© copyright giacomo luciani the politics and economics of international energy lecture 1...

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The Politics and Economics of International Energy

Lecture 1Introduction – Long-Term Energy Scenarios – Dimensions of the Energy Issue in International Relations

Prof. Giacomo Luciani

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Contact details

[email protected] Office telephone: +41 22 7162730 Office hours:

By appointmentc/o Gulf Research Center Foundation49, Avenue Blanc, 1202 Genève

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Readings

Too much to read… You should:

Learn to read selectively Make sure that you can retrieve, not

necessarily recall, relevant information Separate the gold from the sand

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Readings availability

CD-Rom containing a large part of the readings and other important documentation.

The contents of the CD-Rom will also be available on the Intranet and a copy of the CD will be deposited in the Library. Readings MUST be completed IN ADVANCE of each class.

However, you are not expected to read everything: you should use your judgment in selecting what is truly important.

Readings that are available only on paper are highlighted in yellow.

Background reading: Daniel Yergin, “The Prize: The Epic Quest for Oil, Money, and Power”

You are expected to read this book in parallel with class proceeding although it is not listed as reading for any class. It is fun to read anyhow.

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Requirements

A mid term and a final Short (max 700 words) professional

memo on one out of three or four topics proposed

You will be able to use all course material and sources

Topics will be drawn from current developments

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Global Energy Trends

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The Global Crisis We have witnessed an earthquake of 9+

magnitude (Richter scale – 1 every 20 years) in the global political economy.

Earthquakes are caused by movement in the tectonic plates: over time, these movements accumulate unresolved stress – the quake releases the stress.

Unresolved stress = unadjusted disequilibria

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Which tectonic plates

The recent earthquake is the result of the clash of several tectonic plates Finance Energy Globalization and division of labor Military power Global governance

The epicenter has been in the US

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Finance stress lines in the US

Excessive indebtedness of families Large and rapidly growing

government deficit Large and growing trade deficit CURRENT TRENDS ARE NOT

SUSTAINABLE

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Energy stress lines

Global warming Alienation of companies from

resources and vice-versa Huge gaps in energy consumption

standards CURRENT TRENDS ARE NOT

SUSTAINABLE

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A word about scenarios 1 Global energy scenarios are complex– only

few institutions can afford to produce them The most widely quoted are IEA’s and EIA’s;

also to be considered: OPEC (for oil), EU Commission, ExxonMobil, Shell; other institutions produce occasional scenarios

IEA: World Energy Outlook (WEO) published in November each year

EIA: International Energy Outlook (IEO) published in June each year

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A word about scenarios 2 Scenarios are not meant to be realistic

images of the future They extrapolate trends under certain

assumptions They allow exploring the sustainability or

coherence of policies They generally contain one or more

“messages” They reflect the politics of the institution

producing them

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Determinants of energy demand

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Diminishing energy intensity

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Limited catch-up

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Growing global energy demand

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1980 1990 2000 2010 2020 2030

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Other renewables

Hydro

Nuclear

Biomass

Gas

Coal

Oil

World energy demand expands by 45% between now and 2030 – an average rate of increase of 1.6% per year – with coal accounting for more than a third of the overall rise

World primary energy demand in tWorld primary energy demand in the he Reference Scenario: this is unsustainable!Reference Scenario: this is unsustainable!World primary energy demand in tWorld primary energy demand in the he Reference Scenario: this is unsustainable!Reference Scenario: this is unsustainable!

© OECD/IEA - 2007

Reference Scenario:

The Emerging Giants of World Energy

China & India will contribute more than 40% of the increase in global energy demand to 2030 on

current trends

0%

20%

40%

60%

80%

100%

Total energy

Coal Oil Nuclear Hydro Power sectorinvestments

Rest of the worldIndiaChina

Increase in Primary Energy Demand & Investment Between 2005 & 2030 as Share of World Total

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Energy-related COEnergy-related CO22 emissions emissions in the Reference Scenarioin the Reference ScenarioEnergy-related COEnergy-related CO22 emissions emissions in the Reference Scenarioin the Reference Scenario

97% of the projected increase in emissions between now & 2030 comes from non-OECD countries – three-quarters from China, India & the Middle East alone

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1980 1990 2000 2010 2020 2030

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Internationalmarine bunkersand aviation

Non-OECD - gas

Non-OECD - oil

Non-OECD - coal

OECD - gas

OECD - oil

OECD - coal

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Energy-Related CO2 Emissions by Region, 1900-2005

Over the last century, China has contributed only 8% of global emissions & India 2%

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Rest of the

world

33%

India

2%

China

8% Japan

4%

European

Union

23%

United States

30%

Cumulative emissions

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Reference Scenario:

World’s Top Five CO2 Emitters

2005 2015 2030

Gt rank Gt rank Gt rank

US 5.8 1 6.4 2 6.9 2

China 5.1 2 8.6 1 11.4 1

Russia 1.5 3 1.8 4 2.0 4

Japan 1.2 4 1.3 5 1.2 5

India 1.1 5 1.8 3 3.3 3

China overtook the US to become the largest emitter in 2007, while India becomes the third-largest by

2015

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World primary energy demand in tWorld primary energy demand in the he Reference ScenarioReference ScenarioWorld primary energy demand in tWorld primary energy demand in the he Reference ScenarioReference Scenario

0

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1980 1990 2000 2010 2020 2030

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Oil

Coal

Gas

Biomass

Nuclear

Hydro

Otherrenewables

World energy demand expands by 45% between 2006 and 2030 – an average rate of increase of 1.6% per year – with coal accounting for more than a third of the overall rise

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Cumulative energy-supply investment Cumulative energy-supply investment in the Reference Scenarioin the Reference Scenario, 2007-2030, 2007-2030Cumulative energy-supply investment Cumulative energy-supply investment in the Reference Scenarioin the Reference Scenario, 2007-2030, 2007-2030

Investment of $26 trillion, or over $1 trillion/year, is needed, but the credit squeeze could delay spending, potentially setting up a supply-crunch once the economy recovers

Power generation

50%

Transmission & distribution

50%Mining

91%

Shipping & ports

9%

Exploration and development

80%

Refining16%

Shipping4%

Exploration & development

61%LNG chain

8%

Transmission & distribution

31%

Power 52%

$13.6 trillion

Oil 24%

$6.3 trillion

Gas21%

$5.5 trillion

Coal 3%

$0.7 trillion

Biofuels <1%

$0.2 trillion

© OECD/IEA - 2008

World energy-related COWorld energy-related CO22 emissions emissionsin 2030 by scenarioin 2030 by scenarioWorld energy-related COWorld energy-related CO22 emissions emissionsin 2030 by scenarioin 2030 by scenario

OECD countries alone cannot put the world onto a 450-ppm trajectory, even if they were to reduce their emissions to zero

World

World

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Reference Scenario 550 Policy Scenario 450 Policy Scenario

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Share of renewables in electricity Share of renewables in electricity generation in the Reference Scenario generation in the Reference Scenario Share of renewables in electricity Share of renewables in electricity generation in the Reference Scenario generation in the Reference Scenario

0% 5% 10% 15% 20% 25% 30%

2030

2015

2006

2030

2015

2006

2030

2015

2006

Non

-OEC

DO

ECD

Wor

ld

HydroOther (wind, solar, etc)

Soon after 2010, renewables become the 2nd-largest source of electricity behind coal, thanks to government support, prospects for higher fossil-fuel prices & declining investment costs

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Total oil production in 2030 by Total oil production in 2030 by scenarioscenarioTotal oil production in 2030 by Total oil production in 2030 by scenarioscenario

Curbing CO2 emissions would improve energy security by cutting demand for fossil fuels, but even in the 450 Policy Scenario, OPEC production increases by 12 mb/d from now to 2030

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2007 Reference Scenario2030

550 Policy Scenario2030

450 Policy Scenario2030

Non-OPECOPEC

9 mb/d 16 mb/dmb/

d

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Reductions in energy-related COReductions in energy-related CO22 emissions in the climate-policy scenariosemissions in the climate-policy scenariosReductions in energy-related COReductions in energy-related CO22 emissions in the climate-policy scenariosemissions in the climate-policy scenarios

While technological progress is needed to achieve some emissions reductions, efficiency gains and deployment of existing low-carbon energy accounts for most of the savings

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Reference Scenario 550 Policy Scenario 450 Policy Scenario

CCS Renewables & biofuels

Nuclear

Energy efficiency

550 Policy

Scenario

450 Policy

Scenario

54%

23%

14% 9%

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Total power generation capacity today Total power generation capacity today and in 2030 by scenarioand in 2030 by scenarioTotal power generation capacity today Total power generation capacity today and in 2030 by scenarioand in 2030 by scenario

In the 450 Policy Scenario, the power sector undergoes a dramatic change – with CCS, renewables and nuclear each playing a crucial role

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Other renewables

Wind

Hydro

Nuclear

Coal and gas with CCS

Gas

Coal

GW

1.2 x today

1.5 x today

13.5 x today

2.1 x today

1.8 x today

12.5 x today

15% of today’s coal & gas capacity

Today Reference Scenario 2030 450 Policy Scenario 2030

© OECD/IEA - 2007

Average Annual Power Generation Capacity Additions in the 450 Stabilisation Case, 2013-2030

A large amount of capacity would need to be retired early, entailing substantial costs

22 CCS coal-fired plants (800 MW)

20 CCS gas-fired plants (500 MW)

30 nuclear reactors (1000 MW)

2 Three Gorges Dams

400 CHP plants (40 MW)

17 000 turbines (3 MW)

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Other Renewables

Wind

Biomass and waste

Hydropower

Nuclear

Gas CCS

Coal CCS

GW

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Key results of the post-2012 Key results of the post-2012 climate-policy analysisclimate-policy analysisKey results of the post-2012 Key results of the post-2012 climate-policy analysisclimate-policy analysis

550 Policy Scenario Corresponds to a c.3C global

temperature rise Energy demand continues to

expand, but fuel mix is markedly different

CO2 price in OECD countries reaches $90/tonne in 2030

Additional investment equal to 0.25% of GDP

450 Policy Scenario Corresponds to a c.2C global

temperature rise Energy demand grows, but half as

fast as in Reference Scenario Rapid deployment of low-carbon

technologies – particularly CCS Big fall in non-OECD emissions CO2 price in 2030 reaches

$180/tonne OPEC production still 12mb/d higher

in 2030 than today Additional investment equal to 0.6%

of GDP

© OECD/IEA - 2008

Summary & conclusionsSummary & conclusionsSummary & conclusionsSummary & conclusions

Current energy trends are patently unsustainable — socially, environmentally, economically

Oil will remain the leading energy source but...> The era of cheap oil is over, although price volatility will remain> Oilfield decline is the key determinant of investment needs> The oil market is undergoing major and lasting structural change, with

national companies in the ascendancy To avoid "abrupt and irreversible" climate change we need a

major decarbonisation of the world’s energy system> Copenhagen must deliver a credible post-2012 climate regime> Limiting temperature rise to 2C will require significant emission

reductions in all regions & technological breakthroughs> Mitigating climate change will substantially improve energy security

The present economic worries do not excuse back-tracking or delays in taking action to address energy challenges

© OECD/IEA - 2008

National policies and measures

The 550 Policy Scenario The 450 Policy Scenario

Cap and trade

Copenhagen: aCopenhagen: a plausible plausible post-2012 global post-2012 global climate-change policy regime climate-change policy regime Copenhagen: aCopenhagen: a plausible plausible post-2012 global post-2012 global climate-change policy regime climate-change policy regime

A combination of policy mechanisms – reflecting nations’ varied circumstances & current negotiating positions – is a realistic outcome at the Copenhagen COP at end-2009

Cap and tradePower

generation

Buildings

Transport

Industry

International sectoral approaches


International sectoral approaches

OECD+Other Major Economies

Other Countries


© OECD/IEA - 2008

Change in world energy investment in the 550 Policy Change in world energy investment in the 550 Policy relative to the Reference Scenario, 2010-2030relative to the Reference Scenario, 2010-2030Change in world energy investment in the 550 Policy Change in world energy investment in the 550 Policy relative to the Reference Scenario, 2010-2030relative to the Reference Scenario, 2010-2030

Most of the incremental investment in the 550 Policy Scenario is in existing technologies

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Power plants Powertransmission

anddistribution

Fossil fuelsupply

Biofuels Efficiency -buildings

Efficiency -transport

Efficiency -industry

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Additional investments in the climate-policy Additional investments in the climate-policy scenarios versus the Reference Scenarioscenarios versus the Reference ScenarioAdditional investments in the climate-policy Additional investments in the climate-policy scenarios versus the Reference Scenarioscenarios versus the Reference Scenario

Power-sector investment in the last decade of the Outlook period in the 450 Policy Scenario is almost double that in the Reference Scenario

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2010-2020 2021-2030 2010-2020 2021-2030

Power plants Energy efficiency

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450 Policy Scenario(additional to 550)

550 Policy Scenario

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WEO 2009 Preliminary results

Given the present crisis, the IEA now forecasts that the global oil demand will only grow by 0.6% per year during the 2008-2014 period to reach 89m b/d in 2014.

© OECD/IEA - 2007

Population without electricity, 2006

In 2030, if no major new policies are implemented, there will still be 1.4 billion people without electricity.

© OECD/IEA - 2007

Energy Poverty: Annual Deaths from Indoor Air Pollution

The number of people using dirty traditional biomass for cooking is set to grow from 2.5 billion now to 2.7

billion in 2030 absent new policies

2.8

1.6

1.2 1.3

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Malaria Smoke frombiomass

Tuberculosis HIV/AIDS

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Source: World Health Organization

© copyright giacomo luciani the politics and economics of international energy lecture 1...

Documents

sustainable slide

us slide

sand slide

genve slide

global energy scenarios

current developments

energy issue

world energy outlook