Energy: reflections on the past, present and future

Impacts, transitions and what´s next for the Brazilian O&G industry

Décio OddoneDirector General

Rio de JaneiroFebruary 28th, 2018

International Conference on The Economics of Oil

NOTICE

• The ANP´s institutional presentation is based on currentand reliable information, but no representation orwarranty is made as to its accurateness andcompleteness, and it should not be relied upon as such.

• Projections and estimated values are included withoutany guarantee as to their future realization.

• Forward-looking data, information, projections andopinions expressed during the presentation are subjectto change without prior notice.

Outline

STEP 1 STEP 2

STEP 3 STEP 4

Energy Outlook and Brazil´s E&P proposals

Final Remarks

Highlights on the history of energy

EV / Biofuels

An exciting energy future

Social preferences, new technologies and

Government policies will

alter the way in which energy is

produced and consumed in the

future.

A successful energy history

The development of

energy solutions framed the contemporary

world

Each time with its own challenges

Our time’s choice

No risks = no wealth

Economic and environmental populism claims for development and wealth but does not accept impacts or risks. It is not compatible. Progress was achieved because risks were mitigated.

The precautionary principle

Energy made the modern world

possible

Abundant, cheap energy powered airconditioning which enabled cities todevelop in the tropics. Energy allowedmodern medicine to spread across theglobe. Planes, trains, automobiles,computers, the internet, wireless

communication were developed.The O&G industry had a fundamental role in the

construction of the modern world. 200 years ago, we still depended on the candle light…

Jean Jacques de Boisseau, "Evening in the Village," 1800

The reading light in the 1800s

In 1800 it took the average person six hoursof labor to earn one hour ofreading light from a tallowcandle. By 1880, two decades after the first oil

well was drilled in Titusville Pennsylvania, kerosene

lamps lowered this to only 15 minutes oflabor to earn one hour of readinglight. Today it requires the average worker only

a fraction of a second of labor to

earn an hour of reading light .**By Chris Wright

Night Scene, by Peter Paul Rubens (sec XVII)

Jean Jacques de Boisseau, "Evening in the Village," 1800

Life expectancy in the 1800s

Life expectancy has increased rapidly

since the enlightenment.

Estimates suggest that in a pre-modern,poor world, life expectancy was around

30 years in all regions of the

world. Since 1900 the global averagelife expectancy has more than doubled

and is now around 70 years. No

country in the world has a lower lifeexpectancy than the countries with thehighest life expectancy in 1800.**Life Expectancy, by Max Roser (Our World in Data)

Whaling station Grytviken, 1916

Whale oilThe first principal use of whale oil was as an illuminant in lamps and as candlewax. Other uses came in time. The sperm whale was the main whale beingsought for its oil when the petroleum industry opened in 1859. By some

estimates, sperm whales have been driven down to one-third of their pre-

whaling population. Kerosene and later electricity had replaced whale oil as theluminescence.**Whale Oil, by Samuel T Pees

Horses in the 1900s

By 1880, there were 25 humans for each horse.

The use of horses in transportation created manydifficulties, primarily among which was managingmanure and waste. The manure brought flies andthe possibility of outbreaks of typhoid, cholera,tuberculosis or infantile diarrhea.One journalist writing in Appleton Magazine in1908, charged that each year 20,000 New Yorkersdied from “maladies that fly in the dust, createdmainly by horse manure.” In 1880, New YorkCity also removed 15,000 dead horses from its

streets. In the 1900s, NY had 130,000 horses

and London around 300,000. We are

grateful for the automobile that arrived to replacethem.**When Horses Posed a Public Health Hazard, by Jennifer Lee (NY Times)Crude Reality: Petroleum in World History, by Brian C. Black

Horses pull carriages among the peddlers and pedestrians on the Lower East Side in 1900.

Biomass Oil

Coal Gas

Energy Sources Timeline

In ancient times, nearly all of human energy wassupplied by biomass. This meant burning of trees,sticks, grass, and dung. But, nowadays…

Biomass1

1.1Billion humans still use biomass as primary source

due to lack access to electricity

1.2Billion people have gained

access since 2000, (70% getting

access with power generated from

fossil fuels)

2.5Billion humans rely on the traditional

use of solid biomass to cook

their meals

2.8Million people die due to pollution from indoor burning of

biomass, coal and kerosene

Source: IEA Energy Outlook 2018

Coal was the first major source of energy beyondbiomass. It powered the spread of the industrialrevolution and by the middle of the nineteenthcentury it became a meaningful contributor tototal world energy consumption.

Coal

Oil became significant fifty years later asautomobiles and the internal combustion engineburst on the scene.

Oil2 3

Gas4

Natural gas didn’t become a major source ofenergy until after World War II as it required alarge pipeline network to transport it.

Renewable5

Nowadays, the utilization of solar, windgeothermal …

World´s Energy Consumption by source

Global Primary Energy Consumption by source (2016)

Oil

33%

Gas

24%

Coal

28%

Nuclear

4%

Hydro

7% Renew.

4%

� O&G counts for 57% of the energy consumption

� Fossil fuels count for 85% of the energy

consumption

Source: BP Energy Outlook 2018

Biomass Oil

Coal Gas

Renewals (solar, wind, geothermal…)

In the past ten years, the biggest energy transformation has not been from a new energy source, but from the

shale revolution that has radically altered the world energy landscape.

Shale revolution

Energy Sources Timeline

The US Shale Revolution

0

5

10

15

20

25

2000 2010 2020 2030 2040 2050

US Crude oil production million barrels per day

tight oil

2017

history projections

Reference

other0

10

20

30

40

50

60

2000 2010 2020 2030 2040 2050

US Natural gas productiontrillion cubic feet

2017

history projections

Reference

tight/shale gas

Source: EIA Annual Energy Outlook 2018

670,000 of the 977,000 producing wells were hydraulically

fractured and horizontally drilled (2016).

69% of all oil and natural gas wells drilled in the US were fractured

horizontal wells (2016)

In only September, October and November of 2017, the

US added 1.23 million bbl/d

of supply from tight oil

Yes, we live better now . Thanks to energy

The world is about 100 times

wealthier than 200 years ago

Number of people in extreme

poverty fell by 137,000 every day

for 25 years

The vast majority of poor Americans enjoy luxuries

unavailable to the Vanderbilts and Astors of 150 years ago, such as

electricity, air conditioning and

colour televisions.

The Case for Reason, Science,

Humanism and Progress.

By Steven Pinker

(Feb 24th 2018)

Now two-thirds of people

live in democracies. Two

centuries ago only 1%

Yes, we want to continue benefiting from the responsible utilization of our energy resources

Outline

STEP 1 STEP 2

STEP 3 STEP 4

Energy Outlook and Brazil´s E&P proposals

Final Remarks

Highlights on the history of energy

EV / Biofuels

Competitive pressures within global energy markets will intensify

The global energy mix will the most diverse the world has ever seen by 2040, with oil,

gas, coal and non-fossil fuels each contributing around 25%

Demand for oil grows before plateauing in the late 2030s

Natural gas demand grows strongly and overtakes coal as the second largest source of

energy. It will account for around a third of the increase in global energy demand.

Renewables are by far the fastest-growing fuel source, increasing five-fold and providing

around 14% of primary energy

What the future looks like?

Source: BP Energy Outlook 2018

Future: a quicker transition and an increase in

competition

Brazil has to boost O&G activities to produce its resources while they are valuable.

Energydrives the world economies.

• The increasing use of technologies and innovations and the

societal pressure for low carbon emissions will speed up the

energy mix transformation

• According to IEA, by 2022, renewable electricity capacity should

increase by 43%, equivalent to half of the current global capacity

in coal power which has taken 80 years to build

• Costs of renewable energy have fallen in many areas, particularly in

solar power, where costs have being reduced by 80% over thepast decade

• The changes currently underway in the world of mobility appearmore evolutionary

• Although there is a lot of uncertainty around the oil forecastingand is far too early to be worrying about the demise of fossil fuelsin the near term, the main oil companies agree that oil demand will

peak until 2040, leading to a competitive environment toproduce the reserves worldwide

This is a sample text.

Insert your desired text here.

Three main goals Boosting O&G activities in:

01 02 03

Increasing the knowledge of our sedimentary basins to know the remaining potential

01Increasing the exploratory activities02

Maximizing production and reservoirs recovery factors03

Potential investments and forecast production (up to 2027)

0

1.000.000

2.000.000

3.000.000

4.000.000

5.000.000

6.000.000

The preThe preThe preThe pre----salt region salt region salt region salt region has the potential to contribute with has the potential to contribute with has the potential to contribute with has the potential to contribute with the the the the largest largest largest largest nonnonnonnon----OPECOPECOPECOPEC production growth in production growth in production growth in production growth in

the decade to comethe decade to comethe decade to comethe decade to come

Brazilian Oil Production Forecast (bpd)

39 R$845Billion of potential

investments in development

New platforms

US$18Bi

1111% % % % addition addition addition addition in in in in the the the the BBBBrazilian razilian razilian razilian

recovery recovery recovery recovery factor:factor:factor:factor:New Investments 2,2Bi boe

Reserves

Natural gas in the transition

The world continues to electrify, with almost 70% of the increase in primary energy going to power sector

Natural gas grows strongly, supported by broad-based demand and the continuing expansion of LGN, increasing the availability of gas globally

Natural gas is the transition energy source for a low carbon economy. As demand grows, mainly in thepower sector, Brazilian natural gas production needs to rise.

To prioritize domestic gas instead of

imported LGN

Uncertainty can be

assessed scientifically

and actions be taken

when benefits

outweigh risks

Don’t act

when in doubt or

in the presence

of any potential

risk

Unconventional resources: choosing the right path

Unconventional resources:

an important discussion to shape

the transition

A strong regulatory framework to mitigate risks must be in place for the unconventional resources to be produced

Considering that there is significant

potential in the unconventionalplays (more than 200 TCF), evaluation

activities must be authorized

Outline

STEP 1 STEP 2

STEP 3 STEP 4

Energy Outlook and Brazil´s E&P proposals

Final Remarks

Highlights on the history of energy

EV / Biofuels

Electric Vehicles

Electric vehicles (EVs) may offer a glimpse of the future but they

still have challenges and for the time being their impact is

limited.

The number of electric cars will grow. But the following considerations shall be taken into account:

� The emissions of the entire life cycle, including the origin of the energy

� The disposal and the reuse of the batteries

� The charging infrastructure in place and the need to

develop it

� The initial investment to generate the electrical capacity for

the market

� The cost of the EV. Despite improvements in battery

technology, range is limited even for the most expensive models, which still can’t compete with ICE cars as a complete package.

Electric Vehicles or biofuels in Brazil?

Brazil is the world´s second largest

producer of both ethanol and biodiesel

Brazil began developing biofuels in the 1970s.

Brazil has all the infrastructure, including

383 Ethanol Mills

51 Biodiesel Plants. Many of the cars

produced here are dual fuel (flex) The role of EV is an important discussion to be taken in Brazil in the short term

Flex vehicles (fuelled by ethanol) have the same GEEimpact as EV

Hybrid flex vehicles fuelled by ethanol may be part ofthe solution

Brazil has already taking the lead in biofuels

(RENOBIO), which aim to secure their

participation in the market to reduce carbonemissions

For the EV questions like cost competitiveness andtechnology, infrastructure (recharging stations etc) arestill to be answered

Outline

STEP 1 STEP 2

STEP 3 STEP 4

Energy Outlook and Brazil´s E&P proposals

Final Remarks

Highlights on the history of energy

EV / Biofuels

Energy drives economies and

has changed human lives drastically in the last centuries

The O&G sector had an important

contribution to the modern life and it powers innovation,

environment, economy, progress and health

But the pendulum is starting to

swing. The leading players

recognize it and will commit an increasingly higher proportion of

capital into next decade to shape the

transition

Final Remarks

In Brazil, we must accelerate exploration and

production to benefit from the resources

The country is in the middle of the greatest transformation in the upstream, gas and

downstream markets

A diverse and competitive market shall

result from this process

National Agency of Petroleum, Natural Gas and Biofuels ANP

Av. Rio Branco, 65, 21st floorRio de Janeiro – Brazil

Phone: +55 (21) 2112-8100

www.anp.gov.br

www.brasil-rounds.gov.br