2003 INSIGHTS

WORLDENERGYINVESTMENTOUTLOOK

INTERNATIONALENERGYAGENCY

Global Strategic Challenges

� Security of energy supplies

� Threat of environmental damage caused byenergy use

� Uneven access of the world’s population tomodern energy

� Investment in energy-supply infrastructure

Global Energy Global Energy

Investment OutlookInvestment Outlook

World Energy Investment

2001-2030

Total investment: 16 trillion dollars

Oil 19%

Electricity60%

Coal 2%Gas 19%

OtherRefining

E&D 72%

13%15%Other

Refining

E&D 72%

13%15%

E&D

LNG Chain

T&D andStorage

55%

37%

8%

E&D

LNG Chain

T&D andStorage

55%

37%

8%

Powergeneration

T&D54%

46% Powergeneration

T&D54%

46%

Mining

Shippingand ports

12%

88% Mining

Shippingand ports

12%

88%

Production accounts for the majority of investment in the supplychain – except for electricity

Energy Investment by Region 2001-2030

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

OECD

North

America

China OECD

Europe

Other Asia Africa Russia Middle East OECD

Pacific

Other Latin

America

India Other

transition

economies

Brazil

cum

ulat

ive

inve

stm

ent(

billi

ondo

llars

)

0

5

10

15

20 sharein

globalinvestment(%

)

OECD Europe will account for around 15% of global energyinvestment needs of $16 trillion

Energy Investment Share in GDP2001-2030

0 1 2 3 4 5 6

OECD

Latin America

Other Asia

India

China

Middle East

Other transition economies

Africa

Russia

per cent

World average

The share of energy investment in the economy is much higher indeveloping countries and the transition economies than in the OECD

Global Oil Investment Global Oil Investment

World Oil Production

0

20

40

60

80

100

120

1980 1990 2000 2010 2020 2030

mb/

d

OPEC - Middle East OPEC - OtherNon-OPEC Non-conventional oil

OPEC countries – mainly in Middle East – will account for almostall the increase in world oil production to 2030

World Oil Investment

0

200

400

600

800

1,000

1,200

2001-2010 2011-2020 2021-2030

billi

ondo

llars

Exploration & development Non-conventional oil GTLRefineries Tankers Pipelines

Upstream will continue to dominate oil investment, but the sharesof tankers and GTL increase over projection period

Oil Investment by Region

Most investment outside the OECD will be needed in the MiddleEast and the transition economies – mainly in the upstream

0 5 10 15 20 25 30 35

OECD

Middle East

Transition economies

Africa

Latin America

Asia

billion dollars per year

Exploration & development Non-conventional oil Refineries

Oil Production and Capacity

Additions

0

50

100

150

200

250

2000 2030 2001-2030

mb/

d

Production Expansion to meet demand growth Replacement to maintain capacity

The bulk of additions to crude oil production capacity will beneeded simply to maintain capacity

Investment Investment

Uncertainties & Uncertainties &

ChallengesChallenges

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

Global Upstream Oil and Gas

Investment & Crude Oil Price

0

50

100

150

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

billi

ondo

llars

0

5

10

15

20

25

30

35

$/barrel

Investment WTI price (right axis)

Upstream investment is sensitive – with a lag of a year or so – tomovements in oil prices

Access to Oil Reserves

Nationalcompanies only(Saudi Arabia,

Kuwait, Mexico)35%

Limited access -National

companies22%

Productionsharing

12%

Concession21%

Iraq10%

1,032 billion barrels

Access to much of the world’s remaining oil reserves is restricted

Iraq Oil Investment Scenarios

0

10

20

30

40

50

60

2 3 4 5 6 7 8 9 10

production (mb/d)

cum

ulat

ive

inve

stm

ent(

billi

ondo

llars

Restoration of production capacity Slow production expansion

Reference Scenario Rapid production expansion

2010

2010

2010

2020 2020

20202030

2030

2030

0

10

20

30

40

50

60

2 3 4 5 6 7 8 9 10

production (mb/d)

cum

ulat

ive

inve

stm

ent(

billi

ondo

llars

Restoration of production capacity Slow production expansion

Reference Scenario Rapid production expansion

2010

2010

2010

2020 2020

20202030

2030

2030

Iraq will need to invest around $5 billion to raise oil productioncapacity to almost 4mb/d by 2010 in the Reference Scenario

Restricted Middle East Restricted Middle East

Oil Investment Oil Investment

ScenarioScenario

Restricted Middle East

Oil Investment Scenario

OPEC Middle East Share in Global Oil Supply

0

10

20

30

40

50

1970 1980 1990 2000 2010 2020 2030

perc

ent

Restricted Investment Scenario Reference Scenario

OPEC Middle East’s share of global oil production is assumed toremain flat at under 30% in Restricted Investment Scenario

OPEC Oil Revenues, 2001- 2030

Restricted Investment vs Reference Scenario

6,000

8,000

10,000

12,000

OPEC OPEC Middle East

billi

ondo

llars

Reference Scenario Restricted Investment Scenario

Oil revenues in OPEC Middle East producers are substantiallylower in the Restricted Investment Scenario

Oil Concluding Remarks

� Global investment of $3 trillion needed in 2001-2030� Investment more sensitive to decline rate than rate of

demand growth – most investment needed just to maintaincurrent production level

� Major uncertainties about opportunities and incentives toinvest, 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 globalinvestment needs, lower OPEC revenues & harm globaleconomy

� Enhanced consumer-producer dialogue to help facilitatecapital flows

Natural Gas Natural Gas

Investment OutlookInvestment Outlook

Gas E&D Investment & Incremental

Production

2001 - 2030

Middle East8%

OECD48%

Othe20%

Transitioneconomies

15%

Africa9%

Africa17%

MiddleEast23%

Other32%

OECD10%

Transitioneconomies

18%

E&D Investment Incremental Production

$ 1.7 trillion 2,767 bcm

Middle East8%

OECD48%

Othe20%

Transitioneconomies

15%

Africa9%

Africa17%

MiddleEast23%

Other32%

OECD10%

Transitioneconomies

18%

E&D Investment Incremental Production

$ 1.7 trillion 2,767 bcm

OECD countries will account for almost half total upstream gasinvestment, but only 10% of additional production

Net Inter-regional Trade

& Production

0

600

1,200

1,800

2,400

3,000

3,600

4,200

4,800

5,400

2001 2010 2020 2030

bcm

Production LNG trade Pipeline trade

A growing share of gas will be traded between regions, much of itin the form of LNG

LNG Shipping Fleet

0

50

100

150

200

250

300

350

400

in operation (2001) additions 2002-2030

num

bero

fshi

ps

Liquefaction project developers LNG buyersOil & gas companies Ship ownersProjected

On orderin 2001}On orderin 2001}

A 6-fold increase in LNG trade between 2002 and 2030 will call formassive investment in new carriers

Indicative LNG Unit Capital Cost

0

100

200

300

400

500

600

700

Mid-1990s 2002 2010 2030

dolla

rspe

rton

neof

capa

city

Liquefaction Shipping Regasification

The recent dramatic fall in LNG costs is expected to continue

Levelised Cost of LNG Imports

into US Gulf Coast

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Trinidad Nigeria Venezuela Egypt Qatar

$/M

Btu

Upstream Liquefaction Shipping Regasification

Henry-Hub average price, 1998-2002

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Trinidad Nigeria Venezuela Egypt Qatar

$/M

Btu

Upstream Liquefaction Shipping Regasification

Henry-Hub average price, 1998-2002

Lower capital costs are making LNG imports more economic – andmore competitive with domestic supply projects

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 newinvestment will be private

� Impact of market reforms on investment risk – long-termcontracts will remain necessary

These factors could lead to shortfall in investment, supplybottlenecks and higher prices in some cases

Electricity Investment Electricity Investment

OutlookOutlook

Electricity Sector Investment by

Region 2001-2030

China will need more electricity investment than any othercountry or region

0

500

1,000

1,500

2,000

2,500

China OtherAsia

LatinAmerica

Africa MiddleEast

US andCanada

EuropeanUnion

OECDPacific

OtherOECD

Russia Rest ofTE

billi

ondo

llars

0

500

1,000

1,500

2,000

2,500

China OtherAsia

LatinAmerica

Africa MiddleEast

US andCanada

EuropeanUnion

OECDPacific

OtherOECD

Russia Rest ofTE

billi

ondo

llars

Average Age of Power Plants Average Age of Power Plants

in the OECDin the OECD

0

200

400

600

800

1,000

<20 years >20 years

GW

Fossil Nuclear

U.S. Privately Owned Utilities

Profit Margin

0%

2%

4%

6%

8%

10%

12%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

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 & renewablesare key drivers of future investment in generation

� Wind power will be primary renewable source – calling forinvestment in voltage regulation & network reinforcement

� New capacity investment may be delayed as investors waitto see what environmental policies – including possibleclimate action – are enacted

� Higher investment costs for new capacity may delaydecommissioning of old plants and raise emissions

0

200

400

600

800

1,000

1,200

1971-1980 1981-1990 1991-2000 2001-2010 2011-2020 2021-2030

GW

Power Generation Capacity

Additions in Developing Countries1971-2000

Developing countries will need to add increasing amounts of newgenerating 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%

OECD China India Indonesia Russia Brazil Africa

1991-2000 2001-2010

Medium-term electricity sector investment needs will increaserelative to GDP in almost all non-OECD regions

Power Sector Private Investment in

Developing Countries

0

5

10

15

20

25

30

35

40

45

50

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

billi

ondo

llars

Developing countries will need to reverse the slump in privatecapital flows if projected investment is to be forthcoming

Energy Investment Challenge

� Total investment requirements are modest relative toworld GDP, but challenge differs by region

� Energy and financial resources are sufficient, butincreasing competition for capital and higher risk

� Capital needs are largest for electricity

� Half total energy investment is needed in developingcountries – where financing will be hardest

� Production accounts for the bulk of investment – morethan 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 advancedtechnologies – carbon sequestration, hydrogen, fuel cells,advanced nuclear reactors, etc. – could speed theirdeployment and dramatically alter energy investmentpatterns and requirements to 2030