© OECD/IEA 2011

Oil in the global energy mix:Oil in the global energy mix:Climate policies can drive an early peak in oil demand Climate policies can drive an early peak in oil demand

Nobuo TanakaNobuo TanakaExecutive DirectorExecutive DirectorInternational Energy AgencyInternational Energy Agency

Bridge Forum Dialogue, LuxembourgBridge Forum Dialogue, Luxembourg13 April 2011 13 April 2011

© OECD/IEA 2011

Oil prices break out to the upside after over a Oil prices break out to the upside after over a year within a $65-$85/bbl rangeyear within a $65-$85/bbl range

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

83

84

85

86

87

88

89

90

1Q07 1Q08 1Q09 1Q10 1Q11

mb/dmb/dPrice Surge Kick-Started by Tighter

2H10 Fundamentals

Implied Stock Ch.&Misc to Bal (RHS)Oil DemandOil Supply

60

70

80

90

100

110

120

130

Dec 09 Apr 10 Aug 10 Dec 10 Apr 11

$/bbl Benchmark Crude Prices

WTI Cushing Dated Brent Dubai

Source: Platts

© OECD/IEA 2011

Further oil Further oil market market tightening tightening

0

1

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3

4

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6

7

8

9

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

mb/d OPEC Spare Crude Oil Production Capacity

Saudi Arabia other OPEC Effective Spare Capacity (w/S.A.) Ven/Nig Iraq Libya

OPEC effective spare capacity in decline since October 2010

© OECD/IEA 2011

World oil intensity is declining… World oil intensity is declining…

Global oil intensity – oil consumption per unit of GDP – has declined at 1.7% p.a. since 1971 thanks

to efficiency improvements & changes to the structure of economic output

0

50

100

150

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350

1970 1975 1980 1985 1990 1995 2000 2005 2010

India

China

World

United StatesJapan

EU27

© OECD/IEA 2011

But oil prices still affect the global economy …But oil prices still affect the global economy …

Oil price spikes have preceded each global recession since the early 1970’s

0

30

60

90

120

-2%

0%

2%

4%

6%

8%

1970 1980 1990 2000 2010

Annual GDP growth

Recession

Avg. IEA oil import price in real $2009(right axis)

© OECD/IEA 2011

Annual expenditure on net imports of oilAnnual expenditure on net imports of oil

If oil prices average US$100 a barrel in 2011, spending on oil imports in many countries will reach or surpass the record levels of 2008* Projections made prior to events of 11 March

0

100

200

300

400

500

US EU J apan China India

Bill

ion

dol

lars

(200

9)

1971-2008 average

2008

2011

1.4%

2.8%2.6%

1.0%

2.2%2.2%

1.8%

3.0%2.8%

0.9%

3.0%

3.2%

2.8%

6.6%5.4%

© OECD/IEA 2011

-

12

24

36

48

60

1 2 3 4 5 6

draw rate (mb/d)

dura

tion

(mon

ths)

Public Stocks: A Clear Safety NetPublic Stocks: A Clear Safety Net

2 Sep. 2005 decision, 2 mb/d

Theoretical decision, 4 mb/d

1.56 billion barrels of Public stocks

IEA Public Stocks alone could replace an oil supply disruption of 4 mb/d for 1 year

7

IEA public stocks (as of end-Dec. 2010)

= 1.6 billion barrels of oil = 72 days of Total IEA net imports

© OECD/IEA 2011

Need for cooperation Need for cooperation during oil supply disruptionsduring oil supply disruptions

IEA stockholding cover of global oil demand

Growing share of non-OECD oil demand results in declining global demand cover from IEA oil stocks

-

5

10

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20

25

30

35

40

0%

10%

20%

30%

40%

50%

60%

days

of

wor

ld o

il de

man

d co

ver

% sh

are

of w

orld

oil

dem

and

IEA 90 days of stockholding, share of world demand with Chinawith Indiawith ASEANShare of non-OECD in global oil demand

© OECD/IEA 2011

The context: A time of unprecedented The context: A time of unprecedented uncertaintyuncertainty

The worst of the global economic crisis appears to be over – but is the recovery sustainable?

Oil demand & supply are becoming less sensitive to price – what does this mean for future price movements ?

Natural gas markets are in the midst of a revolution – will it herald a golden era for gas?

Copenhagen Accord & G-20 subsidy reforms are key advances – but do they go far enough & will they be fully implemented ?

Emerging economies will shape the global energy future – where will their policy decisions lead us ?

Tightening oil market plus political unrest in producing regions – how vulnerable is the market to even small disruptions?

© OECD/IEA 2011

Overview of WEO-2010 scenariosOverview of WEO-2010 scenarios

New Policies Scenario is the central scenario in WEO-2010> assumes cautious implementation of recently announced commitments &

plans, even if yet to be formally adopted > provides benchmark to assess achievements & limitations of recent

developments in climate & energy policy

Current Policies Scenario takes into consideration only those policies that had been formally adopted by mid-2010> equivalent to the Reference Scenario of past Outlooks

The 450 Scenario sets out an energy pathway consistent with the goal of limiting increase in average temperature to 2OC

© OECD/IEA 2011

International oil price assumptions International oil price assumptions

The age of cheap oil is over, though policy action could bring lower international prices than would otherwise be the case

Scenario

CO2 price in 2035 ($/ tCO2)

International oil price

in 2035($/bbl)

Effective oil price

in 2035($/bbl)

Current Policies

42 in EU 135 152 in EU

New Policies 50 in OECD 113 134 in OECD450 Scenario 120 in OECD 90 139 in OECD

0

20

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140

1980 1990 2000 2010 2020 20302035

Dolla

rs p

er

barr

el (2

009)

Current Policies Scenario

New Policies Scenario

450 Scenario

© OECD/IEA 2011

Primary energy demand by fuel in the New Primary energy demand by fuel in the New Policies ScenarioPolicies Scenario

Non-OECD energy demand increases by 64% in 2008-2035, compared with a rise of just 3% in the OECD. Demand for all types of energy increases in non-OECD countries, while demand for coal & oil

declines in the OECD.

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

2008 2015 2020 2025 2030 2035

Mto

e

International Bunkers

Non-OECD Renewables

Non-OECD Nuclear

Non-OECD Gas

Non-OECD Oil

Non-OECD Coal

OECD Renewables

OECD Nuclear

OECD Gas

OECD Oil

OECD Coal

© OECD/IEA 2011

Emerging economies dominate the growth in Emerging economies dominate the growth in demand for all fuels demand for all fuels

Demand for all types of energy increases in non-OECD countries, while demand for coal & oil declines in the OECD

Incremental primary energy demand in the New Policies Scenario, 2008-2035

- 600 - 300 0 300 600 900 1 200 1 500

Other renewables

Hydro

Nuclear

Gas

Oil

Coal

Mtoe

OECD

China

Rest of world

© OECD/IEA 2011

Fossil-fuel subsidies are distorting price Fossil-fuel subsidies are distorting price signals signals

Fossil-fuel consumption subsidies amounted to $312 billion in 2009, down from $558 billion in 2008, with the bulk of the fall due to lower international prices

Economic value of fossil-fuel consumption subsidies by country, 2009

Turk

men

ista

n

Electricity(generated from fossil fuels)GasOilCoal

Additional subsidy in 2008

Iran

Saud

i A

rabia

Russ

iaIn

dia

Chin

aEg

ypt

Ven

ezu

ela

Ind

onesi

aU

AE

Uzb

ekis

tan

Iraq

Kuw

ait

Pakis

tan

Arg

enti

na

Ukra

ine

Alg

eri

aM

ala

ysi

aThaila

nd

Ban

gla

desh

Mexic

o

South

Afr

ica

Qata

rK

aza

khst

an

Libya

0

Bill

ion

dolla

rs

20

40

60

80

100

© OECD/IEA 2011

Booming demand for mobility in the Booming demand for mobility in the emerging economies drives up oil use emerging economies drives up oil use

The global car fleet will continue to surge as more & more people in China & other emerging economies buy a car, overshadowing modest growth in the OECD

0

200

400

600

800

1 000

1 200

1 400

1 600

1980 1990 2000 2008 2020 2035

Mill

ion China

Other non-OECD

United States

Other OECD

Passenger vehicles in the New Policies Scenario

© OECD/IEA 2011

0

20

40

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100

1990199520002005201020152020202520302035

mb/d

Crude oil:fields yet to be developed

Crude oil: currently producing fields

Total crude oil

Oil production becomes less crudeOil production becomes less crude

Global oil production reaches 96 mb/d in 2035 on the back of rising output of natural gas liquids & unconventional oil, as crude oil production plateaus

World oil production by type in the New Policies Scenario

Unconventional oil

Natural gas liquids

Crude oil:fields yet to be found

© OECD/IEA 2011

More oil from fewer producers More oil from fewer producers

Production rises most in Saudi Arabia & Iraq, helping to push OPEC’s market share from 41% today to 52% by 2035, a level last seen prior to the first oil shock of 1973-1974

Incremental oil production by key country in the New Policies Scenario, 2009-2035

0 1 2 3 4 5 6

AlgeriaLibya

NigeriaQatar

IranKuwait

UAEVenezuela

CanadaKazakhstan

BrazilIraq

Saudi Arabia

mb/d

OPEC

Non-OPEC

© OECD/IEA 2011

A golden age for gas?A golden age for gas?

Gas is set to play a key role in meeting the world’s energy needs> demand rises by 44%, led by China & Middle East

Unconventional gas accounts for 35% of the increase in global supply to 2035, with new non-US producers emerging

Gas glut will peak soon, but may dissipate only very slowly

The glut will keep pressure on gas exporters to move away from oil-price indexation, notably in Europe

Lower prices could lead to stronger demand for gas, backing out renewables & coal in power generation

© OECD/IEA 2011

Coal remains the backbone of global Coal remains the backbone of global electricity generationelectricity generation

A drop in coal-fired generation in the OECD is offset by big increases elsewhere, especially China, where 600 GW of new capacity exceeds the current coal-fired capacity of the US, EU & Japan

0

2 000

4 000

6 000

8 000

10 000

12 000

1990 2000 2010 2020 2030 2035

TW

h China

India

Other non-OECD

OECD

Coal-fired electricity generation by region in the New Policies Scenario

© OECD/IEA 2011

Renewables enter the mainstream…. Renewables enter the mainstream….

The use of renewable energy triples between 2008 & 2035, driven by the power sector where their share in electricity supply rises from 19% in 2008 to 32% in 2035

Renewable primary energy demand in the New Policies Scenario

0 100 200 300 400 500

European Union

United States

China

Brazil

India

Africa

OECD Pacific

Mtoe

2008

2035

© OECD/IEA 2011

…….but only if there is enough government .but only if there is enough government supportsupport

Government support remains the key driver – rising from $57 billion in 2009 to $205 billion in 2035 – but higher fossil-fuel prices & declining investment costs also spur growth

Annual global support for renewables in the New Policies Scenario

Bill

ion

dolla

rs (

2009)

Biofuels

Renewables-basedelectricity

0

30

60

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210

200720082009 20152020202520302035

© OECD/IEA 2011

Ambitious nuclear growth plans are now in Ambitious nuclear growth plans are now in doubtdoubt

Most of the planned-for growth is in non-OECD countries

Figure 17: Nuclear capacity under construction and number of reactors

Source: IAEA PRIS Database

1 1 2

27

1 16

12

1

5

11

22 2 1

0

5

10

15

20

25

30

GW

e

© OECD/IEA 2011

China becomes the market leader inChina becomes the market leader inlow-carbon technologies low-carbon technologies

Passenger car sales

Capacity additions

China’s share of cumulative global additions to 2035 for selected technologies

Given the sheer scale of China’s market, its push to expand the role of low-carbon energy technologies is poised to play a key role in

driving down costs, to the benefit of all countries

85 GW

335 GW105 GW

0%

10%

20%

30%

Solar PV Wind Nuclear Electric &plug-in hybrids

8.5 million vehicles

© OECD/IEA 2011

The 450 Scenario:The 450 Scenario: A A roadmap from 3.5 roadmap from 3.5C to 2C to 2C C

The 450 Scenario sets out an energy pathway consistent with limiting the increase in temperature to 2C

Assumes vigorous implementation of Copenhagen Accord pledges to 2020 & much stronger action thereafter

The failure of the Copenhagen Accord pledges: > As many lack transparency, there is 3.9 Gt of uncertainty over the

level of abatement pledged to 2020 > As many lack ambition, the cost of achieving the 2 C goal has

increased by $1 trillion in 2010-2030 compared with WEO-2009

© OECD/IEA 2011

Low ambition to 2020 makes faster and Low ambition to 2020 makes faster and deeper cuts necessary afterwardsdeeper cuts necessary afterwards

Overall, this year’s 450 Scenario will cost $1 trillion more than last year’s by 2030,and requires a total of $18 trillion in investment by 2035

Emissions (right axis)

Investment

WEO-2010:

Emissions(right axis)

Investment

WEO-2009:

0

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2021-2025

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(200

9)

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2010 2015 2020 2025 2030 2035

Gt

CO

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2016-2020

© OECD/IEA 2011

In the 450 Scenario, compared with the Current Policies Scenario, China & the US account for 48% of the cumulative emission abatement that is needed in 2010-2035

World energy-related CO2 emission savings by country in the 450 Scenario

relative to the Current Policies Scenario

20

25

30

35

40

45

2008 2015 2020 2025 2030 2035

Gt

China 33%

United States 15%

European Union 9%

India 8%

Middle East 5%

Russia 3%

Rest of world 24%

Share of cumulative abatement

between 2010-2035

Japan 3%

42.6 Gt

21.7 Gt

Current Policies Scenario

450 Scenario

20.9 Gt

The 450 Scenario: The 450 Scenario: Abatement by country Abatement by country

© OECD/IEA 2011

The 450 Scenario: The 450 Scenario: Abatement by technology Abatement by technology

In moving from the New Policies Scenario to the 450 Scenario, more expensive abatement options such as CCS play a growing role

World energy-related CO2 emission savings by technology in the 450 Scenario relative to the New

Policies Scenario

20

25

30

35

40

45

2008 2015 2020 2025 2030 2035

Gt

Efficiency 50%

Renewables 18%

Biofuels 4%

Nuclear 9%

CCS 20%

Share of cumulative abatement

between 2010-2035

42.6 Gt

35.4 Gt

21.7 Gt

Current Policies Scenario

450 Scenario

New Policies Scenario

13.7 Gt

7.1 Gt

© OECD/IEA 2011

Achieving the 2°C goal will require rapid Achieving the 2°C goal will require rapid decarbonisation of global energydecarbonisation of global energy

Carbon intensity would have to fall at twice the rate of 1990-2008 in the period 2008-2020 & almost four times faster in 2020-2035

Average annual change in CO2 intensity in the 450 scenario

0%

1%

2%

3%

4%

5%

6%

1990-2008 2008-2020 2020-2035

A four-fold increase needed

© OECD/IEA 2011

A fundamental change is needed in power A fundamental change is needed in power generation generation

Low-carbon technologies account for over three-quarters of global power generation by 2035 in the 450 Scenario, a four-fold increase on today

Share of world electricity generation by type and scenario

Additional low-carbon generationin 450 Scenario

Low-carbon generation in the NPS

Fossil-fuel fired generation

0%

20%

40%

60%

80%

100%

2010 2015 2020 2025 2030 2035

in the 450 Scenario

© OECD/IEA 2011

Decarbonisation of power generation in OECD Decarbonisation of power generation in OECD Europe Europe

0

1000

2000

3000

4000

5000

6000

2007 Baseline 2050 BLUE Map 2050

BLUE High Nuclear 2050

BLUE High Ren 2050

TWh

Imports

Other

Solar

Wind

Biomass+CCS

Biomass and waste

Hydro

Nuclear

Natural gas+CCS

Natural gas

Oil

Coal+CCS

Coal

A mix of nuclear, renewables and fossil-fuels with CCS will be needed to decarbonise the electricity sector.

© OECD/IEA 2011

Fundamental change also in transport Fundamental change also in transport

Plug-in hybrids & electric vehicles reach 39% of light-duty vehicle sales by 2035, making a big contribution to CO2 abatement, thanks to a major decarbonisation of the power sector

Sales of plug-in hybrid and electric vehicles in the 450 Scenario

CO2 intensity in power generation (right axis)

Electric vehicles

Plug-in hybrids

& CO2 intensity of the power sector

0

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Gra

mm

es

per

kW

h

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2010 2015 2020 2025 2030 2035

Mill

ion

© OECD/IEA 2011

Clean energy progress mixedClean energy progress mixed

We are not on a pathway to limit global temperatures

© OECD/IEA 2011

Clean energy progress is mixedClean energy progress is mixed

0 10 20 30 40 50

Solar CSP

Solar PV

Geothermal

Wind-offshore

Wind-onshore

Biomass plants

Hydro

Nuclear

Gas-fired with CCS

Coal-fired with CCS

GW/ yr

Present rate Gap to reach BLUE Map

30 plants (1 000 MW)

200 plants (50 MW)

12 000 turbines (4 MW)3 600 turbines (4 MW)

45 units (100 MW)

55 CSP plants (250 MW)

325 million m2 solar panels

2/3 of Three Gorges Dam

35 plants (500 MW)

20 plants (500 MW)Historical high

Average annual electricity capacity additions to 2050

© OECD/IEA 2011

Will peak oil be a guest or the spectre at the Will peak oil be a guest or the spectre at the feast?feast?

Oil demand peaks at 88 mb/d before 2020 & falls to 81 mb/d in 2035, with a plunge in OECD demand more than offsetting continuing growth in non-OECD demand

Oil demand

World demand in450 Scenario

Inter-regional(bunkers)

Other non-OECD

India

China

OECD

Right axis:

2009 2015 2020 2025 2030 2035

mb/d

68

72

76

80

84

88

92

96

100

mb/d

-16

-12

-8

-4

0

4

8

12

16 World demand inNew Policies Scenario

Peak demand

in the 450 Scenario

© OECD/IEA 2011

Combating climate change will bring Combating climate change will bring economic benefits as well as costseconomic benefits as well as costs

In the 450 Scenario, annual spending on oil imports in 2035 by the five largest importers is around $560 billion, or one-third, lower than in the New Policies Scenario

Oil-import bills as share of GDP in selected countries

0%

1%

2%

3%

4%

5%

6%

7%

8%

EuropeanUnion

UnitedStates

Japan China India

1980

2008

2009

2035: New Policies Scenario

2035: 450 Scenario

© OECD/IEA 2011

OPEC oil-export revenues set to rise OPEC oil-export revenues set to rise

In the 450 Scenario, OPEC’s cumulative oil revenues in 2010-2035 amount to $27 trillion, or more than a 3-fold increase compared with the last quarter century

0

5

10

15

20

25

30

35

New PoliciesScenario

450Scenario

1984-2009 2010-2035

Tri

llion

dolla

rs (

2009)

Cumulative OPEC oil-export revenues by scenario

© OECD/IEA 2011

Key Key messagesmessages

The surge in oil prices poses a threat to the fragile economic recovery by impacting balance of payments, inflation & growth

If oil prices average $100 per barrel in 2011, OECD oil-import spending will amount to 2.3% of GDP

Emerging economies with high energy intensity and import dependency are most vulnerable

“Golden Age” of gas with supply abundance and high demand from China and post-Fukushima

Uncertain future Chinese policies will have huge impacts

Policies to respond to challenges posed by climate change & energy security by bringing the oil demand peak forward would have important repercussions on the oil market

With or without oil the age of cheap energy is over – but who will take the rent?

© OECD/IEA 2011

Oil in the global energy mix:Oil in the global energy mix:Climate policies can drive an early peak in oil demand Climate policies can drive an early peak in oil demand

Nobuo TanakaNobuo TanakaExecutive DirectorExecutive DirectorInternational Energy AgencyInternational Energy Agency

Bridge Forum Dialogue, LuxembourgBridge Forum Dialogue, Luxembourg13 April 2011 13 April 2011