© OECD/IEA 2013

Global Energy Dynamics: Outlook for the Future

Dr Fatih Birol Chief Economist, IEA

8 April 2014

© OECD/IEA 2013

The world energy scene today

Some long-held tenets of the energy sector are being rewritten

Countries are switching roles: importers are becoming exporters…

… and exporters are among the major sources of growing demand

New supply options re-orientate the energy trade map

But long-term solutions to global challenges remain scarce

Renewed focus on energy efficiency, but CO2 emissions continue to rise

Fossil-fuel subsidies increased to $544 billion in 2012

1.3 billion people lack electricity, 2.6 billion lack clean cooking facilities

Energy prices add to the pressure on policymakers

Sustained period of high oil prices without parallel in market history

Large, persistent regional price differences for gas & electricity

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25 years ago the share of fossil fuels in the global mix was 82%;

it is the same today & the strong rise of renewables in the future only reduces this to around 75% in 2035

The energy mix is slow to change

Growth in total primary energy demand

500 1 000 1 500 2 000 2 500 3 000

Nuclear

Oil

Renewables

Coal

Gas

Mtoe

1987-2011

2011-2035

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Growth in US shale gas output since 2005 is equivalent to the total production of Qatar, Kuwait, UAE and Iraq combined; while shale oil output is equal to that of Iraq

Unconventional oil and gas has made a major contribution to global production

0

50

100

150

200

250

300

Gas

bcm

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Oil

mb/d

US shale gas and shale oil production increases: 2005-2014

while shale oil output is equal to that of Iraq

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US oil imports are shrinking rapidly – thanks to shale oil only?

Reductions in US oil imports in 2035 relative to today

Increased oil supply

Natural gas use in transport

Biofuels use in transport

Demand-side efficiency 35%

8% 18%

39%

US oil imports are set to plummet due to increasing oil supplies and recently adopted policies to improve efficiency of cars and trucks

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-2 0 2 4 6 8

Rest of the world

United States

Brazil

Middle East

mb/d

Two chapters to the oil production story

Contributions to global oil production growth

The United States (light tight oil) & Brazil (deepwater) step up until the mid-2020s, but the Middle East is critical to the longer-term oil outlook

2013-2025

2025-2035

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2012

Regional natural gas prices: who has the energy to compete?

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2

4

6

8

10

12

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16

18

20

European Union Japan United States

$/MBtu

Regional differences in natural gas prices narrow from today’s very high levels but remain large

2035

Natural gas prices by region

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Energy-intensive industries need to count their costs

Share of energy in total production costs for selected industries

Energy-intensive sectors worldwide account for around one-fifth of industrial value added, one-quarter of industrial employment and 70% of industrial energy use.

10% 20% 30% 40% 50% 60% 70% 80% 90%

Glass

Pulp & paper

Iron & steel

Cement

Aluminium

Fertilisers

Petrochemicals

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US emissions on a downward trend

Energy-related CO2 emissions in the United States

CO2 emissions fell by sharply since the shale gas revolution, but rebounded last year on the back of a partial gas-coal switch and increased industrial activity

4.0

4.5

5.0

5.5

6.0

6.5

1990 1995 2000 2007 2012 2013

Gt CO2

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Who has flooded the markets?

Incremental steam coal exports

The US accounted for only 7% of the increase in global steam coal exports since 2007

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20

40

60

80

100

120

140

160

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200

2009 2010 2011 2012 2013

Mt Indonesia

United States

Australia

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The slowdown in Chinese demand caught the industry off-guard

Coal demand in China: real demand vs historical trend

China’s move away from coal will be a far greater determinant of the direction of the coal markets than the shale gas revolution in the US

3000

3200

3400

3600

3800

4000

4200

4400

2010 2011 2012 2013

Mt

Real consumption

Historical trend

Curbing in China ≈ 20 times US exports increase in 2012

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LNG from the United States can alleviate strain on the gas markets, but is no silver bullet

Indicative economics of LNG export from the US Gulf Coast

New LNG supplies accelerate movement towards a more interconnected global market, but high costs of transport between regions mean no single global gas price

Average import price

Liquefaction, shipping & regasification

United States price 3

6

9

12

15

18

To Asia

$/MBtu

3

6

9

12

To Europe

$/MBtu

but high costs of transport between regions mean no single global gas price

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Concluding remarks

The shale revolution is having an unprecedented impact on the global energy landscape, economy and geopolitics

While US natural gas prices may rise, large disparities between regions will persist

Middle East oil will continue to be indispensible to world markets – the right signals to invest must be sent

US energy policy must guard against complacency – do not forget importance of energy efficiency, nuclear power and clean coal

How will the United States adapt its energy strategy and foreign policy to the reality of a richer resource base?

The answer surely will have ramifications for the rest of the world