Disclaimer

1

The views in this presentation reflect those of the author

and not necessarily those of the IMF or its Executive

Board.

Scarcity perspectives on oil, gas, and coal

Energy supply, fossil fuels, and global economic growth

Road Map

A resource scarcity perspective on fossil fuels

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Global Primary Energy Consumption and Real GDP Global growth is tightly linked with energy consumption. Some economists claim that the cost/consumption

share of energy do not appropriately capture the role of energy in economic growth (e.g., impact of TFP).

Global real GDP

=0.88

Source: IMF, World Economic Outlook; and BP, Statistical Review of World Energy, 2011.

Global Primary Energy Consumption and Real GDP Primary energy consumption has risen faster in emerging and developing economies, reflecting higher and more

energy-intensive growth. these economies accounted for 60 % of global consumption in 2010 (48% in 2000).

Source: IMF, World Economic Outlook; and BP, Statistical Review of World Energy, 2011.

Baseline Scenario: Weak Growth in Advanced Economies and Robust Growth in

Emerging Markets and Developing Economies

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Real GDP1

(index; 2006 = 100)

2006 08 10 12 14 16

1Precrisis trend obtained by extrapolating 1996-2006 real GDP growth.

Real GDP Growth(percent change from a year earlier)

Primary Energy Consumption and Per Capita IncomeEnergy consumption is much more income-elastic at lower levels of per capita income.

Primary Energy Consumption(In billions of Btu per capita)

Taiwan Province of China

Korea

China

Predicted

relationship

for China

Pe

r ca

pit

a e

ne

rgy

con

sum

pti

on

PPP-weighted per capita real GDP (in thousands of 2005 U.S. dollars)

Turkey

Mexico

Hong Kong SAR

Thailand

Malaysia

Fossil FuelsNonrenewable ResourcesAre the Dominant

Sources of Primary Energy

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Fossil Fuel Prices Suggest Partial Scarcity

8Source: IMF, Primary Commodity Price System.

Resource Scarcity and its Measurement

Resource is scarce if supply is deficient relative to

some specified level of demand.

Resource scarcity is measured by the market price,

which reflects the opportunity cost of bringing an

additional unit to the market.

Focusing on long-term resource price developments

as a measure of scarcity and long implementation

lags (e.g. super cycle).

Long-run real price trends recovered by low-pass

filters.

Fossil Fuel Scarcity

The global oil markets has entered a period of increased scarcity

Oct.

2010

Crude Oil I(0)1

Oct.

2010

Energy Commodities2

Sources: Global Financial Data; IMF Primary Commodity Price System; and IMF staff calculations.

1U.S. dollardenominated commodity prices are deflated by the U.S. consumer price index in log deviations from the sample mean. Deviation between filtered components and price

is accounted for by noise, business cycle frequencies, and random walk drift where I(1).

2First-principal component (standard deviation from mean) normalized to have unit variance.

Oil Scarcity in the Mid-2000sGlobal crude oil production stagnated in 2005-08 when the drag from maturing oil fields in major

producing countries was not offset by new capacity.

World Oil Production1

(million barrels a day)Oil Production by Major Groups2

(million barrels a day)

Stagnation

09

Previous peak

(1979)

Previous peak

(1988)

Sources: BP, Statistical Review of World Energy.1Piecewise linear trend.2FSU = former Soviet Union; OPEC = Organization of Petroleum Exporting Countries.

Oil Supply Capacity AdjustmentThe oil supply side has responded to price signals. Exploration and development have increased

while technological advances have enhanced the range of fields for profitable extraction. But

long time to build lags and obstacles to investment have prevented rapid capacity increases.

International Rotary Rig Count by

Region

(level)

United States PPI for Oil and Gas

Drilling and Price of WTI1

(December 1985 = 100)

11Sources: Bakker Hughes; BP, Statistical Review of World Energy; and Haver Analytics.1PPI = producer price index; WTI = West Texas Intermediate.

PPI

WTI

Oil Demand Supply Balance(annual change, in percent)

Avg. 2011-16

Demand

World 1.3

Advanced economies -0.6

Emerging and developing economies 3.1

Supply

World 1.5

Non-OPEC 0.8

OPEC (incl. NGL) 2.6

Memorandum

Oil demand growth implied by WEO growth forecast1

Short-term income elasticity 3.0

Long-term income elasticity 1.3

Source: IEA, Medium-term Oil Market Report, updated June 2011; and IMF staff

estimates.1Estimates from Chapter 3 in April 2011 World Economic Outlook, (Table 3.1)

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Medium-term Risks in the Oil Demand-Supply

Balance Remain A Concern

Coal and Gas Are Relatively More AbundantReserve conditions are more favorable for coal and gas than for crude oil. Gas and coal are also less traded

internationally, which has made them key sources in domestic primary energy in some countries.

14Source: IMF, World Economic Outlook; and BP, Statistical Review of World Energy, 2011.

Natural gas supply is expected to grow more rapidly than other fossil fuels.

Continued rapid growth in primary energy consumption of emerging Economies.

Conclusions

Adjustment to increased scarcity in the global oil market but speed of adjustment likely to remain slow

through the decade.

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