GE OIL & GAS ANNUAL MEETING 2016 Florence, Italy, 1-2 February

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1 Navigating energy transition Keisuke Sadamori Director for Energy Markets and Security IEA GE OIL & GAS ANNUAL MEETING 2016 Florence, Italy, 1-2 February 2016 General Electric Company - All rights reserved

2 Climate pledges shift the energy sector One-quarter of the world s energy supply is low carbon in 2030; energy intensity improves three-times faster than the last decade Renewables reach nearly 60% of new capacity additions in the power sector; two-thirds of additions are in China, EU, US & India Natural gas is the only fossil-fuel that increases its share of the global energy mix Total coal demand in the US, Europe & Japan contracts by 45%, while the growth in India s coal use slows by one-quarter Climate pledges for COP21 are the right first step towards meeting the climate goal

3 Index (1990 = 100) Demand and emissions growth decouple in the power sector Growth in world electricity demand and related CO 2 emissions since 1990 (left) and related CO 2 emissions by region (right) Historical Projected Electricity demand Power sector CO 2 emissions Rest of World Southeast Asia Africa India China European Union United States Power sector emissions stay broadly flat as the share of low-carbon generation grows to almost 45% in 2030, while electricity demand rises by more than 40% Gt CO 2

4 Gt CO 2 -eq Peak in emissions: IEA strategy to raise climate ambition Global energy-related GHG emissions INDC Scenario Bridge Scenario Upstream methane reductions Renewables investment Savings by measure, 2030 Fossil-fuel subsidy reform Reducing inefficient coal Energy efficiency Five measures shown in a Bridge Scenario achieve a peak in emissions around 2020, using only proven technologies & without harming economic growth 15% 17% 10% 9% 49%

5 Efficiency measures on the rise, but significant potential still exists Share of global mandatory efficiency regulation of final energy consumption 40% 30% 20% 10% Industry Steam boilers Process heat Motors Buildings Heating/Cooling Lighting/Appliances Transport Cars Trucks Ships Energy efficiency policies are introduced in more countries and sectors; they continue to slow demand growth but more can be done

6 Power is leading the transformation of the energy system Renewables Coal Gas Nuclear Oil Global electricity generation by source TWh Change to 2040 Of which: Hydro Wind Solar Other renewables Driven by continued policy support, renewables account for half of additional global generation, overtaking coal around 2030 to become the largest power source

7 Renewables are becoming the largest source of new power generation capacity GW World net additions to power capacity Fossil fuels Nuclear Hydropower Non-hydro renewables The share of renewables in net Analysis from the IEA Medium-Term Renewable Energy Market Report 2015 and the New Policies Scenario of the World Energy Outlook 2015.

8 2010 = 100 More renewables for less money Global indicative generation costs for new plants Onshore wind Solar PV - utility scale Offshore wind High levels of incentives are no longer necessary for solar PV and onshore wind, but their economic attractiveness still depends on the regulatory framework and market design

Evidence of lower costs on the horizon Recent announced long-term contract prices for new renewable power Onshore wind Utility-scale solar PV Germany USD 67-100/MWh Germany USD 96 /MWh United States

Africa USD 51/MWh South Africa USD 65/MWh Egypt USD 41-50/MWh This map is without prejudice to the status or sovereignty over any territory, to the delimitation of international frontiers and

9 Evidence of lower costs on the horizon Recent announced long-term contract prices for new renewable power Onshore wind Utility-scale solar PV Germany USD /MWh Germany USD 96 /MWh United States USD 47/MWh United States USD 65-70/MWh Canada USD 66/MWh Turkey USD 73/MWh China USD 80 91/MWh India USD /MWh Brazil USD 81/MWh Brazil USD 49/MWh Chile USD 85-89/MWh Uruguay USD 90/MWh South Africa USD 51/MWh South Africa USD 65/MWh Egypt USD 41-50/MWh This map is without prejudice to the status or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area Jordan USD 61-77/MWh United Arab Emirates USD 58/MWh Australia USD 69/MWh A combination of price competition, long-term contracts, good resources and financial de-risking measures is creating deployment opportunities in newer markets and at lower costs

10 GW Renewable growth can be accelerated back on track to meet climate goals World renewable power capacity growth, main versus accelerated case Historical Accelerated case Forecast United States Japan EU-28 Other OECD India China Brazil Other non-oecd United States Japan EU-28 Other OECD India China Brazil Other non-oecd Main case Renewable energy can be brought back rising annual installation growth, through enhanced domestic policies, e.g. grid integration of variable renewables

11 Energy security risks of renewables Net-load at different annual VRE shares Higher uncertainty % 10% 5% 2.50% 0% Smoothing effect at low shares Larger and more pronounced changes Load level [MW] Larger ramps at high shares More frequent up and down at high shares 0 Note: Load data and wind data from Germany 10 to 16 November 2010, wind generation scaled, actual share 7.3%. Scaling may overestimate the impact of variability; combined effect of wind and solar may be lower, illustration only. Hours Source: The Power of Transformation 2014

12 Nuclear power can play a role in CO 2 abatement & energy security CO 2 emissions avoided annually by nuclear power Share of energy demand met by domestic sources and nuclear power in 2040 Gt % % 60% 40% 20% China United European Japan States Union Indigenous Nuclear production Indigenous & production nuclear By 2040, almost 4 years of current emissions have been avoided by nuclear power; it cuts dependence on foreign fuel supplies & lowers import bills for some countries Korea Net imports

13 Five-year revision: World s carbon budget is shrinking World s remaining carbon budget Today A five-year review cycle would enable pledges to keep pace with energy sector innovation; building ambition before the carbon budget is consumed

14 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Coal prices to remain under pressure $/t Development of thermal coal prices Global financial crisis New supply capacity meets slowing demand CIF Prices in North West Europe (ARA) Global overcapacity & weaker than expected demand look set to put further downward pressure on coal prices through to 2020 Source: IEA Medium-Term Coal Market Report, 2015

15 Has coal use in China already peaked? TWh Drivers for Chinese coal-based power generation decline in 2014 BAU Real power demand growth Higher hydro capacity & seasonal effect Higher wind & solar generation Higher nuclear & other generation China s coal use may have already peaked, reflecting the gradual economic rebalancing & further growth in low-carbon sources of power Source: IEA Medium-Term Coal Market Report, 2015

16 The big opportunities & uncertainties for natural gas are in Asia Natural gas demand and supply in developing Asia, & 2040 bcm Imports Conventional Unconventional Additional to Demand Production Developing Asia accounts for almost half of the rise in global gas demand & 75% of the increase in imports, but gas faces strong competition from renewables & coal

17 Global stock builds seen to persist in 2016 could see tank tops come under pressure mb/d Demand/Supply Balance until 4Q16* mb/d *OPEC production assumed at 32.3mb/d in January (three month average) followed by a gradual ramp-up of incremental Iranian production to 600/kb/d in June. Production is held at this level thereafter 84 1Q09 3Q10 1Q12 3Q13 1Q15 3Q Impl. stock ch.&misc (RHS) Demand Supply* Source: OMR, January 2016

18 A new balancing item in the oil market? Change in production ( ) of US tight oil for a range of 2020 oil prices mb/d $40/bbl $50/bbl $60/bbl $70/bbl $80/bbl $90/bbl $100/bbl Tight oil has created more short-term supply flexibility, but there is no guarantee that the adjustment mechanism in oil markets will be smooth

19 GW Dollars per kw Million Dollars per kwh Lock in the vision: What more does it take for 2 C? 100 Cost reductions & deployment of all solar PV Cost reductions & deployment of electric vehicles Capacity Capital costs Solar PV additions Solar PV (right axis) Vehicle sales Battery costs Total Internal combustion Electric vehicles Electric (right axis) An emissions goal would give greater clarity & certainty to the energy sector, strengthening the case for RD&D investment & technology transfer

20 Policies spur innovation and tip the balance towards low-carbon Costs in 2040 for different energy sources/technologies, relative to % 40% 20% 0% -20% -40% -60% Solar PV Onshore wind Efficient lighting Efficient industrial heat production Upstream oil and gas Innovation reduces the costs of low-carbon technologies & energy efficiency, but for oil & gas the gains are offset by the move to more complex fields

21 Conclusions The energy transition is underway. But, needs more specific and ambitious targets and robust implementation. Stable and predictable policy supports and regulatory frameworks are needed to ensure investments in low carbon technologies. Companies that do not anticipate stronger energy & climate policies risk being at a competitive disadvantage. OECD/IEA 2016

Delivering on the clean energy agenda: prospects and the role for policy

Delivering on the clean energy agenda: prospects and the role for policy 6th Asian Ministerial Energy Roundtable 9 November 2015 Keisuke Sadamori Director, Energy Markets and Security Climate pledges shift