GLOBAL & REGIONAL KEY ENERGY ISSUES:HOW TO FACE THEM

1. GLOBAL & REGIONALKEY ENERGY ISSUES:HOW TO FACE THEM - Slav Slavov - WEC Regional Coordinatorfor Europe & Central Asia

2. Current Process Status: Driving Forces • Goals, targets &commitments as defined by: - Agenda 21;and PFIA21 - UN CSD, 9th session, April 2001 - Johannesburg Plan of Implementation (JPOI) - UNCSD-14 (April 2006): SG report on progress - Participation: Governments, industry, NGOs

3. ENERGY: GLOBAL ISSUES • Access to energy for poverty alleviation • Integrating of energy for SD into national policies • Support efforts to improve functioning of markets • Encourage PPP, to give impetus to energy for SD goals • Strengthen the role of major groups in policy making • Promote increased R & D in varies technologies

4. SUSTAINABILITY: THE REGIONAL DIMENSION • Regions face different priority challenges: For example: - Access to energy for poverty alleviation (poor countries) - Reducing CO2 emissions (developed countries only) - Internalisation of external costs (western Europe) - Technology transfer (developing countries) • Conclusion: (1) Developed countries-environment & security ;(2) developing countries- economy & social development.

5. Key Energy Issues • Enhance security of supplies and reduce further dependency on oil; • Pursue market reforms in energy sector while secure reliability of electricity markets; • Enhance energy efficiency in both, supply and demand sides, with particular emphasis on C/E Europe.

6. Key Energy Issues • Preserve environment & climate by: - promoting inter alea Kyoto mechanisms; - promoting market for renewables; - enhancing R & D on nuclear, oil substitution & CO2 sequestration; - harmonization of energy tax systems;

7. WEC AND SUSTAINABLITY • WEC contribution to this global process: - World Energy Assessment Study; - WEC Global & Regional Studies and Scenarios; - WEC 19th Congress, Sydney, September 2004: Delivering sustainability: Challenges & Opportunity for the Energy Industry

8. 19th World Energy Congress, Sydney 2004 Main conclusion: Delivering sustainability to energysector should be a priorityobjective. It is achievable but..... challenges are many; and they must be tackled now and urgently if sustainabilityis to be achieved in this century.

9. SECURITY OF ENERGY SUPPLIES • WEC`position on security - AAA • WEC`Recommendation: Keep all the options open as diversity is the backbone of a robust, less vulnerable energy system, even if the optimum mix would vary according to the local conditions.

10. SELECTED KEY ISSUES • Security of supplies in liberalised markets;Europe`s vulnerability; • Energy Intensity and Energy Efficiency.

11. What future evolution?

12. THE TWO POSSIBLE ENERGY WORLDS • Definition of a “CONCAVE” energy trajectory: All published scenarios, e.g. WEC-IIASA, shape an accelerating energy demand over time in which “Acceptability” is the binding constraint • Definition of a “CONVEX” energy trajectory: Still unexplored domain of decelerating energy evolution in which “Availability”, “Accessibility” and “Acceptability” are all binding constraints

13. SECURITY OF SUPPLIES (1)- the risks- • Energy fundamentals revert back to 1970s/1980s crises: - volatility of oil prices; - continuous growing import dependency; - growing reliance on one supplier-Middle East; • But under different conditions: - today oil is used in transport sector only; - oil share in Europe`s energy market is less than 10%; - price increases dictated by the market imbalance;

14. SECURITY OF SUPPLIES (2)- the risks- • Investment risks & uncertainties persist, as: - full implications of market liberalization unclear; - impact of market opening on contracts (take or pay ?); - longer supply routes and fear of terrorism; and recent doubts: - oil reached the peak, no spare capacity; - oil & gas might face geological constraints ??? - price escalation of hydrocarbons;

15. WHAT PROSPECTS FOR OIL • Peak of the non-Middle-East production reached; • Maturity of OPEC Middle –East seems also reached.

16. NON-ME OIL AND TECHNOLOGY

17. FUTURE OIL BALANCE?

18. OIL DEPENDENCY ON MIDLE EAST • 2/3 European oil imports from ME in 2025-2030; • at average, the OPEC- ME fields are 50 years old; • they might produce for many years, but: like Marathonians (unlike sprinters) • Recent studies (Matt Simmons) show Saudi Arabia could already be mature (confirmation of Hubert curve); and ambiguity about Kuwait reserves; • Current role of OPEC - - today oil is used in transport sector only; - oil share in Europe`s energy market is less than 10%; - price increases dictated by the market imbalance;

19. THE 1973 SHOCK… A growing gap that OPEC could not fill

20. WHAT PROSPECTS FOR NATURAL GAS • Production peak reached in OECD regions; • Production rise elsewhere with the LNG boom; • Higher price would limit consumption:tendency to use it in residential & commercial markets only.

21. OECD HAS PEAKED

22. NORTH AMERICANGAS PRODUCTION…

23. RUSSIAN GAS RUSSIAN GAS

24. Siberia

25. DEPENDENCY ON RUSSIAN OIL & GAS • Europe depends 40% of Russia on gas and 25% on oil; • Russian reserves move far way from Europe and close to the Asian markets; • Asian markets are more attractive than Europeans; • Gazprom seek partners and distribution markets; • Russia may continue to be a reliable supplier. - - today oil is used in transport sector only; - oil share in Europe`s energy market is less than 10%; - price increases dictated by the market imbalance;

26. WHAT PROSPECTS FOR COAL • Increased use of coal for CTL and power generation; • Risk of limited use in power generation exist if: - energy efficiency in combustion stay low; - CO2 sequestration technology stay late, behind 2020. Coal reserves are abundant!

27. 2005 IEA VIEW OF WORLD CTL & GTL kb/d

28. WHAT PROSPECTS FOR NUCLEAR U N C L E A R ? but getting more place in the Energy Agenda

29. Reforms in elmarket should`n conflict with security Adequacy and Reliability are the backbone of a modern power system; • Costumers and economy need 100 percent reliability; • Disruptions caused by ``brownouts`` and `` blackouts`` imply substantive costs to economy and households; • A clear ``trade off`` between operators and regulators; • Sharing responsibility for securing supplies in a liberalised market.

30. SECURITY OF SUPPLIES - Conclusions on Fuel Imports - • Scarcity of resources create supply imbalance and call for large price increases. • The current and future oil price volatility will affect GDP severely, future economic recessions might be worst than previous. • Oil price volatility lead to price increases in other fuels, but mostly of gas, making it less competitive. • Current policy and market tools do not support investments neither in upstream nor in energy infrastructure. • Europe becomes more dependent on imports and vulnerable in infrastructure; • Energy crisis lower GDP growth and energy intensity.

31. World Energy Intensity

32. SECURITY OF SUPPLIES - Conclusions on Fuel Competition- • Oil price increases affects differently other sources: • fossil fuels might reduce gas market share; boost coal use and non traditional (synthetic liquids, coal gasification); - speed up R &D on hydrogen and CO2 sequestration; • nuclear: re-consideration of policies; speed up R &D on technology & waste storage;increase the market share; • RES: Increasing the share to the possible extend; • efficiency: Ease investments for further improvements • Investment risks & uncertainties: - increasing the share of production outside Europe; - impact of market opening ( take or pay ?); • Longer supply routes and fear of terrorism; • Full implications of market liberalization unclear; and recent doubts: • Oil might face geological constraints ??? • But under different conditions: - oil share in energy (Europe) is less than 10%; - price increases dictated by the market de-balance; - oil production reached the pick, no spare capacity;

33. SECURITY OF SUPPLIY- Conclusions on internal market- • LIBER shifted responsibility to market, but barriers still exist to become fully competitive; • LIBER confirmed a higher level of energy service, and management, perhaps lower costs (?) but not lower prices. Some disadvantages: • The market remain national; • The role of stakeholders not well defined; • Uncertainty about security of supply (disruption); • Reserve capacities declined, in generation and interconnections, investments are rather cyclical. therefore • Markets require new policy instruments (cost-effective) to manage risks and cover costs of disruption; • In electricity, reliability contracts and capacity markets prove to be most effective, for ensuring adequacy and reliability of market operation;

34. What is needed to enhance security of oil & gas supplies • re-defining policies, in view of recent circumstances; • assess & increase if needed, by regulations the emergency stocks, in particular that of natural gas; • encourage diversification of supplies & accelerate development of strategic projects (Nabuko?); • ensure conditions & support partnerships with upstream supply companies (Gazprom?); • encourage a regular dialogue (on policy & company level) with suppliers and neighbouring ``energy corridors``countries.

35. What is needed to enhance security in electricity market • First, more transparency and harmonization is needed; • Markets require some new policy instruments (cost-effective) to manage risks and cover costs of disruption; (Re-consideration of the Directive ?) • The market should be more encouraged to invest in security: reliability contracts and reserve capacitycould be effective market instruments, for ensuring adequacy and reliability of market operation;

36. What is needed to reduce EURO-dependency on import • Main directions formulated in the ECnew Green Paper; among which: • policy of fuels substitution; increase the share of RES by policy and market tools (Renewable Energy Road Map); • enhance EE in energy supply & demand, in particular in the new members (with 20%by2020). • launch a public debate on nuclear; • Finance R & D in CO2 sequestration & nuclear. • re-considering each energy mix and min. quota for

37. SECURITY OF SUPPLIY- WEC-Europe contribution- • WEC is carrying out two regional studies, namely: 1.Vulnerability of Europe to Energy Crises; and 2. Future of Nuclear power in Europe. • WEC & EC cooperate on this issue:annual seminars. • Joint EC-WEC Seminar on Security of Supplies (Brussels, Friday 30 June 2006) under the chairmanship of EC Commissioner: Mr. Andris Piebalgs; and WEC-Vice Chair Europe: Mr. Pierre Gadonneix

38. Global Energy Information Service