© OECD/IEA 2017

Oil and Gas SecurityAad van Bohemen, IEA/Energy Policy and Security Division6 March 2018 (APEC-OGSNF)

IEA

Lunch Session

© OECD/IEA 2017

Long-term Energy Markets OutlookKey takeaways from WEO 2017

© OECD/IEA 2017

India takes the lead, as China energy growth slows

India, China and other developing Asia will be critical in determining the future trajectory of global energy demand & C02 emissions

Change in energy demand, 2016-40 (Mtoe)

India1 005 420

SoutheastAsia

China 790

United States-30

Japan-50

Europe-200

270Central and South America

485Africa

135 Eurasia

480MiddleEast

© OECD/IEA 2017

Low-carbon sources & natural gas meet 85% of the increase in global demand:

China moves global energy markets, again

Change in world energy demand by fuel

Coal (Mtce)

0

500

1 000

1 500

2 000

2 500

- 5001990-2016 2016-40

Oil (mb/d)

6

12

18

24

30

1990-2016 2016-40

Gas (bcm)

400

800

1 200

1 600

2 000

1990-2016 2016-40

Low-carbon (Mtoe)

400

800

1 200

1 600

2 000

1990-2016 2016-401990-2016 2016-40

Other countriesChina

China’s switch to a new economic model & a cleaner energy mix drives global trends

© OECD/IEA 2017

US becomes undisputed leader of oil & gas production

The US is already switching to become a net exporter of gas & becomes a net exporter of oil in the 2020s, helped also by the demand-side impact of fuel efficiency & fuel switching

Oil and gas production in the United States

25

30

35

5

10

15

20

1980 1990 2000 2010 2020 2030 2040

mboe/d Shale oilShale gasOther unconventionalsConventional oil & gas

mboe/d

© OECD/IEA 2017

Oil Market (Mid-term, to 2023)

© OECD/IEA 2017

Robust global oil demand growth to 2023

China and India account for almost half of world oil demand growth

World oil demand growth (y-o-y change)

0.00.20.40.60.81.01.21.41.61.8

2017 2018 2019 2020 2021 2022 2023

mb/d

Rest ofthe world

India

China

© OECD/IEA 2017

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

2010 2011 2012 2013 2014 2015 2016 2017

mb/d

OPEC

Non-OPEC

Oil industry needs to replace one North Sea each year

Ageing oil fields lose more than 3 mb/d per year despite slowing decline rates.

Output loss from post-peak conventional crude oil fields

© OECD/IEA 2017

Only limited uptick in global upstream spending

Producers spend more on short cycle supply, especially US LTO. Investments in conventional fields remain depressed, but some signs of renewed interest in offshore.

Global oil and gas upstream capital spending 2012-2018

-25%

-26%

*Preliminary based on selection of investment updates

0100200300400500600700800900

2012 2013 2014 2015 2016 2017 2018*

USD billion

© OECD/IEA 2017

China net crude oil imports double the US in 2023

0

2

4

6

8

10

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

mb/d

US

China

India

Indian imports, too, surpass the US in 2023 as shale growth reduces US import dependence.

Net crude oil imports

© OECD/IEA 2017

Gas Market (Mid-term to 2022)

© OECD/IEA 2017

Global gas demand growth is around 360 bcm in 2016-22

Gas demand growth focuses in developing countries

Developing countries account for around 90% of the incremental gas demandThe United States accounts for most of the growth in the developed economies

Developed economies

Developing economies

- 50

50

150

250

350

2016-22 2016-22

bcm

United StatesCanada

Australia

EuropeJapan + Korea

China

India

Middle East

Rest of the world

- 50

50

150

250

350

2016-22 2016-22

bcm

© OECD/IEA 2017

The United States accounts for 40% of global gas production growth

The Middle East will continue its production growth China will also show robust growth

Global gas production growth, 2016-22

- 40 0 40 80 120 160

Europe

Russia

Australia

China

Middle East

United States

bcm

United States

© OECD/IEA 2017

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

bcm

Others

Russia

Qatar

United States

Australia

Second wave of additional LNG supply is already coming online

Today, around 140 bcm of export capacity are under constructionAustralia and the United States account for 75% of them

Incremental LNG capacity , 2005 - 2022 (bcm)

© OECD/IEA 2017

Gas demand in developing countries reshaping the LNG market

China, India and other developing countries will import more than 50% of all LNG by 2022

LNG import volumes , 2012 - 2022 (bcm)

0

50

100

150

200

250

300

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

bcm

Other developing countriesIndiaChinaDeveloped countries

© OECD/IEA 2017

Gas emergency response measures

Gas Security is different from oil security; Stock are not common and more expensive

Use of alternative supply routes• Diversity of supply routes & sources is key• Pipeline (inc reverse capacity), LNG (spot cargoes)

Stocks (storage)• Industry and/or public stocks• Underground and/or LNG storage

Spare capacity• Domestic production, gas in pipelines

Demand-side measures• Interruptible contracts (pre-negotiated)• Public appeal (Government campaigns)• Fuel-switching

© OECD/IEA 2017

Oil Security

© OECD/IEA 2017

• Higher oil import costs, GDP losses

• Increased cost of production- More expensive petrol/diesel- But also more expensive goods- Less disposable income- Loss of jobs, businesses..

France, May 2016

Economic costs of disruptions

© OECD/IEA 2017

Public Industry

IEA North America

IEA Europe

IEA Pacific

676

1,567

Public Industry

475

965

Public Industry 423 433

Public Industry

IEA Total Oil Stocks

IEA Industry stocks65%

IEA Public stocks 35%

Total IEA stocks

Total IEA: 4.5 billion barrelsNote: data as of end- September 2017; figures in million barrels

© OECD/IEA 2017

Crude oil vs product

• IEA obligation does not specify - EU leg. requires 1/3 of stocks held as products

• Choice depends on several factors:- Price of storing products can be significantly higher- Countries with large refining industry will store more crude for flexibility

© OECD/IEA 2017

Stockholding Cost Analysis• Set-up costs:

- Land costs: buying or leasing terrain- Construction of facility- Purchase of stocks

• Operating costs: - Maintenance- Staff- Utilities- Insurance etc.

• Refreshment costs: to ensure product quality

(Source: IEA analysis of costs and benefits of stockholding, 2013; update in 2018 exected)

© OECD/IEA 2017

Economic benefits of stocks

• Payoff from “insurance”

• Over 30 years period USD 3.5 trillion avoided costs

Indicative annual benefits and costs per barrel of stock

© OECD/IEA 2017

Major Oil Supply Disruptions & IEA Stock Release

• Three coordinated stock releases since IEA established: 1991, 2005, & 2011- Not “trigger happy”

• Each disruption must be assessed individually- Market context critical- Severity of a disruption not only measured in oil lost

2.02.0

4.35.6

4.14.3

2.12.6

2.31.5

1.31.5

0.0 1.0 2.0 3.0 4.0 5.0 6.0

Nov 1956 - Mar 1957Jun - Aug 1967

Oct 1973 - Mar 1974Nov 1978 - Apr 1979Oct 1980 - Jan 1981Aug 1990 - Jan 1991

Jun - Jul 2001Dec 2002 - Mar 2003

Mar - Dec 2003September 2005September 2008Feb - Oct 2011

Gross peak supply loss (mb/d)

Libyan Civil WarHurricanes Gustav/IkeHurricanes Katrina/RitaWar in IraqVenezuelan strikeIraqi oil export suspensionIraqi invasion of KuwaitOutbreak of Iran-Iraq warIranian RevolutionArab-Israeli War and Arab oil embargoSix-Day WarSuez Crisis

© OECD/IEA 2017

Growing importance of non-OECD

* Based on World Energy Outlook 2016 “New Policies” Scenario

0

20

40

60

80

100

120

1974 2017 2030

World Oil Demand 1974-2030 (mb/d)

OtherNon-OECD

India +China

OECD

27%

ASEAN (6%)62%52%

© OECD/IEA 2017

Why is engagement with partner countries desirable?

In the future, IEA stocks alone can no longer compensate for global supply shortfalls

5.1

8.5 9.09.3

3.7 4.23.4 3.12.9

1.81.2 1.0

0.0

2.0

4.0

6.0

8.0

10.0

1974 2016 2030 2040

blnbarrels

90-days GlobalOil Demand

90-days OECDOil Demand

90-days NetImports (stockobligation)

© OECD/IEA 2017

• Association activated with China, Indonesia, & Thailand in 2015

• Since then, Morocco, Singapore, India and Brazil joined the Association

Enhanced collaboration in Energy Security is a win-win solution

Enhanced Cooperation with Association Countries

26

© OECD/IEA 2017

IEA & Association - Work Areas on Energy Security

• Shared priority to take common effective measures for oil supply emergencies

- By developing Emergency Response Systems

• Common intention to build & maintain emergency reserves- Collaborate with the IEA in their use in emergencies

• Work with the IEA to test the level of preparedness to meet supply disruptions

- Ex) Emergency Response Exercises, Emergency Response Assessments, etc.

© OECD/IEA 2017

IEA46%

Accession/Association

23%

Other ASEAN

3%

Others29%

Broadening Collective Oil Security beyond IEA Members

Participation of non-IEA member countries to Emergency Response Exercise marked concrete synergies between IE’s ‘open-doors’ policy and our core mandate: enhancing energy security.

Source: IEA Oil Information 2017

Together with Accession/Association countries, it represents almost 70% of global oil demand, compared to only 46% if limited to IEA member countries.

© OECD/IEA 2017

http://www.iea.org/topics/energysecurity/

Information on IEA energy security

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www.iea.orgIEA