Orientation for a fast-changing energy world Dr Fatih Birol IEA Chief Economist Tokyo, 21 April 2014
The world energy scene today Some long-held tenets of the energy sector are being rewritten Countries are switching roles: importers are becoming exporters and exporters are among the major sources of growing demand New supply options re-orientate the energy trade map But long-term solutions to global challenges remain scarce Renewed focus on energy efficiency, but CO 2 emissions continue to rise Fossil-fuel subsidies increased to $544 billion in 2012 1.3 billion people lack electricity especially in Africa and S.Asia Energy prices add to the pressure on policymakers Sustained period of high oil prices without parallel in market history Large, persistent regional price differences for gas & electricity
The engine of energy demand growth moves to South Asia Primary energy demand, 2035 (Mtoe) Share of global growth 2012-2035 United States 2 240 480 Brazil Europe Africa 1 710 Middle East 1 030 Eurasia 1 370 1 050 1 540 India China 4 060 440 Japan 1 000 Southeast Asia Africa Middle East Latin America 8% 10% Eurasia 8% 5% OECD 4% 65% Non-OECD Asia China is the main driver of increasing energy demand in the current decade, but India takes over in the 2020s as the principal source of growth
A mix that is slow to change Growth in total primary energy demand Gas 1987-2011 2011-2035 Coal Renewables Oil Nuclear 500 1 000 1 500 2 000 2 500 3 000 Mtoe Today's share of fossil fuels in the global mix, at 82%, is the same as it was 25 years ago; the strong rise of renewables only reduces this to around 75% in 2035
Unconventional oil and gas has made a major contribution to global production US shale gas and shale oil production increases: 2005-2014 bcm 300 3.0 mb/d 250 2.5 200 2.0 150 1.5 100 1.0 50 0.5 0 Gas Oil 0.0 Growth in US shale gas output since 2005 is equivalent to the total production of Qatar, Kuwait, UAE and Iraq combined; while shale oil output is equal to that of Iraq
US oil imports are shrinking rapidly thanks to shale oil only? Reductions in US oil imports in 2035 relative to today Demand-side efficiency 39% 35% Increased oil supply 18% 8% Biofuels use in transport Natural gas use in transport US oil imports are set to plummet due to increasing oil supplies and recently adopted policies to improve efficiency of cars and trucks
Two chapters to the oil production story Contributions to global oil production growth Middle East Brazil 2013-2025 2025-2035 United States Rest of the world -2 0 2 4 6 8 mb/d The United States (light tight oil) & Brazil (deepwater) step up until the mid-2020s, but the Middle East is critical to the longer-term oil outlook
US emissions on a downward trend Energy-related CO 2 emissions in the United States Gt CO 2 6.5 6.0 5.5 5.0 4.5 4.0 1990 1995 2000 2007 2012 2013 CO 2 emissions fell sharply since the shale gas revolution, but rebounded last year on the back of a partial gas-coal switch and increased industrial activity
Who has flooded the markets? Incremental steam coal exports Mt 200 180 160 140 120 100 80 60 40 20 0 2009 2010 2011 2012 2013 Indonesia Australia United States The US accounted for only 7% of the increase in global steam coal exports since 2007
The slowdown in Chinese demand caught the industry off-guard Coal demand in China: real demand vs historical trend Mt 4400 4200 4000 3800 3600 3400 3200 Curbing in China 20 times US exports increase in 2012 Real consumption Historical trend 3000 2010 2011 2012 2013 China s move away from coal will be a far greater determinant of the direction of the coal markets than the shale gas revolution in the US
Who has the energy to compete? Ratio of industrial energy prices relative to the United States 5 Natural gas Electricity 4 3 Reduction from 2013 2003 2013 2035 2003 2 United States Japan European Union China Japan European Union China Regional differences in natural gas prices narrow from today s very high levels but remain large through to 2035; electricity price differentials also persist
Higher energy prices make it harder for Japanese industry to compete Share of global export market for energy-intensive goods to 2035 European Union +1% Japan +3% +2% +2% Today 36% 10% 7% 7% 3% 2% United States China Middle East India -3% -10% ven in our Central Scenario (in which nuclear reactors gradually restart), higher energy prices result in a decline in Japan s share of global trade in energy-intensive goods
LNG from the United States can alleviate strain on the gas markets, but is no silver bullet Indicative economics of LNG export from the US Gulf Coast $/MBtu 18 15 12 9 6 3 $/MBtu 12 9 6 3 Average import price Liquefaction, shipping & regasification United States price To Asia To Europe New LNG supplies accelerate movement towards a more interconnected global market, but high costs of transport between regions mean no single global gas price
The implications of Zero Nuclear for Japan s energy outlook to 2035 Energy import bills the key to the record current account deficit rise by an additional 1.3 Trillion Yen per year on average To replace the nuclear capacity, investment in the power sector & in LNG terminals needs to rise by an additional 250 Billion Yen per year Japan s energy self-sufficiency deteriorates Self-sufficiency drops by one-third to just 16% in 2035, which is 5 times lower than China s & 6 times lower than that of the US Effects on LNG market in Asia: low (or zero) nuclear power generation in Japan will contribute to a tightening of Asian LNG markets, leading to upward pressure on gas prices in Asia
Climate implications of Zero Nuclear Mt 500 450 400 350 300 250 200 150 100 50 0 Japan s CO 2 emissions in power generation 1990 2000 2010 2035 Central Scenario Zero Nuclear With Zero Nuclear, expectations for declining CO 2 emissions from the power sector are reversed, with emissions in 2035 higher than before Fukushima Daiichi
Orientation for a fast-changing energy world: Implications for Japan Regional price gaps & concerns over competitiveness are here to stay, but there are ways to react with efficiency first in line Gas market reforms in the Asia-Pacific region and LNG exports from N. America could help to narrow the regional gas price gap Nuclear power and renewables can contribute to energy security, climate change goals & enhancing energy competitiveness Support schemes for renewables need to be carefully designed & re-designed to achieve their objectives in the most cost-effective way The new Basic Energy Plan sends a strong message about Japan s focus on delivering reliable, secure, affordable and clean energy