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.

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

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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 price of oil on this slide an average of 3 marker prices is very volatile. The main factor that impacts
this price is the confrontation of supply and demand: for example, when demand increases and production
remains constant, we expect the price to go up. The other key factor in determining oil prices is the market
sentiment. For example, the simple belief that oil supply will decrease sharply at some point in the future as
the result of a geopolitical event of the day, can result in a dramatic increase of oil prices.
During the last three years, the Brent price (one of the reference prices in the oil market) had been pretty
stable, around 110$ per barrel, enabling new resources to be put in production like the ultra-deep-offshore
in Brazil. But the price has dropped by 50% in less than 6 months at the end of 2014, putting the entire
industry under pressure.

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

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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 thirds 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, the Middle-East is a key
area for consuming countries, especially in Asia.

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 2/3rds 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

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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 terms of
local, social and economic development and expect a mutually beneficial relationship between the different
stakeholders.

Oil satisfies many needs

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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