OilandgassecurityduringtheenergytransitionChrisDoleman,SeniorResearcher,APERCAPERCWorksho2Emergingtrends3Energysecurityisnowatthecenterofenergypolicydiscussions•Pandemicrecoveryispromptingareboundinenergydemand•Energysupplygrowthisconstrainedbyseveralcombiningfactors•Russia-UkrainianwarisreorganizingenergysupplychainsMonthlyfossilfuelpricesonanenergyequivalentbasis,1997to2022(USDperMMBtu)Source:IMF,JOGMEC,EIA,APERCanalysis01020304050Jan-1997Sep-1999May-2002Jan-2005Sep-2007May-2010Jan-2013Sep-2015May-2018Jan-2021AsianLNGpriceNewcastleCoalBrentoilSevereweatherisexacerbatingAPEC’senergysecuritychallenges4•Extremetemperatureselevatedemandprofileswhilechallengingfuelsupplyavailabilityandreliability•Stormsurgesdisruptingjust-in-timedeliveries,damaginginfrastructure•DroughtsreducingfuelandcoolantavailabilitySource:MISO•Prioritisationofdomesticenergyendowmentsfordomesticuse•Energyexportbans:Indonesia’smonth-longcoalexportban(January2022)•Australiaconsideringgasreservation•Chinaincreasingcoalproductivecapacitytorelylessonimports•Securingtheupstreamthroughdirectinvestments•JapaninvestinginLNGprojects,andnaturalgassupplyintheUS•Governmentsarerethinkingtheirlong-termenergyplanstoreducerelianceonoilandgasimports•VietNamshiftinglong-termpowermixawayfromoil,gasandcoalandtowardsrenewables5Governmentsareputtingenergysecurityintotheirownhands6•GovernmentsparticipateinorguideLNGsupplyprocurement;Singaporeischarteringstand-byFSU,FSRUcapacity•Moreregulationtowholesaleandretailelectricitymarkets•Pricecapsforwholesalenaturalgasandcoal(tointurnreducepowerprices)inAustralia•RegulatorsmandatingtheweatherproofingofenergysupplychainsintheUS(withquestionableeffectiveness)•SPRreleasestoputaceilingoncrudeprices•SubsidiesGovernmentsareinterveninginenergymarketstoimproveaffordabilitySingaporeLNGstoragecapacity(millionm3)MonthlyIndonesiangasprice–withcontrolsversusspotLNGprices,USDperMMBtu,January2020toMay2022Source:GIIGNL,Platts,EMA,APERCAnalysisSource:MEMR,IMF,APERCAnalysis0510152025303540Jan-20Jul-20Jan-21Jul-21Jan-22SpotLNGOriginalPriceContractGaspolicyfixedprice7Long-termLNGcontractsareinsulatingsomefromhighspotprices•Long-termcontractsareinsulatingincumbentimportersfromelevated,volatilespotprices•China’sshort-termcontractflexibility,lowerdemandenabledittobalanceglobalLNGmarketsin202201020304050Jan-2020May-2020Sep-2020Jan-2021May-2021Sep-2021Jan-2022May-2022Sep-2022LNGoilindex10to15%AsianLNGspotLNGHHindexMonthlycommoditypricesfacingLNGimporters(USDperMMBtu),2020to2022Source:JOGMEC,IMF,EIA,APERCanalysis0%20%40%60%80%100%20212022202120222021202220212022202120222021202220212022ChinaJapanMexicoChineseTaipeiThailandSingaporeKoreaWindSolarOtherRenewablesOtherFossilNuclearNetImportsHydroGasBioenergyCoal•Technologicalcapacitylimitscurrentfuelswitching•Sophistication,redundancyandreplacementincreasesfuelswitchingability,butdonotemergeovernight•Governmentpolicycanalsoplayaroleinlimitingfuelswitching(forexample,coal-to-gasswitchingtargets)8Short-termfuelswitchingawayfromgasisdifficultinpracticeElectricityfuelinselectAPECLNGimportingeconomies.2021and2022Source:EMBER9Bindingsupplyconstraintssuggestareturntotheboom-bustoilcycle•Capitaldiscipline,laborshortages,inputconstraintslimitingsupplygrowth,shiftingthemarginalsupplieroutofAPEC•Adecadeofdemandgrowthandinelasticsupplycouldspellthereturnoftheboom-bustoilcycle020406080100120140160180200Jan-2019Jun-2019Nov-2019Apr-2020Sep-2020Feb-2021Jul-2021Dec-2021May-2022Oct-2022CementSteelpipeandtubeIndustrialsandSource:BLSMonthlyproducerpriceindexofoilandgasserviceinputs,2019to2022,100=Jan201910Infrastructureconstraintscouldlimitsupplygrowth•GrowinginterestinUSLNGexportsasEuropeshiftsawayfromRussianpipelineexports•However,infrastructureandcapitalconstraintscouldlimitthesupplytothesenewLNGfacilities050100150200250201620172018201920202021202220232024202520262027202820292030ProposedUnderconstructionLNGexportcapacitypotentialintheUS,2016to2030,MtpaSource:EIA11Refineryproductconstraintscreatingavailability,affordabilityconcerns•China’sexportquotascurbingsupply•PhasedownofRussianoilproductexports•Capacityreductionsduetoretirements,unexpecteddamagesandbioconversionsChina’sannualoilproductexportsandquotas,2019to2022(kt)Source:Platts,Reuters,EGEDA,APERCAnalysis010000200003000040000500006000070000800002019202020212022Oilproductexports(lessfueloil)Exportquotas12Biofuelmandatesarealoneinsufficientforimprovingenergysecurity•Mandatesmaybesubstitutingoilsecurityconcernswithbiofuelsecurityconcerns05001000150020002500201020112012201320142016201720182019201020112012201320142016201720182019BiodieselBioethanolDomesticImportedSupplyofbiofuelforblendinginPeru(thousandbarrels)Source:EGEDA,Reuters,Platts13Emergencyresponseprogramsareeffectiveatensuringenergysecurity•Emergencyresponsemeasuresareveryeffectiveatensuringenergysecurity,includinggridreliability•Japan’seffectiveemergencyresponsecouldbeablueprintforotherstoimitateatthegasandelectricretaillevel2000030000400005000022/03/20220:0022/03/20228:0022/03/202216:0023/03/20220:0023/03/20228:0023/03/202216:00HourlypeakdemandForecastedpeakTEPCOforecastedandpeakdemand,March22to232022,(MW)Source:TEPCO,GridMonitor,APERCanalysis•Plentyofexamplesofshort-termactionsthroughputAPECthatarehelpingtheregionnavigateacuteoilandgassupplydisruptions•Households,businesses,suppliers,andgovernmentsarecollectivelymitigatingtheeconomicimpacts•However,constraintscouldlimittheseshort-termresponsesgoingforward14Short-termactionsareimprovingenergysecurity,butthesehavelimits15Oilandgasdemandwilllikelyremainrobustthisdecade•InCN,gassupplyrequirementswillgrowatenth,oilsupplyfallslightly•Despitehigherproduction,oilandgasimportdependencewillremainelevatedandevengrowinSEA•SupplydisruptionswillcontinuetoposearisktosomeAPECeconomiesAPECtotalprimaryenergysupplybyfuelinCNoftheAPECOutlook8thEd.2020and2030(PJ)`-5000005000010000015000020000025000030000035000040000020202030OtherfuelsHydrogenElectricityRenewablesNuclearGasOilCoalSource:APERC16Recommendationstoimproveenergysecurityduringthisenergytransition17Actionstoimproveenergysecurityforoilandgasusers•Investinelectrification,efficiencytoreduceimportdependence•Considerinvestmentsinredundancy,sophisticationandreplacement•Developshort-termdemandresponseprogramsattheretaillevel•Diversifylong-termenergyandpowerplans0510152025302021202220232024202520262027202820292030CanadaUSDemandreductionviaair-sourceheatpumpadoptioninselectAPECeconomies(bcm)Source:OEE(2022a,2022b,2022c),Nature,CarbonBrief,APERCanalysis18Actionstoincreaseoilandgassupply•Alleviateshaleservicebottlenecks:investinproductivecapacity,eliminatetariffsandresearchlaborbottlenecks•Simplifythepermittingprocessandfrontloadinvestmentsinmethane,flaringandemissionreductions•CommittoreplenishingSPRstoragevolumestoreducedemand-sideuncertaintyduringthetransition•Winterisetheentiregassupplychainofproducer-exportersUSweeklyfracfleetcountSource:PrimaryVision0100200300400500600201420152016201720182019202020212022202319ActionstoincreaseLNGsupply,mitigatedisruptions•Signlong-termcontracts,investinupstreamLNGsupplychain,andpoolcollectivelybids•EnableLNGreloadingatallimportterminals•ExpandLNGstoragetanks•InvestintheresiliencyoftheLNGshippingsupplychains050100150200250300Under1010to1920to2930andoverUnder1010to1920to2930andoverMossMembraneSteamSteamreheatDFDETFDEX-DFME-GISSDRActiveglobalLNGcarrierfleet,segmentedbyage,propulsiontypeandcontainmenttypeSource:IGU,GIIGNL,APERCanalysis20Actionstoincreaseoilproductandliquidssupply•Considerextendingrefinerylifetimes•Ensurethatbioconversionsdonotresultinnetcapacitydeclines•Makebioblendingmandatesconditionalonparallelsupplyincreases02000400060008000100001200014000160001800020000Jan-2019Jan-2020Jan-2021Jan-2022USoperablerefinerycapacity(kb/d)Source:EIA21Increasingmitigationcapacityforcrudeoil,oilproducts•Developanoperationalizationroadmapforjoint-stockpilingofoilandoilproductsinAPECsubregions•Investinstockpiling,SPRstomitigatejust-in-timedisruptionstooilandoilproductsupply•Replenishstockpilesatlowpricelevels0100200300400500600700800Aug-1982Aug-1988Aug-1994Aug-2000Aug-2006Aug-2012Aug-2018USweeklyendingstocksofcrudeoilinSPRstocks,millionbarrels,1982to2022Source:EIA22DiscussionThankyou.https://aperc.or.jpchristopher.doleman@aperc.or.jp