EEJ Outlook 2018 IEEJ 2017

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2 Introduction 2 IEEJ Outlook Prospects & Challenges up to 25 IEEJ Outlook 218 Prospects and challenges until 25 Energy, Environment and Economy Executive summary Today s Topic October 217 The Institute of Energy Economics, Japan The Role of Coal & LNG in Asia s Future Energy Mix : Defying the odds? Introduction of Panelists 2

3 Asia/World Energy Outlook 218 Prospects and Challenges up to 25 3 IEEJ Outlook 218 Prospects and challenges until 25 Energy, Environment and Economy Available soon on our website Executive summary October 217 The Institute of Energy Economics, Japan

4 Overview of the current global energy market 4 Although the trend of Asia as leading the global energy market remains unchanged, developments in the US and China, which accounts for 4% of the energy market, must be carefully monitored. World coal demand dropped for two years in a row (US and China largely) while oil and gas grew. China s coal consumption declined for the third consecutive year (216, BP). Discussions on Peak Oil (supply) of the 2s are now changing to Peak Demand. Note the recent movements that aim to ban the sale of internal combustion engine vehicles. CO 2 emissions dropped in 215 but increased again in 216. India and ASEAN showed big increases despite the declined observed in the US and China. Paris Agreement calls for Long-term low greenhouse gas emission development strategies by 22. This Outlook expands its estimation period to 25. 4

5 Scenarios in this Outlook 5 #Reference Scenario Reflects past trends with current energy and environment policies. Does not reflect any aggressive policies for low-carbon measures. #Advanced Technologies Scenario Assumes the introduction of powerful policies to enhance energy security and address climate change issues. It promotes utmost penetration of low-carbon technologies. #Oil Demand Peak Case Assumes a more rapid introduction of electric drive vehicles than in the reference scenario, to analyze the possibilities of oil demand peak. 5

6 Carbon free technology Energy efficiency Examples for Technology 6 Vehicle technology (ZEV *1 sales share) Reference 9% in 23 2% in 25 Advanced Technologies 21% 43% Peak Oil Demand 3% 1% Coal-fired power generation (CCT share in newly installed capacity) Installed capacity PV Wind Nuclear Thermal power generation with CCS 3% in 23 9% in 25 (215 to 25).2 to 1.5 TW.4 to 1.9 TW.4 to.6 TW none 7% 1% (25) 2.5 TW 3. TW 1. TW Newly installed after 23 Same as Reference (Only countries and regions with CO 2 storage potential excluding aquifers) *1 ZEV: battery electric vehicles, plug-in hybrid electric vehicles and fuel cell battery vehicles *2 CCT: ultra super critical, advanced-usc and integrated coal gasification combined cycle 6

7 7 Energy Outlook up to 25

8 Non-OECD <Reference> Energy market shifting to southern Asia 8 Global Population, GDP and Energy Growth in Primary Energy Y215=1 GDP 255 Energy Population Mtoe China India ASEAN Other Asia *MENA **SS Africa Latin America 5 Europe Intl. bunkers OECD * Middle East and North Africa, **Sub-Saharan Africa 8

9 KAYA Identity (not Kaya toast) 9 GDP 155% 32% SDG Emissions = Population X GDP X Energy X Emissions capita GDP Energy ZERO ZERO 7% 9

10 <Reference> High dependence on fossil fuels continues 1 Growth in Primary Energy Energy Mix Energy-related CO 2 Renewables Nuclear Asia* RoW** 2 Gtoe GtCO Natural Gas Oil % 79% Coal Gtoe * Non-OECD Asia, **Rest of the world 1

11 <Advanced Technologies> Drawing another path Advanced Technologies Scenario 11 Global Primary Energy Reduction Effects by ATS in Gtoe Gtoe Industry other fuels elec. Up-to-date Technologies Cumulative Reduction 4Gt Reference 17.2 Advanced Technology Transport Building Power Generation other fuels other fuels transmission losses* elec. generation loss elec. Efficiency Improvement Efficiency Improvement Efficiency Improvement and Zero-emission Generation * Including station service power 11

12 <Advanced Technologies> Zero-emission Generation occupies two thirds 12 Global Power Generation Global Power Capacity 5 PWh 14 TW % 34% 62% 66% Reference ATS 6% 6% 34% Nonfossil Fossil with CCS Fossil % 47% VRE* Other RE Hydro Nuclear 1% Gas Oil Coal Reference ATS * Variable Renewable Energy includes PV, CSP, wind and marine. 12

13 <Advanced Technologies> Coal falls significantly and below renewables 13 Primary Energy Effects by ATS in 25 6 Gtoe 5 (solid line: ATS, dotted line: reference) Coal Generation Gtoe 4 Oil Oil Transport Coal Gas Renewables Gas Nuclear Generation Generation Nuclear Renewables Generation 13

14 <Advanced Technologies> CO 2 emissions peak in the middle of 22s 14 Energy-related CO 2 Emissions Reductions by technology 5 GtCO En e rg y Efficie n cy Biofu e ls W in d, Sola r, e tc. N u cle a r Fu e l Sw itch in g CCS 6.2Gt.4Gt 3.6Gt 2.2Gt.5Gt 1.5Gt 2 Re fe ren ce ATS 14.4Gt H a lv e 14

15 15 Peak Oil Demand Case

16 Transportation, especially cars, drives oil demand Mb/d Mb/d 16 Oil consumption [Reference Scenario] Oil for Road [Reference Scenario] Road 48 Other transport Nonenergy use Non- OECD OECD 15 2 Others

17 The time for car electrification has come? 17 Selected recent movements by governments/assemblies and car makers Germany Norway A resolution to ban conventional car sales in the European Union by 23 was passed by the Bundesrat of Germany (216) The ruling and opposition parties proposed the abolition of conventional vehicles by 225 (216) Toyota Volkswagen The target for FCV sales is more than 3,/year in 22 (215). Reported of fullscale entry into EVs in 22 (216) Announced the strategy to increase EV share in its total sales to 25% with more than 3 models of EVs by 225 (217) The Government announced that it would ban conventional car sales by 24 (217) Introducing 12 models of EVs by 222. The target of 3% of its total sales as EVs (217) France Renault-Nissan The Government announced that it would ban conventional car sales by 24 (217) The plan to prepare EVs at all line up by 22 (215) United Kingdom Hyundai Minister said that all new car sales after 23 would be electric vehicles (217) Announced that eco-cars combined with EVs and HEVs will be raised to 7% by 225 (217). India Ford China Deputy Minister mentioned that the ban on the sale of conventional vehicles was under investigation (217) Honda In 23, two-thirds of automobile sales will be electrified. EVs will be released in China in 218 (217). 17

18 Oil peaks around 23 by rapid penetration of ZEVs Mb/d Mb/d 18 Oil for Road [Peak Oil Demand Case] Total Oil Consumption Reference Non- OECD Advanced Technologies Peak Oil Demand OECD Note: Dotted lines are the Reference Scenario

19 CO2 Primary While oil decreases, natural gas and coal increase 19 consumption Road Electricity Biomass Oil Natural gas Coal Oil (Mt) , ,596-1, , -1, Mtoe Note: Excluding own use 19

20 Crude oil production shifts to low-cost regions... Mb/d 2 Crude oil production [Peak Oil Demand Case] Middle East Others North America Former Soviet Union Reference Latin America Asia OPEC Non-OPEC 2

21 Due to lower prices, Middle East will suffer the largest economic downturn Changes in net oil export ratio to nominal GDPGDP 21 The ratio of net oil exports/imports to nominal GDP [25] 5% % -5% India Japan ASEAN Other Asia Europe Africa Oceania China Canada United States Latin America -1% Former USSR -15% Real GDP ($21 trillion) Middle East Note: Europe excludes the former Soviet Union 21

22 Less pollution but less revenues from excise taxes $ billion 22 Excise taxes on gasoline and diesel oil for automobiles in OECD Reference Peak Oil Demand 22

23 What are the implications of declining oil use? 23 Under certain circumstances, oil consumption can turn into a decline in the not too distant future. The extreme assumption on the penetration of ZEVs is challenging. Oil consumption may not easily peak out. Oil is required even at the same scale of today in 25. The lack of supply investment because of pessimism could threaten energy security and that would further decrease oil demand. The rising dependence on the Middle East will increase geopolitical risk. Collaboration between consuming and producing countries will become even more important. Supporting efforts such as Saudi Arabia s Vision 23 is essential. 23

24 24 Today s Topic Role of Coal & LNG in Asia s Future Energy Mix : Defying the odds?

25 Primary Energy Demand Reference Scenario Advanced Tech Scenario 25 World Asia 6, Mtoe 化石燃料 Oil 81% 79%( レファレンス ) 5, 68%( 技術進展 ) 石油 4, 石炭 3, 天然ガス 2, 他再生可能 Gas Coal 4, 3,5 3, 2,5 2, 1,5 Mtoe 化石燃料 85% 82%( レファレンス ) 71%( 技術進展 ) 石炭石油 Coal 1, 原子力水力 , 5 他再生可能天然ガス原子力 水力

26 Power generation mix Reference Scenario Advanced Technologies Scenario 26 Asia World 45, TWh 4, 35, 3, Renewables TWh 25, 2, GW 7, 25, 6, 2, 5, Hydro Nuclear Oil 15, 1, 5, Renewables Hydro Nuclear Oil Gas Coal 15, 4, 3, 1, 2, 5, 1, Gas Coal Ref Adv. Tech Ref Ref Adv. Tech Adv. Tech 26

27 Power Generation Mix (Asia) Reference Scenario 27 Power Generation Share TWh 25, Other Renewable Hydro 1% Nuclear 2, Natural Gas Oil 8% 15, Coal 6% 1, 4% 5, 2% %

28 ASEAN Will Become Net Importer of Gas and Coal Reference scenario Mtoe 生産 Production 需要 Demand 純輸入 Net Import Oil Coal Mtoe 生産 Production 需要 Demand 純輸入 Net Import Gas Mtoe 生産 Production 需要 Demand 純輸入 Net Import

29 Coal Consumption Reference Scenario 29 Mtoe 5, 4, 3, World Oceania Africa Non-OECD Europe, Central Asia OECD Europe Middle East Asia L.America N.America Mtoe 5, Mtoe 4, 4, 3,5 3, 3, 2,5 Asia Others Korea Japan ASEAN India China Transfer Non-energy Other Transport Industry 2, 2, 2, 1,5 1, 1, 1,

30 Coal Questions 3 Led by Europe, China and the US, global demand for coal has been declining in recent years. Should we anticipate that the rest of Asia will soon follow a similar trend and further decline the demand for coal? Will it be in response to economic or environmental (local / global) concerns? For the fast growing countries/economies, their industrial use of coal (coking and steam coal), such as for steel and cement, are expected to increase. How do you envision their transition? Will coal remain the cheapest energy option despite the promising or anticipated cost decline of renewable and LNG? Should importing high quality coal make sense for those countries endowed only with low calorie domestic coals? Is the timing correct for those countries to start investing and introducing CCT such as super-critical or ultra-super critical? 3

31 LT LNG Supply-Demand Outlook for Asia Supply potentials can continue to exceed demand up to around Million Tonnes 6 Divertable supplies from Atlantic 5 New projects under plannning New projects with SPA/HOA signed 4 Existing projects High demand 3 Low demand 2 High Demand Low 1 Source: IEEJ LNG will be oversupplied at least till 22. Timely upstream investment is required for the balance beyond 23

32 LNG Questions 32 Despite an increasing demand for LNG, it seems that abundant future supplies from new projects are putting downward pressures on prices. Because of this competitive situation, do you foresee the LNG market to eventually face a supply shortage accompanied with price increases? Many refer to Natural gas and LNG as playing a major role as a bridging fuel ; if so, how long can it last? How will LNG (Natural gas) compete with the other components of the energy mix? 32

33 How it was and how it will look 33 Energy Transition Biomass COAL Oil Gas Wave & Wind Other Renewables Source: Staudt, Larry, Assisting the World's Transition to a Sustainable Energy Future Source: Energy Matters website Data from Vaclav Smil and BP as compiled by Rembrandt Koppelaar. 33

34 Coal & LNG Questions 34 Do you foresee Asia as pursuing and achieving zero-emissions? What will be the position of coal and LNG in a de-carbonized society? Given the current (and anticipated) environmental policies, is it an appropriate time to invest in either coal or LNG industry? If we pursue zero-emission, how big of a role can CCS play? For example, given that one ton of coal emits more than 3 tons of CO2, is CCS at $5 to 1 per ton CO2 still an option? At which CCS costs will the industry remain competitive? 34

35 We are Still in Transition Economy Energy Security Environment Affordable Reliable Clean Wood/Coal/Oil/Hydro/Nuclear/Gas Realistic technologies Wind/Solar Ideal technologies 35