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Oil in the global energy mix: Climate policies can drive an early peak in oil demand

Oil in the global energy mix: Climate policies can drive an early peak in oil demand. Nobuo Tanaka Executive Director International Energy Agency Bridge Forum Dialogue, Luxembourg 13 April 2011. Oil prices break out to the upside after over a year within a $65-$85/bbl range.

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Oil in the global energy mix: Climate policies can drive an early peak in oil demand

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  1. Oil in the global energy mix:Climate policies can drive an early peak in oil demand Nobuo Tanaka Executive Director International Energy Agency Bridge Forum Dialogue, Luxembourg 13 April 2011

  2. Oil prices break out to the upside after over a year within a $65-$85/bbl range

  3. Further oil market tightening

  4. World oil intensity is declining… India 350 toe per million dollars of GDP China 300 ($2009, MER) World 250 200 United States 150 Japan 100 EU27 50 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 Global oil intensity – oil consumption per unit of GDP – has declined at 1.7% p.a. since 1971 thanks to efficiency improvements & changes to the structure of economic output

  5. But oil prices still affect the global economy … World GDP ($2009, MER) growth Annual GDP 8% 120 growth 6% 90 Recession 4% 60 Avg. IEA oil import price in 2% 30 real $2009 (right axis) 0% 0 - 2% 1970 1980 1990 2000 2010 • Oil price spikes have preceded each global recession since the early 1970’s

  6. Annual expenditure on net imports of oil 2.8% 2.6% 2.2% 2.2% 3.2% 3.0% 2.8% 1.0% 3.0% 1.4% 6.6% 5.4% 1.8% 0.9% 2.8% If oil prices average US$100 a barrel in 2011, spending on oil imports in many countries will reach or surpass the record levels of 2008 * Projections made prior to events of 11 March

  7. Public Stocks: A Clear Safety Net IEA public stocks (as of end-Dec. 2010) = 1.6 billion barrels of oil = 72 days of Total IEA net imports 1.56 billion barrels of Public stocks 2 Sep. 2005 decision, 2 mb/d Theoretical decision, 4 mb/d IEA Public Stocks alone could replace an oil supply disruption of 4 mb/d for 1 year 7

  8. Need for cooperation during oil supply disruptions IEA stockholding cover of global oil demand Growing share of non-OECD oil demand results in declining global demand cover from IEA oil stocks

  9. The context: A time of unprecedented uncertainty • The worst of the global economic crisis appears to be over – but is the recovery sustainable? • Oil demand & supply are becoming less sensitive to price – what does this mean for future price movements ? • Natural gas markets are in the midst of a revolution – will it herald a golden era for gas? • Copenhagen Accord & G-20 subsidy reforms are key advances – but do they go far enough & will they be fully implemented ? • Emerging economies will shape the global energy future – where will their policy decisions lead us ? • Tightening oil market plus political unrest in producing regions – how vulnerable is the market to even small disruptions?

  10. Overview of WEO-2010 scenarios • New Policies Scenario is the central scenario in WEO-2010 • assumes cautious implementation of recently announced commitments & plans, even if yet to be formally adopted • provides benchmark to assess achievements & limitations of recent developments in climate & energy policy • Current Policies Scenario takes into consideration only those policies that had been formally adopted by mid-2010 • equivalent to the Reference Scenario of past Outlooks • The 450 Scenario sets out an energy pathway consistent with the goal of limiting increase in average temperature to 2OC

  11. International oil price assumptions 140 Current Policies Scenario 120 New Policies Scenario 100 450 Scenario Dollars per barrel (2009) 80 60 40 20 0 1980 1990 2000 2010 2020 2030 2035 The age of cheap oil is over, though policy action could bring lower international prices than would otherwise be the case

  12. Primary energy demand by fuel in the New Policies Scenario 18 000 International Bunkers Mtoe Non-OECD Renewables 16 000 Non-OECD Nuclear 14 000 Non-OECD Gas 12 000 Non-OECD Oil Non-OECD Coal 10 000 OECD Renewables 8 000 OECD Nuclear OECD Gas 6 000 OECD Oil 4 000 OECD Coal 2 000 0 2008 2015 2020 2025 2030 2035 Non-OECD energy demand increases by 64% in 2008-2035, compared with a rise of just 3% in the OECD. Demand for all types of energy increases in non-OECD countries, while demand for coal & oil declines in the OECD.

  13. Emerging economies dominate the growth in demand for all fuels Incremental primary energy demand in the New Policies Scenario, 2008-2035 Coal OECD China Oil Rest of world Gas Nuclear Hydro Other renewables - 600 - 300 0 300 600 900 1 200 1 500 Mtoe Demand for all types of energy increases in non-OECD countries, while demand for coal & oil declines in the OECD

  14. Fossil-fuel subsidies are distorting price signals Economic value of fossil-fuel consumption subsidies by country, 2009 100 Electricity(generated from fossil fuels) Additional subsidy in 2008 Gas Billion dollars Oil 80 Coal 60 40 20 0 Iran Iraq UAE India Libya Egypt China Qatar Russia Kuwait Mexico Algeria Ukraine Pakistan Malaysia Thailand Indonesia Argentina Venezuela Uzbekistan Bangladesh Kazakhstan South Africa Saudi Arabia Turkmenistan Fossil-fuel consumption subsidies amounted to $312 billion in 2009, down from $558 billion in 2008, with the bulk of the fall due to lower international prices

  15. Booming demand for mobility in the emerging economies drives up oil use Passenger vehicles in the New Policies Scenario 1 600 China Million 1 400 Other non-OECD 1 200 United States Other OECD 1 000 800 600 400 200 0 1980 1990 2000 2008 2020 2035 The global car fleet will continue to surge as more & more people in China & other emerging economies buy a car, overshadowing modest growth in the OECD

  16. Oil production becomes less crude World oil production by type in the New Policies Scenario 100 mb/d Unconventional oil 80 Natural gas liquids Crude oil: fields yet to be found 60 Crude oil: fields yet to be developed 40 Crude oil: currently producing fields 20 Total crude oil 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 Global oil production reaches 96 mb/d in 2035 on the back of rising output of natural gas liquids & unconventional oil, as crude oil production plateaus

  17. More oil from fewer producers Incremental oil production by key country in the New Policies Scenario, 2009-2035 Saudi Arabia Iraq OPEC Brazil Kazakhstan Non-OPEC Canada Venezuela UAE Kuwait Iran Qatar Nigeria Libya Algeria 0 1 2 3 4 5 6 mb/d Production rises most in Saudi Arabia & Iraq, helping to push OPEC’s market share from 41% today to 52% by 2035, a level last seen prior to the first oil shock of 1973-1974

  18. A golden age for gas? • Gas is set to play a key role in meeting the world’s energy needs • demand rises by 44%, led by China & Middle East • Unconventional gas accounts for 35% of the increase in global supply to 2035, with new non-US producers emerging • Gas glut will peak soon, but may dissipate only very slowly • The glut will keep pressure on gas exporters to move away from oil-price indexation, notably in Europe • Lower prices could lead to stronger demand for gas, backing out renewables & coal in power generation

  19. Coal remains the backbone of global electricity generation Coal-fired electricity generation by region in the New Policies Scenario 12 000 China TWh India 10 000 Other non-OECD 8 000 OECD 6 000 4 000 2 000 0 1990 2000 2010 2020 2030 2035 A drop in coal-fired generation in the OECD is offset by big increases elsewhere, especially China, where 600 GW of new capacity exceeds the current coal-fired capacity of the US, EU & Japan

  20. Renewables enter the mainstream…. Renewable primary energy demand in the New Policies Scenario OECD Pacific 2008 2035 Africa India Brazil China United States European Union 0 100 200 300 400 500 Mtoe The use of renewable energy triples between 2008 & 2035, driven by the power sector where their share in electricity supply rises from 19% in 2008 to 32% in 2035

  21. ….but only if there is enough government support Annual global support for renewables in the New Policies Scenario 210 Biofuels 180 Renewables-based 150 Billion dollars (2009) electricity 120 90 60 30 0 2007 2008 2009 2015 2020 2025 2030 2035 Government support remains the key driver – rising from $57 billion in 2009 to $205 billion in 2035 – but higher fossil-fuel prices & declining investment costs also spur growth

  22. Ambitious nuclear growth plans are now in doubt Most of the planned-for growth is in non-OECD countries

  23. China becomes the market leader inlow-carbon technologies China’s share of cumulative global additions to 2035 for selected technologies 30% Capacity additions 105 GW Passenger car sales 335 GW 20% 8.5 million 85 GW vehicles 10% 0% Solar PV Wind Nuclear Electric &plug-in hybrids • Given the sheer scale of China’s market, its push to expand the role of low-carbon energy technologies is poised to play a key role in driving down costs, to the benefit of all countries

  24. The 450 Scenario: A roadmap from 3.5C to 2C • The 450 Scenario sets out an energy pathway consistent with limiting the increase in temperature to 2C • Assumes vigorous implementation of Copenhagen Accord pledges to 2020 & much stronger action thereafter • The failure of the Copenhagen Accord pledges: • As many lack transparency, there is 3.9 Gt of uncertainty over the level of abatement pledged to 2020 • As many lack ambition, the cost of achieving the 2 C goal has increased by $1 trillion in 2010-2030 compared with WEO-2009

  25. Low ambition to 2020 makes faster and deeper cuts necessary afterwards WEO-2009: 2010 2015 2020 2025 2030 2035 Investment 7.0 34 Gt CO2 Emissions (right axis) 6.0 32 5.0 30 Trillion dollars (2009) WEO-2010: 4.0 28 Investment 3.0 26 Emissions (right axis) 2.0 24 1.0 22 0 20 2010- 2015 2016- 2020 2021- 2025 2026- 2030 2031- 2035 Overall, this year’s 450 Scenario will cost $1 trillion more than last year’s by 2030, and requires a total of $18 trillion in investment by 2035

  26. The 450 Scenario: Abatement by country World energy-related CO2 emission savings by country in the 450 Scenariorelative to the Current Policies Scenario 45 Share of cumulative abatement between 2010-2035 Gt Current Policies Scenario 42.6 Gt 40 China 33% United States 15% 35 European Union 9% 20.9 Gt India 8% 30 Middle East 5% Russia 3% Japan 3% 25 450 Scenario Rest of world 24% 21.7 Gt 20 2008 2015 2020 2025 2030 2035 In the 450 Scenario, compared with the Current Policies Scenario, China & the US account for 48% of the cumulative emission abatement that is needed in 2010-2035

  27. The 450 Scenario: Abatement by technology World energy-related CO2 emission savings by technology in the 450 Scenario relative to the New Policies Scenario 45 Share of cumulative abatement between 2010-2035 Gt Current Policies Scenario 42.6 Gt 7.1 Gt 40 Efficiency 50% New Policies Scenario Renewables 18% 35.4 Gt 35 Biofuels 4% Nuclear 9% 13.7 Gt 30 CCS 20% 25 450 Scenario 21.7 Gt 20 2008 2015 2020 2025 2030 2035 In moving from the New Policies Scenario to the 450 Scenario, more expensive abatement options such as CCS play a growing role

  28. Achieving the 2°C goal will require rapid decarbonisation of global energy Average annual change in CO2 intensity in the 450 scenario 6% 5% A four-fold increase needed 4% 3% 2% 1% 0% 1990-2008 2008-2020 2020-2035 Carbon intensity would have to fall at twice the rate of 1990-2008 in the period 2008-2020 & almost four times faster in 2020-2035

  29. A fundamental change is needed in power generation Share of world electricity generation by type and scenario 100% 80% Low-carbon generation in the NPS Additional low-carbon generationin 450 Scenario 60% 40% Fossil-fuel fired generation in the 450 Scenario 20% 0% 2010 2015 2020 2025 2030 2035 Low-carbon technologies account for over three-quarters of global power generation by 2035 in the 450 Scenario, a four-fold increase on today

  30. Decarbonisation of power generation in OECD Europe A mix of nuclear, renewables and fossil-fuels with CCS will be needed to decarbonise the electricity sector.

  31. Fundamental change also in transport Sales of plug-in hybrid and electric vehicles in the 450 Scenario & CO2 intensity of the power sector 700 70 600 Plug-in hybrids Million Grammes per kWh 500 60 Electric vehicles 50 400 CO2 intensity in power generation (right axis) 300 40 30 200 100 20 10 0 0 2010 2015 2020 2025 2030 2035 Plug-in hybrids & electric vehicles reach 39% of light-duty vehicle sales by 2035, making a big contribution to CO2abatement, thanks to a major decarbonisation of the power sector

  32. Clean energy progress mixed We are not on a pathway to limit global temperatures

  33. Clean energy progress is mixed Average annual electricity capacity additions to 2050

  34. Will peak oil be a guest or the spectre at the feast? Oil demand in the 450 Scenario 16 100 OECD mb/d mb/d 96 12 Inter-regional(bunkers) 92 8 Other non-OECD 88 4 Right axis: 84 0 India -4 80 China -8 76 World demand inNew Policies Scenario World demand in450 Scenario Peak demand -12 72 -16 68 2009 2015 2020 2025 2030 2035 Oil demand peaks at 88 mb/d before 2020 & falls to 81 mb/d in 2035, with a plunge in OECD demand more than offsetting continuing growth in non-OECD demand

  35. Combating climate change will bring economic benefits as well as costs Oil-import bills as share of GDP in selected countries 8% 1980 7% 2008 6% 2009 5% 2035: New Policies Scenario 4% 3% 2035: 450 Scenario 2% 1% 0% European Union United States Japan China India In the 450 Scenario, annual spending on oil imports in 2035 by the five largest importers is around $560 billion, or one-third, lower than in the New Policies Scenario

  36. OPEC oil-export revenues set to rise Cumulative OPEC oil-export revenues by scenario 35 30 25 Trillion dollars (2009) 20 15 10 5 0 New Policies Scenario 450 Scenario 1984-2009 2010-2035 In the 450 Scenario, OPEC’s cumulative oil revenues in 2010-2035 amount to $27 trillion, or more than a 3-fold increase compared with the last quarter century

  37. Key messages • The surge in oil prices poses a threat to the fragile economic recovery by impacting balance of payments, inflation & growth • If oil prices average $100 per barrel in 2011, OECD oil-import spending will amount to 2.3% of GDP • Emerging economies with high energy intensity and import dependency are most vulnerable • “Golden Age” of gas with supply abundance and high demand from China and post-Fukushima • Uncertain future Chinese policies will have huge impacts • Policies to respond to challenges posed by climate change & energy security by bringing the oil demand peak forward would have important repercussions on the oil market • With or without oil the age of cheap energy is over – but who will take the rent?

  38. Oil in the global energy mix:Climate policies can drive an early peak in oil demand Nobuo Tanaka Executive Director International Energy Agency Bridge Forum Dialogue, Luxembourg 13 April 2011

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