World Energy Outlook 2010

Dr. Fatih Birol IEA Chief Economist 11 November 2010

 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?

 China & other emerging economies will shape the global energy future – where will their policy decisions lead us?

140 Current Policies Scenario 120 New Policies Scenario 100 450 Scenario 80

Dollars perbarrel(2009) Dollars 60

0 1980 1990 2000 2010 2020 2030 2035

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

World primary energy demand by region in the New Policies Scenario

18 000 Rest of world Mtoe 16 000 China 14 000 OECD 12 000

10 000 8 000

6 000

4 000 2 000

0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Global energy use grows by 36%, with non-OECD countries – led by China, where demand surges by 75% – accounting for almost all of the increase © OECD/IEA 2010 Emerging economies dominate the growth in demand for all fuels

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

OECD Coal China Oil Rest of world

Gas

Nuclear

Hydro

Other renewables

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

Demand for all types of energy increases in non-OECD countries, while demand for coal & oil declines in the OECD © OECD/IEA 2010 Fossil-fuel subsidies are distorting price signals Economic value of fossil-fuel consumption subsidies by country, 2009 70 Electricity (generated from 60 fossil fuels) Gas 50 Billion dollars Billion Oil Coal 40

Iran

Iraq

UAE

India

Libya

Egypt

China

Qatar

Russia

Kuwait

Mexico

Algeria

Ukraine

Pakistan

Malaysia

Thailand

Indonesia

Argentina

Venezuela

Uzbekistan

Bangladesh Kazakhstan

South Africa South

Saudi Arabia Saudi Turkmenistan 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 © OECD/IEA 2010 Booming demand for mobility in the emerging economies drives up oil use

Passenger vehicles in the New Policies Scenario

1 600 China

Million 1 400 Other non-OECD 1 200 United States 1 000 Other OECD

800 600

400

200

0 1980 1990 2000 2008 2020 2035

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 © OECD/IEA 2010 Oil production becomes less crude

World oil production by type in the New Policies Scenario

100

Unconventional oil mb/d 80 Natural gas liquids Crude oil - fields yet 60 to be developed or found Crude oil – currently 40 producing fields Total crude oil 20

0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

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 © OECD/IEA 2010 More oil from fewer producers

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

Saudi Arabia OPEC Iraq Non-OPEC Brazil Kazakhstan Canada Venezuela UAE Kuwait Iran Qatar Nigeria Libya Algeria

0 1 2 3 4 5 6 mb/d

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 © OECD/IEA 2010 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

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

12 000

China TWh 10 000 India Other non-OECD 8 000 OECD 6 000

4 000

2 000

1990 2000 2010 2020 2030 2035

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 capacity of the US, EU & Japan

Renewable primary energy demand in the New Policies Scenario

OECD Pacific 2008 2035 Africa

India

Brazil

China

United States

European Union

0 100 200 300 400 500 Mtoe

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 © OECD/IEA 2010 ….but only if there is enough government support

Annual global support for renewables in the New Policies Scenario

210 Biofuels 180 Renewables-based electricity 150

120

Billion dollars (2009) dollars Billion 90

0 2007 2008 2009 2015 2020 2025 2030 2035

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 © OECD/IEA 2010 China becomes the market leader in low-carbon technologies

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

30% Capacity additions 105 GW Passenger car sales 335 GW 20% 8.5 million 85 GW vehicles

10%

0% Solar PV Wind Nuclear Electric & plug-in hybrids

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 © OECD/IEA 2010 Caspian energy riches could enhance global energy security

Caspian oil & gas outlook in the New Policies Scenario

6 350 bcm mb/d 5 300 250 4 200 3 150 2 100 1 50

0 0 2000 2009 2020 2035 2000 2009 2020 2035 Oil net exports Inland oil consumption Gas net exports Inland gas consumption

Kazakhstan drives an increase in Caspian oil production to 5.2 mb/d by 2035, while Turkmenistan & Azerbaijan push up gas production to over 310 bcm © OECD/IEA 2010 The 450 Scenario: A roadmap from 3.5C to 2C

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

 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

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

38 Gt 35.4 Gt Share of cumulative abatement 36 New Policies Scenario between 2010-2035 34 China 32% 32 United States 18% 30 European Union 8% 13.7 Gt 28 India 7% 26 Middle East 4% 24 Russia 4% 450 Scenario 22 Rest of world 27% 21.7 Gt 20 2008 2015 2020 2025 2030 2035

In the 450 Scenario, China & the US together account for 50% of the cumulative emission abatement that is needed in 2010-2035 © OECD/IEA 2010 Achieving the 2°C goal will require rapid decarbonisation of global energy

Average annual change in CO2 intensity in the 450 scenario

5% A four-fold 4% increase needed

0% 1990-2008 2008-2020 2020-2035

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 © OECD/IEA 2010 A fundamental change is needed in power generation

Share of world electricity generation by type and scenario

100% Low-carbon generation in the NPS 80% Additional low-carbon generation in the 450 Scenario 60% Fossil-fuel fired generation in the 450 Scenario 40%

20%

0% 2010 2015 2020 2025 2030 2035

Low-carbon technologies account for over three-quarters of global power generation by 2035 in the 450 Scenario, a four-fold increase on today © OECD/IEA 2010 … and also in transport

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

& CO2 intensity of the power sector

70 700 Plug-in hybrids

60 600 Electric vehicles Million

50 500 CO2 intensity in power generation 40 400 (right axis)

30 300 per kWh Grammes

20 200

10 100

0 0 2010 2015 2020 2025 2030 2035

Plug-in hybrids & electric vehicles reach 39% of new sales by 2035, making a big contribution to emissions abatement, thanks to a major decarbonisation of the power sector © OECD/IEA 2010 Will peak oil be a guest or the spectre at the feast?

Oil demand in the 450 Scenario

100 16

World demand in mb/d mb/d 96 12 450 Scenario

92 8 Right axis: 88 4 Inter-regional 84 0 (bunkers) Other non-OECD 80 -4 India 76 -8 China 72 -12 OECD

68 -16 2009 2015 2020 2025 2030 2035

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 © OECD/IEA 2010 Combating climate change will bring economic benefits as well as costs

Oil-import bills as share of GDP in selected countries

5% 2009 2035: New Policies Scenario 4% 2035: 450 Scenario

0% European United Japan China India Union States

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 © OECD/IEA 2010 Summary & conclusions

 Recently announced policies can make a difference, but fall well short of what is needed for a secure & sustainable energy future  Lack of ambition in Copenhagen has increased the cost of achieving the 2C goal & made it less likely to happen > Unless commitments are fully implemented by 2020, it will be all but impossible to achieve the goal  The age of cheap oil is over, though policy action could bring lower international prices than would otherwise be the case  Renewables are entering the mainstream, but long-term support is needed to boost their competitiveness  Getting the prices right, by phasing-out fossil-fuel subsidies, is the single most effective measure to cut energy demand