Sustainable Mobility Technical and environmental challenges for the automotive sector Week 1 Session 1 The Energy Scene Nadine Bret-Rouzaut

IFPEN / IFP School 2014

In this first session, we will discover what we mean by energy and the importance of the energy sector in the worlds economy. Then we will focus on the dominant resource, oil, and we will finish with a few words on the different players involved in the oil industry.

What is energy? The different uses of energy Energy is everywhere in our lives and in every sector we have energy needs: in our homes, our means of transport, our professional activities, our food and leisure. To cover these needs we use heat, which represents 55% of the final energy consumption, gasoline, diesel and jet fuels used in the transport sector account for 30% and electricity for 15%.

From primary energy to final energy But the primary energy, the energy as found in nature, needs to be processed, and transported before being available for end-users. From 13 billion tons of oil equivalent of primary energy, we get only 9 billion tons after transformation and transmission because of the different losses.

Energy consumption is soaring Where does this Energy come from ? We have different categories of resources: coal accounts today for 30%, oil for 33%, gas for 24% and electricity either thermal, nuclear or renewable such as hydro, wind and solar energy for 13 %. And our energy consumption is soaring, along with the booming economies of developing countries. Since 1980, global energy demand has almost doubled. Within the next 25 years, global energy consumption will increase by more than 30%.

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The world of energy Energy consumption regional differences Although energy consumption is growing globally, regional differences remain strong: a North American consumes approximately 6 tons of oil equivalent per year, while the average African consumes less than half a ton of oil equivalent. These differences can be explained by differences in lifestyles, climate conditions or by the structure of the economy. A shift from biomass to fossil fuels Our energy consumption has changed over the decades in terms of the nature of the resource: wood was the dominant fuel until the end of the 19th century; then came the industrial revolution, and coal took the lead until the middle of the 20th century which was the start of the age of oil. Oil remains dominant today.

The age of oil Oil is today the leading fuel Why is that ? because oil is liquid: hence easy to transport, easy to store and it has a higher content of energy per volume compared to other resources.

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Do we have enough oil to cover our needs and for how long ? This is a key question, not easy to answer. If we divide the reserves discovered by the current level of production we have today 53 years of consumption ahead of us. But oil reserves are, above all, a function of the price. As the price of oil rises, more reserves become economically recoverable. Oil from the Middle-East and North Africa can be produced at the lowest cost. The other resources are more expensive because of the geology, the technology or the logistics for example. And as long as our society is ready to invest sufficiently, there is still plenty of oil or equivalent like GTL (Gas to liquids) or CTL (Coal to liquids).

The price of oil The Brent marker price has been rising sharply in recent years. It is now stabilizing around 110$ per barrel, enabling new resources such as Canadian oil sands, Venezuelan heavy oil, or ultra-deep-offshore in Brazil to be put into production with an acceptable profitability. Investments needed to find and produce oil Easy oil (easy to find, easy to produce) is a thing of the past. To find new reserves and put them into production, we need to spend more and more. Investments in the Exploration & Production for

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Oil & Gas sector have doubled in the last decade and they could reach up to 750 billion dollars in 2014.

Moreover, oil is generally not produced where it is consumed. Indeed, Saudi Arabia, Russia and the United States are the 3 main producers; but only the US is among the top 3 consumers, along with China and Japan. Two third of the oil produced is therefore exported. The main exporting regions are the Middle East, the Former Soviet Union, and West Africa. The main regions relying on foreign imports for their oil supply are Europe, the United States that is reducing its imports with the local development of unconventional production and China. Oil needs to be transported The map below shows that crude oil is a genuine global commodity. A product so important for the economy that very few regions are excluded from the international oil market. But definitely, Middle-East is a key area for consuming countries, especially in Asia.

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The players Producing companies by categories The oil industry is like a stage where there is interaction between various types of players: State-owned National Oil Companies that own more than 2/3rd of the world reserves, Super majors (the 6 biggest private actors in the oil industry) and other private oil companies, either midsize, independent or junior companies. From one field to another, these players can be in competition or in partnership. But all of them are driven by their hunt for oil, their performance and a serious concern for Health, Safety & Environment.

Different players with different objectives All these companies interact with other players, governments (mainly the Ministry of Oil), service companies, banks or international organizations, professionals and local population, all pursuing different objectives and adopting different strategies. For instance, the Government of the Host country seeks to know as precisely as possible the oil resources of the country and to obtain a fair share of the rent to maximize revenues for current and future generations. Oilfield service companies are contractors, offering operational engineering support to oil producing companies on the field. They are contract driven. Banks will finance profitable projects and manage their risk exposure by optimizing their portfolio. Different international organizations such as the Organization of Petroleum Exporting Countries (OPEC) or the International Energy Agency (the IEA), also play an important role in the oil industry to balance supply and demand. Professional organizations are very active to develop the knowledge and skills of professionals of this industry through their networks. And finally, local communities have their own concerns in term of local social and economic development and expect a mutually beneficial relationship between the different stakeholders. Oil satisfies many needs

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But in the end, this oil is produced to be consumed. Oil is everywhere in our economy: fueling our cars, in our plastic bags, in bank notes, CDs, even in our clothes! But more than half of the oil consumed in the world is for transport: for fueling our insatiable demand for mobility. So now you have an idea of the importance of energy in the worlds economy.

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