© OECD/IEA 2013

Dr Fatih BirolIEA Chief EconomistTokyo, 21 April 2014

Orientation for a fast-changing energy world

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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 – especially in Africa and S.Asia

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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The engine of energy demand growth moves to South Asia

Primary energy demand, 2035 (Mtoe)

China is the main driver of increasing energy demand in the current decade, but India takes over in the 2020s as the principal source of growth

4%

65%10%

8%

8%5%

OECD

Non-OECDAsia

MiddleEast

Africa

Latin America

Eurasia

Share of global growth2012-2035

480Brazil 1 540

India

1 000 SoutheastAsia

4 060China

1 030

Africa

2 240UnitedStates 440

Japan1 710

Europe1 370

Eurasia

1 050MiddleEast

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A mix that is slow to change

Growth in total primary energy demand

Today's share of fossil fuels in the global mix, at 82%, is the same as it was 25 years ago; the strong rise of renewables only reduces this to around 75% in 2035

500 1 000 1 500 2 000 2 500 3 000

Nuclear

Oil

Renewables

Coal

Gas

Mtoe

1987-2011

2011-2035

the strong rise of renewables only reduces this to around 75% in 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

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Gas

bcm

0.0

0.5

1.0

1.5

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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

2013-20252025-2035

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US emissions on a downward trend

Energy-related CO2 emissions in the United States

CO2 emissions fell 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

020406080

100120140160180200

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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3×

4×

5×

2003

Regional differences in natural gas prices narrow from today’s very high levels but remain large through to 2035; electricity price differentials also persistelectricity price differentials also persist

20132035

Reductionfrom 2013

Who has the energy to compete?

Ratio of industrial energy prices relative to the United States

United States

2×

Japan EuropeanUnion

China

ElectricityNatural gas

2003

Japan EuropeanUnion

China

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Higher energy prices make it harder for Japanese industry to compete

Share of global export market for energy-intensive goods to 2035

Even in our Central Scenario (in which nuclear reactors gradually restart), higher energy prices result in a decline in Japan’s share of global trade in energy-intensive goods

Today 36% 10% 7% 7% 3% 2%

European Union

United StatesChina IndiaMiddle East

Japan

-3%

-10%

+3%+2% +2%+1%

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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 price3

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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The implications of Zero Nuclear for Japan’s energy outlook to 2035

Energy import bills – the key to the record current account deficit –rise by an additional 1.3 Trillion Yen per year on average

To replace the nuclear capacity, investment in the power sector & in LNG terminals needs to rise by an additional 250 Billion Yen per year

Japan’s energy self-sufficiency deteriorates

Self-sufficiency drops by one-third to just 16% in 2035, which is 5 times lower than China’s & 6 times lower than that of the US

Effects on LNG market in Asia: low (or zero) nuclear power generation in Japan will contribute to a tightening of Asian LNG markets, leading to upward pressure on gas prices in Asia

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Climate implications of Zero Nuclear

Japan’s CO2 emissions in power generation

With Zero Nuclear, expectations for declining CO2 emissions from the power sector are reversed, with emissions in 2035 higher than before Fukushima Daiichi

Zero Nuclear

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1990 2000 2010 2035

Mt

CentralScenario

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Orientation for a fast-changing energy world:Implications for Japan

Regional price gaps & concerns over competitiveness are here to stay, but there are ways to react – with efficiency first in line

Gas market reforms in the Asia-Pacific region and LNG exports from N. America could help to narrow the regional gas price gap

Nuclear power and renewables can contribute to energy security, climate change goals & enhancing energy competitiveness

Support schemes for renewables need to be carefully designed – & re-designed – to achieve their objectives in the most cost-effective way

The new Basic Energy Plan sends a strong message about Japan’s focus on delivering reliable, secure, affordable and clean energy