© OECD/IEA 2010

World Energy Outlook 2010

Dr. Fatih Birol

IEA Chief Economist11 November 2010

© OECD/IEA 2010

The context: A time of unprecedented uncertainty

The worst of the global economic crisis appears to be over –but is the recovery sustainable?

Oil demand & supply are becoming less sensitive to price –what does this mean for future price movements?

Natural gas markets are in the midst of a revolution –will it herald a golden era for gas?

Copenhagen Accord & G-20 subsidy reforms are key advances –but do they go far enough & will they be fully implemented?

China & other emerging economies will shape the global energy future – where will their policy decisions lead us?

© OECD/IEA 2010

International oil price assumptions

The age of cheap oil is over, though policy action could bring lower international pricesthan would otherwise be the case

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1980 1990 2000 2010 2020 2030 2035

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Current Policies Scenario

New Policies Scenario

450 Scenario

© OECD/IEA 2010

Recent policy commitments,if implemented, would make a difference

Global energy use grows by 36%, with non-OECD countries – led by China,where demand surges by 75% – accounting for almost all of the increase

World primary energy demand by region in the New Policies Scenario

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© OECD/IEA 2010

Emerging economies dominatethe growth in demand for all fuels

Demand for all types of energy increases in non-OECD countries,while demand for coal & oil declines in the OECD

Incremental primary energy demand in the New Policies Scenario, 2008-2035

- 600 - 300 0 300 600 900 1 200 1 500

Other renewables

Hydro

Nuclear

Gas

Oil

Coal

Mtoe

OECD

China

Rest of world

© OECD/IEA 2010

Fossil-fuel subsidies are distortingprice signals

Fossil-fuel consumption subsidies amounted to $312 billion in 2009, down from $558 billion in 2008, with the bulk of the fall due to lower international prices

Economic value of fossil-fuel consumption subsidies by country, 2009 Ir

an

Saudi Ara

bia

Russ

ia

India

Chin

a

Egypt

Venezuela

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Uzbekis

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Ukra

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desh

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Gas

Oil

Coal

© OECD/IEA 2010

Booming demand for mobility in the emerging economies drives up oil use

The global car fleet will continue to surge as more & more people in China & other emerging economies buy a car, overshadowing modest growth in the OECD

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Other non-OECD

United States

Other OECD

Passenger vehicles in the New Policies Scenario

© OECD/IEA 2010

Oil production becomes less crude

Global oil production reaches 96 mb/d in 2035 on the back of rising output ofnatural gas liquids & unconventional oil, as crude oil production plateaus

World oil production by type in the New Policies Scenario

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1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

mb/d

Crude oil - fields yet

to be developed or found

Crude oil – currentlyproducing fields

Total crude oil

Unconventional oil

Natural gas liquids

© OECD/IEA 2010

More oil from fewer producers

Production rises most in Saudi Arabia & Iraq, helping to push OPEC’s market share from 41% today to 52% by 2035, a level last seen prior to the first oil shock of 1973-1974

Incremental oil production by key country in the New Policies Scenario, 2009-2035

0 1 2 3 4 5 6

Algeria

Libya

Nigeria

Qatar

Iran

Kuwait

UAE

Venezuela

Canada

Kazakhstan

Brazil

Iraq

Saudi Arabia

mb/d

OPEC

Non-OPEC

© OECD/IEA 2010

A golden age for gas?

Gas is set to play a key role in meeting the world’s energy needs

> demand rises by 44%, led by China & Middle East

Unconventional gas accounts for 35% of the increase in global supply to 2035, with new non-US producers emerging

Gas glut will peak soon, but may dissipate only very slowly

The glut will keep pressure on gas exporters to move away from oil-price indexation, notably in Europe

Lower prices could lead to stronger demand for gas, backing out renewables & coal in power generation

© OECD/IEA 2010

Coal remains the backbone of global electricity generation

A drop in coal-fired generation in the OECD is offset by big increases elsewhere, especially China, where 600 GW of new capacity exceeds the current capacity of the US, EU & Japan

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Coal-fired electricity generation by region in the New Policies Scenario

© OECD/IEA 2010

Renewables enter the mainstream….

The use of renewable energy triples between 2008 & 2035, driven by the power sector where their share in electricity supply rises from 19% in 2008 to 32% in 2035

Renewable primary energy demand in the New Policies Scenario

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European Union

United States

China

Brazil

India

Africa

OECD Pacific

Mtoe

2008

2035

© OECD/IEA 2010

….but only if there is enough government support

Government support remains the key driver – rising from $57 billion in 2009 to $205 billion in 2035 – but higher fossil-fuel prices & declining investment costs also spur growth

Annual global support for renewables in the New Policies Scenario

Billion d

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ars

(2009)

Biofuels

Renewables-based electricity

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© OECD/IEA 2010

China becomes the market leaderin low-carbon technologies

Passenger car sales

Capacity additions

China’s share of cumulative global additions to 2035 for selected technologies

Given the sheer scale of China’s market, its push to expand the role of low-carbon energy technologies is poised to play a key role in driving down costs, to the benefit of all countries

85 GW

335 GW

105 GW

0%

10%

20%

30%

Solar PV Wind Nuclear Electric &plug-in hybrids

8.5 million

vehicles

© OECD/IEA 2010

Caspian energy riches could enhance global energy security

Kazakhstan drives an increase in Caspian oil production to 5.2 mb/d by 2035,while Turkmenistan & Azerbaijan push up gas production to over 310 bcm

Caspian oil & gas outlook in the New Policies Scenario

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Oil net exports Inland oil consumption

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Gas net exports Inland gas consumption

© OECD/IEA 2010

The 450 Scenario:A roadmap from 3.5C to 2C

The 450 Scenario sets out an energy pathway consistent with limiting the increase in temperature to 2C

Assumes vigorous implementation of Copenhagen Accord pledges to 2020 & much stronger action thereafter

The failure of the Copenhagen Accord pledges:

> As many lack transparency, there is 3.9 Gt of uncertainty over the level of abatement pledged to 2020

> As many lack ambition, the cost of achieving the 2 C goal has increased by $1 trillion in 2010-2030 compared with WEO-2009

© OECD/IEA 2010

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2008 2015 2020 2025 2030 2035

Gt

New Policies Scenario35.4 Gt

The 450 Scenario: How do we get there now?

In the 450 Scenario, China & the US together account for 50% of the cumulative emission abatement that is needed in 2010-2035

450 Scenario

21.7 Gt

World energy-related CO2 emission savings by country in the 450 Scenario

China 32%

United States 18%

European Union 8%

India 7%

Middle East 4%

Russia 4%

Rest of world 27%

Share of cumulative abatement between 2010-2035

13.7 Gt

© OECD/IEA 2010

Achieving the 2°C goal will require rapid decarbonisation of global energy

Carbon intensity would have to fall at twice the rate of 1990-2008 in the period 2008-2020 & almost four times faster in 2020-2035

Average annual change in CO2 intensity in the 450 scenario

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6%

1990-2008 2008-2020 2020-2035

A four-fold increase needed

© OECD/IEA 2010

A fundamental change is neededin power generation

Low-carbon technologies account for over three-quarters of global power generation by 2035 in the 450 Scenario, a four-fold increase on today

Share of world electricity generation by type and scenario

Additional low-carbon generationin the 450 Scenario

Low-carbon generation in the NPS

Fossil-fuel fired generation

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2010 2015 2020 2025 2030 2035

in the 450 Scenario

© OECD/IEA 2010

… and also in transport

Plug-in hybrids & electric vehicles reach 39% of new sales by 2035, making a big contribution to emissions abatement, thanks to a major decarbonisation of the power sector

Sales of plug-in hybrid and electric vehicles in the 450 Scenario

CO2 intensity in

power generation

(right axis)

Electric vehicles

Plug-in hybrids

& CO2 intensity of the power sector

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© OECD/IEA 2010

Will peak oil be a guest or the spectreat the feast?

Oil demand peaks at 88 mb/d before 2020 & falls to 81 mb/d in 2035, with a plungein OECD demand more than offsetting continuing growth in non-OECD demand

Oil demand in the 450 Scenario

World demand in450 Scenario

Inter-regional

(bunkers)

Other non-OECD

India

China

OECD

Right axis:

2009 2015 2020 2025 2030 2035

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© OECD/IEA 2010

Combating climate change will bring economic benefits as well as costs

In the 450 Scenario, annual spending on oil imports in 2035 by the five largest importersis around $560 billion, or one-third, lower than in the New Policies Scenario

Oil-import bills as share of GDP in selected countries

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Japan IndiaUnited

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Union

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2035: New Policies Scenario

2035: 450 Scenario

© OECD/IEA 2010

Summary & conclusions

Recently announced policies can make a difference, but fall well short of what is needed for a secure & sustainable energy future

Lack of ambition in Copenhagen has increased the cost of achieving the 2C goal & made it less likely to happen

> Unless commitments are fully implemented by 2020, it will be all but impossible to achieve the goal

The age of cheap oil is over, though policy action could bring lower international prices than would otherwise be the case

Renewables are entering the mainstream, but long-term support is needed to boost their competitiveness

Getting the prices right, by phasing-out fossil-fuel subsidies, is the single most effective measure to cut energy demand