12 th International Energy Forum

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1 12 th International Energy Forum March 2010, Cancun Global Energy Markets: Reducing Volatility and Uncertainty Nobuo Tanaka Executive Director, International Energy Agency

2 Current spotlight on financial markets but price formation remains multi-faceted Macro/micro-financial trades can affect price short term Microfinancial OPEC policy Geopolitics But price inelasticity of demand/supply also amplifies price swings. Macrofinancial Expansion bottlenecks Price elasticity Oil price Supply costs '000 Contracts NYMEX WTI Mth1 Open Interest $/bbl formation 1,600 1,500 1,400 1,300 1,200 1,100 1, Jun 08 Dec 08 Jun 09 Dec 09 Open Interest Source: CFTC, Platts NYM EX WTI M th Crude slate evolution & environmental regs. Price subsidies Demand growth, vol and type Inventory Spare capacity d/s - by type Spare capacity u/s

3 How to reduce volatility: Outcomes of the IEA/IEEJ Price Formation Workshop (Feb 2010) Reduce uncertainty about fundamentals Clearer, internationally-agreed policies that ensure plentiful supplies of economic, sustainable and secure energy Commitment to set clear environmental and efficiency goals Open access to energy reserves and encouraging investment Forecasts for the future detailed assumptions and acknowledged uncertainties supply crunch not inevitable Make oil markets function better Require more & better data on financial and physical markets Moves to limit market manipulation More analysis and work towards global harmonisation of market function

4 Medium-term oil market balance mb/d Medium-Term Oil Market Balance (Higher GDP Scenario) mb/d Effective OPEC Spare Capacity World Supply Capacity Growth World Demand Growth

5 Medium-term oil market balance mb/d Medium-Term Oil Market Balance (Lower GDP Scenario) mb/d Effective OPEC Spare Capacity World Supply Capacity Growth World Demand Growth

6 mb/d Oil production to 2030 in the Reference Scenario NGLs Unconventional oil Crude oil - fields yet to be developed or found Crude oil - currently producing fields Sustained investment is needed mainly to combat the decline in output at existing fields, which will drop by almost two-thirds by 2030

7 World energy-related CO 2 emissions in the Reference Scenario in WEO-2009 and WEO-2008 OECD/IEA 2009 Gt WEO-2008 Reference Scenario WEO-2009 Reference Scenario International marine & aviation bunkers Non-OECD gas Non-OECD oil Non-OECD coal OECD gas OECD oil OECD coal The effect of the crisis on global trend would only be temporary. Existing policies can stabilise CO 2 in OECD countries. Without new policies, global CO 2 emissions are set to rise by 40% in Most of the increase is caused by new coal use outside OECD Source: World Energy Outlook, IEA 2009

8 OECD/IEA 2009 A sustainable energy future: the 450 Scenario Abatement by technology, 2030 By region World Reference Scenario OECD+ Efficiency 45% Renewables & biofuels 21% Nuclear 13% CCS 20% Efficiency 57% Gt 450 Scenario 13.8 Gt Other Major Economies Other Countries Efficiency 67% Renewables & biofuels 19% Nuclear 8% CCS 6% Efficiency 55% Renewables & biofuels 34% Nuclear 9% Renewables & biofuels 23% Nuclear 10% CCS 10% Source: Early excerpt of WEO 2009 for Bangkok UNFCCC meeting Efficiency measures account for 2/3 of the 3.8Gt abatement in Renewables contribute 20%. With substantial abatement potential outside the OECD+ region, financing will hold a key to the energy sector meeting a 450 ppm trajectory Source: World Energy Outlook, IEA 2009

9 World primary energy demand by fuel in the 450 Scenario Mtoe % Fossil fuels 30% 24% Zero-carbon fuels Share of zero- carbon fuels (right axis) % % 6% 0 0% In the 450 Scenario, demand for fossil fuels peaks by 2020, and by 2030 zerocarbon fuels make up a third of the world's primary sources of energy demand OECD/IEA 2009

10 mb/d World oil production by scenario mb/d Non-OPEC OPEC mb/d mb/d 2008 Reference Scenario Scenario 2030 Curbing CO 2 emissions would also improve energy security by cutting oil demand, but even in the 450 Scenario, OPEC production increases by 11 mb/d between now and 2030 OECD/IEA 2009

11 Number of people without access to electricity in the Reference Scenario (millions) World population without access to electricity 2008: 1.5 billion people 2030: 1.3 billion people $35 billion per year more investment than in the Reference Scenario would be needed to 2030 equivalent to just 5% of global power-sector investment to ensure universal access OECD/IEA 2009

12 Concluding Remarks Clear policies, better data, open markets and sustained investment are essential to reduce volatility We welcome more joint action on price formation, data and market outlooks Energy security must be addressed alongside energy poverty and climate change; this requires an energy transformation: energy efficiency, technology development and deployment, diversification of sources, clear policy frameworks, more investment Renewed international cooperation is vital: a cleaner, more stable and secure energy future requires engagement on policy, technology and investment (while avoiding duplication) OECD/IEA 2009