THE 36 $ TRILLION QUESTION WORLD INVESTMENT IN ENERGY UNDER UNCERTAINTY

Manuel Pinho

School of International and Public Affairs Columbia University

Department of Government Georgetown University

2015 Rodney Wylie lecture

mp2968@columbia.edu

INVESTMENT IN THE ENERGY SECTOR, 2015- 30: 36 U$ TRILLION IEA- INDC´s

Power fossil fuels, 1.7

Power nuclear, 0.9

Renewables, 4.2

Transmission, 5

Oil, 9.3

Gas, 5.7

Efficiency, 9

Power: 12 $ trillion Renewables: + 40% of investment in power generation

Efficiency: 9 $ trillion 1 unit of world GDP needs 20% less energy than in 1995

Oil & gas: 15 $ trillion 4/5 for compensating decline in output

Source: IEA, Special report, WEO 2015, page 40 • 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 ≈ 3% 𝑤𝑤𝑤𝑤𝑤 𝐺𝐺𝐺 𝑦𝐼𝑦𝑤

• 𝐸𝐸𝐸𝐼𝐼𝑤𝐸𝐼𝐸𝑤𝐼 𝑤𝐼 𝑓𝐸𝐼𝑤𝐼 ≈ 5 − 10% 𝑤𝑤𝑤𝑤𝑤 𝐺𝐺𝐺

Energy production: +1/3 (2015- 2035), BP Energy related CO2 emissions: < 970 𝐺𝐼,𝐶𝑦𝑤𝐶𝑤𝐼 𝐶𝐸𝑤𝑏𝐼𝐼

Degree of uncertainty

2000 Demand shock from China Natural resources super cycle

2007 Shale gas production in

the US starts in the Barnett, Fayetville

and Hainsville plays. In 2015, production in

the Marcellus shale play will equal that of

Qatar

2008 Solar PV manufacturing moves to Asia Peak in oil prices 142$/bbl

2010 Cancun

agreement on 2° 𝐶

2011 Fukushima Shale oil in the US Peak coal prices 142$/t

2012 President Xi inauguration

“New normal” Sunset of the commodities

super cycle

2014 Oil prices fall by

+ 50% Warmest year on

record

2014 Presidents

Obama and Xi joint statement

on climate change

UNCERTAINTY SLOW CHANGE- FAST CHANGE SIMPLICITY- COMPLEXITY LOCAL- GLOBAL 2005

2015

IN 2010 YOU HAD CREATED A DIVERSIFIED ENERGY PORTFOLIO

WHAT WOULD BE THE RETURN IN 2015 COMPARED TO THE S&P 500 ? Higher? Lower? By how much?

DEEP OFFSHORE

SHALE OIL & GAS

NATURAL RESOURCES

COAL

LARGE UTILITY

OIL SERVICES

WIND TURBINES

TRANSMSSION

YOUR PORTFOLIO

8 energy stocks- market leaders only- liquidity- equal share

THINK OUT OF THE BOX: DEMAND ... AND SUPPLY We might as well reasonably dispute whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper, as whether value is governed by demand or supply. -Alfred Marshall

0

2

4

6

8

10

12

14

US Qatar China

Largest natural gas production increases, 2010- 14. Bcf/d

4084

970

-1837 -3000

-2000

-1000

0

1000

2000

3000

4000

5000

US Canada SaudiArabia

Largest production changes 2010- 14, kbd

Energy consumption in China grew strongly (+8% CAGR in 2000- 14) and accounted for 55% of the increase in world primary energy consumption

The increase in US crude production in 2010- 14 was close to total exports of Canada+ Mexico.

In 2015, production in the Marcellus shale will equal that of Qatar.

45%

55%

China, contribution to growth of world energy demand, 2000- 13

THINK OUT OF THE BOX: PRICES

What goes up must come down

0

5

10

15

20

25

1992

-01-

0119

93-0

6-01

1994

-11-

0119

96-0

4-01

1997

-09-

0119

99-0

2-01

2000

-07-

0120

01-1

2-01

2003

-05-

0120

04-1

0-01

2006

-03-

0120

07-0

8-01

2009

-01-

0120

10-0

6-01

2011

-11-

0120

13-0

4-01

2014

-09-

01

World natural gas prices, $/ MM Btu

US

Germany

Japan0

50

100

150

Jan

05, 1

990

Jan

05, 1

992

Jan

05, 1

994

Jan

05, 1

996

Jan

05, 1

998

Jan

05, 2

000

Jan

05, 2

002

Jan

05, 2

004

Jan

05, 2

006

Jan

05, 2

008

Jan

05, 2

010

Jan

05, 2

012

Jan

05, 2

014

WTI, spot price

Oil spot prices (41.9 $/bl) are 70% off from their July 2008 peak (144 $/bbl). Ignoring the panic during the 2009 subprime crisis, prices are back to the levels of July 2004. Futures contracts for delivery in December 2020 are at 57 $/ bbl.

Henry Hub prices (2 $/MMBtu) are back to the levels of 2001 (except a period of 3 weeks in 2012). Futures contracts for deliver for deliver in June 2019 are at 2.9 $/ MMBtu.

020406080

100120140160

Oct

-10

Feb-

11Ju

n-11

Oct

-11

Feb-

12Ju

n-12

Oct

-12

Feb-

13Ju

n-13

Oct

-13

Feb-

14Ju

n-14

Oct

-14

Feb-

15Ju

n-15

Australian thermal coal, $/MT

Australian thermal coal prices are 71% off from their 193 $/ton 2011 peak. Futures for delivery in 2020 are at 48 $/t.

Back to 2004- 11 years Back to 2001- 14 years Back to 2007- 8 years

42 2 56

1. Demand China

2. Supply Fuels

3. Supply Electricity

4. Regulatory/ macro

environement

SOURCES OF UNCERTAINTY

0

5

10

15

20

25

30

35

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

Share in world GDP, PPP

China, People'sRepublic of

United States

European Union

• The progress that is taking place in China, a country with a population of more than 1 billion, is unique. It totally changed the balance of power.

• After 30 years of sustained growth following the reforms led by Deng Xiao Ping, China became the largest

economy in the world (in terms of GDP measured by PPP). However, income per capita is only 25% of the US. . A “new normal” is needed to avoid falling in the middle income trap.

• Unbalanced. China´s economic model is based on an exceptionally high investment rate

(= 50% GDP) and on strong share of exports (25% GDP).

0

5

10

15

20

25

30

1000 1500 1870 1950 1973

China

UNPRECEDENTED SUCCESS

Source: IMF Source:: Maddison

CHINA

THE NEW NORMAL AND THE NATURAL RESOURCES SUPER CYCLE

7.3

16.9

12.8 13.4

18.1

2.7

10.6

2.4 1.4

7.1

10.4

5.6

3.2 2.9

9.2

1.6 2

4.8

6.8

3.1

1 2.1

6.5

-0.3

0.3

2.8

4.6

2.8

1

-5

0

5

10

15

20

China: commodity demand growth

2001-112011-20142014-202020-2025

The deceleration of demand from natural resources from China is impressive and explains to a large extent the end of the commodities super cycle.

Source: Citibank

Centralized/ coordinated/

upward

Decentralized/ uncoordinated/

downward

CHINA

0

50

100

150

200

250

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Cmmodities price index, including energy

Source: IMF

2006 11th 5 Year Plan Focus on energy efficiency, 1,000 Energy- saving entreprises

2011 12th 5 Years Plan -16% energy intensity, -17% carbon intensity, share of non fossil fuels 11.4% by 2015

2014 Energy development action plan Cap on ∆% energy and coal consumption, share of non fossil fuels 15% by 2020, share of natural gas 10%, nucleat target 54GW

1215 INDC Cap CO2 emissions in 2030, or earlier,share of non fossilfuels 20% by 2030, -60-65% CO2/ GDP by 2030, from 2005 level

1216 3th 5 Years Plan

A ONE THOUSAND MILE JOURNEY STARTS FROM THE 1ST STEP China INDC, 2015

11.4% by 2015

15% by 2020

20% by 2030

Reneable energy sources % primary energy

US Japan EU China

7 5 13 11 → 𝟐𝟐 1. CHINA

OIL & GAS PRICES AND COSTS The more you understand what is wrong with a figure, the more valuable that figure becomes.” Lord Kelvin

$/bbl

0

20

0

40

60

80

100

20 40 60 80 100

Onshore Middle East

Offshore shelf

Extra heavy oil

Deepwater

Onshore Russia

Onshore ROW

Ultra deepwater

Shale

Oil sands

mbd

Average 2005- 13

Average 2010- 13

Actual WTI 42 $/bl

0

2

4

6

8

10

12

-100 0 100 200 300 400 500 600 700 800

Prod

uctio

n co

st (U

SD/M

Btu)

Remaining technically recoverable gas resources (tcm)

Conventional gas

Shale gas

Sour gas

C BM

Alre

ady

prod

uced

Tigh

t gas

Deep

wat

er

Arct

ic

Actual Henry Hubb 2 $/MMBtu

Source: Ryjstadt, 2015 Source: IEA, Resources to reserves, 2014

FUELS

The numbers do not add up Current prices may produce stranded assets

GOLDEN AGE OF GAS? Not so fast…

0500000

10000001500000200000025000003000000350000040000004500000

Jan-

2000

Oct

-200

0Ju

l-200

1A

pr-2

002

Jan-

2003

Oct

-200

3Ju

l-200

4A

pr-2

005

Jan-

2006

Oct

-200

6Ju

l-200

7A

pr-2

008

Jan-

2009

Oct

-200

9Ju

l-201

0A

pr-2

011

Jan-

2012

Oct

-201

2Ju

l-201

3A

pr-2

014

US natural gas production, Bcf

World reserves of conventional and unconventional natural gas are very abundant. The shale gas revolution started in 2007 and produced a spectacular increase in unconventional natuural gas in the US and a decline in imports.

02468

101214161820

Jan

07, 1

997

Jan

07, 1

998

Jan

07, 1

999

Jan

07, 2

000

Jan

07, 2

001

Jan

07, 2

002

Jan

07, 2

003

Jan

07, 2

004

Jan

07, 2

005

Jan

07, 2

006

Jan

07, 2

007

Jan

07, 2

008

Jan

07, 2

009

Jan

07, 2

010

Jan

07, 2

011

Jan

07, 2

012

Jan

07, 2

013

Jan

07, 2

014

Jan

07, 2

015

Henry Hub natural gas prices U$/ MMBtu

Henry Hub spot prices collapsed from 13 $/ MMBtu in 2008 to 2 $/ MMBtu. The US challenge: to create new demand (industrial renaissance argument, Mexico, exports) who would rise prices to ≈ 𝟓 $ 𝐌𝐌𝐌𝐌𝐌. The issues: slow industrial demand, strong decline in prices in Europe- Asia prices

FUELS

OIL OUT OF AMERICA Has something changed or has everything changed?

0100000200000300000400000500000

Jan-

1981

Mar

-198

3M

ay-1

985

Jul-1

987

Sep-

1989

Nov

-199

1Ja

n-19

94M

ar-1

996

May

-199

8Ju

l-200

0Se

p-20

02N

ov-2

004

Jan-

2007

Mar

-200

9M

ay-2

011

Jul-2

013

U.S. Imports of Crude Oil and Petroleum Products (Thousand

Barrels)

020406080

100120140160

Jan05,

1990

Jan05,

1992

Jan05,

1994

Jan05,

1996

Jan05,

1998

Jan05,

2000

Jan05,

2002

Jan05,

2004

Jan05,

2006

Jan05,

2008

Jan05,

2010

Jan05,

2012

Jan05,

2014

WTI, spot price

02000400060008000

1000012000

Dec

-197

9Se

p-19

82Ju

n-19

85M

ar-1

988

Dec

-199

0Se

p-19

93Ju

n-19

96M

ar-1

999

Dec

-200

1Se

p-20

04Ju

n-20

07M

ar-2

010

Dec

-201

2

U.S. Field Production of Crude Oil (Thousand Barrels

per Day)

Source: EIA Source: EIA Source: EIA

US crude imports declined precipitously as shale oil production rose. In mid 2014 crude oil prices went in freefall. Until when? Possibility: 1986 … again.

FUELS

D1 D2

ECONOMICS OF TIGHT OIL 101 Pandora´s box?

Shale oil range

60 65

60

85

S1 D1 D2 S2

S2

Oil supply and demand are inelastic, which produces price volatility. In the figure, a small increase in demand might raise prices from 60 to 85 $/bbl Saudi Arabia steps the swing producer and stabilizes prices- supply curve shifts to S2..

Shale oil production created a kinked supply curve. Supply is elastic in the shale oil range. Shale acts as a stabilizer.

Conventional Shale

High fixed costs, low variable costs

Low fixed costs, high variable costs

5-10 years between decision to invest and production starts

2-3 months between decision to invest and production starts

Relatively slow declining rate

Extremelly high declining rate

Distributed all over the world

US only

On balance sheet finance Capital markets

Breakeven cost starts at 15-20 $/ barrel

Breakeven cost at 60- 80 $/ barrel

NOC´s, majors Independents, small producers

Slow productivity gains Rapid productivity gains

020406080

100120140160180200

Ard

mor

e W

oodf

ord

Bri

scoe

Ran

ch c

ondy

…G

reen

Riv

er o

il V

tPe

rmia

n W

olfc

amp

Hz

Ute

land

But

tePe

mbi

na o

ilyB

akke

n A

ntel

ope

Perm

ian

Cen

tral

Bas

in…

Kay

bob

Duv

erna

ry o

ilyB

akke

nPe

rmia

n C

entr

al B

asin

…Pe

rmia

n Y

eso

Hz

Uin

ta W

asat

ch H

zT

usca

loos

a M

arin

e Sh

ale

Eag

lebi

neM

arna

ton

(She

lf)Pe

rmia

n M

idla

nd st

acke

d V

tST

AC

KC

ana

Cor

e O

ilSC

OO

P N

on-C

ore

Oil

Breakeven, shale oil

IT´S THE ARITHMETIC Elpis= Hope

Source: Bloomberg

Actual WTI 42 $/bl

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2012 2013 2014 2015

U.S. onshore oil producers' debt service as a share of operating cash flow

83 CENTS ON THE DOLLAR Until when shale producers will resist? FUELS

16

050

100150200250300350400450

1990

1993

1996

1999

2002

2005

2008

2011

2014

GDP/ Electricty Consumption/ Energy Consumption

Growth Rate 1990-2015

GDP

ElectricityConsumption

EnergyConsumption

POWER The era of electrification, China- India and renewables

0%

5%

10%

15%

20%

25%

30%

35%

Electrical capacity by techology

2013

2030

Oecd 13%

China 38%

India 15%

ROW 34%

Increase in world power demand by country/ region, 2013- 30

Oecd China India ROW

The era of electrification Electricity consumption grows much faster than primary energy demand

More than 50% of the increase in electricity demand will come from China and India

Renewables will contribute the most to increase generation capacity. Their cost is declining at a steady pace (wind) or sharply (solar PV) and they are increasingly driven by economics POWER

THE MYTH OF THE “ELECTRICITY SYSTEM” No ready to wear

Deregulation in practice

EU

Internal market 1st Directive 2003

Poor interconnection

capacity

Debate about capacity payments

US

Regulated

Florida

Colorado

Arizona

Deregulated

Texas

New York

Massachusetts China Fully regulated

67 104

134 148 118

383

220

351

US Denmark UK Germany

Electricity prices

Industry Retail

POWER The deregulated marginal pricing electricity system is not a paradigm Industry electricity prices in Germany are 3x higher than in the US

76 71 65

41 38 35 29

01020304050607080

% coal in power generation, 2013

No clear correlation between electricity prices and competitivenesss Extremelly large differences

among countries in terms of sources of power generation

US 37

GR 61 9/ 2015

JP 73 9/ 2015

GR 87 9/ 2014

0

20

40

60

80

100

120

140

3 6.6 8.5 10.4 15.7

LCOE, natural gas, $/ Kwh JP 119 9/ 2014

FUEL PRICE AND CARBON PRICE UNCERTAINTY

POWER

• Price uncertainty: From 2014 to 2015, LCOE´s of natural gas power plants moved by more than 25 $/ Kwh in Germany and 45 $/ Kwh in Japan.

• Carbon pricing uncertainty: Carbon pricing will favor natural gas power plants relative to coal power plants.

0

1

2

3

4

5

6

7

8

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Natural gas, coal, production prices, energy basis

Coal ProductionPrices (Dollarsper Million Btu)

Natural GasProduction Prices(Dollars perMillion Btu)

Wind, solar, hydro

Nuclear Coal

Natural gas

Capacity

Power demand

Wind, solar, hydro

Nuclear

Coal

Natural gas

$/ MWh

Capacity

Power demand

INTEGRATION OF RENEWABLES Order of merit effect

Integration of renewables produces structural changes in power systems and challenges the traditional utilities • Order of merit effect: tends to reduce the pool price • Peak shaving: steals load at the hour of the day when electricity is more expensive • Austraila has ideal conditions to produce renewable energies

COP 21 OPPORTUNITY AND RISKS

Available emissions until 2050: 980 Gt energy 50 GT others

Emissions since pre- industrial levels 1970 Gt

Global carbon budget 3,000 Gt to avoid

> 2 ∘ C temperature increase

INDC´s from 2021

Bottom up

16%

31% 35%

11% 7%

Energy will be at the center of the debate

CCS Renewables End use efficiencFossil fuel switching Nuclear

Good news: emissions decelerated Bad news: it´s not enough

CLIMATE

Carbon budget

COP 21: INDCs

China • Peak CO2 in 2030 or before • Lower CO2/GDP by 60-65%

below 2005 levels • 20% share of non fossil fuels

in total primary energy • + 4.5 bcm forest stock

United States • Lower CO2e emissions by 26-

28% below 2005 by 2025 • Clean power act: lower

emissions of power sector by 32% below 2005 levels by 2030 (individual targets for states)

• 28% share of non fossil fuels in power generation by 2030

EU • Lower 40% CO2 e emissions by

2030

India • Lower CO2/ GDP by 33- 35% by

2030 below 2005 • Lower CO2/ GDP by 20- 25% by

2020 below 2005 level • 26-30% share of non fosssil

fuels in power generation

US: shale China: energy

security, pollution

CLIMATE

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

1900

1909

1918

1927

1936

1945

1954

1963

1972

1981

1990

1999

2008

2017

2026

2035

2044

2053

2062

2071

2080

2089

2098

Climate interactive

BAU

INDC Strict

Ratchet 1

Ratchet 2

Ratchet 3

2 deg Pathway

0

20

40

60

80

100

120

140

160

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

2055

2060

2065

2070

2075

2080

2085

2090

2095

2100

CAT

AR5 BAU

#REF!

Current Policy Projections

Current Policy Projections

Pledges

Pledges

2C consistent

#REF!

#REF!

COP 21 scenarios Yes, if…

CLIMATE COP 21 will likely be an important step in a process, not an end by itself

4.7

1.6

-2.2

-6

0.5

0.4

0

-0.1

8.9

5.4

4.2

3.5

-3.8

-3

-3.9

-4.7

-0.6

-1.1

-2.4

-4.7

2005- 2015 2015- 2030 2030- 2040 2040- 2050

CHINA, 2005- 2050 CO2 energy Population GDP/ population Energy/ GDP CO2/ energy

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

CHINA´s MEDIUM TERM MACRO ENERGY SCENARIO

CO2 emissions should reach a peak in 2030 or befor at ≈ 𝟏𝟏 𝐆𝐌 Main drivers:

• Lower GDP growth, from 8.9% in 2005- 2015 to 3.5% in 2030- 2050 • Strong (and increasing) decline in energy intensity • Carbon intensity effort is not front loaded

2005- 2015

2015- 2030 2030- 2040

2040- 2050

1. CHINA

1. Demand China

2. Supply Fuels

3. Supply Electricity

4. Regulatory environement

Climate/ Efficiency

Macro impact

SOURCES OF UNCERTAINTY

1. New normal: cyclical downturn v. structural adjustment 2. New energy priorities and emissions commitements 3. Multipolar world: India- ASEAN

1. Shale´s Pandora box 2. Structural change of natural gas market, peak coal 3.Technological change

1. Renewable energies learning curve 2. Centralized v. distributed generation 3. Disruptive changes: CCS, storage

1. Post 2030 pathway 2. Carbon pricing 3. Macroeconomic impact

0

50

100

150

200

250

Bre

nt p

rice

$/b

bl

Budget breakeven oil prices for major oil exporters

Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning. Albert Einstein

406080

100120

Feb-

10Se

p-10

Apr

-11

Nov

-11

Jun-

12Ja

n-13

Aug

-13

Mar

-14

Oct

-14

May

-15

Dec

-15

Forward contracts - WTI

Spot Price

Jan-10

40

60

80

100

120

140

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

Jan-

12M

ay-1

2Se

p-12

Jan-

13M

ay-1

3Se

p-13

Jan-

14M

ay-1

4Se

p-14

Jan-

15M

ay-1

5Se

p-15

Forward contracts - Coal

Forwardcontracts

Spot Price

• In 2010, oil and coal forwards suggested a moderate increase in prices • However, the outcome has been radically different • The central 2015 IEA scenario assumes prices > than indicated by futures contracts

INFORMATION FROM FUTURES MARKETS

0

20

40

60

WTI futures

IEA low cost scenario

IEA NPS, 89 $bbl

0

1

2

3

4

Henry Hubb futures

444648505254

2015 2016 2017 2018 2019 2020

Newcastle coal futures prices

IEA NPS, 5.2 $/MMBtu

2010

2015

0

50

100

150

200 US coal Companies

PeabodyEnergy

AlphaNaturalResource

020406080

100120140160180

Jan,

201

0A

ug, 2

010

Mar

, 201

1O

ct, 2

011

May

, 201

2D

ec, 2

012

Jul,

2013

Feb,

201

4Se

p, 2

014

Apr

, 201

5N

ov, 2

015

Global Natural resources companies

BHPRio TintoGlencore

COAL AND NATURAL RESOURCES

Manuel Pinho

020406080

100120

Jan,

201

0Se

p, 2

010

May

, 201

1Ja

n, 2

012

Sep,

201

2M

ay, 2

013

Jan,

201

4Se

p, 2

014

May

, 201

5

PETROBRAS

020406080

100120140160180200

Jan,

…Ju

l, 20

10 Jan,

…Ju

l, 20

11 Jan,

…Ju

l, 20

12 Jan,

…Ju

l, 20

13 Jan,

…Ju

l, 20

14 Jan,

…Ju

l, 20

15

Independent US oil companies

AnadarkoApacheChesapeakeDevon

0

20

40

60

80

100

120

1/1/

108/

1/10

3/1/

1110

/1/1

15/

1/12

12/1

/12

7/1/

132/

1/14

9/1/

144/

1/15

11/1

/15

German utilities

E.On

RWE

0

50

100

150

200

250

300

Jan,

201

0Ju

l, 20

10Ja

n, 2

011

Jul,

2011

Jan,

201

2Ju

l, 20

12Ja

n, 2

013

Jul,

2013

Jan,

201

4Ju

l, 20

14Ja

n, 2

015

Jul,

2015

Oil Service Companies

Schlumberger

Halliburton

National OilwellVarcoWeatherfordInternational

0

50

100

150

200

250

300

350

1/1/

105/

1/10

9/1/

101/

1/11

5/1/

119/

1/11

1/1/

125/

1/12

9/1/

121/

1/13

5/1/

139/

1/13

1/1/

145/

1/14

9/1/

141/

1/15

5/1/

159/

1/15

European TSO´s

National GridRed Electrica

020406080

100120140160

Jan,

201

0M

ay, 2

010

Sept

, 201

0Ja

n, 2

011

May

, 201

1Se

pt, 2

011

Jan,

201

2M

ay, 2

012

Sept

, 201

2Ja

n, 2

013

May

, 201

3Se

pt, 2

013

Jan,

201

4M

ay, 2

014

Sept

, 201

4Ja

n, 2

015

May

, 201

5Se

pt, 2

015

Vestas Wind Systems

PETROBRAS BRAZIL

APACHE US

RIO TINTO UK/AU

ALPHA NR US

E.ON GERMANY

SHLUMBERGER US

VESTAS DENMARK

-% 99 -87% -48% 31% -55 % +128 % +46 %

S&P 500 +90 %

Energy portfolio -10%

HOW WOULD YOU HAVE INVESTED 100 $ MILLION IN 2010?

DEEP OFFSHORE

SHALE OIL & GAS

NATURAL RESOURCES

COAL

LARGE UTILITY

OIL SERVICES

WIND TURBINES

TRANSMSSION

NATIONAL GRID UK -6%

Manuel Pinho

The road ahead

Long and winding road

Companies start from weak position

Possible to reduce climate uncertainty

Disruptive innovations No one size fits all Challenge=

opportunity

Extremelly high uncertainty

Demand: cyclical or structural?

Supply: something or everything? Oil prices: 1986 again? Peak coal? Structural changes in

natural gas markets

Unique opportunity to produce more energy and cleaner energy

More energy :1/3 by 2040 Cleaner energy:≪ 970 𝐺𝐼 𝐶𝐶𝐶 More or less uncertainty than in 2010- 15?

36 trillion investment in energy

The bad news- Nothing lasts forever The good news- Nothing lasts forever

Luck is what happens when preparation meets opportunity

Seneca