aA

rgen

tina

Indones

iaEgyp

tR

uss

iaV

ietn

amIn

dia

Ban

gla

des

hPhili

ppin

esPak

ista

nN

iger

iaV

enez

uel

a


However, business conditions still have room to improve in some countries Institutional indicator for advanced and emerging economies Source: BBVA Research

G7 average

Emerging economies

average

8


Summary

Section 1


Section 2

Consumption trends in energy markets Section 3


9



EAGLEs account at present for 30% of oil and gas world demand

Energy consumption in EAGLEs and G7 economies (% of world total) (1965-2011) Source: BBVA Research and BP

Oil Natural gas

0

10

20

30

40

50

60

70

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

G7 EAGLEs RoW

0

10

20

30

40

50

60

70

80

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

G7 EAGLEs RoW

10



China has become a world key consumer in the oil market, while gas demand is also growing fast now

Energy consumption in China and the US (% of world total) (1965-2011) Source: BBVA Research and BP

Oil Natural gas

0

5

10

15

20

25

30

35

40

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

US China

0

10

20

30

40

50

60

70

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

US China

11



Oil and gas demand up by 40-60% in the EAGLEs since 2000 while flat or declining in the G7

Energy consumption in EAGLEs and G7 economies (index 100=2000) (1965-2011) Source: BBVA Research and BP

Oil Natural gas

0

20

40

60

80

100

120

140

160

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

G7 EAGLEs RoW

0

20

40

60

80

100

120

140

160

180

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

G7 EAGLEs RoW

12



China leads the process, but demand is increasing fast also in other EAGLEs

Energy consumption in the EAGLEs (index 100=2000) (1965-2011) Source: BBVA Research and BP

Oil Natural gas

0

25

50

75

100

125

150

175

200

225

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

China India IndonesiaKorea Taiwan BrazilMexico Russia Turkey

0

100

200

300

400

500

600

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

China India IndonesiaKorea Taiwan BrazilMexico Russia Turkey

13



Energy trends linked to rapid growth in emerging economies but other key factors on the table

Rapid economic growth

Increasing energy demand

As emerging economies continue growing fast and converging to developed standards, pressure increases on natural resources and make

energy security more relevant

Increasing GDP per capita

Technological progress Resources availability New energy deposits

Energy intensity Use efficiency Relative prices Policy options

Environmental issues

Key factors to shape demand elasticity and impact the

energy mix

14



Higher purchasing power (middle classes) is a very relevant source of new energy demand

Middle classes in emerging economies and oil price (centered 5yMA) (1980-2020) Source: BBVA Research and Haver

15

20

25

30

35

40

45

50

55

0

20

40

60

80

100

120

140

160

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Oil price in USD/barrel (lhs)

% of middle classes in EMs (rhs)

15



Boost in car fleet to increase energy demand for transport, but conditional on technology progress

World markets according to annual growth of the car fleet between 2010 and 2020 Source: BBVA Research

0% ≥8% 4% 2% 6%

16



No big differences between growth and energy maps in the following years: Asia leads

Contribution to energy consumption growth by region (percentage points) (2000-2030) Source: BBVA Research and BP

0

5

10

15

20

25

30

2000-2010 2010-2020 2020-2030

Asia Pacific Africa Middle EastEurope & Eurasia S & C America North AmericaTotal

Efficiency gains and lower energy

intensity to soften demand pressure

17


Energy consumption by fuel (in % of total) (2011) Source: BBVA Research and BP


Regional energy mix: progressive substitution of coal in developing Asia

*oil, biofuels, gas-to-liquids and coal-to-liquids; **wind power, solar electricity and other renewables

0

10

20

30

40

50

60

70

80

90

100

NorthAmerica

S & CAmerica

Europe &Eurasia

MiddleEast

Africa Asia Pacific

Liquids* Natural Gas CoalNuclear Hydroelectricity Renewables**

Natural gas and renewables also

expected to gain share to the detriment of oil,

especially in more developed regions Coal

18


Summary

Section 1


Section 2


Section 3


19



G7 economies have kept a significant reliance on external energy

Energy net exports (% of energy use; unweighted average by group) (1971-2010) Source: BBVA Research and World Bank

-60

-50

-40

-30

-20

-10

0

10

20

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

G7 EAGLEs&Nest

20


Middle East33%

Russia12%

US9%

China5%Canada

4%

Mexico4%

Venezuela3%

Nigeria3%

Brazil3%

Norway3%

Kazakhstan2%

Angola2%

Algeria2%

RoW15% US

20%

Russia19%

Middle East16%

Canada5%

China3%

Norway3%

Algeria2%

Indonesia2%

Netherlands2%

Malaysia2%

Egypt2%

Turkmenistan2%

Uzbekistan2%

Mexico2%

India1% UK

1%

Australia1%

RoW15%


Most of the energy production remains in the hands of emerging economies

Oil

Production (% of world total) (2011) Source: BBVA Research and BP

Natural gas

21


-100-75-50-25

0255075

100125150175200225250

Colo

mbia

Nig

eria

Russ

iaIn

dones

iaC

anad

aM

exic

oEgyp

tS.

Afr

ica

Mal

aysi

aV

ietn

amA

rgen

tina

Per

uBra

zil

Chin

aBan

gla

des

hU

SPak

ista

nIn

dia

UK

Pola

nd

Thai

land

Phili

ppin

esFra

nce

Ger

man

yTurk

eyC

hile

Japan

Kore

aItal

y


However, the energy balance of EAGLEs and Nest is quite diverse

Energy net exports (% of energy use) (2010) Source: BBVA Research and World Bank

22


-100

-80

-60

-40

-20

0

20

40

60

80

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

Japan United KingdomGermany FranceUnited States CanadaItaly


Canada is at present the only self-sufficient country among the G7

Energy net exports (% of energy use) (1971-2010) Source: BBVA Research and World Bank

23


-100

-50

0

50

100

150

200

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

IndiaIndonesiaKorea, Rep.BangladeshChina

-100

-50

0

50

100

150

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

Philippines ThailandVietnam MalaysiaPakistan


Korea is the most reliant Asian country on imports while Indonesia intensifies specialization


24


-100

-50

0

50

100

150

200

250

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

ChileColombiaMexicoPeruArgentinaBrazil

-100

-50

0

50

100

150

200

250

300

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

Russian Federation

South Africa

Turkey

Egypt, Arab Rep.

Nigeria


Brazil and Argentina show opposite trends, whereas growth pushes up net imports in Turkey


25



Oil and gas reserves are very concentrated, more than current production

Middle East48%

Venezuela18%

Canada10%

Russia5%

Libya3%

Nigeria2% US

2%

Kazakhstan2%

Brazil1%

China1%

Angola1%

Algeria1%

Mexico1%

RoW5%

Middle East38%

Russia21%

Turkmenistan12%

US4%

Venezuela3%

Nigeria2%

Algeria2%

Australia2%

China1%

Indonesia1%

Malaysia1%

Egypt1%

Norway1%

Canada1% Kazakhstan

1%

Uzbekistan1%

Libya1%

RoW6%

Oil

Proved reserves (% of world total) (2011) Source: BBVA Research and BP

Natural gas

26



Changes in the last 25 years dominated by the higher share of OPEC countries

0

200

400

600

800

1000

1200

1400

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

G7EAGLEs&NestRoW

0

20

40

60

80

100

120

140

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

G7EAGLEs&NestRoW

Oil (thousand million barrels)

Proved reserves (physical units) (1980-2011) Source: BBVA Research and BP

Natural gas (trillion cubic meters)

27



North America leads reserves building among the G7 economies: oil in Canada and gas in the US

Proved reserves (% of world total) (1980-2011) Source: BBVA Research and BP

Oil Natural gas

0

2

4

6

8

10

12

14

16

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

US

Canada

United Kingdom

Italy

0

1

2

3

4

5

6

7

8

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

USCanadaUnited KingdomItalyGermany

28



Russia stands out as a price driver in both oil and gas markets, while Nigeria dominates in Africa


Oil Natural gas

0

2

4

6

8

10

12

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

Russian Federation

Egypt

Nigeria

0

5

10

15

20

25

30

35

40

45

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

Russian Federation

Egypt

Nigeria

29



LatAm role has become almost marginal beyond Venezuelan oil, with a relevant increase in Brazil


Oil Natural gas

0

1

2

3

4

5

6

7

8

9

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

Argentina

Brazil

Colombia

Mexico

Peru

0,0

0,5

1,0

1,5

2,0

2,5

3,0

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

Argentina

Brazil

Colombia

Mexico

Peru

30



No world players in SE Asia, but oil and gas reserves rose faster than average in Vietnam


Oil Natural gas

0,0

0,5

1,0

1,5

2,0

2,5

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

ChinaMalaysiaIndonesiaVietnam

0,0

0,5

1,0

1,5

2,0

2,5

3,0

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

China MalaysiaIndonesia Vietnam

31


Key take-aways

• Emerging economies will continue to drive global growth with center of gravity in Emerging Asia

• Rapid economic growth and higher purchasing power behind substantial increase in energy demand in the emerging world

• Efficiency gains will just soften -but not curb – huge demand pressure.

• Energy mix may change but demand will continue to be overwhelming for oil and gas

• Oil and gas production and, especially reserves, concentrated in emerging economies, which will increase institutional and business uncertainties

• Given supply and demand developments, energy security will become much more relevant in the Middle East –China sphere

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Energy trends: The emerging world at the centre of supply and

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