Dr. Fatih Birol Chief Economist Head, Economic Analysis Division International Energy Agency / OECD WORLD ENERGY INVESTMENT OUTLOOK

Global Strategic Challenges Security of energy supplies Threat of environmental damage caused by energy use Uneven access of the world’s population to modern energy Investment in energy-supply infrastructure

Global Energy Investment Outlook

Global Oil Investment

Investment Uncertainties & Challenges

Uncertainties & Challenges Opportunities and incentives to invest Oil prices and rates of return Investment regime and risk Access to reserves Role of NOCs Restrictions on foreign investment Licensing, fiscal and commercial terms Environmental regulations and ethical concerns Demand-side impact Impact on access to reserves and drilling costs Remaining resources and technology Iraqi production prospects Middle East production and investment policies

Restricted Middle East Oil Investment Scenario

OPEC Oil Revenues, Restricted InvestmentvsReference Scenario 6,000 8,000 10,000 12,000 OPECOPEC Middle East billion dollars Reference ScenarioRestricted Investment Scenario Oil revenues in OPEC Middle East producers are substantially lower in the Restricted Investment Scenario

Oil Concluding Remarks Global investment of $3 trillion needed in Investment more sensitive to decline rate than rate of demand growth – most investment needed just to maintain current production level Major uncertainties about opportunities and incentives to invest, notably Access to reserves and production policies – OPEC (and Iraq) Oil prices Production costs and investment risks Lower investment in Middle East oil would raise global investment needs, lower OPEC revenues & harm global economy Enhanced consumer-producer dialogue to help facilitate capital flows

Natural Gas Investment Outlook

Gas Investment Uncertainties Balance of risk and return – price is key Complexity of financing very large-scale projects – especially in developing countries Access to reserves and fiscal regime – most new investment will be private Impact of market reforms on investment risk – long-term contracts will remain necessary These factors could lead to shortfall in investment, supply bottlenecks and higher prices in some cases

Electricity Investment Outlook

Average Age of Power Plants in the OECD ,000 <20 years>20 years GW FossilNuclear

U.S. Privately Owned Utilities Profit Margin 0% 2% 4% 6% 8% 10% 12% Profit margins have fallen sharply in recent years

Electricity Investment Uncertainties in US Investment needs will increase over next 3 decades Demand growth of 1.6% Many old plants – including most nuclear reactors – will be retired Shift to higher unit cost renewables Tightening reserve margins Gas prices and capital costs of coal stations & renewables are key drivers of future investment in generation Wind power will be primary renewable source – calling for investment in voltage regulation & network reinforcement New capacity investment may be delayed as investors wait to see what environmental policies – including possible climate action – are enacted Higher investment costs for new capacity may delay decommissioning of old plants and raise emissions

,000 1, GW Power Generation Capacity Additions in Developing Countries Developing countries will need to add increasing amounts of new generating capacity over the next three decades

Electricity Investment as Share of GDP 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% OECDChinaIndiaIndonesiaRussiaBrazilAfrica Medium-term electricity sector investment needs will increase relative to GDP in almost all non-OECD regions

Energy Investment Challenge Total investment requirements are modest relative to world GDP, but challenge differs by region Energy and financial resources are sufficient, but increasing competition for capital and higher risk Capital needs are largest for electricity Half total energy investment is needed in developing countries – where financing will be hardest Production accounts for the bulk of investment – more than half just to replace old capacity

Broader Policy Implications: “Wake-Up Call” for Governments Increasing emphasis on creating right enabling conditions – and lowering barriers to investment Less direct intervention as lender or owner Governments should monitor and assess the need to adjust regulatory reforms in network industries Policymakers need to ensure basic principles of good governance are applied and respected – including cost- reflective pricing Fiscal and regulatory incentives to develop advanced technologies – carbon sequestration, hydrogen, fuel cells, advanced nuclear reactors, etc. – could speed their deployment and dramatically alter energy investment patterns and requirements to 2030