"THE OUTLOOK FOR ENERGY: A VIEW TO 2030"
WESTERN PETROLEUM MARKETERS ASSOCIATION CONVENTION
MIRAGE HOTEL, LAS VEGAS, NEVADA, FEBRUARY 18, 2010

There are a lot of people who don't know a lot about the energy industry. It's a complex issue and it affects everyone's daily lives. We understand that. We're in the business of marketing energy products.

Today there are about a billion and a half people who don't have access to a source of electricity or what we would consider modern sources of energy. Another billion people use what we would consider non-modern sources of energy, things like wood and dung. Plus, we will add another billion people to the world's population.

60% of your overall energy footprint is indirect and 40% is direct energy use. Globally, this held true: the indirect energy footprint was greater than direct.

Over time, we do see economic trends returning to long-term growth patterns.

From 2009-2030, the absolute amount of growth is $18 billion for both the developed world and the non-developed world. We see the developed nations' energy use approximately flat over that time and we see the non-developed nations responsible for all the energy demand growth.

In the developed world, we see a substantial amount of energy efficiency improvement. Since 1980, we've improved about 1.2% per year. Going forward, we see that improving to about 1.5% per year. This comes from improvements in technology, modernization of transportation and manufacturing.

The largest use of energy is power generation: creating the power that is used by other sectors. Industrial is second. Transportation is third. When you look out to 2030, the substantial growth is in power generation. 55% of the growth is in power generation.

Global transportation demand. The light duty vehicle demand is, essentially, plateauing. Total demand peaks in 2015. Efficiency improvements in vehicles will level out demand, so that number will make up for the increased number of vehicles in non-developed nations. All of the growth is going to come in commercial: heavy duty vehicles, aviation, marine, and rail. It's the shipment of goods internationally.

The underlying issue is how many cars are on the road. We have 800 cars per thousand people. The U.S. fleet grows essentially with population growth. In Europe, there will be minor fleet changes. China's population has less than 1 car per thousand people today. By 2030, we believe that will rise to about 100 cars per thousand people.

The advanced vehicle to us is anything that increases efficiency by 30% or more from standard models. A good example is the hybrid here in the U.S. We think because of the drive of improving CAFE standards manufacturers will be putting more of these features into their cars and help drive down the costs. We expect a 35% of improvement over fuel efficiency overall in the next two decades.

The average hybrid costs $3-4,000 more than the average vehicle it competes with. If you look at a plug-in hybrid, you're going to add $15-16,000 to the cost of the car. We don't see significant penetration of the vehicle at that point. By 2030, we expect batteries will be less expensive. Absent of some other initiative, we don't see plug-in hybrids making up the improvement in fleets; that will come from traditional hybrids.

We expect the average new car efficiency to be approximately 35 mpg by 2030.

Policymakers are starting to consider vehicle efficiency for heavy duty vehicles.

The biggest efficiency impact will be in developing nations. Right now, they are primarily populated with small vehicles. They will be replaced with larger vehicles to create economies of scale. There is a huge amount of heavy duty fleet growth in the developing world.

We see a slight decline in absolute energy demand in the developing countries over the next 20 years. We see a 50% growth in non-developed countries. 40% of that will come from China.

Oil use will grow, but that's primarily for chemicals. Gas is growing, primarily to create other energy. Electricity plays a very substantial role in energy growth. You can't run a factory without electricity.

Electricity use is growing fast. It is the fastest energy sector, growing at 2.4%. Heavy industry's demand will almost double in this time period. Households are growing rapidly and their energy needs are growing. This is the one area where everybody grows. China represents about the same demand for electricity by 2030 than the U.S. and Europe put together.

Coal continues to be the largest source of electricity globally. But nuclear accounts for a substantial increase.

We expect a cost of carbon to be introduced in the developing world. This substantially increases the cost of coal and gas. Because of this, we see more nuclear and more wind coming in. We reach about 20% from wind in the U.S. with this outlook. We see coal being displaced in the U.S. by natural gas and that becoming a more substantial fuel in the global mix. Wind, solar, and biofuels are the fastest growing segment. It's a quarter of 1% today of the mix; we expect it to be 9.6% by 2030.

Oil demand, in the U.S., we believe will drop from 21 to 18 million bpd by 2030.

Oil demand globally is about 84 million bpd. By 2030, we expect that to be 104 million bpd. OPEC supply's about 28 million bpd and we expect that to grow to about 36 bpd.

We don't see there's going to be adequate supplies of biofuels to meet the U.S. requirements. The technology is not available and no one is developing them right now.

The U.S. only requires 15% imports of gas today, and most of those come from Canada. We have 100 years of product. Europe imports 40-50% today and by 2030 it will be 70%, primarily from Russia. Natural gas is an evolving area When you put it in a plant, it produces 60% less CO2 compared to coal, so we believe we'll see it used more in the coming years.

We are reducing absolute emissions of CO2. Right now, they're back to 1980 standards. All the growth is coming from Non-OECD nations and, by 2030, they'll be double what the OECD nations emit.

How did we reduce our emissions to 1980 levels? We use energy more efficiently and we're using cleaner fuels.

Energy use changes with fuel: how we can transport it and how we find it. In 1850, 90% of our energy came from wood and 10% came from coal. This has evolved and it continues to evolve. But it takes generations to change how we use energy. It's going to take decades for anything to make a significant impact. Oil was discovered 150 years ago but it took 50 years until it was started to be used regularly and 100 years until it became a substantial fuel around the world.

We don't feel oil shale is going to be become commercially viable in the next 20 years. It's absolutely out there and it's a big player but technology is the key factor.