© OECD/IEA 2014

Dr. Fatih BIROL IEA Chief Economist

Brussels, 14 January 2015

© OECD/IEA 2014

Signs of stress in the global energy system

Current calm in markets should not disguise difficult road ahead

Turmoil in the Middle East raises doubts over future oil balance

Resurgent debate over the security of gas supply to Europe

Mixed signals in run-up to crucial climate summit in Paris in 2015

Global CO2 emissions still rising, with most emitters on an upward path

At $550 billion, fossil fuel subsidies over four-times those to renewables

Increasing emphasis on energy efficiency starting to bring results

Will change in global energy be led by policies, or driven by events?

© OECD/IEA 2014

Changing dynamics of global demand

Energy demand by region

As China slows, then India, Southeast Asia, the Middle East and parts of Africa & Latin America take over as the engines of global energy demand growth.

2 000

4 000

6 000

8 000

10 000

1990 2000 2010 2020 2030 2040

Mtoe

OECD

Rest of world

China

China

Rest of world

OECD

© OECD/IEA 2014

Rich in resources

In the last 5 years, almost 30% of global oil & discoveries were in sub-Saharan Africa;

Hydro

Wind Oil

Oil

Oil

Oil Gas

Gas

Oil

Coal

Gas

Fossil fuels

Solar

the region has vast untapped renewables potential, notably hydropower & solar

© OECD/IEA 2014

Power sector investment, regional cooperation & improved management of resources & revenues are three pillars of a brighter sub-Saharan energy future

Less than 50% More than 50%

Share of population with access to electricity:

Rich in resources, but poor in supply

2012 2020 2025 2030 2035 2040

200

400

600

800

Mill

ion

Population without electricity

© OECD/IEA 2014

2013 2020 2030 2040 2015

Instability in the Middle East a major risk to oil markets

Oil production growth

The short-term picture of a well-supplied market should not obscure future risks as demand rises to 104 mb/d & reliance grows on Iraq & the rest of the Middle East

+5

+10

+15

-5 2013 2020 2030 2040 2015

Net decline in output from other producers

Increase to 2040: 14 mb/d

mb/d

Increase to 2040: 14 mb/d

Middle East

Brazil

Canada United States

& reliance grows on Iraq & the rest of the Middle East

in United States, Canada, Brazil & the Middle East

© OECD/IEA 2014

Looking ahead on the oil price

Against a backdrop of weaker demand, buoyant supply in North America has brought prices down – but can it keep them down?

Lower prices are starting to curtail upstream spending plans, with implications for future supply

Over time, squeezed cash flow would constrain the capacity of North America & Brazil to act as engines of global supply growth

Current oil price levels could provide some breathing space to major oil importers, boosting demand & GDP

It would also accelerate reliance on low-cost producers in the Middle East, some of which face major investment challenges

© OECD/IEA 2014

India

World

Global coal demand leveling off

Global coal demand by key region

Global coal demand growth slows rapidly due to more stringent environmental policies, underlining the importance of high-efficiency plant & CCS to coal’s future

1 000

2 000

3 000

4 000

5 000

6 000

7 000

1980 1990 2000 2010 2020 2030 2040

Mtce

1987: European coal demand peak 2005: US coal demand peak

Chinese coal demand plateau

India: 2nd largest coal consumer by 2020

Other

India

China

United States Europe

© OECD/IEA 2014

Retirements add to the investment challenge in the power sector

Power capacity by source, 2013-2040

Despite limited demand growth, OECD countries account for one-third of capacity additions – to compensate for retirements & to decarbonise

2013

Retirements Additions

2040

2 000

4 000

6 000

8 000

10 000

12 000 GW

Renewables

Nuclear

Oil

Gas

Coal

© OECD/IEA 2014

Renewables supply half of the growth in global power demand; wind & solar PV

Renewables-based power generation

Renewables overtake coal to become the leading source of power

Hydropower Generation

wind & solar PV subsidies decline from 2030 as costs fall & recent higher-cost commitments expire

Wind and solar PV

1 000

2 000

3 000

4 000

5 000

6 000

2013 2020 2040 2013 2030 2040

TWh

2030 2020

7 000

© OECD/IEA 2014

Nuclear capacity grows by 60%, but no nuclear renaissance in sight

Net capacity change in key regions, 2013-2040

By 2040, an expanded nuclear fleet has saved almost 4 years of current CO2 emissions & for some countries has improved energy security & balances of energy trade

-20 0 20 40 60 80 100 120 140

European Union

Japan

United States

Russia

India

China

GW

© OECD/IEA 2014

50

100

150

200

1990 2000 2010 2020 2030 2040

GW

2013

Nuclear power: public concerns must be heard and addressed

Retirements of nuclear power capacity 1990-2040

Key public concerns include plant operation, decommissioning & waste management;

Spent nuclear fuel

European Union United States Japan Others

38% of today’s capacity to retire

by 2040

1971-2012 350 thousand tonnes

1971-2040 705 thousand tonnes

1971-2040: 705 thousand tonnes

United States European Union

Japan China

Cana

da Russia Korea

Indi

a

Other

By 2040, almost 200 reactors are retired & the amount of spent fuel doubles

& the amount of spent fuel doubles

© OECD/IEA 2014

The entire global CO2 budget to 2100 is used up by 2040 – Paris must send a strong signal for increasing low-carbon investment four times beyond current levels

The 2 °C goal – last chance in Paris?

World CO2 budget for 2 °C ~2300 Gt

25%

50%

75%

100%

Share of budget used in Central Scenario

1900-2012

2012-2040

Average annual low-carbon investment, 2014-2040

Central Scenario

For 2°C target

2013

CCS Nuclear Renewables Efficiency

The entire global CO2 budget to 2100 is used up by 2040

0.5

1.0

1.5

2.0

Trill

ion

dolla

rs (2

013)

© OECD/IEA 2014

Navigating a stormy energy future

Geopolitical & market uncertainties are set to propel energy security high up the global energy agenda

Volatility in the Middle East raises short-term doubts on investment & spells trouble for future oil supply

Without clear direction from Paris in 2015, the world is set for warming well beyond the 2 °C goal

Far-sighted government policies are essential to steer the global energy system on to a safer course

Reconciling competitiveness, the imperatives of energy security and climate change will be critical for European policy-makers in 2015