Hydrocarbons and Sustainability

Nayef A. AlMusehel
Deputy Minister of Policies and Strategic Planning
Ministry of Energy
Saudi Arabia

Economic Growth Post-COVID
What role would energy play in supporting global growth?

GDP Growth (%)• Economic performance in the medium term is
forecasted to be solid, exhibiting larger growthin China, India, and other emerging markets

864• COVID-19 impacts may have dwindled following
vaccination campaigns, booster shots, and weare returning, gradually, to the pre-covid
activities. In the least, any subsequent impact ofCOVID is dwarfed in contrast to its peak

20
2019

2020

2021

2022

2023

2024

2025

2026

-2

• The upcoming period of economic recovery ischaracterized by new and emerging sectors,
greater focus on digital economies, and vertical
integration in hydrocarbons and chemicals-4-6
China, People’s Republic ofUnited States
Advanced economies
Source: IMF

Emerging market and developing economies
WorldGlobal Energy Demand
Have we invested enough in global energy supply?

Primary Energy Demand Mix (mmbdoe)• Global primary energy demand is expected toincrease by 28% through 2045. Primarily driven
by projected economic recovery, and growth275
83• Oil is forecasted to maintain its lion’s share of
the energy mix by 2045, with noticeable growth
in gas

Oil

332

2025

2030

2035

2040

2045

Gas

Nuclear

Hydro

Biomass

Other renewables

94

2020

• Primary sources of energy are expected to growfrom 2020 baseline, with the exception of coal,and renewables forecasted to witness the fastest
growth

352

344

319

304

Coal

Primary Energy Mix (2020 vs 2025)

5%

10%
3%

2%

10%
30%

23%

5%

4%
31%

3%

23%
26%

Source: OPEC World Oil Outlook 2021

25%

Med-Term Oil Demand
How is the oil demand going to shift and change in the next 2 years?
104• Oil demand is expected to recover from COVID19 levels by 2022.

102
100

• The global health system has more arsenals tofight the pandemic nowadays (vaccinates, postinfection tablets … etc), this coupled withstructural change in demand for petrochemical
products and consumer behaviors in mobility,
pushing demand for oil in the short andmedium terms.

OPECIHSMarkit
Wood Mackenzie
U.S. EIA

98
96
94

9290
2019

42020

2021

Source: OPEC World Oil Outlook 2021, IHSmarkit, WoodMackenzie, U.S. EIA

2022

2023

Underinvestment fueling Global Energy Crisis
How are the dynamics of demand and supply playing out?

Global Upstream CAPEX (Billions, $)• Global investment in oil and gas upstream
declined by 30% in 2020-2021.
• Investment needs to grow by at least 5%
annual to meet expected short term demand
till 2025• Without influx of investments, the energy
market could potentially undersee furthervolatility, which is not in the interests ofeither producers or consumers.
• Saudi Arabia remains committed tosupporting
investments,
whichyieldsustainable market stability and the rightenabling environment

1,200

120

900

90-28%

600

60300

3002010

2015

2020

2025

AfricaAmerica S

Australia

Middle East

America NAsia

EuropeRussia

5Source: Rystad, FRED, OPEC World Oil Outlook 2021

2030
Oil Price0Oil Demand (Mid Term)
CAPEX for Global Exploration and Production
Activities (Billions, $)• The total investment required over the nextten years exceeds $4.7 trillion

481• Restricting investments or introducing
further barriers to invest in conventionalhydrocarbons could lead to 30 MMBD
deficit in supply• Investments is already rising, led by NOCs
with double digit budget hikes, butcontinued global increases are not assured
due to pressure on investments (i.e. capitaldiscipline constraints of public operators,
increasing stakeholder scrutiny of emissions
and economic returns, price volatility andgovernments’ energy transition strategies)

2015

2016

2017

2018

2019

309

341

2020

2021

523

2025

2030

Required New Projects to Meet Expected
Demand (MMBD)
100

87

84

80

173160
40

56

20
0

6

441

484

2020

2021

2022

2023

2024

2025

Current Producing Fields
Source: IHSmarkit, WoodMackenzie, IEA, IEF

2026

2027

2028

Required New Projects

2029

2030

Take-A-Ways• Energy demand will grow to support economic growth in the near-medium terms.
• Oil will continue to play a vital role in the global energy mix; renewables and green energy
sources will support the resilience of the global energy mix.

• Oil demands will be shaped by growth in petrochemicals, transport and growth from developing
countries post COVID19.
• Underinvestment has fueled energy crisis; supply deficit could be faced in the near-medium term
if we don’t increase/ease investment in the conventional hydrocarbon sector.
• Saudi Arabia has been working globally and domestically to ease the global energy crisis byincreasing investments in hydrocarbons, with a focus on GHG emission reduction via versatile
frameworks (CCE, Hydrogen, etc.)
7

Investment Breakdown
Would upstream lower CAPEX and projects delay impact other sectors?

Cumulative oil-related investment
requirements by sector (2021-2045)
Midstream• Upstream projects represent (~9.2 Trillions)represent 78% of total cum of the cumulative oilrelated investment to meet demand by 2045.

9%Downstream
12%• Downstream required cumulative investments isestimated to be around (~1.5 Trillions). This could
raise as some global producers lowered theirinvestments in the past 5 years which altered theglobal crude slate.

78%
Upstream

Global Crude Quality
34

1.35
1.30

33

1.25
1.20

32
2017

2020

API gravity
Source: OPEC World Oil Outlook 2021

2025
Sulphur content (RHS)

1.15

Policy-Based ESG Investment Acceleration
What is the burden on the energy producers in the ESG era?

• A momentum toward directing investments
toward ESG policies. Google online public
interest shows increase of interest by 43%
annual between 2012 and 2022.

Public Interest in ESG Investing (Points)+4,989%7680

556040• Low ESG related investments could become
more expensive; hence, rechannelingfinancing away from conventional fuels
projects.

2002008

2010

2012

2014

• This trend, if continued to develop, could
lead to rising energy prices .

Source: Google Trends & Ministry of Energy Analysis

20162018

20202022

Middle East Producers will continue to retain their cost advantage
Cost curve of new global crude oil supply in select areas in 2040

7,000

First-quarter 2021 full-cycle costs in termsof Brent ($/bbl)$125

US tight oil—SCOOP/STACK

United States—
GOM

Rest of theworld—Offshore

6,000

Norway and United Kingdom

$100

5,000

Rest of the world—Onshore

West
AfricaUS tight oil—Permian

4,000

$75
Middle East

3,000

$50

2,000

1,000

$25
The lowest BEP

0Brazil

$0
0

2,000

4,000

6,000

8,000

10,00012,00014,00016,00018,000Russia9,259
20,000

China

9,260

22,00024,0009,261
26,000Series
SeriesKazakhstan
US tight oil—
SeriesBakkenSeriesSeriesSeriesSeriesSeriesSeriesSeriesSeriesSeriesCanada—1
US tightoil—Eagle
Oilsands
Series 2in situ

9,262 30,000

28,000Ford

32,000

Cumulative crude oil production from new sources in 2040 (thousand b/d)

© 2021 IHS Markit

Source: IHSMarkit

COVID-19 Pandemic shocked investment inflow
Why would COVID-19 continue to impact energy market for the next 5 years?

Global Upstream Projects Delay• Upstream Project FIDs have been delayed in2020 and 2021, on average for 2 years.

-0.1-0.1-0.1-0.3• Upstream projects in the Middle East, lead by
Saudi Arabia, have witnessed the lowest
slowdown as government supported the energy
sector to ensure reliability.

-0.4

-0.5

-0.5

-0.2

-0.2

-0.2

-0.7

0.0
-0.1
-0.1
-0.2

-0.8

-0.1
-0.2
0.0

• KSA Energy ecosystem managed to deliver many
projects in 2020 and 2021 (Smart metering,
Circular Carbon Economy, Hydrogen, expansionof solar, energy mix …)

-0.4
-1.7
1 year

2 years

3 years

4 years

AfricaChina

Latin America

OECD AmericasAsiaEurasia

Middle East

OECD Asia

Source: OPEC World Oil Outlook 2021

OECD Europe

Energy Markets Ongoing Volatility
Why different energy products are witnessing different market volatility?

• The pandemic changed to the energy industry, withinvestment in renewable energy sources faring best
through the downturn as policy makers pushed forgreen recovery.

Energy Products Prices
40250

3520030• Some countries are utilizing a share of their fiscal
stimulus aimed at boosting economic recovery tosupport the green recovery, to enhanced the rolefor renewables and help achieve Paris agreementtargets.

25150

20100

1510505• Unbalanced policies could unnecessarily
burdensome the economy, with regressive social
impacts creating challenges for resilient andsustainable energy system which is leading tohigher prices

0

2017

2018

2019

2020

2021

Asia LNG Price (U.S. Dollars per Million Metric British Thermal Unit)
Coal (U.S. Dollars per Metric Ton)

Source: FRED0