Hideshi GIC Dec 0506

INTERNATIONAL ENERGY AGENCY

World Energy Outlook 2006 Hideshi EMOTO Senior Energy Analyst Economic Analysis Division International Energy Agency Š OECD/IEA - 2006

The Context  The world is facing twin energy threats  Inadequate and insecure supplies  Environmental damage, including climate change

 There is an urgent need to curb the growth in fossil-fuel demand & related emissions  WEO-2006 is a direct response to G8 request for advice on alternative energy scenarios  Two scenarios depict markedly different energy futures to 2030  Reference Scenario: No new government policies are adopted  Alternative Policy Scenario: Energy-security & climate-change policies now under consideration are adopted © OECD/IEA - 2006

Reference Scenario: World Primary Energy Demand 18 000

Other renewables Nuclear Biomass

16 000 14 000

Gas

Mtoe

12 000 10 000 8 000

Coal

6 000 4 000

Oil

2 000 0 1970

1980

1990

2000

2010

2020

2030

Global demand grows by more than half over the next quarter of a century, with coal use rising most in absolute terms Š OECD/IEA - 2006

Reference Scenario:

Primary Oil Demand 120 100

mb/d

80 60 40 20 0 1980 OECD

Transition economies

2005

2015

Developing Asia

2030

Other developing countries

Most of the increase in oil demand comes from developing countries, where economic growth – the main driver of oil demand – is most rapid © OECD/IEA - 2006

Reference Scenario:

Share of Transport in Total Oil use 70% 60% 50% 40% 30% 20% 10% World

OECD

1980

Non-OECD

2004

China

Rest of Transition developing economies countries 2030

The rising share of transport – which is relatively price inelastic – makes oil demand less responsive to movements in international oil prices © OECD/IEA - 2006

Economic Value of Energy Subsidies in non-OECD Countries, 2005 Russia Iran China Saudi Arabia India Indonesia Ukraine Egypt Venezuela Kazakhstan 0

5

10

Oil products

15

20 25 30 35 billion dollars Natural gas Electricity

40

45 Coal

World subsidies amount to well over $250 billion per year – Russia has the largest subsidies, amounting to $40 billion per year Š OECD/IEA - 2006

Proven Oil Reserves

Saudi Arabia 20%

Iran 10%

Iraq 9% Kuwait 8% Other Middle East 10%

Rest of the world 43%

The Middle East’s share of global oil reserves is much higher than its share of current production, suggesting strong potential for growth Š OECD/IEA - 2006

Reference Scenario:

World Primary Oil Supply 120

50%

100

45%

mb/d

80 60

40%

40 35%

20 0

30% 2000 2005 Middle East OPEC crude* Non-OPEC crude* OPEC market share

2015

2030 Other OPEC crude* Non-conventional oil * Including NGLs

OPEC takes the lion’s share of oil market growth as conventional non-OPEC production peaks, but non-conventional oil plays a growing role © OECD/IEA - 2006

Reference Scenario:

World Primary Natural Gas Demand by Sector 5 000 4 000

67% growth

bcm

3 000 2 000 1 000 0 1990 Power generation

2000 GTL

2004 Industry

2010

2015

Residential and services

2030 Other sectors

The power sector accounts for more than half of the increase in primary gas demand worldwide Š OECD/IEA - 2006

Increase in the Net Oil Import Bill in 2005 over 2002

OECD North America OECD Europe OECD Pacific Developing Asia Oil-importing SubSaharan Africa -1%

0% Oil

1% share of GDP in 2002

2%

3%

Gas

The increase in international energy prices raised the cost of net oil and gas imports in developing countries Š OECD/IEA - 2006

Trends in Coal Demand

800 700 million tonnes

600 500 400 300 200 100 0

World Increase 1993-2003

China Increase 2003-2005

Global coal demand in the last two years has grown much faster than previously – mainly driven by China Š OECD/IEA - 2006

Reference Scenario:

Energy-Related CO2 Emissions by Fuel 50

billion tonnes

40 30

Increase of 14.3 Gt (55%)

20 10 0 1990

2004 Coal

2010 Oil

2015

2030 Gas

Half of the projected increase in emissions comes from new power stations, mainly using coal & mainly located in China & India Š OECD/IEA - 2006

Reference Scenario:

Energy-Related CO2 emissions by Region

15

Rest of non-OECD

Gigatonnes of CO2

12 China

9 6

Rest of OECD

United States

3 0 1990

2000

2010

2020

2030

China overtakes the US as the world’s biggest emitter before 2010, though its per capita emissions reach just 60% of those of the OECD in 2030 Š OECD/IEA - 2006

Reference Scenario:

Cumulative Investment, 2005-2030 $20.2 trillion (in $2005) Electricity 56%

Oil 21% $4.3 trillion

$3.9 trillion Gas 19%

rillion $0.6 t

Biofuels 1%

$11.3 trillion

Coal 3%

Investment needs exceed $20 trillion – $3 trillion more than previously projected, mainly because of higher unit costs Š OECD/IEA - 2006

Global Upstream Oil & Gas Investment: Impact of Cost Inflation 300

index (year 2000 = 100)

actual

forecast

250 200 150 100 Year 2000

50 2000

2002 Nominal

2004

2006

2008

2010

Adjusted for cost inflation

Annual upstream investment doubled to $225 billion between 2000 and 2005, but most of the increase was due to cost inflation Š OECD/IEA - 2006

Access to oil reserves

National companies only 37%

Limited access national companies dominant 13%

Production sharing 11% Iraq 9% Concession 30%

Total reserves = 1 290 billion barrels

Access to much of the world’s remaining oil reserves is restricted Š OECD/IEA - 2006

Energy Poverty: Annual Deaths from Indoor Air Pollution 3

2.8

2 millions

1.6 1.2

1.3

Malaria

Smoke from biomass

1

0 Tuberculosis

HIV/AIDS

Source: World Health Organization

The number of people using dirty traditional biomass for cooking is set to grow from 2.5 billion now to 2.7 billion in 2030 absent new policies Š OECD/IEA - 2006

The Energy Future Absent New Policies  Security of oil supply is threatened  Oil production in non-OPEC countries is set to peak  Production will be increasingly concentrated in a small

number of countries

 Gas security is also a growing concern  Europe’s production has already peaked - US to follow  Import dependence in both regions & other key regions

will grow absent new policies

 Global energy-related carbon-dioxide emissions will accelerate

© OECD/IEA - 2006

INTERNATIONAL ENERGY AGENCY

Alternative Policy Scenario

© OECD/IEA - 2006

Alternative Policy Scenario: Mapping a Better Energy Future  Analyses impact of government policies under consideration to enhance security & curb emissions  Demonstrates that we can significantly reduce growth in energy demand & emissions and stimulate alternative energy production  Oil demand is reduced by 13 mb/d in 2030 - equivalent to current output of Saudi Arabia & Iran  Oil savings in 2015 savings reach 5 mb/d  CO2 emissions are 6.3 Gt (16%) lower in 2030 – equivalent to the current emissions of US and Canada

 Delaying action by 10 years would reduce the impact on emissions in 2030 by three-quarters

© OECD/IEA - 2006

Alternative Policy Scenario:

OECD Oil Imports 36 34

mb/d

5.2 mb/d 32

1.8 mb/d

30 28 26 2005

2010

2015

Reference Scenario

2020

2025

2030

Alternative Policy Scenario

In stark contrast with the Reference Scenario, OECD oil imports level off soon after 2015 & then begin to decline Š OECD/IEA - 2006

Alternative Policy Scenario:

Oil and Gas Imports, 2004-2030 50% 40% 30% 20% 10% 0% -10% United States

European Union

Reference Scenario

Japan

Alternative Policy Scenario

OECD countries see their increase in oil and gas import requirements substantially reduced in the APS Š OECD/IEA - 2006

Alternative Policy Scenario:

Key Policies for CO2 Reduction 42 Increased nuclear (10%) Increased renewables (12%) Power sector efficiency & fuel (13%) Electricity end-use efficiency (29%)

38 Gt of CO2

Reference Scenario

Fossil-fuel end-use efficiency (36%)

34

Alternative Policy Scenario

30

26 2004

2010

2015

2020

2025

2030

Improved end-use efficiency accounts for over two-thirds of avoided emissions in 2030 in the APS Š OECD/IEA - 2006

Alternative Policy Scenario:

Change in Cumulative Energy-Related Investment, 2005-2030 3 000

billion dollars (2005)

2 000 1 000 0 -1 000 -2 000 -3 000 -4 000 Additional demand- Avoided supply-side Net change in side investment investment energy investment

Avoided supply-side investment more than outweighs the additional investment by consumers in more expensive end-use capital stock Š OECD/IEA - 2006

Alternative Policy Scenario:

Investment Payback Periods 9 OECD

8

Non-OECD

7 years

6 5 4 3 2 1 0 2005-2015

2016-2030

2005-2015

2016-2030

Cars Electrical equipment (refrigerators, washing machines, lighting, air conditioning) Motors in industy

The payback periods of new policies are very short, especially in non-OECD countries for policies introduced before 2015 Š OECD/IEA - 2006

Renewed Interest in Nuclear Power  Growing concerns over energy security, surging fossil-fuel prices & rising carbon emissions  Positive aspects of nuclear power  proven technology for large-scale baseload electricity generation  reduce dependence on imported gas  no emissions of greenhouse gases or local pollutants  produces electricity at competitive & stable cost  uranium resources abundant & widespread

 But governments need to play a stronger role in facilitating investment where nuclear is accepted © OECD/IEA - 2006

Impact of a 50% Increase in Fuel Price on Generating Costs

increase in generating cost

40%

30%

20%

10%

0% Wind

Nuclear

IGCC

Coal steam

CCGT

Nuclear generating costs are far less sensitive to fuel price increases than gas or coal plants Š OECD/IEA - 2006

Outlook for Biofuels  Interest in biofuels is soaring  Biofuels can help address twin threats of growing energy insecurity & climate change through  Increased diversity of geographic & fuel sources  Lower greenhouse-gas emissions - depending on how they are produced

 Higher oil prices have made biofuels more competitive, but further cost reductions are needed  Availability of arable land will constrain biofuels potential in the medium term  Long-term prospects hinge on new technology

© OECD/IEA - 2006

Share of Biofuels in Road-Transport Fuel Demand 32% 28% 24% 20% 16% 12% 8% 4% 0% World 2004

United States European Union

2030 Reference Scenario

Brazil

2030 Alternative Policy Scenario

Biofuels are set to play a much larger role in meeting world roadtransport fuel demand Š OECD/IEA - 2006

Making the Alternative Policy Scenario a Reality  Formidable hurdles exist to the adoption & implementation of the Alternative Policy Scenario  It will require considerable political will to push through those policies  Private-sector support & international cooperation will be essential  Action is needed urgently  Investment over the next decade will lock in technology that will remain in use for up to 60 years  Delaying implementation by a decade would reduce cut in cumulative emissions to 2030 from 8% to 2%  R&D in carbon capture & storage is particularly crucial to scope for cutting emissions beyond 2030 © OECD/IEA - 2006

Summing Up  The need to diversify energy sources & mitigate emissions is more urgent than ever  Strong new policies could sharply reduce the rate of increase in demand & emissions  Economic cost of these policies would be more than outweighed by the economic benefits alone  WEO-2006 sets out the essential 1st steps towards a clean, clever & competitive energy future  In the longer term, technology development will be critical to a sustainable global energy system

© OECD/IEA - 2006

INTERNATIONAL ENERGY AGENCY

Thank you www.worldenergyoutlook.org © OECD/IEA - 2006