© OECD/IEA 2011

Shale Revolution and Energy Security : Role of LNG

February 2013, Bangkok

Nobuo TANAKA Former Executive Director of the IEA Global Associate of Energy Security and Sustainability, IEEJ

Emerging economies steer energy markets

Share of global energy demand

Global energy demand rises by over one-third in the period to 2035, underpinned by rising living standards in China, India & the Middle East

20%

40%

60%

80%

100%

1975 2010 2035

Middle East

India

China

OECD

Non-OECD Rest of non-OECD 6 030 Mtoe 12 380 Mtoe 16 730 Mtoe

IEA WEO2012

2

Primary Energy Demand by Fuel

IEA WEO2012

3

A United States oil & gas transformation

US oil and gas production

The surge in unconventional oil & gas production has implications well beyond the United States

Unconventional gas

Conventional gas

Unconventional oil

Conventional oil

mboe/d

5

10

15

20

25

1980 1990 2000 2010 2020 2030 2035

IEA WEO2012

4

Iraq oil poised for a major expansion

Iraq oil production

Iraq accounts for 45% of the growth in global production to 2035; by the 2030s it becomes the second-largest global oil exporter, overtaking Russia

1

2

3

4

5

6

7

8

9

2012 2020 2035

mb/d North

Centre

South

Iraq oil exports

1

2

3

4

5

6

7

8

9

2012 2020 2035

mb/d Other

Asia

IEA WEO2012

5

Middle East oil to Asia: a new Energy Silk Road

Middle East oil export by destination

By 2035, almost 90% of Middle Eastern oil exports go to Asia; North America’s emergence as a net exporter accelerates the eastward shift in trade

7

United States Japan & Korea Europe China India

mb/d 2000

2011

2035

1

2

3

4

5

6

IEA WEO2012

6

While dependence on imported oil & gas rises in many countries, the United States swims against the tide

,

Net oil & gas import dependency in selected countries

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80% 100%

Gas

Oil

United States

China

India

European Union

Japan & Korea

ASEAN

2010

2035

IEA WEO 2012

Gas im

po

rts G

as expo

rts

Oil Imports

Different trends in oil & gas import dependency

7

IEA WEO2012

8

Overseas Investments by Chinese National Oil Companies: Assessing the Drivers and Impacts

9

Golden Age for Natural Gas?

IEA WEO2012

10

Natural gas: towards a globalised market

Major global gas trade flows, 2010

Rising supplies of unconventional gas & LNG help to diversify trade flows, putting pressure on conventional gas suppliers & oil-linked pricing mechanisms

Major global gas trade flows, 2035

IEA WEO2012

11

Chap

ter8

-Russian

reso

urces

and

supply

poten

tial3

13

8

Figure 8.15 Major gas fields and supply infrastructure in Russia

Harbin

Northern Ligh ts

Nord Stream

Export to

Europe

Moscow

Yamburg

Medvezhye

Daqing

Shtokman

Urengoy

MongoliaSyria NorthKorea

China

Irkutsk

Japan

Slov. Rep.

Cz.Rep.

Poland

Germany

SwedenDen.

R U S S I A SakhalinIsland

Komsomolsk

Khabarovsk

Bovanenkovo

SouthTambei

Neth.

Chayandin

Zapolyarnoe

S.Russkoe

Krasnoyarsk

Yakutsk

Export toFinland

St. Petersburg

Estonia

Norway

Finland

Latvia

SouthStream

China

Novosibirsk Kemerovo

Tomsk

Surgut

Kazakhstan

U b ki

Tyumen

Orenburg

Astrakhan

Khvalynskoe

TsentralnoeTurkey

Georgia

Azer.Arm.

Volgograd

Ukhta

Vladivostok

Murmansk

YamalPeninsula

Kovykta

Export to

Europe

RomaniaMol.

Hungary Sakhalin

Other offshore Arctic

Other ArcticoffshoreBarents Sea

Eastern Siberia

Western Siberia

Volga/Urals

TimanPechora

Caspian

Ukraine

Lithuania

Belarus

Selected gas field

Existing gas pipeline

Pipeline planned/under const.

Existing LNG export terminal

Planned LNG export terminal

This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map.

Seaof

Okhotsk

LaptevSea

East SiberianSea

Chukchi

Sea

Bering

Sea

Caspian

Sea

BlackSea

BalticSea

KaraSeaBarentsSea

© OECD/IEA, 2011Russia goes to East :Russian Natural Gas Pipelines

IEA WEO 2011

12

International Gas Prices How can Asia reduce Asian Premium?

TRADE

MEDIUM-TERM GAS MARKET REPORT 2012 137

Natural gas prices in OECD Asia Oceania, represented by Japanese LNG import prices, moved away from OECD European and HH prices, closely mimicking oil-indexed prices based on the Japanese Custom Cleared crude oil price (JCC, or Japanese Crude Cocktail). The gap between Japanese LNG prices and HH prices actually widened from around USD 7/MBtu in January 2011 to over USD 13/MBtu in December, as the Japanese LNG price increased by 44%. In Europe, gas prices continue to be influenced by oil price movements, although oil and gas prices are no longer as correlated as before 2009. The average German border price (at USD 10.6/MBtu) was 32% higher in 2011 than in 2010, while the Brent price increased by 40% over the same period. The relative decoupling of the German price from oil prices reflects an increase in both volumes sold at German hubs from Norway and spot indexation in some long-term supply contracts. These contracts continue to set the upper price limit of available supply, while European spot prices traded on average 15% below these levels in 2011. The average NBP price has nevertheless increased by 37%, reaching USD 9.0/MBtu in 2011. In December 2011, the price differential with oil-indexed prices increased to 25% as spot markets suffered an end-of-year drop due to extremely mild weather. February 2012 saw a jump of the European hub price level due to a sudden increase in demand as a result of extremely cold weather and reduced Russian supplies. However, Day-Ahead prices returned to normalcy within two weeks after Russian supplies dropped below nominated levels (see Box 1).

Figure 54 International gas prices, Asian coal and Brent, 2008-12

Source: ICE, Japanese Customs, and the German customs.

The United States gas prices continue to be decoupled from the international gas market, with HH prices dropping by around 30% over 2011 due to the pressure of increasing US (shale gas) production coupled with extremely mild weather during winter 2011/12, which sent prices well below USD 2/MBtu in the first quarter of 2012. Globally, this results in a three-tier gas market with considerable scope for arbitration. However, infrastructure connecting the three areas continues to

0

5

10

15

20

25

USD

/MB

tu

Henry Hub NBP German border price Japan LNG Brent Asian coal marker

© O

EC

D/I

EA

, 2

01

2

IEA Mid Term Gas Market Review 2012 13

IEA WEO2012

14

The “Golden Rules” are principles that can allow governments, industry & other

stakeholders to address these environmental & social impacts:

1. Measure, disclose & engage

2. Watch where you drill

3. Isolate well & prevent leaks

4. Treat water responsibly

5. Eliminate venting, minimise flaring & other emissions

6. Be ready to think big

7. Ensure a consistently high level of environmental performance

They are “Golden

Rules” because their

application can ensure

operators have a

“social license to

operate”, paving the

way for a golden age

of gas

Golden Rules for a Golden Age of Gas

15

Conversion or Diversion? Trends of International Gas Prices

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1990 2000 2010 2020 2030 2035

Fuel

pri

ce d

ivid

ed b

y o

il p

rice

Natural gas:

Coal:

Japan

Europe

United States

OECD

Natural gas prices are assumed to remain low relative to oil prices, while coal prices rise much less than those of both oil & gas

IEA WEO 2012

16

Technology helps! Hydrogen Economy with MCH • Large volume Hydrogen transportation & storage technology will be essential to build ‘Hydrogen Community’.

• ‘Hydrogen Community’ realizes Low Emission Carbon Recycling Society, with empowered resistance against disasters.

• New path toward the Hydrogen Society will enhance innovation and create New Industries.

MCH Solar

Wind

・Pure H2/ Mixed Fuel ・Fuel Cell

City Gas

MCH

Steel

Petroleum

Tanker / Ferry

Hydrogen / H2-CNG Fueling Station

・FCV ・H2-CNG Engine

Residential Sector

Logistics Sector

Office & Commercial Sector

Hydrogen Supply (Dehydrogenation)

House / Condominium

・Feedstock

・H2 Reduction

・Desulfurization ・Cracking

・H2 Mixture

・Elec. Stabilizer ・Stand-by for Emergency

Distributed Power Gen. Distributed

Power Gen.

・CO2 Recycle ( CO2 + H2→CO+H2O)

Clean Hydrogen (Hydrocarbon Sources)

DHC

・Boiler / Chiller (Pure H2/mixed)

・Cogeneration ・Backup Power ・Energy Storage

・Fuel Cells ・H2 mixed fuel Engine

・Fuel Cell Ship ・Hydrogen mixed fuel Engine

MCH

Car

Bus

Truck

・FCV ・H2-CNG Engine

・FCV ・CNG mixed engine

Office & Commercial Building

MCH

Hydrogen

MCH

Heat

Electricity

・Heat Recycle

・Heat Recycle

MCH

Strategic Energy Reserve (Large volume)

MCH

MCH

MCH

(Note) MCH : Methylcyclohexane FC : Fuel Cell FCV : Fuel Cell Vehicle GHP : Gas Heat Pump DHC : District Heating and Cooling

Train

・Fuel Cell Train ・H2 mixed fuel Engine

Renewable Energy (Local)

MCH

Green Hydrogen (Renewable Sources)

Renewable Energy (Global)

・FC forklift ・H2mixed Fuel GHP

Logistics ・FC /Engines Port Facility

Chemical Power Gen.

Industrial Sector

Power Storage

MCH

MCH

MCH

MCH

MCH

Energy Sector

・Petro/Chem. By-product ・SRM with EOR/CCS ・Gasification

17

3 000 4 000 5 000 6 000

TWh

2 000

A power shift to emerging economies

The need for electricity in emerging economies drives a 70% increase in worldwide demand, with renewables accounting for half of new global capacity

Change in power generation, 2010-2035

-1 000 0 1 000

Japan

European Union

United States

China

TWh

Coal Gas Nuclear Renewables

India

IEA WEO2012

18

The multiple benefits of renewables come at a cost

Renewable subsidies were $88 billion in 2011; over half the $4.8 trillion required to 2035 has been committed to existing projects or is needed to meet 2020 targets

Global renewable energy subsidies

$50

$100

$150

$200

$250

2011 2015 2020 2025 2030 2035

Billion

2012-2035

$960 billion

$2 600 billion

$1 200 billion

Existing capacity

Electricity:

2011-2035

Biofuels:

IEA WEO2012

19

About 1/5 of German pretax price for electricity was due to

renewables. 12% in Italy, 11% in UK and 4% in France.

IEA WEO2012

20

IEA WEO2012

A decline in nuclear is compensated by a 3-fold increase in electricity from renewables, a continued high reliance on LNG imports & improvements in efficiency

Japan’s Power Sector: Renewables, gas and energy efficiency leading the charge

21

Wide variations in the price of power

Electricity prices are set to increase with the highest prices persisting in the European Union & Japan, well above those in China & the United States

Average household electricity prices, 2035

5

10

15

20

25

China United States European Union Japan

cents/kWh

2011 Non-OECD average

2011 OECD average

IEA WEO2012

22

Snapshot of present penetration potentials

Not only Feed-in-tariffs but Grid integration !

“Harnessing Variable Renewables” by IEA

23

Power Grid Connection in Europe

Physical energy flows between European countries, 2008 (GWh)

Source: ENTSO-E

24

Power grid in Japan

Source: Agency for Natural Resources and Energy, The Federation of Electric Power Companies of Japan, Electric Power System Council of Japan, The International Energy Agency

Tokyo

Hokkaido

Tohoku

Hokuriku Kansai Chugoku

Kyushu 29GW

Shikoku 12GW

Chubu 40GW

Okinawa 2GW

Hydro Oil

Gas

Nuclear

Coal

Other

Power utility company

Generating company

In-house generation

--- 50 hz

60 hz <-------

25

Nuclear Power in World Energy Outlook 2012

IEA WEO2012

In aggregate, world nuclear capacity reaches 580GW in 2035, 50GW lower from

2011 WEO. Production rises from 2756TWh to 4370TWh, almost 60%

increase, though the share in total generation falls from 13% to 12%. 26

Lessons of the Fukushima

• Lessons to be Shared

– Think about the unthinkable; Tsunami and Station Black Out. Large scale Blackout. Change total mind set for “Safety”.

– Prepare for the severe accidents by defense in depth, common cause failure & compound disasters.

– Clarify why it happened only to Fukushima Daiichi and NOT to other sites.

• Safety Principles

– Fukushima accident was caused by human error and should have been avoided. (Parliament Investigation Commission report )

– International Cooperation : A nuclear accident anywhere is an accident everywhere.

– Independent Regulatory authority ; Transparency and Trust, “Back Fitting” of regulation

• Secured supply of Electricity

– Power station location

– Strengthened interconnection of grid lines

• Once disaster has happened, Recovery from disaster is at least as important as preparing for it.

– FEMA like organization and training of the nuclear emergency staff including the self defense force ; integration of safety and security.

– New Technology. New type of Reactors such as Integral Fast Reactor, Thorium Reactor

27

Integral Fast Reactor and Pyroprocessing

IFR has features as Inexhaustible Energy Supply ,Inherent Passive Safety ,Long-term Waste

Management Solution , Proliferation-Resistance , Economic Fuel Cycle Closure.

Dr. YOON IL CHANG

Argonne National Laboratory

28

What is Energy Security in the 21st Century?

29

Diversity means Energy Security . ”Safety and certainty in oil lie in variety and variety alone.” ( Churchill )

Nuclear is an important option for countries with limited indigenous energy resources .

Self sufficiency

=inland production / tpes

(2010 estimates)

26%

51%

96%

10%

8%

30%

14%

11%

0%

0% 20% 40% 60% 80% 100% 120% 140%

EU 27

IEA

ASEAN

Energy Self -Sufficiency rates by fuels in 2010

IEA

30

North American Gas Infrastructure

Mid-Term Oil & Gas Market 2010, IEA

31

欧州におけるガスパイプライン整備状況

- 31- （出所）ガス事業のあり方に関する検討会資料（日本ガス協会）

ロシア以外からのパイプライン

ＬＮＧ基地（建設中・計画中）

ＬＮＧ基地（2000年以降運開）

ＬＮＧ基地（1999年までに運開）

ロシアからのパイプライン

1970 現在

• １９４０～６０年代の国産天然ガス開発を契機に、欧州各国は国内パイプライン網を整備。

• 域内のガス需要増に伴い、１９７０年代からロシアからのガス受入れのため国際パイプラインを整備。

• ２００６年のロシア－ウクライナ問題を受け、供給源の多様化によるエネルギーセキュリティを高めるため、ロシアに依存しない国際パイプラインとＬＮＧ基地を建設中。

Gas Infra in Europe: New Pipelines and LNG ports.

32

Connecting MENA and Europe: " Desertec" as visionary “Energy for Peace"

Source: DESRETEC Foundation 33

ASEAN is working on Power Grid Interconnections.

34

ASEAN is working on Gas Pipeline System.

Chap

ter 15 - O

verview o

f energ

y trends in

South

east Asia

57

5

15

Figure 15.16 The Trans-ASEAN Gas Pipeline (TAGP)

0 500

Km

Bontang

Tangguh

West Java

LumutLubuan

Bintulu MLNG

Arun

East JavaMasela

Jurong Isl.

Mariveles

LNG(Baatan)

EAST TIMOR

Kalimantan Senipah

Surabaya

Plaju

Sungiasalak

Dumai

Medan

Krabi

Khanom

Pasuruan

Natuna

Palawan

Ho Chi Minh

Mindanao

Luzon

Dili

Sumatra

Java

BaliLombok

Sumbawa Flores

Sulawesi Seram

Papua

Map Ta Phut

M A L A Y S I A

SINGAPORE

CAMBODIA

LAOS

MYANMAR

Phnom Penh

Vientiane

Yangon

Bandar SeriBegawan

Manila

Kuala Lumpur

I N D O N E S I A

Jakarta

Hanoi

CHINAINDIA

BangkokVIETNAM

PHILIPPINES

T H A I L A N D

BRUNEI

Existing gas pipeline

Planned LNG regasification terminal

Planned LNG liquifaction plant

Planned or under construction gas pipeline

Gas production area

LNG liquifaction plant

The boundaries and names shown and the designations used on maps included in this publication do not imply official endorsement or acceptance by the IEA.

Source: ASCOPE Secretariat

© OECD/IEA, 2009

35

New concepts for North East Asia Gas & Pipeline Infrastructure

36

Presentation by Mr. Masayoshi SON

Energy for Peace in Asia. A New Asian Vision?

37

One cannot enhance energy security by risking someone

else‘s.

’

38

ANNEX

39

Middle-class membership is

defined as per capita

household expenditures of

$10-50 per day at PPP.

Goldman Sachs used a

comparable GDP per capita

of $6,000-30,000 per year,

Global Middle-class expands from 1 to 3 billion by 2030 （Global Trends 2030 by National Intelligence Council )

Addition of 2 billion people triggers the price revolution in commodities, labor, etc.

40

The Efficient World Scenario: a blueprint for an efficient world

Economically viable efficiency measures can halve energy demand growth to 2035; oil demand savings equal the current production of Russia & Norway

Total primary energy demand by scenario

12 000

13 000

14 000

15 000

16 000

17 000

18 000

2010 2015 2020 2025 2030 2035

Mtoe

New Policies Scenario

Efficient World Scenario

Reduction in 2035

Coal 1350 Mtce

Oil 12.7 mb/d

Gas 680 bcm

Others 250 Mtoe

41

WEO 2007

Game changers : China then India. 6 billion people join 1 billion.

42

Economic Death Spiral may hit Japan

• Blockage of the Strait of Hormuz – Oil Price may double to $160 / barrel

– Japan’s current account surplus ( 9 trillion yen in 2011 ) may turn to deficit of 6 trillion yen.

– Without further restarting of nuclear power plants, deficits may reach 12 trillion yen.

• Confidence on Japan’s public finance may be lost. – Current Account surplus is the basis for confidence

– Persisting Deficit may lead to capital flight from Japan

– Power crisis enhances flight of manufacturing industries

• Loss of Confidence in JGB and Yen. Capital move into commodities means higher prices of oil.

• Total Economic Melt Down may happen.

43

Fossil Fuel Consumption Subsidies

IEA WEO2012

In 2011, fossil-fuel consumption

subsidies worldwide are estimated to

have totalled $523 billion, $111

billion higher than in 2010, at a

weighted-average rate of 24%

44

Dr. YOON IL CHANG

Argonne National Laboratory 45