© OECD/IEA 2017

Outlook for fossil fuels

Webinar

Tim Gould Tae-Yoon Kim

Christophe McGlade Johannes Trüby

© OECD/IEA 2017

Tipping the energy world off its axis

Four large-scale upheavals in global energy set the scene for the new Outlook:

The United States is turning into the undisputed global leader for oil & gas

Solar PV is on track to be the cheapest source of new electricity in many countries

China’s new drive to “make the skies blue again” is recasting its role in energy

The future is electrifying, spurred by cooling, electric vehicles & digitalisation

These changes brighten the prospects for affordable, sustainable energy &

require a reappraisal of approaches to energy security

There are many possible pathways ahead & many potential pitfalls if

governments or industry misread the signs of change

© OECD/IEA 2017

Electric cars are helping to transform energy use for passenger cars, slowing the pace of growth in

global oil demand: however, trucks, aviation, shipping & petrochemicals keep oil on a rising trend

Electric cars are helping to transform energy use for passenger cars, slowing the pace of growth in

global oil demand: however, trucks, aviation, shipping & petrochemicals keep oil on a rising trend

however, trucks, aviation, shipping & petrochemicals keep oil on a rising trend

EVs are on the way, but oil demand still keeps rising

Electric car fleet

100

200

300

2016 2025 2040

Mill

ion

car

s

Other countries

United States

India

European Union

China

Passenger cars Other sectors

Change in global oil demand

4

8

12

16

Petrochemicals

Aviation and shipping

Trucks

mb

/d

- 4 2016-2040

0

© OECD/IEA 2017

25

30

35

US becomes undisputed leader of oil & gas production

Oil and gas production in the United States

The US is already switching to become a net exporter of gas & becomes a net exporter of oil

in the 2020s, helped also by the demand-side impact of fuel efficiency & fuel switching

5

10

15

20

1980 1990 2000 2010 2020 2030 2040

mboe/d Shale oil

Shale gas

Other unconventionals

Conventional oil & gas

© OECD/IEA 2017

Traditional patterns of oil trade undergoing a major upheaval

Gross crude oil export

North America becomes the second-largest gross crude oil exporter by 2040,

while Asia Pacific’s need for crude oil imports intensifies

mb/d

2

4

6

2016 2040

Middle East

North America

South America

Africa

Russia

20

22

Gross crude oil import

6

12

18

24

30

2016 2040

Asia Pacific

Europe

North America

© OECD/IEA 2017

Cost reductions: structural or cyclical?

Changes in capital costs per barrel for developing conventional oil projects

Costs have fallen by 40% since 2014; unit costs accounted for nearly 60% of the reduction.

Costs rebound in the future as prices rise and companies develop more complex fields

20%

40%

60%

80%

100%

2014 2016

Index (2014 = 100%)

2025

Technology Downsizing and simplification Asset high grading Unit costs

New Policies Scenario

© OECD/IEA 2017

706 bcm in 2016

Global gas trade

Asia’s growing gas import requirements are largely met by LNG,

with exports from the US accelerating a shift towards a more flexible, liquid global market

LNG ushers in a new global gas order

39% shipped by LNG

1 230 bcm in 2040

59% shipped by LNG

© OECD/IEA 2017

706 bcm in 2016

Global gas trade

Asia’s growing gas import requirements are largely met by LNG,

with exports from the US accelerating a shift towards a more flexible, liquid global market

LNG ushers in a new global gas order

Gas exporters

39% shipped by LNG

1 230 bcm in 2040

59% shipped by LNG

Australia Russia & Caspian

Middle East

Other

Africa

US & Canada

Australia Russia & Caspian

Middle East Other

Africa US & Canada

© OECD/IEA 2017

706 bcm in 2016

Global gas trade

Asia’s growing gas import requirements are largely met by LNG,

with exports from the US accelerating a shift towards a more flexible, liquid global market

LNG ushers in a new global gas order

Gas exporters Gas importers

39% shipped by LNG

1 230 bcm in 2040

59% shipped by LNG

Australia Russia & Caspian

Middle East

Other

Africa

US & Canada

Australia Russia & Caspian

Middle East Other

Africa US & Canada

Asia 37%

Europe 52%

Other

Asia 60%

Europe 35%

Other Other Asia

China

Japan & Korea

Japan & Korea

China

Other Asia

Europe

Europe

© OECD/IEA 2017

The opportunities for gas are formidable but…

Buyers are less willing to enter long-term commitments, making financing of

new LNG projects more difficult

There is a need for new business models to underpin investment

Expansion of transmission and distribution infrastructure is essential to

enable growth in gas demand in developing countries

To roll out costly infrastructure policy-makers in developing countries need

to be convinced that gas is a clean, affordable and reliable energy source

New gas importers in Asia are price sensitive with good renewable energy

potentials and cheap coal within easy reach

Rigorous cost control is essential to ensure gas remains competitive

© OECD/IEA 2017

Coal trade: an Asian seesaw

Change in net coal imports in selected regions, 2016-2040

While LNG trade expands & diversifies, the range of international buyers for coal is

narrowing & the falling cost of solar could squeeze coal trade even more

-150

-100

-50

0

50

100

150

200

China European

Union

Korea Japan India Other Asia

Mtc

e

© OECD/IEA 2017

A clear downward path for coal but a complex picture for

gas in the Sustainable Development Scenario

Share of coal & gas in energy demand in selected regions in the Sustainable Development Scenario

The share of coal in total primary energy demand falls across all regions in the Sustainable

Development Scenario, but opportunities for gas vary by country, by sector and over time

10%

20%

30%

40%

50%

60%

70%

0% 10% 20% 30% 40% 50% 60%

Share of gas in primary energy

Share of coal in primary energy

India

Europe North America

Eurasia

Middle East

China 2016

2025

2040

© OECD/IEA 2017

The lifecycle emissions of gas are lower than coal

Greenhouse-gas emission intensity of natural gas compared with coal

The global average emission intensity of gas is low enough for gas to result in fewer GHG

emissions than coal regardless of the timeframe considered

2%

4%

6%

8%

0 20 40 60 80 100 120

CH4 conversion to CO2

Coal better than gas

Gas better than coal for electricity only

Gas better than coal

GWP100 from IPCC (2014)

GWP20 from IPCC (2014)

Met

han

e le

akag

e ra

te

Average global gas emission intensity

© OECD/IEA 2017

iea.org/weo