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

2. © OECD/IEA 2011 Oil prices break out to the upside after over a year within a $65-$85/bbl range

3. © OECD/IEA 2011 Further oil market tightening

4. © OECD/IEA 2011 World oil intensity is declining… Global oil intensity – oil consumption per unit of GDP – has declined at 1.7% p.a. since 1971 thanks to efficiency improvements & changes to the structure of economic output 0 50 100 150 200 250 300 350 197019751980198519901995200020052010 India China World United States Japan EU27 toe per million dollars of GDP ($2009, MER )

5. © OECD/IEA 2011 But oil prices still affect the global economy … Oil price spikes have preceded each global recession since the early 1970’s 0 30 60 90 120 -2% 0% 2% 4% 6% 8% 19701980199020002010 World GDP ($2009, MER) growth Annual GDP growth Recession Avg. IEA oil import price in real $2009 (right axis)

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

7. © OECD/IEA 2011 Public Stocks: A Clear Safety Net 2 Sep. 2005 decision, 2 mb/d Theoretical decision, 4 mb/d 1.56 billion barrels of Public stocks IEA Public Stocks alone could replace an oil supply disruption of 4 mb/d for 1 year 7 IEA public stocks (as of end-Dec. 2010) = 1.6 billion barrels of oil = 72 days of Total IEA net imports

8. © OECD/IEA 2011 Need for cooperation during oil supply disruptions IEA stockholding cover of global oil demand Growing share of non-OECD oil demand results in declining global demand cover from IEA oil stocks

9. © OECD/IEA 2011 The context: A time of unprecedented uncertainty The worst of the global economic crisis appears to be over – but is the recovery sustainable? Oil demand & supply are becoming less sensitive to price – what does this mean for future price movements ? Natural gas markets are in the midst of a revolution – will it herald a golden era for gas? Copenhagen Accord & G-20 subsidy reforms are key advances – but do they go far enough & will they be fully implemented ? Emerging economies will shape the global energy future – where will their policy decisions lead us ? Tightening oil market plus political unrest in producing regions – how vulnerable is the market to even small disruptions?

10. © OECD/IEA 2011 Overview of WEO-2010 scenarios New Policies Scenario is the central scenario in WEO-2010 > assumes cautious implementation of recently announced commitments & plans, even if yet to be formally adopted > provides benchmark to assess achievements & limitations of recent developments in climate & energy policy Current Policies Scenario takes into consideration only those policies that had been formally adopted by mid-2010 > equivalent to the Reference Scenario of past Outlooks The 450 Scenario sets out an energy pathway consistent with the goal of limiting increase in average temperature to 2 O C

11. © OECD/IEA 2011 International oil price assumptions The age of cheap oil is over, though policy action could bring lower international prices than would otherwise be the case Scenario CO 2 price in 2035 ($/ tCO 2 ) International oil price in 2035 ($/bbl) Effective oil price in 2035 ($/bbl) Current Policies42 in EU135152 in EU New Policies50 in OECD113134 in OECD 450 Scenario120 in OECD90139 in OECD 0 20 40 60 80 100 120 140 1980199020002010202020302035 Dollars per barrel (2009) Current Policies Scenario New Policies Scenario 450 Scenario

12. © OECD/IEA 2011 Primary energy demand by fuel in the New Policies Scenario Non-OECD energy demand increases by 64% in 2008-2035, compared with a rise of just 3% in the OECD. Demand for all types of energy increases in non-OECD countries, while demand for coal & oil declines in the OECD. International Bunkers Non-OECD Renewables Non-OECD Nuclear Non-OECD Gas Non-OECD Oil Non-OECD Coal OECD Renewables OECD Nuclear OECD Gas OECD Oil OECD Coal

13. © OECD/IEA 2011 Emerging economies dominate the growth in demand for all fuels Demand for all types of energy increases in non-OECD countries, while demand for coal & oil declines in the OECD Incremental primary energy demand in the New Policies Scenario, 2008-2035 - 600- 300 0 300 600 9001 2001 500 Other renewables Hydro Nuclear Gas Oil Coal Mtoe OECD China Rest of world

14. © OECD/IEA 2011 Fossil-fuel subsidies are distorting price signals Fossil-fuel consumption subsidies amounted to $312 billion in 2009, down from $558 billion in 2008, with the bulk of the fall due to lower international prices Economic value of fossil-fuel consumption subsidies by country, 2009 Turkmenistan Electricity (generated from fossil fuels) Gas Oil Coal Additional subsidy in 2008 Iran Saudi Arabia Russia India China Egypt Venezuela Indonesia UAE Uzbekistan Iraq Kuwait Pakistan Argentina Ukraine Algeria Malaysia Thailand Bangladesh Mexico South Africa Qatar Kazakhstan Libya 0 Billion dollars 20 40 60 80 100

15. © OECD/IEA 2011 Booming demand for mobility in the emerging economies drives up oil use The global car fleet will continue to surge as more & more people in China & other emerging economies buy a car, overshadowing modest growth in the OECD 0 200 400 600 800 1 000 1 200 1 400 1 600 198019902000200820202035 Million China Other non-OECD United States Other OECD Passenger vehicles in the New Policies Scenario

16. © OECD/IEA 2011 0 20 40 60 80 100 1990199520002005201020152020202520302035 mb/d Crude oil: fields yet to be developed Crude oil: currently producing fields Total crude oil Oil production becomes less crude Global oil production reaches 96 mb/d in 2035 on the back of rising output of natural gas liquids & unconventional oil, as crude oil production plateaus World oil production by type in the New Policies Scenario Unconventional oil Natural gas liquids Crude oil: fields yet to be found

17. © OECD/IEA 2011 More oil from fewer producers Production rises most in Saudi Arabia & Iraq, helping to push OPEC’s market share from 41% today to 52% by 2035, a level last seen prior to the first oil shock of 1973-1974 Incremental oil production by key country in the New Policies Scenario, 2009-2035 0123456 Algeria Libya Nigeria Qatar Iran Kuwait UAE Venezuela Canada Kazakhstan Brazil Iraq Saudi Arabia mb/d OPEC Non-OPEC

18. © OECD/IEA 2011 A golden age for gas? Gas is set to play a key role in meeting the world’s energy needs > demand rises by 44%, led by China & Middle East Unconventional gas accounts for 35% of the increase in global supply to 2035, with new non-US producers emerging Gas glut will peak soon, but may dissipate only very slowly The glut will keep pressure on gas exporters to move away from oil- price indexation, notably in Europe Lower prices could lead to stronger demand for gas, backing out renewables & coal in power generation

19. © OECD/IEA 2011 Coal remains the backbone of global electricity generation A drop in coal-fired generation in the OECD is offset by big increases elsewhere, especially China, where 600 GW of new capacity exceeds the current coal-fired capacity of the US, EU & Japan 0 2 000 4 000 6 000 8 000 10 000 12 000 199020002010202020302035 TWh China India Other non-OECD OECD Coal-fired electricity generation by region in the New Policies Scenario

20. © OECD/IEA 2011 Renewables enter the mainstream…. The use of renewable energy triples between 2008 & 2035, driven by the power sector where their share in electricity supply rises from 19% in 2008 to 32% in 2035 Renewable primary energy demand in the New Policies Scenario 0100200300400500 European Union United States China Brazil India Africa OECD Pacific Mtoe 2008 2035

21. © OECD/IEA 2011 ….but only if there is enough government support Government support remains the key driver – rising from $57 billion in 2009 to $205 billion in 2035 – but higher fossil-fuel prices & declining investment costs also spur growth Annual global support for renewables in the New Policies Scenario Billion dollars (2009) Biofuels Renewables-based electricity 0 30 60 90 120 150 180 210 20072008200920152020202520302035

22. © OECD/IEA 2011 Ambitious nuclear growth plans are now in doubt Most of the planned-for growth is in non-OECD countries

23. © OECD/IEA 2011 China becomes the market leader in low-carbon technologies Passenger car sales Capacity additions China’s share of cumulative global additions to 2035 for selected technologies Given the sheer scale of China’s market, its push to expand the role of low-carbon energy technologies is poised to play a key role in driving down costs, to the benefit of all countries 85 GW 335 GW 105 GW 0% 10% 20% 30% Solar PVWindNuclear Electric & plug-in hybrids 8.5 million vehicles

24. © OECD/IEA 2011 The 450 Scenario: A roadmap from 3.5  C to 2  C The 450 Scenario sets out an energy pathway consistent with limiting the increase in temperature to 2  C Assumes vigorous implementation of Copenhagen Accord pledges to 2020 & much stronger action thereafter The failure of the Copenhagen Accord pledges: > As many lack transparency, there is 3.9 Gt of uncertainty over the level of abatement pledged to 2020 > As many lack ambition, the cost of achieving the 2  C goal has increased by $1 trillion in 2010-2030 compared with WEO-2009

25. © OECD/IEA 2011 Low ambition to 2020 makes faster and deeper cuts necessary afterwards Overall, this year’s 450 Scenario will cost $1 trillion more than last year’s by 2030, and requires a total of $18 trillion in investment by 2035 Emissions (right axis) Investment WEO-2010: Emissions (right axis) Investment WEO-2009: 0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 2010- 2015 2021- 2025 2026- 2030 2031- 2035 Trillion dollars (2009) 20 22 24 26 28 30 32 34 201020152020202520302035 Gt CO 2 2016- 2020

26. © OECD/IEA 2011 In the 450 Scenario, compared with the Current Policies Scenario, China & the US account for 48% of the cumulative emission abatement that is needed in 2010-2035 World energy-related CO2 emission savings by country in the 450 Scenario relative to the Current Policies Scenario 20 25 30 35 40 45 200820152020202520302035 Gt China33% United States15% European Union9% India8% Middle East5% Russia3% Rest of world24% Share of cumulative abatement between 2010-2035 Japan3% 42.6 Gt 21.7 Gt Current Policies Scenario 450 Scenario 20.9 Gt The 450 Scenario: Abatement by country

27. © OECD/IEA 2011 The 450 Scenario: Abatement by technology In moving from the New Policies Scenario to the 450 Scenario, more expensive abatement options such as CCS play a growing role World energy-related CO2 emission savings by technology in the 450 Scenario relative to the New Policies Scenario 20 25 30 35 40 45 200820152020202520302035 Gt Efficiency50% Renewables18% Biofuels4% Nuclear9% CCS20% Share of cumulative abatement between 2010-2035 42.6 Gt 35.4 Gt 21.7 Gt Current Policies Scenario 450 Scenario New Policies Scenario 13.7 Gt 7.1 Gt

28. © OECD/IEA 2011 Achieving the 2°C goal will require rapid decarbonisation of global energy Carbon intensity would have to fall at twice the rate of 1990-2008 in the period 2008-2020 & almost four times faster in 2020-2035 Average annual change in CO 2 intensity in the 450 scenario 0% 1% 2% 3% 4% 5% 6% 1990-20082008-20202020-2035 A four-fold increase needed

29. © OECD/IEA 2011 A fundamental change is needed in power generation Low-carbon technologies account for over three-quarters of global power generation by 2035 in the 450 Scenario, a four-fold increase on today Share of world electricity generation by type and scenario Additional low-carbon generation in 450 Scenario Low-carbon generation in the NPS Fossil-fuel fired generation 0% 20% 40% 60% 80% 100% 201020152020202520302035 in the 450 Scenario

30. © OECD/IEA 2011 Decarbonisation of power generation in OECD Europe A mix of nuclear, renewables and fossil-fuels with CCS will be needed to decarbonise the electricity sector.

31. © OECD/IEA 2011 Fundamental change also in transport Plug-in hybrids & electric vehicles reach 39% of light-duty vehicle sales by 2035, making a big contribution to CO 2 abatement, thanks to a major decarbonisation of the power sector Sales of plug-in hybrid and electric vehicles in the 450 Scenario CO 2 intensity in power generation (right axis) Electric vehicles Plug-in hybrids & CO2 intensity of the power sector 0 100 200 300 400 500 600 700 Grammes per kWh 0 10 20 30 40 50 60 70 201020152020202520302035 Million

32. © OECD/IEA 2011 Clean energy progress mixed We are not on a pathway to limit global temperatures

33. © OECD/IEA 2011 Clean energy progress is mixed Average annual electricity capacity additions to 2050

34. © OECD/IEA 2011 Will peak oil be a guest or the spectre at the feast? Oil demand peaks at 88 mb/d before 2020 & falls to 81 mb/d in 2035, with a plunge in OECD demand more than offsetting continuing growth in non-OECD demand Oil demand World demand in 450 Scenario Inter-regional (bunkers) Other non-OECD India China OECD Right axis: 200920152020202520302035 mb/d 68 72 76 80 84 88 92 96 100 mb/d -16 -12 -8 -4 0 4 8 12 16 World demand in New Policies Scenario Peak demand in the 450 Scenario

35. © OECD/IEA 2011 Combating climate change will bring economic benefits as well as costs In the 450 Scenario, annual spending on oil imports in 2035 by the five largest importers is around $560 billion, or one-third, lower than in the New Policies Scenario Oil-import bills as share of GDP in selected countries 0% 1% 2% 3% 4% 5% 6% 7% 8% European Union United States JapanChinaIndia 1980 2008 2009 2035: New Policies Scenario 2035: 450 Scenario

36. © OECD/IEA 2011 OPEC oil-export revenues set to rise In the 450 Scenario, OPEC’s cumulative oil revenues in 2010-2035 amount to $27 trillion, or more than a 3-fold increase compared with the last quarter century 0 5 10 15 20 25 30 35 New Policies Scenario 450 Scenario 1984-20092010-2035 Trillion dollars (2009) Cumulative OPEC oil-export revenues by scenario

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

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