Peak Oil & The Clean Transportation Opportunity

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Peak oil is becoming more of a reality, and an oil shock is very likely the next major macro crisis and opportunity. Ron Mahabir details the macro oil situation, oil alternatives and the clean transportation opportunity.

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Peak Oil & The Clean Transportation Opportunity

  1. 1. o INTRODUCTION THE CRISIS TRANSPORTATION OPPORTUNITY CONTACT The Clean Transport Opportunity ASIA CLEANTECH CAPITAL PROPRIETARY 1 & CONFIDENTIAL
  2. 2. Introduction Size of the Opportunity o INTRODUCTION THE CRISIS TRANSPORTATION OPPORTUNITY CONTACT Source: IEA, EIA, company. SOURCE: IEA, EIA, SIMMONS INTERNATIONAL, COMPANY ESTIMATES. PROPRIETARY 2 & CONFIDENTIAL
  3. 3. Introduction Crisis Oil production likely peaked in May, 2005 *SIMMONS Majority of remaining reserves are controlled by historically unstable regimes o The financial crisis and low oil prices have curbed investment The oil workforce and infrastructure is rusting INTRODUCTION THE CRISIS Oil is the single feedstock for 95% of transportation TRANSPORTATION OPPORTUNITY CONTACT PROPRIETARY 3 & CONFIDENTIAL
  4. 4. Introduction Opportunity Oil is temporarily mispriced as prices are based on short-term supply/demand. The markets are missing the medium and longer term supply shortages. o $50-60 oil is Demand growth After recent price shock, very cheap governments from China, India, (below cost of are seeking and ME is massive INTRODUCTION future supply) energy diversity THE CRISIS TRANSPORTATION and security OPPORTUNITY CONTACT Investment Global mandates community is Disruptive for reduced starting to technology is emissions and appreciate quickly emerging alternative fuels “peak oil” PROPRIETARY 4 & CONFIDENTIAL
  5. 5. Introduction Window of Opportunistic Investments In the next 3-5 years, we will likely experience much higher and volatile oil prices. Transportation provides the single most compelling investment opportunity. o A transformation is occurring in electric vehicles, next generation biofuels, hydrogen, and fuel efficiency. We see an opportunistic focus in: INTRODUCTION THE CRISIS ‣ New fuel resources ‣ Vehicles TRANSPORTATION OPPORTUNITY CONTACT ‣ Fuel efficiency PROPRIETARY 5 & CONFIDENTIAL
  6. 6. The Crisis We are out of cheap oil 160 140 Remaining oil reserves are largely o 120 offshore, tar sands, and oil shale all of which are feasible 100 at US$80+ INTRODUCTION THE CRISIS TRANSPORTATION 80 OPPORTUNITY CONTACT 60 40 20 0 02 2 3 3 04 4 05 6 06 07 7 08 09 X 0 00 00 00 00 0 00 20 0 00 20 20 X -2 -2 r-2 t-2 -2 0 -2 l-2 2 -2 -2 - - 20 an g a c ay ec Ju b- p- pr ov un an J Au M O M D Fe Se A N J J "Current oil prices don’t take into account the medium and longer term supply shortages and increasing cost of future production.“ PROPRIETARY Source: NYMEX. 6 & CONFIDENTIAL
  7. 7. The Crisis The Oil Age World Crude Oil Production, 1960 - 2007 Source: Simmons International. mb/d 140 o 105 It is likely INTRODUCTION that we reached THE CRISIS peak production TRANSPORTATION in May 2005 OPPORTUNITY 70 CONTACT (Simmons) 35 2005 0 1960 1968 1976 1984 1992 2000 2007 "The term Peak Oil refers to the maximum rate of the production of oil in any area under consideration, recognising that it is a finite natural resource, subject to depletion.“ -- Colin Campbell PROPRIETARY 7 & CONFIDENTIAL
  8. 8. The Crisis Rapid Fall Off in Production 120 MILLION BARRELS/DAY 100 o 80 INTRODUCTION THE CRISIS 60 TRANSPORTATION OPPORTUNITY CONTACT We should be investing 40 massively in E&P! 20 0 1990 2000 2010 2020 2030 CRUDE OIL - FIELDS YET CRUDE OIL - FIELDS YET CRUDE OIL - CURRENTLY TO BE FOUND TO BE DEVELOPED PRODUCING FIELDS SOURCE: IHS, DELOITTE, USGS DATABASE, IEA, SIMMONS INTERNATIONAL. PROPRIETARY 8 & CONFIDENTIAL
  9. 9. The Crisis Despite High Oil Prices, Output Flat Countries with Increasing Production vs. Rest of World Decline Source: Simmons International. o INTRODUCTION THE CRISIS TRANSPORTATION OPPORTUNITY CONTACT Despite high oil prices and an increase in E&P spending from US$100 billion to $400 billion (2000 to 2006), oil production has remained flat. *Recently have also fallen into decline. PROPRIETARY 9 & CONFIDENTIAL
  10. 10. The Crisis Energy security Proved reserves at end of 2007 (Billions of barrels) Source: Statistical Review of World Energy 2008 o INTRODUCTION THE CRISIS TRANSPORTATION OPPORTUNITY CONTACT PROPRIETARY 10 & CONFIDENTIAL
  11. 11. The Crisis Consumption is patently unsustainable Top Consuming Countries, 1960 - 2006 Source: http://www.eia.doe.gov/emeu/aer/pdf/pages/sec11_20.pdf 24 o MILLION BARRELS/DAY UNITED STATES INTRODUCTION 18 THE CRISIS TRANSPORTATION OPPORTUNITY CONTACT 12 FORMER U.S.S.R. 6 JAPAN RUSSIA CHINA INDIA 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 YEAR PROPRIETARY 11 & CONFIDENTIAL
  12. 12. The Crisis Decline Rates in the Gulf of Mexico 16 100 60 60 10 14 50 50 12 80 40 8 10 60 40 6 8 30 30 6 40 20 20 4 4 20 10 2 2 Amberjack Auger 10 Baldpate Brutus Cognac 0 0 0 0 0 o D D D D D 98 00 02 04 08 6 98 02 04 08 6 20 8 00 02 04 06 20 8 00 02 04 06 98 00 02 04 08 6 00 20 200 20 200 20 200 9 9 YT YT YT YT YT 19 20 20 20 19 20 20 20 19 20 20 20 20 19 20 20 20 20 19 20 20 20 08 08 50 100 40 60 300 40 80 50 250 30 30 40 200 INTRODUCTION 60 20 40 20 30 150 THE CRISIS Horn Llano 20 100 10 20 Mtn/King 10 10 50 TRANSPORTATION Hoover (GB 387) Lobster/Oyster Mars-Ursa OPPORTUNITY 0 0 0 0 0 CONTACT D D D 08 6 D D 98 00 02 04 08 6 98 00 02 04 98 00 02 04 08 6 20 8 00 02 04 08 6 20 8 20 0 02 20 4 08 06 20 200 20 200 20 200 9 20 200 9 0 0 YT YT YT YT YT 19 20 20 20 19 20 20 20 19 20 20 20 19 20 20 19 20 20 50 35 30 30 60 45 30 25 25 50 40 25 35 20 20 40 30 20 25 15 15 15 30 20 10 Nansen 10 Neptune 10 20 15 Ram-Powell 5 10 5 (EB 602) (VK 825) 5 10 Pompano 5 (VK 956) 0 Phoenix 0 0 0 0 D D D D 02 04 08 6 08 6 04 08 6 D 98 00 98 00 02 04 98 00 02 20 8 00 02 04 06 98 00 02 04 08 6 20 200 20 0 20 200 9 20 200 YT YT YT YT YT 20 20 20 19 20 19 20 20 20 20 19 20 20 19 20 20 20 20 19 20 20 20 08 Select Gulf of Mexico oil fields. Cantarell, one of the world’s largest deepwater oil fields peaked in 2004, with collapsing production. Source: Simmons International. PROPRIETARY 12 & CONFIDENTIAL
  13. 13. The Crisis Rise of Resource Nationalism Independents (such as BP, o ExxonMobil) own or have access to less than 10% of world oil resources. RECENT EXAMPLES INTRODUCTION THE CRISIS TRANSPORTATION OPPORTUNITY Russia shutting off of natural gas supply to CONTACT Ukraine and Europe 65% of reserves are ---------------------- held by state-owned Venezuela’s nationalization of international oil companies, mostly in major projects MENA. ---------------------- Indonesia cutting back on energy exports, threatening to seize Natuna from ExxonMobil ---------------------- Remainder is located China developing Iranian oil field against in countries such as international sanctions Venezuela and Russia where access is difficult. PROPRIETARY 13 & CONFIDENTIAL
  14. 14. The Crisis Financial Crisis has Hit New Investment Source: Energy Current: “Global E&P Expenditures” Wall Street Journal o North America US: -26% 2009 E&P BUDGETS DOWN 12% Canada: -23% INTRODUCTION FIRST DECLINE IN 9 YEARS THE CRISIS (LARGE CUTS) TRANSPORTATION OPPORTUNITY ---------------------- CONTACT Estimated 85% of new refining capacity has been canceled or postponed. Unless oil prices are higher than an estimated $80, deep water Russia drilling, oil shale, and tar sands are not viable Lukoil: -50% Surgutneftegaz, Gazprom Neft, Rosneft, TNK: -20% to -26% Middle East / Asia Pacific Mixed results (both increases & decreases) PROPRIETARY 14 & CONFIDENTIAL
  15. 15. The Crisis Rusting of industry Worldwide energy infrastructure is too old Labor force is graying and retiring o Past 4 months alone, 40,000 industry hires were fired (likely more than all hires 2006 - 2008) Average age of US pipeline is 80 years INTRODUCTION THE CRISIS TRANSPORTATION OPPORTUNITY 80% of rigs must be replaced CONTACT Source: Simmons International. PROPRIETARY 15 & CONFIDENTIAL
  16. 16. The Crisis No end to Emissions 30,000 MTONS/YEAR CARBON EMISSIONS FROM GAS FLARING 25,000 CARBON EMISSIONS FROM SOLID FUEL o CONSUMPTION Massive CARBON EMISSIONS FROM LIQUID FUEL increase in global CONSUMPTION 20,000 emissions post CARBON EMISSIONS FROM GAS FUEL industrialization. INTRODUCTION THE CRISIS CONSUMPTION TRANSPORTATION 15,000 OPPORTUNITY CONTACT Transportation is a major contributor 10,000 to climate change. 5,000 0 51 58 65 72 79 86 93 00 07 14 33 21 28 35 42 49 56 63 70 77 84 91 98 05 12 19 26 40 47 54 61 68 75 82 89 96 03 17 17 17 17 17 17 17 18 18 18 18 18 18 18 19 18 18 18 18 18 18 18 18 19 19 19 19 19 19 19 19 19 19 19 19 19 20 YEAR Source: Deutsche Bank PROPRIETARY 16 & CONFIDENTIAL
  17. 17. Transportation History of Transport Fuels CARBON NEUTRAL CARBON TRANSPORTATION TRANSPORTATION TRANSPORTATION DEMAND o Key Drivers Declining fossil fuel supplies INTRODUCTION Fuel supply security and THE CRISIS diversification TRANSPORTATION Global emissions OPPORTUNITY Governmental regulations CONTACT TODAY TIME Natural Fuel Fossil Fuel New Fuel Wind Oil Carbon neutral fuels Horsepower Gas Electricity (renewable) 17 PROPRIETARY Coal Synthetic fuels & CONFIDENTIAL Hydrogen
  18. 18. Transportation Current Reliance on a Single Feedstock TRANSPORTATION ELECTRICITY OTHER o LIQUIDS 5% 6% RENEWABLES 18% NUCLEAR 15% INTRODUCTION THE CRISIS TRANSPORTATION OPPORTUNITY CONTACT GAS 20% CRUDE OIL 95% COAL 41% OIL PROVIDES 95% OF TRANSPORT FUEL NEEDS (VS. ELECTRICITY WHICH IS WELL DIVERSIFIED) Source: IEA World Energy Outlook Source: U.S. Energy Information Administration PROPRIETARY 18 & CONFIDENTIAL
  19. 19. Transportation 75% of New Oil Demand Incremental Oil Demand by sector 2006 - 2030 Source: IEA, World Energy Outlook 2008 Mtoe 800 o 600 INTRODUCTION THE CRISIS 400 TRANSPORTATION OPPORTUNITY CONTACT 200 0 -200 TRANSPORT INDUSTRY NON-ENERGY USE OTHER* *INCLUDES RESIDENTIAL, SERVICES, AGRICULTURE, POWER GENERATION AND OTHER SECTORS. PROPRIETARY 19 & CONFIDENTIAL
  20. 20. Transportation As Global Demand for Vehicles is Accelerating Worldwide Number of Cars (Millions) Source: IEA, World Energy Outlook 2008 1500 o 1125 INTRODUCTION THE CRISIS TRANSPORTATION OPPORTUNITY CONTACT 750 375 0 1968 1985 2007 2020 PROPRIETARY 20 & CONFIDENTIAL
  21. 21. Transportation ...and Oil Growth Growth from Asia & Middle East Source: IEA, World Energy Outlook 2008 o INTRODUCTION THE CRISIS TRANSPORTATION OPPORTUNITY CONTACT (mb/d) PROPRIETARY 21 & CONFIDENTIAL
  22. 22. Opportunity Spectrum of Potential Investments o Upstream: Downstream: Fuel Resources Vehicles ---------------------- ---------------------- INTRODUCTION THE CRISIS TRANSPORTATION Plantation Components OPPORTUNITY Technology Processing CONTACT Fuel generation Design FUEL Distribution Manufacturing / EFFICIENCY Conversion Distribution Fuel Type ---------------------- Carbon Neutral Synthetic Fuels ‣ Biodiesel Hydrogen ‣ Bioethanol Electricity ‣ Biogas PROPRIETARY 22 & CONFIDENTIAL
  23. 23. Opportunity New Propulsion Technologies & Alternative Fuels o INTRODUCTION THE CRISIS TRANSPORTATION OPPORTUNITY CONTACT Source: Deutsche Bank, Company estimates. PROPRIETARY 23 & CONFIDENTIAL
  24. 24. Opportunity Growth in Biofuel Mandates & Production o INTRODUCTION THE CRISIS TRANSPORTATION OPPORTUNITY CONTACT PROPRIETARY 24 & CONFIDENTIAL Source: REN21, Renewables 2009 Global Status Report.
  25. 25. Opportunity China Leading with Electric 27.5 Automotive sales in China SOURCE: CAMBRIDGE ENERGY RESEARCH ASSOCIATES. Sales of electric two-wheelers in o China recently surpassed gasoline powered two-wheelers. China is the INTRODUCTION 18 world’s leading VEHICLES/YEAR (MILLIONS) THE CRISIS producer TRANSPORTATION OPPORTUNITY of electric 16 CONTACT two-wheelers. 14 12 GASOLINE TWO- WHEELERS 32 10 8 ELECTRIC TWO- 6.5 6 WHEELERS 4 2 LIGHT DUTY VEHICLE 0 PROPRIETARY 25 & CONFIDENTIAL 1990 1995 2000 2005 2010
  26. 26. Contact us Asia Cleantech Capital Pte Ltd 6 Eu Tong Sen Street, #07-06 The Central, Soho One Singapore 059817 o T: (65) 6227 5940 F: (65) 6227 5945 INTRODUCTION W: www.asiacleantech.com THE CRISIS TRANSPORTATION OPPORTUNITY Ron Mahabir, Managing Director CONTACT ron@asiacleantech.com PROPRIETARY 26 & CONFIDENTIAL
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