Transcript Document

AUSTRALIAN ENERGY SUMMIT
IIR Conferences
Sydney, March 2005
Keynote Address:
World Energy Market Developments and
Their Impact on Australia
Robert Pritchard
ResourcesLaw International
ResourcesLaw: What We Do (1)
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We work on policy, strategy, opportunities,
transactions and risks across the energy
sector and the dynamics of the interplay of
these issues on investment decisions
Half of our work is offshore, half of it
onshore
Half of our clients are public sector, half of
them private
ResourcesLaw: What We Do (2)
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Our practice covers all energy forms: oil, gas,
coal, nuclear, hydro, biomass, wind and solar
We factor sustainability and climate risk into
all of our thinking
We maintain extensive international networks
through the World Energy Council and other
affiliations
We are affiliated with the Piper Alderman law
firm, with offices in Sydney, Melbourne,
Brisbane and Adelaide
The Four Energy Gods
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Monopolus
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Competitus
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Regulatus
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Sustainabus
The 3 Current “Big Picture”
Issues in World Energy
1.
Energy Security
2.
Climate Change
3.
Growing Energy Demand
The First “Big Picture” Issue
in World Energy: Energy
Security
Main Causes of Energy
Supply Insecurity
1.
2.
3.
Over-dependence on any single form of
primary energy
Over-dependence on any single source
Over-dependence on any single energy
infrastructure facility
NOT a shortage of resources!
The Myths of “Peak Oil” and
Peak Other Fossil Fuels
Reserves-to-Production Ratios
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Oil: 41 years
Gas: 67 years
Coal: 192 years
Source of data and graphs in this presentation: BP Statistical
Review 2004
Oil Reserves-to-Production
(R/P) ratios
Natural Gas Reserves-toProduction (R/P) ratios
Where Are the Energy
Security Risks?
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Increasing reliance on imports of oil, largely
driven by demand from US and China
Increasing dependence on Middle East
Doubts about production capacity
Decreasing value of IEA emergency
stockpiling system
Transport fuels are 95% dependent on oil
Where Are the Energy
Security Risks? (contd)
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Increasing dependence on reliability of
transportation and storage infrastructure
Terrorism / maritime terrorism (especially in
Strait of Malacca)
Modern emphasis on efficient use of capital
/ “just-in time” management of inventory
costs (NB: this is a self-imposed risk)
The Second “Big Picture”
Issue in World Energy:
Climate Change
Conclusions of World Energy
Congress, Sydney 2004
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The “new renewables” will be inadequate*
* Wind power is the star performer and recently
achieved 47,000 MW worldwide installed capacity.
However, the WEC 2003 Survey of Energy
Resources predicts that the new renewables will
only have achieved a total share of primary energy
of 5% by 2030.
Conclusions of World Energy
Congress, Sydney 2004 (contd)
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Kyoto will not have a material effect on
emissions reduction
All energy options must be kept open and
no technology should be idolised or
demonised
The Third “Big Picture” Issue
in World Energy: High Energy
Prices
Effect of High Prices
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In 2004/05, the price hike has been very
much demand-driven (mainly the US and
China)
Since 1973, every sustained oil price hike
has lowered global GDP growth and
reduced energy intensity for the following 2
years
Source: WEC
Effect of High Prices (contd)
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Current high prices are a spur to crossborder coal and gas trade (especially LNG
trade)
Nonetheless, there is nothing to prevent an
energy price-induced economic recession this is not yet predicted but it is not entirely
fanciful to imagine one either
How is Our Part of the World
Organising its Response to the
3 “Big Picture” Issues in World
Energy?
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OPEC (Indonesia will have to quit)
IEA (stockpiling only a temporary solution)
IEF (new producer-consumer dialogue)
APEC Energy Security Initiative (emphasis
on expanding LNG trade but nuclear power
also back on the agenda)
How is Our Part of the World
Organising its Response …?
(contd)
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ASEAN Energy Cooperation (“ASEAN
Vision 2020” and the second 5-year energy
plan)
ASEAN + 3 (includes China, Japan and
Korea)
ASEAN + 3 + 2 others (includes Australia
and New Zealand)
How Should Australia as a Nation
Respond to the 3 “Big Picture”
Issues in World Energy?
1.
2.
3.
Reaffirm our commitment to open global
energy markets
Adopt a diversified portfolio of
interchangeable energy forms and energy
supply sources
Increase interconnection of energy
systems
How Should Australia as a
Nation Respond …? (contd)
4. Encourage timely investment in energy
production, transportation and storage
facilities
Note: An ABARE/ResourcesLaw International study for the
APEC Energy Working Group on the costs of energy supply
disruptions will be released in May 2005
Finally, How Should Australian
Businesses Respond?
1.
2.
3.
4.
5.
Don’t rely on financial hedges
Consider investment in inventory - weigh up
the possible cost of being caught short
against the actual cost of the sunk capital
Look at alternatives (dash for gas, look at
renewables and practice DSM)
Prepare your contingency plans for a
possible oil price-induced recession
If you are an exporter of energy, lock in your
markets for as long as you can