© OECD/IEA 2014

Dr Fabian Kesicki Directorate of Global Energy Economics, IEA

Düsseldorf, 12 March 2014

© OECD/IEA 2014

Signs of stress in the global energy system

Current calm in markets should not disguise difficult road ahead

Turmoil in the Middle East raises doubts over future oil balance

Resurgent debate over the security of gas supply to Europe

Mixed signals in run-up to crucial climate summit in Paris in 2015

Global CO2 emissions still rising, with most emitters on an upward path

At $550 billion, fossil fuel subsidies over four-times those to renewables

Increasing emphasis on energy efficiency starting to bring results

Will change in global energy be led by policies, or driven by events?

© OECD/IEA 2014

Changing dynamics of global demand

Energy demand by region

As China slows, then India, Southeast Asia, the Middle East and parts of Africa & Latin America take over as the engines of global energy demand growth.

2 000

4 000

6 000

8 000

10 000

1990 2000 2010 2020 2030 2040

Mtoe

OECD

Rest of world

China

China

Rest of world

OECD

© OECD/IEA 2014

2013 2020 2030 2040 2015

Instability in the Middle East a major risk to oil markets

Oil production growth

The short-term picture of a well-supplied market should not obscure future risks as demand rises to 104 mb/d & reliance grows on Iraq & the rest of the Middle East

+5

+10

+15

-5

2013 2020 2030 2040 2015

Net decline in output from other producers

Increase to 2040: 14 mb/d

mb/d

Increase to 2040: 14 mb/d

Middle East

Brazil

Canada United States

& reliance grows on Iraq & the rest of the Middle East

in United States, Canada, Brazil & the Middle East

© OECD/IEA 2014

Looking ahead on the oil price

Against a backdrop of weaker demand, buoyant supply in North America has brought prices down – but can it keep them down?

Lower prices are starting to curtail upstream spending plans, with implications for future supply

Over time, squeezed cash flow would constrain the capacity of North America & Brazil to act as engines of global supply growth

An oil price at current levels could provide some breathing space to major oil importers, boosting demand & GDP

It would also accelerate reliance on low-cost producers in the Middle East, some of which face major investment challenges

© OECD/IEA 2014

The oil price is hitting 2015 upstream spending plans

Global upstream oil and gas investment

Announced spending cuts for 2015 are highest (at 20-40%) in North America & Brazil; for US tight oil, a decision to stop drilling feeds through quickly into production levels

250

500

750

Bill

ion

do

llars

2012 2013 2014 2015 (est.)

17%

© OECD/IEA 2014

Gas on the way to become first fuel, with role of LNG on the rise

Main sources of regional LNG supply

Share of LNG rises in global gas trade, pushed by a near-tripling in liquefaction sites: LNG brings more integrated & secure gas markets, but only limited relief on prices

Middle East

Australia

US & Canada

East Africa

Russia

North Africa West Africa

Other

Middle East

Southeast Asia

West Africa Australia

North Africa Other

100

200

300

400

500

600 bcm

2012 2040

© OECD/IEA 2014

United States holds a strong position on energy costs

Economies face higher costs, but the pace of change varies: regional differences in prices narrow from today’s very high levels but remain large through to 2040

3×

4×

5×

2003 2013 2040

Reduction from 2013

Ratio of industrial energy prices relative to the United States

United States

2×

Japan European Union

China

Electricity Natural gas

2003

Japan European Union

China

© OECD/IEA 2014

Refinery runs in Europe

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1971 1980 1990 2000 2010 2020 2030 2040

Tho

usa

nd

bar

rels

per

day

Historical and projected refinery intake in OECD Europe

Refinery runs are anticipated to decline mainly as a result of lower transport fuel demand, reducing naphtha output by 300 kb/d by 2040 compared to today.

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Energy efficiency and competitiveness

While energy efficiency only partially helps in energy-intensive industries, cross-sectoral efficiency policies stimulate overall economic competitiveness.

Estimated unit production cost of a plastic bottle

3.0 cents

3.4 cents

Exploiting the full efficiency potential

56% 63%

26% 18%

© OECD/IEA 2014

Greenhouse gas emissions development in Europe

0

1000

2000

3000

4000

5000

6000

1990 2000 2010 2020 2030 2040 2050

Mill

ion

to

nn

es C

O2-e

EU’s historical greenhouse gas emissions and stated goals

The European Union has ambitious goals to reduce emissions by 40% in 2030 and 80% in 2050 with respect to 1990.

© OECD/IEA 2014

The entire global CO2 budget to 2100 is used up by 2040 – Paris must send a strong signal for increasing low-carbon investment four times beyond current levels

The 2 °C goal – last chance in Paris?

World energy-related CO2 budget for 2 °C

~2300 Gt

25%

50%

75%

100%

Share of budget used in Central Scenario

1900-2012

2012-2040

Average annual low-carbon investment, 2014-2040

Central Scenario

For 2°C target

2013

CCS

Nuclear

Renewables

Efficiency

The entire global CO2 budget to 2100 is used up by 2040

0.5

1.0

1.5

2.0

Trill

ion

do

llars

(2

01

3)

© OECD/IEA 2014

Navigating a stormy energy future

Geopolitical & market uncertainties are set to propel energy security high up the global energy agenda

Oil use rests on an increasingly narrow base: by 2040, 75% of oil consumption is concentrated in transport & petrochemicals

The European petrochemical industry faces challenging conditions

in the future: less local feedstock, ambitious decarbonisation goals, high energy costs

A move towards higher-value products, greater innovation and

more recycling can complement efficiency measures to enhance

the competitiveness of the European petrochemical industry

© OECD/IEA 2014

www.worldenergyoutlook.org email: weo@iea.org