World Energy Investment 218 25 September 218 Alessandro Blasi and Michael Waldron, International Energy Agency IEA OECD/IEA 218
Global energy investment was USD 1.8 trillion in 217, led by electricity Global energy investment, 216 217 (billion USD) USD) Electricity generation and supply Oil and gas supply Energy efficiency Coal supply 75 716 236 79 Renewable transport and heat 2-5% +2% +3% -13% -13% For the 3 rd consecutive year energy investment declined in 217, by 2%, due to less power generation investment, lower costs and continued prudence in the oil and gas sector. Energy efficiency was a lone growth area. OECD/IEA 218
The share of state-backed energy investment has edged up 8% The share of government/soes ownership in energy investment by sector, 212-17 6% 4% 2% % Total Renewables and energy efficiency Electricity networks and storage Oil & gas Thermal generation and coal 212 217 Despite a growing role for clean energy investment, which is led by private investment, the share of energy investment from NOCs and state-owned thermal power rose by more over the past five years. OECD/IEA 218
Lower upstream spending could lead to tighter markets Global oil and gas upstream capital spending 212-18 8 14 USD billion (nominal) -25% -26% +4% +5% 16 12 6 1 12 8 4 6 8 4 2 2 212 213 214 215 216 217 218 212 213 214 215 216 217 218E Brent oil price ($/bbl) IEA Global upstream cost index (212=1) 4 Outside US shale, upstream investment continue to recovery very modestly with companies able to keep costs under control. OECD/IEA 218
mb/d The extraordinary growth of US tight oil mb/d 7 6 5 4 3 2 1 7 6 5 4 3 2 1 Largest production increases in the oil history US LTOSaudi Arabia Saudi Arabia Saudi Arabia Saudi ArabiaUSSR USSR Russia Russia Iran Iran North Sea North Sea 21-219 1965-1965 1974-1974 1985-1985 1994-1994 1972-1972 1981-1981 1999-1999 28-28 1966-1966 1975-1975 1976-1976 1985-1985 Differently from all other regions, US shale oil growth results from technological and market progress rather than the discovery and deployment of huge oil resources OECD/IEA 218
The US LTO journey towards a financially sustainable business US LTO production, capital investment and free cash flow 18 USD billion Million barrels per day 6 12 Capex 4 6 Production 2-6 Free cash flow 21 211 212 213 214 215 216 217 218E -2 IEA estimates that US LTO sector is on track in 218 to generate positive free cash flow for the first time ever, but downside risks remain. OECD/IEA 218
The second wave of LNG investment comes to an end 4 USD (217) billion World LNG liquefaction investment per country/region bcm per year 7 Africa 35 6 Europe 3 5 Others 25 2 15 4 3 Russia North America 1 2 Australia 5 1 Middle East Capacity (right 25 26 27 28 29 21 211 212 213 214 215 216 217 218 219 22 221 222 axis) Note: The investment estimates correspond to the actual capital spending in the year that it occurs and are calculated considering 49 projects sanctioned since 2 up to June 218. Spending peaked in 214 at $35 bn and has been declining ever since OECD/IEA 218
Government policies play a growing role in investments Global power sector investment by main remuneration model Wholesale market pricing Total power sector investment in 217: USD 75 billion Distributed generation (retail/regulated tariff) Regulated networks Regulated/contracted utility-scale generation Over 95% of power sector investments rely on regulation or contracts beyond short-term wholesale markets for their main remuneration, as regulators pursue adequacy and environmental aims. OECD/IEA 218
The power sector is becoming more capital intensive 8 Global power sector investment USD (217) billion 8 Expected generation from low-carbon power investments vs demand growth TWh 6 6 4 4 2 2 27 28 29 21 211 212 213 214 215 216 217 Battery storage Networks Renewables Nuclear Coal, oil, gas 212 213 214 215 216 217 Nuclear Hydro & other renewables Wind Solar PV Demand growth Electricity investment has shifted towards renewables, networks and flexibility. Yet expected output from low-carbon power investments fell 1% in 217 and did not keep pace with demand growth. OECD/IEA 218
Tenders have facilitated economies of scale for renewables Average size of awarded projects in solar PV and wind auctions Utility-scale solar PV Onshore wind Offshore wind 1 8 6 4 2 MW USD/ MWh 15 8 MW USD/MWh 12 6 9 6 4 3 2 213 217 213 217 215 217 Emerging markets Europe Average awarded price (right axis) 2 15 1 5 In emerging economies the average size of awarded solar PV projects rose by 3.5 times while that of onshore wind rose by half over 213-17. In Europe, tendered large projects are mainly in offshore wind. OECD/IEA 218
Thermal power FIDs continued to decline Thermal generation capacity subject to a FID by plant type 12 GW Coal-fired generation 12 GW Gas-fired generation 1 1 8 8 6 6 4 2 21 211 212 213 214 215 216 217 4 2 21 211 212 213 214 215 216 217 China India Southeast Asia Rest of world MENA US China Southeast Asia Rest of world In 217 newly sanctioned coal power fell 18% to a level one-third that of 21, driven by a slowdown in China, India & SE Asia. Sanctioned gas power fell nearly 23%, due to the MENA region & the US. OECD/IEA 218
Clean energy R&D investment is finally on the rise 25 Total public spending on low-carbon energy technology RD&D (in billion USD) 2 15 1 5 212 213 214 215 216 217E North America Europe Asia and Oceania Rest of World Public spending on R&D for low-carbon technologies rose 13% to USD 22 billion in 217 after several years of stagnation; however, this is just.1% of public spending in major countries. OECD/IEA 218
Investment in carbon capture, utilisation & storage needs policy Global potential for CO 2 capture and storage (or use) at low incentive levels 2 Million tonnes of CO 2 15 1 5 Under USD 1 USD 1-2 USD 2-3 USD 3-4 CCUS is vital to tackling climate change, but sustainable deployment needs investment in low-hanging fruit today; 45 million tonnes of CO 2 per year (equal to all emissions growth in 217) can be captured and stored for USD 4/tonne. OECD/IEA 218
Companies invest more in energy tech startups, led by ICT sector Corporate investments in new energy technology companies, by sector of investing company USD (217) billion 7 6 5 4 3 2 1 27 28 29 21 211 212 213 214 215 216 217 Oil and gas Utilities Transport ICT Other energy Other Corporate venture capital and growth equity for energy tech startups reached USD 6 billion in 217; companies are taking strategic positions in a changing energy system, digital firms above all others. OECD/IEA 218
Conclusions The share of state-backed energy investment has risen, with more dependence on SOEs across the energy system; policies play a growing role in driving private investment Electricity was the largest sector for the second year running, sustained by networks and renewables; but recent trends raise a risk of slowing low-carbon supply investment The oil and gas industry is shifting towards short-cycle projects and assets with rapidly declining production, potentially signaling market volatility ahead Government R&D funding has risen, but more public & private efforts are needed; scaling up private capital will be key for renewables, energy efficiency and CCUS Overall energy investments risk being insufficient for meeting energy security goals and are not spurring an acceleration in technologies needed for the clean energy transition OECD/IEA 218