 Program I'd like to welcome all of you here this morning where we are pleased to host the Energy Information Administration's rollout of their International Energy Outlook 2011. And for any of you who are like us who borrow liberally or rely on heavily the International Energy Outlook and all of the other EIA products, whether it's data collection or data analysis or outlooks for our own work and for some of the insights that we bring to our work, you will understand that we're very pleased to have such an important document be released here so that we can have a good discussion on some of the new trends and analysis that EIA has brought to the fore looking ahead over the next several decades. You'll also recognize how when it got to be around that time of year, when we were expecting the IEO to come out and it didn't and rumors started flying that the IEO wasn't going to be out, we really got concerned. We started to ask questions about what on Earth we would do without such an important document to rely on for our work. And so we're very, very pleased and relieved to have the document here today and to have EIA release it and to be able to talk about it and use it for our work in the coming year. So we are also very happy to have Howard Grunzbeck who is not a stranger to any of you, whether you work in the government or think tank land, he's a veteran of both. He is here today as acting administrator and also deputy administrator, so he's dual headed, of the energy information administration and he'll do a presentation of the IEO trends and then we'll have a bit of a discussion afterwards. So thanks for being here. Well, thank you. And hold that thought about the IEO in the future. It's great to be here at CSIS. Thank you, Sarah, for the kind introduction. And thanks to you and Guy and Frank for Astro and everyone else I know here for hosting us today. This is the sixth year, I believe, that the energy information has released our international energy outlook at the Center for Strategic and International Studies and we certainly appreciate the opportunity to share our views with such a knowledgeable audience. It makes the Q and A more fun too to have a knowledgeable audience. This is our latest assessment of world energy markets. It includes projections that go to 2035. Unlike many other long-term outlooks which usually incorporate at least the expected value of policy changes that can significantly influence energy outcomes, the IEO is based on existing laws and policies and regulations. And as is the case with all data and analyses from the EIA, the views presented in the IEO are ours alone and do not necessarily represent those of the Department of Energy or the administration. I should also say that we underestimated the interest in this and we don't have enough handouts but the good news is like all EIA stuff, the handouts, the press release, the full report itself I believe are posted on the EIA website as of today. So and no charge. So while I'm the sort of the spokes model for presenting the outlook, although I don't look much like Vanna White, the credit for developing it really belongs to EIA's Office of Energy Analysis which is directed by John Conti who unfortunately can't be here today. Many staff members are involved. I would single out Ms. Linda Delman who I think is supposed to be here today but I don't see her. And I guess a whole team of people from the IEO but Linda plays a leading role in pulling the outlook together that deserves a special mention. I must also note picking up on Sarah's lead that the pleasure of the EIA staff in bringing this outlook to completion is somewhat dampened by resource constraints that are really precluding us from pursuing work on next year's addition. So given the growing importance of developments in global energy markets for our domestic energy future we certainly look forward to bringing, continuing to bring you the IEO to inform policymakers and the public about critical linkages but I think that's a little bit of a question mark in the present resource environment. So with that, I'll take the punch lines first. We do see substantial growth in world energy consumption about half of the 53% increase in world energy use we see comes from China and India alone. Renewables are the fastest growing form of energy use and liquid fuels are the slowest growing form but again one needs to recognize that the bases are very different and liquids remain the largest share of energy consumed worldwide and at least through 2035 in these projections and the oil share of world energy use is 28% in 2035 compared to a renewable share of roughly 15%. Fossil fuels as a whole continue to dominate world energy use. Again, their share falls from sort of about 85% today to a little bit under 80% in 2035. We do see a strong outlook for natural gas and particularly the outlook for unconventional natural gas although one has to be careful about the terms conventional and unconventional when resources that we characterize as unconventional now constitute a huge proportion of domestic natural gas production but we do see world natural gas markets being well supplied and prices being attractive relative to other fuels and our projected natural gas use in 2035 is 8% higher than in last year's outlook. We do see greenhouse gas emissions continuing to rise. That reflects the rise in fossil energy use. As you know, EIA always emphasizes how uncertain any long run projections are but I think many developments over the past year make the energy outlook even more uncertain than usual. A recovery from the recent financial crisis and economic downturn has been very uneven. Actual and projected recovery, particularly in the developed economies is currently much more sluggish than expectations at the time the last edition of the outlook was put together. This is certainly not the time or place for a discussion, extended discussion of economic prospects but many prominent analysts are pointing to the distinction between financial crises and typical recessions with the former having far longer lasting impact on economic and employment growth and so far we might be getting into that situation and that certainly has implications for the energy picture. Economic growth continues to look good in the emerging nations. We have the disaster at Japan's Fukushima Daiichi reactor and that certainly is likely, I think, to have very adverse or somewhat, at least somewhat adverse long term implications for nuclear powers role in the global energy mix depending on the responses of policy makers and industry. I should point out that the IEO projections were for nuclear were developed prior to the Fukushima disaster and therefore may overstate nuclear powers future role. We have a tight supply, demand balance and oil markets and that means that even modest, actual or anticipated changes in supply or demand conditions can lead to large movements and oil prices and we've seen that already this year and again the natural gas of prospects while they're good news, it's still early days and there are significant uncertainties regarding both the resource estimates and the underlying economics and some of the concerns that people may have with the environmental implications and so we don't really know where production levels are gonna be. So with those special caveats I'd like to delve deeper into the outlook and again we don't build in any policy changes, we generally reflect known technology and known demographic and technological trends. Of course the real surprise would be if important policy shifts, technology breakthroughs and market surprises did not occur over the next 25 years. So the reference case is really intended to present a jumping off point for considering the impact of such changes. It's not that we don't believe such changes will occur, they will occur, we just don't know what they are. So with that, this is the big picture, and again we've shown world energy use rising significantly. Of course nearly all of the growth occurs in countries outside the Organization for Economic Cooperation and Development and their demand is driven by long-term economic growth. You know in currently I guess 2008 is our last day to year when we put this together the non-OECD accounted for a bit more than half of total world energy use by 2035, the projected share rises to nearly two thirds. So now I'd like to turn a little bit to where the energy is used, the key demand drivers and what types of energy are used. So this is meant to highlight the key role of Asian developing economies in particular in world energy markets. So the first bar, I guess the two green bars are the OECD together, and the first one is the non-OECD Asia which is dominated by India and China. And again you can see that even since 1990 to 2008 which is the history part of this presentation there's been a tremendous growth in the share of non-OECD Asia and energy, the share, China and India alone combined for about 21% of total world energy consumption in 2008. In our projection by 2035 those two countries account for 31% of world energy consumption. In fact as shown in the last set of bars non-OECD Asia's energy use in 2035 is projected to exceed the energy use of all OECD countries combined. So just part of the non-developing world in Asia will exceed the entire what we have called the developed world. In 2035 China's energy demand is 68% higher than US energy demand. And again China's near term economic growth has been revised upwards actually since last year's outlook. And China's GDP on a purchasing power parity basis surpasses that of the United States in 2019. That's a couple of years earlier than in last year's outlook. And again as I've already noted debt levels in many advanced developing nations could have a profound impact on midterm prospects for economic growth. I guess that's mostly a developed country problem, the financial crisis, but questions remain as to whether China, India and the rest of the developed world can continue high economic growth rates and for how long if there's weak demand for their exports. I think it's those of you familiar with the Kaia identity. This is sort of a clipped form of the Kaia identity. I think it's useful to think of energy use as a product of three factors. Energy use per unit of economic output, economic output per capita and population. And obviously growth in economic activity per person and population tend to drive increases in energy use while reduction in energy use per unit of economic output which results from both efficiency improvements and structural changes works in the opposite direction. And really for all three of the drivers per capita income population and energy intensity there are significant differences across countries and regions as seen in this chart. And the greatest differences are in the areas of projected economic performance which are the brown bars. Per capita economic output in the US and OECD Europe are projected to grow at an average annual rate of about 1.6% per year over the projection period. And that's less than one third. China's projected growth rate in per capita income which exceeds 5%. China's growing even more rapidly than that right now but we expect that to slow down over time but the average is still more than three times the US and OECD Europe projected growth. There are also significant differences in projected population growth and I think sometimes these are not really paid enough attention to. Projected population growth rates are not that closely tied to the level of economic development. For example, both China and OECD Europe have significantly lower expected population growth rates than the US and India. And again, there's a lot of detail there but the growth rates are the green bars, population growth. Moving to other areas, population grows fastest in the Middle East and Africa and is actually expected to decline in both Russia and Japan. So there's quite a big disparity in population, projected population growth rates and these are the UN based. And again, it's not just an issue of developed versus developing. There's quite a mix. Finally, turning to the blue bars which are projected rates of improvement in energy intensity. They also vary across key countries and regions but the differences are generally much smaller than those in per capita income. China has the highest rate of projected energy intensity improvement but its impact on the level of energy use is swamped by the extremely rapid growth in per capita income. The US also has a higher rate of energy intensity improvement than most other regions but that reflects in part the higher starting level of energy intensity within the US economy. So turning from the drivers of energy consumption to what energy sources are used over time I've already touched on this. The use of all fuels grows. Fossil fuels dominate the world's energy mix throughout the projection. Again, although renewable energy is the world's fastest growing form of energy. Oil remains the largest source of energy but its share falls from 34% in 2008 to 28% in 2035. You notice there's 29% here because that includes liquid biofuels which do grow a little bit. Again, I've mentioned the strong growth in natural gas use. I should point out that coal, natural gas and renewables all compete as fuels for electric power generation and the actual mix of fuels chosen to meet electricity needs can be very sensitive to policy actions. So we don't build in the policy actions but we certainly recognize that that's a sector in which there's a particular sensitivity. So like everybody else, EIA is paying considerable attention to world oil markets and the tight supply-demand balance means that even modest changes in actual or anticipated supply or demand conditions can lead to large movements in prices. We've certainly seen significant market responses to both the disruption in supply from Libya this year and changes in the economic outlook. I wanna point out that it's a short run energy outlook that's updated each month that presents a forecast of energy markets over the next 12 to 24 months along with quantitative measures of price uncertainty based on the market value of energy futures and options contracts. And it's that outlook rather than the IEO that we're discussing today is where analysts, policy makers, and the public can find EIA's perspective on current and near-term oil market conditions. So with that, let's hop into it. We do see oil prices in real terms continuing to rise as the world economy recovers, global demand grows, and supply increases face both below ground and above ground challenges. In 2035, the average real price of crude oil in the reference case rises to about $125 per barrel in $200 or about $200 per barrel in nominal dollars. Again, this spills on an assumption that OPEC seeks to maintain a fairly constant share of world liquids production and that access limitations in resource rich countries outside of OPEC continue to restrain the growth in their conventional liquids production. But I should point out that in addition to the reference case, the IEO includes high and low oil price cases that span a wide range. In prior editions of the outlook, these cases were motivated exclusively by shifts in supply conditions. However, it's clear to us that demand surprises that are tied to economic growth prospects can also be the sources of major shifts in oil market conditions. Indeed, economic growth in the developing world plays a critical role for two reasons. First, developing countries are moving through levels of per capita income at which energy demand is particularly responsive to income changes. In other words, using the technical jargon, these countries have a higher income elasticity of energy and oil demand than developed countries or the world as a whole. And so that higher sensitivity coupled with more absolute uncertainty in the growth projections in developing countries reflecting both their higher baseline expectations for growth and perhaps less firmly established market regimes. So in the new outlook, demand as well as supply uncertainties are reflected in our oil price cases. So here's sort of the big picture on petroleum and other liquids. And we include biofuels in this. I'm not sure the IEA does, although I think they report separately on biofuels in their numbers. But we see the use of liquid fuels in the reference case growing dramatically. It reaches 112 million barrels per day in 2035. Again, most of the growth in liquid fuels is in transport where in the absence of significant advances, liquids continue to provide much on the lion's share of the energy consumed. I should point out that these projections don't reflect again, pending policies such as the fuel economy standards for model years, you know, 2017 through 2025 that are expected to be proposed this fall in the United States and promulgated next year. I mean, those would have an impact both in the US and presumably in other countries as well as some of the technologies and approaches and vehicle types to meet those standards if they weren't acted kind of spilled over into the rest of the world. So we have, you know, an increasing volumes of conventional liquids, but conventional liquids is more than just crude oil. It's crude oil, least condensate, natural gas, plant liquids and refinery gain. You know, we have about a 17 million barrel per day increase in conventional liquids, but the increased supply of natural gas, plant liquids, accounts for over one third of that total increase in conventional supplies and the growth in crude oil and condensate is about 11.5 million barrels per day. Reference case oil prices are sustained at levels that are high relative to all but the most recent historical experience and this allows unconventional resources, category for us that includes oil, sands or tar sands, take your choice, we're agnostic. I know our Canadian friends here are less agnostic. Extra heavy oil, biofuels, coal to liquids, gas to liquids and shale oil. Sorry, it's not, it should be oil, shale, sorry. Oil, shale is unconventional for us, shale oil is conventional which is actually quite important from both OPEC and non-OPEC suppliers. So the unconventionals at the top of this bar clearly become competitive, particularly when geopolitical or other above ground constraints limit access to prospective conventional sources. So unconventional plays a pretty big role in this outlook. In our reference case, the Middle East which has large amounts of high quality resources is the primary source of increases in conventional OPEC production. As shown in this slide, we're penciling in Saudi Arabia and Iraq as the primary sources of increased OPEC supplies, although not at levels. I think that if you go back 10 years and look at some of the stuff that was being projected, I think Saudi levels were much, much higher than this. In this case, we have Saudi in 2035 in the 15 million barrel per day range. I would say that 25 years is a long time and it's quite possible that sanctions, again, I'm talking about other countries in Saudi Arabia, but some of the other countries that are held down, you notice Iran has a lot of resources but is not shown to have much of production increase. South America, OPEC has a lot of resources not shown to have production increase. Clearly, sanctions, another financial and institutional constraints that are restricting or restraining the development of abundant resources in some other OPEC countries could be alleviated over this period, leading to some significant supply opportunities from other sources that are identified here. And again, also, although, again, we project some increase for Iraq out to 2035 in Iraq's view, again, that there's much more potential than we're showing there. Recent social and political unrest in the Middle East and North Africa remind us that these political developments really add an extra layer of uncertainty to the outlook for OPEC supply. Future developments that impact either the stability or composition of national regimes in a region that's responsible for a major portion of the world oil supply and an even larger share of internationally traded oil supplies are not explicitly considered in the outlook, but it's clear that they add significantly to uncertainty regarding the price and production profiles that we have. So moving to the non-OPEC conventional, you know, we see an increase, and again, it's puts and takes some of the non-OPEC conventional areas are going down like OECD Europe in Mexico, but overall we see an increase of about five million barrels per day. Again, it's more than just crude oil. In fact, natural gas liquids and refinery gain together account for more than half of the projected non-OPEC conventional supply increase. You know, we have a lot of EOR, we have a lot of natural gas. Plant liquids, we have shale oil playing a role, and to some extent I think shale oil is a story that sort of is where shale gas was a few years ago, and we don't have much shale oil outside of the North America, and the question is, is that gonna be a story like shale gas where eventually it looks like there's opportunities for shale oil outside of North America as well. That's not built in here. Again, I would note that the, I noticed NPC released its study late last week, I've only taken a brief look at it, but certainly it suggests that the opportunity for growth in U.S. conventional production in a high potential scenario is significantly greater than the projection presented in this outlook. Again, we're not trying to define the high end of what's possible, but certainly there are projections of U.S. North American production that are much higher than we have. Again, moving finally to the unconventionals. You know, world production increases pretty dramatically. It's really about oil slands slash tar sands and biofuels. Those are the main unconventional resources. Again, going to the high and low, oil price cases. Again, I've already described some of the change in philosophy here. We looked at both shifts in the demand situation, as well as shifts in the supply situation. Really what we're looking at on the demand side is higher than projected growth in developing countries, which I've already indicated, there's a higher sensitivity of oil demand to growth in developing countries than in developed countries. So in last year's high and low oil price cases, oil use worldwide and in nearly all regions moved in the opposite direction of prices relative to the reference case projections. Here, the relationships between prices and volumes are more varied. So for the OECD, for the developed countries, where there's no difference in projected economic growth across cases, the prior relationship holds. So in the high oil price case, which I think are the, I'm colorblind, but I know reddish bars, you can see that in the high oil price case consumption in the OECD is below the reference case levels. But when we look to the developing world, we see that the high oil price cases are actually associated with higher consumption. Indeed, it's the demand push from the developing world that's driving the oil prices up or contributing to the oil prices up. And again, this leads to a situation in which total supply is actually higher, total demand and total supply are actually higher in the high price case than in the reference case. Again, there are differences across components with a reduction in OPEC conventional supplies offset by the price-induced increase in non-OPEC conventional and unconventional supplies. Because the unconventional does respond more to prices. So again, it's a little bit, I think a more realistic view of what drives high and potentially low oil price cases and it isn't just uncertainty on the supply side, it's uncertainty on the demand side as well. And in fact, in recent decade or so, it's really been the demand surprises, I think that have played a pretty significant role. So turning to natural gas, again, it's the fastest growing fossil fuel in our projection. And let's just look at where things go. So growth in natural gas consumption occurs in every region, but growth is again, particularly strong outside of the OECD where economic growth rates are again, driving demand. It continues to be very important fuel for the electric power and industrial sectors in part because of lower carbon intensity compared with coal and oil, which makes it attractive in countries where governments are actually trying to do things to reduce greenhouse gas emissions, but also because of its significant price discount relative to oil in many world regions, but not all world regions because gas has a much, right now at least, has a much less sort of uniform price across the different regions of the world than does oil, which is really sort of a one world price type of commodity. Natural gas is attractive for new power generation also because of low capital costs. You can build it pretty cheaply, you can build it pretty quickly, and it's very efficient in its use of primary energy. And indeed, it's the industrial and electric power sectors together that are driving this. They account for 87% of the total increase in projected natural gas consumption. And again, this outlook reflects a significant sort of increase in resource availability. So turning from where it's used to where it's produced, the Middle East is the biggest source of increases in gas, Iran and gutter together account for nearly one fifth of the total increment in world gas production. A significant share of that comes from a single field. I guess two different names depending on which country you're in, the North field on the gutter side and South Parse on the Iran side. China plays a big role in non-OECD Asia's gas production increase as does India. And then that's sort of the story. You'll notice the United States has pretty healthy increases in gas. I mean really the story of gas is that you have increased production in all regions of the world. Most of India's, you can't see it in this chart, but most of India's gas production is expected, increase is expected in the near term over the next five to 10 years, five to seven years. So that's an interesting point. And in the longer term, I think they're gonna be looking more at unconventional resources in India. A lot of attention to gas, EIA and other US agencies are working to better understand the potential impacts of shale gas on the global natural gas market. Our approach has been to develop an initial assessment of shale gas resources in other countries that may be early producers. That assessment was issued in April of this year and received considerable attention. So the red areas are the basins that were actually assessed. The yellow areas are shale gas basins that were reviewed, but which our contractor wasn't able to develop estimates due to a lack of data. White colored are the countries for at least one shale gas basin was considered and gray are the countries for which no shale gas basins were considered in this report. So again, the results, it's not a full global assessment, but the results suggest a vast global shale gas resource space. The assessment of technically recoverable in the basins that were included is roughly 6,000 trillion cubic feet. To put that into perspective, the world technically recoverable resources of natural gas, excluding shale gas had previously been estimated at about 16,000 trillion cubic feet. So again, it's a pretty big increase and really the recognition of the potential supply of shale gas and in the case of the United States, the current and rapidly growing contribution of shale gas to actual supply. And it's probably in the 25 to 30% range in the first half of 2011 is definitely starting to reshape our view of global natural gas markets, including production, consumption and trade. Here are some of the numbers for the specific basins in various areas that were considered in the initial assessment. And again, while the potential is high, there clearly are a lot of unknowns. It's very early days still, certainly less early days in the US, but very early days for the world. The actual recoverable resources could vary widely from the mean estimate and indeed mean estimates themselves are subject to considerable variation across different assessments. There's a real question about the recovery costs. I mean, all this assessment was, was assessment of technically recoverable resources. Recovery costs are what really matters for the economic viability. Our own work with US shale index illustrates this point. So when we looked at sensitivities that vary the amount of production from each well, which is directly reflect sort of the underlying economics of shale gas development, that had a larger impact on projected well-head prices of US natural gas than other sensitivity cases that varied the size of the resource space. So sometimes people look at the resource bases, the only thing that matters. In fact, it's really the economics of production that may matter more. Finally, there are all kinds of issues surrounding the potential environmental impacts of drilling and that may deter the development of shale gas in some areas, even if the resources available and the economics are favorable. And different countries have gone different ways on this. So you have France who's taken legislative action to ban fracturing, South Africa, moratorium on fracturing. On the other hand, Canada is moving forward with production, Poland is moving forward quite aggressively and China is very interested. So it's a mixed bag and it's still early days, but we certainly have a production of unconventional gas, including tight gas, shale gas and coal bed methane growing rapidly over the projection period. And we see that it plays a major role, already plays a major role in the United States and plays a large role in China, in Canada and the United States. The green portion would be the total unconventional projection. So electricity markets and carbon and then we're done. That's the roadmap. I don't want to lead you guys through the desert here. You can see an end. So on electricity, it's the fastest growing form of energy use in the reference case. It has been for the past several decades. The growth rates again are much faster outside outside of the OECD than in the OECD. That's really pretty important because in an area where load is growing rapidly, oh, move my slide, got it. Oh, I'm in too fast. You know, in an area where load is growing rapidly, you have a lot of what I would call new versus new competition. So as the demand for electricity is growing very rapidly, you got to build something new. In an area where load is growing very slowly, most of, a lot of the companies, there's some load growth. So there's some, we got to build something, what should it be? But a lot of the competition involves potential new sources competing against existing generation whose capital cost has already sunk. And that can be a much different proposition. So when someone, often times you hear these comparisons of, we're gonna compare the costs of different generating technologies and implicitly, it really matters if you're talking about what I call new versus new, which is critical in areas where load is growing rapidly, or what I call new versus old, in which case, it's a much tougher proposition to displace some of the older technologies. So with that, as an introduction, here's the electricity picture. Big growth, coal at the top provides the largest share of world electricity generation, although share does decrease, modestly from its 2008 share, where it's about 40% of the world to about 37% in 2035. Liquids really falls off. Part of that has to do with the high prices of liquids, and there's certainly a strong incentive to substitute toward other generation wherever possible. It's 5% of electricity primary fuel in 2008 drops to just over 2% in 2035. In this regard, the rest of the world is really catching up in some respects to developments in the US and other OECD countries. In the US now, oil fired electricity, probably well under 1%. Natural gas and renewable account for increasing shares of total generation. Again, I've mentioned that renewable is the world's fastest growing resource. That's particularly true if you look at non-hydro renewables, which are growing extremely fast. Now in this projection, nuclear share of generation increases slightly between 2008 and 2035. But again, the question is how does that change in the wake of some of the recent Fukushima and the policy responses to it? I think there's really a significant distinction in the nuclear power scenarios between the OECD countries, which account for 80% of today's nuclear generation and the non-OECD regions. Within the OECD, although some new nuclear capacity is added, the projection for nuclear power generation to 2035 depends primarily on decisions that are made regarding the utilization of existing plants and the possible extension of their licenses. In contrast, outside the OECD, the growth in nuclear production depends to a much greater extent on the addition of new plants. So the question is sort of what's gonna happen in terms of nuclear power's role in the global energy mix. And again, the full extent of the withdrawal of government support for nuclear power is uncertain, but we've already seen some reactions, Germany, Italy, Switzerland, Japan and China. Early retirements or even a decision not to pursue extended life of existing plants in the OECD countries could have major impact on the projections for nuclear power, even if significant building of new capacity outside the OECD were to proceed. So again, the full policy responses have yet to be seen, but the initial responses suggest projections for nuclear power from both existing and new plants are gonna be reduced. And I will point out that in the domestic context, EIA in its annual energy outlook will explore issues related to nuclear plant retirements and possible licensing extensions as they apply in the U.S. context. But this is a pretty important question. Cole's another example of an energy activity where the global picture is dominated by a small number of players, notably China, other non-OECD Asia and the U.S. Looking back 20 years and forward 25 years, coal-fired generation in other parts of the world, which are I guess the tan bars in the graph are pretty flat around two trillion kilowatt hours. But again, coal is pretty important in the U.S. in China and in other non-OECD Asia. And we can see that in this case we have singled out China itself, because by 2035 it's such a huge part of world coal-fired generation. So the end of this is energy-related carbon dioxide emissions. And again, without specific policies to limit greenhouse gas emissions, energy-related carbon dioxide grows by about 43% over the projection. China's energy-related carbon dioxide emissions, which were 16% higher than those of the United States in 2008 are more than twice as high than U.S. emissions by 2035. So, and again, non-OECD Asia, the rest of non-OECD Asia is growing as well. I would say that coal continues to account for the largest share of global carbon dioxide energy-related emissions. You know, natural gas use grows a lot, but a share of global emissions doesn't grow that rapidly. Certainly, the projected growth in emissions applies an accelerating rate of increases in atmospheric concentrations of carbon dioxide. I guess they're now somewhat, not 391 or 392 parts per million and growing at an annual average rate of slightly below two parts per million over the last six years. However, our work doesn't really go forward beyond that to address the relationship between rising atmospheric concentrations of CO2 and other greenhouse gases and changes in average temperature and other measures of climate change. Hard enough for us to do the energy side. We'll leave that to the climate scientists and the atmospheric modelers. So with that, I thank you for your attention and I look forward to any questions you might have. Thank you very much. That's it, yeah. Well, thank you very much, Howard. As usual, that was... Sincerely. Sincerely, no. It's not the word you had in mind. It wasn't, actually. It was extremely robust and very useful. I gotta say, though, I started off the day on an upbeat note and you've kind of put a nerdy energy downer on it for me. It's hard to watch something like what we just saw and see how energy trends increasingly over the next couple of decades become more and more about what happens outside of the US and understand that we will probably be putting fewer and fewer resources towards those trends that illuminate, or towards those publications that illuminate some of the trends that we're trying to understand better. So I will get off my soapbox after that and I think Frank's gonna pass a cup around for donations, but we've got plenty of time for questions. Which we can't accept. Which you can't accept, right? Well, we'll have to figure out something else. All right. We've got plenty of time for questions, but I also wanted to mention before, I forget that EIA has been kind enough to let us post a webcast of this presentation. We're also being live webcast and a copy of Howard's slides on our website as well as the information being available on the EIA website with all of the other sort of resources that they've got there as well. So we encourage you to visit more, to sort of delve into each of the trends that Howard had talked about this morning. Before we get started with your questions, I just wanna remind you of the ground rules here, especially because we're being webcast and we want all our viewers to be able to hear your very thoughtful questions. Please wait for a microphone. Please state your name and affiliation. And if you could please put your question in the form of a question, we would greatly appreciate that. I will give you a second to think of a couple and I just wanted to touch on one thing that Howard, you did talk about a little bit, but because we're a public education institution, if you could unpack a little bit, folks, that we'll be asking you the difference between shale oil, oil shale, excuse me, yeah, and tight oil and how EIA treats it because we did see the NPC study come out last week as you talked about it is sort of being thought of as the new unconventional gas potentially and so just help people to understand how you all treat that as a topic. Well, terms like conventional, unconventional, you know, tend to, I guess, change over time, but shale, oil shale is this, for us, is this product, there's really a product, Kerrigin, that's underground lot in Colorado and Utah, it's not really crude oil, it's something that would need to be processed into oil, whereas shale oil, which I think is what the NPC is calling tight, or a lot of what the NPC is calling tight oil, is really crude oil that's located in shale formations where the oil does not flow readily to the well head and some of the same treatments that are used to produce shale gas are used to produce shale oil to get the oil to flow to the well head, but once it flows to the well, it is, the composition of it is similar to other types of crude oil. So again, I believe the NPC, because there is sometimes confusion and we have used the terms shale oil for the conventional oil in shale formations and oil shale, which is this other stuff, I believe the NPC has decided to go for the term tight oil and I think they are including the shale oil that's being produced in the Bokken and parts of the Eagle Ford as tight oil. So think of tight oil as really very close to what we call shale oil and oil shale as something else. And we, by the way, there is a this week in petroleum article that lays this out pretty nicely for people who are interested. You can search the analysis text of the past this week in petroleum, because this is a question that has come up before. Yes, I was trying to save your frequently asked questions, people, a minute or two. So, okay, start with questions. You've got one over here. Robert Charetta, president of International Investor, a quick methodology question and then a broader one. When you talked about nuclear, were you accounting for the retirement of plants as well when you're projecting to 2035? We do take account of sort of retirements, but it's also fair to say that the economics of existing nuclear plants are fairly attractive. And I know that in the U.S. context, we have seen a lot of life extension and prior to Fukushima, we thought we saw a lot of interest in life extension. There were some countries that had previously planned earlier retirements that were extending their horizons a bit. Now, in the wake of Fukushima, that may have changed to a significant extent, and that was not reflected in the outlook. So, retirements are an issue, but keep in mind that once you've built a nuclear plant, it goes to this new versus new and new versus old thing. The economic case for an existing nuclear plant tends to be pretty compelling. The economic case for a new nuclear plant, somewhat less compelling. So we had some retirements, but a lot of life extension in our IEO scenario. So if you'll permit me one more real quick. Oh, sure. We often talk about conventional versus non-conventional, OPEC versus non-OPEC. Can you comment on what you see in terms of trends between state-owned and state-controlled versus private sector? In the oil and petroleum industry in particular, have you seen, and you try to monitor that, which is controlled by states versus that, which is in the private sector? Well, we all know that a lot of the, sort of the approved reserves, so to speak, are really dominated by the state-owned slash state-controlled sector. That's less of a factor in the unconventionals, which are, in our outlook, a growing part of the total liquid supply. But again, it's still a pretty small part of the total liquid supply, and we do have production from the OPEC region, sort of being very important still, and that's clearly state-controlled. Some of the areas that we've shown picked out for growth in the non-OPEC include Russia, include Brazil, and there's clearly state participation there as well. On the other hand, we have some conventional growth in the United States that has less state participation. So I think all in all, it's no surprise, the state players are very big and remain extremely big throughout this projection, although there are some parts of growing supply, notably the unconventionals and the U.S. conventionals that don't have the major state participation. But I would say it's not like the hold of the state players is being broken in this projection. Mark. Thanks, Sarah, and thanks, Howard. Let me add my comments to Sarah's on the Love Fest of EIA and the public value of the service you provide. I'm Mark Finley with BP. What's the assessment that underpins your analysis of the transport sector in terms of the rapid or potential for penetration of electrics, hybrids, even natural gas in transportation? Thank you. We don't have a super high, I mean, we definitely have some penetration of some alternative technologies into transportation. But again, under current laws and policies and without technological breakthroughs, we do not see sort of a massive change, shift away from certainly petroleum for light duty vehicles and freight trucks. So our outlook for petroleum does not have large amounts of, let's say, electric drive coming in. Now in part, that reflects the current laws and policies situation. For instance, in the U.S., there are very big incentives for tax credits and the like for purchases of electric drive vehicles, but they expire at some point in time and we don't presume that they would be extended. Now one thing we do have though that holds down, I think the growth in petroleum consumption. I mean, if we had a China going along the same path as South Korea with respect to adoption of personal vehicles and indeed a lot of those personal vehicles are the vast majority of them were all petroleum driven, we'd have higher growth and petroleum demand in China than we have. So I think one of the places where we need to look very carefully in addition to the sort of choice of primary fuel for different parts of the vehicle fleet is how personal transportation is gonna develop in a market like China and we certainly have more mass transit, more trains. Essentially, they're still making some decisions about what infrastructure they're gonna provide for personal transportation and we do not have them following the same type of curve as, let's say, a South Korea in terms of development and personal transportation. So that sort of maybe counteracts the fact that we don't have a lot of, a very significant non-petroleum light duty vehicles because we probably don't have light duty vehicles as a whole growing as fast as some other projections that have China and India following the traditional path would have. Interesting. Right there. Bob McNally, president of the Rapidant Group. Ditto ditto on the love. Congratulations to you and your staff. All right, that's a tough question. Come on. I'm gonna, a tough one and an easy one if I could. The tough one is taking your point that China's income growth will swamp the improving energy intensity. Why do you see China's energy intensity improving so much? Is this something just having to do with China? Is it a broader trend and in general, as you think about your expectations for energy intensity going forward, would you say the risks to that forecast are skewed one way or the other? Are we likely to be disappointed with a less intensive or more intensive versus your forecast? Secondly, recognizing we're about to pass the cup in an austerity, nevertheless, Howard, if you would please prioritize, if you could wave your wand and improve one or two information sets, data sets in the global energy market, what would your wish list be in terms of data that if it was public and available would best improve our understanding of global energy market fundamentals. Thank you. Okay, in terms of your first question, I think you're likely to be disappointed because any point for any sort of projection of a particular number for a particular year is gonna be wrong. I can honestly say that other than something like the nuclear where we have certainly reasons since the time this was developed, to say to think it moves in a certain direction, I can't say we know which direction, have a view. One thing I would point out is there sometimes tends to be a relationship between improvements in energy intensity and the rate of economic growth. Sometimes when the economy is turning over faster, there's more replacement of less efficient equipment with more efficient equipment and the like. And so in some sense, high growth itself can be a driver of improvement in energy intensity. In terms of information we want, you know, one of the problems we have a lot is looking at, you know, as some of the non, some of the developing countries become more important in tightly globally integrated markets like world oil markets, it is really important, I think, to get better information about, you know, what is going on. I mean, we put together measures of parent consumption, parent consumption growth, but a lot depends on whether stocks are being accumulated or whether the stuff's actually being consumed. And frankly, for some countries, we just don't have very good information about that and that leads to mistakes. So I think understanding, you know, better information on oil inventories globally would be pretty important because that's such a tightly integrated global market. You know, in the domestic context, I think we probably need better and more timely information as we put our balances together on product exports. I think we've sort of been behind the game on that and there's been, you know, one of the things that's happened is the United States has become, I mean, we've always been a big importer of crude, we're still a big importer of crude, we've always been a big importer of products, but now we're turning into a big exporter of products and it's really important for us to get a more timely handle as we put together the weekly balances on what's going on with exports. So I think those are two things I would single out. They're both related to the oil market. It's not because other markets are unimportant, it's because the oil market is the one that's globally most, you know, tightly integrated. Go back there and then we'll come here. I'm Brian Winkler with Bloomberg News. Just curious whether, excuse me. Just curious whether the projections for natural gas include the US Geological Survey estimates in August? I think they... I can't hear you. He's curious as to whether or not your projections include for unconventional gas the USGS projections from August. The USGS numbers were significantly lower than the energy department's numbers. You're talking about Marcellus or... Yes, I'm sorry, Marcellus. Going domestic. All right, well, we do, I think we want to, you know, incorporate some of the USGS information. We will be updating, you know, our estimates. It's really our standard practice to incorporate information from the latest USGS assessments. You know, we've done that traditionally. Again, we were in the position where we had an outstanding USGS assessment of I think two trillion cubic feet for the Marcellus, which we didn't find to be something we could use. It was clearly out of date and they've increased that by a factor of 40 in their assessment, but it's significantly lower than the assessment we had been using. We will be updating. It's one thing to point out that they focus, though, on undiscovered resources and that's only a part of the total. The total includes both proof reserves and inferred reserves. And one of the things we need to do is get the information from USGS that allows us to sort of figure out what areas they excluded from their assessment. And we have, obviously, we are responsible for the collection of proof reserves information, so we have that information as well. So ultimately, I think we will end up with a number in our forthcoming AEO that incorporates information from USGS, but I think you can expect that it won't be exactly the top line number. The devil is really in the details. As I mentioned in the talk, I also want to point out that, you know, while certainly, technically, recoverable resources are important, you know, the recovery economics really matters a lot to our projections. And if you look at, because we had a big section in the 2011 annual energy outlook that looked at shale gas uncertainties, and we actually looked at two things. We looked at resource uncertainties and recovery cost uncertainties. And the recovery cost uncertainties actually had sort of a larger impact on our projections than the resource base uncertainties. So the answer is, you know, the answer is always it's complicated, but the answer is yes, we are going to incorporate information from USGS, but I don't think there should be an assumption that that technically recoverable resource information, we know directionally what type of effect it would have on our projections, but the assumption somehow that everything hinges on that I think may be incorrect. And again, I don't know that you're making that assumption, but you asked the question, so I thought I'd provide the information. If I could just build off on the unconventional gas work that you expect to do, question the, for those of you who haven't, you know, spent any time looking at it, the study that EIA did in conjunction with ARI on unconventional resource basins that Howard talked about is actually quite interesting. We had a session here on it not too long ago. Would you have any plans on building off on that work, either in terms of the geographic scope or sort of going beyond sort of just the technical recoverable aspects? Well, it's a good question. You know, again, we have to, I mean, you know, EIA is a program, I mean, we have to operate within our resources, you know, we have some, obviously there's a lot of interest in the international outlook. I think it's really critical with respect to gas, but at the same time, there's a lot of interest in say end use consumption data, how we use energy in buildings in the United States. We've heard a lot from people about that, which is a program that we had to take a survey out of the field. There have been some folks in the petroleum industry who, or not the petroleum industry, analysts and industry and academics who've been concerned about the termination of some data series. So certainly an area we would consider, but you know, we have to be realistic. I mean, I think what it's a mistake to do is to, resources are not sort of silly putty, I don't know, I'm dating myself, but I played with this stuff as a kid and you just spread it thinner and thinner. I think that's probably not the responsible way to go. I think we have to pick and choose and we will pick and choose, but it's not, if we decide not to do something, it's not because we think it's not important. It's because quality is an important dimension as well as scope and we have to worry about that. Yeah, absolutely. Okay, great. Any questions? Can you wait for a microphone, please? Thank you. Tom O'Donnell, Graduate International Affairs at the New School in New York. My question was about, given the amount of new gas that's coming on and probably a lot more over time, it's just thinking about what you put into thinking about ways that it might cause some fairly dramatic change in the mix of what's used. My one of the three things I wanna ask you, it was actually already asked by Mark Finlay and it's well taken that the difficulties of natural gas making inroads and transportation here because of infrastructure and technology problems. I understand that. The other two things I'd like to ask about are there's geo-strategic concerns. For example, two of the brown spots you showed on the map were in Poland and Western India and places like that there's quite an impetus to use any kind of natural gas, especially in Eastern Europe. So that's a geopolitical one. The other one is with all the take down of nuclear plants, nuclear capacity in Europe that's supposedly gonna take place, even if they just replace it with natural gas, the carbon load is gonna go up and given their commitments it would seem they're gonna have to take down coal plants, replace them with gas to stay anywhere near their carbon targets. So if you could comment on those aspects. Okay, well, I think the global gas situation is just extremely interesting and I think one of the questions is ultimately are you gonna, right now you have this sort of global gas pricing where some parts of Asia have significant linkage to oil. I think right now LNG in Japan is like $14 a million BTU and you have the national balancing point in the United Kingdom at about $9 a million BTU and probably the average price in Europe somewhere between the two and then you have the US at $4 and the question is, are you gonna get some coalescence of prices and I think that's an, are you gonna get gas on gas competition globally? That's an overarching question but with respect to your specific questions, yeah, I had mentioned that Poland clearly, they seem to, just a lot depends on how you prioritize different things and they seem to be moving I guess very aggressively potentially on their shale gas. India I think could move aggressively as well although we didn't single them out as a country, some other places moving less aggressively and again the production economics are really gonna be important to that and that's really a very open question in terms of Europe and its commitments and certainly taking down a lot of existing nuclear does not help on greenhouse gas emissions. One doesn't have to be a debanolist to see that and ultimately what they're gonna, there's I guess there's an expression, something gotta give and the question is what and I'm not sure I know the answer to that but to the extent that a lot of existing nuclear is taken retired in a pretty aggressive way that certainly has implications for greenhouse gas emissions and I don't know what they're gonna do. Hi, Louvian Meyers, Golden Global Strategies. I am just curious as to whether or not your supply projections take into account the sort of cost of doing business in non-OACD countries so transportation costs, infrastructure development, human capacity constraints, et cetera. Supply projections for what in particular? Natural gas but oil as well. I mean some of the areas that we identify for I guess we sometimes use cryptic language but we talk about sort of constraints on resource access in certain non-OPEC areas. So certainly if, I mean do a thought experiment. If the US had let's say Russia's resource endowment would our production be higher or would the production level be higher than what we're projecting here? I guess my thought is probably so that might, so we understand we build in in some sense the notion that there isn't, just because you're outside of OPEC doesn't mean you have sort of I guess 100% free market access to all resources but it is the case again that some of these areas, despite whatever challenges they face, have been areas where production has been increasing in the other parts of the former Soviet Union for instance, production has been strong despite some of the I guess what you would describe politely as the cost of doing business and we, so we're trying to be realistic about that but it isn't like we assume that Western capitalism settles over the entire non-OPEC world instantly. We do try to reflect some of those constraints. Now with respect to the unconventionals we really see that as a lot much more market driven. Certainly the biofuels are pretty market driven and policy driven. Market driven in some places, policy driven in other. Certainly the oil slash tar sands you know we see is oil sands and this is EIA though, we see. So if it's NRDC it's tar sands, if it's you giving the talk, it's oil slands, if it's me giving the talk, well whatever. The Canadian sands, yeah that we see is very market driven. So some places yes, some places no, I guess that's the. Okay. You Kevin and then right there. Thanks Kevin Massie from Brookings. Question about the Middle East as a source of or a center of demand for oil. You mentioned your projections have I think as a base case 15 million barrels a day coming from Saudi Arabia in 2035. But can you talk about the impact of increased oil demand in the region and what that will mean for global markets and supply demand balances? We definitely have a significant increase growing demand in the Middle East. I mean both because of the economic growth is good and the population growth is good and the fact that there's a lot of subsidization which is bad but I guess it's good for oil demand growth. So yeah, I mean there's no question that you wanna take, you know I mean we do do a global balance and the Middle East is a big area for increased demand. I mean it's also the case and I don't know how this exactly will get sorted out but there's certainly a lot of, the Middle East is one of the areas that uses a lot of oil in applications like electricity generation and desalination where it might be very attractive to use other fuels in its place. I would have to go back, I don't have all the details in my head but I think at least part of the, let's say the shift in electric generation fuels away from oil from like 5% of the global total to 2%. Undoubtedly the Middle East would still be one of the places that uses more oil than other places. The question is do they start using other things? I mean they have good renewable resources, they certainly have natural gas resources and to the extent that you would let's say free up. You know it's interesting, you look at alternative natural gas developments in the Middle East and you're thinking worrying about whether we should pursue a $2 a million BTU cost option or a $4 a million BTU, I won't mention which country might be looking at these things, cost option. And I'm thinking like gee, one translates into $12 a barrel of oil equivalent, the other into $25 a barrel of oil equivalent and every day we're waiting, we're burning $100 barrels of oil. So the question is really what's gonna happen with respect to that, but there's no question that Middle East is a growing consumer of oil in our projection as well as a growing producer. Okay, right there in the middle of the aisle. Mike Costi, I just retired from the Senate Armed Services Committee. You mentioned South Pars and Northfield. How do you judge Turkmeni reserves in comparison and do you feel that any of this Turkmeni gas will eventually make it to India or will it be split between China and Russia for the most part? Boy, I am not the, one thing we don't do in the IEO is look at the particular flows. So it's a very good question and clearly a lot of Turkmeni gas is now going to China, right? But the question is what happens in the future? The answer is the International Energy Outlook certainly wouldn't look at that. In fact, we don't even look at while we have Canadian sands production rising dramatically, you know, from our perspective it's not, we're not saying where it's flowing. We're looking more at the global balances. So I'm sorry, I can't, I don't really have the information to answer your question. Good question though. Al Heggberg with CSIS. Thanks very much for the terrific presentation. Can we go back to gas for a minute and not as a policy question but looking at the U.S. gas resource base now or the reserve base in terms of whether that changes the global market beyond diverting LNG cargoes away from the U.S. or other kinds of things. At some point, do you see production of U.S. gas being exported? Well, that's certainly a question that's come up a lot given some of the work. Obviously you're aware that the Department of Energy, not EIA, but the fossil group in the Department of Energy has really recently approved one project license and it's two more pending for export to non-free trade agreement countries of LNG. It's certainly not built into our reference case projection at the present time. We have seen already a lot of sort of re-export of some of the LNG that we've imported but that's really, we have also the one plant that I guess is soon to be shut down in Kanai that exports to Alaska, that's a relatively small thing but I think the question you're asking about is are we gonna see significant exports from, we'll say the Gulf of Mexico where those three license applications are? The answer is we don't have it in our reference case. I think part of it relates to this big question that I kind of twisted an earlier question about as to whether the global gas market is gonna turn into sort of gas on gas competitive environment. I guess some of this could potentially tie in to the opening of the larger Panama Canal which might make transportation, certainly Asia seems right now to be the premium market for LNG. I guess there's a question of will it continue to be a premium market because you have these differentials and at some point are you gonna get the competition or not? So that's one key big question there. I guess the other big question there is how does the US compare with other places where there's a lot of natural gas because $4 a million BTU, $5, we have our prices in North America rising in our projection and while $4 or $5 a million BTU is cheap relative to 14 or nine, it's expensive relative to other places perhaps where you could secure feedstock for LNG. So I'm kind of dancing around it a little bit. I feel like Tevia, on the one hand, on the other hand, I'm not that, I know what the factors are which is how the US gas competes against other gas. On the other hand, the US has an advantage that some of these facilities are sort of the non-liquifaction part of these facilities is already a sunk cost of these folks who've come in for licenses. So that could be an offset to a somewhat higher cost of the gas. We don't have it in our reference case. That's what I would say. I would certainly not rule it out. I think we've got time for one more question. So right there. Ron Mitzk with Securing America's Future Energy. Given the importance of spare capacity in the oil market production capacity and its relationship to the price of oil, I'm wondering if you have any thoughts about the trends on spare capacity and the factors that may affect it? Yeah, I think we're probably gonna be living in a world of tighter spare capacity than we've experienced, you know, let's say over. I mean, I'll pick 1986, because I'm old, but also that's, you know, it's the case. I mean, at that point in time, both the combination of efforts to reduce demand, the first set of fuel economy standards, the activity to take oil out of many sectors other than transportation, you know, the effects of high prices. I mean, you know, we all know that Saudi production dipped way down relative to its prior peak and they had huge amounts of capacity. And ultimately, the world from 86 through the early 2000s, you know, had a lot of spare capacity. I don't think that initially that all of that spare capacity was intentionally built up, but we were in that situation until fairly recently. I think now we're out of that situation. Spare capacity is much tighter and I think very few producers have an incentive to intentionally build spare capacity. So we're going to be operating in a world, I think, where the type of spare capacity margin that we had seen, let's say, from 1986 to the early 2000s, you know, we're unlikely to see again. At the same time, you know, we have what I mentioned as the sort of the demand shocks tied to income growth in developing countries potentially much more much more of a factor than they have been historically. So again, like in 2004, when things really began to go very tough in oil markets, a lot of that had to do with sort of unexpected or unanticipated demand increases. So it's really the prospect, I think, of unanticipated demand increases still out there, yet the spare capacity margin that we're working with, I think, is likely to be significantly smaller than we had been gotten comfortable with from 1986 for almost 20 years after that. So I think it's a different world. I think there'll be a lot of volatility potentially in oil markets. I mean, the markets have to balance and in the short run, demand and supply are pretty inelastic. And I think that's the lesson we've learned. Not a happy lesson. Well, listen, Howard, we probably can't offer you money, of course, but we can certainly offer you our thanks. And thanks to your staff, many of whom are here today for all the time and attention you spend on putting this together. And thank you for spending your morning with us. Thank you. Thank you.