World Energy Outlook 2010 [1 ed.] 9264086242, 9789264086241

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World Energy Outlo ok

2010

World Energy Outlook

2010 The world appears to be emerging from the worst economic crisis in decades. Many countries have made pledges under the Copenhagen Accord to reduce greenhouse-gas emissions. Commitments have also been made by the G-20 and APEC to phase out inefficient fossil-fuel subsidies. Are we, at last, on the path to a secure, reliable and environmentally sustainable energy system? Updated projections of energy demand, production, trade and investment, fuel by fuel and region by region to 2035 are provided in the 2010 edition of the World Energy Outlook (WEO). It includes, for the first time, a new scenario that anticipates future actions by governments to meet the commitments they have made to tackle climate change and growing energy insecurity. WEO-2010 shows: n

n n n n n n

what more must be done and spent to achieve the goal of the Copenhagen Accord to limit the global temperature increase to 2°C and how these actions would impact on oil markets; how emerging economies – led by China and India – will increasingly shape the global energy landscape; what role renewables can play in a clean and secure energy future; what removing fossil-fuel subsidies would mean for energy markets, climate change and state budgets; the trends in Caspian energy markets and the implications for global energy supply; the prospects for unconventional oil; and how to give the entire global population access to modern energy services.

With extensive data, projections and analysis, WEO-2010 provides invaluable insights into how the energy system could evolve over the next quarter of a century. The book is essential reading for anyone with a stake in the energy sector.

€150 (61 2010 15 1P1) ISBN: 978 92 64 08624 1

World Energy Outlo ok

2010

INTERNATIONAL ENERGY AGENCY The International Energy Agency (IEA), an autonomous agency, was established in November 1974. Its mandate is two-fold: to promote energy security amongst its member countries through collective response to physical disruptions in oil supply and to advise member countries on sound energy policy. The IEA carries out a comprehensive programme of energy co-operation among 28 advanced economies, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports. The Agency aims to: n Secure member countries’ access to reliable and ample supplies of all forms of energy; in particular, through maintaining effective emergency response capabilities in case of oil supply disruptions. n Promote sustainable energy policies that spur economic growth and environmental protection in a global context – particularly in terms of reducing greenhouse-gas emissions that contribute to climate change. n Improve transparency of international markets through collection and analysis of energy data. n Support global collaboration on energy technology to secure future energy supplies and mitigate their environmental impact, including through improved energy efficiency and development and deployment of low-carbon technologies. n Find solutions to global energy challenges through engagement and dialogue with non-member countries, industry, international organisations and other stakeholders.

IEA member countries: Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Japan Korea (Republic of) Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic Spain © OECD/IEA, 2010 Sweden International Energy Agency Switzerland 9 rue de la Fédération Turkey 75739 Paris Cedex 15, France United Kingdom United States Please note that this publication is subject to specific restrictions that limit its use and distribution. The terms and conditions are available online at www.iea.org/about/copyright.asp

The European Commission also participates in the work of the IEA.

FOREWORD

Three of t he t housands of numbers in t he World Energy Out look 2010, despit e t heir disparit y, are wort h put t ing alongside each ot her: z $312 billion — t he cost of consumpt ion subsidies t o fossil fuels in 2009. z $57 billion — t he cost of support given t o renewable energy in 2009. z $36 billion per year — t he cost of ending global energy povert y by 2030. Adding under t wo percent t o elect ricit y t ariffs in t he OECD would raise enough money t o bring elect ricit y t o t he ent ire global populat ion wit hin t went y years; while, in t he past year, t he prospect ive cost of t he addit ional global energy invest ment t o 2035 t o curb greenhouse-gas emissions has risen by $1 t rillion because of t he caut ion of t he commit ment s made at Copenhagen. My chief economist , Fat ih Birol, and his t eam have again met our high expect at ions. We have new proj ect ions, fuel by fuel, ext ending now t o 2035; a special focus on renewable energy; a st ock-t aking on energy and climat e change in t he aft ermat h of Copenhagen; a look at t he cost of achieving universal access t o elect ricit y and clean cooking fuels; det ailed informat ion on t he energy demand and resources of t he count ries in t he Caspian region; and insight s int o t he scale of fossil-fuel subsidies and t he implicat ions of phasing t hem out . The basis of our proj ect ions t his year has changed. The old Reference Scenario is dead (t hough reborn as t he Current Policies Scenario). The cent repiece of our present at ion is now t he New Policies Scenario. This depart s from our previous pract ice of building our proj ect ions only on t he measures government s had already t aken.

© OECD/ IEA - 2010

Predict ing what government s might do is a hazardous business. We have gone no furt her t han t o t ake government s at t heir word, int erpret ing t he int ent ions t hey have declared int o implement ing measures and proj ect ing t he fut ure on t hat basis. More commit ment s and more policies will surely follow. We have not at t empt ed t o guess what t hey might be; but t he 450 Scenario remains as a measure of how much more must be done t o realise a sust ainable fut ure and how it could be done. One point is cert ain. The cent re of gravit y of global energy demand growt h now lies in t he developing world, especially in China and India. But uncert aint ies abound. Is our emergence f rom t he f inancial crisis of 2008-2009 a solid enough basis f or our assumpt ions about economic growt h? Will China sust ain and int ensif y t he f our-f old improvement in energy int ensit y it has achieved in t he last t hirt y years? Would a t hree-f old increase in oil revenues in real t erms sat isf y OPEC producers in a world commit t ed t o keep t he global t emperat ure rise below 2°Celsius? What will be t he upshot of t he cont roversy about t he sust ainablilit y of biof uels product ion? Will carbon capt ure and st orage become a commercially available t echnology wit hin a decade? Foreword

3

We cannot know. But , wit h t he invaluable financial and analyt ical support of our member count ries and ot hers who rely on t he WEO, we can and do ensure, t hrough t his new edit ion of t he WEO, t hat responsible and rigorous informat ion is available t o help decision-makers discharge t heir responsibilit ies t o shape t he energy fut ure.

Nobuo Tanaka Executive Director

© OECD/ IEA - 2010

This publicat ion has been produced under t he aut horit y of t he Execut ive Direct or of t he Int ernat ional Energy Agency. The views expressed do not necessarily ref lect t he views or policies of individual IEA member count ries.

4

World Energy Outlook 2010

ACKNOWLEDGEMENTS

This st udy was prepared by t he Office of t he Chief Economist (OCE) of t he Int ernat ional Energy Agency in co-operat ion wit h ot her offices of t he Agency. It was designed and direct ed by Fatih Birol, Chief Economist of t he IEA. Laura Cozzi and Marco Baroni co-ordinat ed t he analysis of climat e policy and modelling; Trevor Morgan co-ordinat ed t he analysis of oil and nat ural gas and t he Caspian out look; Amos Bromhead co-ordinat ed t he analysis of fossil-fuel subsidies. Maria Argiri led t he work on renewables, John Corben and Pawe ł Olejarnik (oil, gas and coal supply), Christian Besson (unconvent ional oil), Alessandro Blasi (Caspian and oil), Raffaella Centurelli (energy povert y and modelling), Michael-Xiaobao Chen (fossil-fuel subsidies and China), Michel D’Ausilio (power sect or and renewables), Dafydd Elis (power sect or and renewables), Matthew Frank (fossil-fuel subsidies and power sect or), Tim Gould (Caspian and oil), Timur Gül (t ransport and modelling), Kate Kumaria (climat e policy), Qiang Liu (China), Bertrand Magné (climat e policy and modelling), Teresa Malyshev (energy povert y), Timur Topalgoekceli (oil), David Wilkinson (power sect or and modelling) and Akira Yanagisawa (fossil-fuel subsidies and modelling). Sandra Mooney provided essent ial support . For more informat ion on t he OCE t eam, please see www.worldenergyout look.org.

Robert Priddle carried edit orial responsibilit y. The st udy benefit ed from input provided by IEA expert s in different offices. Paolo Frankl, Milou Beerepoot , Hugo Chandler and several ot her colleagues of t he Renewable Energy Division made valuable cont ribut ions t o t he renewable energy analysis. Ian Cronshaw provide very helpful input t o t he gas and power sect or analysis. Ot her IEA colleagues who provided input t o different part s of t he book include, Jane Barbière, Madeleine Barry, Ulrich Bent erbusch, Rick Bradley, Aad van Bohemen, Pierpaolo Cazzola, Anne-Sophie Corbeau, Bo Diczfalusy, David Elzinga, Lew Fult on, David Fyfe, Rebecca Gaghen, Jean-Yves Garnier, Grayson Heffner, Christ ina Hood, Didier Houssin, Brian Ricket t s, Bert rand Sadin, Maria Sicilia, Sylvie St ephan and Cecilia Tam. Expert s from a number of direct orat es of t he OECD also made valuable cont ribut ions t o t he report , part icularly Helen Mount ford, Ronald St eenblik, Jean-Marc Burniaux, Jean Chât eau and Dambudzo Muzenda. Thanks also go t o Debra Just us for proofreading t he t ext .

© OECD/ IEA - 2010

The work could not have been achieved wit hout t he subst ant ial support and co-operat ion provided by many government bodies, int ernat ional organisat ions and energy companies worldwide, not ably: Depart ment of Energy, Unit ed St at es; Enel; Energy Research Inst it ut e, China; Foreign Affairs and Int ernat ional Trade, Canada; Foreign and Commonwealt h Office, Unit ed Kingdom; HM Treasury, Unit ed Kingdom; IEA Coal Indust ry Advisory Board (CIAB); Int ergoverment al Panel on Climat e Change (IPCC); Minist ry of Economic Affairs, The Net herlands; Minist ry of Economy, Trade and Indust ry, Japan; Minist ry of Foreign Affairs, Norway; Minist ry of t he Economy, Poland; Nat ional Renewable Energy Acknowledgements

5

Laborat ory (NREL), Unit ed St at es; Nat ural Resources, Canada; Navigant Consult ing; Norwegian Agency for Development Co-operat ion; Renewable Energy and Energy Efficiency Part nership (REEEP); Schlumberger; St at oil; The Energy and Resources Inst it ut e (TERI), India; Toyot a Mot or Corporat ion; Unit ed Nat ions Development Programme (UNDP), t he Unit ed Nat ions Indust rial Development Organizat ion (UNIDO) and t he World Healt h Organisat ion (WHO).

© OECD/ IEA - 2010

Many int ernat ional expert s provided input , comment ed on t he underlying analyt ical work and reviewed early draft s of each chapt er. Their comment s and suggest ions were of great value. They include: Asset Abdualiyev

Consult ant , Kazakhst an

Saleh Abdurrahman

Minist ry of Energy and Mineral Resources, Indonesia

Kalle Ahlst edt

Fort um

Jun Arima

Minist ry of Economy, Trade and Indust ry, Japan

Polina Averianova

Eni

Georg Bäuml

Volkswagen

Paul Bailey

Depart ment of Energy and Climat e Change, Unit ed Kingdom

Jim Bart is

RAND Corporat ion

Chris Bart on

Depart ment of Energy and Climat e Change, Unit ed Kingdom

Vaclav Bart uska

Minist ry of Foreign Affairs, Czech Republic

Paul Baruya

IEA Clean Coal Cent re, Unit ed Kingdom

Morgan Bazilian

UNIDO

Carmen Becerril Mart inez

Acciona

Rachid Bencherif

OPEC Fund for Int ernat ional Development , Aust ria

Osman Benchikh

UN Educat ional Scient ific and Cult ural Organisat ion, France

Kamel Bennaceur

Schlumberger

Bruno Bensasson

GDF SUEZ

Edgard Blaust ein

Minist ry of Foreign Affairs, France

Robert o Bocca

World Economic Forum

Jean-Paul Bout t es

Elect ricit e de France

Julien Bowden

BP

Albert Bressand

Columbia School of Int ernat ional and Public Affairs, Unit ed St at es

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World Energy Outlook 2010

© OECD/ IEA - 2010

Nigel Bruce

World Healt h Organisat ion, Swit zerland

Pet er Brun

Vest as

Kenny Bruno

Corporat e Et hics Int ernat ional

Guy Caruso

Cent er for St rat egic and Int ernat ional St udies, Unit ed St at es

Mart in Child

Brit ish Embassy, Kazakhst an

Ed Chow

Cent er for St rat egic and Int ernat ional St udies, Unit ed St at es

Jan Cloin

Minist ry of Foreign Affairs, The Net herlands

Janusz Cofala

Int ernat ional Inst it ut e for Applied Syst ems Analysis, Aust ria

Michael Cohen

Depart ment of Energy, Unit ed St at es

Ben Combes

Commit t ee on Climat e Change, Unit ed Kingdom

Jennifer Coolidge

CMX Caspian and Gulf Consult ant s

Joel Couse

Tot al

Kevin Covert

Unit ed St at es Embassy, Kazakhst an

Christ ian De Gromard

Agence Française de Développement

Jos Delbeke

European Commission

Carmen Difiglio

Depart ment of Energy, Unit ed St at es

Andrew Dobbie

Depart ment of Energy and Climat e Change, Unit ed Kingdom

Joanne Doornewaard

Minist ry of Economic Affairs, The Net herlands

Nick Douglas

Depart ment of t he Int erior, Unit ed St at es

Jens Drillisch

KfW Bankengruppe, Germany

St anislas Drochon

PFC Energy

Simon Dyer

The Pembina Inst it ut e, Canada

Ot t mar Edenhofer

Int ergovernment al Swit zerland

Koffi Ekouevi

World Bank, Unit ed St at es

Mike Enskat

Deut sche Gesellschaft für Technisch Zusammenarbeit (GTZ) GmbH Germany

Hideshi Emot o

Development Bank of Japan

Mikael Eriksson

Minist ry for Foreign Affairs, Sweden

Acknowledgements

Panel

on Climat e Change,

7

© OECD/ IEA - 2010

Jean-Pierre Favennec

Inst it ut Français du Pét role

Roger Fairclough

Neo Leaf Global

Herman Franssen

Int ernat ional Energy Associat es

Pet er Fraser

Ont ario Energy Board, Canada

Irene Freudenschuss-Reichl

Minist ry for European and Int ernat ional Affairs, Aust ria

Dario Garofalo

Enel

Carlos Gascò-Travesedo

Iberdrola

Holger Gassner

RWE

Claude Gauvin

Nat ural Resources Canada

John German

Int ernat ional Council on Clean Transport at ion

Dolf Gielen

UNIDO

Guido Glania

Alliance for Rural Elect rificat ion, Belgium

José Goldemberg

Inst it ut o de Elet rot écnica e Energia, Brazil

Rainer Görgen

Federal Minist ry of Economics and Technology, Germany

Irina Goryunova

Cent ral Asia Regional Economic Cooperat ion, Kazakhst an

Alex Greenst ein

Depart ment of St at e, Unit ed St at es

Sanj eev Gupt a

Int ernat ional Monet ary Fund, Unit ed St at es

Ant oine Halff

Newedge, Unit ed St at es

Kirst y Hamilt on

Royal Inst it ut e of Int ernat ional Af f airs, Unit ed Kingdom

Ant onio Hernandez Garcia

Minist ry of Indust ry, Tourism and Trade, Spain

James Hewlet t

Depart ment of Energy, Unit ed St at es

Masazumi Hirono

Tokyo Gas

Ray Holland

EU Energy Init iat ive Part nership Dialogue Facilit y, Germany

Takashi Hongo

Japan Bank for Int ernat ional Cooperat ion

Trevor Houser

Pet erson Inst it ut e f or Int ernat ional Economics, Unit ed St at es

Tom Howes

European Commission

Must aq Hussain

Delegat ion of t he European Union t o t he Republic of Kazakhst an

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World Energy Outlook 2010

© OECD/ IEA - 2010

Cat herine Inglehearn

Foreign and Commonwealt h Office, Unit ed Kingdom

Fumiaki Ishida

New Energy and Indust rial Technology Development Organizat ion, Japan

Pet er Jackson

IHS CERA

C.P. Jain

World Energy Council

James Jensen

Jensen Associat es

Jan-Hein Jesse

Heerema Marine Cont ract ors

David Jhirad

Johns Hopkins Universit y, Unit ed St at es

Robert Johnst on

Eurasia Group

Leanne Jones

Depart ment for Int ernat ional Development , Unit ed Kingdom

Marianne Kah

ConocoPhillips

John Sande Kanyarubona

African Development Bank

Mahama Kappiah

ECOWAS Regional Cent re for Renewable Energy and Energy Efficiency, Cape Verde

Tor Kart evold

St at oil

Ryan Kat ofsky

Navigant Consult ing

Paul Khanna

Nat ural Resources Canada

Hisham Khat ib

Honorary Vice Chairman, World Energy Council; and former Minist er of Energy, Jordan

Mohamed Hafiz Khodj a

Consult ant , Algeria

David Knapp

Energy Int elligence

Kenj i Kobayashi

Asia Pacific Energy Research Cent re, Japan

Yoshikazu Kobayashi

Inst it ut e of Energy Economics, Japan

Hans-Jorgen Koch

Minist ry of Transport at ion and Energy, Denmark

Masami Koj ima

World Bank, Unit ed St at es

Doug Koplow

Eart h Track

Edward Kot t

LCM Commodit ies

Ken Koyama

Inst it ut e of Energy Economics, Japan

Nat alia Kulichenko-Lot z

World Bank, Unit ed St at es

Akihiro Kuroki

Inst it ut e of Energy Economics, Japan

Takayuki Kusaj ima

Toyot a Mot or Corporat ion

Acknowledgements

9

© OECD/ IEA - 2010

Sarah Ladislaw

Cent er for St rat egic and Int ernat ional St udies, Unit ed St at es

Gordon Lambert

Suncor Energy

Michael Levi

Council on Foreign relat ions, Unit ed St at es

St eve Lennon

Eskom

Michael Liebreich

Bloomberg New Energy Finance

Vivien Life

Foreign and Commonwealt h Office, Unit ed Kingdom

Qiang Liu

Energy Research Inst it ut e, China

Agat a Łoskot -St rachot a

Cent re for East ern St udies, Poland

Gunnar Luderer

Pot sdam Inst it ut e for Climat e Impact Research, Germany

Michael Lynch

St rat egic Energy & Economic Research, Unit ed St at es

Gordon Mackenzie

UNEP Risø Cent re, Denmark

Joan MacNaught on

Alst om Power Syst ems

Claude Mandil

Former Execut ive Direct or, Int ernat ional Energy Agency

David McColl

The Canadian Energy Research Inst it ut e

Hilary McMahon

World Resources Inst it ut e

Neil McMurdo

HM Treasury, Unit ed Kingdom

Albert Melo

Cent ro de Pesquisas de Energia Elét rica, Brazil

Emanuela Menichet t i

Observat oire Médit erranéen de l’ Energie, France

Angus Miller

Foreign and Commonwealt h Office, Unit ed Kingdom

Tat iana Mit rova

Energy Research Inst it ut e of t he Russian Academy of Sciences, Russia

A. Trist an Mocilnikar

Mission Union pour la Médit erranée, France

Arne Mogren

Vat t enfall

Lucio Monari

World Bank, Unit ed St at es

Jacob Moss

Environment al Prot ect ion Agency, Unit ed St at es

Neboj sa Nakicenovic

Int ernat ional Inst it ut e for Applied Syst ems Analysis, Aust ria

Julia Nanay

PFC Energy

Aldo Napolit ano

Eni

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World Energy Outlook 2010

© OECD/ IEA - 2010

Fernando Naredo

West inghouse Elect rical Company

Brian Nicholson

Depart ment of Energy, Government of Albert a

Kare Riis Nielsen

Novozymes

Pet t er Nore

Norwegian Agency for Development Cooperat ion

Pat rick Nussbaumer

UNIDO

Mart ha Olcot t

Carnegie Endowment for Int ernat ional Peace, Unit ed St at es

Pat rick Oliva

Michelin

Simon-Erik Ollus

Fort um

A. Yasemin Örücü

Minist ry of Energy and Nat ural Resources, Turkey

Shonali Pat chauri

Int ernat ional Inst it ut for Applied Syst em Analysis, Aut ralia

Binu Part han

Renewable Energy & Energy Efficiency Part nership, Aust ria

Brian Pearce

Int ernat ional Air Transport Associat ion, Swit zerland

Serge Perineau

World CTL Associat ion

Christ ian Pichat

AREVA

Robert o Pot ì

Edison

Ireneusz Pyc

Siemens

Ibrahim Hafeezur Rehman

The Energy and Resources Inst it ut e, India

David Renné

Nat ional Renewable Energy Laborat ory, Unit ed St at es

Gust av Resch

Vienna Universit y of Technology, Aust ria

Teresa Ribera

Secret ary of St at e for Climat e Change, Spain

Christ oph Richt er

SolarPACES, Spain

Kamal Rij al

UNDP

Wishart Robson

Nexen Inc

Hans-Holger Rogner

Int ernat ional At omic Energy Agency

David Rolfe

Depart ment of Energy and Climat e Change, Unit ed Kingdom

Simon Rolland

Alliance for Rural Elect rificat ion, Belgium

Ralph D. Samuelson

Asia Pacific Energy Research Cent re, Japan

Cat harina Saponar

Nomura

Acknowledgements

11

© OECD/ IEA - 2010

St eve Sawyer

Global Wind Energy Council, Belgium

Hans-Wilhelm Schiffer

RWE

Glen Schmidt

Laricina Energy

Philippe Schulz

Renault

Adnan Shihab-Eldin

Former Act ing Secret ary General of t he Organizat ion of Pet roleum Export ing Count ries (OPEC)

P.R. Shukla

Indian Inst it ut e of Management

Adam Sieminski

Deut sche Bank

Ron Sills

Consult ant

Ot t ar Skagen

St at oil

Bob Skinner

St at oil

Robert Socolow

Princet on Universit y, Unit ed St at es

Virginia Sonnt ag-O‘ Brien

REN21, France

Leena Srivast ava

Tat a Energy Research Inst it ut e, India

Robert St avins

Harvard Universit y, Unit ed St at es

Till St enzel

Nur Energie

St ephanie St erling

Shell Canada Services

Jonat han St ern

Oxford Inst it ut e for Energy St udies, Unit ed Kingdom

Pau St evens

Royal Inst it ut e of Int ernat ional Af f airs, Unit ed Kingdom

Ulrik St ridbaek

Dong Energy

Goran St rbac

Imperial College, Unit ed Kingdom

Greg St ringham

Canadian Associat ion of Pet roleum Producers

Minoru Takada

UNDP

Bernard Terlinden

GDF Suez

Anil Terway

Asian Development Bank

Sven Teske

Greenpeace Int ernat ional

Wim Thomas

Shell

Douglas Townsend

Consult ant

Simon Trace

Pract ical Act ion, Unit ed Kingdom

Oras Tynkkynen

Prime Minist er’ s Office, Finland

Fridt j of Unander

The Research Council of Norway

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World Energy Outlook 2010

Bernd Ut z

Siemens

Maria Vagliasindi

World Bank, Unit ed St at es

Christ of Van Agt

Clingendael Inst it ut e, The Net herlands

Noé Van Hulst

Int ernat ional Energy Forum, Saudi Arabia

Frank Verrast ro

Cent er for St rat egic and Int ernat ional St udies, Unit ed St at es

Roland Vially

Inst it ut Français du Pét role, France

Pet er Wells

Cardiff Business School, Unit ed Kingdom

Roger Wicks

Anglo American

Francisco Romário Woj cicki

Minist ry of Mines and Energy, Brazil

Pet er Wooders

Int ernat ional Inst it ut e for Sust ainable Development , Swit zerland

Henning Wuest er

UN Framework Convent ion on Climat e Change, Germany

Annabel Yadoo

Cent re for Sust ainable Development at t he Universit y of Cambridge

Shigehiro Yoshino

Nippon Export and Invest ment Insurance, Japan

Dimit rios Zevgolis

Global Environment Facilit y, Unit ed St at es

© OECD/ IEA - 2010

The individuals and organisat ions t hat cont ribut ed t o t his st udy are not responsible for any opinions or j udgement s cont ained in t his st udy. All errors and omissions are solely t he responsibilit y of t he IEA.

Acknowledgements

13

© OECD/ IEA - 2010

Comments and questions are welcome and should be addressed to: Dr. Fatih Birol Chief Economist Direct or, Office of t he Chief Economist Int ernat ional Energy Agency 9, rue de la Fédérat ion 75739 Paris Cedex 15 France Telephone: Fax: Email:

(33-1) 4057 6670 (33-1) 4057 6509 [email protected]

© OECD/ IEA - 2010

More informat ion about t he World Energy Out look is available at www.worldenergyout look.org.

T A B L E

© OECD/ IEA - 2010

O F C O N T E N T S

PART A GLOBAL ENERGY TRENDS

PART B OUTLOOK FOR RENEWABLE ENERGY

PART C ACHIEVING THE 450 SCENARIO AFTER COPENHAGEN

PART D OUTLOOK FOR CASPIAN ENERGY PART E FOCUS ON ENERGY SUBSIDIES ANNEXES

© OECD/ IEA - 2010

CONTEXT AND ANALYTICAL FRAMEWORK

1

ENERGY PROJECTIONS TO 2035

2

OIL MARKET OUTLOOK

3

THE OUTLOOK FOR UNCONVENTIONAL OIL

4

NATURAL GAS MARKET OUTLOOK

5

COAL MARKET OUTLOOK

6

POWER SECTOR OUTLOOK

7

IMPLICATIONS OF THE 450 SCENARIO ENERGY POVERTY

5 8

HOW RENEWABLE ENERGY MARKETS ARE EVOLVING

9

RENEWABLES FOR ELECTRICITY

10

RENEWABLES FOR HEAT

11

RENEWABLES FOR TRANSPORT

12

ENERGY AND THE ULTIMATE CLIMATE CHANGE TARGET

13

THE ENERGY TRANSFORMATION BY SECTOR

14

IMPLICATIONS FOR OIL MARKETS

15

CASPIAN DOMESTIC ENERGY PROSPECTS

16

HYDROCARBON RESOURCES AND SUPPLY POTENTIAL

17

REGIONAL AND GLOBAL IMPLICATIONS

18

ANALYSING FOSSIL-FUEL SUBSIDIES

19

COUNTRY SUBSIDY PROFILES

20

ANNEXES

Foreword Acknowledgement s List of figures List of t ables List of boxes List of spot light s Execut ive summary

3 5 26 35 40 42 45

Part A: GLOBAL ENERGY TRENDS

57

1

2

© OECD/ IEA - 2010

3

18

Context and analytical framework

59

Highlight s Scope and met hodology Main non-policy assumpt ions Populat ion Economic growt h Energy prices CO2 prices Technology

59 60 64 64 66 69 73 74

Energy projections to 2035

77

Highlight s Overview of energy t rends by scenario Energy t rends in t he New Policies Scenario Primary energy demand Regional t rends Sect oral t rends Per-capit a energy consumpt ion and energy int ensit y Energy product ion and t rade Invest ment in energy-supply inf rast ruct ure Energy-relat ed CO2 emissions in t he New Policies Scenario The crucial role of China in global energy market s

77 78 81 81 84 88 89 91 93 95 97

Oil market outlook Highlight s Demand Primary oil demand t rends Regional t rends Sect oral t rends Product ion Resources and reserves Oil product ion prospect s

101 101 102 102 104 106 113 113 118 World Energy Outlook 2010

Int er-regional t rade and supply securit y Oil invest ment Current t rends Invest ment needs t o 2035

4

5

© OECD/ IEA - 2010

6

The outlook for unconventional oil Highlight s Int roduct ion What is unconvent ional oil? Canadian oil sands Resources and product ion t echnology Upgrading Availabilit y of capit al and labour CO2 emissions Wat er usage Land usage Venezuelan Orinoco Belt Ot her ext ra-heavy oil provinces Oil shales Product ion met hods Environment Cost s and product ion prospect s Coal-t o-liquids CTL t echnology Proj ect s and economics Environment Gas-t o-liquids Addit ives

Natural gas market outlook Highlight s Demand Primary gas demand t rends Regional t rends Sect oral t rends Product ion Resources and reserves Gas product ion prospect s Int er-regional t rade Invest ment

Coal market outlook Highlight s Demand Primary coal demand t rends Regional t rends

Table of contents

134 135 135 139

143 143 144 145 147 148 151 155 156 159 160 161 164 165 167 167 168 170 171 172 173 174 176

179 179 180 180 181 183 186 186 188 192 196

199 199 200 200 201 19

Sect oral t rends Product ion Resources and reserves Coal product ion prospect s Int er-regional t rade Invest ment Current t rends Invest ment needs t o 2035

7

8

Power sector outlook

© OECD/ IEA - 2010

20

217

Highlight s Elect ricit y demand Elect ricit y supply New capacit y addit ions, ret irement s and invest ment Regional t rends Unit ed St at es European Union Japan China India Russia Middle East

217 218 219 225 229 229 230 232 232 233 236 236

Energy poverty

237

Highlight s Int roduct ion Energy and development Energy and t he Millennium Development Goals The Universal Modern Energy Access Case Access t o elect ricit y Access t o clean cooking f acilit ies Invest ment needs in t he Universal Modern Energy Access Case Financing f or universal modern energy access Monit oring progress and t he Energy Development Index Ot her pot ent ial indicat ors Policy implicat ions

Part B: OUTLOOK FOR RENEWABLE ENERGY 9

204 206 206 207 210 213 213 215

How renewable energy markets are evolving Highlight s Recent t rends Out look for renewable energy Key paramet ers af f ect ing t he out look

237 238 241 245 246 248 251 254 258 261 266 269

273 275 275 276 277 277 World Energy Outlook 2010

Proj ect ions by scenario Invest ment and finance Recent t rends in invest ment Who invest s: t he st ruct ure of t he renewables indust ry Out look f or invest ment Cost s of renewables The cost of government support mechanisms Research and development Int egrat ion cost s of variable renewables Benefit s of renewables Charact erist ics of renewable energy Hydropower Biomass Solar Wind power Geot hermal energy Marine power

10

© OECD/ IEA - 2010

11

Renewables for electricity Highlight s Out look for renewables-based elect ricit y generat ion Recent t rends and prospect s t o 2035 Renewables-based elect ricit y generat ing cost s Invest ment needs Government support for renewables Recent policy development s Quant if ying government support f or renewables Impact of government support on elect ricit y prices Net work int egrat ion of variable renewables Overview Int egrat ion cost s Dealing wit h t he variabilit y of renewables Special focus: Offshore wind power Invest ment Technology Special focus: Renewables in t he Middle East and Nort h Africa Domest ic policies and init iat ives Out look Large-scale development of renewables in MENA The economics of concent rat ing solar power

Renewables for heat Highlight s Recent t rends Out look for renewables for heat product ion Tradit ional biomass

Table of contents

278 283 283 289 292 295 295 296 297 297 299 299 299 299 300 300 301

303 303 304 304 309 310 312 313 316 320 321 321 322 327 328 329 330 331 331 333 334 335

339 339 340 343 343 21

Modern renewables Renewable energy t echnologies for heat Biomass Solar Geot hermal Policies t o support renewables for heat Renewable energy for cooling

12

Renewables for transport

355

Highlight s Overview Biofuels consumpt ion t rends Government policies t o support biofuels Unit ed St at es European Union Brazil Quant if ying t he value of government support t o biof uels Biofuels t echnologies Convent ional biof uels Advanced biof uels Biofuels emissions Biofuels cost s

355 356 358 364 365 365 366 366 370 370 370 372 374

Part C: ACHIEVING THE 450 SCENARIO AFTER COPENHAGEN

377

Energy and the ultimate climate change target

379

13

© OECD/ IEA - 2010

344 350 350 350 351 352 354

22

Highlight s Int roduct ion The 450 t raj ect ory in t he new global cont ext Assumpt ions and met hodology Tot al greenhouse-gas emissions and t heir energy-relat ed component All gases Energy-relat ed CO2 emissions Where and how are t he savings t o be made? Abat ement by region Select ing t he measures Implicat ions for energy demand The cost of achieving t he 450 Scenario The cost of Copenhagen Macroeconomic cost s Implicat ions f or spending on low-carbon energy t echnologies Benefit s Reduced local pollut ion Avoided mit igat ion and adapt at ion cost s

379 380 381 385 388 388 389 391 391 393 397 400 403 403 404 405 406 408

World Energy Outlook 2010

Moving from t he New Policies Scenario t o t he 450 Scenario Invest ment t o go beyond t he New Policies Scenario Where is t he abat ement t aking place?

14

© OECD/ IEA - 2010

15

The energy transformation by sector Highlight s Overview Power generat ion Fuel mix and generat ing t echnologies CO2 emissions Invest ment in generat ing capacit y Government support f or renewables Transport Transport f uel demand CO2 emissions Invest ment in t ransport Indust ry Indust rial energy demand CO2 emissions Invest ment in more energy-ef f icient indust rial equipment Buildings Energy use in buildings CO2 emissions Invest ment in energy-relat ed equipment in buildings

Implications for oil markets Highlight s Int roduct ion Demand Primary oil demand t rends Regional t rends Sect oral t rends Impact of lower oil demand on oil prices Oil-relat ed CO2 emissions Product ion Invest ment Implicat ions for oil-import ing count ries Oil t rade Oil-import bills and int ensit y Implicat ions for oil-producing count ries Domest ic energy use and relat ed emissions Oil export s and revenues

Table of contents

408 410 410

417 417 418 420 420 424 425 426 429 429 432 434 435 435 437 438 439 439 440 441

443 443 444 444 444 446 446 447 448 449 452 454 454 455 457 457 458 23

Part D: OUTLOOK FOR CASPIAN ENERGY

459

Caspian domestic energy prospects

461

16

17

© OECD/ IEA - 2010

18

24

Highlight s Overview of Caspian energy Trends in energy product ion and invest ment Trends in polit ics and governance Key assumpt ions GDP and populat ion Energy and climat e policies Regional demand out look Overview Primary energy demand and f uel mix Elect ricit y generat ion and ot her sect oral t rends Analysis by count ry Azerbaij an Kazakhst an Turkmenist an Uzbekist an Ot her count ries

461 463 465 466 467 467 468 469 469 470 476 480 482 484 487 489 492

Hydrocarbon resources and supply potential

495

Highlight s Overview Oil Overview and market cont ext Azerbaij an Kazakhst an Ot her Caspian oil producers The prospect s f or Caspian oil export f lows Nat ural gas Overview and market cont ext Azerbaij an Kazakhst an Turkmenist an Uzbekist an Russia Prospect s f or nat ural gas export f lows

495 496 499 499 502 506 518 521 524 524 526 531 534 543 546 546

Regional and global implications

549

Highlight s Energy in nat ional and regional economic development Regional energy co-operat ion Elect ricit y t rade and t he elect ricit y-wat er nexus Oil and gas t ransit

549 550 551 553 555

World Energy Outlook 2010

Implicat ions of Caspian resource development for global energy securit y Oil securit y Gas securit y Implicat ions for climat e change

Part E: FOCUS ON ENERGY SUBSIDIES 19

© OECD/ IEA - 2010

20

Analysing fossil-fuel subsidies Highlight s Defining energy subsidies Rat ionale for energy subsidies and t he need for reform Measuring fossil-fuel consumpt ion subsidies The price-gap approach Ref erence prices Subsidy est imat es Implicat ions of phasing out fossil-fuel consumpt ion subsidies Met hod and assumpt ions Energy demand CO2 emissions Subsidies and energy povert y Announced plans t o phase out subsidies

Country subsidy profiles Highlight s Iran Energy sect or overview Energy pricing and subsidy policy Subsidy est imat es Russia Energy sect or overview Energy pricing and subsidy policy Subsidy est imat es China Energy sect or overview Energy pricing and subsidy policy Subsidy est imat es India Energy sect or overview Energy pricing and subsidy policy Subsidy est imat es Indonesia Energy sect or overview Energy pricing and subsidy policy Subsidy est imat es

Table of contents

557 557 561 563

567 569 569 570 570 574 575 576 578 582 582 583 585 587 588

593 593 594 594 595 597 598 598 599 601 602 602 603 605 605 605 606 610 611 611 612 614 25

ANNEXES Annex A. Annex B. Annex C. Annex D.

Tables for scenario proj ect ions Policies and measures in t he New Policies and 450 Scenarios Abbreviat ions, acronyms, definit ions and conversion fact ors References

617 695 701 715

List of figures Part A: GLOBAL ENERGY TRENDS Chapter 1. Context and analytical framework 1.1 1.2 1.3

Population by maj or region Average IEA crude oil import price by scenario Ratio of average natural gas and coal import prices to crude oil in the New Policies Scenario

66 72 73

Chapter 2. Energy projections to 2035 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12

© OECD/ IEA - 2010

2.13 2.14 2.15 2.16 26

World primary energy demand by scenario Shares of energy sources in world primary demand by scenario Change in global primary energy intensity by scenario World primary energy demand by fuel in the New Policies Scenario World primary energy demand by region in the New Policies Scenario Increment al primary energy demand by f uel and region in t he New Policies Scenario, 2008-2035 Incremental energy demand by sector and region in the New Policies Scenario, 2008-2035 Per-capita primary energy demand by region as a percentage of 2008 world average in the New Policies Scenario Energy intensity in selected countries and regions in the New Policies Scenario World incremental fossil-fuel production in the New Policies Scenario, 2008-2035 Expenditure on net imports of oil and gas as a share of real GDP in the New Policies Scenario Cumulative investment in energy-supply infrastructure by region and fuel in the New Policies Scenario, 2010-2035 World energy-related CO2 emissions by fuel in the New Policies Scenario Per-capita energy-related CO2 emissions by region as a percentage of 2008 world average in the New Policies Scenario Total primary and per-capita energy demand in China and the OECD in the New Policies Scenario China’s share of the proj ected net global increase for selected indicators

78 80 81 84 85 86 89 90 90 92 93 95 96 97 99 99

World Energy Outlook 2010

Chapter 3: Oil market outlook 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 3.20 3.21

© OECD/ IEA - 2010

3.22 3.23 3.24 3.25 3.26 3.27 3.28 3.29

World primary oil demand by scenario Annual change in global real GDP and primary oil demand in the New Policies Scenario Change in primary oil demand by sector and region in the New Policies Scenario, 2009-2035 Transport oil consumption by type in the New Policies Scenario Passenger light-duty vehicle fl eet and ownership rates by region in the New Policies Scenario Passenger light-duty vehicle sales by type in the New Policies Scenario Average fuel economy of new passenger light-duty vehicle sales by region in the New Policies Scenario Road transportation per-capita oil consumption by region in the New Policies Scenario Comparative running cost of conventional and hybrid light-duty vehicles in the United States Payback period for hybrid light-duty vehicles in selected countries at current costs Oil savings from use of natural gas in road transport by region in the New Policies Scenario Aviation oil consumption by region in the New Policies Scenario Proven oil reserves in the top 15 countries, end-2009 Conventional oil discoveries and production worldwide Proven reserves, recoverable resources and production of conventional oil by region in the New Policies Scenario World crude oil production by scenario Change in world oil and biofuels production by scenario, 2009-2035 World oil production by source in the New Policies Scenario World oil production by type in the New Policies Scenario Sensitivity of non-OPEC crude oil production to ultimately recoverable resources World crude oil production by physiographical location in the New Policies Scenario Drivers of natural gas liquids production World oil production by quality in the New Policies Scenario World oil production by type of company in the New Policies Scenario Worldwide upstream oil and gas capital spending by type of company IEA Upstream Investment Cost Index and annual infl ation rate Worldwide upstream oil and gas capital spending Upstream oil and gas investment and operating costs by region How government policy action affects the oil investment cycle

102 104 106 107 107 108 109 110 110 111 112 113 114 117 118 120 120 121 122 123 124 124 126 127 137 138 138 139 141

Chapter 4: The outlook for unconventional oil 4.1 4.2 4.3

Canadian oil-sands production by type in the New Policies Scenario Main Canadian oil-sands districts Well-to-wheels greenhouse-gas emissions of various oils

Table of contents

148 149 157 27

4.4 4.5 4.6 4.7 4.8

Venezuelan oil production by type in the New Policies Scenario Continuum from conventional to unconventional oil resources Shale-oil production by country in the New Policies Scenario Coal-to-liquids production by country in the New Policies Scenario Gas-to-liquids production by source in the New Policies Scenario

162 165 169 171 175

Chapter 5: Natural gas market outlook 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8

World primary natural gas demand by scenario World primary natural gas demand by sector in the New Policies Scenario Proven reserves, recoverable resources and production of conventional natural gas by region in the New Policies Scenario World natural gas production by type in the New Policies Scenario Change in natural gas production by region in the New Policies Scenario Inter-regional natural gas net trade fl ows between maj or regions in the New Policies Scenario World inter-regional natural gas trade by type in the New Policies Scenario Natural gas transportation capacity between maj or regions in the New Policies Scenario

180 184 188 189 192 194 195 196

Chapter 6: Coal market outlook 6.1 6.2 6.3 6.4 6.5

World primary coal demand by scenario Share of key regions in global primary coal demand in the New Policies Scenario Change in primary coal demand by sector and region in the New Policies Scenario, 2008-2035 Power generation costs by fuel and distances in China, 2009 Coal supply cash-cost curve for internationally traded steam coal for 2009 and average FOB prices for 2009 and fi rst-half 2010

200 202 205 211 213

Chapter 7: Power sector outlook 7.1 7.2 7.3 7.4 7.5

© OECD/ IEA - 2010

7.6 7.7 7.8 7.9 7.10 7.11

28

World electricity generation by type in the New Policies Scenario Coal-fi red electricity generation by region in the New Policies Scenario Coal-fi red electricity generation by technology and region in the New Policies Scenario Share of nuclear and renewable energy in total electricity generation by region in the New Policies Scenario Nuclear capacity under construction and additions by region in the New Policies Scenario CO2 intensity of power generation by region in the New Policies Scenario CO2 emissions from the power sector by region in the New Policies Scenario World power-generation capacity additions and investment by type in the New Policies Scenario Age profi le of installed thermal and nuclear capacity by region, 2008 World installed power-generation capacity by type in the New Policies Scenario Power-generation capacity by type in the United States in the New Policies Scenario

219 220 221 222 223 224 224 226 227 229 229

World Energy Outlook 2010

7.12 7.13 7.14

Electricity generation by fuel and region in the New Policies Scenario Cumulative capacity additions in China in the New Policies Scenario from 2009 compared with the 2008 installed capacity of selected countries Change in electricity generation relative to 2008 by type for selected countries in the New Policies Scenario

231 233 234

Chapter 8: Energy poverty 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 8.12 8.13 8.14 8.15

8.16 8.17 8.18 8.19

© OECD/ IEA - 2010

8.20

Number of people without access to electricity in rural and urban areas in the New Policies Scenario Residential electricity consumption in New York and sub-Saharan Africa Household income and electricity access in developing countries Household income and access to modern fuels in developing countries Premature annual deaths from household air pollution and other diseases Access to modern energy services in the New Policies Scenario and Universal Modern Energy Access Case Implication of eradicating extreme poverty on number of people without access to electricity by 2015 Global implications for electricity generation and CO2 emissions in the Universal Modern Energy Access Case, 2030 Number and share of population relying on the traditional use of biomass as their primary cooking fuel by region, 2009 Implication of reducing poverty for number of people relying on the traditional use of biomass for cooking by 2015 Global implications for oil demand in the Universal Modern Energy Access Case Number of people gaining access to electricity and additional cumulative investment needs in the Universal Modern Energy Access Case Incremental electricity generation and investment in the Universal Modern Energy Access Case, 2010-2030 Number of people gaining clean cooking facilities and additional cumulative investment needs in the Universal Modern Energy Access Case Annual average additional investment needs in the Universal Modern Energy Access Case compared with fossil-fuel subsidies in developing countries in 2009 2010 Energy Development Index Comparison of the Human Development Index to the Energy Development Index Evolution of household access to modern energy in selected developing countries The relationship between per-capita fi nal energy consumption and income in developing countries The quality of energy services and household income

240 241 242 242 243 248 249 251 252 252 254 256 257 257

261 264 265 266 266 267

Part B: OUTLOOK FOR RENEWABLE ENERGY Chapter 9: How renewable energy markets are evolving 9.1

World primary renewable energy supply by scenario

Table of contents

279 29

9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11

Increase in global modern renewables by type and scenario, 2008-2035 Modern renewables primary energy demand by region in the New Policies Scenario World modern biomass primary demand by sector in the New Policies Scenario Quarterly global investment in renewable energy assets Annual investment in renewable energy assets by region Finance of renewables by region and type Cumulative investment in renewables by type and selected country/ region in the New Policies Scenario, 2010-2035 Annual global support for renewables in the New Policies Scenario Global spending on research and development in renewable energy by technology, 2009 Contribution of renewables to the global emission and oil-import bill savings in 2035 in the New Policies Scenario vis-à-vis the Current Policies Scenario

280 280 283 285 286 288 293 296 297

298

Chapter 10: Renewables for electricity 10.1 10.2 10.3 10.4 10.5 10.6 10.7

10.8 10.9 10.10 10.11 10.12

© OECD/ IEA - 2010

10.13 10.14 10.15

30

World incremental electricity generation by fuel, 2000-2008 Electricity generation from renewables by scenario Incremental renewables-based electricity generation by region in the New Policies Scenario, 2008-2035 Share of renewables in total electricity generation by type and region in the New Policies Scenario Electricity generating costs of renewable energy technologies for largescale electricity generation in the New Policies Scenario Investment in renewables-based electricity generation by region in the New Policies Scenario, 2010-2035 Global cumulative capacity additions and investment in renewablesbased electricity generation by technology in the New Policies Scenario, 2010-2035 Global government support for renewables-based electricity generation by technology Global government support for and generation from solar PV and onshore wind in the New Policies Scenario Global government support for renewables-based electricity generation by region in the New Policies Scenario Average wholesale electricity prices and impact of renewable support in selected OECD regions in the New Policies Scenario, 2010-2035 Shares of variable renewables in total electricity generation by region in the New Policies Scenario Power generation system fl exibility by region in the New Policies Scenario, 2035 Offshore wind power generation capacity by region and scenario CSP electricity generating costs in MENA in the New Policies Scenario, 2035

304 305 306 308 310 311

312 317 318 320 321 322 324 329 336

World Energy Outlook 2010

10.16

CSP generating costs in North Africa and European wholesale electricity price in the New Policies Scenario

337

Chapter 11: Renewables for heat 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8

Final energy consumption by energy service, 2008 Share of heat in total fi nal energy consumption in selected countries, 2008 Share of renewables in total heat demand by type in selected OECD countries, 2008 Traditional biomass demand by region in the New Policies Scenario Modern renewables for heat in the industry and buildings sectors in the New Policies Scenario Global modern biomass for heat in selected industries in the New Policies Scenario Solar heat consumption in the buildings sector by region in the New Policies Scenario Total solar heat capacity by region, 2008

341 341 342 344 345 347 347 351

Chapter 12: Renewables for transport 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8

Biofuels production in key regions 357 Biofuels consumption by region in the New Policies Scenario 360 Share of biofuels in total road-fuel consumption in selected regions by type in the New Policies Scenario 361 Cumulative investment in biofuel production facilities in the New Policies Scenario by technology, 2010-2035 363 Value of annual global government support to biofuels by type 367 Global average annual government support to biofuels in the New Policies Scenario 369 Ranges of well-to-wheels emission savings relative to gasoline and diesel 373 Indicative cost ranges of selected biofuels versus gasoline and diesel prices 375

Part C: ACHIEVING THE 450 SCENARIO AFTER COPENHAGEN Chapter 13: Energy and the ultimate climate change target 13.1

© OECD/ IEA - 2010

13.2 13.3 13.4 13.5 13.6 13.7 13.8 13.9 13.10

Energy-related CO2 emissions in Annex I and non-Annex I countries under the Copenhagen Accord in 2020 World energy-related CO2 emissions by scenario Greenhouse-gas concentration traj ectories by scenario World anthropogenic greenhouse-gas emissions by type in the 450 Scenario Energy-related CO2 emissions by region in the 450 Scenario Energy-related CO2 emissions per capita by region in the 450 Scenario Average annual change in CO2 intensity by scenario World energy-related CO2 emission savings by region in the 450 Scenario World energy-related CO2 emission savings by policy measure in the 450 Scenario World primary energy demand by fuel in the 450 Scenario

Table of contents

383 384 384 388 390 390 391 393 394 397 31

13.11 13.12 13.13 13.14 13.15 13.16 13.17 13.18 13.19 13.20 13.21

Primary energy demand by fuel and region in the 450 Scenario Modern renewables primary energy demand by selected country/ region in the 450 Scenario World electricity demand by sector in the 450 Scenario compared with the Current Policies Scenario Cumulative additional spending on low-carbon energy technologies in the 450 Scenario relative to the Current Policies Scenario Annual additional spending on low-carbon energy technologies in the 450 Scenario relative to the Current Policies Scenario Estimates of the percentage change in world GDP implied by the 450 Scenario in WEO-2009 and WEO-2010 Change in additional cumulative investment in WEO-2010 450 Scenario relative to WEO-2009 450 Scenario, 2010-2030 World energy-related CO2 emission savings by policy measure in the 450 Scenario compared with the New Policies Scenario Additional annual investment and abatement by scenario World energy-related CO2 emissions savings by region/ country in the 450 Scenario compared with the New Policies Scenario Abatement by maj or region in the 450 Scenario compared with the New Policies Scenario

398 399 400 401 401 404 405 409 410 411 415

Chapter 14: The energy transformation by sector 14.1 14.2 14.3 14.4 14.5 14.6 14.7 14.8 14.9

© OECD/ IEA - 2010

14.10 14.11 14.12 14.13 14.14 14.15

32

Share of total energy-related CO2 emissions by sector and scenario Energy-related CO2 emissions abatement by sector in the 450 Scenario compared with the Current Policies Scenario World installed coal-fi red generation capacity in the 450 Scenario relative to the Current Policies Scenario Incremental world electricity generation by fuel and scenario, 2008-2035 World electricity generation by type and scenario Change in world CO2 emissions from power generation in the 450 Scenario compared with the Current Policies Scenario Change in world CO2 emissions from power generation in the 450 Scenario compared with 2008 Share of average annual global investment by technology type in the 450 Scenario Additional price impact of the cost increase to the electricity producer in selected OECD+ countries resulting from the CO2 price in the 450 Scenario Average annual global support for renewable electricity by scenario Average wholesale electricity prices and renewable support costs by scenario and maj or region, 2010-2035 World fuel consumption in the transport sector in the 450 Scenario Vehicle sales by type and scenario, 2035 World transport-related CO2 emission abatement in the 450 Scenario Sales of electric and plug-in hybrid vehicles in the 450 Scenario and CO2 intensity in the power sector by scenario

418 419 421 422 422 424 424 425

426 428 428 429 431 432 433

World Energy Outlook 2010

14.16 14.17 14.18 14.19 14.20 14.21

Cumulative incremental investment in transport by mode in the 450 Scenario relative to the Current Policies Scenario Industrial energy demand by scenario Change in industrial energy-related CO2 emissions by scenario and region, 2008-2035 Share in additional investment, CO2 reduction and energy savings in industry by region in the 450 Scenario Change in energy-related CO2 emissions in the buildings sector by scenario and region, 2008-2035 Investment by region and fuel in the buildings sector

434 436 437 438 440 441

Chapter 15: Implications for oil markets 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 15.9 15.10 15.11 15.12

Change in oil demand by region in the 450 Scenario compared with 2008 446 Annual average change in world oil demand by sector in the 450 Scenario 447 Average IEA crude oil import price by scenario 448 Share of world energy-related CO2 emissions by fuel and scenario 448 World oil production by source in the 450 Scenario 449 Change in oil production by source and scenario, 2009-2035 451 World oil production by type in the 450 Scenario 451 Cumulative oil sector investment by region and activity in the 450 Scenario, 2010-2035 452 Oil-import bills in selected countries by scenario 455 Oil-import bills as a share of GDP at market exchange rates in selected countries by scenario 456 Energy intensity and per-capita consumption in the Middle East by scenario 457 Cumulative OPEC oil-export revenues by scenario 458

Part D: OUTLOOK FOR CASPIAN ENERGY Chapter 16: Caspian domestic energy prospects 16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8

© OECD/ IEA - 2010

16.9 16.10 16.11 16.12

Key energy features of Caspian countries Total primary energy demand in the Caspian by country Total energy production in the Caspian by country Energy subsidies in selected Caspian countries, 2009 Primary energy demand in the Caspian by fuel in the New Policies Scenario Energy savings potential in the main Caspian countries, 2008 Primary energy intensity in the Caspian and Russia in the New Policies Scenario Comparison of per-capita primary energy demand to GDP per capita in the New Policies Scenario (1990, 2000, 2008, 2020, 2035) Incremental energy demand in the Caspian by sector and fuel in the New Policies Scenario, 2008-2035 Road oil consumption and passenger light-duty vehicle ownership in the Caspian in the New Policies Scenario Electricity generation in the Caspian by country and fuel, 2008 Electricity generation in the Caspian by fuel in the New Policies Scenario

Table of contents

462 464 466 470 471 473 475 475 476 477 478 479 33

16.13 16.14 16.15 16.16 16.17 16.18 16.19 16.20 16.21 16.22

Age profi le of installed thermal and nuclear capacity in the Caspian, 2008 Cumulative power sector investment in the Caspian by country and type in the New Policies Scenario, 2010-2035 Incremental energy demand in Azerbaij an by sector and fuel in the New Policies Scenario, 2008-2035 Electricity generation in Azerbaij an by fuel in the New Policies Scenario Incremental energy demand in Kazakhstan by sector and fuel in the New Policies Scenario, 2008-2035 Electricity generation in Kazakhstan by fuel in the New Policies Scenario Incremental energy demand in Turkmenistan by sector and fuel in the New Policies Scenario, 2008-2035 Primary natural gas demand in Uzbekistan by sector in the New Policies Scenario Electricity generation in Uzbekistan by fuel in the New Policies Scenario Incremental energy demand in Armenia, Georgia, Kyrgyz Republic and Taj ikistan by sector and fuel in the New Policies Scenario, 2008-2035

479 480 483 484 485 486 488 490 491 494

Chapter 17: Hydrocarbon resources and supply potential 17.1 17.2 17.3 17.4 17.5 17.6 17.7 17.8 17.9 17.10 17.11 17.12 17.13 17.14 17.15 17.16 17.17 17.18 17.19 17.20

Caspian oil balance in the New Policies Scenario Caspian gas balance in the New Policies Scenario Estimated Caspian oil and gas production by type of company, 2009 Oil production in the Caspian by maj or fi eld in the New Policies Scenario Azerbaij an’s oil balance in the New Policies Scenario Main oil deposits and export routes in the South Caucasus Azerbaij an’s oil net exports and transit capacity by source in the South Caucasus in the New Policies Scenario Kazakhstan’s oil balance in the New Policies Scenario Oil fi elds and infrastructure in the North Caspian Main oil deposits and export routes in Central Asia Kazakhstan’s oil net exports and transit capacity in the New Policies Scenario Caspian oil export fl ows, 2009 Estimated Caspian oil export netbacks Natural gas production in the Caspian by maj or fi eld in the New Policies Scenario Azerbaij an’s natural gas balance in the New Policies Scenario Natural gas export routes in the South Caucasus Kazakhstan’s natural gas balance in the New Policies Scenario Turkmenistan’s gas balance in the New Policies Scenario Main natural gas deposits and pipeline routes in Central Asia Uzbekistan’s gas balance in the New Policies Scenario

496 497 499 501 504 505 507 507 510 512 513 521 522 526 527 529 532 535 537 544

© OECD/ IEA - 2010

Chapter 18: Regional and global implications 18.1 18.2

34

Oil and gas export revenues in selected Caspian countries in the New Policies Scenario Water releases from the Toktogul reservoir by season in the Kyrgyz Republic

551 554

World Energy Outlook 2010

18.3 18.4 18.5 18.6 18.7 18.8 18.9 18.10 18.11

Oil and gas transit in selected Caspian countries in the New Policies Scenario 555 Share of the Caspian in world oil supply by scenario 558 Oil production in the Caspian by country in the New Policies Scenario 558 Incremental oil production by selected country in the New Policies Scenario, 2009-2035 559 Share of the Caspian in world natural gas supply by scenario 561 Natural gas production and net exports in selected Caspian countries in the New Policies Scenario 562 Caspian share of markets and imports in OECD Europe and China in the New Policies Scenario 563 Carbon intensity in Caspian countries and selected other countries in the New Policies Scenario 564 Energy-related CO2 emissions abatement in the Caspian by source in the 450 Scenario compared with the New Policies Scenario 565

Part E: FOCUS ON ENERGY SUBSIDIES Chapter 19: Analysing fossil-fuel subsidies 19.1 19.2 19.3 19.4 19.5 19.6 19.7 19.8

Potential unintended effects of fossil-fuel consumption subsidies 573 Economic value of fossil-fuel consumption subsidies by type 579 Economic value of fossil-fuel consumption subsidies by country and type, 2009 579 Fossil-fuel consumption subsidy rates as a proportion of the full cost of supply, 2009 581 Impact of fossil-fuel consumption subsidy phase-out on global primary energy demand 584 Oil savings resulting from consumption subsidy phase-out, 2020 584 Impact of fossil-fuel consumption subsidy phase-out on global energyrelated CO2 emissions 585 Impact of fossil-fuel consumption subsidy phase-out on global energyrelated CO2 emissions compared with the Current Policies and 450 Scenarios 585

Chapter 20: Country subsidy profiles 20.1 20.2

© OECD/ IEA - 2010

20.3 20.4 20.5

Estimated gasoline and diesel import bill of Iran Natural gas prices for industry in Russia compared with average European netbacks Petroleum product prices in China compared to Singapore spot prices Average refi ned product prices and taxes in India, 2009 Electricity prices in India compared with selected countries, 2009

Table of contents

597 600 604 608 610

35

List of tables Part A: GLOBAL ENERGY TRENDS Chapter 1. Context and analytical framework 1.1 1.2 1.3 1.4 1.5

Principal policy assumptions by scenario and maj or region, 2020 Population growth by region Real GDP growth by region Fossil-fuel import price assumptions by scenario CO2 prices by main region and scenario

64 65 68 71 74

Chapter 2. Energy projections to 2035 2.1 2.2 2.3 2.4

World primary energy demand by fuel and scenario World primary energy demand by fuel in the New Policies Scenario Primary energy demand by region in the New Policies Scenario Cumulative investment in energy-supply infrastructure in the New Policies Scenario, 2010-2035

80 82 85 94

Chapter 3: Oil market outlook 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10

Primary oil demand by scenario Primary oil demand by region in the New Policies Scenario Oil production and supply by source and scenario Natural gas liquids production by region in the New Policies Scenario Non-OPEC oil production in the New Policies Scenario Oil production technical services contracts issued in Iraq in 2010 OPEC oil production in the New Policies Scenario Inter-regional oil net trade in the New Policies Scenario Oil and gas industry investment Cumulative investment in oil-supply infrastructure by region and activity in the New Policies Scenario, 2010-2035

103 105 119 124 128 133 133 135 136 140

Chapter 4: The outlook for unconventional oil 4.1 4.2 4.3 4.4 4.5 4.6 4.7

World unconventional oil supply by type and scenario Natural bitumen and extra-heavy oil resources by country Typical costs of new Canadian oil sands proj ects Current and planned Canadian oil sands proj ects Venezuelan Orinoco Belt extra-heavy oil proj ects Oil shale resources by country Proposed pilot shale-oil proj ects in the Green River area in the United States

144 146 150 152 163 166 167

© OECD/ IEA - 2010

Chapter 5: Natural gas market outlook 5.1 5.2 5.3 5.4 5.5 5.6

36

Primary natural gas demand by region and scenario Primary natural gas demand by region in the New Policies Scenario Natural gas production by region and scenario Natural gas production by region in the New Policies Scenario Inter-regional natural gas net trade in the New Policies Scenario Cumulative investment in gas-supply infrastructure by region and activity in the New Policies Scenario, 2010-2035

181 182 189 191 193 197

World Energy Outlook 2010

Chapter 6: Coal market outlook 6.1 6.2 6.3 6.4 6.5

World primary coal demand by region and scenario Primary coal demand by region in the New Policies Scenario Coal production by region in the New Policies Scenario Inter-regional hard coal net trade by region in the New Policies Scenario Production, exports and investment of 25 leading coal companies

201 203 209 212 214

Chapter 7: Power sector outlook 7.1 7.2

Final electricity consumption by region and scenario Capacity and investment needs in power infrastructure by region in the New Policies Scenario

218 228

Chapter 8: Energy poverty 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10

Number of people without access to electricity and relying on the traditional use of biomass, 2009 Targets in the Universal Modern Energy Access Case Number of people without access to electricity and electri fi cation rates by region in the New Policies Scenario Generation requirements for universal electricity access, 2030 Number of people relying on the traditional use of biomass and share by region in the New Policies Scenario Investment requirements for electricity in the Universal Modern Energy Access Case Investment requirements for clean cooking facilities in the Universal Modern Energy Access Case The minimum and maximum values used in the calculation of the 2010 Energy Development Index Indicators of the reliability of infrastructure services Number of developing countries with energy access targets

239 247 250 250 253 256 258 262 268 270

Part B: OUTLOOK FOR RENEWABLE ENERGY Chapter 9: How renewable energy markets are evolving 9.1 9.2 9.3 9.4 9.5 9.6 9.7

Global modern renewable energy supply and shares in total by scenario Shares of renewable energy by sector and region in the New Policies Scenario Credit proj ections for the United States and Euro area The world’s ten largest owners of renewables-based electricity and biofuel producing facilities, as of June 2010 Global market shares of top-ten wind turbine manufacturers Global market shares of top-ten solar cell manufacturers Mergers and acquisitions in renewable energy

279 281 289 290 291 292 292

Chapter 10: Renewables for electricity © OECD/ IEA - 2010

10.1 10.2 10.3

Generating costs of renewables-based electricity generation by technology 310 and learning rates in the New Policies Scenario Investment in renewables-based electricity generation by technology in the New Policies Scenario 311 Classi fi cation of support mechanisms for renewables-based electricity 313

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37

10.4 10.5 10.6 10.7 10.8 10.9

Government support schemes for renewables-based electricity generation and quanti fi cation method Integration costs of variable renewables in the European Union and the United States in the New Policies Scenario, 2035 Installed offshore wind power capacity by country Technical solar potential at different levels of insolation and total electricity generation in selected MENA countries, 2008 Renewable energy policies and targets in selected MENA countries Renewables-based electricity generation in MENA by scenario

316 326 328 331 332 334

Chapter 11: Renewables for heat 11.1 11.2 11.3

Share of modern renewables for heat in total heat demand by region in the New Policies Scenario Cost comparison of water heaters in China Examples of policies for renewable heat in OECD countries

345 349 352

Chapter 12: Renewables for transport 12.1 12.2 12.3 12.4

World biofuels production, 2009 World biofuels consumption by scenario Current government support measures for biofuels in selected countries Value of government support to biofuels in selected countries

356 358 364 368

Part C: ACHIEVING THE 450 SCENARIO AFTER COPENHAGEN Chapter 13: Energy and the ultimate climate change target 13.1 13.2 13.3 13.4 13.5

Principal policy assumptions in the 450 Scenario by region Key abatement by policy area Emissions of maj or air pollutants by region in the 450 Scenario Est imat ed life-years lost due t o exposure t o ant hropogenic emissions of PM2.5 Abatement measures in China in the 450 Scenario compared with the New Policies Scenario in 2020

387 395 407 408 413

Chapter 14: The energy transformation by sector 14.1

Capacity additions by fuel and region in the 450 Scenario

420

© OECD/ IEA - 2010

Chapter 15: Implications for oil markets 15.1 15.2 15.3 15.4 15.5 15.6 15.7

38

Key oil market indicators by scenario Primary oil demand by region in the 450 Scenario World oil demand by sector in the 450 Scenario Oil supply by source in the 450 Scenario Oil net imports in key regions in the 450 Scenario Oil intensity by region in the 450 Scenario Emissions of energy-related CO2 and maj or air pollutants in the Middle East by scenario

444 445 447 450 454 456 458

World Energy Outlook 2010

Part D: OUTLOOK FOR CASPIAN ENERGY Chapter 16: Caspian domestic energy prospects 16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8

Key energy indicators for the Caspian Indicators and assumptions for population and GDP in the Caspian Primary energy demand by country in the Caspian by scenario Primary energy demand in Azerbaij an by fuel in the New Policies Scenario Primary energy demand in Kazakhstan by fuel in the New Policies Scenario Primary energy demand in Turkmenistan by fuel in the New Policies Scenario Primary energy demand in Uzbekistan by fuel in the New Policies Scenario Primary energy demand in Armenia, Georgia, Kyrgyz Republic and Taj ikistan by fuel in the New Policies Scenario

463 468 471 482 485 488 489 493

Chapter 17: Hydrocarbon resources and supply potential 17.1 17.2 17.3 17.4 17.5 17.6 17.7 17.8 17.9 17.10 17.11 17.12

Conventional oil resources in the Caspian by country, end-2009 Oil production in the Caspian by country in the New Policies Scenario Production-weighted average annual observed decline rates of oil fi elds by region Oil net exports in the Caspian by country in the New Policies Scenario Azerbaij an’s oil export routes Ownership of the main Caspian upstream and midstream oil proj ects Kazakhstan’s oil export routes Conventional natural gas resources in the Caspian by country, end-2009 Plateau production characteristics and production-weighted average annual decline rates for gas fi elds Natural gas production in the Caspian by country in the New Policies Scenario Natural gas net exports in the Caspian by country in the New Policies Scenario Azerbaij an’s main westward gas-export pipeline proj ects

500 501 502 502 505 509 513 524 525 525 526 530

Chapter 18: Regional and global implications 18.1 18.2

Main energy and water relationships in the Caspian 553 Energy-related CO2 emissions in the Caspian by country in the New Policies Scenario 564

Part E: FOCUS ON ENERGY SUBSIDIES Chapter 19: Analysing fossil-fuel subsidies 19.1 19.2

© OECD/ IEA - 2010

19.3

Common types of energy subsidies Subsidies in the residential sector for electricity, kerosene and LPG in countries with low levels of modern energy access, 2009 Plans to reform energy subsidies in selected countries

571 588 589

Chapter 20: Country subsidy profiles 20.1 20.2

Key economic and energy indicators for Iran Fossil-fuel consumption subsidies in Iran

Table of contents

594 598 39

20.3 20.4 20.5 20.6 20.7 20.8 20.9 20.10

Key economic and energy indicators for Russia Fossil-fuel consumption subsidies in Russia Key economic and energy indicators for China Fossil-fuel consumption subsidies in China Key economic and energy indicators for India Fossil-fuel consumption subsidies in India Key economic and energy indicators for Indonesia Fossil-fuel consumption subsidies in Indonesia

598 601 602 605 606 611 611 614

List of boxes Part A: GLOBAL ENERGY TRENDS Chapter 1. Context and analytical framework 1.1

Summary of fossil-fuel consumption subsidy assumptions by scenario

63

Chapter 2. Energy projections to 2035 2.1 2.2

Understanding the three WEO-2010 scenarios China becomes the world’s largest energy consumer

79 87

Chapter 3: Oil market outlook 3.1 Defi ning and measuring oil and gas reserves and resources 3.2 Defi nitions of different types of oil in the WEO 3.3 3.4 3.5

Enhancements to the oil-supply model for WEO-2010 Impact of the Gulf of Mexico oil spill The renaissance of Iraqi oil production

114 116 121 129 132

Chapter 4: The outlook for unconventional oil 4.1 4.2 4.3 4.4

How oil is formed Life-cycle emissions When oil from shales is not shale oil: the case of the Bakken Exploiting deep shales: the case of the Bazhenov formation in Russia

147 158 166 170

Chapter 5: Natural gas market outlook 5.1

The GECF seeks oil price parity and ponders how to achieve it

Chapter 6: Coal market outlook 6.1 Coal gasi fi cation

196 205

Chapter 7: Power sector outlook 7.1

Smart solutions to electricity system challenges

225

© OECD/ IEA - 2010

Chapter 8: Energy poverty 8.1 8.2 8.3 8.4 8.5 8.6

Cooking and lighting in the poorest households 244 The importance of modern energy in achieving the MDGs 245 Renewable energy for rural applications 255 Measuring progress with energy poverty indicators 263 Going beyond household access: indicators at the village and national level 268 Initiatives to improve the ef fi ciency of biomass for cooking 270

40

World Energy Outlook 2010

Part B: OUTLOOK FOR RENEWABLE ENERGY Chapter 9: How renewable energy markets are evolving 9.1 9.2 9.3 9.4 9.5

IEA statistical conventions and renewable energy measured at primary energy level Renewables in the 450 Scenario Defi nitions of investment data China’s overseas investment in renewable energy Some key issues in fi nancing renewables in developing countries

278 282 285 289 294

Chapter 10: Renewables for electricity 10.1 10.2 10.3 10.4 10.5

Enhancements to the renewables-based power-generation module in WEO-2010 Concentrating solar power technology Renewables for electricity in the 450 Scenario Capacity value of variable renewables Floating wind turbines in Norway

307 308 312 324 330

Chapter 11: Renewables for heat 11.1 11.2 11.3 11.4 11.5

Expanding the production of heat from biomass in the industry sector The impact of technology development on the uptake of solar for heat Renewables for heat in the 450 Scenario Heat pumps Renewable heat obligations and feed-in tariffs in the European Union

346 348 350 351 353

Chapter 12: Renewables for transport 12.1 12.2 12.3 12.4

Renewable transport fuels Biofuels defi nitions Renewables in transport in the 450 Scenario Raising ethanol blend levels in the United States

357 359 360 365

Part C: ACHIEVING THE 450 SCENARIO AFTER COPENHAGEN Chapter 13: Energy and the ultimate climate change target 13.1 13.2

Uncertainties around the interpretation of Copenhagen Accord Pledges Impact on government revenues

381 402

Chapter 14: The energy transformation by sector 14.1 14.2 14.3 14.4

Carbon capture and storage The policy framework for the transport sector in the 450 Scenario The policy framework for the industry sector in the 450 Scenario The policy framework for the buildings sector in the 450 Scenario

423 430 436 439

© OECD/ IEA - 2010

Part D: OUTLOOK FOR CASPIAN ENERGY Chapter 16: Caspian domestic energy prospects 16.1 16.2

Caspian potential for saving energy in district heating Access to energy in the Caspian

Table of contents

472 481 41

Chapter 17: Hydrocarbon resources and supply potential 17.1 17.2 17.3 17.4 17.5 17.6 17.7

How do Caspian upstream costs compare? By-passing the Turkish Straits Caspian Sea legal issues Gas fl aring in the Caspian Putting a price on Caspian natural gas exports LNG and CNG as options for Caspian gas exports The Caspian Development Corporation

498 515 516 533 538 542 543

Chapter 18: Regional and global implications 18.1 18.2 18.3 18.4

Towards a common energy space? Mitigating transit risks in the Caspian Defi ning energy security How big are the climate benefi ts of Caspian gas going east?

552 556 559 566

Part E: FOCUS ON ENERGY SUBSIDIES Chapter 19: Analysing fossil-fuel subsidies 19.1 19.2 19.3

The G-20 and APEC commitments to phase out fossil-fuel subsidies Sample calculation: estimating gasoline subsidies in Venezuela The IEA energy-subsidy online database

575 578 591

List of spotlights Part A: GLOBAL ENERGY TRENDS Chapter 1. Context and analytical framework Does rising prosperit y inevit ably push up energy needs?

70

Chapter 2: Energy projections to 2035 How do t he energy demand proj ect ions in WEO-2010 compare wit h WEO-2009?

83

Chapter 3: Oil market outlook Peak oil revisit ed: is t he beginning of t he end of t he oil era in sight ?

125

Chapter 5: Natural gas market outlook Oil and gas prices: a t emporary separat ion or a divorce?

185

Chapter 6: Coal market outlook © OECD/ IEA - 2010

Is Xinj iang dest ined t o become t he Ghawar of coal?

208

Chapter 8: Energy poverty Are fossil-fuel subsidies in developing count ries crowding out invest ment s t hat would expand energy access? 42

260

World Energy Outlook 2010

Part B: OUTLOOK FOR RENEWABLE ENERGY Chapter 9: How renewable energy markets are evolving When is biomass product ion sust ainable?

284

Chapter 10: Renewables for electricity Will recent cut s in incent ives for phot ovolt aics really harm t he indust ry?

319

Chapter 11: Renewables for heat How big is t he pot ent ial for solar wat er heat ing in China?

349

Chapter 12: Renewables for transport How green is your aircraft ?

362

Part C: ACHIEVING THE 450 SCENARIO AFTER COPENHAGEN Chapter 13: Energy and the ultimate climate change target What role for phasing out fossil-fuel subsidies in climat e change mit igat ion?

392

Chapter 14: The energy transformation by sector Can e-bikes make a difference?

433

Chapter 15: Implications for oil markets What role can biofuels play in a carbon-const rained world?

453

Part D: OUTLOOK FOR CASPIAN ENERGY Chapter 16: Caspian domestic energy prospects What policies can unlock t he Caspian’ s energy savings pot ent ial?

474

Chapter 17: Hydrocarbon resources and supply potential Black swans and wild cards: what could change t he pat t ern of Caspian resource development ?

523

Part E: FOCUS ON ENERGY SUBSIDIES Chapter 19: Analysing fossil-fuel subsidies

© OECD/ IEA - 2010

Do subsidies t o energy product ion encourage wast eful consumpt ion?

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586

43

© OECD/ IEA - 2010

EXECUTIVE SUMMARY

The energy world faces unprecedented uncertainty. The global economic crisis of 2008-2009 threw energy markets around the world into turmoil and the pace at which the global economy recovers holds the key to energy prospects for the next several years. But it will be governments, and how they respond to the twin challenges of climate change and energy security, that will shape the future of energy in the longer term. The economic sit uat ion has improved considerably over t he past 12 mont hs, more t han many dared t o hope for. Yet t he economic out look for t he coming years remains hugely uncert ain, amid fears of a double- dip recession and burgeoning government budget deficit s, making t he medium - t erm out look for energy unusually hard t o predict wit h confidence. The past year has also seen not able st eps forward in policy making, wit h t he negot iat ion of import ant int ernat ional agreement s on climat e change and on t he reform of inefficient fossil - fuel subsidies. And t he development and deployment of low - carbon t echnologies received a significant boost from st epped- up funding and incent ives t hat government s around t he world int roduced as part of t heir fiscal st imulus packages. Toget her, t hese moves promise t o drive forward t he urgent ly needed t ransformat ion of t he global energy syst em. But doubt s remain about t he implement at ion of recent policy commit ment s. Even if t hey are act ed upon, much more needs t o be done t o ensure t hat t his t ransformat ion happens quickly enough.

© OECD/ IEA - 2010

The outcome of the landmark UN conference on climate change held in December 2009 in Copenhagen was a step forward, but still fell a very long way short of what is required to set us on the path to a sustainable energy system. The Copenhagen Accord — wit h which all maj or emit t ing count ries and many ot hers subsequent ly associat ed t hemselves — set s a non-binding obj ect ive of limit ing t he increase in global t emperat ure t o t wo degrees Celsius (2°C) above pre- indust rial levels. It also est ablishes a goal for t he indust rialised count ries of mobilising funding for climat e mit igat ion and adapt at ion in developing count ries of $100 billion per year by 2020, and requires t he indust rialised count ries t o set emissions t arget s for t he same year. This followed a call from G8 leaders at t heir July 2009 summit t o share wit h all count ries t he goal of cut t ing global emissions by at least 50%by 2050. But t he commit ment s t hat were subsequent ly announced, even if t hey were t o be fully implement ed, would t ake us only part of t he way t owards an emissions t raj ect ory t hat would allow us t o achieve t he 2°C goal. That does not mean t hat t he goal is complet ely out of reach. But it does mean t hat much st ronger effort s, cost ing considerably more, will be needed aft er 2020. Indeed, t he speed of t he energy t ransformat ion t hat would need t o occur aft er 2020 is such as t o raise serious misgivings about t he pract ical achievabilit y of cut t ing emissions sufficient ly t o meet t he 2°C goal. The commitment made by G-20 leaders meeting in the US city of Pittsburgh in September 2009 to “ rationalize and phase out over the medium term inefficient fossil-fuel subsidies that encourage wasteful consumption” has the potential to, at least partly, balance the disappointment at Copenhagen. This commit ment was Executive summary

45

made in recognit ion t hat subsidies dist ort market s, can impede invest ment in clean energy sources and can t hereby undermine effort s t o deal wit h climat e change. The analysis we have carried out in collaborat ion wit h ot her int ernat ional organisat ions at t he request of G- 20 leaders, and which is set out in t his Out look, shows t hat removing fossil - fuel consumpt ion subsidies, which t ot alled $312 billion in 2009, could make a big cont ribut ion t o meet ing energy- securit y and environment al goals, including mit igat ing carbon- dioxide (CO2) and ot her emissions.

Recently announced policies, if implemented, would make a difference

© OECD/ IEA - 2010

The world energy outlook to 2035 hinges critically on government policy action, and how that action affects technology, the price of energy services and end-user behaviour. In recognit ion of t he import ant policy advances t hat have been made recent ly, t he cent ral scenario in t his year’ s Out look — t he New Policies Scenario — t akes account of t he broad policy commit ment s and plans t hat have been announced by count ries around t he world, including t he nat ional pledges t o reduce greenhousegas emissions and plans t o phase out fossil-energy subsidies even where t he measures t o implement t hese commit ment s have yet t o be ident ified or announced. These commit ment s are assumed t o be implement ed in a relat ively caut ious manner, reflect ing t heir non-binding charact er and, in many cases, t he uncert aint y shrouding how t hey are t o be put int o effect . This scenario allows us t o quant ify t he pot ent ial impact on energy market s of implement at ion of t hose policy commit ment s, by comparing it wit h a Current Policies Scenario (previously called t he Ref erence Scenario), in which no change in policies as of mid-2010 is assumed, i.e. t hat recent commit ment s are not act ed upon. We also present t he result s of t he 450 Scenario, which was first present ed in det ail in WEO-2008, which set s out an energy pat hway consist ent wit h t he 2°C goal t hrough limit at ion of t he concent rat ion of greenhouse gases in t he at mosphere t o around 450 part s per million of CO2 equivalent (ppm CO2-eq). The policy commitments and plans that governments have recently announced would, if implemented, have a real impact on energy demand and related CO2 emissions. In t he New Policies Scenario, world primary energy demand increases by 36%bet ween 2008 and 2035, from around 12 300 million t onnes of oil equivalent (Mt oe) t o over 16 700 Mt oe, or 1.2%per year on average. This compares wit h 2%per year over t he previous 27-year period. The proj ect ed rat e of growt h in demand is lower t han in t he Current Policies Scenario, where demand grows by 1.4%per year over 2008- 2035. In t he 450 Scenario, demand st ill increases bet ween 2008 and 2035, but by only 0.7% per year. Energy prices ensure t hat proj ect ed supply and demand are in balance t hroughout t he Out look period in each scenario, rising fast est in t he Current Policies Scenario and slowest in t he 450 Scenario. Fossil fuels — oil, coal and nat ural gas — remain t he dominant energy sources in 2035 in all t hree scenarios, t hough t heir share of t he overall primary fuel mix varies markedly. The shares of renewables and nuclear power are correspondingly highest in t he 450 Scenario and lowest in t he Current Policies Scenario. The range of out comes — and t herefore t he uncert aint y wit h respect t o fut ure energy use — is largest for coal, nuclear power and non- hydro renewable energy sources. 46

World Energy Outlook 2010

Emerging economies, led by China and India, will drive global demand higher In the New Policies Scenario, global demand for each fuel source increases, with fossil fuels accounting for over one-half of the increase in total primary energy demand. Rising fossil - fuel prices t o end users, result ing from upward price pressures on int ernat ional market s and increasingly onerous carbon penalt ies, t oget her wit h policies t o encourage energy savings and swit ching t o low - carbon energy sources, help t o rest rain demand growt h for all t hree fossil fuels. Oil remains t he dominant fuel in t he primary energy mix during t he Out look period, t hough it s share of t he primary fuel mix, which st ood at 33%in 2008, drops t o 28%as high prices and government measures t o promot e fuel efficiency lead t o furt her swit ching away from oil in t he indust rial and power - generat ion sect ors, and new opport unit ies emerge t o subst it ut e ot her fuels for oil product s in t ransport . Demand for coal rises t hrough t o around 2020 and st art s t o decline t owards t he end of t he Out look period. Growt h in demand for nat ural gas far surpasses t hat for t he ot her fossil fuels due t o it s more favourable environment al and pract ical at t ribut es, and const raint s on how quickly low - carbon energy t echnologies can be deployed. The share of nuclear power increases from 6% in 2008 t o 8% in 2035. The use of modern renewable energy — including hydro, wind, solar, geot hermal, modern biomass and marine energy — t riples over t he course of t he Out look period, it s share in t ot al primary energy demand increasing from 7% t o 14%. Consumpt ion of t radit ional biomass rises slight ly t o 2020 and t hen falls back t o j ust below current levels by 2035, wit h increased use of modern fuels by households in t he developing world.

© OECD/ IEA - 2010

Non-OECD countries account for 93% of the projected increase in world primary energy demand in the New Policies Scenario, reflecting faster rates of growth of economic activity, industrial production, population and urbanisation. China, where demand has surged over t he past decade, cont ribut es 36% t o t he proj ect ed growt h in global energy use, it s demand rising by 75% bet ween 2008 and 2035. By 2035, China account s for 22% of world demand, up from 17% t oday. India is t he second - largest cont ribut or t o t he increase in global demand t o 2035, account ing for 18% of t he rise, it s energy consumpt ion more t han doubling over t he Out look period. Out side Asia, t he Middle East experiences t he fast est rat e of increase, at 2% per year. Aggregat e energy demand in OECD count ries rises very slowly over t he proj ect ion period. Nonet heless, by 2035, t he Unit ed St at es is st ill t he world’ s second - largest energy consumer behind China, well ahead of India (in a dist ant t hird place). It is hard to overstate the growing importance of China in global energy markets. Our preliminary dat a suggest t hat China overt ook t he Unit ed St at es in 2009 t o become t he world’ s largest energy user. St rikingly, Chinese energy use was only half t hat of t he Unit ed St at es in 2000. The increase in China’ s energy consumpt ion bet ween 2000 and 2008 was more t han four t imes great er t han in t he previous decade. Prospect s for furt her growt h remain st rong, given t hat China’ s per - capit a consumpt ion level remains low, at only one- t hird of t he OECD average, and t hat it is t he most populous nat ion on t he planet , wit h more t han 1.3 billion people. Consequent ly, t he global energy proj ect ions in t his Out look remain highly sensit ive t o t he underlying assumpt ions for t he key variables t hat drive energy demand in China, including prospect s for economic Executive summary

47

growt h, changes in economic st ruct ure, development s in energy and environment al policies, and t he rat e of urbanisat ion. The count ry’ s growing need t o import fossil fuels t o meet it s rising domest ic demand will have an increasingly large impact on int ernat ional market s. Given t he sheer scale of China’ s domest ic market , it s push t o increase t he share of new low - carbon energy t echnologies could play an import ant role in driving down t heir cost s t hrough fast er rat es of t echnology learning and economies of scale.

Will peak oil be a guest or the spectre at the feast? The oil price needed to balance oil markets is set to rise, reflecting the growing insensitivity of both demand and supply to price. The growing concent rat ion of oil use in t ransport and a shift of demand t owards subsidised market s are limit ing t he scope for higher prices t o choke off demand t hrough swit ching t o alt ernat ive fuels. And const raint s on invest ment mean t hat higher prices lead t o only modest increases in product ion. In t he New Policies Scenario, t he average IEA crude oil price reaches $113 per barrel (in year-2009 dollars) in 2035 — up from j ust over $60 in 2009. In pract ice, short -t erm price volat ilit y is likely t o remain high. Oil demand (excluding biofuels) cont inues t o grow st eadily, reaching about 99 million barrels per day (mb/ d) by 2035 — 15 mb/ d higher t han in 2009. All of t he net growt h comes from non-OECD count ries, almost half from China alone, mainly driven by rising use of t ransport fuels; demand in t he OECD falls by over 6 mb/ d. Global oil product ion reaches 96 mb/ d, t he balance of 3 mb/ d coming from processing gains. Crude oil out put reaches an undulat ing plat eau of around 68-69 mb/ d by 2020, but never regains it s all-t ime peak of 70 mb/ d reached in 2006, while product ion of nat ural gas liquids (NGLs) and unconvent ional oil grows st rongly.

© OECD/ IEA - 2010

Total OPEC production rises continually through to 2035 in the New Policies Scenario, boosting its share of global output to over one-half. Iraq account s for a large share of t he increase in OPEC out put , commensurat e wit h it s large resource base, it s crude oil out put cat ching up wit h Iran’ s by around 2015 and it s t ot al out put reaching 7 mb/ d by 2035. Saudi Arabia regains from Russia it s place as t he world’ s biggest oil producer, it s out put rising from 9.6 mb/ d in 2009 t o 14.6 mb/ d in 2035. The increasing share of OPEC cont ribut es t o t he growing dominance of nat ional oil companies: as a group, t hey account for all of t he increase in global product ion bet ween 2009 and 2035. Tot al non-OPEC oil product ion is broadly const ant t o around 2025, as rising product ion of NGLs and unconvent ional oil offset s a fall in t hat of crude oil; t hereaft er, t ot al non-OPEC out put st art s t o drop. The size of ult imat ely recoverable resources of bot h convent ional and unconvent ional oil is a maj or source of uncert aint y for t he long-t erm out look for world oil product ion. Clearly, global oil production will peak one day, but that peak will be determined by factors affecting both demand and supply. In t he New Policies Scenario, product ion in t ot al does not peak before 2035, t hough it comes close t o doing so. By cont rast , product ion does peak, at 86 mb/ d, j ust before 2020 in t he 450 Scenario, as a result of weaker demand, falling briskly t hereaft er. Oil prices are much lower as a result . The message is clear: if government s act more vigorously t han current ly planned t o encourage 48

World Energy Outlook 2010

more efficient use of oil and t he development of alt ernat ives, t hen demand for oil might begin t o ease soon and, as a result , we might see a fairly early peak in oil product ion. That peak would not be caused by resource const raint s. But if government s do not hing or lit t le more t han at present , t hen demand will cont inue t o increase, supply cost s will rise, t he economic burden of oil use will grow, vulnerabilit y t o supply disrupt ions will increase and t he global environment will suffer serious damage.

Unconventional oil is abundant but more costly Unconventional oil is set to play an increasingly important role in world oil supply through to 2035, regardless of what governments do to curb demand. In t he New Policies Scenario, out put rises from 2.3 mb/ d in 2009 t o 9.5 mb/ d in 2035. Canadian oil sands and Venezuelan ext ra-heavy oil dominat e t he mix, but coal-t o-liquids, gas-t o-liquids and, t o a lesser ext ent , oil shales also make a growing cont ribut ion in t he second half of t he Out look period. Unconvent ional oil resources are t hought t o be huge — several t imes larger t han convent ional oil resources. The rat e at which t hey will be exploit ed will be det ermined by economic and environment al considerat ions, including t he cost s of mit igat ing t heir environment al impact . Unconvent ional sources of oil are among t he more expensive available: t hey require large upfront capit al invest ment , which is t ypically paid back over long periods. Consequent ly, t hey play a key role in set t ing fut ure oil prices. The production of unconventional oil generally emits more greenhouse gases per barrel than that of most types of conventional oil, but, on a well-to-wheels basis, the difference is much less, as most emissions occur at the point of use. In t he case of Canadian oil sands, well-t o-wheels CO2 emissions are t ypically bet ween 5% and 15% higher t han for convent ional crude oils. Mit igat ion measures will be needed t o reduce emissions from unconvent ional oil product ion, including more efficient ext ract ion t echnologies, carbon capt ure and st orage and, wit h coal-t o-liquids plant s, t he addit ion of biomass t o t he coal feedst ock. Improved wat er and land management , t hough not unique t o unconvent ional sources, will also be required t o make t he development of t hese resources and t echnologies more accept able.

© OECD/ IEA - 2010

China could lead us into a golden age for gas Natural gas is certainly set to play a central role in meeting the world’s energy needs for at least the next two-and-a-half decades. Global nat ural gas demand, which f ell in 2009 wit h t he economic downt urn, is set t o resume it s long-t erm upward t raj ect ory f rom 2010. It is t he only f ossil f uel f or which demand is higher in 2035 t han in 2008 in all scenarios, t hough it grows at markedly dif f erent rat es. In t he New Policies Scenario, demand reaches 4.5 t rillion cubic met res (t cm) in 2035 — an increase of 1.4 t cm, or 44%, over 2008 and an average rat e of increase of 1.4% per year. China’ s demand grows fast est , at an average rat e of almost 6%per year, and t he most in volume t erms, account ing f or more t han one-f if t h of t he increase in global demand t o 2035. There is pot ent ial f or Chinese gas demand t o grow even f ast er t han t his, especially if coal use is rest rained f or environment al reasons. Demand in t he Executive summary

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Middle East increases almost as much as proj ect ed in China. The Middle East , which is well-endowed wit h relat ively low-cost resources, leads t he expansion of gas product ion over t he Out look period, it s out put doubling t o 800 billion cubic met res (bcm) by 2035. Around 35%of t he global increase in gas product ion in t he New Policies Scenario comes f rom unconvent ional sources — shale gas, coalbed met hane and t ight gas — in t he Unit ed St at es and, increasingly, f rom ot her regions, not ably Asia-Pacif ic.

The glut of global gas-supply capacity that has emerged as a result of the economic crisis (which depressed gas demand), the boom in US unconventional gas production and a surge in liquefied natural gas (LNG) capacity, could persist for longer than many expect. Based on proj ect ed demand in t he New Policies Scenario, we est imat e t hat t he glut , measured by t he difference bet ween t he volumes act ually t raded and t ot al capacit y of int er-regional pipelines and LNG export plant s, amount ed t o about 130 bcm in 2009; it is set t o reach over 200 bcm in 2011, before st art ing a hesit ant decline. This glut will keep t he pressure on gas export ers t o move away from oil-price indexat ion, not ably in Europe, which could lead t o lower prices and t o st ronger demand for gas t han proj ect ed, especially in t he power sect or. In t he longer t erm, t he increasing need for import s — especially in China — will most likely drive up capacit y ut ilisat ion. In t he New Policies Scenario, gas t rade bet ween all WEO regions expands by around 80%, from 670 bcm in 2008 t o 1 190 bcm in 2035. Well over half of t he growt h in gas t rade t akes t he form of LNG.

A profound change in the way we generate electricity is at hand

© OECD/ IEA - 2010

World electricity demand is expected to continue to grow more strongly than any other final form of energy. In t he New Policies Scenario, it is proj ect ed t o grow by 2.2% per year bet ween 2008 and 2035, wit h more t han 80% of t he increase occurring in non- OECD count ries. In China, elect ricit y demand t riples bet ween 2008 and 2035. Over t he next 15 years, China is proj ect ed t o add generat ing capacit y equivalent t o t he current t ot al inst alled capacit y of t he Unit ed St at es. Globally, gross capacit y addit ions, t o replace obsolet e capacit y and t o meet demand growt h, amount t o around 5 900 gigawat t s (GW) over t he period 2009- 2035 — 25% more t han current inst alled capacit y; more t han 40% of t his increment al capacit y is added by 2020. Electricity generation is entering a period of transformation as investment shifts to low-carbon technologies — the result of higher fossil-fuel prices and government policies to enhance energy security and to curb emissions of CO2 . In t he New Policies Scenario, fossil fuels — mainly coal and nat ural gas — remain dominant , but t heir share of t ot al generat ion drops from 68% in 2008 t o 55% in 2035, as nuclear and renewable sources expand. The shift t o low - carbon t echnologies is part icularly marked in t he OECD. Globally, coal remains t he leading source of elect ricit y generat ion in 2035, alt hough it s share of elect ricit y generat ion declines from 41% now t o 32%. A big increase in non- OECD coal - fired generat ion is part ially offset by a fall in OECD count ries. Gas- fired generat ion grows in absolut e t erms, mainly in t he non- OECD, but maint ains a st able share of world elect ricit y generat ion at around 21%over t he Out look period. The share of nuclear power in generat ion increases only marginally, wit h more t han 360 GW of new addit ions over t he period and ext ended lifet ime for several plant s. 50

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Globally, t he shift t o nuclear power, renewables and ot her low-carbon t echnologies is proj ect ed t o reduce t he amount of CO2 emit t ed per unit of elect ricit y generat ed by one- t hird bet ween 2008 and 2035.

The future of renewables hinges critically on strong government support Renewable energy sources will have to play a central role in moving the world onto a more secure, reliable and sustainable energy path. The pot ent ial is unquest ionably large, but how quickly t heir cont ribut ion t o meet ing t he world’ s energy needs grows hinges crit ically on t he st rengt h of government support t o make renewables cost - compet it ive wit h ot her energy sources and t echnologies, and t o st imulat e t echnological advances. The need for government support would increase were gas prices t o be lower t han assumed in our analysis.

© OECD/ IEA - 2010

The greatest scope for increasing the use of renewables in absolute terms lies in the power sector. In t he New Policies Scenario, renewables-based generat ion t riples bet ween 2008 and 2035 and t he share of renewables in global elect ricit y generat ion increases from 19% in 2008 t o almost one- t hird (cat ching up wit h coal). The increase comes primarily from wind and hydropower, t hough hydropower remains dominant over t he Out look period. Elect ricit y produced from solar phot ovolt aics increases very rapidly, t hough it s share of global generat ion reaches only around 2%in 2035. The share of modern renewables in heat product ion in indust ry and buildings increases from 10% t o 16%. The use of biofuels grows more t han four - fold bet ween 2008 and 2035, meet ing 8% of road t ransport fuel demand by t he end of t he Out look period (up from 3% now). Renewables are generally more capit al - int ensive t han fossil fuels, so t he invest ment needed t o provide t he ext ra renewables capacit y is very large: cumulat ive invest ment in renewables t o produce elect ricit y is est imat ed at $5.7 t rillion (in year-2009 dollars) over t he period 2010- 2035. Invest ment needs are great est in China, which has now emerged as a leader in wind power and phot ovolt aic product ion, as well as a maj or supplier of t he equipment . The Middle East and Nort h Africa region holds enormous pot ent ial for large- scale development of solar power, but t here are many market , t echnical and polit ical challenges t hat need t o be overcome. Although renewables are expected to become increasingly competitive as fossil-fuel prices rise and renewable technologies mature, the scale of government support is set to expand as their contribution to the global energy mix increases. We est imat e t hat government support worldwide for bot h elect ricit y from renewables and for biofuels t ot alled $57 billion in 2009, of which $37 billion was for t he former. In t he New Policies Scenario, t ot al support grows t o $205 billion (in year-2009 dollars), or 0.17% of global GDP, by 2035. Bet ween 2010 and 2035, 63% of t he support goes t o renewables- based elect ricit y. Support per unit of generat ion on average worldwide drops over t ime, from $55 per megawat t -hour (MWh) in 2009 t o $23/ MWh by 2035, as wholesale elect ricit y prices increase and t heir product ion cost s fall due t o t echnological learning. This does not t ake account of t he addit ional cost s of int egrat ing t hem int o t he net work, which can be significant because t he variabilit y of some t ypes of renewables, such as wind and solar energy. Government support for renewables can, in principle, Executive summary

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be j ust ified by t he long- t erm economic, energy- securit y and environment al benefit s t hey can bring, t hough at t ent ion needs t o be given t o t he cost - effect iveness of support mechanisms.

The use of biofuels — transport fuels derived from biomass feedstock — is expected to continue to increase rapidly over the projection period, thanks to rising oil prices and government support. In t he New Policies Scenario, global biofuels use increases from about 1 mb/ d t oday t o 4.4 mb/ d in 2035. The Unit ed St at es, Brazil and t he European Union are expect ed t o remain t he world’ s largest producers and consumers of biofuels. Advanced biofuels, including t hose from ligno-cellulosic feedst ocks, are assumed t o ent er t he market by around 2020, most ly in OECD count ries. The cost of producing biofuels t oday is oft en higher t han t he current cost of import ed oil, so st rong government incent ives are usually needed t o make t hem compet it ive wit h oil - based fuels. Global government support in 2009 was $20 billion, t he bulk of it in t he Unit ed St at es and t he European Union. Support is proj ect ed t o rise t o about $45 billion per year bet ween 2010 and 2020, and about $65 billion per year bet ween 2021 and 2035. Government support t ypically raises cost s t o t he economy as a whole. But t he benefit s can be significant t oo, including reduced import s of oil and reduced CO2 emissions — if sust ainable biomass is used and t he fossil energy used in processing t he biomass is not excessive.

© OECD/ IEA - 2010

Unlocking the Caspian’s energy riches would enhance the world’s energy security The Caspian region has the potential to make a significant contribution to ensuring energy security in the rest of the world, by increasing the diversity of oil and gas supplies. The Caspian region cont ains subst ant ial resources of bot h oil and nat ural gas, which could underpin a sizeable increase in product ion and export s over t he next t wo decades. But pot ent ial barriers t o t he development of t hese resources, not ably t he complexit ies of financing and const ruct ing t ransport at ion infrast ruct ure passing t hrough several count ries, t he invest ment climat e and uncert aint y over export demand, are expect ed t o const rain t his expansion t o some degree. In t he New Policies Scenario, Caspian oil product ion grows st rongly — especially over t he first 15 years of t he proj ect ion period; it j umps from 2.9 mb/ d in 2009 t o a peak of around 5.4 mb/ d bet ween 2025 and 2030, before falling back t o 5.2 mb/ d by 2035. Kazakhst an cont ribut es all of t his increase, ranking fourt h in t he world for out put growt h in volume t erms t o 2035 aft er Saudi Arabia, Iraq and Brazil. Most of t he increment al oil out put goes t o export s, which double t o a peak of 4.6 mb/ d soon aft er 2025. Caspian gas product ion is also proj ect ed t o expand subst ant ially, from an est imat ed 159 bcm in 2009 t o nearly 260 bcm by 2020 and over 310 bcm in 2035. Turkmenist an and, t o a lesser ext ent , Azerbaij an and Kazakhst an drive t his expansion. As wit h oil, gas export s are proj ect ed t o grow rapidly, reaching nearly 100 bcm in 2020 and 130 bcm in 2035, up from less t han 30 bcm in 2009. The Caspian has t he pot ent ial t o supply a significant part of t he gas needs of Europe and China, which emerges as a maj or new cust omer, enhancing t heir energy diversit y and securit y. 52

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Domestic energy policies and market trends, beyond being critical to the Caspian’s social and economic development, have an influence on world prospects by determining the volumes available for export. Despit e some improvement in recent years, t he region remains highly energy- int ensive, reflect ing cont inuing gross inefficiencies in t he way energy is used (a legacy of t he Soviet era), as well as climat ic and st ruct ural economic fact ors. If t he region were t o use energy as efficient ly as OECD count ries, consumpt ion of primary energy in t he Caspian as a whole would be cut by one- half. How quickly t his energy- efficiency pot ent ial might be exploit ed hinges largely on government policies, especially on energy pricing (all t he main Caspian count ries subsidise at least one form of fossil energy), market reform and financing. In t he New Policies Scenario, t ot al Caspian primary energy demand expands progressively t hrough t he Out look period, at an average rat e of 1.4% per year, wit h gas remaining t he predominant fuel. Kazakhst an and Turkmenist an see t he fast est rat es of growt h in energy use, mainly reflect ing more rapid economic growt h.

Copenhagen pledges are collectively far less ambitious than the overall goal

© OECD/ IEA - 2010

The commitments that countries have announced under the Copenhagen Accord to reduce their greenhouse-gas emissions collectively fall short of what would be required to put the world onto a path to achieving the Accord’s goal of limiting the global temperature increase to 2°C. If count ries act upon t hese commit ment s in a caut ious manner, as we assume in t he New Policies Scenario, rising demand for fossil fuels would cont inue t o drive up energy-relat ed CO2 emissions t hrough t he proj ect ion period. Such a t rend would make it all but impossible t o achieve t he 2°C goal , as t he required reduct ions in emissions aft er 2020 would be t oo st eep. In t hat scenario, global emissions cont inue t o rise t hrough t he proj ect ion period, t hough t he rat e of growt h falls progressively. Emissions j ump t o j ust under 34 gigat onnes (Gt ) in 2020 and over 35 Gt in 2035 — a 21% increase over t he 2008 level of 29 Gt . Non-OECD count ries account for all of t he proj ect ed growt h in world emissions; OECD emissions peak before 2015 and t hen begin t o fall. These t rends are in line wit h st abilising t he concent rat ion of greenhouse gases at over 650 ppm CO2-eq, result ing in a likely t emperat ure rise of more t han 3.5°C in t he long t erm. The 2°C goal can only be achieved with vigorous imp lementation of commitments in the period to 2020 and much stronger action thereafter. According t o climat e expert s, in order t o have a reasonable chance of achieving t he goal, t he concent rat ion of greenhouse gases would need t o be st abilised at a level no higher t han 450 ppm CO2-eq. The 450 Scenario describes how t he energy sect or could evolve were t his obj ect ive t o be achieved. It assumes implement at ion of measures t o realise t he more ambit ious end of t arget ranges announced under t he Copenhagen Accord and more rapid implement at ion of t he removal of fossil-fuel subsidies agreed by t he G-20 t han assumed in t he New Policies Scenario. This act ion result s in a significant ly fast er slowdown in global energy-relat ed CO2 emissions. In t he 450 Scenario, emissions reach a peak of 32 Gt j ust before 2020 and t hen slide t o 22 Gt by 2035. Just t en emissions-abat ement measures in five regions — t he Unit ed St at es, t he European Union, Japan, China and India — account Executive summary

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for around half of t he emission reduct ions t hroughout t he Out look period needed in t his scenario compared wit h t he Current Policies Scenario. While pricing carbon in t he power and indust ry sect ors is at t he heart of emissions reduct ions in OECD count ries and, in t he longer t erm, ot her maj or economies (CO2 prices reach $90-120 per t onne in 2035), fossil-fuel subsidies phase-out is a crucial pillar of mit igat ion in t he Middle East , Russia and part s of Asia. The power-generat ion sect or’ s share of global emissions drops from 41% t oday t o 24% by 2035, spearheading t he decarbonisat ion of t he global economy. By cont rast , t he t ransport sect or’ s share j umps from 23% t o 32%, as it is more cost ly t o cut emissions rapidly t han in most ot her sect ors.

Cutting emissions sufficiently to meet the 2°C goal would require a far-reaching transformation of the global energy system. In t he 450 Scenario, oil demand peaks j ust before 2020 at 88 mb/ d, only 4 mb/ d above current levels, and declines t o 81 mb/ d in 2035. There is st ill a need t o build almost 50 mb/ d of new capacit y t o compensat e for falling product ion from exist ing fields, but t he volume of oil which has t o be found and developed from new sources by 2035 is only t wo-t hirds t hat in t he New Policies Scenario, allowing t he oil indust ry t o shelve some of t he more cost ly and more environment ally sensit ive prospect ive proj ect s. Coal demand peaks before 2020, ret urning t o 2003 levels by 2035. Among t he fossil fuels, demand for nat ural gas is least affect ed, t hough it t oo reaches a peak before t he end of t he 2020s. Renewables and nuclear make significant inroads in t he energy mix, doubling t heir current share t o 38% in 2035. The share of nuclear power in t ot al generat ion increases by about 50% over current levels. Renewable-based generat ion increases t he most , reaching more t han 45% of global generat ion — t wo-and-a-half t imes higher t han t oday. Wind power j umps t o almost 13%, while t he combined share of solar PV and CSP reaches more t han 6%. Carbon capt ure and st orage plays an import ant role in reducing power-sect or emissions: by 2035, generat ion from coal plant s fit t ed wit h CCS exceeds t hat from coal plant s not equipped wit h t his t echnology, account ing for about t hree-quart ers of t he t ot al generat ion from all CCS fit t ed plant s. Biofuels and advanced vehicles also play a much bigger role t han in t he New Policies Scenario. By 2035, about 70% of global passenger-car sales are advanced vehicles (hybrids, plug-in hybrids and elect ric cars). Global energy securit y is enhanced by t he great er diversit y of t he energy mix.

© OECD/ IEA - 2010

Failure at Copenhagen has cost us at least $1 trillion… Even if the commitments under the Copenhagen Accord were fully implemented, the emissions reductions that would be needed after 2020 would cost more than if more ambitious earlier targets had been pledged. The emissions reduct ions t hat t hose commit ment s would yield by 2020 are such t hat much bigger reduct ions would be needed t hereaft er t o get on t rack t o meet t he 2° C goal. In t he 450 Scenario in t his year’ s Out look, t he addit ional spending on low-carbon energy t echnologies (business invest ment and consumer spending) amount s t o $18 t rillion (in year-2009 dollars) more t han in t he Current Policies Scenario in t he period 2010-2035, and around $13.5 t rillion more t han in t he New Policies Scenario. The addit ional spending compared wit h t he Current Policies Scenario t o 2030 is $11.6 t rillion — about $1 t rillion more t han we est imat ed last year. In addit ion, global GDP would be reduced in 2030 by 1.9%, 54

World Energy Outlook 2010

compared wit h last year’ s est imat e of 0.9%. These differences are explained by t he deeper, fast er cut s in emissions needed aft er 2020, caused by t he slower pace of change in energy supply and use in t he earlier period.

…though reaching the Copenhagen goal is still (just about) achievable The modest nature of the pledges to cut greenhouse-gas emissions under the Copenhagen Accord has undoubtedly made it less likely that the 2°C goal will actually be achieved. Reaching t hat goal would require a phenomenal policy push by government s around t he world. An indicat or of j ust how big an effort is needed is t he rat e of decline in carbon int ensit y — t he amount of CO2 emit t ed per dollar of GDP — required in t he 450 Scenario. Int ensit y would have t o fall in 2008-2020 at t wice t he rat e of 1990-2008; bet ween 2020 and 2035, t he rat e would have t o be almost four t imes fast er. The t echnology t hat exist s t oday could enable such a change, but such a rat e of t echnological t ransformat ion would be unprecedent ed. And t here are maj or doubt s about t he implement at ion of t he commit ment s for 2020, as many of t hem are ambiguous and may well be int erpret ed in a far less ambit ious manner t han assumed in t he 450 Scenario. A number of count ries, for inst ance, have proposed ranges for emissions reduct ions, or have set t arget s based on carbon or energy int ensit y and/ or a baseline of GDP t hat differs from t hat assumed in our proj ect ions. Overall, we est imat e t hat t he uncert aint y relat ed t o t hese fact ors equat es t o 3.9 Gt of energy-relat ed CO2 emissions in 2020, or about 12% of proj ect ed emissions in t he 450 Scenario. It is vit ally import ant t hat t hese commit ment s are int erpret ed in t he st rongest way possible and t hat much st ronger commit ment s are adopt ed and act ed upon aft er 2020, if not before. Ot herwise, t he 2°C goal would probably be out of re ach for good.

© OECD/ IEA - 2010

Getting rid of fossil-fuel subsidies is a triple-win solution Eradicating subsidies to fossil fuels would enhance energy security, reduce emissions of greenhouse gases and air pollution, and bring economic benefits. Fossil - fuel subsidies remain commonplace in many count ries. They result in an economically inefficient allocat ion of resources and market dist ort ions, while oft en failing t o meet t heir int ended obj ect ives. Subsidies t hat art ificially lower energy prices encourage wast eful consumpt ion, exacerbat e energy- price volat ilit y by blurring market signals, incent ivise fuel adult erat ion and smuggling, and undermine t he compet it iveness of renewables and more efficient energy t echnologies. For import ing count ries, subsidies oft en impose a significant fiscal burden on st at e budget s, while for producers t hey quicken t he deplet ion of resources and can t hereby reduce export earnings over t he long t erm. Fossil - fuel consumpt ion subsidies worldwide amount ed t o $312 billion in 2009, t he vast maj orit y of t hem in non- OECD count ries. The annual level fluct uat es widely wit h changes in int ernat ional energy prices, domest ic pricing policy and demand: subsidies were $558 billion in 2008. Only a small proport ion of t hese subsidies go t o t he poor. Considerable moment um is now building globally t o cut fossil - fuel subsidies. In Sept ember 2009, G- 20 leaders commit t ed t o phase out and rat ionalise Executive summary

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inefficient fossil - fuel subsidies, a move t hat was closely mirrored in November 2009 by APEC leaders. Many count ries are now pursuing reforms, but st eep economic, polit ical and social hurdles will need t o be overcome t o realise last ing gains.

Reforming inefficient energy subsidies would have a dramatic effect on supply and demand in global energy markets. We est imat e t hat a universal phase-out of all fossil - fuel consumpt ion subsidies by 2020 — ambit ious t hough it may be as an obj ect ive — would cut global primary energy demand by 5%, compared wit h a baseline in which subsidies remain unchanged. This amount s t o t he current consumpt ion of Japan, Korea and New Zealand combined. Oil demand alone would be cut by 4.7 mb/ d by 2020, equal t o around one- quart er of current US demand. Phasing out fossil - fuel consumpt ion subsidies could represent an int egral building block for t ackling climat e change: t heir complet e removal would reduce CO2 emissions by 5.8%, or 2 Gt , in 2020.

Energy poverty in the developing world calls for urgent action

© OECD/ IEA - 2010

Despite rising energy use across the world, many poor households in developing countries still have no access to modern energy services. The numbers are st riking: we est imat e t hat 1.4 billion people — over 20% of t he global populat ion — lack access t o elect ricit y and t hat 2.7 billion people — some 40% of t he global populat ion — rely on t he t radit ional use of biomass for cooking. Worse, our proj ect ions suggest t hat t he problem will persist in t he longer t erm: in t he New Policies Scenario, 1.2 billion people st ill lack access t o elect ricit y in 2030 (t he dat e of t he proposed goal of universal access t o modern energy services), 87%of t hem living in rural areas. Most of t hese people will be living in sub- Saharan Africa, India and ot her developing Asian count ries (excluding China). In t he same scenario, t he number of people relying on t he t radit ional use of biomass for cooking rises t o 2.8 billion in 2030, 82% of t hem in rural areas. Prioritising access to modern energy services can help accelerate social and economic development. The UN Millennium Development Goal of eradicat ing ext reme povert y and hunger by 2015 will not be achieved unless subst ant ial progress is made on improving energy access. To meet t he goal, an addit ional 395 million people need t o be provided wit h elect ricit y and an addit ional one billion provided wit h access t o clean cooking facilit ies. To meet t he much more ambit ious goal of achieving universal access t o modern energy services by 2030, addit ional spending of $36 billion per year would be required. This is equal t o less t han 3% of t he global invest ment in energy- supply infrast ruct ure proj ect ed in t he New Policies Scenario t o 2030. The result ing increase in energy demand and CO2 emissions would be modest : in 2030, global oil demand would be less t han 1%higher and CO2 emissions a mere 0.8%higher compared wit h t he New Policies Scenario. To get close t o meet ing eit her of t hese goals, t he int ernat ional communit y needs t o recognise t hat t he proj ect ed sit uat ion is int olerable, commit it self t o effect t he necessary change and set t arget s and indicat ors t o monit or progress. The Energy Development Index, present ed in t his Out look, could provide a basis for t arget - set t ing and monit oring. A new financial, inst it ut ional and t echnological framework is required, as is capacit y building at t he local and regional levels. Words are not enough — real act ion is needed now. We can and must get t here in t he end.

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World Energy Outlook 2010

PART A GLOBAL ENERGY TRENDS

PREFACE

Part A of t his WEO present s a comprehensive summary of our energy proj ect ions for t hree scenarios t o 2035. Our cent ral scenario t his year is called t he New Policies Scenario. It t akes account of t he broad policy commit ment s and plans t hat have been announced by count ries around t he world, t o t ackle eit her environment al or energysecurit y concerns, even where t he measures t o implement t hese commit ment s have yet t o be ident ified or announced. This scenario allows us t o quant ify t he pot ent ial impact on energy market s of implement at ion of t hose policy commit ment s, by comparing it wit h a Current Policies Scenario (previously called t he Reference Scenario), in which no change in policies as of mid-2010 is assumed. We also present t he result s of t he 450 Scenario, (first present ed in det ail in WEO-2008), which set s out an energy pat hway consist ent wit h t he goal agreed at t he UN climat e meet ing in Copenhagen in December 2009 t o limit t he increase in global t emperat ure t o 2°C. Chapt er 1 describes t he met hodological framework and t he assumpt ions t hat underpin t he proj ect ions in each of t he scenarios. Chapt er 2 summarises t he global t rends in energy demand and supply, as well as t he implicat ions for invest ment and emissions of carbon dioxide. It also put s t he spot light on t he increasing import ance of China. The det ailed proj ect ions for oil, gas, coal and elect ricit y are t hen set out in Chapt ers 3-7, wit h a special focus on unconvent ional oil in Chapt er 4.

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Chapt er 8 invest igat es t he key st rat egic challenge of energy povert y. It quant ifies t he number of people wit hout access t o modern energy services in developing count ries and t he scale of t he invest ment s required in order t o achieve t he proposed goal of universal access. It also present s an Energy Development Index and a discussion of t he pat h t o improving access t o modern energy services, as well as financing mechanisms and t he implicat ions for government policy.

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CHAPTER 1

CONTEXT AND ANALYTICAL FRAMEWORK What will shape the energy future? H

I

G

H

L

I

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z Three scenarios are present ed in t his year’ s Out l ook , dif f erent iat ed by

t he underlying assumpt ions about government policies. The New Policies Scenario, present ed here f or t he f irst t ime, t akes account of t he broad policy commit ment s t hat have already been announced and assumes caut ious implement at ion of nat ional pledges t o reduce greenhouse-gas emissions by 2020 and t o ref orm f ossil-f uel subsidies.

z The Current Policies Scenario (equivalent t o t he Ref erence Scenario of

past Out l ooks) t akes int o considerat ion only t hose policies t hat had been f ormally adopt ed by mid-2010. The t hird scenario, t he 450 Scenario, assumes implement at ion of t he high-end of nat ional pledges and st ronger policies af t er 2020, including t he near-universal removal of f ossil-f uel consumpt ion subsidies, t o achieve t he obj ect ive of limit ing t he concent rat ion of greenhouse gases in t he at mosphere t o 450 part s per million of CO2-equivalent and global t emperat ure increase t o 2° Celsius.

z Assumpt ions about populat ion and economic growt h are t he same in each

scenario. World populat ion is assumed t o expand f rom an est imat ed 6. 7 billion in 2008 t o 8. 5 billion in 2035, an annual average rat e of increase of about 1%. Populat ion growt h slows progressively, in line wit h past t rends. The populat ion of non-OECD count ries cont inues t o grow most rapidly. Most of t he growt h occurs in cit ies.

z GDP — a key driver of energy demand in all regions — is assumed t o grow

worldwide by 3. 2% per year on average over t he period 2008-2035. In general, t he non-OECD count ries cont inue t o grow f ast est . The world economy cont ract ed by 0. 6% in 2009, but is expect ed t o rebound by 4. 6% in 2010. India, China and t he Middle East remain t he f ast est growing economies.

© OECD/ IEA - 2010

z In t he New Policies Scenario, t he IEA crude oil import price, a proxy f or

int ernat ional prices, is assumed t o rise st eadily t o $99/ barrel (in year-2009 dollars) in 2020 and $113 in 2035, ref lect ing rising product ion cost s. The price rises more rapidly in t he Current Policies Scenario, as demand grows more quickly, and more slowly in t he 450 Scenario, on lower demand. Nat ural gas prices are assumed t o remain low relat ive t o oil prices in all scenarios, not ably in Nort h America, under pressure f rom abundant supplies of unconvent ional gas. Nort h American prices nonet heless converge t o some degree wit h prices in Europe and Asia-Pacif ic over t he proj ect ion period, as t he cost of product ion climbs. Coal prices rise much less t han oil and gas prices, and f all in t he 450 Scenario. CO2 t rading becomes more widespread and CO2 prices rise progressively in t he New Policies and 450 Scenarios.

Chapter 1 16- Context - Asean-4and country analytical profiles framework

59

Scope and methodology This year’ s edit ion of t he Worl d Energy Out l ook (WEO) set s out long-t erm proj ect ions of energy demand and supply, relat ed carbon-dioxide (CO2) emissions and invest ment requirement s. The IEA’ s World Energy Model (WEM) — a large-scale mat hemat ical const ruct designed t o replicat e how energy market s f unct ion — is t he principal t ool used t o generat e t he proj ect ions, sect or-by-sect or and region-by-region. 1 The model has been updat ed, drawing on t he most recent dat a, and part s of it enhanced, not ably t he t ransport and power-generat ion modules, including more det ailed coverage of renewables. New models for select ed count ries and regions have also been developed, including separat e models f or t he main Caspian count ries. The proj ect ions have been ext ended f rom 2030 t o 2035. The last year f or which comprehensive hist orical dat a is available is 2008; however, preliminary dat a are available in some cases f or 2009 and have been incorporat ed int o t he proj ect ions.

© OECD/ IEA - 2010

Fut ure energy t rends will be t he int erplay of a number of dif f erent f act ors, most of which are hard t o predict accurat ely. For t his reason, t his World Energy Out look adopt s it s cust omary scenario approach t o analysing t he long-t erm evolut ion of energy market s. In t he near t o medium t erm, economic f act ors are t he main source of uncert aint y surrounding energy prospect s. There is also enormous uncert aint y about t he out look f or energy prices, t he size of energy resources and t heir cost , and t he prospect s f or new energy-relat ed t echnology, especially in t he longer t erm. But government policies are arguably t he biggest source of uncert aint y t o 2035. Government s around t he world have expressed a will t o t ake decisive act ion t o st eer energy use ont o a more environment ally and economically sust ainable course, alt hough t he measures needed t o bring t his about , t he way in which t hey are t o be implement ed and t heir t iming are oft en unclear. We know t hat most government s will act , but how, when and how vigorously are far from clear. For t hese reasons, t he scenarios set out in t his year’ s Out look, as in past edit ions, derive f rom dif f erent underlying assumpt ions about policy. In t his way, t he Out look provides insight s int o what policy can achieve and what t he absence of policy act ion or delay in implement ing policies would mean f or energy market s, energy securit y and t he environment . The past t welve mont hs have seen some import ant development s in int ernat ional climat e policy, preparing t he ground f or t he adopt ion of new measures in t he coming years. The UN negot iat ions on climat e change held in December 2009 in Copenhagen did not result in a legally-binding agreement on limit ing emissions of greenhouse gases. However, t he Copenhagen Accord — t he agreement t hat was reached at t he meet ing and wit h which all maj or emit t ing count ries and many ot hers subsequent ly associat ed t hemselves — does set a non-binding obj ect ive of limit ing t he increase in global t emperat ure t o t wo degrees Celsius (2°C) above pre-indust rial levels. It also est ablishes a goal f or t he indust rialised count ries t o mobilise f unding f or climat e mit igat ion and adapt at ion in developing count ries of $100 billion per year by 2020, and requires t he indust rialised count ries (Annex I count ries) t o set emissions t arget s f or 2020.

1. A det ailed descript ion of t he WEM can be found at www.worldenergyout look.org/ model.asp.

60

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

By t he middle of 2010, nearly 140 count ries, including many non-Annex I count ries, had associat ed t hemselves wit h t he Accord, eit her set t ing caps on t heir emissions f or 2020 or announcing act ions t o mit igat e emissions. However, t he act ual measures t hat would need t o be t aken t o achieve t hese pledges had, in many cases, not yet been decided. Some t arget s are condit ional on f unding by Annex I count ries or comparable emissions reduct ions across a set of count ries, while ot her commit ment s involve a range. In addit ion, how much of t he f inancing set out in t he Accord is t o be used f or emissions mit igat ion is not specif ied. Some pledges relat e t o energy or carbon int ensit y, rat her t han emissions. As a result , it is f ar f rom cert ain what t hese commit ment s would mean f or emissions, even if t hey were met f ully. Since t he Accord is not legally binding, t he ext ent t o which t hose commit ment s will be f ulf illed remains highly uncert ain. Similarly, it is uncert ain what new act ion government s may decide t o t ake in t he coming years t o deal wit h ot her concerns, such as t hreat s t o energy securit y, and what implicat ions t hese might have f or greenhouse-gas emissions.

© OECD/ IEA - 2010

Anot her import ant development has been t he commit ment made by G-20 leaders meet ing in t he US cit y of Pit t sburgh in Sept ember 2009 t o “ rat ionalize and phase out over t he medium t erm inef f icient f ossil f uel subsidies t hat encourage wast ef ul consumpt ion” . This commit ment was made in recognit ion t hat subsidies dist ort market s, can impede invest ment in clean energy sources and can t hereby undermine ef f ort s t o deal wit h climat e change. G-20 leaders called upon t he Int ernat ional Energy Agency, t oget her wit h t he Organisat ion f or Economic Co-operat ion and Development (OECD), t he Organizat ion of Pet roleum Export ing Count ries (OPEC) and t he World Bank t o provide an analysis of t he ext ent of energy subsidies and suggest ions f or t he act ion necessary t o implement t his commit ment . The result s were present ed in a j oint report t o t he subsequent G-20 summit in June 2010. 2 At t hat summit , t he leaders encouraged cont inued and f ull implement at ion of count ry-specif ic st rat egies. In t his year’ s Out l ook, our cent ral scenario, t aking account of t hese polit ical development s, t akes a new form. It is called t he New Policies Scenario. This scenario t akes account of t he broad policy commit ment s and plans t hat have been announced by count ries around t he world, t o t ackle eit her environment al or energy-securit y concerns, even where t he measures t o implement t hese commit ment s have yet t o be ident if ied or announced. These policies and plans include t he nat ional pledges t o reduce greenhouse-gas emissions (communicat ed f ormally under t he Copenhagen Accord) as well as plans t o phase out f ossil-energy subsidies. This scenario allows us t o quant if y t he pot ent ial impact on energy market s of implement at ion of t hose policy commit ment s. But t his scenario does not assume t hat t hey are all f ully implement ed. How government s st rive t o meet t heir policy commit ment s and t he st rengt h of t heir policy act ion t o achieve t hem remains uncert ain, f or t he reasons described above. For t he purposes of t his scenario, t heref ore, whereas we t ake int o account act ion ext ending beyond exist ing policies alone (t he basis of our f ormer Ref erence Scenario) where t here is a high degree of uncert aint y, we have adopt ed a relat ively narrow set 2. The report is available at www.worldenergyout look.org/ subsidies.asp.

Chapter 1 - Context and analytical framework

61

1

of policy assumpt ions corresponding t o a caut ious int erpret at ion and implement at ion of t he climat e pledges and planned subsidy ref orms. Count ries t hat have set a range f or a part icular t arget are assumed t o adopt policies consist ent wit h reaching t he less ambit ious end of t he range. In count ries where uncert aint y over climat e policy is very high, it is assumed t hat t he policies adopt ed are insuf f icient t o reach t heir t arget . Financing f or mit igat ion act ions is also assumed t o be limit ed and carbon market s are assumed t o grow only moderat ely. These assumpt ions may be regarded as cont ent ious. Their adopt ion is not a j udgment on t he count ries concerned, but rat her a means of illust rat ing t he implicat ions f or world energy and emissions should t hese assumpt ions prove accurat e. Most of t he f ormal nat ional climat e commit ment s t hat have been made relat e t o t he period t o 2020. For t he period 2020-2035, we have assumed t hat addit ional measures are int roduced t hat maint ain t he pace of t he global decline in carbon int ensit y — measured as emissions per dollar of gross domest ic product , in purchasing power parit y t erms — est ablished in t he period 2008-2020. The assumpt ion of addit ional, but not necessarily ambit ious f urt her measures, ref lect s t he absence of a binding int ernat ional agreement t o reduce global emissions. It is nonet heless assumed t hat each OECD count ry int roduces an emission-reduct ion t arget across all sect ors of t he economy and est ablishes a harmonised emissions cap-and-t rade scheme covering t he power and indust ry sect ors, which result s in an accelerat ion of t he decline in carbon int ensit y. Non-OECD count ries are assumed t o cont inue t o implement nat ional policies and measures, maint aining t he pace of decline in domest ic carbon int ensit y of 2008-2020. Int ernat ional sect oral agreement s are assumed t o be implement ed across several indust ries, including cement and light -dut y vehicles. In addit ion, we assume t hat f ossil-f uel consumpt ion subsidies are f ully removed in all import ing regions and are removed in export ing regions where specif ic policies have already been announced (Box 1. 1).

© OECD/ IEA - 2010

We cont inue t o present , as in previous WEOs, proj ect ions f or a scenario, which we now call t he Current Policies Scenario, in which no change in policies is assumed. This scenario, previously called t he Ref erence Scenario, is int ended t o serve as a baseline against which t he impact of new policies can be assessed. It t akes int o account t hose measures t hat government s had f ormally adopt ed by t he middle of 2010 in response t o and in pursuit of energy and environment al policies, but t akes no account of any f ut ure changes in government policies and does not include measures t o meet any energy or climat e policy t arget s or commit ment s t hat have not yet been adopt ed or f ully implement ed. The Current Policies Scenario should in no sense be considered a f orecast : it is cert ain t hat energy and climat e policies in many — if not most — count ries will change, possibly in t he way we assume in t he New Policies Scenario. We also present updat ed proj ect ions for t he 450 Scenario, which was first present ed in det ail in WEO-2008. According t o climat e expert s, t here is a reasonable chance of limit ing t he global t emperat ure increase t o 2°C if t he concent rat ion of greenhouse gases in t he at mosphere is limit ed t o around 450 part s per million of carbon-dioxide equivalent (ppm CO2-eq). The 450 Scenario set s out an energy pat hway consist ent wit h t hat obj ect ive, albeit involving init ial overshoot ing of t he t arget (see Chapt er 13). 62

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

For t he period t o 2020, t he emissions pat h reflect s an assumpt ion of vigorous policy act ion t o implement fully t he Copenhagen Accord, including achieving t he maximum emissions reduct ions pledged, relat ively limit ed use of emissions-reduct ion credit s and no use of banked allowances from earlier periods. Thus, t he policies assumed are collect ively consist ent wit h t he high-end of t he range of commit ment s, result ing in a lower emissions pat h t han in t he New Policies Scenario. A summary of t he policy t arget s and measures for 2020 t aken int o account in t he 450 and New Policies Scenarios is set out in Table 1.1; more det ailed assumpt ions can be found in Annex B.

Box 1.1 z Summary of fossil-fuel consumption subsidy assumptions by scenario z In t he New Policies Scenario, we assume t hat fossil-fuel subsidies are complet ely

phased out in all net -import ing regions by 2020 (at t he lat est ) and in net export ing regions where specific policies have already been announced.

z In t he Current Policies Scenario, we assume t hat fossil-fuel subsidies are

complet ely phased out in count ries t hat already have policies in place t o do so.

z In t he 450 Scenario, we assume fossil-fuel subsidies are complet ely phased out in

all net -import ing regions by 2020 (at t he lat est ) and in all net -export ing regions by 2035 (at t he lat est ), except t he Middle East where it is assumed t hat t he average subsidisat ion rat e declines t o 20% by 2035.

© OECD/ IEA - 2010

Aft er 2020, OECD count ries and Ot her Maj or Economies (defined here as Brazil, China, Russia, Sout h Africa and t he count ries of t he Middle East ) are assumed t o set economywide emissions t arget s f or 2035 and beyond t hat collect ively ensure an emissions t raj ect ory consist ent wit h st abilisat ion of t he greenhouse-gas concent rat ion at 450 ppm. OECD count ries and Ot her Maj or Economies are assumed t o est ablish separat e carbon market s, and buy of f set s in ot her count ries. Fossil-f uel consumpt ion subsidies are assumed t o be complet ely phased out in all regions, except t he Middle East , by 2035. The emissions and energy t raj ect ories in t he period t o 2020 are higher t han t hose shown in WEO-2009 (IEA, 2009), which assumed st ronger policy act ion in t he near t erm, but t he decline in emissions af t er 2020 is correspondingly f ast er. 3 In t his Out l ook, we deliberat ely f ocus more at t ent ion on t he result s of t he New Policies Scenario t o provide a clear pict ure of where current ly planned policies, if implement ed in a relat ively caut ious way, would t ake us. Yet t his scenario should not be int erpret ed as a f orecast : even t hough it is likely t hat many government s around t he world will t ake f irm policy act ion t o t ackle climat e and ot her energyrelat ed problems, t he policies t hat are act ually put in place in t he coming years may deviat e markedly f rom t hose assumed in t his scenario. On t he one hand, government s may decide t o t ake st ronger act ion t o implement t heir current commit ment s t han assumed in t his scenario and/ or may adopt more st ringent t arget s, possibly as a result of negot iat ions in t he coming mont hs and years on a more robust global 3. Det ails of t he proj ect ions for t he 450 Scenario are set out in Chapt er 13.

Chapter 1 - Context and analytical framework

63

1

climat e agreement . In part icular, a f irmer deal may emerge on f inancing of emissions reduct ions in developing count ries by t he indust rialised count ries. On t he ot her hand, it is possible t hat government s will f ail t o implement t he policies required t o meet even t heir current pledges, especially as t he Copenhagen Accord is not legally binding and cont ains no provision f or penalising count ries t hat f ail t o meet t heir commit ment s. Policy act ion af t er 2020 may also f alt er, put t ing t he world on a course t hat t akes us closer t o t he Current Policies Scenario.

Table 1.1 z Principal policy assumptions by scenario and major region, 2020 New Policies Scenario

450 Scenario

Unit ed St at es

15% share of renewables in elect ricit y generat ion; push for domest ic supplies, including gas and biofuels.

17% reduct ion in greenhouse-gas emissions compared wit h 2005 (wit h access t o int ernat ional offset credit s).

Japan

Implement at ion of t he Basic Energy Plan.

25% reduct ion in greenhouse-gas emissions compared wit h 1990 (wit h access t o int ernat ional offset credit s).

European Union

25% reduct ion in greenhouse-gas emissions compared wit h 1990 (including Emissions Trading Scheme).

30% reduct ion in greenhouse-gas emissions compared wit h 1990 (wit h access t o int ernat ional offset credit s).

Russia

15% reduct ion in greenhouse-gas emissions compared wit h 1990.

25% reduct ion in greenhouse-gas emissions compared wit h 1990.

China

40% reduct ion in CO2 int ensit y compared wit h 2005 (low-end of t arget ed range).

45% reduct ion in CO2 int ensit y compared wit h 2005 (high-end of t arget ed range); 15% share of renewables and nuclear power in primary demand.

India

20% reduct ion in CO2 int ensit y compared wit h 2005.

25% reduct ion in CO2 int ensit y compared wit h 2005.

Brazil

36% reduct ion in greenhouse-gas emissions compared wit h business-as-usual.

39% reduct ion in greenhouse-gas emissions compared wit h business-as-usual.

OECD

Non-OECD

Main non-policy assumptions

© OECD/ IEA - 2010

Population Populat ion growt h is an import ant driver of t he amount and t ype of energy use. The rat es of populat ion growt h assumed in t his Out look for each region and in all t hree scenarios are based on t he most recent proj ect ions by t he Unit ed Nat ions (UNPD, 2009). World populat ion is proj ect ed t o grow by 0.9%per year on average, from an est imat ed 6.7 billion in 2008 t o 8.5 billion in 2035. Populat ion growt h slows progressively over t he proj ect ion period, in line wit h t he long-t erm hist orical t rend, from 1.1% per year in 2008-2020 t o 0.7% in 2020-2035 (Table 1.2). Populat ion expanded by 1.5% per year from 1980 t o 2008 and 1.3% per year from 1990. 64

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Table 1.2 z Population growth by region (compound average annual growth rates) 1980-1990

1990-2008

2008-2020

2010-2015

2020-2035

2008-2035

OECD

0.8%

0.7%

0.5%

0.5%

0.3%

0.4%

Nort h America

1.2%

1.2%

0.9%

0.9%

0.6%

0.7%

0.9%

1.1%

0.9%

0.9%

0.6%

0.7%

Europe

0.5%

0.5%

0.3%

0.4%

0.1%

0.2%

Pacific

0.8%

0.4%

0.0%

0.1%

–0.3%

–0.1%

Japan

0.5%

0.2%

–0.2%

–0.2%

–0.6%

–0.4%

Unit ed St at es

Non–OECD

2.0%

1.5%

1.2%

1.2%

0.8%

1.0%

E. Europe/ Eurasia

0.8%

–0.2%

–0.1%

0.0%

–0.2%

–0.2%

n.a.

0.8%

1.0%

1.0%

0.6%

0.7%

Caspian Russia

n.a.

–0.2%

–0.4%

–0.3%

–0.5%

–0.4%

1.8%

1.4%

1.0%

1.1%

0.6%

0.8%

China

1.5%

0.9%

0.6%

0.6%

0.1%

0.3%

India

2.1%

1.6%

1.2%

1.3%

0.7%

1.0%

3.6%

2.3%

1.8%

1.8%

1.3%

1.5%

Asia

Middle East Africa

2.9%

2.5%

2.2%

2.2%

1.7%

1.9%

Lat in America

2.0%

1.5%

1.0%

1.0%

0.6%

0.8%

Brazil World

European Union

2.1%

1.4%

0.7%

0.8%

0.3%

0.5%

1.7%

1.3%

1.1%

1.1%

0.7%

0.9%

n.a.

0.3%

0.2%

0.2%

0.0%

0.1%

© OECD/ IEA - 2010

Not e: The assumed rat es of populat ion growt h are t he same for all t hree scenarios present ed in t his Out look. Sources: UNPD and World Bank dat abases; IEA analysis.

The increase in global populat ion is expect ed t o occur overwhelmingly in non-OECD count ries, mainly in Asia and Africa (Figure 1.1). Non-OECD populat ion expands from 5.5 billion in 2008 t o 7.2 billion in 2035, an average rat e of increase of 1% per year, t heir share of t he world’ s populat ion rising from 82%t o 85%. The only maj or non-OECD count ry t hat experiences a decline in it s populat ion is Russia, where t he populat ion falls from 142 million in 2008 t o 126 million in 2035. Africa sees t he fast est rat e of growt h, averaging 1.9% per year bet ween 2008 and 2035. The populat ion of non-OECD Asia rises from 3.5 billion t o 4.3 billion. India overt akes China t owards t he end of t he proj ect ion period t o become t he world’ s most heavily populat ed count ry, wit h 1.47 billion people in 2035. The populat ion of t he OECD increases by only 0.4%per year on average over 2008-2035. Most of t he increase in t he OECD occurs in Nort h America; Europe’ s populat ion increases slight ly, while t he populat ion in t he OECD Pacific region falls marginally. All of t he overall increase in world populat ion will occur in urban areas; t he rural populat ion will decline in most regions, wit h t he not able except ion of Africa (UNPD, Chapter 1 - Context and analytical framework

65

1

2010). In 2009, for t he first t ime in hist ory, t he world’ s urban populat ion was larger t han t he rural populat ion. The populat ion living in urban areas is proj ect ed t o grow by 1.9 billion, passing from 3.3 billion in 2008 t o 5.2 billion 2035, wit h most of t his increase occurring in non-OECD count ries. Cont inuing rapid urbanisat ion will push up demand for modern energy services, as t hey are more readily available in t owns and cit ies. Providing access t o modern energy for poor urban and rural households will remain an increasingly pressing challenge (see Chapt er 8).

Figure 1.1 z Population by major region Africa

2008

India

2035

China Ot her Asia OECD Europe Lat in America OECD Nort h America E. Europe/ Eurasia Middle East OECD Pacific 0

200

400

600

800

1 000

1 200

1 400

1 600

1 800 Million

Sources: UNPD and World Bank dat abases; IEA analysis.

Economic growth

© OECD/ IEA - 2010

Economic act ivit y is t he principal driver of demand f or each t ype of energy service. Thus, t he proj ect ions in all t hree scenarios described in t his Out look are highly sensit ive t o t he underlying assumpt ions about t he rat e of growt h of gross domest ic product (GDP). Energy demand t ends t o grow in line wit h GDP, t hough t ypically at a lower rat e. For example, bet ween 1980 and 2008, world primary energy demand increased by 0.59% each year on average f or every percent age point of GDP growt h (expressed in real purchasing power parit y, or PPP, t erms4). This (gross) income elast icit y of demand, as it is known, has f luct uat ed over t ime, f alling f rom 0.64 in t he 1980s t o 0.46 in t he 1990s and t hen rebounding t o 0.67 in 2000-2008, mainly because of a rapid expansion of energy-int ensive manuf act uring in China. In general,

4. Purchasing power parit ies (PPPs) measure t he amount of a given currency needed t o buy t he same basket of goods and services, t raded and non-t raded, as one unit of t he reference currency — in t his report , t he US dollar. By adj ust ing for differences in price levels, PPPs, in principle, can provide a more reliable indicat or t han market exchange rat es of t he t rue level of economic act ivit y globally or regionally and, t hus, help in analysing t he main drivers of energy demand and comparing energy int ensit ies across count ries and regions. However, GDP and GDP-relat ed indicat ors based on market exchange rat es are used t o compare t rends over t ime, as no proj ect ions of PPPs are available.

66

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

t he income elast icit y of demand t ends t o be higher f or count ries at an early st age of economic development t han for t he more mat ure economies, where sat urat ion effect s curb income-driven increases in demand. The global economy is now t hought t o be on t he road t o recovery, having endured t he worst recession since t he Second World War, t hough t he t hreat of a double-dip recession persist s. The Int ernat ional Monet ary Fund (IMF) est imat es t hat world GDP in PPP t erms cont ract ed by 0. 6%in 2009, having expanded by 3. 0%in 2008. But t hese f igures disguise some very big dif f erences in economic perf ormance across t he world. The recession was generally worse among t he OECD economies, wit h most non-OECD economies experiencing a slowdown in growt h rat her t han an out right cont ract ion. Overall, t he recession t urned out t o be less severe t han originally expect ed, in part because of t he st rengt h of t he policy response. Most of t he world’ s largest economies int roduced f iscal st imulus packages bet ween lat e 2008 and mid-2009, in many cases involving t ax reduct ions or spending increases wort h several percent age point s of GDP. While t hese packages helped t o count er t he ef f ect s of t he global f inancial and economic crisis, t hey led t o a ballooning of budget def icit s and a sharp rise in nat ional debt in many count ries, especially in t he OECD. Many count ries are now f aced wit h a need t o t ackle t hese problems, but most want t o ensure t hat t he recovery is well-est ablished bef ore undert aking f iscal t ight ening: over-zealous act ion t o cut def icit s could, it is f eared, st all t he recovery and t ip t he economy int o a downward recessionary and debt spiral.

© OECD/ IEA - 2010

In many part s of t he developing world, economies are growing rapidly once again, allowing t he count ries concerned t o begin t o rein in t heir expansionary macroeconomic policies as t hey experience growing capit al inflows and a rebound in asset prices, not ably propert y. Wit h growt h prospect s in t he OECD count ries likely t o remain relat ively weak for several years as t hey grapple wit h rising nat ional debt , t he emerging economies will remain t he main drivers of t he global economic recovery. However, sust ained rapid growt h in t he non-OECD count ries will hinge on t heir abilit y t o absorb rising inflows of capit al and t o nurt ure domest ic demand wit hout t riggering a new boom-bust cycle (IMF, 2010a). The IMF now proj ect s global GDP growt h t o reach 4.6% in 2010 and 4.3% in 2011 (IMF, 2010a). The advanced economies (essent ially t he OECD) are proj ect ed t o expand by 2.6% in 2010 and by 2.4% in 2011, following a decline in out put of more t han 3% in 2009. Growt h in t he rest of t he world is proj ect ed t o t op 6%during 2010–11, following a modest expansion of 2.5%in 2009. Nonet heless, t he IMF acknowledges t hat t he out look for economic act ivit y remains unusually uncert ain, and risks are generally t o t he downside. The risks t o growt h associat ed wit h t he surge in public debt in t he advanced economies are t he most obvious, especially wit h respect t o market concerns about sovereign liquidit y and solvency in, for example, Greece and ot her European count ries, and t he danger t hat t hese concerns could evolve int o a full-blown and cont agious sovereign debt crisis (IMF, 2010b). Bank exposure t o t oxic asset s, including mort gages and household debt , also t hreat ens furt her t urmoil in financial market s, part icularly in t he Unit ed St at es and Europe. There could be knock-on effect s for growt h prospect s for t he non-OECD count ries. Chapter 1 - Context and analytical framework

67

1

Table 1.3 z Real GDP growth by region (compound average annual growth rates) 1980-1990

1990-2008

2008-2020

2010-2015

2020-2035

2008-2035

OECD

3.0%

2.5%

1.8%

2.4%

1.9%

1.8%

Nort h America

3.1%

2.8%

2.1%

2.7%

2.2%

2.2%

3.2%

2.8%

2.0%

2.4%

2.1%

2.1%

Unit ed St at es Europe

2.4%

2.2%

1.5%

2.1%

1.8%

1.6%

Pacific

4.3%

2.1%

1.7%

2.6%

1.2%

1.5%

Japan

3.9%

1.2%

1.0%

1.9%

1.0%

1.0%

Non-OECD

3.3%

4.7%

5.6%

6.7%

3.8%

4.6%

E. Europe/ Eurasia

4.0%

0.8%

3.0%

4.4%

3.1%

3.1%

Caspian

n.a.

2.0%

4.6%

5.4%

3.2%

3.8%

Russia

n.a.

0.6%

2.9%

4.1%

3.1%

3.0%

6.6%

7.4%

7.0%

8.3%

4.2%

5.4%

China

9.0%

10.0%

7.9%

9.5%

3.9%

5.7%

India

5.6%

6.4%

7.4%

8.1%

5.6%

6.4%

Asia

Middle East

-1.3%

3.9%

4.0%

4.3%

3.8%

3.9%

Africa

2.3%

3.8%

4.5%

5.5%

2.8%

3.5%

Lat in America

1.2%

3.5%

3.3%

4.0%

2.7%

3.0%

1.5%

3.0%

3.6%

4.1%

3.1%

3.3%

3.1%

3.3%

3.6%

4.4%

2.9%

3.2%

n.a.

2.1%

1.4%

2.1%

1.7%

1.6%

Brazil World

European Union

Not e: Calculat ed based on GDP expressed in year-2009 dollars at const ant purchasing power parit y (PPP) t erms. Sources: IMF and World Bank dat abases; IEA dat abases and analysis.

© OECD/ IEA - 2010

This Out look assumes t hat t he world economy grows on average by 4.4% over t he five years t o 2015. 5 In t he longer t erm, t he rat e of growt h is assumed t o t emper, as t he emerging economies mat ure and t heir growt h rat es converge wit h t hose of t he OECD economies. World GDP is assumed t o grow by an average of 3.2% per year over t he period 2008-2035, t he same rat e as in 1980-2008 (Table 1.3). Growt h slows over t he proj ect ion period, averaging 3.1% per year in t he period 2015-2035. The non-OECD count ries as a group are assumed t o cont inue t o grow much more rapidly t han t he OECD count ries, driving up t heir share of world GDP. In several leading non-OECD count ries, 5. The GDP growt h assumpt ions t o 2015 are based primarily on t he lat est IMF proj ect ions from t he July 2010 updat e of it s World Economic Out look (IMF, 2010a), wit h some adj ust ment s according t o more recent informat ion available for t he OECD (OECD, 2010) and ot her count ries from nat ional and ot her sources. The assumpt ions are t he same for eagch scenario, because of t he uncert aint y surrounding t he relat ionships bet ween policy-driven changes in energy-relat ed invest ment , t he result ing impact on climat e change and t he pace of economic growt h.

68

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

a combinat ion of import ant macro- and micro-economic reforms, including t rade liberalisat ion, more credible economic management , and regulat ory and st ruct ural reforms have improved t he invest ment climat e and t he prospect s for st rong long-t erm growt h. India overt akes China in t he 2020s t o become t he fast est -growing WEO region, t he result of demographic fact ors and it s earlier st age of economic development . India’ s growt h nonet heless slows from 7.9%in 2008-2015 t o 5.9%in 2015-2035. China’ s growt h rat e slows t o 4.4% in 2015-2035, less t han half t he rat e at which it has been growing in recent years (and in 2009, when it st ill grew by 9.1% despit e t he global recession). Among t he OECD regions, Nort h America cont inues t o grow fast est , at 2.2% per year on average over t he proj ect ion period, buoyed by more rapid growt h in it s populat ion and labour force, and lower debt t han in Europe and t he Pacific region.

Energy prices As with any good, the demand for a given energy service depends on the price, which in turn reflects the price of the fuel as well as the technology used to provide it. The price elasticity of demand, i.e. the sensitivity of demand to changes in price, varies across fuels and sectors, and over time, depending on a host of factors, including the scope for substituting the fuel with another or adopting more efficient energy-using equipment, the need for the energy service and the pace of technological change. In each scenario, proj ections are based on the average retail prices of each fuel used in end uses, power generation and other transformation sectors. These prices are derived from assumptions about the international prices of fossil fuels (Table 1.4), and take account of any taxes, excise duties and carbondioxide emissions penalties (see below), as well as any subsidies. Final electricity prices are derived from marginal power-generation costs (which reflect the price of primary fossil-fuel inputs to generation, and the cost of hydropower, nuclear energy and renewables-based generation) and the non-generation costs of supply. The fossil-fuel-price assumptions reflect our j udgment of the prices that will be needed to stimulate sufficient investment in supply to meet proj ected demand over the proj ection period. 6 Although the price paths follow smooth trends, prices are likely, in reality, to fluctuate.

© OECD/ IEA - 2010

Having rebounded t hrough much of 2009, int ernat ional crude oil prices set t led int o a range of around $70-85 per barrel in t he first half of 2010. Prices are assumed t o rise st eadily over t he ent ire proj ect ion period in all but t he 450 Scenario, as rising global demand requires t he development of increasingly more expensive sources of oil (see Chapt er 3). The level of prices needed t o mat ch oil supply and demand varies wit h t he degree of policy effort t o curb demand growt h and differs markedly across t he t hree scenarios. In t he New Policies Scenario, t he average IEA crude oil import price reaches $105/ barrel (in real 2009 dollars) in 2025 and $113/ barrel in 2035 (Figure 1.2). 7 In nominal t erms, prices more t han double t o $204/ barrel in 2035. 8 In t he Current Policies Scenario, subst ant ially higher prices 6. This met hodology differs from t hat used in t he IEA’s Medium Term Oil and Gas Market Report , which assumes t he prices prevailing on fut ures market s (IEA, 2010a). 7. In 2009, t he average IEA crude oil import price was $1.52/ barrel lower t han t he fi rst -mont h forward spot price of West Texas Int ermediat e (WTI) and $1.27/ barrel lower t han spot dat ed Brent . 8. The dollar exchange rat es used were t hose prevailing in 2009 (€0.720 and ¥93.6), which were assumed t o remain unchanged over t he proj ect ion period.

Chapter 1 - Context and analytical framework

69

1

SP O T L I G H T

Does rising prosperity inevitably push up energy needs? That energy use t ypically rises wit h incomes is incont rovert ible and widely underst ood. As economies grow, t hey require more energy t o fuel fact ories and t rucks, t o heat and cool buildings and t o meet growing personal demand f or mobilit y, equipment and elect rical appliances. Over t he last several decades, energy use has t ended t o rise proport ionat ely wit h GDP at t he global level and, in most cases, at t he nat ional level t oo, t hough t he relat ionship is usually less t han one t o one: in ot her words, energy needs usually grow somewhat less rapidly in percent age t erms t han t he size of t he economy, because of changes in economic st ruct ure t owards less energy-int ensive act ivit ies and because of t echnological change t hat gradually improves t he ef f iciency of providing energy-relat ed services.

© OECD/ IEA - 2010

But will t his relat ionship persist f ar int o t he f ut ure and do rising incomes, t heref ore, make increased energy use inevit able? This Out l ook and previous edit ions predict t hat t he relat ionship will indeed remain st rong — at least f or t he next quart er of a cent ury — unl ess government s int ervene t o change it , t hrough measures t hat lead t o a shif t in behaviour and/ or in t he way in which energy needs are met . For as long as t he global economy cont inues t o expand — and no-one doubt s t hat it will, in t he longer t erm, in t he absence of a cat ast rophic event — and populat ion expands, t hen t he world’ s overall energy needs will undoubt edly rise. But j ust how quickly, and in what way t hose needs are met , is f ar f rom cert ain. The energy proj ect ions in t his Out l ook — and experience in many count ries over t he past t hree decades — show very clearly t hat t he link bet ween GDP and energy use can be loosened, if not ent irely broken, t hrough a combinat ion of government act ion and t echnological advances. What mat t ers t o users of energy, whet her t hey be businesses or individuals, is t he ult imat e energy-relat ed services t hat t hey receive: mobilit y, heat ing, cooling or a mechanical process. Today, t hese services are of t en provided in ways t hat involve unnecessarily large amount s of energy, much of it derived f rom f ossil f uels. The t echnology exist s t oday t o increase great ly t he ef f iciency wit h which t hose services are provided and t hat t echnology will surely cont inue t o improve in t he f ut ure. The commercial incent ives f or manuf act urers t o make available more ef f icient equipment , appliances and vehicles, and f or consumers t o buy t hem, are set t o increase wit h rising energy cost s. But commercial f act ors alone will be not suf f icient . Government s need t o act t o reinf orce t hose incent ives so as t o encourage even f ast er improvement s in energy ef f iciency and t o discourage energy wast e, conf ident in t he environment al, energy-securit y and broader economic benef it s t hat would f ollow. Experience has shown what government s can achieve t hrough det ermined act ion; our proj ect ions show what more can be achieved in t he f ut ure.

70

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

MBt u

Japan

MBt u

Japan

97.3

9.4

7.4

4.1

60.4

97.3

9.4

7.4

4.1

60.4

2009

112.0

14.0

12.2

8.0

103.6

97.7

12.2

10.6

7.0

90.4

2015

130.6

17.2

14.9

10.4

127.1

101.7

13.4

11.6

8.1

99.0

2020

149.8

20.4

17.8

13.1

151.1

104.1

14.2

12.3

9.1

105.0

2025

170.2

24.0

20.9

15.9

177.3

105.6

14.9

12.9

9.9

110.0

2030

192.4

27.6

24.1

18.9

204.1

106.5

15.3

13.3

10.4

113.0

2035

112.1

14.2

12.3

8.0

107.7

97.8

12.4

10.7

7.0

94.0

2015

135.9

17.8

15.5

10.5

141.3

105.8

13.9

12.1

8.2

110.0

2020

157.6

21.4

18.6

13.3

172.7

109.5

14.9

12.9

9.3

120.0

2025

181.4

25.7

22.4

16.7

209.6

112.5

15.9

13.9

10.4

130.0

2030

Current Policies Scenario

207.8

29.8

26.0

20.3

243.8

115.0

16.5

14.4

11.2

135.0

2035

106.0

13.6

11.9

8.0

100.7

92.5

11.9

10.4

7.0

87.9

2015

110.2

15.6

13.6

10.3

115.6

85.8

12.2

10.6

8.0

90.0

2020

109.0

17.7

15.4

12.8

129.5

75.8

12.3

10.7

8.9

90.0

2025

106.8

20.1

17.5

15.1

145.1

66.3

12.5

10.9

9.4

90.0

2030

450 Scenario

112.1

22.7

19.8

17.5

162.6

62.1

12.6

11.0

9.7

90.0

2035

Not e: Nat ural gas prices are weight ed averages, expressed on a gross calorific-value basis. All prices are for bulk supplies exclusive of t ax. The US gas import price is used as a proxy for prices prevailing on t he domest ic market . Nominal prices assume inflat ion of 2.3% per year from 2009.

t onne

MBt u

Europe

OECD st eam coal import s

MBt u

barrel

Unit ed St at es

Nat ural gas import s

IEA crude oil import s

Nominal terms

t onne

MBt u

Europe

OECD st eam coal import s

MBt u

barrel

Unit ed St at es

Nat ural gas import s

IEA crude oil import s

Real terms (2009 prices)

Unit

New Policies Scenario

Table 1.4 z Fossil-fuel import price assumptions by scenario (dollars per unit)

© OECD/ IEA - 2010

Chapter 1 - Context and analytical framework

71

1

are needed t o balance supply wit h t he fast er growt h in demand. The average crude oil price rises more briskly, especially aft er 2020, reaching $120/ barrel in 2025 and $135/ barrel t en years lat er. In t he 450 Scenario, by cont rast , prices increase more slowly, levelling off at about $90/ barrel by 2020, as demand peaks and t hen begins t o decline by around 2015 (see Chapt er 15 for det ails of t he drivers of oil demand in t his scenario). Falling demand is assumed t o out weigh almost ent irely t he rising cost of product ion (see Chapt er 3). Higher CO2 prices cont ribut e t o lower demand and, t herefore, lower int ernat ional prices (see below). In realit y, what ever t he policy landscape, oil prices are likely t o remain volat ile.

Dollars per barrel (2009)

Figure 1.2 z Average IEA crude oil import price by scenario (annual data) 140

Current Policies Scenario

120

New Policies Scenario 450 Scenario

100 80 60 40 20

© OECD/ IEA - 2010

0 1980

1990

2000

2010

2020

2030 2035

Tradit ionally, nat ural gas prices have moved in fairly close t andem wit h oil prices, eit her because of indexat ion clauses in long-t erm supply cont ract s or indirect ly t hrough compet it ion bet ween gas and oil product s in power generat ion and end-use market s. In recent years, gas prices have t ended t o decouple from oil prices, as a result of relat ively abundant supplies of unconvent ional gas in Nort h America, which have driven gas prices t here down relat ive t o oil, increased availabilit y of spot supplies of cheaper liquefied nat ural gas in Europe and Asia-Pacific, and some provisional changes t o cont ract ual t erms in Europe, which have lessened t he role of oil prices and increased t he import ance of gas-price indexat ion in long-t erm cont ract s. There is considerable uncert aint y about whet her t his t ent at ive move away from oil indexat ion will prove permanent and, even if it does, whet her t his will herald an era of lower gas prices relat ive t o oil (see Spot light in Chapt er 5). One uncert aint y is t he lengt h of t ime t hat long-t erm cont ract s in bulk gas supply will remain dominant in Europe and Asia-Pacific. Yet , even if direct gas-t o-gas compet it ion becomes more widespread and allowing for t he fact t hat t he underlying cost drivers for oil and gas differ, t he pot ent ial for subst it ut ion bet ween oil product s and gas will ensure t hat changes in t he price of one will cont inue t o affect t he price of t he ot her. 9 In all t hree scenarios, t he rat io of gas prices t o oil prices in Nort h America is assumed t o rise modest ly t hrough t o 2035 as t he cost of unconvent ional gas product ion rises, but t he rat io remains well below t he 9. See IEA (2009) for a det ailed discussion of t he prospect s for gas pricing.

72

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

hist orical average. In Europe and Japan (a proxy for Asia-Pacific), we assume t hat t he rat io of gas prices remains broadly unchanged t o 2035 (Figure 1.3). The rat io of gas t o oil prices t hroughout t he proj ect ion period remains well below t he average for t he period 1980-2009 in all regions. Int ernat ional st eam-coal prices have fallen from record levels at t ained in mid2008, wit h t he slowdown in demand and weaker prices f or gas, t he main compet it or t o coal (especially in t he power sect or). The price of coal import ed by OECD count ries averaged slight ly over $95 per t onne in 2009. In t he New Policies Scenario, coal prices are assumed t o remain at about t his level in real t erms t o 2015 and t hen, wit h rising demand t o 2020 and higher prices of gas t o rise t o $107/ t onne by 2035. Coal prices rise less in percent age t erms t han oil or gas prices, part ly because coal product ion cost s are expect ed t o remain low and because coal demand flat t ens out by 2020. Coal prices rise more quickly in t he Current Policies Scenario on st ronger demand growt h, but fall in t he 450 Scenario, reflect ing t he impact of policy act ion t o cut demand.

Fuel price divided by oil price

Figure 1.3 z

Ratio of average natural gas and coal import prices to crude oil in the New Policies Scenario

1.6

Gas: Japan

1.4

Gas: Europe

1.2

Gas: Unit ed St at es

1.0

Coal: OECD

0.8 0.6 0.4 0.2 0 1980

1990

2000

2010

2020

2030

2035

Not e: Calculat ed on an energy-equivalent basis.

© OECD/ IEA - 2010

CO2 prices The pricing of carbon emissions could play an increasingly import ant role in driving energy market s in t he long t erm. For now, only t he European Union and New Zealand have adopt ed formal cap-and-t rade schemes, which set caps on carbon-dioxide emissions by t he power generat ion and indust ry sect ors and provide for t rading of CO2 cert ificat es, yielding prices of CO2 for specific t ime periods. Thus, in t he Current Policies Scenario, carbon pricing is assumed t o be limit ed t o EU count ries and t o New Zealand. The price of CO2 under t he EU Emission Trading Syst em is proj ect ed t o reach $30/ t onne in 2020 and $42/ t onne in 2035 (Table 1.5). Chapter 1 - Context and analytical framework

73

1

Table 1.5 z CO2 prices by main region and scenario ($2009 per tonne) Region

New Policies

2009

2020

2030

2035

22

38

46

50

Japan

n.a.

20

40

50

Ot her OECD

n.a.

-

40

50

22

30

37

42

European Union

Current Policies

European Union

450

OECD+

n.a.

45

105

120

Ot her Maj or Economies

n.a.

-

63

90

Not e: OECD+ includes all t he OECD count ries plus non-OECD EU count ries. The CO2 price in t he European Union is assumed t o converge wit h t hat in OECD+ by 2020 in t he 450 Scenario. Ot her Maj or Economies comprise Brazil, China, t he Middle East , Russia and Sout h Africa.

Carbon pricing is assumed t o be adopt ed in ot her regions in t he New Policies and 450 Scenarios. In t he New Policies Scenario, cap-and-t rade syst ems covering t he power and indust ry sect ors are assumed t o be est ablished in Aust ralia, Japan and Korea as of 2013, and in OECD count ries (see not e t o Table 1.5) af t er 2020, where it reaches $50/ t onne in 2035. In t he 450 Scenario, cap-and-t rade covering power generat ion and indust ry is assumed t o st art in 2013 in OECD+ and af t er 2020 in t he Ot her Maj or Economies cat egory (see not e t o Table 1.5). In t his scenario, we assume t hat CO2 is t raded in t hese t wo groups separat ely. To cont ain emissions at t he levels required in t he 450 Scenario, we est imat e t hat t he price of CO2 in OECD+ would need t o reach $45/ t onne in 2020 and $120/ t onne in 2035. The price rises t o $63/ t onne in 2030 and t o $90/ t onne in 2035 in t he Ot her Maj or Economies. The prices are set by t he most expensive abat ement opt ion, f or example, carbon capt ure and st orage in indust ry in t he OECD+ in 2035. It is assumed t hat OECD+ count ries have access t o int ernat ional offset s, up t o a limit of one-t hird of t ot al abat ement in 2020. Furt her det ails of carbon pricing and how it is modelled in t he 450 Scenario can be f ound in Chapt er 13.

Technology

© OECD/ IEA - 2010

Technology has an import ant impact on bot h t he supply and use of energy. Our proj ect ions are, t heref ore, very sensit ive t o assumpt ions about development s in t echnology and how quickly new t echnologies are deployed. Those assumpt ions vary f or each f uel, each sect or and each scenario, according t o our assessment of t he current st age of t echnological development and commercialisat ion and t he pot ent ial f or f urt her improvement s and deployment , t aking account of economic f act ors and market condit ions. 10 Government policies and energy prices have an import ant impact on t he pace of development and deployment of new t echnologies. As a consequence, more rapid t echnological advances are seen in t he 450 Scenario. In all t hree scenarios, t he performance of current ly available cat egories of t echnology is assumed t o improve on various operat ional crit eria, including energy ef f iciency, 10. See Energy Technology Perspect ives 2010 (IEA, 2010b) for a det ailed assessment of t he long-t erm prospect s for energy-relat ed t echnologies.

74

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

pract icalit y, environment al impact and f lexibilit y. But t he pace of improvement varies: it is f ast est in t he 450 Scenario, t hanks t o t he ef f ect of various t ypes of government support , including economic inst rument s (such as carbon pricing, t axes and subsidies), regulat ory measures (such as st andards and mandat es) and direct public-sect or invest ment . These policies st imulat e increased spending on research, development and deployment . Technological change, in general, is slowest in t he Current Policies Scenario, because no new public policy act ions are assumed. Yet , even in t his scenario, signif icant t echnological improvement s occur, aided by higher energy prices. In t he New Policies Scenario, t he pace of t echnological change lies bet ween t hat in t he t wo ot her scenarios. Crucially, no complet ely new t echnologies on t he demand or supply side, beyond t hose known t oday, are assumed t o be deployed bef ore t he end of t he proj ect ion period, as it cannot be known whet her or when such breakt hroughs might occur and how quickly t hey may be commercialised.

© OECD/ IEA - 2010

The crit ical f act or wit h respect t o energy use concerns how t he int roduct ion of more advanced t echnologies af f ect s t he average energy ef f iciency of equipment , appliances and vehicles in use, and, t heref ore, t he overall int ensit y of energy consumpt ion (t he amount of energy needed t o provide one dollar of gross domest ic product ). Pract ical and f inancial const raint s on how quickly energy-relat ed capit al st ock 11 can be replaced af f ect t he rat e at which new t echnologies can be int roduced and, consequent ly, t he rat e of improvement in energy ef f iciency. Some t ypes of capit al st ock, such as power st at ions (which have a long design lif e), are so cost ly and dif f icult t o inst all t hat t hey are replaced only af t er a very long t ime. Indeed, much of t he capit al st ock in use t oday f alls int o t his cat egory. As a result , much of t he impact of recent and f ut ure t echnological development s t hat improve energy ef f iciency will not be f elt unt il t owards t he end of t he proj ect ion period. Rat es of capit al-st ock t urnover dif f er great ly: most cars and t rucks, heat ing and cooling syst ems, and indust rial boilers in use t oday will be replaced by 2035. But most exist ing buildings, roads, railways and airport s, as well as many power st at ions and ref ineries will st ill be in use t hen, unless st rong government incent ives and/ or a change in market condit ions encourage or f orce early ret irement . The ext ent t o which t his happens (or t he st ock is modernised t o reduce energy needs) is limit ed in t he Current Policies Scenario; it is great er in t he New Policies Scenario and especially in t he 450 Scenario. On t he supply side, t echnological advances are assumed t o improve t he t echnical and economic ef f iciency of producing and supplying energy. In some cases, t hey result in lower unit cost s, lead t o cleaner ways of producing and delivering energy services, or make available resources t hat are not recoverable commercially or t echnically t oday. Many emerging renewable energy t echnologies, such as wind and phot ovolt aic energy, f all int o t his cat egory. In ot her cases, where t echnologies are relat ively mat ure, such as convent ional oil and gas drilling, t he impact of t echnological advances on unit cost s is expect ed t o be at least part ially of f set by t he rising cost of raw mat erials and labour. Some maj or new supply-side t echnologies t hat are approaching t he 11. Any t ype of asset t hat affect s t he amount and t he way in which energy is supplied or used, such as oil wells, power st at ions, pipelines, buildings, boilers, machinery, appliances and vehicles.

Chapter 1 - Context and analytical framework

75

1

© OECD/ IEA - 2010

commercialisat ion phase are assumed t o become available and t o be deployed t o some degree bef ore t he end of t he proj ect ion period. These include carbon capt ure and st orage, advanced biof uels, large-scale concent rat ing solar power and smart grids. Det ails about how f ast t hese t echnologies are deployed can be f ound in t he relevant chapt ers.

76

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

CHAPTER 2

ENERGY PROJECTIONS TO 2035 Twilight in demand? H

I

G

H

L

I

G

H

T

S

z Global primary energy demand cont inues t o grow in t he New Policies Scenario,

but at a slower rat e t han in recent decades. By 2035, it is 36% higher t han in 2008. Non-OECD count ries account f or 93% of t he increase. The OECD share of world demand f alls f rom 44% t oday t o 33% in 2035. Energy demand in t he ot her scenarios diverges over t he period: by 2035, it is 8% higher in t he Current Policies Scenario and 11% lower in t he 450 Scenario t han in t he New Policies Scenario. z Fossil fuels maint ain a cent ral role in t he primary energy mix in t he New Policies

Scenario, but t heir share declines, f rom 81%in 2008 t o 74%in 2035. Oil demand is up by 18%, f rom 84 mb/ d in 2009 t o 99 mb/ d in 2035. Coal demand is around 20% higher in 2035 t han t oday, wit h almost all of t he growt h bef ore 2020. The 44% increase in nat ural gas demand surpasses t hat f or all ot her f uels due t o t he f avourable environment al and pract ical at t ribut es of gas. Elect ricit y demand grows by around 80% by 2035, requiring 5 900 GW of t ot al capacit y addit ions. z The import ance of China in global energy market s cont inues t o grow. In 2000,

China’ s energy demand was half t hat of t he Unit ed St at es, but preliminary dat a indicat e it is now t he world’ s biggest energy consumer. Growt h prospect s remain st rong, given China’ s per-capit a energy use is st ill only one-t hird of t he OECD average and it is t he most populous nat ion. z Invest ment in energy-supply inf rast ruct ure t o meet demand t o 2035 in t he New

Policies Scenario amount s t o $33 t rillion (in year-2009 dollars). Power sect or invest ment account s f or $16. 6 t rillion, or j ust over half of t he t ot al. Almost t wo-t hirds of t ot al invest ment is in non-OECD count ries. z The New Policies Scenario implies a persist ent ly high level of spending on

energy import s by many count ries. Tot al spending on oil and gas import s more t han doubles f rom $1.2 t rillion in 2010 t o $2.6 t rillion in 2035. The Unit ed St at es is overt aken by China around 2025 as t he world’ s biggest spender on oil import s: India overt akes Japan around 2020 as t he world’ s t hird-largest spender.

© OECD/ IEA - 2010

z In t he New Policies Scenario, energy-relat ed CO2 emissions rise f rom 29. 3 Gt in

2008 t o 35. 4 Gt in 2035, consist ent wit h an event ual increase in global average t emperat ure of over 3.5°C. All of t he growt h in emi ssions comes f rom non-OECD count ries; emissions in t he OECD drop by 20%. Chinese emissions exceed t hose f rom t he ent ire OECD by 2035.

Chapter 2 16- Energy - Asean-4 projections country profiles to 2035

77

Overview of energy trends by scenario What government s do t o t ackle crit ical energy-relat ed problems holds t he key t o t he out look for world energy market s over t he next quart er of a cent ury. Our proj ect ions of energy demand and supply accordingly vary significant ly across t he t hree scenarios present ed in t his Out look (Box 2.1). In t he New Policies Scenario, which t akes account of bot h exist ing policies and declared int ent ions, world primary energy demand is proj ect ed t o increase by 1.2%per year bet ween 2008 and 2035, reaching 16 750 million t onnes of oil equivalent (Mt oe), an increase of 4 500 Mt oe, or 36%(Figure 2.1). Demand increases significant ly fast er in t he Current Policies Scenario, in which no change in government policies is assumed, averaging 1.4% per year over 2008-2035. In t he 450 Scenario, in which policies are assumed t o be int roduced t o bring t he world ont o an energy t raj ect ory t hat provides a reasonable chance of const raining t he average global t emperat ure increase t o 2° Celsius, global energy demand st ill increases bet ween 2008 and 2035, but by a much reduced 22%, or an average of 0.7% per year. Energy prices ensure t hat proj ect ed supply and demand are in balance t hroughout t he Out look period in each scenario (see Chapt er 1).

Mt oe

Figure 2.1 z World primary energy demand by scenario 20 000

Current Policies Scenario

18 000

New Policies Scenario 450 Scenario

16 000 14 000 12 000 10 000 8 000

© OECD/ IEA - 2010

6 000 1980

1990

2000

2010

2020

2030 2035

Fossil f uels remain t he dominant energy sources in 2035 in all t hree scenarios, t hough t heir share of t he overall primary f uel mix varies markedly, f rom 62% in t he 450 Scenario t o 79% in t he Current Policies Scenario, compared wit h 74% in t he New Policies Scenario and 81%in 2008 (Table 2.1 and Figure 2.2). These differences reflect t he varying st rengt h of policy act ion assumed t o address climat e-change and energysecurit y concerns. The shares of renewables and nuclear power are correspondingly highest in t he 450 Scenario and lowest in t he Current Policies Scenario. The range of out comes — and t heref ore t he uncert aint y wit h respect t o f ut ure energy use — is largest f or coal and non-hydro renewable energy sources. 78

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Box 2.1 z

Understanding the three WEO-2010 scenarios

WEO-2010 present s det ailed proj ect ions f or t hree scenarios: a New Policies Scenario, a Current Policies Scenario and a 450 Scenario. The scenarios dif f er wit h respect t o what is assumed about f ut ure government policies relat ed t o t he energy sect or. There is much uncert aint y about what government s will act ually do over t he coming quart er of a cent ury, but it is highly likely t hat t hey will cont inue t o int ervene in energy market s. Indeed, many count ries have announced f ormal obj ect ives; but it is very hard t o predict wit h any degree of cert aint y what policies and measures will act ually be int roduced or how successf ul t hey will be. The commit ment s and t arget s will undoubt edly change in t he course of t he years t o come. Given t hese uncert aint ies, we present proj ect ions f or a Current Policies Scenario as a baseline in which only policies already f ormally adopt ed and implement ed are t aken int o account . In addit ion, we present proj ect ions f or a New Policies Scenario, which assumes t he int roduct ion of new measures (but on a relat ively caut ious basis) t o implement t he broad policy commit ment s t hat have already been announced, including nat ional pledges t o reduce greenhouse-gas emissions and, in cert ain count ries, plans t o phase out f ossilenergy subsidies. We f ocus in t his Out l ook on t he result s of t his New Policies Scenario, while also ref erring t o t he out comes in t he ot her scenarios, in order t o provide insight s int o t he achievement s and limit at ions of t he import ant development s t hat have t aken place in int ernat ional climat e and energy policy over t he past year.

© OECD/ IEA - 2010

The 450 Scenario, which was f irst present ed in det ail in WEO-2008 and f or which updat ed proj ect ions are present ed here, set s out an energy pat hway consist ent wit h t he goal of limit ing t he global increase in average t emperat ure t o 2°C, which would require t he concent rat ion of gr eenhouse gases in t he at mosphere t o be limit ed t o around 450 part s per million of carbon-dioxide equivalent (ppm CO2-eq). It s t raj ect ory t o 2020 is somewhat higher t han in WEO-2009, which st art ed f rom a lower baseline and assumed st ronger policy act ion bef ore 2020. The decline in emissions is, by necessit y, correspondingly f ast er af t er 2020.

Global energy int ensit y — t he amount of energy needed t o generat e each unit of GDP — has fallen st eadily over t he last several decades due t o several fact ors including improvement s in energy efficiency, fuel swit ching and st ruct ural changes in t he global economy away from energy-int ensive indust ries. The implicat ions for global energy consumpt ion and environment al pollut ion have been significant : if no improvement s in energy int ensit y had been made bet ween 1980 and 2008, global energy consumpt ion would be 32% higher t oday, roughly equivalent t o t he combined current consumpt ion of t he Unit ed St at es and t he European Union. Chapter 2 - Energy projections to 2035

79

2

Table 2.1 z

World primary energy demand by fuel and scenario (Mtoe) New Policies Scenario 1980

2008

2020

2035

Current Policies Scenario 2020

450 Scenario

2035

2020

2035

Coal

1 792

3 315

3 966

3 934

4 307

5 281

3 743

2 496

Oil

3 107

4 059

4 346

4 662

4 443

5 026

4 175

3 816

Gas

1 234

2 596

3 132

3 748

3 166

4 039

2 960

2 985

Nuclear

186

712

968

1 273

915

1 081

1 003

1 676

Hydro

148

276

376

476

364

439

383

519

Biomass and wast e*

749

1 225

1 501

1 957

1 461

1 715

1 539

2 316

12

89

268

699

239

468

325

1 112

7 229

12 271

14 556

16 748

14 896

18 048

14 127

14 920

Ot her renewables Total

* Includes t radit ional and modern uses.

Figure 2.2 z Shares of energy sources in world primary demand by scenario Coal 2008

Oil Gas

Current Policies Scenario 2035

Nuclear Hydro Biomass

New Policies Scenario 2035

Ot her renewables

450 Scenario 2035

© OECD/ IEA - 2010

0%

25%

50%

75%

100%

The policies t hat are assumed t o be int roduced in t he New Policies and 450 Scenarios have a signif icant impact on t he rat e of decline in energy int ensit y. In t he Current Policies Scenario, energy int ensit y cont inues t o decline gradually over t he proj ect ion period, but at a much slower rat e t han in t he ot her scenarios. By 2035, energy int ensit y declines compared t o 2008 are: 28% in t he Current Policies Scenario, 34% in t he New Policies Scenario and 41% in t he 450 Scenario. By comparison, bet ween 1981 and 2008 global energy int ensit y f ell by 23% (Figure 2. 3). Over t he period 2008 t o 2035, t he annual average improvement in energy int ensit y is 1. 2% in t he Current Policies Scenario, 1. 5% in t he New Policies Scenario and 1. 9% in t he 450 Scenario. 80

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Index (2008 = 100)

Figure 2.3 z Change in global primary energy intensity by scenario 140

Current Policies Scenario

130

New Policies Scenario

120

450 Scenario

110 100 90 80 70 60 50 1980

1990

2000

2010

2020

2030 2035

Not e: Calculat ed based on GDP expressed in year-2009 dollars at market exchange rat es (MER).

Energy trends in the New Policies Scenario Primary energy demand In t his chapt er, we deliberat ely focus more at t ent ion on t he result s of t he New Policies Scenario. 1 This is done t o provide a clear pict ure of where planned policies, assumed t o be implement ed in a caut ious way, would t ake us. As indicat ed, t he New Policies Scenario proj ect s global energy consumpt ion t o increase by 36% from 2008 t o 2035, rising from 12 300 Mt oe t o 16 750 Mt oe (Table 2.2). Growt h in demand slows progressively, from an average of 1.4% per year in t he period 2008-2020 t o 0.9% per year in 2020-2035, as measures int roduced t o combat climat e change and meet energysecurit y obj ect ives t ake effect . Over t he Out look period, demand for each fuel source increases (Figure 2.4). Fossil fuels (oil, coal and nat ural gas) account for 53% of t he increase in energy demand. They cont inue t o supply t he bulk of global energy consumpt ion, t hough t heir share falls from 81%in 2008 t o 74%in 2035. Rising fossil-energy prices t o end-users, result ing from upward price pressures on int ernat ional market s and increasing cost s of carbon, t oget her wit h policies t o encourage energy savings and swit ching t o low-carbon energy sources, help t o rest rain demand growt h for all t hree fossil fuels.

© OECD/ IEA - 2010

Oil remains t he dominant fuel in t he primary energy mix during t he Out look period in t he New Policies Scenario, wit h demand increasing from 85 million barrels per day (mb/ d) in 2008 (84 mb/ d in 2009) t o 99 mb/ d in 2035. It s share of t he primary fuel mix, which st ood at 33% in 2008, drops t o 28% as high prices lead t o furt her swit ching away from oil in t he indust rial and power-generat ion sect ors and opport unit ies emerge

1. Annex A provides det ailed proj ect ions of energy demand by fuel, sect or and region for all t hree scenarios.

Chapter 2 - Energy projections to 2035

81

2

t o subst it ut e ot her fuels for oil product s in t ransport . Demand for coal increases from 4 736 million t onnes of coal equivalent (Mt ce) in 2008 t o j ust over 5 600 Mt ce in 2035, wit h most of t he growt h before 2020. 2 Growt h in demand for nat ural gas far surpasses t hat of all ot her fossil fuels due t o it s more favourable environment al and pract ical at t ribut es and const raint s on how quickly low-carbon energy t echnologies can be deployed. Global nat ural gas consumpt ion increases from 3 149 billion cubic met res (bcm) in 2008 t o j ust above 4 500 bcm in 2035. By t he end of t he Out look period, nat ural gas is close t o overt aking coal as t he second most import ant fuel in t he primary energy mix.

Table 2.2 z World primary energy demand by fuel in the New Policies Scenario (Mtoe) 1980

2008

2015

2020

2030

2035

2008-2035*

Coal

1 792

3 315

3 892

3 966

3 984

3 934

0.6%

Oil

3 107

4 059

4 252

4 346

4 550

4 662

0.5%

Gas

1 234

2 596

2 919

3 132

3 550

3 748

1.4%

Nuclear

186

712

818

968

1 178

1 273

2.2%

Hydro

148

276

331

376

450

476

2.0%

Biomass and wast e**

749

1 225

1 385

1 501

1 780

1 957

1.7%

12

89

178

268

521

699

7.9%

7 229

12 271

13 776

14 556

16 014

16 748

1.2%

Ot her renewables Total

* Compound average annual growt h rat e. ** Includes t radit ional and modern uses.

© OECD/ IEA - 2010

The share of nuclear power increases over t he proj ect ion period, from 6%in 2008 t o 8% in 2035. Government policies are assumed t o boost t he role of nuclear power in several count ries. Furt hermore, it is assumed t hat a growing number of count ries implement programmes t o ext end t he lifet ime of t heir current ly operat ing nuclear plant s, t hereby reducing t he capacit y t hat would ot herwise be lost t o ret irement in t he period t o 2035. The use of modern renewable energy — including wind, solar, geot hermal, marine, modern biomass and hydro — t riples over t he course of t he Out look period, growing from 843 Mt oe in 2008 t o j ust over 2 400 Mt oe in 2035. It s share in t ot al primary energy demand increases from 7% t o 14%. Consumpt ion of t radit ional biomass drops from 746 Mt oe in 2008 t o a lit t le over 720 Mt oe in 2035, aft er a period of modest increase t o 2020. Demand for renewable energy increases subst ant ially in all regions, wit h dramat ic growt h in some areas, including China and India. Power generat ion from renewables t riples from 2008 t o 2035, wit h it s share of t he generat ion mix increasing from 19% in 2008 t o 32% in 2035. 2. 1 Mt ce is equal t o 0.7 Mt oe.

82

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

SP O T L I G H T

2

How do the energy demand projections in WEO-2010 compare with WEO-2009? Though t his chapt er concent rat es on t he result s of t he New Policies Scenario, it is also informat ive t o compare t he level of world primary energy demand in t his year’ s Current Policies Scenario wit h t he result s proj ect ed in t he Reference Scenario of WEO-2009, using a similar met hodology. Tot al primary energy demand in 2015 is 3% higher compared wit h last year’ s proj ect ions, but it is less t han 1%higher by 2030 (t he last year of t he proj ect ion period in WEO-2009). This small divergence masks import ant changes among regions: proj ect ed demand in OECD count ries in 2030 is lower t han proj ect ed last year, but t his is more t han offset by higher proj ect ed demand in t he rest of t he world. Proj ect ed demand for all fuels, wit h t he except ion of oil, is higher in absolut e t erms in 2030 in t his year’ s report . The biggest increase is for nat ural gas, wit h demand 4.4%, or 192 bcm, higher t han proj ect ed last year, while global oil demand is 2.4%, or 2.5 mb/ d, lower. Compared wit h t he proj ect ions in WEO-2009, proj ect ed elect ricit y generat ion t his year is essent ially unchanged, but t here are some not able shift s in t he generat ing mix, wit h bot h nat ural gas and nuclear seeing sizeable increases.

© OECD/ IEA - 2010

These differences result from t he combined effect of many changes. Numerous new policies enact ed bet ween mid-2009 and mid-2010, aimed at encouraging a t ransit ion t o a cleaner, more efficient and more secure energy syst em, have been incorporat ed int o t he Current Policies Scenario and act t o dampen growt h in proj ect ed demand. However, t hese new policies are insufficient t o offset ot her fact ors t hat drive proj ect ed demand higher. Most import ant ly, t he global economy appears t o be emerging from t he economic and financial crisis fast er t han expect ed. Therefore, our assumed rat e of growt h in world GDP — t he main driver of energy demand — is now higher t han in WEO-2009, part icularly in nonOECD count ries, which are coming out of t he recession more st rongly t han OECD count ries. Compared wit h t he WEO-2009, which assumed a more prot ract ed recovery, t he upward revision in GDP plays a key role in boost ing demand growt h in t he early st ages of t he proj ect ion period (hence t he big differences bet ween t he t wo scenarios t o 2015). Adj ust ment s t o t he assumpt ions about energy prices, including changes t o relat ive pricing t hat affect t he energy mix, furt her explain some of t he differences. The price assumpt ions vary across t he different scenarios present ed in WEO-2010 in line wit h t he degree of policy effort needed t o curb demand growt h. In t he Current Policies Scenario, higher oil prices are needed (compared wit h WEO-2009) t o choke off demand t o bring it int o balance wit h supply, while coal prices also increase slight ly. In cont rast , nat ural gas price assumpt ions have been scaled back, in Nort h America by as much as 10% aft er 2020, as t he subst ant ial rise in unconvent ional gas product ion drives prices lower.

Chapter 2 - Energy projections to 2035

83

This year’ s 450 Scenario depict s a somewhat higher t raj ect ory for CO2 emissions t o 2020 t han in WEO-2009, due t o less ambit ious act ion in t he early period t o curb emissions. This is offset by a fast er decline in emissions aft er 2020. The main reason for t he change in t raj ect ory is t hat t he opport unit y for concert ed, immediat e act ion t o slow t he growt h in emissions was missed as t he Unit ed Nat ions climat e meet ing in Copenhagen in December 2009 did not achieve a comprehensive agreement on limit ing emissions of greenhouse gases.

Mt oe

Figure 2.4 z World primary energy demand by fuel in the New Policies Scenario Oil

5 000

Coal 4 000

Gas Biomass

3 000

Nuclear Ot her renewables

2 000

Hydro 1 000 0 1980

1990

2000

2010

2020

2030

2035

Regional trends

© OECD/ IEA - 2010

The fast er pace of growt h in primary energy demand t hat has occurred in non-OECD count ries over t he last several decades is set t o cont inue, reflect ing fast er rat es of growt h of populat ion, economic act ivit y, urbanisat ion and indust rial product ion. In t he New Policies Scenario, t ot al non-OECD energy consumpt ion increases by 64% in 20082035, compared wit h a rise of j ust 3% in OECD count ries. Nonet heless, annual average growt h in non-OECD energy demand slows t hrough t he Out look period, from 2.4% in 2008-2020 t o 1.4% in 2020-2035. The OECD share of global primary energy demand, which declined from 61% in 1973 t o 44% in 2008, falls t o j ust 33% in 2035 (Table 2.3). The increase in non-OECD energy consumpt ion is led by brisk growt h in China, where primary demand surges by 75% in 2008-2035, a far bigger increase t han in any ot her count ry or region (Figure 2.5). China account s for 36%of t he global increase in primary energy use bet ween 2008 and 2035, wit h it s share of t ot al demand j umping from 17%t o 22%. India is t he second-largest cont ribut or t o t he increase in global demand t o 2035, account ing for 18%of t he rise. India’ s energy consumpt ion more t han doubles by t hat dat e, growing on average by 3.1% per year, a rat e of growt h significant ly higher t han in any ot her region. Out side Asia, t he Middle East experiences t he fast est rat e of 84

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

increase, at 2.0%per year. Aft er a modest increase t o 2020, aggregat e energy demand in OECD count ries st agnat es. Nonet heless, by 2035 t he Unit ed St at es is st ill t he world’ s second-largest energy consumer, well ahead of India, which is a dist ant t hird.

Table 2.3 z Primary energy demand by region in the New Policies Scenario (Mtoe) 1980

2000

2008

2015

2020

2030

2035

2008-2035*

OECD

4 050

5 233

5 421

5 468

5 516

5 578

5 594

0.1%

Nort h America

2 092

2 670

2 731

2 759

2 789

2 836

2 846

0.2%

1 802

2 270

2 281

2 280

2 290

2 288

2 272

-0.0%

Europe

1 493

1 734

1 820

1 802

1 813

1 826

1 843

0.0%

Pacific

464

829

870

908

914

916

905

0.1%

Japan

345

519

496

495

491

482

470

-0.2%

Non-OECD

3 003

4 531

6 516

7 952

8 660

10 002

10 690

1.9%

E.Europe/ Eurasia

1 242

1 019

1 151

1 207

1 254

1 344

1 386

0.7%

Caspian

n.a

128

169

205

220

241

247

1.4%

Russia

n.a

620

688

710

735

781

805

0.6%

1 067

2 172

3 545

4 609

5 104

6 038

6 540

2.3%

China

603

1 107

2 131

2 887

3 159

3 568

3 737

2.1%

India

208

459

620

778

904

1 204

1 405

3.1%

128

381

596

735

798

940

1 006

2.0%

Unit ed St at es

Asia

Middle East Africa

274

502

655

735

781

868

904

1.2%

Lat in America

292

456

569

667

723

812

855

1.5%

Brazil World**

114

185

245

301

336

386

411

1.9%

7 229

10 031

12 271

13 776

14 556

16 014

16 748

1.2%

n.a

1 682

1 749

1 722

1 723

1 719

1 732

-0.0%

European Union

* Compound average annual growt h rat e. ** World includes int ernat ional marine and aviat ion bunkers (not included in regional t ot als).

© OECD/ IEA - 2010

Mt oe

Figure 2.5 z World primary energy demand by region in the New Policies Scenario 18 000

China

16 000

Unit ed St at es

14 000

European Union

12 000

India

10 000

Middle East

8 000

Japan

6 000

Int er-regional (bunkers)

4 000

Rest of world

2 000 0 1990

1995

2000

2005

Chapter 2 - Energy projections to 2035

2010

2015

2020

2025

2030

2035

85

2

Non-OECD count ries generat e t he bulk of t he increase in global demand for all primary energy sources (Figure 2.6). OECD oil demand falls by 6 mb/ d in 2009-2035, but t his is offset by a 19-mb/ d increase in t he non-OECD (int ernat ional bunker demand also rises by almost 3 mb/ d). Oil demand increases t he most in China (7.1 mb/ d), India (4.5 mb/ d) and t he Middle East (2.7 mb/ d) as a consequence of rapid economic growt h and, in t he case of t he Middle East , t he cont inuat ion of subsidies on oil product s. By 2035, China overt akes t he Unit ed St at es t o become t he largest oil consumer in t he world. Having reached a peak of 46 mb/ d in 2005, oil demand in t he OECD cont inues t o decline, reaching 35 mb/ d in 2035, due t o furt her efficiency gains in t ransport and cont inued swit ching away from oil in ot her sect ors. Oil demand in t he Unit ed St at es declines from 17.8 mb/ d in 2009 t o 14.9 mb/ d in 2035. Non-OECD regions are responsible for t he ent ire net increase in coal demand t o 2035. China alone account s for 54% of t he net increase; alt hough coal’ s share of China’ s energy mix cont inues t o decline, more t han half of it s energy needs in 2035 are st ill met by coal. Most of t he rest of t he growt h in coal demand comes from India and ot her nonOECD Asian count ries. Driven by policies t o limit or reduce CO2 emissions, coal use falls sharply in each of t he OECD regions, part icularly aft er 2020. By 2035, OECD count ries consume 37% less coal t han t oday. Unlike demand for t he ot her fossil fuels, demand for nat ural gas increases in t he OECD. where it remains t he leading fuel for power generat ion and an import ant fuel in t he indust rial, service and resident ial sect ors. Collect ively, t he OECD count ries account for 16% of t he growt h in nat ural gas consumpt ion t o 2035. Developing Asia, again led by China and India, account s for 43% of t he increment al demand, as gas use increases rapidly in t he power sect or and in indust ry. The Middle East , which holds a considerable share of t he world’ s proven nat ural gas reserves, is responsible for one-fift h of t he global increase in gas consumpt ion.

Figure 2.6 z Incremental primary energy demand by fuel and region in the New Policies Scenario, 2008-2035 OECD

Coal

China Oil

Ot her non-OECD Int er-regional (bunkers)

Gas Nuclear Hydro

© OECD/ IEA - 2010

Biomass Ot her renewables –500

–250

0

250

500

750

1 000

1 250 Mt oe

86

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Box 2.2 z China becomes the world’s largest energy consumer

2 Preliminary dat a suggest t hat China overt ook t he Unit ed St at es in 2009 t o become t he world’ s largest energy user. This comes j ust t wo years aft er China overt ook t he Unit ed St at es as t he world’ s largest emit t er of energy-relat ed CO2. Preliminary IEA dat a, which align closely wit h t hose of most of t he ot her main sources of int ernat ional energy st at ist ics, indicat e t hat in 2009 China consumed about 4% more energy t han t he Unit ed St at es. China’ s emergence as t he world’ s largest energy consumer is not a surprise. It s phenomenal rat e of demand growt h over t he last decade meant it was dest ined t o become t he t op energy consumer. This has occurred slight ly earlier t han expect ed, however, because of China’ s cont inuing st rong economic performance and it s quick recovery from t he global financial crisis compared t o t he Unit ed St at es. Since 2000, China’ s energy demand has doubled. Growt h prospect s remain robust considering t he count ry’ s low per-capit a consumpt ion levels (it is st ill only around one-t hird of t he average in OECD count ries), and t he fact t hat China is t he most populous nat ion on t he planet , wit h more t han 1.3 billion people. Today, energy demand in China would be even higher had it not made remarkable progress in reducing it s energy int ensit y (t he energy input required per dollar of out put ). In 2009, China consumed about one-quart er of t he energy per unit of economic out put t han it did in 1980. China has also become a world leader in renewable energy and is pursuing a 10-year programme aimed at boost ing t he share of low-carbon energy t o 15% of t ot al consumpt ion by 2020 and meet ing ongoing carbon emissions reduct ion t arget s. These effort s are being backed by a development plan ent ailing planned invest ment of 5 t rillion yuan (approximat ely $735 billion) in nuclear, wind, solar and biomass proj ect s. Given t he sheer scale of China’ s domest ic market , it s push t o increase t he share of new low-carbon energy t echnologies (bot h on t he supply side and t he demand side, such as advanced vehicle t echnologies) could play an import ant role in driving down t heir cost s by cont ribut ing t o improvement s in t echnology learning rat es.

© OECD/ IEA - 2010

Under t he assumpt ions of t he New Policies Scenario, nuclear power expands in bot h OECD and non-OECD regions bet ween 2008 and 2035, t he increase in t he non-OECD being almost t wice as big in absolut e t erms. The increase in nuclear power generat ion in China alone (215 Mt oe) exceeds t hat of t he ent ire OECD (198 Mt oe). Wit hin t he OECD, Japan, Korea, France and t he Unit ed St at es are responsible for almost all of t he growt h. In aggregat e, t he supply of nuclear power in OECD Europe remains flat . This is consist ent wit h t he general assumpt ions for t he New Policies Scenario, in which count ries wit h declared plans t o discont inue t heir nuclear programmes are assumed t o pursue t hem. Non-OECD count ries account for 56% of t he global increase in t he use of non-hydro renewable energy bet ween 2008 and 2035. Biomass, most ly fuel wood, crop residues and charcoal for cooking and heat ing, represent s 38% of increment al energy demand Chapter 2 - Energy projections to 2035

87

in Africa (see Chapt er 8). Demand for biomass and wast e, consumed most ly in modern applicat ions in power generat ion and t ransport , also increases rapidly in t he OECD. Non-OECD count ries account for almost 90%of t he increase in hydropower generat ion, as considerable pot ent ial exist s, part icularly in Asia and Lat in America. By cont rast , in t he OECD t he most suit able sit es, especially for large hydro, have already been developed.

Sectoral trends The power sect or (which includes bot h heat and elect ricit y generat ion) account s for 53% of t he increase in global primary energy demand in 2008-2035. It s share of t he primary mix reaches 42%in 2035, compared wit h 38%in 2008. Tot al capacit y addit ions of 5 900 GW are required in 2008-2035, or around six t imes current US capacit y. Coal remains t he leading fuel for power generat ion, alt hough it s share of t ot al power out put peaks at about 42% soon aft er 2010, and declines t o 32% in 2035. This declining coal share benefit s non-hydro renewables (including biomass and wast e) as t heir share increases from 3% t o 16% by 2035. The shares of t ot al power out put of nat ural gas (21%), nuclear (14%) and hydro (16%) remain relat ively const ant t hroughout t he Out look period, while t he share of oil cont inues t o decline, t o less t han 2% in 2035. Tot al final consumpt ion3 is proj ect ed t o grow by 1.2%per year t hroughout t he Out look period (Figure 2.7). Indust ry demand grows most rapidly, at 1.4% per year, having overt aken t ransport in 2008 t o once again become t he second-largest final-use sect or, aft er t he buildings sect or. By 2035, t he indust rial sect or consumes around 30% of t he world’ s t ot al final energy consumpt ion. Over t hree-fift hs of t he growt h in indust rial energy demand comes from China and India, while t he Middle East and Lat in America also see st rong growt h in demand. OECD indust rial energy demand increases t hrough t o 2020 before dropping back t o levels similar t o t oday by t he end of t he Out look period. In aggregat e, growt h in global t ransport energy demand averages 1.3% per year in 2008-2035. This is a sharp decline in t he rat e of growt h observed over t he last several decades, t hanks largely t o measures t o improve fuel economy. Transport ’ s share of t ot al final consumpt ion remains flat at around 27% t hrough t he Out look period. All of t he growt h in t ransport demand comes from non-OECD regions and int er-regional bunkers; t ransport energy demand declines slight ly in t he OECD. Alt hough biofuels, and, t o a lesser ext ent , elect ricit y for plug-in hybrid and elect ric vehicles t ake an increasing share of t he market for road-t ransport fuels, oil-based fuels cont inue t o dominat e t ransport energy demand.

© OECD/ IEA - 2010

In t he buildings sect or, energy use grows at an average rat e of 1.0% per year t hrough t he Out look period. The sect or’ s share of t ot al final energy consumpt ion remains at around one-t hird t hroughout t he period t o 2035. Elect ricit y consumpt ion is proj ect ed t o increase at an annual average rat e of 2.2% in t he period 2008-2035, result ing in overall growt h of around 80%. Elect ricit y’ s share of t ot al final consumpt ion grows from 17% t o 23%. More t han 80% of t he growt h in 3. Tot al fi nal consumpt ion includes t ot al energy delivered t o end-users t o undert ake act ivit ies in indust ry, t ransport , agricult ure, buildings (including resident ial and services) and non-energy use.

88

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

elect ricit y demand t akes place in non-OECD count ries as a result of increased demand for household appliances and indust rial and commercial elect rical equipment , in line wit h rising prosperit y. The shares of biomass and nat ural gas in t ot al final consumpt ion remain essent ially const ant t hrough t o 2035, while t hose for oil and coal decline, principally t o t he benefit of elect ricit y.

Figure 2.7 z Incremental energy demand by sector and region in the New Policies Scenario, 2008-2035 OECD Power generat ion

China Ot her non-OECD

Ot her energy sect or

Int er-regional (bunkers) Final consumpt ion

Indust ry Transport Buildings Ot her sect ors* –500

0

500

1 000

1 500

2 000

2 500 Mt oe

* Includes agricult ure and non-energy use.

Per-capita energy consumption and energy intensity

© OECD/ IEA - 2010

Even t hough emerging economies experience markedly higher growt h in energy demand during t he Out look period, a significant gulf st ill exist s bet ween rich and poor count ries in t he amount of energy used per capit a. Today, t he average per-capit a energy consumpt ion f or t he world as a whole is 1.8 t onnes of oil equivalent (t oe) per year, but , in most cases, t here is a great dif f erence bet ween developing and developed count ries. There are also significant variat ions bet ween count ries at similar st ages of economic development . Per-capit a consumpt ion in Japan, f or example, is around half t hat of t he Unit ed St at es. Per-capit a global energy consumpt ion rises at 0.3% per year, on average, over t he proj ect ion period (one-t hird of t he rat e experienced since 1995) reaching 2 t oe in 2035. Large geographical discrepancies in energy consumpt ion remain. In 2035, t he average per-capit a level in t he OECD, despit e having already peaked and now being in st eady decline, is st ill more t han t wice t he global average (Figure 2.8). The most rapid increase in per-capit a consumpt ion is in India, but at 1.0 t oe in 2035, use per capit a is st ill less t han one-quart er t hat of t he OECD. Alt hough China’ s per-capit a energy consumpt ion is current ly below t he world average, in 2035 it is 40%higher t han t oday’ s global average (or 30% higher t han t he 2035 global average), t hanks t o st rong economic growt h and relat ively slow populat ion growt h. By 2035, Russia has t he world’ s highest per-capit a energy consumpt ion, at 6.4 t oe. This result s from t he combinat ion of a harsh climat e, cont inuing populat ion decline, t he import ance of heavy indust ry in t he economy Chapter 2 - Energy projections to 2035

89

2

and relat ively inefficient energy product ion and consumpt ion pract ices (a legacy of t he Soviet era). Per-capit a consumpt ion remains lowest in sub-Saharan Africa at only 0.4 t oe in 2035, down 23% from 2008 and only one-t welft h of t he average OECD percapit a consumpt ion. This t rend result s from sub-Saharan Africa’ s rapid populat ion growt h and t he shift from t radit ional t o modern energy, which is used more efficient ly.

Figure 2.8 z Per-capita primary energy demand by region as a percentage of 2008 world average in the New Policies Scenario 2008

Africa

2035

India Ot her Asia

World average 2008

Lat in America

World average 2035

China Middle East European Union Japan Unit ed St at es Russia 0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

As wit h per-capit a energy consumpt ion, large differences in energy int ensit y exist among count ries, primarily due t o differences in energy efficiency, economic st ruct ure and climat e. In most cases, non-OECD count ries have much higher levels of energy int ensit y t han t hose of t he OECD, but t hey are also experiencing much fast er reduct ions. Energy int ensit y in t he OECD declines at 1.6% per year bet ween 2008 and 2035, while t he rat e of decline in t he non-OECD is 2.5%(Figure 2.9). China achieves t he st rongest improvement in it s energy int ensit y at 3.3% per year on average, reaching 0.18 t oe per t housand dollars of GDP at market exchange rat es (MER) in 2035.

t oe per t housand dollars of GDP ($2009, MER)

© OECD/ IEA - 2010

Figure 2.9 z Energy intensity in selected countries and regions in the New Policies Scenario

90

1.2

Russia India

1.0

China

0.8

World OECD

0.6 0.4 0.2 0 1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Energy production and trade

2

Resources and product ion prospect s4 Est imat es of t he world’ s t ot al endowment of economically exploit able fossil fuels and hydroelect ric, uranium and renewable energy resources indicat e t hat t hey are more t han sufficient t o meet t he proj ect ed increase in consumpt ion t o 2035. There is, however, some uncert aint y about whet her energy proj ect s will be developed quickly enough t o bring t hese resources t o market in a t imely manner, as many fact ors may act t o defer invest ment spending. These include uncert aint y about t he economic out look, development s in climat e change and ot her environment al policies, deplet ion policies in key producing regions and changes t o legal, fiscal and regulat ory regimes.

© OECD/ IEA - 2010

Coal is t he world’ s most abundant f ossil f uel by f ar, wit h proven reserves of 1 000 billion t onnes (BGR, 2009). At present coal product ion levels, reserves would meet demand f or almost 150 years. Remaining recoverable resources are even larger and a resource short age is unlikely t o const rain coal product ion. Coal is also t he most widely dist ribut ed of f ossil-f uel resources, wit h 43% of proven reserves in OECD count ries, compared t o nat ural gas (10%) and oil (16%). Proven reserves of oil amount ed t o 1.35 t rillion barrels at t he end of 2009, or 46 years product ion at current levels (O&GJ, 2010). Ot her economically recoverable resources t hat are expect ed t o be f ound will support rising product ion. Today, proven gas reserves, at around 60 years of current product ion, f ar exceed t he volume needed t o sat isf y demand t o 2035 and undiscovered convent ional gas resources are also sizeable. Moreover, t here is huge pot ent ial t o increase supply f rom unconvent ional resources of bot h oil and gas. Alt hough t hese resources are generally more cost ly t o exploit , rising f ossil-f uel prices t hroughout t he Out l ook period and advances in t echnology and ext ract ion met hods are set t o make t hem increasingly import ant sources of supply. Resources of uranium, t he raw mat erial f or nuclear f uel, are suf f icient t o f uel t he world’ s nuclear react ors at current consumpt ion rat es f or at least a cent ury (NEA and IAEA, 2009). Signif icant pot ent ial also remains f or expanding energy product ion f rom hydropower, biomass and ot her renewable sources (see Chapt ers 9). In t he New Policies Scenario, non-OECD regions account f or all of t he net increase in aggregat e f ossil-f uel product ion bet ween 2009 and 2035 (Figure 2. 10). The world’ s t ot al oil product ion reaches 96 mb/ d by 2035. Tot al non-OPEC oil product ion peaks before 2015 at around 48 mb/ d and falls t o 46 mb/ d by t he end of t he Out look period. By cont rast , OPEC oil product ion cont inues t o grow, pushing up t he group’ s share of world product ion f rom 41%in 2009 t o 52%in 2035. Proj ect ed global gas product ion in 2035 in t he New Policies Scenario increases by 43% compared wit h 2008. Non-OECD count ries collect ively account for almost all of t he proj ect ed increase in global nat ural gas product ion in 2008-2035. The Middle East , wit h t he largest reserves and lowest product ion cost s, sees t he biggest increase in absolut e t erms, t hough Eurasia remains t he largest producing region and Russia t he single biggest producer. Coal product ion is proj ect ed t o rise by 15% bet ween 2008 and 2035. All of t he growt h comes f rom

4. Resource and product ion prospect s for each fuel are discussed in more det ail in lat er chapt ers.

Chapter 2 - Energy projections to 2035

91

non-OECD count ries, wit h product ion in t he OECD f alling by more t han one-quart er. China sees t he biggest increase in coal out put in absolut e t erms, alt hough t he rat e of increase in product ion is much higher in bot h India and Indonesia.

Mt oe

Figure 2.10 z World incremental fossil-fuel production in the New Policies Scenario, 2008-2035 1 200

OECD

1 000

Non-OECD

800 600 400 200 0 –200 –400 Coal

Oil

Gas

Int er-regional t rade The New Policies Scenario sees growing int ernat ional t rade in energy, due t o t he regional mismat ch bet ween t he locat ion of demand and product ion. The share of global oil consumpt ion t raded bet ween WEO regions reaches 49% in 2035, compared wit h 44%t oday. In absolut e t erms, net t rade rises from 37 mb/ d in 2009 t o 48 mb/ d in 2035. Net import s int o t he OECD increase slight ly t o 2015, before gradually falling as OECD oil product ion declines at a slower rat e t han t he fall in it s demand, reducing t he need for import s. By 2035, t he OECD in aggregat e is import ing almost 18 mb/ d, compared wit h 23 mb/ d in 2009. Developing Asia, led by China and India, sees t he biggest j ump in oil import s in absolut e t erms. China’ s import s rise from 4.3 mb/ d in 2009 t o close t o 13 mb/ d by 2035; India’ s j ump from 2.2 mb/ d t o 6.7 mb/ d. Tot al oil export s from t he Middle East cont inue t o grow st eadily, wit h t he region’ s share of global t rade increasing from 50% t oday t o 60% in 2035.

© OECD/ IEA - 2010

Int er-regional nat ural gas t rade rises from 670 bcm in 2008 t o around 1 200 bcm in 2035, an increase of 77%. Developing Asia, led by China and India, is responsible for t he bulk of t he increase in gas import s. Of t he OECD regions, Europe sees by t he far t he biggest increase in reliance on import s. Int ernat ional t rade in hard coal among WEO regions is proj ect ed t o rise from 728 Mt ce t oday t o j ust under 870 Mt ce before 2020, before decreasing t o set t le at a level around 840 Mt ce as global demand for coal st abilises over t he second half of t he proj ect ion period. Over t he course of t he Out look period demand for increased import s of coal int o non-OECD Asia is offset by a sharp drop in demand for import s int o OECD Europe, Japan and Korea. By 2035, int er-regional t rade meet s 15%of global hard coal demand, a level similar t o t oday. 92

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Spending on import s Even wit h t he measures t hat are assumed t o be int roduced t o cut growt h in energy demand, t he New Policies Scenario implies a persist ent ly high level of spending on oil and gas import s by many import ing count ries (Figure 2. 11). India’ s proj ect ed spending is highest as a proport ion of GDP, reaching 5. 1%of GDP at market exchange rat es by 2035, f ollowed by China’ s at 3. 1%. In aggregat e, spending in t he OECD as a proport ion of GDP is set t o decline t hrough t he Out l ook period wit h t he f all in t he volume of it s import s.

Figure 2.11 z Expenditure on net imports of oil and gas as a share of real GDP in the New Policies Scenario 8%

India

7%

China

6%

Japan European Union

5%

Unit ed St at es 4% 3% 2% 1% 0% 1980

1990

2000

2010

2020

2030

2035

Not e: GDP is measured at market exchange rat es (MER).

Annual expendit ure on oil and gas import s in dollar t erms cont inues t o increase t hroughout t he Out l ook period in most import ing count ries. Tot al expendit ure at t he global level on oil and gas import s more t han doubles, f rom approximat ely $1. 2 t rillion in 2010 t o $2. 6 t rillion in 2035, wit h t he share of nat ural gas in t ot al spending st eadily increasing. On a count ry basis, China overt akes t he Unit ed St at es around 2025 t o become t he world’ s biggest spender on oil import s, while India overt akes Japan around 2020 t o become t he world’ s t hird-largest spender. By 2025, China also surpasses Japan t o become t he world’ s biggest spender on nat ural gas import s.

© OECD/ IEA - 2010

Investment in energy-supply infrastructure Cumulat ive invest ment of $33 t rillion (year-2009 dollars) over 2010-2035 is needed in energy-supply inf rast ruct ure in t he New Policies Scenario (Table 2. 4). The proj ect ed invest ment is equal t o around 1.4%of global GDP on average t o 2035. This invest ment enables t he replacement of reserves and product ion facilit ies t hat are ret ired, as well as t he expansion of product ion and t ransport capacit y t o meet demand growt h. The proj ect ed invest ment does not include demand-side invest ment s, such as expendit ure on purchasing cars, air condit ioners, ref rigerat ors, et c. Chapter 2 - Energy projections to 2035

93

2

Alt hough aggregat e energy demand in OECD count ries only increases by 3%, t hey require 35% of t he proj ect ed invest ment (Figure 2. 12). This disproport ionally high share result s f rom several f act ors, including t he OECD need t o ret ire and replace signif icant amount s of ageing energy inf rast ruct ure, it s more capit al-int ensive energy mix and t he higher average unit cost s of it s capacit y addit ions. Almost 64% of t ot al energy invest ment will t ake place in non-OECD count ries, where product ion and demand are expect ed t o increase most . China alone will need t o invest $5. 1 t rillion, or 16% of t he world t ot al. The energy mix in t he New Policies Scenario has a higher share of energy t echnologies t hat are more capit al int ensive t han t hose adopt ed in t he WEO-2009 Reference Scenario. This fact or, t oget her wit h t he ext ension of t he period t o 2035, more t han offset s t he lower rat e of proj ect ed energy demand, leading t o an invest ment requirement which is some $150 billion higher per year on average over t he proj ect ion period.

Table 2.4 z Cumulative investment in energy-supply infrastructure in the New Policies Scenario, 2010-2035 (billion $ in year-2009 dollars) Coal

Oil

Gas

Power

Biofuels

Total

OECD

201

1 811

2 875

6 477

211

11 574

Nort h America

110

1 358

1 746

2 777

120

6 111

Europe

34

373

751

2 730

86

3 974

Pacific

57

80

378

970

5

1 490

474

6 001

4 152

10 130

124

20 881

47

1 270

1 213

1 073

5

3 608

20

676

792

570

1

2 060

375

904

1 136

7 197

62

9 673

China

263

475

360

4 000

32

5 130

India

56

207

216

1 883

17

2 380

1

965

586

597

0

2 149

Africa

34

1 313

764

559

3

2 674

Lat in America

16

1 549

452

704

54

2 776

Inter-regional transport

46

241

74

n.a

n.a

361

721

8 053

7 101

16 606

335

32 816

Non-OECD

E. Europe/ Eurasia

Russia Asia

Middle East

© OECD/ IEA - 2010

World

The power sect or requires $16. 6 t rillion or 51%of t he t ot al energy-supply invest ment proj ect ed t o 2035 in t he New Policies Scenario. If t he invest ment s in t he oil, gas and coal indust ries t hat are needed t o supply f uel t o power st at ions are included, t he share increases t o 62%. Expendit ures t o develop t ransmission and dist ribut ion syst ems account f or 42% of t he t ot al invest ment in t he elect ricit y indust ry, wit h t he remainder going t o power generat ion. 94

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Invest ment t o meet proj ect ed demand f or oil in 2010-2035 amount s t o $8. 1 t rillion, or one-quart er of t ot al energy invest ment . The upst ream oil sect or account s f or 85% of t he t ot al, wit h t he rest needed in downst ream oil act ivit ies. Capit al spending gradually declines over t he course of t he Out l ook period, in line wit h t he slowdown in global oil demand growt h and as product ion shif t s increasingly t o lower-cost regions. On an annual average basis, invest ment is $310 billion per year. Invest ment in t he OECD is high relat ive t o it s product ion capacit y because unit cost s are higher t han ot her regions, part icularly in t he upst ream segment of t he supply chain.

Figure 2.12 z Cumulative investment in energy-supply infrastructure by region and fuel in the New Policies Scenario, 2010-2035 Power

OECD Pacific Ot her E. Europe/ Eurasia

Oil

Russia

Gas

Middle East

Coal

Ot her Asia

Biofuels

India Africa Lat in America OECD Europe China OECD Nort h America 0

1

2

3

4

5

6 7 Trillion dollars (2009)

Cumulat ive invest ment in t he nat ural gas supply chain in 2010-2035 is proj ect ed at $7.1 t rillion, slight ly less t han for oil. Annual expendit ures will increase over t ime wit h t he increase in demand. Explorat ion and development of gas f ields, including bringing new f ields on st ream and sust aining out put at exist ing f ields, will absorb 64% of t ot al gas invest ment . In t he period 2010-2035, some $720 billion needs t o be invest ed in t he coal sect or, or 2% of t ot al energy invest ment . Invest ment in product ion of coal is much less capit al-int ensive t han invest ment in oil or nat ural gas.

© OECD/ IEA - 2010

Energy-related CO2 emissions in the New Policies Scenario Rising demand f or f ossil f uels cont inues t o drive up energy-relat ed carbon dioxide (CO2) emissions t hrough t he proj ect ion period (Figure 2. 13). Addit ional government policies t hat are assumed t o be adopt ed, including act ion t o implement pledges t o reduce greenhouse-gas emissions announced under t he Copenhagen Accord and moves t o phase out f ossil-energy subsidies in cert ain regions, help t o slow t he rat e of growt h in emissions, but do not st op t he increase. Global energy-relat ed CO2 emissions j ump by 21% bet ween 2008 and 2035, f rom 29. 3 gigat onnes (Gt ) t o 35. 4 (Gt ). Nonet heless, t he average rat e of growt h of 0. 7% per year represent s a not able improvement on t he Current Policies Scenario, in which emissions grow at 1. 4% per year on average, reaching 42. 6 Gt in 2035. Chapter 2 - Energy projections to 2035

95

2

Gt

Figure 2.13 z World energy-related CO2 emissions by fuel in the New Policies Scenario 40

Gas

35

Oil

30

Coal

25 20 15 10 5 0 1980

1990

2000

2010

2020

2030

2035

Non-OECD count ries account for all of t he proj ect ed growt h in energy-relat ed CO2 emissions t o 2035 in each of t he t hree scenarios. In t he New Policies Scenario, emissions from non-OECD count ries cont inue t o rise st eadily and are 53%higher in 2035 t han t oday. By 2035, non-OECD energy-relat ed emissions of CO2 are nearly t wo-and-a-half t imes t hose of t he OECD. By t he end of t he Out look period, emissions from China alone slight ly exceed t hose from t he OECD as a whole. All sect ors cont ribut e t o overall growt h in CO2 emissions in 2008-2035: at 2.2 Gt , t ransport adds t he largest amount (and has t he highest growt h rat e), while power generat ion account s for a rise of 1.8 Gt .

© OECD/ IEA - 2010

Energy-relat ed CO2 emissions in t he OECD peak before 2015 and decline t o 11.8 Gt in 2020, 7%above 1990 levels. OECD count ries finance almost 500 million t onnes (Mt ) of reduct ions in non-Annex I count ries t hrough purchases of offset emissions credit s t o comply wit h t heir own t arget s. Direct financing from OECD count ries t o non-OECD count ries is also provided, in order t o assist wit h low-carbon t echnology invest ment and t o achieve addit ional abat ement . Given t he assumpt ion t hat OECD count ries st ep up domest ic abat ement effort s aft er 2020, OECD emissions st eadily decline t o 10 Gt in 2035. Energy-relat ed CO2 emissions in non-OECD count ries are proj ect ed t o grow f rom 15. 7 Gt in 2008 t o 20. 8 Gt by 2020 and 24 Gt by 2035. This increase occurs despit e t he assumed implement at ion of measures in China and India t o signif icant ly reduce t heir energy int ensit y, as well as policies in Indonesia, Brazil and Sout h Af rica t o improve upon t he business-as-usual sit uat ion (see Chapt er 13 f or a discussion of t he uncert aint y around non-Annex I t arget s). The low end of t he int ensit y improvement t arget s set by China and India are achieved in t he Current Policies Scenario t hrough measures already enact ed. This means t hat in t he New Policies Scenario, t hese t arget s are exceeded, t hough much of t he addit ional effort is assumed t o be support ed t hrough an int ernat ional offset mechanism or direct finance. Wit h respect t o domest icallyfinanced act ions, non-OECD count ries are assumed t o maint ain t he same level of effort t o combat climat e change over t he proj ect ion period. While t he proj ect ion for greenhouse-gas emissions in t he New Policies Scenario is a marked improvement on current t rends, much more would need t o be done t o realise 96

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

t he Copenhagen Accord obj ect ive of limit ing t he average rise in global t emperat ure t o 2°C. The New Policies Scenario put s t he world on t o a t raj ect ory consist ent wit h st abilising t he concent rat ion of greenhouse gases at j ust over 650 ppm CO2-eq, result ing in a likely t emperat ure rise of over 3.5°C in t he l ong t erm (see Chapt er 13). Energy-relat ed CO2 emissions by f uel exhibit a broadly similar pat t ern t o t hat of f uel demand, in t hat t he share of oil and coal f alls across t he period, while t he share of gas increases. In 2008, coal had t he largest share of t ot al emissions, at 43%, wit h oil at 37% and gas at 20%. In 2035, t his order remains t he same in t he New Policies Scenario, t hough t he share of coal f alls t o 41% and t hat of oil t o 36%, while t he share of gas increases t o 24%. Emissions f rom bunker f uels change by less t han half a percent age point f rom 2008 t o 2035, account ing f or 3. 5% of emissions in 2008 and 4. 0% in 2035. World CO2 emissions per capit a have been increasing sharply since 2000. In t he New Policies Scenario, t his upward t rend cont inues unt il t hey reach a peak of 4. 5 t onnes around 2015 and t hen decline t o less t han 4. 2 t onnes by t he end of t he Out l ook period. Large discrepancies remain bet ween regions. Alt hough average per capit a emissions cont inue t o f all in t he OECD, by 2035 t hey are st ill 1. 7 t imes t he current global average (Figure 2. 14). The f ast est growt h in per-capit a emissions occurs in China; f rom 4. 9 t onnes in 2008, t hey grow by 41% t o 6. 9 t onnes in 2035. Af rica’ s percapit a emissions decline t hrough t he Out l ook period, reaching less t han one-sixt h of t he world average in 2035.

Figure 2.14 z Per-capita energy-related CO2 emissions by region as a percentage of 2008 world average in the New Policies Scenario 2008

Africa

2035

Ot her Asia

World average 2008 India

World average 2035

Lat in America China OECD Middle East E. Europe/ Eurasia 0%

50%

100%

150%

200%

250%

© OECD/ IEA - 2010

The crucial role of China in global energy markets The increase in China’ s energy consumpt ion bet ween 2000 and 2008 was more t han four t imes great er t han in t he previous decade. The prospect s for furt her growt h remain very st rong: energy demand per capit a in China is st ill only 35% of t he OECD average. Fut ure development s in China’ s energy syst em, t herefore, have maj or implicat ions for global Chapter 2 - Energy projections to 2035

97

2

supply and demand t rends for oil, nat ural gas and coal, as well as t he prospect s for limit ing climat e change. Consequent ly, t he global energy proj ect ions in t his Out look remain highly sensit ive t o t he underlying assumpt ions for t he key variables t hat drive energy demand in China. These include prospect s for economic growt h, changes in economic st ruct ure, development s in energy and environment al policies and t he rat e of urbanisat ion. The rapid expansion in China’ s energy demand since 2000 is t he result of ext remely rapid GDP growt h and a st ruct ural shift in it s economy t owards energy-int ensive heavy indust ry and export s, especially following it s accession t o t he World Trade Organizat ion in 2001. China now account s for 28% of global indust rial energy demand, a sharp increase on it s 16% share in 2000. The rising share of indust ry in China’ s economy led t o an increase in t he count ry’ s energy int ensit y. China’ s energy int ensit y increased on average by 2.5% per year bet ween 2002 and 2005, reversing average gains of 6.4% per year bet ween 1990 and 2002. Recognising t he adverse implicat ions of rising energy int ensit y on t he economy and energy securit y, China’ s 11t h Five-Year Plan set a t arget t o reduce energy int ensit y by 20%bet ween 2005 and 2010. Government report s indicat e t hat t he count ry’ s energy int ensit y fell by 15.6% from 2005 t o 2009 but t hen edged up slight ly in early 2010 (NBS, 2010), suggest ing t hat it will be difficult t o achieve t he full 20% t arget . Nonet heless, gains realised over such a short period of t ime represent a very impressive achievement .

© OECD/ IEA - 2010

The moment um of economic development looks set t o generat e st rong growt h in energy demand in China t hroughout t he Out look period. In t he New Policies Scenario, China’ s primary energy demand is proj ect ed t o climb by 2.1% per year bet ween 2008 and 2035, reaching t wo-t hirds of t he level of consumpt ion of t he ent ire OECD (Figure 2.15). China’ s t ot al final energy consumpt ion increases at a similar rat e, expanding by 2.0% per year bet ween 2008 and 2035. In absolut e t erms, indust ry account s for t he single biggest element in t he growt h in final energy demand. Indust ry’ s share declines marginally, however, as demand is increasingly driven by domest ic consumpt ion. This reflect s t he emergence of a sizeable middle class whose aspirat ions for modern lifest yles and comfort levels creat es a surge in demand for mot or vehicles, elect rical appliances and ot her energy-using equipment . China’ s elect ricit y demand is proj ect ed t o almost t riple in 2008-2035, requiring capacit y addit ions equivalent t o 1.5 t imes t he current inst alled capacit y of t he Unit ed St at es. During much of t he period of it s economic expansion, China was able t o meet all of it s energy needs f rom domest ic product ion. A growing share is now being met by import s. China has ext ensive coal resources, but in recent years has become a net import er. It has st ruggled t o expand it s mining and rail-t ransport inf rast ruct ure quickly enough t o move coal f rom it s vast inland reserves t o t he prosperous coast al areas where demand has been growing most rapidly. In t he New Policies Scenario, China’ s net import s of coal increase t o 2015, but t he count ry once again becomes a net export er t owards t he end of t he Out l ook period. It s oil import s j ump f rom 4. 3 mb/ d in 2009 t o 12. 8 mb/ d in 2035, t he share of import s in demand rising f rom 53% t o 84%. Nat ural gas import s also increase subst ant ially t o reach a share of 53% of demand in 2035, requiring a maj or expansion of pipeline and liquef ied nat ural gas (LNG) regasif icat ion inf rast ruct ure. 98

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

6 000

6

5 000

5

4 000

4

3 000

3

2 000

2

1 000

1

t oe

Mt oe

Figure 2.15 z Total primary and per-capita energy demand in China and the OECD in the New Policies Scenario

2

OECD China Per-capit a demand (right axis): OECD

0

China World

0 1990

2008

2020

2035

The proj ect ed rise in China’ s energy demand has implicat ions f or t he local and global environment . In t he New Policies Scenario, 58%of t he global increase in CO2 emissions t o 2035 comes f rom China alone (Figure 2.16). China’ s emissions increase by 54%, t o 10.1 Gt , surpassing t he emissions f rom t he ent ire OECD by 2035. One cont ribut ion t o t he st rong increase in China’ s emissions is t hat as it has become t he world’ s biggest export manufact urer, and given it s significant reliance on fossil energy, a proport ion of it s emissions are caused by t he manuf act uring of goods f or export t o ot her count ries. This “ embedded carbon” f ar out weighs t he carbon embedded in it s import s.

Figure 2.16 z China’s share of the projected net global increase for selected indicators Coal demand

2000-2008

Oil net import s

2008-2035

CO2 emissions Oil demand Gas net import s Generat ing capacit y Energy demand GDP Gas demand Renewables demand

© OECD/ IEA - 2010

0%

20%

40%

60%

80%

100%

Alt hough China’ s per-capit a emissions are much lower t han t hose in most indust rialised count ries, t hey are increasing rapidly. China already emit s 12% more per capit a t han t he global average and is set t o overt ake t he per-capit a level of t he European Union soon af t er 2020 in t he New Policies Scenario. China is current ly one Chapter 2 - Energy projections to 2035

99

© OECD/ IEA - 2010

of t he world’ s highest emit t ers of CO2 per unit of GDP, but our proj ect ions indicat e an improvement in emissions int ensit y (3. 8%per year) bet ween 2008 and 2035, which is f ast er t han improvement s achieved elsewhere.

100

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

CHAPTER 3

OIL MARKET OUTLOOK A peak at the future? H

I

G

H

L

I

G

H

T

S

z The global out look for oil remains highly sensit ive t o policy act ion t o curb rising

demand and emissions. In t he Current Policies and New Policies Scenarios, global primary oil use increases in absolut e t erms bet ween 2009 and 2035, driven by populat ion and economic growt h, but demand falls in t he 450 Scenario in response t o radical policy act ion t o curb fossil-fuel use.

z The prices needed t o balance t he oil market differ markedly across t he t hree

scenarios — reflect ing t he growing insensit ivit y of demand and supply t o price. In t he New Policies Scenario, t he average IEA crude oil import price (in year-2009 dollars) reaches $113/ barrel in 2035. In t he Current Policies Scenario, much higher prices — reaching $135/ barrel in 2035 — are needed t o bring demand int o balance wit h supply. Prices in t he 450 Scenario are much lower, as demand peaks before 2020 and t hen falls. The weaker t he response t o t he climat e challenge, t he great er t he risk of oil scarcit y and t he higher t he economic cost for consuming count ries.

z In t he New Policies Scenario, demand cont inues t o grow st eadily, reaching about

99 mb/ d (excluding biofuels) by 2035 — 15 mb/ d higher t han in 2009. All of t he growt h comes from non-OECD count ries, 57% from China alone, mainly driven by rising use of t ransport fuels; demand in t he OECD falls by over 6 mb/ d.

z Global oil product ion reaches 96 mb/ d in t he New Policies Scenario, t he

balance of 3 mb/ d coming f rom processing gains. Crude oil out put reaches a plat eau of around 68-69 mb/ d by 2020 — marginally below t he all-t ime peak of about 70 mb/ d reached in 2006, while product ion of nat ural gas liquids and unconvent ional oil grows st rongly.

z Tot al OPEC product ion rises cont inually t hrough t o 2035 in t he New Policies

Scenario, it s share of global out put increasing from 41% t o 52%. Tot al non-OPEC oil product ion is broadly const ant t o around 2025, as rising product ion of NGLs and unconvent ional product ion offset s a fall in t hat of crude oil; t hereaft er, product ion st art s t o drop. Increased dependence on a small number of producing count ries would int ensify concerns about t heir influence over prices.

© OECD/ IEA - 2010

z Worldwide upst ream oil invest ment is set t o bounce back in 2010, but will

not recover all of t he ground lost in 2009, when lower oil prices and financing difficult ies led oil companies t o slash spending. Upst ream capit al spending on bot h oil and gas is budget ed t o rise by around 9%t o about $470 billion in 2010; it fell by 15%in 2009. Proj ect ed oil supply in t he New Policies Scenario calls for cumulat ive invest ment along t he ent ire oil-supply chain of $8 t rillion (in year-2009 dollars) in 2010-2035.

Chapter 3 16- Oil - Asean-4 marketcountry outlookprofiles

101

Demand Primary oil demand trends The global out look for oil remains highly sensit ive t o policy act ion t o curb rising demand and emissions, especially in t he developing world. In t he Current Policies and New Policies Scenarios, global primary oil use increases in absolut e t erms bet ween 2009 and 2035, driven by populat ion and economic growt h, but demand falls in t he 450 Scenario in response t o t he count er-balancing effect s of radical policy act ion t o curb fossilenergy use (Figure 3.1). The global economic recovery is expect ed t o drive oil demand back up, following t wo consecut ive years of decline in 2008 and 2009 t hat result ed from previously surging oil prices and t he subsequent global financial and economic crisis. 1 Nonet heless, t he effect of t he recession on demand was slight ly less t han was expect ed in last year’ s Out look: global demand bot t omed out at an est imat ed 84 million barrels per day (mb/ d) in 2009 —1 mb/ d down on 2008. The share of oil in t ot al primary energy demand is nonet heless proj ect ed t o fall progressively in each scenario, most sharply in t he 450 Scenario, where it reaches 26% in 2035 — down from 33% in 2009. In t he New Policies Scenario, t he share falls t o 28%.

mb/ d

Figure 3.1 z World primary oil demand by scenario 110

Current Policies Scenario New Policies Scenario

100

450 Scenario 90 80 70 60 50 1980

1990

2000

2010

2020

2030 2035

Not e: Oil does not include biofuels derived from biomass.

© OECD/ IEA - 2010

There are big differences in t he t raj ect ory of oil demand across t he t hree scenarios. In t he New Policies Scenario, demand cont inues t o grow st eadily, reaching about 99 mb/ d by 2035 — a level t hat is st ill 15 mb/ d higher t han in 2009. A combinat ion of policy act ion t o promot e more efficient oil use and swit ching t o ot her fuels and higher prices (result ing from price rises on int ernat ional market s, reduced subsidies in some maj or consuming count ries and increased t axes on oil product s) part ially offset s growing demand for mobilit y, especially in non-OECD count ries. In t he Current Policies 1. Preliminary dat a on oil demand are available for 2009. Because of met hodological differences, t he oil proj ect ions in t his report are not direct ly comparable wit h t hose published in t he IEA’s mont hly Oil Market Report or annual Medium Term Oil and Gas Market Report .

102

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Scenario, oil demand rises more quickly t hrough t o 2035, reaching about 107 mb/ d. In t he 450 Scenario, demand reaches a peak of about 88 mb/ d soon aft er 2015 and t hen falls st eadily t o about 81 mb/ d by 2035 — 3 mb/ d down on t he 2009 level.

3

Table 3.1 z Primary oil demand* by scenario (mb/d) New Policies Scenario 1980

2009

2020

2035

Current Policies Scenario 2020

2035

450 Scenario 2020

2035

OECD

41.3

41.7

39.8

35.3

40.5

38.7

38.2

28.0

Non-OECD

20.0

35.8

44.1

54.6

45.4

59.4

42.2

45.6

Bunkers**

3.4

6.5

7.5

9.1

7.5

9.3

7.2

7.3

64.8

84.0

91.3

99.0

93.5

107.4

87.7

81.0

33%

46%

53%

61%

53%

61%

52%

62%

World

Share of non-OECD

* Excludes biofuels demand, which is proj ect ed t o rise from 1.1 mb/ d (in energy-equivalent volumes of gasoline and diesel) in 2009 t o 2.3 mb/ d in 2020 and t o 4.4 mb/ d in 2035 in t he New Policies Scenario. ** Includes int ernat ional marine and aviat ion fuel.

© OECD/ IEA - 2010

The prices needed t o balance oil demand — which varies wit h t he degree of policy effort t o curb demand growt h — wit h supply differ markedly across t he t hree scenarios. In t he New Policies Scenario, t he average IEA crude oil import price reaches $105/ barrel in real t erms in 2025 on average and $113/ barrel in 2035. In t he Current Policies Scenario, in which no change in government policies is assumed, subst ant ially higher prices are needed t o bring demand int o balance wit h supply. Prices rise more briskly, especially aft er 2020. The crude oil price reaches $120 per barrel in 2025 and $135/ barrel t en years lat er. Our analysis suggest s t hat t he rat e of increase in product ion capacit y is relat ively insensit ive t o price, as net capacit y addit ions are const rained by t he st eep decline in out put from exist ing fields, part icularly in non-OPEC count ries, problems of access t o undeveloped resources and logist ical const raint s (see t he supply sect ion below). Similarly, t he increasing dominance of t ransport in overall oil demand will t end t o lower t he sensit ivit y of demand t o price, as t he alt ernat ives t o convent ional oil-based fuels st ruggle t o compet e in t hat sect or (see t he sect ion on sect oral t rends below). Prices in t he 450 Scenario are considerably lower, levelling off at $90 aft er 2020, as demand increases much less, peaking by around 2015. The oil demand and supply peak in t his scenario is, t hus, driven ent irely by policy rat her t han by any geological const raint . The message from t his analysis is clear: t he weaker and slower t he response t o t he climat e challenge, t he great er t he risk t o oil-import ing count ries of oil scarcit y and higher prices. Economic act ivit y is expect ed t o remain t he principal driver of oil demand in all regions in every scenario, but t he relat ionship weakens in t he New Policies Scenario and, t o an even great er ext ent , in t he 450 Scenario. On average, since 1980, each 1% increase in gross domest ic product (GDP) has been accompanied by a 0.3% rise in primary oil demand (Figure 3.2). This rat io — t he oil int ensit y of GDP, or t he amount of oil needed t o produce one dollar of GDP — has fallen progressively since t he 1970s, t hough in an Chapter 3 - Oil market outlook

103

uneven fashion. 2 Oil int ensit y fell more sharply aft er 2004, mainly as a result of higher oil prices, which have encouraged conservat ion, swit ching t o ot her fuels and spending on more efficient equipment and vehicles. In 2009, global oil int ensit y (expressed in purchasing power parit ies, or PPP) was only about half t he level of t he early 1970s. This downward t rend cont inues in t he New Policies Scenario, wit h int ensit y falling t o onehalf of it s 2009 level by 2035, boost ed by policies t o promot e more efficient oil use in end-use sect ors and swit ching t o lower carbon fuels, including vehicle fuel-efficiency st andards and t he phase-out of subsidies (see Part E).

Figure 3.2 z Annual change* in global real GDP and primary oil demand in the New Policies Scenario 3.5%

GDP ($2009, PPP)

3.0%

Oil demand

2.5% 2.0% 1.5% 1.0% 0.5% 0% 1980-1989

1990-1999

2000-2009

2009-2035

*Compound average annual growt h rat e.

Regional trends The out look for oil demand differs markedly across regions. All of t he increase in world oil demand bet ween 2009 and 2035 comes from non-OECD count ries in every scenario, as OECD demand drops. In t he New Policies Scenario, OECD demand falls by over 6 mb/ d bet ween 2009 and 2035, but t his is offset by an almost 19-mb/ d increase in t he non-OECD (int ernat ional bunker demand also rises by almost 3 mb/ d). Demand drops in all t hree OECD regions: progressive improvement s in vehicle fuel efficiency, spurred by higher fuel cost s as int ernat ional prices increase as well as government fuel-economy mandat es, more t han offset t he effect of rising incomes (Table 3.2). By cont rast , in non-OECD regions, st rong economic and populat ion growt h, coupled wit h t he enormous lat ent demand for mobilit y, more t han out weighs efficiency gains in t ransport .

© OECD/ IEA - 2010

The biggest increase in demand in absolut e t erms occurs in China, where it j umps from j ust over 8 mb/ d in 2009 t o more t han 15 mb/ d in 2035 — an increase of 2.4% per year on average in t he New Policies Scenario. China account s for 57% of t he global increase 2. Oil prices also affect GDP, by alt ering energy cost s. The rapid run-up in oil prices in t he period 2003 t o mid-2008 undoubt edly played a role, albeit a secondary one, in provoking t he fi nancial and economic crisis of 2008-2009. It follows t hat a sharp rise in oil prices in t he years t o come would t hreat en t he global economic recovery.

104

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

in demand. Demand could grow even more if t he rising int ernat ional prices of oil assumed in t his scenario were offset by an appreciat ion of t he yuan against t he dollar. High as it is, t he proj ect ed growt h rat e in t he New Policies Scenario is st ill significant ly lower t han in t he past : Chinese oil use more t han quadrupled bet ween 1980 and 2009. Ot her emerging Asian economies, not ably India, and t he Middle East also see rapid rat es of growt h. The lat t er region has emerged as a maj or oil-consuming as well as oil-producing region, on t he back of a booming economy (helped by high oil prices) and heavily subsidised prices in domest ic market s. Middle East count ries account for one-fift h of t he growt h in oil demand over t he proj ect ion period. Demand in all t hree OECD regions, by cont rast , falls, most heavily in relat ive t erms in t he Pacific region and Europe. As a result of t hese t rends, t he non-OECD count ries’ share of global oil demand (excluding int ernat ional marine bunkers) rises from 46% in 2009 t o 61% in 2035.

Table 3.2 z Primary oil demand* by region in the New Policies Scenario (mb/d) 1980

2009

2015

2020

2025

2030

2035

20092035**

OECD

41.3

41.7

41.1

39.8

38.2

36.7

35.3

-0.6%

Nort h America

20.8

21.9

21.9

21.4

20.8

20.1

19.4

-0.5%

17.4

17.8

17.7

17.2

16.5

15.8

14.9

-0.7%

Europe

Unit ed St at es

14.4

12.7

12.4

11.9

11.4

10.8

10.4

-0.8%

Pacific

6.1

7.0

6.9

6.4

6.1

5.8

5.6

-0.9%

Japan

4.8

4.1

3.8

3.5

3.2

3.0

2.9

-1.3%

20.0

35.8

41.1

44.1

47.5

51.1

54.6

1.6%

9.1

4.6

4.9

5.0

5.2

5.2

5.4

0.6%

Caspian

n.a.

0.6

0.7

0.8

0.8

0.9

0.9

1.6%

Russia

n.a.

2.8

2.8

2.9

3.0

3.0

3.0

0.4%

Non-OECD

E. Europe/ Eurasia

Asia

4.4

16.3

19.7

21.8

24.4

27.3

30.0

2.4%

China

1.9

8.1

10.6

11.7

13.0

14.3

15.3

2.4%

India

0.7

3.0

3.6

4.2

5.1

6.2

7.5

3.6%

2.0

6.5

7.5

8.0

8.5

8.9

9.2

1.3%

Middle East Africa

1.2

3.0

3.1

3.3

3.4

3.6

3.8

0.9%

Lat in America

3.4

5.3

5.8

5.9

6.0

6.1

6.2

0.6%

1.3

2.1

2.4

2.5

2.5

2.5

2.6

0.8%

3.4

6.5

7.0

7.5

7.9

8.5

9.1

1.3%

World

64.8

84.0

89.2

91.3

93.6

96.4

99.0

0.6%

European Union

n.a.

12.2

11.8

11.3

10.7

10.1

9.6

-0.9%

Brazil

© OECD/ IEA - 2010

Bunkers***

*Excludes biofuels demand, which is proj ect ed t o rise from 1.1 mb/ d (in energy-equivalent volumes of gasoline and diesel) in 2009 t o 2.3 mb/ d in 2020 and t o 4.4 mb/ d in 2035. **Compound average annual growt h rat e. ***Includes int ernat ional marine and aviat ion fuel.

Chapter 3 - Oil market outlook

105

3

Sectoral trends The t ransport sect or is expect ed t o cont inue t o drive t he growt h in global oil demand. In t he New Policies Scenario, t ransport account s for almost all of t he increase in oil demand bet ween 2009 and 2035, wit h oil use in power generat ion falling and consumpt ion in ot her sect ors in aggregat e expanding only modest ly (Figure 3.3). Transport ’ s share in global primary oil consumpt ion (including bunker fuels) rises from 53% in 2009 t o 60% in 2035. China alone account s for half of t he global increase in oil use for t ransport . Oil remains t he dominant source of energy for t ransport at ion, by road, rail, air and sea, t hough it comes under increasing compet it ion from alt ernat ive fuels, not ably biofuels and elect ricit y for cars and t rains, and nat ural gas for buses and t rucks. The share of oil-based fuels (primarily gasoline and diesel) in t ot al road t ransport at ion energy use falls from 96%in 2009 t o 89%by 2035, mainly due t o increased use of convent ional biofuels and, increasingly, advanced biofuels (see Chapt er 12).

Figure 3.3 z Change in primary oil demand by sector and region in the New Policies Scenario, 2009-2035 OECD Transport

China Ot her non-OECD Int er-regional (bunkers)

Indust ry

Buildings and agricult ure

Ot her* –5

0

5

10

15

20 mb/ d

*Includes power generat ion, ot her energy sect or and non-energy use.

© OECD/ IEA - 2010

Demand for road t ransport fuels is set t o cont inue t o expand rapidly in t he emerging economies in line wit h rising incomes, which boost car ownership and usage as well as freight , and expanded road net works. In cont rast t o t he OECD regions, t hese fact ors more t han offset t he effect of cont inuing improvement s in vehicle fuel efficiency, a modest expansion of biofuels use and t he deployment of full-elect ric vehicles in t he longer-t erm. Trucks and passenger light -dut y vehicles (PLDVs) account for most of t he increase in t ransport -relat ed oil use (Figure 3.4). The passenger-car and t ruck fleet is growing fast er in China t han anywhere else: preliminary dat a show t hat new car sales t opped 13.6 million in 2009, overt aking for t he first t ime sales in t he Unit ed St at es. The t ot al car fleet in China is now est imat ed at almost 40 million — more t han t wice as big as j ust t hree years ago. Car and t ruck sales are growing rapidly in many ot her non-OECD count ries as well, part icularly in Asia. 106

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Mt oe

Figure 3.4 z Transport oil consumption by type in the New Policies Scenario 3 000

30%

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*Includes ot her road, rail, pipelines, navigat ion and non-specified.

The pot ent ial for cont inued brisk expansion of t he vehicle fleet in t hose count ries remains large, as vehicle ownership rat es are st ill well below t hose in t he OECD: t here are only 30 cars for every t housand people in China, compared wit h around 700 in t he Unit ed St at es and almost 500 in Europe. In t he New Policies Scenario, t he t ot al st ock of passenger light -dut y vehicles in non-OECD count ries is proj ect ed t o quadruple over t he proj ect ion period t o about 850 million, overt aking t hat of OECD count ries soon aft er 2030 (Figure 3.5). The vehicle fleet of China overt akes t hat of t he Unit ed St at es by around 2030.

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Vehicles per t housand people

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Figure 3.5 z Passenger light-duty vehicle fleet and ownership rates by region in the New Policies Scenario

1990

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The rat e of growt h in car ownership in non-OECD count ries in general and in China in part icular is a crit ical uncert aint y for t he prospect s for global oil use. Holding all ot her fact ors equal, a 1%per year fast er rat e of growt h in car ownership in China alone (compared wit h t he global average of 1.8% in t he New Policies Scenario) would result in around 95 million more cars on t he road in 2035 and 0.8 mb/ d of addit ional oil Chapter 3 - Oil market outlook

107

demand — an increase of 0.8% in world demand. Were t his fast er growt h rat e applied t o all non-OECD count ries, demand would, in t heory, be about 3.6 mb/ d, or 4%, higher. To avoid such an increase, oil prices would have t o rise much fast er t han assumed in t his scenario, unless t here were fast er improvement s in vehicle efficiency, fewer kilomet res driven per vehicle and/ or fast er penet rat ion of biofuels and alt ernat ive fuel and vehicle t echnologies. Fuel economy — t he amount of fuel consumed in driving one kilomet re — is anot her key uncert aint y. Rising incomes will t end t o encourage people t o opt for larger, more energy-int ensive vehicles, t hough t his phenomenon is expect ed t o be more t han offset by cont inuing fuel economy improvement s in each vehicle cat egory. Convent ional int ernal combust ion engine vehicles are expect ed t o cont inue t o become more efficient , t he result of higher oil prices as well as policy init iat ives t o encourage vehicle manufact urers t o develop and market more efficient vehicles and mot orist s t o buy t hem. A number of count ries, including t he Unit ed St at es and EU members, have adopt ed regulat ions t o increase t he average vehicle fuel efficiency; ot hers such as China or Korea are also discussing st andards (t hese are t aken int o account in t he New Policies Scenario). Ot her measures include programmes t o encourage fuel-efficient driving, such as t he EU-funded Ecodrive programme. In addit ion, hybrid cars and plug-in hybrids, wit h significant ly bet t er fuel efficiency t han convent ional cars, t oget her wit h full-elect ric vehicles t hat consume no oil at all direct ly, account for a growing share of light -dut y vehicle sales. In t he New Policies Scenario, t hese new vehicle t echnologies collect ively account for 6% of new passenger vehicle sales by 2020 and 19% by 2035, t he bulk of which are hybrids (Figure 3.6).

Million

Figure 3.6 z Passenger light-duty vehicle sales by type in the New Policies Scenario 150

Elect ric Plug-in hybrid

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© OECD/ IEA - 2010

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The combinat ion of more efficient convent ional vehicles and t he growing cont ribut ion of new vehicle t echnologies result s in a drop in t he average fuel consumpt ion of new light -dut y vehicles sold worldwide from 9.7 lit res/ 100 kilomet res (km) of fuel in 2009 t o 7.6 lit res/ 100 km in 2020 and 6.7 lit res/ 100 km in 2035 (Figure 3.7). The improvement in fuel economy is great est in t he period t o 2015, mainly as a result of st ringent new government measures t hat are assumed t o be int roduced and t he relat ively rapid 108

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

increase in oil prices. In t he period t o 2020, t he improved efficiency of convent ional cars is t he main driver. Thereaft er, hybrid and, t o a lesser ext ent , plug-in hybrid cars play an increasingly import ant role. A significant part of t he pot ent ial efficiency gains from convent ional cars is exploit ed wit hin t he first half of t he proj ect ion period. It is possible t o reduce t he fuel consumpt ion of a convent ional int ernal combust ion engine vehicle of medium size on average worldwide by about 40% wit hin t he next t wo decades, compared wit h t he year 2000 (IEA, 2009). Beyond t his, t he only way t hat average vehicle fuel efficiency can be furt her reduced significant ly wit hout reducing t he size of t he vehicle is t hrough t he deployment of alt ernat ive t echnologies.

Lit res per 100 kilomet res

Figure 3.7 z Average fuel economy of new passenger light-duty vehicle sales by region in the New Policies Scenario 13

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The net result of t he proj ect ed t rends in vehicle ownership, fuel economy and t echnology is a rise in per-capit a oil use for road t ransport at ion in all non-OECD regions and a fall in all t hree OECD regions in each scenario. Yet average per-capit a demand remains much lower in t he non-OECD by 2035, mainly because incomes and, t herefore, vehicle ownership rat es remain significant ly lower. In t he New Policies Scenario, percapit a road-t ransport -relat ed oil demand is on average four t imes higher in t he OECD t han in non-OECD regions by t he end of t he Out look period, down from seven t imes in 2009 (Figure 3.8). Given t he limit at ions on furt her improving t he efficiency of convent ional vehicles, how quickly new vehicle t echnologies penet rat e t he car market will have a maj or impact on oil demand for road t ransport . The pump price of oil-based fuels and advances in alt ernat ive vehicle t echnologies t o lower t heir cost and improve t heir operat ional performance are t he main fact ors. For now, alt ernat ive t echnologies are st ruggling t o compet e on cost , which is holding back t heir deployment . However, a relat ively modest but sust ained rise in t he price of oil-based fuels and/ or a drop in t he cost of t hese new t echnologies could make t hem at t ract ive t o end users and lead t o rapid growt h in t heir upt ake. In t he Unit ed St at es, for example, low fuel t axes and, hence, low pump prices mean t hat convent ional hybrids pay back t heir much higher purchase cost t o mot orist s only aft er 120 000 km at 2009 fuel prices (Figure 3.9). At an average of 20 000 km per Chapter 3 - Oil market outlook

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year, t he payback period is t herefore around six years — far t oo high t o persuade most mot orist s t o opt for t his t ype of vehicle. However, a 30%fall in t he difference in t he cost of buying a hybrid would cut t he payback period t o four years, increasing significant ly t he at t ract iveness of such a car t o mot orist s.

Figure 3.8 z Road transportation per-capita oil consumption by region in the New Policies Scenario World

2009

OECD Nort h America

2035

Middle East OECD Europe OECD Pacific E. Europe/ Eurasia China Lat in America Ot her Asia India Africa 0

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Figure 3.9 z Comparative running cost of conventional and hybrid light-duty vehicles in the United States 32

Gasoline ICE vehicle t oday

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© OECD/ IEA - 2010

Not e: Assumes vehicle life of 15 years and average 2009 gasoline price of $0.65 per lit re ($2.46 per US gallon). ICE is int ernal combust ion engine.

Pump prices of gasoline and diesel vary enormously across count ries, because of differences in t ax rat es and — in some count ries — subsidies (see Part E). There are also differences in t he relat ive prices of hybrids and convent ional cars. These fact ors result in a big variat ion in t he at t ract iveness t o mot orist s of buying hybrids t oday. The payback period is current ly short est in Germany and France, where fuel t axes are 110

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

highest (Figure 3.10). In China, t he payback period is relat ively long, at close t o eight years (assuming average mileage t here of 9 000 km a year). Yet even t he quickest paybacks are t oo long t o appeal t o most mot orist s. In pract ice, t here are many ot her fact ors t hat come int o play in det ermining a mot orist ’ s decisions about which car t o buy, so t hat t he payback period on a more efficient car t ypically has t o be very short t o swing t he decision. But higher fuel prices and lower purchase cost s would reduce t he payback period and great ly increase t he appeal of hybrids. For example, an increase in int ernat ional oil prices of one-t hird would reduce t he payback period of a hybrid in China from about eight t o seven years; a 30%drop in t he premium for a hybrid car over a convent ional car would cut t he payback period t o slight ly less t han six years. Achieving cost -compet it iveness for ot her alt ernat ive vehicle opt ions, such as plug-in hybrids and elect ric cars, is likely t o require more t han j ust higher oil prices. Despit e t he current st rong moment um t owards deployment of t hese vehicles, a number of issues t hat raise doubt s about t heir long-t erm viabilit y remain open. Technical aspect s would need t o be addressed for global mass manufact uring of elect ric cars, such as st andardisat ion of bat t eries and differences in volt age by count ry, and, even t hen, it is unclear whet her consumers would be prepared for t he prospect ive limit at ions on driving range and t he lengt h of t he necessary recharging t ime. It is not likely t hat high oil prices alone will suffice t o creat e a global market for elect ric cars; policy int ervent ion will probably be required t oo. In light of all t hese fact ors, we conservat ively proj ect t hat elect ric cars and plug-in hybrids account for only 2.6% of car sales by 2035 in t he New Policies Scenario.

Figure 3.10 z Payback period for hybrid light-duty vehicles in selected countries at current costs 2009

Germany

Assuming hybrid vehicle price premium is reduced 30% compared wit h a convent ional vehicle

France Unit ed Kingdom

Assuming an oil price of $100 per barrel

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© OECD/ IEA - 2010

Years

There is also considerable scope for reducing t he amount of oil-based fuels used in road freight — a maj or cont ribut or t o t he growt h of road-t ransport oil demand in non-OECD count ries — t hrough more efficient vehicles and t he use of alt ernat ive fuels. Medium and heavy freight t raffic, is responsible for 30% of all t ransport oil demand worldwide t oday and t his share is proj ect ed t o increase t o 35% by 2035 (Figure 3.4, above). One Chapter 3 - Oil market outlook

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uncert aint y for road-freight oil use is t he out look for compressed nat ural gas as a fuel, which could displace diesel. The recent fall in gas prices relat ive t o oil prices, especially in Nort h America, has led t o great er int erest in promot ing compressed nat ural gas (CNG) as a road fuel for fleet vehicles, including lorries, t rucks and buses, as a way of reducing cost s, improving energy securit y and reducing emissions of local pollut ant s and, t o a limit ed degree, greenhouse gases. CNG already makes a significant cont ribut ion t o meet ing road-t ransport fuel needs in several count ries, not ably in Pakist an and Argent ina, but in most maj or economies CNG use is marginal. This could change, especially if gas prices remain low relat ive t o oil prices. However, t here are maj or barriers t o t he expansion of nat ural gas use, including t he cost and pract icalit ies of on-board fuel st orage, t he cost of inst alling t he infrast ruct ure for delivering and dist ribut ing t he fuel at exist ing refuelling st at ions and t he risk t hat prices might move against gas in t he fut ure. 3 Nonet heless, t he prospect s — especially as a fuel for fleet vehicles (as t he infrast ruct ure cost s are lower) — have cert ainly improved in recent years. In t he New Policies Scenario, CNG use worldwide more t han t riples bet ween 2009 and 2035, from almost 20 billion cubic met res (bcm) t o over 60 bcm. The amount of oil saved as a result increases from about 300 t housand barrels per day (kb/ d) t o over 1 mb/ d. Most of t he increase in oil savings comes from non-OECD count ries, but Nort h America, where wholesale gas prices are lowest , makes a significant cont ribut ion (Figure 3.11). By 2035, around 4% of t he heavy-dut y vehicle fleet in Nort h America runs on CNG — up from almost nil t oday. Oil savings could be much great er; if CNG t ook a 5% share of t he global freight vehicle fleet by 2035, compared wit h 1.5% in t he New Policies Scenario, oil consumpt ion would be reduced by a furt her 0.6 mb/ d.

Figure 3.11 z Oil savings from use of natural gas in road transport by region in the New Policies Scenario Lat in America

2009

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2035

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© OECD/ IEA - 2010

mb/ d

Anot her import ant fact or in t he fut ure oil demand increase is t he rat e of growt h of fuel use in t he aviat ion sect or. Combined, j et fuel and aviat ion gasoline demand grew at 3. See, for example, IEA (2010a) and Box 10.1 in IEA (2009).

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a similar pace as t ot al oil demand in t ransport bet ween 1980 and 2009, a st eady 2.1% per year, making up 12% of all t ransport oil demand in 2009. This share is proj ect ed t o increase over t he proj ect ion period t o 14%by 2035 in t he New Policies Scenario, mainly driven by non-OECD count ries. The largest single cont ribut or t o growt h in aviat ion oil demand is China, where demand is proj ect ed t o expand by 2.6%per year (Figure 3.12). In t he OECD, t he aviat ion sect or is t he only maj or sect or t hat sees any significant growt h in oil demand. Government measures aimed at curbing aviat ion-fuel demand have been limit ed t o dat e, in sharp cont rast t o t he act ion t aken in t he road-t ransport sect or. The inclusion of aviat ion t o t he EU Emission Trading Scheme from 2012 is one of t he few policy act ions undert aken. However, t he indust ry it self has made significant effort s t o reduce fuel use, t hrough operat ional changes and invest ment s in more efficient aircraft .

Mt oe

Figure 3.12 z Aviation oil consumption by region in the New Policies Scenario 400

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There is lit t le prospect of any significant long-t erm increase in oil demand in nont ransport uses, as oil is expect ed t o lose market share t o coal, gas and ot her fuels. Globally, t he use of oil in ot her sect ors in aggregat e remains flat over t he proj ect ion period in t he New Policies Scenario, at around 39 mb/ d; an increase in non-OECD count ries (mainly in t he indust ry, resident ial and services sect ors, and as a feedst ock in t he pet rochemical indust ry) is more t han out weighed by a drop in OECD demand (reflect ing energy efficiency gains and some swit ching t o gas in buildings). Oil use in power generat ion falls in every region bar t he Middle East .

Production

© OECD/ IEA - 2010

Resources and reserves According t o t he Oil and Gas Journal ( O&GJ, 2009) , proven reserves of oil worldwide at t he end of 2009 amount ed t o 1 354 billion barrels — a marginally higher volume t han est imat ed a year earlier and t he highest level ever at t ained (see Box 3.1 for definit ions). Reserves have more t han doubled since 1980 and have increased by onet hird over t he last decade. Half of t he increase since 2000 is due t o Canadian oil sands reserves; most of t he remainder is due t o revisions in OPEC count ries, part icularly in Chapter 3 - Oil market outlook

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Iran, Venezuela and Qat ar. There are cont inuing quest ion-marks over t he est imat es for some OPEC count ries and t heir comparabilit y wit h t he figures for ot her count ries. 4 Not wit hst anding t hese uncert aint ies, OPEC count ries account for about 70% of t he world t ot al reserves, wit h Saudi Arabia holding t he largest volume (Figure 3.13).

Figure 3.13 z Proven oil reserves in the top 15 countries, end-2009 Years 0

25

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Brazil Unit ed St at es China Qat ar Kazakhst an Nigeria Libya Russia UAE Venezuela Kuwait Iraq Iran Canada Saudi Arabia

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*See foot not e 5 on reserves t o product ion (R/ P) rat ios. Sources: Proven reserves — O&GJ (2009); product ion — IEA dat abases.

Box 3.1 z Defining and measuring oil and gas reserves and resources In t he WEO, we use t he following definit ions, drawing on t he Pet roleum Resources Management Syst em (SPE, 2007) and US Geological Survey (USGS, 2000):

z A proven reserve (or 1P reserve) is t he volume of oil or gas t hat has been

discovered and for which t here is a 90% probabilit y t hat it can be ext ract ed profit ably on t he basis of prevailing assumpt ions about cost , geology, t echnology, market abilit y and fut ure prices.

z A proven and probable reserve (or 2P reserve) includes addit ional volumes

t hat are t hought t o exist in accumulat ions t hat have been discovered and have a 50% probabilit y t hat t hey can be produced profit ably.

z Reserves growth refers t o t he t ypical increases in 2P reserves t hat occur as oil

or gas fields t hat have already been discovered are developed and produced.

© OECD/ IEA - 2010

z Ultimately recoverable resources are lat est est imat es of t he t ot al volume of

hydrocarbons t hat are j udged likely t o be ult imat ely producible commercially, including init ial 1P reserves, reserves growt h and as yet undiscovered resources.

4. Our modelling of oil supply is based on recoverable resources rat her t han proven reserves (see Box 3.3).

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World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

z Remaining recoverable resources are ult imat ely recoverable resources less

cumulat ive product ion t o dat e.

z Oil originally in place refers t o t he t ot al amount of oil or gas cont ained in a

reservoir before product ion begins.

z The recovery factor is t he share of t he oil or gas originally in place t hat

is ult imat ely recoverable ( i.e. ult imat ely recoverable resources/ original hydrocarbons in place). Definit ions of reserves and resources, and t he met hodologies for est imat ing t hem, vary considerably around t he world, leading t o confusion and inconsist encies. In addit ion, t here is oft en a lack of t ransparency in t he way reserves are report ed: many nat ional oil companies in bot h OPEC and non-OPEC count ries do not use ext ernal audit ors of reserves and do not publish det ailed result s. OPEC figures of proven reserves may be more comparable t o figures of proven and probable reserves in ot her part s of t he world. The IEA cont inues t o work wit h t he UN Economic Commission for Europe, t he Societ y of Pet roleum Engineers and ot her organisat ions on harmonising t he way reserves and resources are defined and est imat ed in order t o provide a clearer pict ure of how much oil and gas remains t o be produced. In 2009, t he US Securit ies and Exchange Commission (SEC) int roduced updat ed guidelines for evaluat ing oil and gas reserves t o t ake account of recent t echnological and market development s. US-quot ed companies are now able t o use seismic and numerical modelling t echniques and dat a from down-hole t ools in est imat ing reserves. They can now use an average 12-mont h price t o value reserves, rat her t han t he year-end price, and can provide sensit ivit y analyses of reserves est imat es, using different price out looks. The SEC also now permit s companies t o report probable and possible reserves, as well as proven reserves. Producers can now also report reserves of unconvent ional oil. The aim of t hese changes is t o provide a bet t er insight int o t he report ing companies’ long-t erm product ion pot ent ial.

© OECD/ IEA - 2010

The bulk of proven reserves, which include all t ypes of oil (Box 3.2), are convent ional: t he only significant volumes of unconvent ional oil included in t he figure from O&GJ for end-2009 are an official est imat e of 170 billion barrels for Canadian oil sands reserves, of which some 16% are current ly “ under act ive development ” . Globally, convent ional and unconvent ional reserves combined are equal t o about 46 years of current product ion. The reserves t o product ion rat io5 has increased in t he last t wo years as a result of t he recession-induced drop in demand for oil and cont inuing modest increases in reserves. 5. R/ P rat ios are commonly used in t he oil and gas indust ry as indicat ors of product ion pot ent ial, but do not imply cont inuous out put for a cert ain number of years, nor t hat oil product ion will st op at t he end of t he period. They can fl uct uat e over t ime as new discoveries are made, reserves at exist ing fi elds are reappraised, and t echnology and product ion rat es change.

Chapter 3 - Oil market outlook

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Box 3.2 z Definitions of different types of oil in theWEO For t he purposes of t his chapt er (and Chapt er 4), t he following definit ions are used:

z Oil comprises crude, nat ural gas liquids, condensat es and unconvent ional oil,

but does not include biofuels (for t he sake of complet eness and t o facilit at e comparisons, relevant biofuels quant it ies are separat ely ment ioned in some sect ions and t ables).

z Crude makes up t he bulk of oil produced t oday; it is a mixt ure of hydrocarbons

t hat exist in liquid phase under normal surface condit ions. It includes condensat es t hat are mixed-in wit h commercial crude oil st reams.

z Nat ural gas liquids (NGLs) are light hydrocarbons t hat are cont ained in

associat ed or non-associat ed nat ural gas in a hydrocarbon reservoir and are produced wit hin a gas st ream. They comprise et hane, propane, but ane, isobut ene, pent ane-plus and condensat es. 6

z Condensat es are light liquid hydrocarbons recovered from associat ed or non-

associat ed gas reservoirs. They are composed mainly of pent ane (C5) and higher carbon number hydrocarbons. They normally have an API gravit y of bet ween 50° and 85°.

z Convent ional oil includes crude and NGLs.

z Unconvent ional oil includes ext ra-heavy oil, nat ural bit umen (oil sands),

oil shale, gas-t o-liquids (GTL), coal-t o-liquids (CTL) and addit ives (see Chapt er 4).

z Biofuels are liquid fuels derived from biomass, including et hanol and biodiesel

© OECD/ IEA - 2010

(see Chapt er 12).

Almost half of t he increase in proven reserves in recent years has come f rom revisions t o est imat es of reserves in f ields already in product ion, rat her t han new discoveries. Alt hough discoveries have picked up in recent years wit h increased explorat ion act ivit y (prompt ed by higher oil prices), t hey cont inue t o lag product ion by a considerable margin: in 2000-2009, discoveries replaced only one out of every t wo barrels produced — slight ly less t han in t he 1990s (even t hough t he amount of oil f ound increased marginally) — t he reverse of what happened in t he 1960s and 1970s, when discoveries f ar exceeded product ion (Figure 3. 14). The cont ribut ion of of f shore discoveries, including deepwat er, has increased signif icant ly since t he early 1990s. Since 2000, more t han half of all t he oil t hat has been discovered is in deep wat er. Alt hough some giant f ields have been f ound, t he average size of f ields being discovered has cont inued t o f all. The New Policies Scenario requires average annual development of 9 billion barrels of new discoveries f rom 2015 onwards (see t he sect ion on oil product ion prospect s below).

6. See IEA (2010c) for a det ailed analysis of t he medium-t erm prospect s for NGLs.

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World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

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Figure 3.14 z Conventional oil discoveries and production worldwide Discoveries Product ion Average size of discovered fields (right axis)

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© OECD/ IEA - 2010

The volume of ult imat ely recoverable resources, comprising proven and probable reserves, plus oil t hat is yet t o be discovered and addit ional volumes of oil in exist ing fields t hat could be “ proven up” in t he fut ure, is est imat ed t o be much bigger t han proven reserves. Yet t here is uncert aint y about t his figure and, t herefore, about j ust how much oil remains t o be produced. The main uncert aint ies lie in est imat ing how much oil was originally in place in t he world and in evaluat ing how much of t his resource can be recovered profit ably (t he recovery fact or). The lat t er is heavily influenced by fut ure t rends in oil prices and oilfield development cost s, which will hinge on assumpt ions about t echnology and t he underlying cost of various input s t o oil product ion, as well as geological considerat ions. The leading source of est imat es of ult imat ely recoverable resources of convent ional crude oil and NGLs is t he US Geological Survey (USGS). It last carried out a maj or assessment of global resources in 2000, but has carried out part ial updat es covering specific basins since t hen, including a maj or reassessment of t he Arct ic region in 2008 (USGS, 2008). Based on t hose assessment s, we est imat e t hat around 2.5 t rillion barrels of convent ional oil remain t o be produced worldwide as of t he beginning of 2010, t aking account of cumulat ive product ion t o dat e and mean est imat es of ult imat ely recoverable resources. Of t his t ot al, 900 billion barrels are in deposit s t hat are yet t o be found. At t he st art of 2010, t he proport ion of remaining recoverable resources classified as proven reserves varied widely across regions: proven reserves account ed for 68% of remaining recoverable resources in t he Middle East , but only 17% in Nort h America. As wit h reserves, t he bulk of t he remaining resources are in t he Middle East and t he former Soviet Union count ries (Figure 3.15). In t he New Policies Scenario, around half of t he convent ional resources are produced by 2035, but t he share reaches 61%for non-OPEC count ries as a group compared wit h only 47%for OPEC. By end-2009, only 32% of global ult imat ely recoverable resources had been produced. However, t hese est imat es do not include unconvent ional resources — oil sands, ext ra-heavy oil and oil shales. The size of t hese resources is uncert ain, as t hey have been st udied much less t han convent ional resources, but t hey are cert ainly very large; pot ent ially around 2 t o 3 t rillion barrels of unconvent ional oil may be economically recoverable. Chapter 3 - Oil market outlook

117

3

Figure 3.15 z Proven reserves, recoverable resources and production of conventional oil by region in the New Policies Scenario Billion barrels 0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000 Cumulat ive product ion, end-2009

OPEC Non-OPEC

Cumulat ive product ion, end-2035

World

Proven reserves, end-2009 OECD Europe Ot her remaining recoverable resources

Asia/ Pacific Lat in America Africa Nort h America E. Europe/ Eurasia Middle East 0

200

400

600

800

1 000

1 200

1 400

1 600

Billion barrels Sources: BGR (2009); O& GJ (2009); USGS (2000 and 2008) and informat ion provided by t he USGS direct ly t o t he IEA; IEA est imat es and analysis.

Oil production prospects

© OECD/ IEA - 2010

Oil supply follows t he same t raj ect ory as demand in each of t he t hree scenarios, t hough product ion of oil (crude, NGLs and unconvent ional oil) rises marginally less t han overall supply, due t o increasing processing gains. 7 In t he New Policies Scenario, t ot al oil product ion reaches 96 mb/ d by 2035 (Table 3.3). In t he Current Policies Scenario, product ion cont inues t o expand t hrough t o 2035, t hough t he pace slows over t he second half of t he proj ect ion period. In t he 450 Scenario, product ion peaks before 2020 and t hen declines st eadily t o 2035. The breakdown of product ion bet ween OPEC and non-OPEC, and bet ween convent ional and unconvent ional oil differs across t he t hree scenarios. The share of OPEC in overall product ion by t he end of t he proj ect ion period is highest in t he 450 Scenario, at more t han 53%, as lower oil prices inhibit invest ment 7. Oil refi ning involves t he upgrading of heavy oil int o light er product s, which reduces t heir densit y and gives rise t o an increase in volume for a given amount of energy cont ent . Processing gains as a share of overall supply increase slight ly in all t hree scenarios as a result of more upgrading of oil feedst ocks in response t o t he shift in demand t owards light er product s such as diesel and gasoline.

118

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

in high-cost resources, mainly in non-OPEC count ries. The share of unconvent ional oil is highest in t he Current Policies Scenario, as higher oil prices st imulat e more invest ment in developing t hose higher-cost resources.

Table 3.3 z Oil production and supply by source and scenario (mb/d) New Policies Scenario

Current Policies Scenario

3

450 Scenario

1980

2009

2020

2035

2020

2035

2020

2035

OPEC

25.5

33.4

40.5

49.9

41.9

54.2

40.1

41.7

Crude oil

24.7

28.3

30.9

35.8

32.0

38.6

31.4

31.8

0.9

4.6

8.0

11.1

8.2

12.3

7.1

7.6

Nat ural gas liquids Unconvent ional

0.0

0.5

1.6

3.0

1.7

3.2

1.6

2.3

Non-OPEC

37.1

47.7

48.2

46.1

48.9

49.9

45.1

36.7

Crude oil

25.9

34.1

39.6

37.6

32.8

38.2

35.0

35.1

Nat ural gas liquids

2.8

6.2

6.8

6.8

6.9

7.1

6.5

5.7

Unconvent ional

0.2

1.8

3.7

6.5

3.9

7.8

3.4

5.1

World production

62.6

81.0

88.7

96.0

90.8

104.1

85.2

78.5

Crude oil

58.8

67.9

68.5

68.5

70.1

73.6

66.5

57.7

Nat ural gas liquids

3.7

10.8

14.8

17.9

15.1

19.5

13.6

13.3

Unconvent ional

0.2

2.3

5.4

9.5

5.5

11.0

5.0

7.4

Processing gains

1.2

2.3

2.6

3.0

2.7

3.3

2.5

2.5

World supply

63.8

83.3

91.3

99.0

93.5

107.4

87.7

81.0

World liquids supply*

63.9

84.4

93.6

103.4

95.7

110.9

90.3

89.1

*Includes biofuels (see Chapt er 12 for det ails of biofuels proj ect ions).

© OECD/ IEA - 2010

There is also a marked difference in t he profile of crude oil product ion across t he t hree scenarios, wit h global out put rising in t he Current Policies Scenario t o 74 mb/ d by 2035, but reaching a plat eau by 2020 in t he New Policies Scenario (Figure 3.16). The increase in product ion in t he former scenario comes wit h t he higher prices t hat are needed t o bring fort h more invest ment in product ive capacit y. Slower global demand growt h and lower prices in t he New Policies Scenario mean t hat crude oil resources can be developed in a st eadier fashion, keeping crude oil product ion in t hat scenario at a plat eau of around 68-69 mb/ d from 2015 (marginally below t he all-t ime peak of about 70 mb/ d reached in 2006). In t he 450 Scenario, t he st rong greenhouse-gas emissionsreduct ion policies assumed quickly send oil demand growt h int o reverse, causing prices t o level off, result ing in less invest ment in convent ional oilfields, a marginal drop in oil out put t o 2020 and accelerat ing decline t hereaft er (see Chapt er 15). Overall, worldwide product ion of bot h NGLs and unconvent ional oil increases much more t han crude oil bet ween 2009 and 2035 (Figure 3.17). The increase in out put of all t hree t ypes of oil is highest , unsurprisingly, in t he Current Policies Scenario and lowest in t he 450 Scenario. Conversely, t he increase in product ion of biofuels (not included in our definit ion of oil —see Box 3.3) is highest in t he 450 Scenario, adding more t o liquids supply t han any of t he ot her sources. Chapter 3 - Oil market outlook

119

mb/ d

Figure 3.16 z World crude oil production by scenario 75

Current Policies Scenario

70

New Policies Scenario

65

450 Scenario

60 55 50 1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

Figure 3.17 z Change in world oil and biofuels production by scenario, 2009-2035 Crude oil Current Policies Scenario

Nat ural gas liquids Unconvent ional oil Biofuels

New Policies Scenario

450 Scenario

–12

–9

–6

–3

0

3

6

9

© OECD/ IEA - 2010

mb/ d

In t he New Policies Scenario, non-OPEC product ion in t ot al peaks bef ore 2015 at around 48 mb/ d and t hen begins t o decline, f alling t o 46 mb/ d by t he end of t he proj ect ion period (Figure 3. 18). Convent ional oil product ion goes int o decline bef ore 2015 but , unt il around 2025, t his decline is of f set by rising unconvent ional product ion — chief ly oil sands in Canada, supplement ed by about 500 kb/ d of oil f rom coal-t o-liquids (in China, Sout h Af rica and t he Unit ed St at es), gas-t o-liquids and oil shales. OPEC oil product ion, by cont rast , cont inues t o grow t hroughout t he proj ect ion period, on t he assumpt ion t hat t he requisit e invest ment is f ort hcoming. OPEC share of world product ion rises f rom 41% in 2009 t o 52% in 2035. The shares of NGLs and unconvent ional oil in world product ion also grow markedly over t he proj ect ion period. 120

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Box 3.3 z Enhancements to the oil-supply model for WEO-2010 The IEA oil supply model has been improved for t his year’ s Out look, t o allow for more complex modelling of global supply scenarios, wit h more det ailed assumpt ions per count ry and resource cat egory. This modelling includes simulat ing t he impact of different assumpt ions about resource endowment and accessibilit y, oil prices, cost s (finding and development and lift ing), fiscal t erms and invest ment risks, logist ical const raint s on t he pace of resource explorat ion and development , product ion profiles and decline rat es, carbon emission regulat ions and CO2 prices, and t echnological development s. The model proj ect s supply, invest ment in explorat ion and product ion, and company and government revenues by count ry/ region and by resource cat egory. The proj ect ions are underpinned by current field product ion profiles and decline rat es, drawing on t he det ailed result s of t he field-by-field analysis of WEO-2008 (IEA, 2008), and t ake int o account specific near-t erm proj ect development plans (IEA, 2010b). OPEC product ion proj ect ions t ake int o account st at ed policies on resource deplet ion and invest ment .

mb/ d

Figure 3.18 z World oil production by source in the New Policies Scenario 100

OPEC: unconvent ional oil OPEC: nat ural gas liquids

80

OPEC: crude oil

60

Non-OPEC: unconvent ional oil

40

Non-OPEC: nat ural gas liquids Non-OPEC: crude oil

20

© OECD/ IEA - 2010

0 1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

Alt hough global oil product ion in t he New Policies Scenario increases by only 15 mb/ d bet ween 2009 and 2035, t he need for new capacit y is much larger because of t he need t o compensat e for t he decline in product ion at exist ing fields as t hey pass t heir peak and flow-rat es begin t o drop. Crude oil out put from t hose fields t hat were in product ion in 2009 drops from 68 mb/ d in 2009 t o 16 mb/ d by 2035, a fall of t hree-quart ers (Figure 3.19). This proj ect ion t akes account of t he build-up and decline rat es of different t ypes of fields in each region, drawing on t he det ailed field-by-field analysis carried out in 2008 (IEA, 2008). On average, t he product ion-weight ed rat e of decline in product ion year-on-year accelerat es t hrough t he proj ect ion period, as more and more fields pass t heir peak and ent er t heir decline phase and as t he share of smaller and offshore fields, wit h higher decline rat es, grows. By 2035, aggregat e out put from fields already in Chapter 3 - Oil market outlook

121

3

product ion in 2009 is declining at a rat e of 8.3% per year. 8 We calculat e t hat , over t he Out look period, t here is a need t o add a t ot al of 67 mb/ d of gross capacit y in order t o compensat e for t he decline at exist ing convent ional oilfields and t o meet t he growt h in demand. The gross new capacit y required by 2020 is 28 mb/ d. Just under 60% of t he crude oil produced from new fields in 2035 is from fields t hat have already been found, most of which are in OPEC count ries. The bulk of t he oil t hat is produced in 2035 from new fields t hat are yet t o be found is in non-OPEC count ries, largely in deep wat er.

mb/ d

Figure 3.19 z World oil production by type in the New Policies Scenario 100

Unconvent ional oil Nat ural gas liquids

80

Crude oil: fields yet t o be found

60

Crude oil: fields yet t o be developed

40

Crude oil: current ly producing fields

20 0 1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

© OECD/ IEA - 2010

As not ed above, slight ly more t han half of t he world’ s ult imat ely recoverable resources of convent ional oil are produced by t he end of t he proj ect ion period in t he New Policies Scenario (see Figure 3.15, above). Cumulat ive product ion reaches 1.9 t rillion barrels by t he end of 2035, up from 1.1 t rillion barrels at end-2009. The share of unconvent ional oil resources t hat are produced by 2035 is much lower, at less t han 3% (based on a conservat ive est imat e of 1.9 t rillion barrels). The size of ult imat ely recoverable resources of bot h convent ional and unconvent ional oil is obviously crucial in det ermining how soon global oil product ion peaks and at what level. However, t he est imat e of t heir size inevit ably changes over t ime, as advances in t echnology open up new sources or areas of product ion and lower t heir cost of development , shift ing more of t he oil originally in place worldwide int o t he cat egory of recoverable resources (see t he Spot light ). Higher prices —as we assume in all t hree scenarios in t his Out look — would also effect ively increase t he recovery fact or. Non-OPEC product ion is part icularly sensit ive t o t he est imat ed size of convent ional resources, as t here are fewer const raint s on t he development of t hose resources. In order t o t est t he sensit ivit y of t he level of product ion in non-OPEC count ries t o t he level of ult imat ely recoverable resources, we have modelled t he impact of bot h higher and lower levels of convent ional oil resources, based broadly on t he upper and lower bounds est imat ed by t he USGS (corresponding t o 5% and 95% probabilit y) and rest rict ions on resource access, part icularly for volumes in environment ally sensit ive areas, deep wat er and t he Arct ic (Figure 3.20). In t he New Policies Scenario, t he lower 8. This t akes account of enhanced oil recovery proj ect s t hat are implement ed at current ly producing fi elds.

122

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

resource case would lead t o a much fast er decline in non-OPEC product ion compared wit h t he mean case, wit h product ion falling a furt her 6 mb/ d by 2035. Assuming unchanged supplies of NGLs and unconvent ional oil, t his would increase t he call on OPEC oil by t he same amount . In realit y, it is far from cert ain t hat OPEC would be willing or able t o produce t his much oil wit hin t his t imeframe. Were OPEC producers unwilling or unable t o make up t he difference, oil prices would rise, st imulat ing more invest ment in unconvent ional non-OPEC supplies and choking off demand.

50

High resources case

40

New Policies Scenario

30

Low resources case

Change in product ion in 2035 5

20

0 –5

10

–10 0 1990

1995

2000

2005

mb/ d

mb/ d

Figure 3.20 z Sensitivity of non-OPEC crude oil production to ultimately recoverable resources

2010

2015

2020

2025

2030

2035

© OECD/ IEA - 2010

Offshore fields are expect ed t o account for a slight ly growing share of crude oil product ion, especially during t he first half of t he proj ect ion period, when a number of new deepwat er proj ect s are brought online in non-OPEC count ries (Figure 3.21). In t he long t erm, t he offshore share levels off, as large new increment s t o onshore product ion in t he Middle East play an increasingly import ant role. In aggregat e, worldwide crude oil product ion from offshore fields rises marginally, from 21.6 mb/ d in 2009 t o a peak of 23 mb/ d by 2025, falling back slight ly by 2035 in t he New Policies Scenario. Their share in world crude oil product ion rises from 32%in 2009 t o 34%in 2025 and t hen drops back t o 33%in 2035. The cont ribut ion from deepwat er fields (at dept hs of more t han 400 met res) rises from around 5 mb/ d in 2009 t o nearly 9 mb/ d in 2035. In non-OPEC count ries, t he share of offshore fields in t ot al crude oil product ion rises from j ust over one-t hird t o almost half. NGLs account for almost half of t he increase in overall global oil product ion bet ween 2009 and 2035 in t he New Policies Scenario, t heir out put rising from 10.8 mb/ d t o nearly 18 mb/ d (Table 3.4). Product ion increases part icularly sharply in t he near t erm, j umping by more t han one-quart er already by 2015, as a result of a number of maj or gas proj ect s coming on st ream. The st rong rise in nat ural gas product ion, part icularly in t he Middle East , where gas generally has higher liquids cont ent t han in most ot her regions, is t he main driver, but ot her fact ors, including reduced flaring, which will make available more associat ed gas (which t ends t o be relat ively wet ), and t he increasing wet ness of gas reservoirs now being developed in ot her areas helps boost NGLs supplies. These fact ors more t han offset t he proj ect ed increase in t he share of non-associat ed gas in t ot al product ion (Figure 3.22). Chapter 3 - Oil market outlook

123

3

mb/ d

Figure 3.21 z World crude oil production by physiographical location in the New Policies Scenario 80

Deepwat er: OPEC

70

Deepwat er: non-OPEC

60

Shallow wat er: OPEC

50

Shallow wat er: non-OPEC Onshore: OPEC

40

Onshore: non-OPEC

30 20 10 0 2005

2009

2015

2020

2025

2030

2035

Table 3.4 z Natural gas liquids production by region in the New Policies Scenario (mb/d) 1980

2009

2015

2020

2025

2030

2035

20092035*

OPEC Middle East Ot her

0.9 0.5 0.3

4.6 3.3 1.3

7.1 5.4 1.6

8.0 5.8 2.3

9.0 6.1 2.8

10.1 6.8 3.3

11.1 7.3 3.8

3.5% 3.1% 4.3 %

Non-OPEC Nort h America Europe Pacific E. Europe/ Eurasia Asia Middle East Africa Lat in America

2.8 2.2 0.1 0.1 0.2 0.1 0.0 0.0 0.0

6.2 2.9 0.7 0.1 1.1 0.7 0.2 0.3 0.3

6.6 2.7 0.7 0.1 1.4 0.8 0.2 0.3 0.4

6.8 2.7 0.7 0.1 1.5 0.9 0.2 0.3 0.5

6.9 2.6 0.7 0.1 1.6 0.8 0.2 0.3 0.5

6.9 2.5 0.7 0.1 1.7 0.8 0.2 0.3 0.5

6.8 2.4 0.7 0.2 1.8 0.8 0.2 0.2 0.5

0.3% -0.7% 0.0% 2.0% 1.9% 0.7% 1.1% -1.0% 1.8%

World

3.7

10.8

13.7

14.8

15.9

17.0

17.9

2.0%

*Compound average annual rat e of growt h.

Figure 3.22 z Drivers of natural gas liquids production Declining share of associat ed gas (which t ends t o be wet t er) in world gas product ion

© OECD/ IEA - 2010

Increasing share of unconvent ional gas, which t ends t o have lower liquids cont ent

Growt h in nat ural gas supply wit h large development s ongoing Increasing share of associat ed gas is being market ed (t hrough reduced flaring) Increasing wet ness of non-associat ed gas

124

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

SP O T L I G H T

Peak oil revisited: is the beginning of the end of the oil era in sight? Public debat e about t he fut ure of oil t ends t o focus on when convent ional crude oil product ion is likely t o peak and how quickly it will decline as resource deplet ion passes a cert ain point . Those who argue t hat an oil peak is imminent base t heir argument s largely on t he indisput able fact t hat t he resource base is finit e. It is held t hat once we have deplet ed half of all t he oil t hat can ever be recovered, t echnically and economically, product ion will ent er a period of long-t erm decline. What is oft en missing from t he debat e is t he ot her side of t he st ory — demand —and t he key variable in t he middle —price. How much capacit y is available t o produce oil at any given moment depends on past invest ment . Decisions by oil companies on how much and where t o invest are influenced by a host of fact ors, but one of t he most import ant is price (at least relat ive t o cost ). And price is ult imat ely t he result of t he balance bet ween demand and supply (set t ing aside short -t erm fluct uat ions t hat may have as much t o do wit h financial market s t han wit h oil-market fundament als). In short , if demand rises relat ive t o supply capacit y, prices t ypically rise, bringing fort h more invest ment and an expansion of capacit y, albeit usually wit h a lag of several years.

© OECD/ IEA - 2010

Anot her misconcept ion is t hat t he amount of recoverable oil is fixed. The amount of oil t hat was ever in t he ground — oil originally in place, t o use t he indust ry t erm — cert ainly is a fixed quant it y, but we have only a fairly vague not ion of j ust how big t hat number is. But , crit ically, how much of t hat volume will event ually prove t o be recoverable is also uncert ain, as it depends on t echnology, which will cert ainly improve, and price, which is likely t o rise: t he higher t he price, t he more oil can be recovered profit ably. An increase of j ust 1% in t he average recovery fact or at exist ing fields would add more t han 80 billion barrels t o recoverable resources (IEA, 2008). So, t he chances are t hat t he volume of resources t hat prove t o be recoverable will be bigger t han t he mean est imat e we use t o proj ect product ion, especially since t hat est imat e does not include all areas of t he world. Even if convent ional crude oil product ion does peak in t he near fut ure, resources of NGLs and unconvent ional oil are, in principle, large enough t o keep t ot al oil product ion rising for several decades. Clearly, global oil product ion will peak one day. But t hat peak will be det ermined by fact ors on bot h t he demand and supply sides. We proj ect a peak before 2020 in t he 450 Scenario. In t he New Policies Scenario, product ion in t ot al does not peak before 2035, t hough it comes close t o doing so, convent ional crude oil product ion in t hat scenario holding st eady at 68-69 mb/ d over t he ent ire proj ect ion period and never at t aining it s all-t ime peak of 70 mb/ d in 2006. In ot her words, if government s put in place t he energy and

Chapter 3 - Oil market outlook

125

3

climat e policies t o which t hey have commit t ed t hemselves, as we assume in t his scenario, t hen our analysis suggest s t hat crude oil product ion has probably already peaked. If government s act vigorously now t o encourage more efficient use of oil and t he development of alt ernat ives, t hen demand for oil might begin t o ease quit e soon and we might see a fairly early peak in oil product ion. That peak would not be caused by any resource const raint . But if government s do not hing or lit t le more t han at present , t hen demand will cont inue t o increase, t he economic burden of oil use will grow, vulnerabilit y t o supply disrupt ions will increase and t he global environment will suffer serious damage. The peak in oil product ion will come t hen not as an invit ed guest , but as t he spect re at t he feast .

The st rong growt h in NGLs supply will light en t he overall product mix, alt hough t his effect is expect ed t o be at least part ially offset by a rise in t he share of ext ra-heavy oil and nat ural bit umen in overall oil product ion (Figure 3.23). This changing product ion mix will require more invest ment in upgraders f or t he heavier crudes and bit umen, and condensat e and NGL processing f acilit ies f or t he light er f luids. Much of t he increase in t he supply of NGLs is likely t o be used a pet rochemical f eedst ock, not ably in t he Middle East .

Figure 3.23 z World oil production by quality in the New Policies Scenario 100%

Nat ural gas liquids Crude oil: light

80%

Crude oil: medium Crude oil: heavy

60%

Ext ra-heavy oil 40% 20% 0% 2009

2015

2020

2025

2030

2035

Not e: Light crude oil has an API gravit y of at least 35°; medium bet ween 26° and 35°; heavy bet ween 10 ° and 26°; and ext ra-heavy less t han 10°.

© OECD/ IEA - 2010

Sources: Dat a provided t o t he IEA by t he It alian oil company, Eni; IEA est imat es and analysis.

The st ruct ure of t he global oil indust ry is set t o change st rikingly in t he coming decades, as product ion shift s t o count ries dominat ed by nat ional oil companies, which cont rol most of t he world’ s remaining oil resources. In t he New Policies Scenario, nat ional companies as a group are proj ect ed t o cont ribut e all of t he growt h in global oil product ion over t he proj ect ion period, t heir share rising from 58%in 2009 t o about 66%in 2035, based on t heir current resource ownership (Figure 3.24). These proj ect ions assume sufficient invest ment 126

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

is made in explorat ion, development and product ion t o meet demand at t he assumed price. The maj or resource-rich count ries may favour slower deplet ion of t heir hydrocarbon resources. In some cases, t here are also doubt s about t he financial and t echnical abilit y of nat ional companies t o bring new capacit y on st ream in a t imely manner.

3

mb/ d

Figure 3.24 z World oil production by type of company in the New Policies Scenario 100

70%

80

66%

60

62%

40

58%

20

54%

NOCs Ot her

0

Share of NOCs (right axis)

50% 2009

2015

2020

2025

2030

2035

Not e: NOCs are nat ional oil companies.

Non-OPEC product ion out look in t he New Policies Scenario

© OECD/ IEA - 2010

Nort h America will remain an import ant non-OPEC producing region, wit h out put proj ect ed t o rise over t he next quart er of a cent ury in t he New Policies Scenario (Table 3.5). In Canada, convent ional oil product ion declines st eadily, but t his is more t han offset by rapid growt h in out put from oil sands (see Chapt er 4). As new policies t o mit igat e climat e change t ake hold, t he increasing amount of carbon dioxide (CO2) capt ured during oil-sands product ion is accompanied by growt h in CO2 enhanced oil recovery proj ect s in t he ageing convent ional fields of Albert a, slowing t heir product ion declines. In t he east ern seaboard and Arct ic regions, product ion holds st eady, wit h slow declines in est ablished proj ect s such as Hibernia, Terra Nova and Whit e Rose being offset by new proj ect s. Arct ic development s are expect ed t o be slow and provide only small volumes, due t o t he relat ively modest resource endowment , high cost s and t ight er environment al regulat ions in t he aft ermat h of t he Macondo disast er offshore of t he US Gulf Coast . Wit h t he short drilling season and st rict requirement s for sameseason relief-well drilling in case of an accident , cost s may well increase in t he first half of t he proj ect ion period, out st ripping t he impact of t echnological advances. Oil product ion in t he Unit ed St at es is proj ect ed t o cont inue t o fall slowly in t he medium t erm, but t hen recovers t owards t he end of t he proj ect ion period as higher oil prices spur growt h in enhanced recovery and unconvent ional oil. In recent years, increased product ion offshore in t he Gulf of Mexico has helped offset t he cont inuing decline in older producing areas. But wit h t he rapid decline rat es charact erist ic of deep offshore proj ect s wit h large upfront capit al expendit ures, new offshore regions will need t o be opened t o drilling t o limit t he overall decline in product ion. In t he aft ermat h of t he Macondo disast er, such opening of new areas t o drilling, which was part of proposed legislat ion, is Chapter 3 - Oil market outlook

127

likely t o proceed only slowly, if at all (Box 3.4). Product ion of NGLs in t he Unit ed St at es is proj ect ed t o remain high, as indigenous product ion of gas increases gradually, driven by t he shale-gas revolut ion. Addit ional volumes of unconvent ional oil, mainly from coal-t oliquids plant s, supplement supply, especially t owards t he end of t he proj ect ion period.

Mexico cont inues t o st ruggle t o bring new fields on-line t o offset t he rapid decline of t he Cant arell super-giant field. Product ion from Cant arell dropped from it s peak of 2.2 mb/ d in 2003 t o an est imat ed 0.5 mb/ d by t he middle of 2010. This precipit ous decline is linked t o t he way product ion has been augment ed using nit rogen inj ect ion and t he highly fract ured geology of t he field, where most of t he producible oil was cont ained in nat ural fract ures and so was produced quickly. Pemex, t he nat ional oil company, has implement ed various t ert iary recovery t echnologies and now expect s t he rat e of decline t o moderat e. Product ion from new fields has not been able t o keep pace wit h Cant arell’ s decline, wit h product ion from new proj ect s such as Chicont epec rising much more slowly t han expect ed. Nonet heless, significant resources are t hought t o be present offshore in t he Mexican wat ers of t he Gulf of Mexico, so aft er a cont inued decline in t he first part of t he Out look period, overall Mexican oil product ion is expect ed t o inch back up as new proj ect s come on st ream. Wit h rising domest ic demand, Mexico’ s role as an export er t o t he Unit ed St at es is set t o cont inue t o diminish.

Table 3.5 z Non-OPEC oil production in the New Policies Scenario(mb/d)

© OECD/ IEA - 2010

1980

2009

OECD 17.3 18.7 Nort h America 14.1 13.6 Canada 1.7 3.2 Mexico 2.1 3.0 Unit ed St at es 10.3 7.4 Europe 2.6 4.5 Pacific 0.5 0.7 Non-OECD 19.9 28.9 E. Europe/ Eurasia 12.5 13.4 Caspian 0.9 2.9 Russia 11.1 10.2 Asia 4.5 7.4 China 2.1 3.8 India 0.2 0.8 Middle East 0.5 1.7 Africa 1.0 2.5 Lat in America 1.3 3.9 Brazil 0.2 2.0 Total non-OPEC 37.1 47.7 Non-OPEC market share 59% 59% Conventional 37.0 45.8 Crude oil 34.1 39.6 Nat ural gas liquids 2.8 6.2 Unconventional 0.2 1.8 Share of t ot al non-OPEC 0% 4% Canada oil sands 0.1 1.3 Gas-t o-liquids 0.0 Coal-t o-liquids 0.0 0.2 * Compound average annual rat e of growt h.

128

2015 17.4 13.1 3.8 2.5 6.9 3.5 0.7 30.8 14.1 3.7 10.2 7.4 3.8 0.9 1.5 2.5 5.3 3.1 48.2 56% 45.1 38.4 6.6 3.1 6% 2.4 0.0 0.2

2020 17.0 13.3 4.0 2.4 6.9 3.1 0.6 31.2 14.2 4.4 9.5 7.0 3.7 0.8 1.3 2.3 6.4 4.4 48.2 54% 44.4 37.6 6.8 3.7 8% 2.8 0.0 0.3

2025 16.9 13.7 4.5 2.4 6.8 2.7 0.5 31.4 14.7 5.3 9.2 6.7 3.6 0.8 1.2 2.1 6.7 5.0 48.2 53% 43.6 36.7 6.9 4.6 10% 3.3 0.1 0.6

2030 17.2 14.3 4.9 2.5 6.9 2.4 0.5 30.3 14.7 5.4 9.2 5.9 3.1 0.8 1.1 2.0 6.5 5.2 47.4 51% 41.9 35.0 6.9 5.6 12% 3.7 0.2 0.8

2035 17.5 15.0 5.3 2.5 7.1 2.1 0.5 28.6 14.5 5.2 9.1 5.0 2.4 0.8 1.0 1.8 6.2 5.2 46.1 48% 39.6 32.8 6.8 6.5 14% 4.2 0.3 1.1

20092035** -0.3% 0.4% 2.0% -0.7% -0.1% -2.9% -1.4% -0.0% 0.3% 2.2% -0.4% -1.5% -1.7% -0.2% -1.9% -1.2% 1.8% 3.7% -0.1% -0.6% -0.7% 0.3% 5.0% 4.5% 7.7% 7.6%

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Product ion in Europe, mainly in t he Nort h Sea, cont inues it s st eady decline f rom 4. 5 mb/ d in 2009 t o 2. 1 mb/ d in 2035. Recovery rat es are likely t o cont inue t o rise as t ert iary recovery t echnologies are deployed, part ially of f set t ing t he impact of dwindling new discoveries. Elsewhere in t he OECD, product ion in t he Pacif ic, already only 0. 7 mb/ d, cont inues t o decline, t he f all in crude oil product ion more t han of f set t ing rising out put of NGLs and CTL in Aust ralia (see Chapt er 4).

Box 3.4 z Impact of the Gulf of Mexico oil spill The t ragic accident t hat occurred at t he end of April at t he Macondo well in t he Gulf of Mexico will have bot h short -t erm and long-last ing consequences for t he oil indust ry. Alt hough not all t he fact s are known at t he t ime of writ ing, it appears t hat a series of human errors and equipment failures led t o an uncont rolled blow-out while t he well was being complet ed. The result ing explosion killed 11 people and sank t he drilling rig, provoking a maj or oil spill. Over 4 million barrels of oil are report ed t o have been released int o t he Gulf of Mexico during t he four mont hs t hat it t ook t o cap t he well.

© OECD/ IEA - 2010

The accident has led t o a de f act o morat orium on drilling in t he Gulf of Mexico wit h f loat ing rigs; t he US Administ rat ion announced a six-mont h morat orium in May, but t his decision was init ially over-ruled and is now being reviewed in court . In any event , deepwat er drilling act ivit y t here has more or less come t o a halt . Drilling is expect ed t o resume only aft er an ext ensive review of regulat ions and cont ingency procedures. One plausible scenario is f or drilling in moderat e wat er dept hs t o resume gradually over t he next few mont hs, while deeper wat er operat ions may not resume unt il new t echnologies t o mit igat e t he consequences of such an accident are put in place. The medium-t erm ef f ect on product ion will obviously depend on t he durat ion of t he morat orium: we est imat e t hat t he drop in product ion (in t he Gulf of Mexico) would be of t he order of 100 t o 200 kb/ d per year of st opped act ivit y. In t he longer t erm, t ight er regulat ions on deepwat er drilling are likely t o curb t he growt h of product ion in ot her part s of t he Unit ed St at es — part icularly t hose areas t hat have not yet been opened t o drilling. A full morat orium is unlikely t o be declared in ot her regions wit h deepwat er product ion, not ably Brazil, West Africa, t he Nort h Sea and Canada. However, t hey have already st art ed reviewing t heir regulat ions and will cont inue t o do so when all t he fact s from t he Macondo accident are known. Corporat e policies on deepwat er operat ions are also undergoing changes, reflect ing pot ent ially increased liabilit ies in t he event of an accident ; it is likely t hat some smaller companies will wit hdraw from deepwat er act ivit ies. Overall, new regulat ions are likely t o result in some delays t o deepwat er proj ect s all over t he world. This is t aken int o account in our modelling of oil product ion in t his Out look. But t he capit al planned t o be spent by oil companies for deepwat er proj ect s would probably be at least part ly re-allocat ed t o ot her locat ions, bringing product ion from ot her proj ect s forward, so t he net impact on global oil supply is expect ed t o be small.

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3

In principle, t ight er regulat ory requirement s would lead t o higher cost s for developing deepwat er resources. However, t he main cost driver will remain drilling rig day-rat es, t hemselves driven by t he ut ilisat ion rat es of available rigs. A moderat e slowdown in deepwat er development s could const rain any cost increases. Coupled wit h improvement s in t echnology prompt ed by t he lessons learned from t he accident , deepwat er development s are likely t o cont inue t o play a key role in t he world supply/ demand balance at t he oil price t raj ect ories proj ect ed in t he t hree scenarios.

Russia has consolidat ed it s posit ion as t he world’ s leading oil producing count ry wit h increases in product ion in 2009 and 2010, driven by a more favourable t ax regime, part icularly for new fields in east ern Siberia. Alt hough resources are t hought t o be plent iful in t he vast , remot e regions of east ern Siberia, high development cost s will probably mean t hat t he region is developed only slowly. Allowing for a possible t ight ening of t he fiscal regime, at least in t he early part of t he proj ect ion period, as t he Russian government needs t o replenish it s coffers aft er t he economic downt urn of t he last t wo years, Russian oil product ion is proj ect ed t o remain relat ively flat t o 2015, wit h new proj ect s slowly coming online t o offset decline in t he mainst ay producing region of west ern Siberia. However, in t he longer t erm, oil product ion falls st eadily, t o slight ly over 9 mb/ d by 2035, despit e a proj ect ed increase in NGLs product ion as nat ural gas out put expands (from around 580 bcm in 2009 t o over 800 bcm by 2035). Oil product ion in t he leading Caspian oil-producing count ry, Kazakhst an, is proj ect ed t o increase t hroughout t he proj ect ion period, before decline set s in at t he maj or new offshore fields and product ion st abilises at nearly 4 mb/ d (see Chapt er 17). Oil product ion in Azerbaij an, t he only ot her significant producer in t he region, levels out at 1.3 mb/ d in t he next few years and t hen st art s t o decline as 2020 approaches, reaching 0.9 mb/ d by 2035. Export s from bot h count ries will depend on policies t o improve energy efficiency, in order t o rein-in t he growt h of demand wit h growing prosperit y.

© OECD/ IEA - 2010

China is proj ect ed t o maint ain product ion close t o t he current level of 3.8 mb/ d t o 2015, followed by a st eady decline as resource deplet ion set s in. A similar sit uat ion holds for ot her non-OPEC Asian count ries, wit h product ion in t he region as a whole dropping from 7.4 mb/ d in 2009 t o 5 mb/ d by 2035. Af rica st ill has subst ant ial scope t o increase oil product ion, but wit h t he slow pace of development in recent years and polit ical inst abilit y in some count ries, a st eady decline in non-OPEC product ion is proj ect ed over t he Out look period. The deepwat er offshore West Africa region is in t he early phases of it s development , and product ion t here is expect ed t o st eadily increase in spit e of t he rapid decline rat es charact erist ic of proj ect s in such areas. New producing count ries, such as Ghana or Uganda, are proj ect ed t o make a growing but modest cont ribut ion t o t he oil product ion of t he region. Oil development in Sudan has been halt ed by polit ical risks, but t he count ry has t he pot ent ial t o increase product ion in t he longer t erm. 130

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Lat in America sees t he second-fast est rat e of increase in oil product ion of any non-OPEC region in t he New Policies Scenario. Out put growt h is led by Brazil, where, t hanks t o several maj or deep wat er offshore discoveries in t he last few years in pre-salt layers (so called because t he hydrocarbon reservoirs are locat ed underneat h t hick salt deposit s and were t herefore difficult t o spot on 3D seismic dat a before recent advances in t hat t echnology), including t he Tupi and Jupit er fields, product ion increases t o 5 mb/ d by 2025 and t hen levels off t hrough t o t he end of t he proj ect ion period. The Tupi field, a probable super-giant found in 2006, wit h recoverable resources est imat ed t o be as much as 8 billion barrels, is due t o ent er product ion in 2011. Tot al product ion from t he presalt proj ect s (including Tupi) is proj ect ed t o reach about 1.4 mb/ d by 2020. Discoveries of ot her big fields in t he pre-salt layer would allow for higher peak product ion and ext end t he plat eau for a longer period. The pre-salt area is t hought t o cont ain as much as 30 billion barrels of recoverable resources — t wice t he current proven reserves of Brazil. The deposit s are also gas rich, so NGLs product ion is also set t o increase.

OPEC product ion out look in t he New Policies Scenario OPEC account s for all of t he proj ect ed growt h in global oil product ion bet ween 2009 and 2035 in t he New Policies Scenario (see Table 3.3 above). 9 Roughly 16% of t he increase in OPEC out put goes t o meet t he growt h in local consumpt ion. The growt h in OPEC out put is expect ed t o come from four main sources (Table 3.7).

„ Furt her expansion of Saudi crude oil product ion and increased NGLs supply as t he

count ry’ s gas product ion expands subst ant ially.

„ The re-emergence of Iraq as one of t he world’ s leading oil-producing count ries

(Box 3.5), commensurat e wit h it s large resource base.

„ A large increase in NGLs product ion, linked t o increased gas product ion, especially in

OPEC Middle East count ries (where most of t he increased gas supply goes t o meet ing booming domest ic demand), and increasing export s from Qat ar and Algeria.

„ The emergence of unconvent ional oil product ion from t he Orinoco belt in Venezuela

and from gas-t o-liquids plant s, not ably in Qat ar and Nigeria (see Chapt er 4).

© OECD/ IEA - 2010

Saudi Arabia is proj ect ed t o regain from Russia it s place as t he world’ s biggest oil producer, it s combined out put of crude oil and NGLs rising from 9.6 mb/ d in 2009 t o 11.5 mb/ d in 2020 and 14.6 mb/ d in 2035 (including it s share of out put from t he Neut ral Zone). Sust ainable crude oil product ion capacit y has been raised t o a lit t le over 12 mb/ d wit h t he recent complet ion of t he 1.2-mb/ d Khurais field development . The next maj or development , t he 900-kb/ d Manifa field, will be complet ed by around 2016, but t his will probably not increase overall capacit y, due t o declines in out put at ot her fields (IEA, 2010b). The Kingdom has st at ed for several years t hat it is capable and willing, if t here is sufficient market demand, t o increase crude oil product ion capacit y t o 15 mb/ d and t o sust ain t hat level for 50 years, t hough it has no plans t o exceed t hat capacit y. NGLs product ion is proj ect ed t o rise from 1.3 mb/ d in 2009 t o 2.2 mb/ d 9. Our proj ect ions of OPEC product ion are based on assumpt ions t hat adequat e invest ment is fort hcoming. See IEA (2008) for a det ailed discussion of t he uncert aint ies surrounding fut ure OPEC invest ment and product ion policies.

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3

by 2035 in line wit h t he expansion of gas product ion. The proj ect ed level of overall product ion, even in 2035, would st ill leave Saudi Arabia wit h a modest amount of spare capacit y. The st at ed policy goal in t his respect is t o maint ain around 1.5 t o 2.0 mb/ d of spare capacit y on average, which would enable Saudi Arabia t o cont inue t o play a vit al role in balancing t he global oil market . Oil product ion in Qat ar will cont inue t o be driven by gas export s, t hanks t o it s supergiant Nort h gas/ condensat e field. We expect more LNG export capacit y t o be added and t o see a resurgence of int erest in GTL, beyond t he current Oryx and Pearl plant s, as a hedge against decoupling of gas and oil prices. As a result of increased gas product ion, NGLs product ion will exceed crude oil product ion in Qat ar from 2010 onwards.

Box 3.5 z The renaissance of Iraqi oil production Over t he last t wo years, t he gradual normalisat ion of t he polit ical sit uat ion and improved securit y in Iraq have enabled t he count ry t o st abilise oil product ion at around 2.5 mb/ d and t o hold t wo bidding rounds for licenses, which provide for t he part icipat ion of foreign oil companies in t he development of t he count ry’ s abundant oil resources (IEA, 2010b). Eleven different field development proj ect s have been agreed so far, including t he rehabilit at ion of some exist ing fields, not ably t he Rumaila field in t he sout h of t he count ry, and t he more int ensive development of fields t hat have as yet barely been exploit ed, including t he super-giant Maj noon field — t he 25t h largest field in t he world (Table 3.6). Were all t hese proj ect s t o proceed on schedule, Iraqi oil product ion capacit y would reach more t han 12 mb/ d by 2017. This would involve more t han $160 billion of invest ment . The sheer scale of t his, coupled wit h polit ical and securit y-relat ed uncert aint ies, suggest s t hat t he expansion of capacit y will, in pract ice, be much slower. In t he New Policies Scenario, we expect t hat it will t ake unt il t he 2030s for Iraqi oil product ion t o exceed even 6 mb/ d. Alt hough ambit ious work has st art ed on several of t he proj ect s, much basic infrast ruct ure, including roads, bridges, airport s, power and wat er supply is in need of repair and expansion. Exist ing export rout es are fully ut ilised and a maj or expansion of t he shipping port s will be needed even t o reach t he proj ect ed level of product ion. Iraq’ s crude oil product ion nonet heless overt akes t hat of Iran soon aft er 2015 and t ot al oil product ion (including NGLs) by around 2020.

© OECD/ IEA - 2010

Iran has significant upside product ion pot ent ial, bot h for crude oil and NGLs. However, t he current polit ical isolat ion of t he count ry makes it unlikely t hat t his pot ent ial will be realised quickly. We proj ect a slow increase in overall oil out put during t he proj ect ion period, in large part driven by NGLs. Kuwait has been making plans for boost ing product ion capacit y t o 4 mb/ d for t he last 20 years. These plans, originally known as “ Proj ect Kuwait ” , called for t he involvement of int ernat ional companies in developing t he count ry’ s large heavy oil resources under service cont ract s, but t his approach was halt ed in t he face of polit ical opposit ion. Officially, t he count ry aims t o reach t he t arget ed product ion level by 2020 — 1 mb/ d above current capacit y —but achieving t his will be cont ingent on securing t he t echnical 132

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

assist ance of foreign firms. Emphasis has now shift ed away from heavy oil t o developing t he count ry’ s light er oil reserves. We proj ect gradually increasing product ion for most of t he period, reaching 3.6 mb/ d only by 2035. The Unit ed Arab Emirat es is also proj ect ed t o increase product ion st eadily t hroughout t he proj ect ion period, remaining an import ant cont ribut or t o t he global supply/ demand balance.

Table 3.6 z Oil production technical services contracts issued in Iraq in 2010 Field

Target capacity (mb/ d)

Companies

Time period (years)

Rumaila

BP/ CNPC

2.85

7

West Qurma 1

Exxon/ Shell

2.32

7

West Qurma 2

Lukoil/ St at oil

1.80

13

Maj noon

Shell/ Pet ronas/ Missan

1.80

10

Zubair

ENI/ Oxy/ Kogas

1.20

7

Halfaya

CNPC/ Tot al/ Pet ronas

0.53

13

Garraf

Pet ronas/ Japex

0.23

13

Badra

Gazprom/ Kogas/ Pet ronas/ TPAO

0.17

7

Qayara

Sonangol

0.12

9

Naj mah

Sonangol

0.11

9

Missan

CNOOC/ Turkish Pet roleum

0.45

7

Total

11.59

Table 3.7 z OPEC oil production in the New Policies Scenario(mb/d)

Middle East Iran Iraq Kuwait Qat ar Saudi Arabia Unit ed Arab Emirat es Non-Middle East Algeria Angola Ecuador Libya Nigeria Venezuela

© OECD/ IEA - 2010

Total OPEC

1980

2009

2015

2020

2025

2030

2035

20092035*

18.0 1.5 2.6 1.4 0.5 10.0 2.0

23.1 4.3 2.5 2.5 1.5 9.6 2.8

28.1 4.7 3.6 2.9 2.2 11.2 3.5

30.0 4.8 4.8 3.0 2.3 11.5 3.5

31.6 5.0 5.3 3.1 2.3 12.2 3.6

34.1 5.1 6.1 3.3 2.5 13.2 3.9

37.1 5.3 7.0 3.6 2.5 14.6 4.2

1.8% 0.8% 4.1% 1.5% 1.9% 1.6% 1.6%

7.6 1.1 0.2 0.2 1.9 2.1 2.2

10.3 1.9 1.8 0.5 1.7 2.1 2.4

10.4 2.0 1.5 0.4 1.7 2.1 2.8

10.6 2.1 1.6 0.3 1.7 2.1 2.7

11.1 2.1 1.7 0.3 1.8 2.3 2.9

11.9 2.2 1.5 0.3 1.9 2.5 3.4

12.8 2.2 1.4 0.2 2.1 2.8 4.0

0.8% 0.6% -1.1% -2.5% 1.0% 1.1% 2.0% 1.6%

25.5

33.4

38.5

40.5

42.7

46.0

49.9

OPEC market share

41%

41%

44%

46%

47%

49%

52%

Conventional oil Crude oil Nat ural gas liquids

25.5 24.7 0.9

32.9 28.3 4.6

37.1 30.0 7.1

38.9 30.9 8.0

40.7 31.7 9.0

43.6 33.5 10.1

46.9 35.8 11.1

1.4% 0.9% 3.5%

0.0 0.0

0.5 0.4

1.4 1.2

1.6 1.3

2.0 1.5

2.4 1.8

3.0 2.3

7.1% 6.9%

-

0.0

0.2

0.2

0.3

0.4

0.5

14.5%

Unconventional oil Venezuela ext ra-heavy oil

Gas-t o-liquids

-

* Compound average annual growt h rat e.

Chapter 3 - Oil market outlook

133

3

Nigeria, where t he complex polit ical sit uat ion and sporadic civil conflict s over oil resources have hampered invest ment for several years, also has significant pot ent ial for higher product ion. We proj ect a drop in product ion in t he early part of t he Out look period, but , in t he longer t erm, a rebound in out put on t he assumpt ion t hat t he invest ment climat e improves. An increase in NGLs product ion cont ribut es t o higher product ion, as effort s t o reduce gas flaring slowly bear fruit . Venezuel a sees a modest decline in convent ional oil product ion over t he proj ect ion period, as it s relat ively limit ed resources are deplet ed and a lack of invest ment and modern t echnology t ake t heir t oll. However, t his decline is more t han of f set by rapid growt h in unconvent ional, ext ra-heavy oil f rom t he Orinoco belt (see Chapt er 4). Ot her OPEC count ries are expect ed t o maint ain more or less st eady levels of product ion f or a large part of t he proj ect ion period, variat ions ref lect ing t heir individual resource endowment s. Angol a’ s out put , in part icular, is limit ed by it s current ly est imat ed ult imat ely recoverable resources, t hough new discoveries could alt er t his pict ure.

Inter-regional trade and supply security

© OECD/ IEA - 2010

Int er-regional t rade in oil (crude oil, NGLs, unconvent ional oil and refined product s) is set t o grow markedly over t he next quart er of a cent ury in t he New Policies Scenario. Rising demand out st rips indigenous product ion in t he main non-OECD import ing regions, more t han offset t ing t he drop in demand and import s in t he OECD. The volume of t rade bet ween t he main regions modelled in t his Out look expands from 37 mb/ d in 2009 t o 42 mb/ d in 2020 and 48 mb/ d in 2035 (Table 3.8). Over t he proj ect ion period, t he share of int er-regional t rade in world oil product ion rises from 44% t o 49%. China and India see t he biggest j ump in import s in absolut e t erms: China’ s net import s reach almost 13 mb/ d in 2035 — up from 4.3 mb/ d in 2009. Oil import s in t he Unit ed St at es drop from 10.4 mb/ d t o 7.8 mb/ d over t he same period; moreover, a growing share of t hese import s come from Canada (much as synt het ic crude, or dilut ed bit umen, derived from oil sands), so t he count ry’ s dependence on suppliers out side t he region diminishes even more. The Middle East sees t he biggest j ump in export s, wit h much of t he increase going t o non-OECD Asia. The rise in int er-regional t rade does not necessaril y make oil supplies less secure. But t he growing reliance on supplies f rom a small number of producers, using vulnerable supply rout es, could increase t he risk of a supply disrupt ion. Moreover, t he growing concent rat ion of t he sources of export s would increase t he export ers’ market power, and could lead t o lower invest ment and higher prices. Policies t o t ackle climat e change would make a big dif f erence: policy-driven reduct ions in oil demand in t he 450 Scenario cut subst ant ially import needs, t hough t he share of OPEC oil in t ot al supply t o import ing count ries increases slight ly (see Chapt er 15). 134

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Table 3.8 z Inter-regional oil net trade in the New Policies Scenario 2009

OECD

Nort h America

Unit ed St at es

2020

2035

mb/ d

Share of primary demand*

mb/ d

Share of primary demand*

mb/ d

Share of primary demand*

-23.0

55%

-22.8

57%

-17.8

50%

-8.4

38%

-8.1

38%

-4.4

23%

-10.4

59%

-10.3

60%

-7.8

52%

Europe

-8.2

64%

-8.9

74%

-8.3

80%

Pacific

-6.4

91%

-5.8

91%

-5.1

92%

Japan

-4.0

100%

-3.4

99%

-2.8

99%

26.5

43%

27.6

39%

23.9

30%

Non-OECD

E. Europe/ Eurasia

Caspian Russia

8.8

66%

9.1

65%

9.2

63%

2.3

80%

3.7

83%

4.3

83%

7.5

73%

6.6

70%

6.1

67%

-9.0

55%

-14.8

68%

-25.0

83%

China

-4.3

53%

-8.0

68%

-12.8

84%

India

-2.2

73%

-3.4

81%

-6.7

90%

18.3

74%

23.3

74%

28.9

76%

7.0

70%

6.5

66%

6.5

63%

Asia

Middle East Africa

1.4

21%

3.5

37%

4.3

41%

-0.1

2%

1.9

43%

2.7

51%

World**

36.7

44%

42.1

46%

48.1

49%

European Union

-10.0

82%

-10.1

89%

-9.0

94%

Lat in America

Brazil

3

Not e: Posit ive numbers denot e export s; negat ive numbers import s. *Per cent of product ion for export ing regions/ count ries. **Tot al net export s for all WEO regions/ count ries (some of which are not shown in t his t able), not including t rade wit hin WEO regions.

Oil investment

© OECD/ IEA - 2010

Current trends Worldwide upst ream oil invest ment is set t o bounce back in 2010, but will not recover all of t he ground lost in 2009, when sharply lower oil prices and financing difficult ies led oil companies t o slash spending. Worldwide, t ot al upst ream capit al spending on bot h oil and gas10 is budget ed t o rise in 2010 by around 9% t o $470 billion, compared wit h a fall of 15% in 2009. These invest ment t rends are based on t he announced plans of 70 oil and gas companies. Tot al upst ream invest ment is calculat ed by adj ust ing upwards t he spending of t he 70 companies, according t o t heir share of world oil and gas product ion for each year. Our survey point s t o a fast er increase in upst ream spending in 2010 t han in downst ream spending (Table 3.9). 10. Upst ream invest ment is not report ed separat ely for oil and gas.

Chapter 3 - Oil market outlook

135

Table 3.9 z Oil and gas industry investment (nominal dollars) Upstream Company

2009 ($ billion)

2010 ($ billion)

Total Change 2009/ 2010

2009 ($ billion)

2010 ($ billion)

Change 2009/ 2010

Pet robras

18.4

23.8

29%

35.1

44.8

28%

Pet rochina

18.9

23.1

22%

39.1

42.9

10%

ExxonMobil

20.7

27.5

33%

27.1

28.0

3%

Royal Dut ch Shell

20.3

19.4

-5%

26.5

26.0

-2%

Gazprom

11.5

12.9

13%

15.2

23.7

55%

Chevron

17.5

17.3

-1%

19.8

21.6

9%

Pemex

16.8

16.0

-4%

18.6

19.5

5%

BP

14.7

13.0

-12%

20.7

18.0

-13%

Tot al

13.7

14.0

2%

18.5

18.0

-3%

7.5

8.2

9%

15.9

16.4

3%

Sinopec Eni

13.2

13.8

5%

19.0

14.6

-23%

St at oil

11.8

11.1

-6%

12.4

13.0

5%

ConocoPhillips

8.9

9.7

9%

10.9

12.0

10%

Rosneft

5.9

6.5

11%

7.3

9.5

31%

Lukoil

4.7

5.5

17%

6.5

8.0

22%

CNOOC

6.4

7.8

22%

6.4

7.9

24%

Repsol YPF

2.5

3.4

36%

12.1

7.9

-35%

BG Group

4.4

6.2

41%

6.5

7.0

8%

Chesapeake

4.8

4.5

-7%

6.1

6.8

12%

Apache

3.1

4.7

49%

3.8

6.0

58%

Anadarko

4.0

4.5

12%

4.6

5.5

20%

Suncor Energy

4.2

4.5

8%

4.9

5.3

8%

Devon Energy

4.2

4.7

12%

4.9

4.7

-4%

EnCana

3.7

4.4

19%

4.6

4.5

-3%

Occident al

3.0

3.6

21%

3.6

4.5

26%

Sub-t ot al 25

244.7

270.0

10%

350.1

376.0

7%

Tot al 70 companies

345.9

378.4

9%

n.a

n.a.

n.a.

World

428.0

468.1

9%

n.a.

n.a.

n.a.

Not e: The world t ot al for upst ream invest ment was derived by prorat ing upwards t he spending of t he 70 leading companies, according t o t heir share of oil and gas product ion in each year.

© OECD/ IEA - 2010

Sources: Company report s and announcement s; IEA analysis.

Privat e companies will cont inue t o dominat e upst ream spending, t hough nat ional oil companies are set t o increase t heir spending more quickly in 2010 (Figure 3.25). The five super-maj ors (ExxonMobil, Shell, BP, Chevron and Tot al) alone account for almost one-fift h of t ot al spending, rising 5% in 2010, wit h ot her privat e companies’ capit al 136

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

expendit ures rising 11%. Spending by t he nat ional oil companies is set t o rise by 10%, t aking t heir share of world upst ream invest ment t o 39%. The t rends in invest ment for 2010 should be t reat ed as indicat ive only, as t hey are based on announced plans, which could change were oil prices and cost s t o differ markedly from our assumpt ions. Global upst ream invest ment in 2009 is now est imat ed t o have t ot alled $40 billion more t han was budget ed in t he middle of t he year. The upward revision reflect s a surge in spending in t he second half of t he year, prompt ed by rising oil prices and a sharp drop in t he value of t he dollar against most currencies (which aut omat ically increased invest ment out side Nort h America, expressed in dollars).

Billion dollars

Figure 3.25 z Worldwide upstream oil and gas capital spending by type of company 250

2008 11%

200

10%

2009 2010

150 5%

100 50 0 Nat ional oil companies

Super-maj ors

Ot her privat e companies

Sources: Company report s and announcement s; IEA analysis.

Annual upst ream invest ment more t han quadrupled bet ween 2000 and 2008, before falling back in 2009. But most of t his increase was needed t o meet t he higher unit cost s of explorat ion and development , as t he prices of cement , st eel and ot her mat erials used in building product ion facilit ies, t he cost of hiring skilled personnel and drilling rigs, and t he prices of oil-field equipment and services soared. According t o our Upst ream Invest ment Cost Index, cost s doubled on average over t he eight years t o 2008 (Figure 3.26). They fell back by about 9% in 2009, but are poised t o rebound in 2010 by about 5%.

© OECD/ IEA - 2010

Adj ust ed for changes in cost s, annual global upst ream invest ment only doubled bet ween 2000 and 2008. Wit h nominal invest ment falling more heavily t han cost s in 2009, real invest ment was 90% higher t han in 2000 (Figure 3.27). On current plans and cost t rends, capit al spending in real t erms is set t o increase by more t han 4% in 2010. Recent t rends in upst ream invest ment and knowledge of proj ect s now under way — if complet ed t o schedule — point t o cont inuing growt h in t ot al oil product ion capacit y (including unconvent ional sources). Bet ween 2009 and 2015, capacit y is set t o expand in net t erms by around 5 mb/ d (IEA, 2010b). In t he New Policies Scenario, demand rises by 5.7 mb/ d, implying a modest reduct ion in t he amount of effect ive spare capacit y, all of which is in OPEC count ries, from above 5 mb/ d in 2009 t o less t han 4 mb/ d in 2015. Chapter 3 - Oil market outlook

137

3

20%

220

15%

190

10%

160

5%

130

0%

100

–5%

70

–10%

Index (2000=100)

Figure 3.26 z IEA Upstream Investment Cost Index and annual inflation rate Cost inflat ion Index (right axis)

40 2000

2002

2004

2006

2008

2010*

* Preliminary est imat e based on t rends in t he first half of t he year. Not e: The Upst ream Invest ment Cost Index, set at 100 in 2000, measures t he change in underlying capit al cost s for explorat ion and product ion. It uses weight ed averages t o remove effect s of changes in spending on different t ypes and locat ions of upst ream proj ect s. Sources: Company report s and announcement s; IEA analysis.

Billion dollars

Figure 3.27 z Worldwide upstream oil and gas capital spending 600

Nominal t erms Adj ust ed for upst ream cost inflat ion ($2009)

500 400 300 200 100 0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010*

*Budget ed spending.

© OECD/ IEA - 2010

Sources: Company report s and announcement s; IEA analysis.

Upst ream invest ment and operat ing cost s vary wit h t he physiographical locat ion of resources, t he geological charact erist ics of t he deposit s and mult iple regional fact ors. Finding and development cost s and lift ing (or operat ing) cost s per barrel of reserves developed and produced are generally lowest for crude oil in t he Middle East (Figure 3.28). The fut ure t raj ect ory of t hese cost s will be affect ed by opposing fact ors: t he development and use of new t echnologies will facilit at e access t o more resources and will help reduce unit cost s in cert ain cases, while t he deplet ion of basins 138

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

in product ion increases t he effort and expense needed t o ext ract more oil. Cyclical cost variat ions will also occur as short -t erm fluct uat ions in act ivit y and t he oil price affect t he availabilit y of services and ot her resources.

Lift ing

Finding & development

Figure 3.28 z Upstream oil and gas investment and operating costs by region Lat in America Africa Middle East Asia E. Europe/ Eurasia OECD Pacific OECD Europe OECD Nort h America Ext ra-heavy oil Lat in America Africa Middle East Asia E. Europe/ Eurasia OECD Pacific OECD Europe OECD Nort h America Ext ra-heavy oil 0

5

10

15

20

25 30 35 Dollars per barrel of oil equivalent

Not e: Finding and development (F&D) cost s are init ial capit al invest ment s; lift ing cost s are ongoing operat ing cost s. The profit able price of oil is det ermined not j ust by F&D and lift ing cost s, but also by t he cost and rat e of capit al repayment , t axes, royalt ies and profit margin. Cost ranges represent average regional values over t he t hree-year period t o 2009 per barrel of oil equivalent developed and produced. Some proj ect s fall out side t hese ranges. Ext ra-heavy oil includes Canadian oil sands and deposit s in t he Venezuelan Orinoco belt . Source: IEA dat abases and analysis.

© OECD/ IEA - 2010

Investment needs to 2035 The proj ect ed t rends in oil supply in t he New Policies Scenario call for cumulat ive infrast ruct ure invest ment along t he oil-supply chain of around $8 t rillion over 20102035, or $310 billion per year. About 85%of t his invest ment is needed in t he upst ream. Including upst ream invest ment needs for gas (see Chapt er 5) yields a t ot al annual upst ream oil and gas capit al spending requirement of about $440 billion — slight ly less t han t he $470 billion t he indust ry is planning t o spend in 2010. This fall in t he overall level of upst ream invest ment , mainly in t he lat t er part of t he proj ect ion period, is caused by t he shift in invest ment t owards t he Middle East and ot her regions, where finding and development cost s are generally lower. This, t oget her wit h lower unit cost s as t echnology progresses, more t han offset s cost increases due t o resource deplet ion. Around t hree-quart ers of global cumulat ive oil invest ment t o 2035 is needed in non-OECD count ries in t he New Policies Scenario (Table 3.10). Invest ment s in OECD count ries are large, especially in t he upst ream, despit e t he small and declining share of t hese count ries in world product ion. In cont rast , invest ment in Middle East count ries — t he biggest cont ribut or t o product ion growt h — account s for only 12% of t ot al invest ment , because cost s are lowest in t his region. Chapter 3 - Oil market outlook

139

3

Table 3.10 z Cumulative investment in oil-supply infrastructure by region and activity in the New Policies Scenario, 2010-2035 ($ billion in year-2009 dollars)

OECD

Nort h America

Unit ed St at es Europe Pacific

Conventional production

Unconventional production

Refining

Total*

Annual average

1 284

283

244

1 811

70

973

263

121

1 358

52

721

51

95

868

33

286

2

85

373

14

25

17

38

80

3

Non-OECD

5 004

262

735

6 001

231

E. Europe/ Eurasia

1 173

15

81

1 270

49

Caspian

539

4

13

555

21

Russia

624

9

44

676

26

Asia

China India

396

58

450

904

35

222

34

220

475

18

57

11

139

207

8

821

39

105

965

37

Africa

1 254

20

39

1 313

51

Lat in America

Middle East

1 361

129

60

1 549

60

Brazil

984

5

30

1 019

39

World*

6 288

545

979

8 053

310

117

0

81

198

8

European Union

© OECD/ IEA - 2010

*World t ot al includes an addit ional $241 billion invest ment in int er-regional t ransport infrast ruct ure.

There is considerable uncert aint y about t he prospect s for upst ream invest ment , cost s and, t herefore, t he rat e of capacit y addit ions, especially aft er 2015. Few invest ment decisions t hat will det ermine new capacit y addit ions aft er t hat t ime have yet been t aken. Government policies in bot h consuming and producing count ries are a part icular source of uncert aint y. Periodic underinvest ment in bringing new capacit y on st ream, t oget her wit h t ime lags in t he way demand and invest ment respond t o price signals, t ends t o result in cyclical swings in price and invest ment (Figure 3.29). Underinvest ment in producing count ries, where nat ional companies cont rol all or a large share of reserves, could init ially lead t o short falls in capacit y, driving prices higher and increasing price volat ilit y. But t his effect is likely t o be count ered by consuming government policies, aimed at curbing oil-demand growt h for reasons of energy securit y and/ or climat e change (see Chapt er 15). In our j udgment , t he policies, regulat ory frameworks and prices assumed in t he New Policies Scenario t oget her provide an invest ment environment t hat is consist ent wit h t he level of invest ment proj ect ed over 2010-2035, but t here will undoubt edly be short periods when invest ment falls short of t hat required t o balance supply wit h proj ect ed demand. 140

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Figure 3.29 z How government policy action affects the oil investment cycle Price volat ilit y and uncert aint y discourages invest ment , const raining capacit y

Oil demand slows wit h a lag, leading t o over-capacit y and causing prices t o fall back

Consuming count ry government s t ake act ion t o curb oil-demand growt h

3

Oil price rises as demand increases (wit h GDP), t ight ening t he supply/ demand balance

Producing count ry government s under-invest in product ive capacit y

Invest ment rebounds, boost ing capacit y wit h a lag

© OECD/ IEA - 2010

Sources: Deut sche Bank (2009); IEA analysis.

Chapter 3 - Oil market outlook

141

© OECD/ IEA - 2010

CHAPTER 4

THE OUTLOOK FOR UNCONVENTIONAL OIL Are alternatives to crude coming of age? H

I

G

H

L

I

G

H

T

S

z The role of unconvent ional oil is expect ed t o expand rapidly, enabling it t o meet

about 10% of world oil demand in all t hree scenarios by 2035. Canadian oil sands and Venezuelan ext ra-heavy oil dominat e t he mix, but coal-t o-liquids (CTL), gast o-liquids (GTL) and, t o lesser ext ent , oil shales also make a growing cont ribut ion in t he second half of t he Out look period. In t he New Policies and 450 Scenarios, t his growt h is predicat ed on t he int roduct ion of new t echnologies t hat mit igat e t he environment al impact of t hese sources of oil, not ably t heir relat ively high CO2 emissions.

z Unconvent ional oil resources are huge — several t imes larger t han convent ional oil

resources — and will not be a const raint on product ion rat es over t he proj ect ion period, nor for many decades beyond t hat . Most of t hese resources are concent rat ed in Canada, Venezuela and a few ot her count ries. Product ion will be det ermined by economic and environment al fact ors, including t he cost s of mit igat ing emissions.

z The cost of product ion put s unconvent ional oil among t he more expensive

sources of oil available over t he Out look period; unconvent ional oil proj ect s require large upfront capit al invest ment , t ypically paid back over long periods. Nonet heless, it s exploit at ion is economic at t he oil prices in all t hree scenarios and unconvent ional oil, t oget her wit h deepwat er and ot her high-cost sources of non-OPEC convent ional oil, is set t o play a key role in set t ing fut ure oil prices.

z The product ion of unconvent ional oil generally emit s more greenhouse gases per

barrel t han t hat of most t ypes of convent ional oil. However, on a well-t o-wheels basis, t he difference is much less, since most emissions occur at t he point of use. In t he case of Canadian oil sands, CO2 emissions are bet ween 5% and 15% higher. Mit igat ion measures will be needed t o reduce emissions from unconvent ional oil product ion, including more efficient ext ract ion t echnologies, carbon capt ure and st orage (CCS) and, in t he case of CTL, t he addit ion of biomass t o t he coal feedst ock. Improved wat er and land management will also be required t o make t he development of t hese resources and t echnologies socially accept able.

© OECD/ IEA - 2010

z CTL, if coupled wit h CCS, has t he pot ent ial t o make a sizeable cont ribut ion in

all t hree scenarios; many of t he large coal-producing count ries are invest igat ing new proj ect s, but clarificat ion of t he legal framework for CCS will most likely be required before t hey can proceed. Renewed int erest in new GTL plant s is expect ed, wit h maj or gas producers seeing GTL as a way t o hedge t he risks of gas prices remaining weak relat ive t o oil prices.

Chapter 4 - The outlook for unconventional oil

143

Introduction Unconvent ional oil is set t o play a key role in t he oil supply and demand balance and so in det ermining fut ure oil prices (Chapt er 3). However t here are many challenges surrounding t he development of unconvent ional oil supplies:

„ Tot al development cost s are oft en higher t han t hose for convent ional oil resources.

„ Development s are capit al-int ensive wit h payback over long t ime periods, so t he

t imely availabilit y of enough capit al has been quest ioned.

„ Resources are relat ively localised, cast ing doubt s on t he availabilit y of labour and a

support ing social infrast ruct ure. „ CO2 emissions for ext ract ing and upgrading oil from unconvent ional sources are

current ly larger t han t hose from most convent ional sources, so product ion will be affect ed by climat e policies.

„ A large fract ion of t he world’ s unconvent ional resources is locat ed in environment ally

sensit ive areas, where wat er and land use could const rain new development s. The uncert aint ies surrounding t he response t o t hese challenges are reflect ed in large differences in t he share of unconvent ional oil in world oil supply in t he t hree scenarios (Table 4.1). In part icular, t he at t ract iveness of invest ing in unconvent ional oil is highly sensit ive t o t he out look for oil prices, t he ext ent of t he int roduct ion of penalt ies on CO2 emissions and t he level of development cost s relat ive t o convent ional oil. In t he New Policies Scenario, unconvent ional sources play an increasingly import ant role in supplying t he world’ s oil needs. The main sources of unconvent ional oil t oday —Canadian oil sands and Venezuelan ext ra-heavy oil — cont inue t o dominat e over t he proj ect ion period, wit h ot her sources j ust beginning t o play a role near t he end of t he proj ect ion period. Unconvent ional oil supply grows more rapidly in t he Current Policies Scenario, in line wit h higher oil prices (which boost t he economic at t ract iveness of t he high-cost unconvent ional sources). In t he 450 Scenario, oil demand is relat ively weak and t he large CO2 penalt y furt her depresses demand for unconvent ional oil, t hough product ion from Canadian oil sands and of Venezuelan ext ra-heavy oil, nonet heless increases beyond current levels. Coal prices, being depressed even more t han oil prices, make coal-t o-liquids product ion (wit h carbon capt ure and st orage) relat ively at t ract ive.

Table 4.1 z

World unconventional oil supply by type and scenario (mb/d)

© OECD/ IEA - 2010

New Policies Scenario

Current Policies Scenario

450 Scenario

1980

2008

2020

2035

2020

2035

2020

Canadian oil sands

0.1

1.3

2.8

4.2

2.8

4.6

2.5

3.3

Venezuelan ext ra-heavy

0.0

0.4

1.3

2.3

1.3

2.3

1.3

1.9

2035

Oil shales

0.0

0.0

0.1

0.3

0.1

0.5

0.1

0.2

Coal-t o-liquids

0.0

0.2

0.3

1.1

0.4

1.6

0.3

1.0 0.5

Gas-t o-liquids

-

0.1

0.2

0.7

0.3

1.0

0.2

Ot her*

0.0

0.4

0.6

0.9

0.7

1.0

0.6

0.6

Total

0.2

2.3

5.3

9.5

5.5

11.0

5.0

7.4

* Refinery addit ives and blending component s (see t he discussion at t he end of t his chapt er).

144

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

What is unconventional oil? There is no universally agreed definit ion of unconvent ional oil, as opposed t o convent ional oil. Roughly speaking, any source of oil is described as unconvent ional if it requires product ion t echnologies significant ly different from t hose used in t he mainst ream reservoirs exploit ed t oday. However, t his is clearly an imprecise and t imedependent definit ion. In t he long-t erm fut ure, in fact , “ unconvent ional” heavy oils may well become t he norm rat her t han t he except ion. Some expert s use a definit ion based on oil densit y, or American Pet roleum Inst it ut e (API) gravit y. For example, all oils wit h API gravit y below 20 ( i.e. a densit y great er t han 0.934 g/ cm 3) are considered t o be unconvent ional. This definit ion includes “ heavy oil” , “ ext ra-heavy oil” (wit h API gravit y less t han 10) and bit umen deposit s. While t his classificat ion has t he merit of precision, it does not always reflect t he t echnology used for product ion. For example, some oils wit h 20 API gravit y locat ed in deep offshore reservoirs in Brazil are ext ract ed using ent irely convent ional t echniques. Ot her classificat ions focus on t he viscosit y of t he oil, t reat ing as convent ional any oil which can flow at reservoir t emperat ure and pressure wit hout recourse t o viscosit y-reduct ion t echnology. But such oils may st ill need special processing at t he surface if t hey are t oo viscous t o flow at surface condit ions. Oil shales are generally regarded as unconvent ional, alt hough t hey do not fit int o t he above definit ions (more det ails on oil shales can be found lat er in t his chapt er). Also classified as unconvent ional are bot h oil derived from processing coal wit h coal–t o-liquids (CTL) t echnologies and oil derived from gas t hrough gas-t o-liquids (GTL) t echnologies. The raw mat erials in bot h cases are perfect ly convent ional fossil fuels. These oil sources are discussed briefly lat er in t his chapt er. Oil derived from biomass, such as biofuels, or biomass-t o-liquids (BTL, whereby oil is obt ained from biomass t hrough processes similar t o CTL and GTL) are somet imes included in unconvent ional oil, but not always. Anot her approach, used not ably by t he Unit ed St at es Geological Survey (USGS), is t o define unconvent ional oil (or gas) on t he basis of t he geological set t ing of t he reservoir. The hydrocarbon is considered convent ional if t he reservoir sit s above wat er-bearing sediment s and if it is relat ively localised. If neit her is t he case, for example if t he hydrocarbon is present cont inuously over a large area, t he hydrocarbon is defined as unconvent ional. This t ype of definit ion has a sound geological basis, but does not always reflect t he t echnology required for product ion, nor t he economics of exploit at ion. For t he purpose of t his Out look, we define as unconvent ional t he following cat egories of oil: 1 „ Bit umen and ext ra-heavy oil from Canadian oil sands.

© OECD/ IEA - 2010

„ Ext ra-heavy oil from t he Venezuelan Orinoco belt .

1. This defi nit ion differs from t hat used in t he IEA Oil Market Report (OMR) , which includes some but not all of t he Canadian oil sands and Venezuelan Orinoco product ion (it includes upgraded “ synt het ic” oil, but not raw bit umen or ext ra-heavy oil). The OMR also includes biofuels, but t hese are included in biomass in t he WEO. The OMR defi nit ion is driven primarily by t he way t he product ion dat a is report ed by various count ries and t he short t ime available for making adj ust ment s t o mont hly fi gures. The defi nit ions we have adopt ed here are primarily t o facilit at e t he discussion of long-t erm issues.

Chapter 4 - The outlook for unconventional oil

145

4

„ Oil obt ained from kerogen cont ained in oil shales.

„ Oil obt ained from coal t hrough coal-t o-liquids t echnologies.

„ Oil obt ained from nat ural gas t hrough gas-t o-liquids t echnologies, as well as refinery

addit ives and gasoline blending addit ives originat ing primarily from gas or coal, such as met hyl t ert iary but yl et her (MTBE), or met hanol for blending. There are bit umen and ext ra-heavy oil deposit s in count ries ot her t han Canada and Venezuela (Table 4.2), but only Canada and Venezuela are likely t o play a significant role in t he exploit at ion of t hese resources in t he t imescale of t hese proj ect ions. This is because of t he size of t heir resources and t he fact s t hat t hey are already in product ion, plans exist for t heir furt her development , significant reserves are considered as proven and t hey are geographically concent rat ed; t heir decline is not an issue over t he 25-year horizon of t hese proj ect ions. Their development is much more like a manufact uring operat ion t han a t radit ional upst ream oil indust ry proj ect . Whet her or not t hey will be exploit ed is mainly a mat t er of economics and capit al spending dynamics, not one of geology. By cont rast , t he resources in Russia and Kazakhst an, which are also sizeable, are more geographically dispersed and, wit h large convent ional oil resources st ill available, t here is lit t le incent ive t o develop t hese heavy oils quickly. Their product ion pot ent ial in t he next 25 years is not large enough t o affect world supply significant ly. They are briefly discussed in t his chapt er, but do not feat ure as part of our unconvent ional oil product ion est imat es up t o 2035.

© OECD/ IEA - 2010

Table 4.2 z

Natural bitumen and extra-heavy oil resources by country (billion barrels) Proven reserves

Ultimately recoverable resources

Original oil in place

Canada

170

≥ 800

≥ 2 000

Venezuela

60*

500

≥ 1 300

Russia

-

350

850**

Kazakhst an

-

200

500

Unit ed St at es

-

15

40

Unit ed Kingdom

-

3

15

China

-

3

10

Azerbaij an

-

2

10

Madagascar

-

2

10

Ot her

-

14

30

World

230

≥ 1 900

≥ 5 000

* As report ed by t he Oil & Gas Journal (O&GJ, 2009); t he nat ional oil company, PDVSA, current ly report s 130 billion barrels as proven (as discussed lat er in t his chapt er). ** From BGR (2009); Russian aut hors report significant ly smaller resources, of t he order of 250 billion barrels; t he same applies for Kazakhst an. Bit umen resources in part icular are poorly known, as a high percent age is locat ed in t he vast and poorly explored region of east ern Siberia. BGR report s 345 billion barrels recoverable, which is more in line wit h Russian publicat ions. Sources: BGR (2009); USGS (2009a); IEA analysis.

146

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Box 4.1 z How oil is formed A basic underst anding of t he format ion of oil reservoirs is helpful in underst anding t he differences bet ween t he t ypes of unconvent ional oil present ed in t his chapt er. Oil deposit s result from t he burial and t ransformat ion of biomass over geological periods during t he last 200 million years or so. The biomass is t ypically cont ained in a t ype of sediment called shale (t hough it s mineral composit ion can vary), deposit ed at t he bot t om of t he ocean or lake basins. As t hose sediment s get buried, t he biomass is t ransformed int o complex solid organic compounds called kerogen. When t he sediment s are deeply buried, t he t emperat ure may be sufficient for t he kerogen t o be t ransformed int o oil and gas. Under pressure, t he oil (or gas) can be expelled from t he shale sediment s where t hey were creat ed (known as source rocks) and begin t o migrat e upwards (due t o t heir low densit y) int o ot her sediment ary rocks, such as sandst one or carbonat es. This upward migrat ion st ops when t he oil encount ers a low permeabilit y rock t hat act s as a barrier t o it s movement (cap rock). In t his way, a convent ional oil reservoir is formed. When t he oil does not encount er any significant barrier unt il it get s near t he surface, it can become more and more viscous, as t he t emperat ure decreases and some of t he light er component s of t he oil seep t o t he surface, where t hey are degraded by bact eria and escape t o t he at mosphere. The remaining very viscous oil can become almost solid and st op migrat ing, even in t he absence of a st rong cap rock, forming relat ively shallow deposit s of very viscous, ext ra-heavy oil or nat ural bit umen. Occasionally, it can even seep out t o t he surface, as seen in t ar pit s, for example.

Canadian oil sands

© OECD/ IEA - 2010

Product ion from Canadian oil sands is set t o cont inue t o grow over t he proj ect ion period, making an import ant cont ribut ion t o t he world’ s energy securit y. Just how rapidly will depend on a number of fact ors, including whet her t he environment al impact can be mit igat ed t hrough t he use of new t echnology wit hout rendering t he oil uneconomic. Ext ract ion involving t he inj ect ion of st eam via wells int o t he oil-sands deposit t o reduce t he viscosit y of t he oil and allow it t o flow t o t he surface (in-sit u proj ect s, see below) is economically and environment ally preferable, but mining is an alt ernat ive and significant mining capacit y is under const ruct ion which will ensure mining remains a subst ant ial cont ribut or t o product ion growt h. In t he New Policies Scenario, oil-sands product ion climbs from about 1.3 million barrels per day (mb/ d) in 2009 t o 4.2 mb/ d in 2035, 2 wit h around t wo-t hirds of t he increase coming from in-sit u proj ect s (Figure 4.1). The 450 Scenario proj ect s only modest addit ions t o current capacit y: proj ect s current ly under const ruct ion or being planned would suffice t o mat ch supply t o demand. The Current Policies Scenario calls for rapid growt h in 2. This is market ed product ion, act ually part raw bit umen, part upgraded synt het ic crude oil. Raw bit umen product ion is higher, due t o volume loss during upgrading; for example in 2009, raw bit umen product ion was 1.49 mb/ d.

Chapter 4 - The outlook for unconventional oil

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4

oil sands product ion, alt hough st ill below what could be achieved wit h t he proj ect s already proposed. The crit ical drivers and uncert aint ies surrounding t he prospect s for oil-sands product ion are discussed in det ail below.

mb/ d

Figure 4.1 z Canadian oil-sands production by type in the New Policies Scenario 5

In-sit u Mining

4 3 2 1 0 2000

2009

2015

2020

2025

2030

2035

Resources and production technology

© OECD/ IEA - 2010

Very large deposit s of very viscous oil and bit umen — oil sands — exist in Canada at relat ively shallow dept h. They cover a vast region of Albert a and, t o a lesser ext ent , Saskat chewan. The t erm “ oil sands” is a slight misnomer, as t he oil or bit umen is found not only in sand format ions, but also in carbonat es. The main cent res of act ivit y are t he At habasca, Cold Lake and Peace River dist rict s (Figure 4.2), t hough t here are also significant resources in neighbouring regions of Saskat chewan. The t ot al oil in place is est imat ed t o be in excess of 2 t rillion barrels, as much as t he remaining t echnically recoverable convent ional oil in t he ent ire world. However, because of it s very high viscosit y, t his oil is difficult t o produce and, wit h current t echnology and oil prices, only part of t his volume is t hought t o be recoverable. The Albert a provincial government current ly recognises 170 billion barrels as est ablished reserves, i.e. current ly economically and t echnically recoverable. Because t hey out crop over a large area, t he presence of bit umen in t he Canadian oil sands has been known for cent uries. Various early at t empt s at indust rial exploit at ion t ook place during t he 20t h cent ury, leading t o t he refinement of t he t echniques for mining and bit umen/ sand separat ion. The modern era for t he oil sands st art ed in 1967 wit h t he opening of t he Great Canadian Oil Sands base mine, t he first large-scale mining operat ion. It has since been expanded t o what is now t he Suncor Corporat ion St eepbank/ Millenium mine. In-sit u primary product ion, began in t he 1970s and t he first st eam-st imulat ion proj ect s in t he 1980s. Quant ificat ion of reserves in t he 1990s, as well as t he new oil sands royalt y regime int roduced in Albert a in 1997, paved t he way for t he boom of t he 2000-2008 period, when many new proj ect s were launched and ext ensive explorat ion/ appraisal land leases were grant ed. 148

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

Figure 4.2 z Main Canadian oil-sands districts Yukon Nort hwest Territ ories

Peace River oil-sands area

Nunavut Peace River

CANADA

Albert a Brit ish Columbia

Fort McMurray Wabasca

At habasca oil-sands area

Manit oba Edmont on

Saskat chewan

Lac La Biche Cold Lake

Calgary

Bonnyville Edmont on

UNITED STATES

Bruderheim

Cold Lake oil-sands area

The boundaries and names shown and t he designat ions used on maps included in t his publicat ion do not imply official endorsement or accept ance by t he IEA.

There are t wo main met hods used t o produce oil sands: „ Mining: Part of t he Canadian oil sands out crop t o t he surface and t herefore can be

mined by essent ially convent ional st rip-mining t echniques. Some 7% of t he t ot al oil originally in place is est imat ed t o be mineable, i.e. some 130 billion barrels. Of t he 170 billion barrels of t he t ot al Canadian oil-sands est ablished reserves, about 20%, or 35 billion barrels, is recoverable by mining. The “ ore” , a mixt ure of bit umen and sand, is t reat ed wit h hot wat er t o separat e out t he bit umen. The remaining sludge of slight ly oily sand/ clay/ wat er mixt ure is left t o set t le in large t ailing ponds. Some of t he solids may event ually be used as part of land reclamat ion programmes, while some of t he wat er is recycled.

© OECD/ IEA - 2010

„ In-Sit u: Deeper deposit s (75 met res and below) cannot be mined from t he surface.

A small part can be produced by convent ional oil-product ion t echniques. For t he very viscous oil found in t he Canadian oil sands, t hese t echniques can be applied only t o t he deepest deposit s of slight ly lower viscosit ies, and even t here recovery is proport ionat ely small, t ypically less t han 5%. However, product ion cost s can be very low. In some fields, polymer flooding is also applied, wit h a polymer solut ion being inj ect ed t hrough wells t o help push t he viscous oil t owards t he producing wells. A variant on primary recovery is called Cold Heavy Oil Product ion wit h Sand (CHOPS), in which t he product ion rat e is large enough t o ent rain sand wit h t he oil, wit h t he oil and sand t hen being separat ed at t he surface using t echnologies similar t o t hose used in mining. These “ cold” recovery t echniques current ly produce close t o 250 t housand barrels per day (kb/ d). Most of t he oil in t he oil sands is t oo viscous t o be produced nat urally by such primary, or even polymer-f looding, approaches. The t emperat ure of t he oil needs Chapter 4 - The outlook for unconventional oil

149

4

t o be increased, so t hat it s viscosit y decreases, bef ore it begins t o f low out of t he reservoirs. The met hod of choice t o heat -up t he reservoir is t o inj ect hot st eam (at a t emperat ure of 250-350°C). There are numerous variant s on st eam-inj ect ion t echnologies. Cycling St eam St imulat ion (CSS) inj ect s st eam in a well f or a while t hen, when t he reservoir t emperat ure around t he well has risen suf f icient ly, it t urns t he well int o a producer, produces t he heat ed oil, and t hen st art s again — an approach somet imes dubbed “ huf f -and-puf f ” . St eam Assist ed Gravit y Drainage (SAGD), which has become t he most popular t echnology f or new in-sit u proj ect s, uses a pair of horizont al wells, one above t he ot her in t he reservoir. St eam is inj ect ed in t he t op well and oil accumulat es by gravit y in t he bot t om well. Ot her approaches t o providing heat are at an early st age of experiment at ion, for example, driving an elect rical current t hrough t he reservoirs or inj ect ing air t o burn some of t he oil in-sit u (t oe-t o-heel air inj ect ion, [THAI] using horizont al wells; combust ion overhead gravit y drainage [COGD] using a combinat ion of vert ical and horizont al wells; or t he older f ire-f lood t echnique, using vert ical wells). Ot her experiment al approaches use solvent s (t he so-called VAPEX process), or a combinat ion of st eam and solvent s, t o reduce t he viscosit y of t he bit umen. At t he beginning of 2010, t here were more t han 80 oil-sands proj ect s in operat ion, wit h t ot al raw bit umen capacit y of 1.9 mb/ d (Table 4.4). Tot al product ion in 2009 averaged 1.5 mb/ d of raw bit umen. Proj ect s under const ruct ion will add a f urt her 0.9 mb/ d capacit y by 2015. If all proposed and announced proj ect s were t o be complet ed, anot her 4.5 mb/ d capacit y would be added. Product ion will cont inue t o be dominat ed by a few large proj ect s, operat ed by large companies. Mining and in-sit u current capacit ies are about equal, but more increment al capacit y will derive f rom in-sit u proj ect s, which are regarded as providing bet t er f inancial ret urns and f acing f ewer environment al problems. Very f ew new proj ect s are planned using primary product ion only: alt hough f inancially at t ract ive, t hey provide only short -t erm ret urns, as t he recovery rat e is low and product ion declines rapidly. Product ion cost s depend on t he product ion met hod, t he qualit y of t he reservoir, t he size of t he proj ect and t he locat ion (Table 4.3). Generally, expansions of exist ing proj ect s cost less t han new green-f ield development s. The prof it abilit y of oil-sands proj ect s depends on many variables, including t he bit umen/ convent ional oil price spread, gas prices, const ruct ion cost s and t he prices of st eel and oilf ield services and labour. At mid-2010 values f or t hese variables, most new oil-sands proj ect s are t hought t o be prof it able at oil prices above $65 t o $75 per barrel.

Table 4.3 z

Typical costs of new Canadian oil sands projects

Mining (wit hout upgrader)

© OECD/ IEA - 2010

In-sit u primary In-sit u SAGD

Capital cost ($ per b/ d capacity)

Operating cost ($/ barrel)

Economic WTI price ($/ barrel)

50 000-70 000

25-35

50-80

10 000

5-10

25-50

30 000-40 000

20-30

45-80

The current narrow price spread bet ween convent ional light oil (such as West Texas Int ermediat e [WTI]) and Canadian bit umen blends is likely t o persist , as refineries 150

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

in t he Unit ed St at es are geared t o process relat ively heavy crude and will cont inue t o need Canadian bit umen t o balance t heir crude input slat e. The const ruct ion of a pipeline from Albert a t o t he Pacific coast in Brit ish Columbia, current ly under considerat ion, would give support t o t he price of bit umen by opening t he Asian market for Canadian bit umen. However, bot h t he proposed pipeline t o t he Pacific coast and anot her proposed pipeline t o t he Unit ed St at es face st rong opposit ion on environment al grounds. Delays or out right cancellat ion of t hese proj ect s could affect t he market abilit y of Canadian bit umen. As oil prices increase, as assumed in each of t he t hree scenarios present ed in t his Out look, some of t he cost s, not ably of gas and services, will also rise, so t he price t hreshold for profit abilit y will also increase; but analysis suggest s int ernal rat es of ret urn could cont inue t o increase over t he next 25 years (Biglarbigi et al. , 2009, where a similar analysis is done for oil shales). Technological progress and learning would furt her boost profit abilit y. Most proj ect s are economic while oil (West Texas Int ermediat e) is priced at more t han $80/ barrel, but many become uneconomic when t he price drops below $50/ barrel. This is why many new proj ect s were delayed at t he end of 2008 and t he beginning of 2009. By mid-2010, when t he oil price had rebounded t o around $70/ barrel, many proj ect s were being react ivat ed. Overall, t he breakeven oil price for Canadian oil-sands proj ect s is comparable t o t hat of deepwat er offshore convent ional oil proj ect s, but product ion, and t herefore invest ment payback periods, is spread over a much longer t ime period.

Upgrading As t he oil produced, whet her by mining or by in-sit u t echniques, is ext remely viscous (several 100 000 cP, 3 or 100 000 t imes t he viscosit y of wat er, is t ypical), it cannot be t ransport ed economically t o refineries wit hout pre-t reat ment . Two solut ions are used in t he Canadian oil sands: dilut ion and upgrading.

© OECD/ IEA - 2010

In t he dilut ion approach, t he viscous bit umen is mixed wit h light hydrocarbons, f or example, t he NGLs associat ed wit h gas product ion or synt het ic crude oil (SCO) f rom t he upgraders. This yields a mixt ure, somet imes called Dilbit (f or “ dilut ed bit umen” ), or SynDilBit if dilut ed wit h SCO, t hat can be t ransport ed by pipeline t o a ref inery in t he same way as convent ional oil. Not all ref ineries are equipped t o process Dilbit , as t he bit umen cont ains a high concent rat ion of sulphur and asphalt enes, beyond t he specificat ions of some refineries. When t he Dilbit is delivered t o a nearby refinery, t he dilut ing fluid can oft en be recycled, t ransport ed back t o t he dilut ing plant and reused. When t he dilut ed bit umen goes t o ref ineries f art her away, reuse of t he dilut ing f luid may not be economic. Availabilit y of enough dilut ing fluid t o cat er for a significant rise in product ion of bit umen is likely t o require new long-dist ance pipelines and increased import s, as NGLs product ion in west ern Canada is set t o decline (IEA, 2010).

3. A cent ipoise (cP) is a unit of measurement for dynamic viscosit y (equal t o one-hundredt h of a poise). Wat er at 20°C has a viscosit y of 1 cent ipoise.

Chapter 4 - The outlook for unconventional oil

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4

Total in construction

In construction in-situ

In construction mining

Total producing

Producing in-situ

Producing mining

CNRL

Muskeg River

Horizon

721

Shell Imperial Shell

Jackpine 1

Kearl 1

Jackpine 2

Cenovus Husky

Christ ina Lake C

Sunrise

Total in-situ construction

Suncor Value Creat ion/ BP

Terre de Grace

Various

Ot hers (< 40 kb/ d)

Firebag 4

Suncor

Firebag 3

Total mining construction

Shell

Muskeg river expansion

901

501

200

40

50

63

85

63

400

100

100

100

100

1 923

988

Various

Total in-situ producing

Ot hers (< 100 kb/ d)

147

CNRL Imperial

Cold Lake

120

935

110

155

215

135

320

Raw bitumen capacity (kb/ d)

Primrose

Total mining producing

Syncrude Shell

Aurora Nort h

Suncor Syncrude

Syncrude 21 (Mildred Lake)

Operator

St eepbank/ Millenium

Project name

Table 4.4 z Current and planned Canadian oil sands projects (as of mid-2010)

© OECD/ IEA - 2010

152

World Energy Outlook 2010 - GLOBAL ENERGY TRENDS

2014-2018

2012

2012

2012

2011

2011

2013

2012

2010

2011

Various

1985

1985

2009

2002

2001

1978

1967

Start year

At habasca

At habasca

At habasca

At habasca

At habasca

At habasca

At habasca

At habasca

At habasca

At habasca

Various

Cold Lake

Cold Lake

At habasca

At habasca

At habasca

At habasca

At habasca

Area

SAGD

SAGD

SAGD

SAGD

Various

SAGD

Various

CSS

CSS

Technology

Chapter 4 - The outlook for unconventional oil

Proposed in-situ

Proposed Mining

Cenovus Various CNRL Cenovus Various Shell MEG energy St at oil Various Conoco Philips Nexen

Various

Ot hers (< 40 kb/ d)

Suncor Tot al CNRL Imperial Shell Syncrude Suncor UTS energy/ Teck Shell UTS energy/ Teck Tot al CNRL Imperial Suncor Tot al/ Sinopec

Operator

Voyageur Sout h Joslyn Nort h mine Horizon phase 2 and 3 Kearl 2 Jackpine expansion Aurora Sout h Fort -Hills Equinox Pierre River Front ier Joslyn Sout h mine Horizon phase 4 and 5 Kearl 3 Nort h St eepbank expansion Nort hern Light s Total mining proposed Fost er Creek expansion Ot hers (< 40 kb/ d) Kirby Christ ina Lake D Ot hers (