Facing The Hard Truths About Energy A Comprehensive View To 2030 Of Global Oil And Natural Gas

1. Facing The Hard Truths About Energy A Comprehensive View To 2030Of Global Oil And Natural Gas New York Energy Forum August 28, 2007

2. Today’s Discussion • Study Approach • What We Learned : The Hard Truths • Recommended Strategies For The U.S.

3. The Secretary’s Suggested Questions • What does the future hold for global oil and natural gas supply ? • Can incremental oil and gas supplies be brought on-line, on time, and at a reasonable price to meet future demand without jeopardizing economic growth ? • What oil and gas supply and / or demand-side strategies does the Council recommend the U.S. pursue to ensure greater economic stability and prosperity ?

4. Dimensions of the Study Economics Supply Demand Findings and Strategies Alternative Energies Technology Environment Energy Security

5. How This Study Is Different • Over 100 studies incorporated to include both • public and aggregated proprietary outlooks • Not another forecast of supply, demand or price Integrated, In-Depth Analysis • 350 participants with backgrounds • in all aspects of energy including efficiency, • economics, geopolitics, environment Diversity of Expertise • Identified achievable opportunities and • likely deployment timing • Looked across the energy spectrum, including • both supply and demand Technology Assessment

6. Technology Assessment Depth • Technology Development • Personnel Issues: The Big Crew Change • Carbon Management • Conventional Resources (includes EOR and Arctic) • Exploration Technology • Deepwater Technology • Unconventional Gas (including Coal and Shale gas) • Heavy Oil and Bitumen • Oil Shale • Gas Hydrates • Coal to Liquids and Gas • Biomass fuels • Nuclear Outlook and impact on Oil and Gas demand • Transportation Efficiency • Other Renewables • Time horizons • Research budgets • Human resources • Deployment

7. Study Presented to Secretary Bodman NPC membership approved study July 18, 2007, including a press conference ......

8. Press Headlines “Drip Feed - why high oil prices threaten to linger” “Oil and gas industry Back Efficiency ” “Oil Execs Sound Alarm about Fuel Use” “Study Offers Grim World Energy Outlook” "Big Oil Signals Need for Alternative Fuels, Carbon Capture" "NPC Report Comes Up a Dry Hole" "Oil Supplies Won't Meet Demand" "Oil Shale Funding Promoted"

9. Press Headlines “Oil Study Pushes Investment in Infrastructure, Technology” “NPC Report: All energy options should be pursued” “Oil Indus Urges Efficiency, New Fuels, CO2 Cost " “Broad effort needed to satiate energy demand " “Major new energy report advocates stronger fuel standards for vehicles” “National Petroleum Council Stresses Urgency” “NPC Offers Sweeping Energy Outlook” “Oil Industry Offers sobering outlook on energy supply “

10. Massive Interest in Report Findings NPC Website download statistics: • Full draft 517,900 • Excerpts of draft 163,400 • Exec. Summary alone 118,700 • Slide Presentation 52,300 • Total Downloads 852,300 July 18 viewing statistics: • 300 viewers of presentation/slide show • 673 watched press conference

11. What We Learned: The Hard Truths

12. The Hard Truth: Demand Coal, oil, and natural gas will remain indispensable to meeting total projected energy demand growth.

13. Coal, Oil, and Natural Gas Will Remain Indispensable 1980 2004 2030 288 QUADRILLION BTU 445 QUADRILLION BTU 678 QUADRILLION BTU NATURAL GAS OIL COAL WIND / SOLAR / GEOTHERMAL HYDRO NUCLEAR BIOMASS Source: IEA REFERENCE CASE

14. The Hard Truth: Supply The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically. These risks create significant challenges to meeting projected total energy demand.

15. Large Oil Resource Base 6 UNCONVENTIONAL CONVENTIONAL 5 4 ULTIMATE RECOVERABLE RESOURCE (MEAN) TRILLION BARRELS - OIL 3 2 1 0 1984 1987 1991 1994 2000 Source: USGS

16. Risks Reflected in Range of Production Projections 140 120 100 80 60 40 20 0 2000 2010 2020 2030 IEA Medium–Term Outlook EIA Ref Case IOC – average Association for Study of Peak Oil (ASPO) MILLION BARRELS PER DAY – OIL * Source: NPC Data Warehouse.

17. The Hard Truth: Energy Sources To mitigate these risks, expansion of all economic energy sources will be required, including coal, nuclear, biomass, other renewables, and unconventional oil and natural gas. Each of these sources faces significant challenges including safety, environmental, political, or economic hurdles, and imposes infrastructure requirements for development and delivery.

18. Contribution of Unconventional Liquids Global Production Gas-To-Liquids MILLION BARRELS PER DAY Coal-To-Liquids Extra Heavy Oil Oil Sands / Bitumen Biofuels Source: Data From EIA 2007 Reference.

19. Massive Infrastructure Investments Required Supply Demand

20. The Hard Truth: Energy Security "Energy Independence" should not be confused with strengthening energy security. The concept of energy independence is not realistic in the foreseeable future, whereas U.S. energy security can be enhanced by moderating demand, expanding and diversifying domestic energy supplies, and strengthening global energy trade and investment. There can be no U.S. energy security without global energy security.

21. Global Oil Trade 2000 2030 EXPANDING FLOW TRENDS

22. Global LNG Trade 2030 2000 EXPANDING FLOW TRENDS

23. U.S. Historical Supply and Demand Trends 30 U.S. FUELS DEMAND MILIION BARRLES PER DAY GLOBAL TRADE (NET IMPORTS) 15 U.S. FUEL SUPPLIES 0 1973 1980 1985 1990 1995 2000 2005 Source: EIA Reference Case / NPC Global Oil and Gas study survey.

24. The Hard Truth: Workforce A majority of the U.S. energy sector workforce, including skilled scientists and engineers, is eligible to retire within the next decade. The workforce must be replenished and trained.

25. U.S. Human Resources Challenge OVER HALF OF THE WORKFORCE ELIGIBLE TO RETIRE IN NEXT 10 YEARS 25 AGE DISTRIBUTION 20 15 % OF U.S. WORKFORCE 10 5 0 20 25 30 35 40 45 50 55 60 65 70 AGE Source: U.S. Dept of Labor.

26. The Hard Truth: Carbon Emissions Policies aimed at curbing carbon dioxide emissions will alter the energy mix, increase energy-related costs, and require reductions in demand growth.

27. CO2 Emission Limits Will Alter Energy Strategies Growing concern that climate is warming and CO2concentrations in the atmosphere play a role. The challenge of significantly reducing CO2 emissions is unprecedented and will require: • Global, broad actions on multiple fronts • Long time horizons • Major additional investments

28. Technology

29. Technology Pipeline is Robust DRAFT Do Not Cite or Quote • Industry spends $6B+ on Oil and Gas related R&D • Achieved many dramatic technology advances • Much more to come from “Technology Pipeline” • Improved exploration tools • Increased recovery methods • Alternative energy R&D investment increased to $3B

30. There Is No Single Easy Solution DRAFT Do Not Cite or Quote • Technology “Concept-to-widespread-adoption” is ~16 years • When Government enables development, technology follows • DOE oil and gas related technology spend decreasing • Impacting U.S. lower 48 and universities

31. Efficiency Technology Opportunities DRAFT Do Not Cite or Quote • Efficiency significant in supply and demand balance • Continued role for government standards • e.g., refrigeration efficiency • Transportation fuel forecasts do not capture cross sector efficiency gains • e.g., light duty vehicle to rail shift • Additional auto efficiency improvements possible • Implementation depends upon consumer and government actions

32. Efficiency Technology Historic Trends DRAFT Do Not Cite or Quote 30 CAR 25 COMBINED 20 U.S. NEW VEHICLE MPG TRUCK 15 10 1980 1990 2000 2010 1970 MODEL YEAR

33. Efficiency Gains Eroded by Weight and Horsepower DRAFT Do Not Cite or Quote 5,000 200 4,000 150 HORSEPOWER U.S. NEW CAR WEIGHT, LBS. U.S. NEW CAR HORSEPOWER WEIGHT 3,000 100 2,000 50 1970 1980 1990 2000 2010 MODEL YEAR

34. Parallel Studies

35. Parallel Studies DRAFT Do Not Cite or Quote • Most studies address one or two of key oil and natural gas concerns ECONOMY ENVIRONMENT SECURITY • Balanced energy strategies found at intersection of three circles.

36. General Agreement on Policy Objectives DRAFT Do Not Cite or Quote • Encourage Market Solutions • Increase Energy Efficiency • Ensure Access to Supplies • Encourage Fuel Diversity • Reduce Price and Supply Volatility • Strengthen Energy Infrastructure • Develop New Energy Technologies • Protect the Environment

37. Five Core U.S. Strategies

38. The Five Core U.S. Strategies • Moderate Demand By Increasing Energy Efficiency • Expand And Diversify U.S. Energy Supply • Strengthen Global And U.S. Energy Security • Reinforce Capabilities To Meet New Challenges • Address Carbon Constraints There Is No Single, Easy Solution

39. Moderate Demand Growth Improve U.S. car and light truck fuel economy standards at the maximum rate possible by applying economic, available technology.

40. Expand and Diversify Supply Reduce declines in U.S. conventional oil and natural gas production. Increase access for new energy development.

41. Expand and Diversify Supply Diversify long-term energy production • Accelerate development of energy from biomass • Enable the long-term environmental viability of coal for power, fuel, and feedstock • Expand domestic nuclear capability

42. Promote Global and U.S. Energy Security Integrate energy policy into trade, economic, environmental, security, and foreign policies.

43. Promote Global and U.S. Energy Security Continue to develop the international energy marketplace by expanding the energy dialog with major producing and consuming nations.

44. Promote Global and U.S. Energy Security Promote an effective global energy marketplace by sustaining and intensifying efforts to encourage global adoption of transparent, market-based approaches.

45. Promote Global and U.S. Energy Security Assist and encourage global adoption of energy efficiency technologies through technology transfer programs.

46. Reinforce Capabilities to Meet New Challenges Rebuild U.S. science and engineering capabilities. Create research and development opportunities.

47. Reinforce Capabilities to Meet New Challenges Improve the quality of energy data and information. Develop a comprehensive forecast of U.S. infrastructure requirements.

48. Actions to Address Carbon Constraints Develop legal and regulatory framework to enable carbon capture and sequestration.

49. Actions to Address Carbon Constraints As options are considered to reduce CO2 emissions: • Provide effective global framework for carbon management • Establish transparent, predictable, economy-wide cost for CO2 emissions

50. Summary