The document discusses different perspectives on energy risks in 2011, including importing countries concerned with supply security, energy users facing price volatility and transition to new fuels, exporting countries dealing with changing demand patterns, and stakeholders focused on environmental risks. It also examines the investing company's perspective on technical, environmental, and market risks in the energy industry in 2011.

1. Session 1
Introduction : Risk
and the 2012 global energy scene
Professor Albert Bressand
January 23, 2012
© Professor Albert Bressand 1

2. Part.
1
Energy risk in 2011:
Reflecting on what risks materialized
for various types of actors in 2011
Professor Albert Bressand
© Professor Albert Bressand February 28, 2011

3. Common sense questions
• How do we define ‘risk’ in the energy system?
• What sort of risks materialized in 2011?
• What can we expect in 2012?
• … and how should we go about analyzing
energy risk in the future?
© Professor Albert Bressand 3

4. Thinking about risk (and opportunities)
• What sort of risk has the world energy system
been exposed to most visibly in 2011?
• To answer, ask first: who worries about what?
1. importing countries
2. energy users
3. net exporting countries
4. stakeholders and civic society
5. investing companies
Each of these five groups can be further divided
into subgroups sensitive to different types of risks
and opportunities
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5. 1. Risk as experienced by importing countries:
the security of supply perspective, 2011
• The ‘peak oil’ perspective has been receding, yet oil prices have risen
• Continuing E&P successes in Africa, North America, Brazil
• Libya’s revolution and a short lived supply challenge. IEA SPRs used.
• Nigeria’s strike over oil subsidies and continuing unrest in Niger Delta
• European boycott of Syrian oil
• Saudi and global spare capacity down to pre-glut levels
… and knocking at the door:
• Boycott of 400k Iranian oil to start in Spring 2012
• Iraq close to adding 400k b/d from Southern fields
… and looking forward:
Heritage Foundation scenario work on oil supply:
• - The Strait of Hormuz is closed (2006)
• - Attacks on major Saudi oil infrastructures
• - To be released 2012: Downfall of the Saudi monarchy
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6. 2. Risk as experienced by energy users in 2011:
Short term volatility, long term transition
• 2011 the first year at 100 $ Brent average price
• Volatility
• Unusually high Brent-WTI differential in mid 2011
• Collapse in carbon prices
• Transition towards a different energy mix:
• - EU roadmap to 2050
• - US States RES AND the shale gas revolution
• - China’s 13th Five year Plan
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7. The role of futures markets
• Oil price formation, is OPEC really a cartel?
• Nymex and ICE
• Producers and consumers hedging
• Non commercial and swap traders
7

8. November 2004: from short-term price increases to
LT adjustments in expectations
• November 2004: Crude Oil "Forward Curves"
- prompt prices doubled 70
Note: 2/06
- forward prices also doubled this is a 10/06 3/07
60 year 11/05
- OPEC “suspended” the $22- 10 10
after Iraq
$28/b target price band II
3/05
50
• A conjunction of causes: 11/04
Higher
- 2004 oil demand surge out year
40 prices
$ / barrel
- Iraq recovery delayed 3/04
3/03
- Spare capacity ran out 30
3/00
- Buoyant “asset demand” for
oil futures 20
3/02
- Non-OPEC supply growth Old OPEC
10 price band
limited
3/99
• The new $60-80 price band seems
0
to hold '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
8

9. 3.Risk as experienced by exporting countries in 2011:
Geographic shift and ‘security of demand’
• Has OECD demand for oil peaked in 2008?
• Europe’s efforts to move out of oil. Roadmap 2050 sees energy
consumption only 6% higher than now
• US quest for ‘energy independence’, the Bush era CAFE
standards begin to bite, and the US hydrocarbon revolution…
But also:
• Fukushima and the German angst
• the end of US ethanol subsidies
• Diminished support for solar and win. Solyndra. Vesta
• Chinese and BRIC demand as the central driver for global
oil demand
• Cheap LNG chasing demand
• Security of demand in natural gas
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13. Oil demand: OECD has peaked,
China growth more than offsets
Net imports of oil in the WEO 2011 New Policies Scenario
14
mb/d
2000
12
2010
10
2035
8
6
4
2
0
China India European United Japan
Union States
US oil imports drop due to rising domestic output & improved transport efficiency: EU imports
overtake those of the US around 2015; China becomes the largest importer around 2020

14. 4. Risk as experienced by stakeholders in 2011:
environmental risk at the forefront
• Deep Sea Horizon oil spill
• Climate change: muddling through at Durban
• Keystone XL controversy
• Fracking controversy
• The French law on shale gas
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15. The changing energy mix
(IEA view, nov. 2011)
World primary energy demand by fuel
in the WEO 2011 New Policies Scenario
5 000
Mtoe
Additional
to 2035
4 000
2009
3 000
2 000
1 000
0
Oil Coal Gas Renewables Nuclear
Renewables & natural gas collectively meet almost two-thirds
of incremental energy demand in 2010-2035

16. The age of fossil fuels is far
from over, but their
dominance declines (WEO 2011)
Shares of energy sources in world primary energy demand
in the New Policies Scenario
50% Oil
Coal
40%
Gas
30% Biomass
Nuclear
20% Other renewables
Hydro
10%
0%
1980 1990 2000 2010 2020 2030 2035
Oil remains the leading fuel though natural gas demand rises the most in absolute terms

17. Part.
2
Risk in 2011: The investing
company’s perspective
Professor Albert Bressand
© Professor Albert Bressand February 28, 2011

18. 5. Risk as experienced by investing companies, 2011
• Technical risk: the Macondo well debacle
• Environmental risk, local: Chevron in Brazil
• Environmental risk, global: Durban COP on climate
• Market risk, energy: the crash in US natural gas prices
• Market risk: soft growth and the euro crisis risk
• Country risk: the Arab spring,
• Geopolitical risk: Iran nuclear program
• Resource curse:
AND
• A new oil & gas frontier in US, Africa and Brazil
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19. Risk: the diversity of Shell experience
• 1995: Ken Saro-Wiwa execution in the Niger delta
• 1995: Brent Spar platform and the Greepeace-led customer boycott
• 2004: ‘Reserves’ booking scandal
• 2000’s: Canadian tar sands emissions to be offset by reduced Nigerian
flaring
• Ongoing: ‘bunkering’ of West African oil
• 2005: Sakhalin II
• 2000’s: Iran off limit
• 2010s: Beaufort Sea permitting uncertainties
AND
• Iraq, PEARL, Floating LNG platform
© Albert Bressand
19

20. Saro-Wiwa
• - President of the Movement for the Survival of the Ogoni People
(MOSOP), led a nonviolent campaign against environmental
degradation by the operations of the multinational petroleum
industry, especially Shell.
• - outspoken critic of the Nigerian government, which he viewed as
reluctant to enforce environmental regulations on the foreign
petroleum companies operating in the area.
- hastily tried by a special military tribunal and hanged in 1995 by the
military government of General Sani Abacha, all on charges widely
viewed as entirely politically motivated
- His execution provoked international outrage and resulted in
Nigeria's suspension from the Commonwealth of Nations for over
three years.
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21. Brent Spar
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22. Offshore Terminals - Energy Bridge™ System Overview
Reinforced LNG
High Pressure Pumps Storage Tanks
And Vaporizers Oversized
Boiler
The Energy
Bridge™ system is Traction
based on proven Winch
technology used for
over a decade in the
Buoy
harsh North Sea
Compartment
marine environment
Energy Bridge™
Regasification Vessel
When not in use, the
buoy will remain 80
to 90 feet below the
surface

23. How Shell –and followers– will expand LNG production to stranded
fields and overcome siting challenges with 600,000 ton behemoths

24. The investing company’s perspective:
a typology of risks
• Market risk
• Energy prices and macroeconomic context
• Refining margins
• Financial intermediation crisis
• Technical risk, often with environmental implications:
• - ENI in Kashagan : H2S
• - BP in Macondo
• - Chevron in Brazil deep water
• .. And countless opportunities at the technology frontier
• Country risk: nationalization, forced renegotiation
• - Exxon and other investors in Venezuela’s Orinoco Belt
• - Petrobras in Bolivia
• - BP in Kovykta, Russia
• Reputation risk
- Shell and the Brent Spar boycott
- Total in Myanmar
• Compliance risk
• - Shell in breach of SEC reserve-booking rules
• - China's state-run Zhuhai Zhenrong Corp sanctioned by US for its trade with Iran
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