World Energy Outlook

1. World Energy Outlook Dr. Fatih BirolIEA Chief EconomistBrussels, 29 April 2014

2. 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 reshape ideas about distribution of resources • But long-term solutions to global challenges remain scarce • Renewed focus on energy efficiency, but CO2 emissions continue to rise • Fossil-fuel subsidies increased to $544 billion in 2012 • 1.3 billion people still lack electricity – in Africa and South 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

3. Unconventional oil and gas has made a major contribution to global production 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 shale gas and shale oil production increases: 2005-2014 mb/d 300 3.0 bcm 250 2.5 200 2.0 150 1.5 100 1.0 50 0.5 0 0.0 Gas Oil while shale oil output is equal to that of Iraq

4. Who has flooded the markets? Incremental steam coal exports The US accounted for only 7% of the increase in global steam coal exports since 2007 Mt 200 Indonesia 180 Australia 160 United States 140 120 100 80 60 40 20 0 2009 2010 2011 2012 2013

5. The slowdown in Chinese demand caught the industry off-guard Coal demand in China: real demand vs historical trend 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 Real consumption 4400 Mt Historical trend 4200 Curbing in China ≈ 20 times US exports increase in 2012 4000 3800 3600 3400 3200 3000 2010 2011 2012 2013

6. A mix that is slow to change Growth in total primary energy demand 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 1987-2011 Gas 2011-2035 Coal Renewables Oil Nuclear 500 1 000 1 500 2 000 2 500 3 000 Mtoe

7. US emissions on a downward trend Energy-related CO2 emissions in the United States CO2 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 Gt CO2 6.5 6.0 5.5 5.0 4.5 4.0 1990 1995 2000 2007 2012 2013

8. Emissions off track in the run-up to the 2015 climate summit in France Cumulative energy-related CO2emissions Non-OECD countries account for a rising share of emissions, although 2035 per capita levels are only half of OECD Total emissions 1900-2035 Gt 800 600 Non-OECD 49% 400 Non-OECD OECD 200 OECD 51% 2013 1900 1930 1960 1990 -2035 • -1929 -1959 -1989 -2012

9. Who has the energy to compete? Ratio of industrial energy prices relative to the United States Regional differences in natural gas prices narrow from today’s very high levels but remain large through to 2035; electricity price differentials also persist Natural gas Electricity 5× Reductionfrom 2013 • 4× 2013 2035 • 3× 2003 2003 • 2× • United States Japan European Union China Japan European Union China electricity price differentials also persist

10. Energy-intensive industries need to count their costs Share of energy in total production costs for selected industries Energy-intensive sectors worldwide account for around one-fifth of industrial value added, one-quarter of industrial employment and 70% of industrial energy use. 10% 20% 30% 40% 50% 60% 70% 80% 90% Petrochemicals Fertilisers Aluminium Cement Iron & steel Pulp & paper Glass

11. An energy boost to the economy? Share of global export market for energy-intensive goods The US, together with key emerging economies, increases its export market share for energy-intensive goods, while the EU and Japan see a sharp decline +3% European Union +1% +2% +2% Japan Today 36% 10% 7% 7% 3% 2% India China Middle East United States -3% -10% while the EU & Japan see a sharp decline

12. 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 Average import price 15 $/MBtu 12 12 Liquefaction, shipping & regasification 9 9 United States price 6 6 3 3 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 but high costs of transport between regions mean no single global gas price

13. A Third Way for Europe: balancing competitiveness & sustainability • The high cost of energy in Europe is a structural issue, not a one off • Europe’s share of the global export market for energy-intensive goodsis set to decline substantially by 2035, directly impacting 30 million jobs • Both competitiveness & sustainability are crucial issues for Europe, but it must not be seen as an “either-or” choice • improve energy efficiency • negotiate more competitive terms for natural gas imports • develop renewables, nuclear power & unconventional gas • complete the internal energy market • 2014 a key year for Europe energy policy, it will shape its long-term prosperity & could provide powerful inspiration for others to follow