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World Energy Outlook Dr. Fatih Birol

IEA Chief EconomistBrussels, 29 April 2014

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The world energy scene today

Some long-held tenets of the energy sector are being rewritten Countries are switching roles: importers are becoming exporters… … and exporters are among the major sources of growing demand New supply options reshape ideas about distribution of resources

But long-term solutions to global challenges remain scarce Renewed focus on energy efficiency, but CO2 emissions continue to rise

Fossil-fuel subsidies increased to $544 billion in 2012 1.3 billion people still lack electricity – in Africa and South Asia

Energy prices add to the pressure on policymakers Sustained period of high oil prices without parallel in market history Large, persistent regional price differences for gas & electricity

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Growth in US shale gas output since 2005 is equivalent to the total production of Qatar, Kuwait, UAE and Iraq combined; while shale oil output is equal to that of Iraq

Unconventional oil and gas has made a major contribution to global production

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50

100

150

200

250

300

Gas

bcm

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Oil

mb/d

US shale gas and shale oil production increases: 2005-2014

while shale oil output is equal to that of Iraq

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Who has flooded the markets?

Incremental steam coal exports

The US accounted for only 7% of the increase in global steam coal exports since 2007

020406080

100120140160180200

2009 2010 2011 2012 2013

Mt Indonesia

United States

Australia

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The slowdown in Chinese demand caught the industry off-guard

Coal demand in China: real demand vs historical trend

China’s move away from coal will be a far greater determinant of the direction of the coal markets than the shale gas revolution in the US

3000

3200

3400

3600

3800

4000

4200

4400

2010 2011 2012 2013

Mt

Real consumption

Historical trend

Curbing in China ≈ 20 times US exports increase in 2012

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A mix that is slow to change

Growth in total primary energy demand

Today's share of fossil fuels in the global mix, at 82%, is the same as it was 25 years ago; the strong rise of renewables only reduces this to around 75% in 2035

500 1 000 1 500 2 000 2 500 3 000

Nuclear

Oil

Renewables

Coal

Gas

Mtoe

1987-2011

2011-2035

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US emissions on a downward trend

Energy-related CO2 emissions in the United States

CO2 emissions fell sharply since the shale gas revolution, but rebounded last year on the back of a partial gas-coal switch and increased industrial activity

4.0

4.5

5.0

5.5

6.0

6.5

1990 1995 2000 2007 2012 2013

Gt CO2

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Non-OECDOECD

Emissions off track in the run-up to the 2015 climate summit in France

Cumulative energy-related CO2 emissions

Non-OECD countries account for a rising share of emissions, although 2035 per capita levels are only half of OECD

200

400

600

800Gt

1900-1929

1930-1959

1960-1989

1990-2012

2013-2035

OECD

Non-OECD

Total emissions1900-2035

51%

49%

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3×

4×

5×

2003

Regional differences in natural gas prices narrow from today’s very high levels but remain large through to 2035; electricity price differentials also persistelectricity price differentials also persist

20132035

Reductionfrom 2013

Who has the energy to compete?

Ratio of industrial energy prices relative to the United States

United States

2×

Japan EuropeanUnion

China

ElectricityNatural gas

2003

Japan EuropeanUnion

China

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Energy-intensive industries need to count their costs

Share of energy in total production costs for selected industries

Energy-intensive sectors worldwide account for around one-fifth of industrial value added, one-quarter of industrial employment and 70% of industrial energy use.

10% 20% 30% 40% 50% 60% 70% 80% 90%

Glass

Pulp & paper

Iron & steel

Cement

Aluminium

Fertilisers

Petrochemicals

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An energy boost to the economy?

Share of global export market for energy-intensive goods

The US, together with key emerging economies, increases its export market share for energy-intensive goods, while the EU and Japan see a sharp decline

Today 36% 10% 7% 7% 3% 2%

European Union

United StatesChina IndiaMiddle East

Japan

-3%

-10%

+3%+2% +2%+1%

while the EU & Japan see a sharp decline

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LNG from the United States can alleviate strain on the gas markets, but is no silver bullet

Indicative economics of LNG export from the US Gulf Coast

New LNG supplies accelerate movement towards a more interconnected global market, but high costs of transport between regions mean no single global gas price

Average import price

Liquefaction, shipping& regasification

United States price3

6

9

12

15

18

To Asia

$/MBtu

3

6

9

12

To Europe

$/MBtu

but high costs of transport between regions mean no single global gas price

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A Third Way for Europe: balancing competitiveness & sustainability

The high cost of energy in Europe is a structural issue, not a one off

Europe’s share of the global export market for energy-intensive goodsis set to decline substantially by 2035, directly impacting 30 million jobs

Both competitiveness & sustainability are crucial issues for Europe, but it must not be seen as an “either-or” choice

improve energy efficiency

negotiate more competitive terms for natural gas imports

develop renewables, nuclear power & unconventional gas

complete the internal energy market

2014 a key year for Europe energy policy, it will shape its long-term prosperity & could provide powerful inspiration for others to follow