World Energy Outlook Energy trends and challenges to 2030 Dr. Fabien Roques fabien.roques@iea.org Economic Analysis Division International Energy Agency Presentation to the French-Serbian European Summer University 20 October 2006

Outline Energy trends and strategic challenges – ‘Reference Scenario’ Secuity of supply CO2 emissions Energy and development Impact of supply side ‘Deferred investment’ scenario World ‘Alternative Policies Scenario’ Impact of policies under consideration

The world is facing twin energy threats The Context The world is facing twin energy threats Inadequate and insecure supplies Environmental damage, including climate change There is an urgent need to curb the growth in fossil-fuel demand & related emissions WEO-2006 is a direct response to G8 request for advice on alternative energy scenarios WEO-2006 will be released on 7 November => All numbers presented are based on WEO 2004 and WEO 2005

Scenario Approach Reference Scenario World Alternative Policy Scenario Two scenarios depict markedly different energy futures Reference Scenario Incorporates assumptions about economic & population growth, energy prices, technology & public policies Does not take account of any possible, potential or even likely new energy & environment policies World Alternative Policy Scenario Assumes environmental & energy-security policies now under consideration are adopted Impact on prices, global energy balance & call on MENA oil/ gas

Energy Trends & Strategic Challenges Reference Scenario

World Primary Energy Demand Coal Oil Gas Other renewables Nuclear Hydro 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000 1970 1980 1990 2000 2010 2020 2030 Mtoe 1971 Oil and gas together account for more than 60% of the growth in energy demand between now and 2030 in the Reference Scenario

World Primary Energy Demand by Fuel 6 000 Oil 5 000 4 000 Natural gas Coal Mtoe 3 000 Other renewables 2 000 Nuclear power 1 000 Hydro power 1970 1980 1990 2000 2010 2020 2030 Oil, gas and coal together account for 83% of the growth in energy demand between now and 2030 in the Reference Scenario

Regional Shares in World Primary Energy Demand 100% 22% 80% 39% 49% 16% 60% 10% 9% 40% 62% 51% 20% 42% 0% 1971 2003 2030 OECD Transition economies Developing countries Two-thirds of the increase in world demand between 2003 and 2030 comes from developing countries, especially in Asia

Challenge 1: Security of Supply

Reference Scenario: Implications for Energy Security The threat to the world’s energy security is real & growing The share of transport in total oil use rises in all regions Reliance on a small number of oil producers – notably in OPEC Middle East increases sharply OECD & developing Asian oil & gas imports set to grow further Will the investment come?

Age of Installed Capacity in Europe 20 40 60 80 100 120 140 GW Oil Gas Coal Nuclear < 10 years 10 - 20 years 20 - 30 years > 30 years Europe's power plants are ageing: more than half the current capacity could be retired by 2030

Cumulative Energy Investment in the Reference Scenario, 2004-2030 1 000 2 000 3 000 4 000 OECD North America OECD Europe OECD Pacific Transition economies China Other Asia Latin America North Africa Other Africa Middle East billion dollars (2004) Oil Gas Electricity Coal More than 60% of total energy supply investments will go into the power sector

EU-25 Electricity Generation, 1990-2030 500 1000 1500 2000 2500 3000 3500 4000 4500 1990 1995 2005 2010 2015 2020 2025 2030 Coal Oil Gas Nuclear Hydro Wind Other renewables

World Renewables Electricity Generation 0% 5% 10% 15% 20% 25% 1990 1992 1994 1996 1998 2000 2002 2010 2020 2030 Other renewables Hydro The share of non-hydro renewables will triple by 2030, while hydropower will grow modestly

EU Gas Supply Balance 200 400 600 800 1980 1990 2004 2010 2020 2030 bcm Production Net imports Rising demand – mainly for power generation – and declining output will cause net imports to surge

EU Fossil Fuel Net Imports 300 600 900 1 200 1 500 1990 2002 2010 2020 2030 Mtoe Coal Oil Gas The EU will become increasingly dependent on energy imports, especially oil and natural gas

World Oil Production Shifts Away from OECD Global oil production climbs from 82 mb/d in 2004 to 115 mb/d in 2030; OECD share falls from 25% to 12%

MENA Net Oil Exports mb/d MENA plays an increasingly important role in international trade, its net exports surging from 22 mb/d in 2004 to 39 mb/d in 2030

MENA Crude Oil & NGL Production by Country 10 20 30 40 50 1970 1980 1990 2000 2010 2020 2030 mb/d Iran Iraq Kuwait Other Middle East Saudi Arabia UAE North Africa MENA’s share of world oil production rises from 35% in 2004 to 44% in 2030 in the RS, with Saudi production rising to over 18 mb/d

Saudi Arabia’s Oil Production by Source in the Reference Scenario Based on its reserves and global demand trends, Saudi oil production is projected to reach 18 mb/d in 2030

MENA Oil Exports through the “Dire Straits” Much of the additional oil and LNG exports from MENA in the future will be shipped through just three maritime routes

World Proven Oil and Gas Reserves Iraq 9% Iran 10% Kuwait 8% Other MENA 14% Saudi Arabia 20% Non-MENA 39% Natural gas Other non- MENA 28% Iran 16% Other MENA 8% Saudi Arabia 4% Qatar 14% UAE Russia 27% MENA share of global oil and gas reserves is much higher than its share of current production, suggesting strong potential for growth

Proven Natural Gas Reserves Gas reserves, concentrated in the Middle East & the transition economies, are equal to 66 years of current production

Major Net Inter-Regional Gas Trade Flows Inter-regional gas trade triples by 2030, with most new exports coming from the Middle East, Africa and Russia

Challenge 2: Carbon Dioxide Emissions

World Energy-Related CO2 Emissions Global emissions grow 50% between now and 2030, and developing countries’ emissions will overtake OECD’s in the 2020s

CO2 Increase, 2003-2030 1 000 2 000 3 000 4 000 China OECD 1 000 2 000 3 000 4 000 China OECD million tonnes 3 6 9 12 15 tonnes per capita 2003 2030 Pacific Europe North America OECD CO2 additions only three quarters of Chinese CO2 rise, but OECD emissions per capita still two times higher in 2030

Energy-Related CO2 Emissions by Region 2003 2030 24 Gt 37 Gt Global emissions grow by just over half between 2003 & 2030, with the bulk of the increase coming from developing countries

Challenge 3: Energy and Poverty

Energy Use & Human Development Energy is a prerequisite to economic & human development, but the relationship is very complex In practice, the level of human development is linked to Absolute amount of energy used per capita Share of modern energy services – especially electricity – in energy use

HDI & Primary Energy Demand per Capita, 2002 0.0 0.2 0.4 0.6 0.8 1.0 2 4 6 8 10 12 14 Primary energy demand per capita (toe/cap) HDI OECD Non-OECD There is a strong link between per capita energy use & the UN’s HDI - particularly for the least developed countries

Per Capita Primary Energy Use, 2030 Per capita energy use remains much lower in developing countries

Bringing Modern Energy to the World’s Poor Many poor households will still be using dirty & inefficient traditional fuels for cooking in 2030 Number of people rises from 2.5 billion today to 2.7 billion UN Millennium Project recommendation to halve number by 2015 will not be met on current trends Access to electricity is set to improve, but not fast enough 1.6 billion people have no access today, falling only slightly to 1.5 billion in 2015 & 1.4 billion in 2030 Needs to fall to 1 billion to achieve Millennium Development Goal

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

Implications of deferred investment in MENA countries

Deferred Investment Scenario How would global energy markets evolve if investment MENA upstream oil industry grew slower than in the Reference Scenario? Investment is assumed to remain constant at its share of historical GDP in each country MENA oil production is lower compared to the Reference Scenario, and the gap is widening over time Oil prices are driven higher - an increase of 32% over the Reference Scenario in 2030 - dragging up gas, coal and electricity prices MENA gas production is also lower compared to the Reference Scenario due to Reduced global gas demand & call on MENA gas Lower associated oil/gas output

MENA Crude Oil Production (including NGLs) 10 20 30 40 50 60 1970 1980 1990 2000 2010 2020 2030 mb/d Reference Scenario Deferred Investment Scenario Difference MENA’s share of global oil production falls from 35% in 2004 to 33% in the DIS. Saudi production reaches 14 mb/d in 2030

MENA Net Natural Gas Exports 100 200 300 400 500 2003 2010 2020 2030 bcm Reference Scenario 24 bcm 116 bcm 206 bcm Deferred Investment Scenario MENA gas exports are much lower in the DIS, as higher gas prices & lower GDP choke off demand in the main importing regions

World Alternative Policies Scenario

Mapping Out an Alternative Energy Future Reference Scenario trends are not set in stone The Alternative Policy Scenario analyses impact of government policies under consideration Responds to call to IEA from G8 & IEA ministers To “advise on alternative energy scenarios and strategies aimed at a clean, clever and competitive energy future" 1 400+ different policies worldwide to Improve efficiency in energy production & use Increase reliance on non-fossil fuels Bolster output of oil & gas in net importing countries Macroeconomic, population & oil/gas price assumptions are as per the Reference Scenario

Examples of Policies included in the Alternative Scenario Power generation Renewable energy (e.g., EU renewables directive) Cleaner coal technology (e.g., China and India) Nuclear Transport sector Improve vehicle fuel efficiency (e.g. strengthening of US CAFE standards, extension of Chinese standards) Increased sales of alternative fuel vehicles and fuels (e.g., biofuels in Europe, Brazil) Residential and commercial sectors Building codes (e.g., US) Efficiency standards and labelling for appliances (e.g., India)

Oil/Gas Demand in the Reference and Alternative Policy Scenarios 20 40 60 80 100 120 140 Oil Gas mb/d 1000 2000 3000 4000 5000 6000 bcm 2030 Reference Scenario 12.1 mb/d 500 bcm 2030 Alternative Scenario 2004 Oil & gas demand in the Alternative Scenario are both 10% lower in 2030 due to significant energy savings and a shift in the energy mix

Reduction in Oil Demand in the Alternative vs. Reference Scenario, 2030 Oil savings in 2030 would be equivalent to the combined current production of Saudi Arabia, UAE and Nigeria

Global Energy-Related CO2 Emissions in the Reference and Alternative Policy Scenarios 20 000 25 000 30 000 35 000 40 000 1990 2000 2010 2020 2030 million tonnes of CO 2 Coal Oil Gas Alternative Policy Scenario Reference Scenario In 2030, CO2 emissions are 16% lower than in the Reference Scenario, but are still more than 50% higher than 1990

Contributory Factors in CO2 Reduction 2002-2030 0% 20% 40% 60% 80% 100% 49% 10% 21% 12% 8% OECD 63% 1% 15% Transition economies 67% 7% 17% 5% 4% Developing countries 58% World End-use efficiency gains Fuel switching in end uses Increased renewables in power generation Increased nuclear in power generation Changes in the fossil-fuel mix in power generation Improvements in end-use efficiency contribute for more than half of decrease in emissions, and renewables use for 20%

Power Sector CO2 Emissions 2 000 4 000 6 000 8 000 10 000 12 000 Oil Gas Coal Mt of CO2 OECD Developing countries Transition economies 2002 2030 In 2030, coal plants in developing countries will produce more CO2 than the entire power sector in the OECD

Making the Alternative Policy Scenario a Reality Formidable hurdles exist to the adoption & implementation of the Alternative Policy Scenario It will require considerable political to push through those policies Private-sector support & international cooperation will be essential Action is needed urgently Delaying implementation by a decade would reduce cut in cumulative emissions to 2030 from 8% to 2% Delays in stepping up R&D – particularly carbon capture & storage – would hinder cutting emissions after 2030

Key Results If governments stick with current policies, global energy needs will be more than 50% higher in 2030 than today Projected market trends raise serious concerns Increased risk for energy security Rising environmental concerns Persistent energy poverty Further underinvestment in oil and gas would drive up prices & depress global GDP growth, eventually harming producers too More vigorous policies would curb rate of increase in energy demand and emission significantly

Summing Up The need to diversify energy sources & mitigate emissions is more urgent than ever Global energy system is on an unsustainable path Strong new policies could sharply reduce the rate of increase in demand & emissions Economic cost of these policies would be more than outweighed by the economic benefits alone In the longer term, technology development will be critical to a sustainable energy system Governments also need to tackle market barriers to ensure investment is forthcoming Rich countries need to help developing countries address energy poverty

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