# Presentation: 057612

## World Energy Outlook 2006

***Dr. Teresa Malyshev***
***International Energy Agency***

## The Reference Scenario: World Primary Energy Demand

**The Reference Scenario: ****World Primary Energy Demand**

***Global demand grows by more than half over the next quarter of a century, with coal use rising most in absolute terms***

**Oil**

**Coal**

**Gas**

**Biomass**

**Nuclear**

**Other renewables**

-  0

- 2 000

- 4 000

- 6 000

- 8 000

- 10 000

- 12 000

- 14 000

- 16 000

- 18 000

- 1970

- 1980

- 1990

- 2000

- 2010

- 2020

- 2030

- Mtoe

**Notes:**
World primary energy demand projected in RS grows by 53% from 2004 to 2030, average annual increase of 1.6% per year – driven by rising population and GDP. 
 Projected rate of growth is, nevertheless, slower than over 1980-2004, when demand grew by 1.8% per year. 
 Demand reaches 17.1 billion toe in 2030 up from 11.2 btoe in 2004. 
All fuels increase in absolute terms: 
 - Oil will remain single largest fuel in the global primary energy mix.
 - Demand for gas grows at 2% per year in 2002-2030 – fastest rate of any fossil fuel.
 - But coal is still world’s 2nd-largest energy source in 2030.

## Reference Scenario: Primary Oil Demand

***Most of the increase in oil demand comes from developing countries, where economic growth – the main driver of oil demand – is most rapid***

**Notes:**
 As with energy use generally, most of the increase in oil demand comes from developing Asia and other DCs, where economic growth – the main driver of oil demand – is highest.
 China and the rest of developing Asia account for 15 mb/d, or 46%, of the 34-mb/d increase in global oil use between 2005 and 2030. 
 The economies of non-OECD countries will remain considerably more oil-intensive, measured by the amount of oil used per unit of gross domestic product (at market exchange rates), than those of OECD.

## Reference Scenario: Incremental Oil Demand, 2004-2030

***Most of the increase in oil demand comes from developing countries, where economic growth – the main driver of oil demand – is most rapid***

- Power generation

- Industry

- Transport

- Other

- -5

- 0

- 5

- 10

- 15

- 20

- 25

- mb/d

- OECD

- Transition economies

- Developing Asia

- Rest of developing countries

**Notes:**
The transport sector absorbs 63% of the increase in global oil demand in 2004-2030.
 -  In the OECD, oil use in other sectors hardly increases at all, declining in power generation and in the residential and services sectors, and growing in industry. Most of the increase in energy demand in non-transport sectors is met by gas, coal, renewables and electricity. 
 - In non-OECD countries, too, transport is the biggest contributor to oil-demand growth; but other sectors – notably industry – also see significant growth.

## Reference Scenario: Increase in World Oil Supply, 2004-2030

**Reference Scenario:**** ****Increase in World Oil Supply, 2004-2030**

***The share of OPEC in world oil supply increases sharply as conventional non-OPEC production peaks towards the middle of next decade ***

- S.Arabia

- Iraq

- Iran

- Other

- 0

- 5

- 10

- 15

- 20

- 25

- OPEC conventional

- Non-conventional

- Non-OPEC

- conventional

- mb/d

**Notes:**
Oil production continues to be dominated by a small number of major producers in those countries where oil resources are concentrated.
OPEC – especially Mideast – sees fastest growth 
-	crude oil, NGLs and non-conventional oil grows from 34 mb/d in 2005 to 56 mb/d in 2030.
-	market share rises from 40% now to 48% in 2030. Share of 3 countries, Saudi, Iraq and Iran rises from 20% to 26%.
-	Saudi Arabia remains by far the largest producer (output rises from 10.9 mb/d to 17.6 mb/d)
Non-OPEC production increases much more slowly, from 48 mb/d to 58 mb/d in 2030
-	Conventional output peaks by around 2015 and then declines slowly
-	Rises in near term due to restoration of production capacity lost through hurricanes and other technical difficulties; impact on increased drilling to boost production in response to recent oil-price. But relatively high decline rates and rising costs soon drive output back down again. 
-	In the longer term, only Russia, Central Asia, Latin America and sub-Saharan Africa – including Angola and Congo – achieve any significant increases in conventional oil
production.
   -	Non-conventional output (mainly Canada oil sands) grows strongly, outweighing stagnating conventional output.

## Reference Scenario: World Inter-regional Natural Gas Trade

***Global gas trade doubles, with two-thirds of the increase coming from Russia, the Middle East & North Africa – mostly as LNG***

**Notes:**
The geographical mismatch between resource endowment and demand means that the main gas-consuming regions become increasingly dependent on imports. 
- In volume terms, the biggest increase in imports is projected to occur in OECD Europe. Imports in OECD Europe jump by 280 bcm between 2004 and 2030, reaching almost 490 bcm – equal to about two-thirds of inland consumption. 
- North America, which is largely self sufficient in gas at present, emerges as a major importer. By 2030, imports – all of which are in the form of LNG – meet 16% of its total gas needs. 
Russia, Middle East and North Africa account for two-thirds of the increase in global exports over the Outlook period. 
- In light of current investment plans, there are doubts about whether Russia will be able to raise production fast enough to maintain current export levels to European markets given rising domestic needs. 
Gas continues to be traded on a largely regional basis, as there are few physical connections now between the main regional markets of North America, Europe, Asia-Pacific and Latin America. But these markets are set to become more integrated as trade in LNG expands. 
- LNG accounts for almost 60% of the increase in inter-regional trade. Exports of LNG grow from 151 bcm in 2004 to 201 bcm in 2010 and around 470 bcm in 2030. Much of the new liquefaction, shipping and regasification capacity that is due to come on stream by 2010 is either already being built or is at an advanced planning stage. 

## Reference Scenario:Annual Increase in Coal Demand

***Global coal demand in the recent years has grown much faster than previously – mainly driven by China***

- million tonnes

**Notes:**
In contrast to WEO-2005, coal sees the biggest increase in demand in absolute terms, driven mainly by power generation. China and India account for almost four-fifths of the incremental demand for coal.
This reflects that recent surge in coal demand, mainly driven by China. Increases of China’s coal demand in 2 years from 2003 to 2005 exceeds that in 10 years from 1993 to 2003.

## Reference Scenario: Energy-Related CO2 Emissions by Fuel

***Half of the projected increase in emissions comes from new power stations, mainly using coal & mainly located in China & India***

**Notes:**
Global energy-related carbon-dioxide (CO2) emissions increase by 55% between 2004 and 2030, or 1.7% per year, in the Reference Scenario. They reach 40 gigatonnes in 2030, an increase of 14 Gt over the 2004 level. 
Global energy-related carbon-dioxide emissions increase slightly faster than primary energy use, because the fuel mix becomes more carbon-intensive.
The power sector contributes around half the increase in emissions from 2004 to 2030. Coal remains the leading contributor to global emissions over the Outlook period. 
China accounts for 39% of the increase between 2004 and 2030, overtaking the United States as the world’s biggest emitter before 2010.

## Reference Scenario:Energy-Related CO2 emissions by Region

**Reference Scenario:****Energy-Related ****CO****2**** emissions by Region**

***China overtakes the US as the world’s biggest emitter before 2010, though its per capita emissions reach just 60% of those of the OECD in 2030***

-  0

-  3

-  6

-  9

-  12

-  15

- 1990

- 2000

- 2010

- 2020

- 2030

- Gigatonnes  of CO

**2**

- United States

- China

- Rest of non-OECD

- Rest of OECD

**Notes:**
Developing countries account for over three-quarters of the increase in global CO2 emissions between 2004 and 2030. They overtake the OECD as the biggest emitter by around 2012. The share of developing countries in world emissions rises from 39% at present to 52% by 2030. 
This increase is faster than that of their share in energy demand, because their incremental energy use is more carbon-intensive than that of the OECD and transition economies. In general, they use more coal and less gas. 
China alone is responsible for 39% of the rise in global emissions. China’s emissions more than double between 2004 and 2030, driven by strong economic growth and heavy reliance on coal in industry and power generation. China overtakes the United States as the world’s biggest emitter before 2010. 
Other Asian countries, notably India, also contribute heavily to the increase in global emissions.

## Reference Scenario: Cumulative Investment, 2005-2030

**Oil 21%**

**Electricity**

**56%**

**Coal 3%**

**Gas 19%**

**Reference Scenario:**** ****Cumulative Investment, 2005-2030**

***Investment needs exceed $20 trillion – $3 trillion more than previously projected, mainly because of higher unit costs***

**$20.2 trillion (in $2005)**

**$4.3 trillion**

**$11.3 trillion**

**$3.9 trillion**

**$0.6 trillion**

**Biofuels 1%**

**Notes:**
RS projections call for cumulative investment in energy-supply infrastructure of just over $20 trillion (in year- 2005 dollars) over 2005-2030. 
 $3 trillion higher than in WEO-2005 (due to recent sharp increases in unit capital costs, especially in the oil and gas industry).
 Just over half of total investment will go simply to maintain the current level of supply capacity, the rest to meeting demand growth. 
Investment by sector: 
- Power sector = more than $11 trillion of investment (56% of total, 2/3 if investment in supply chain to meet fuel needs of power stations is included). More than half in transmission and distribution networks, with the rest going to power generation. 
- Oil investment = $4.3 trillion, or just over 1/5 of total (more than 3⁄4 in upstream).
- Gas investment = $3.9 trillion, or 19% (56% in upstream) 
- Coal investment = $560 billion, or 3% of total energy investment (supplying coal is much less capital-intensive than oil or gas)
More than half of all the energy investment needed worldwide is in developing countries, where demand and production increase most quickly. 
- China alone needs to invest about $3.7 trillion – 18% of the world total. 
- Russia and other transition economies account for 9% of total world investment
- OECD for the remaining 37%. 

## Global Upstream Oil & Gas Investment: Impact of Cost Inflation

***Annual upstream investment doubled to $225 billion between 2000 and 2005, but most of the increase was due to cost inflation***

**actual**

**  ****forecast**

- Year 2000

- 50

- 100

- 150

- 200

- 250

- 300

- 2000

- 2002

- 2004

- 2006

- 2008

- 2010

-  index (year 2000 = 100)

- Nominal

- Adjusted for cost inflation

**Notes:**
But most of the increase in spending to date was due to sharp increases in costs
-	caused largely by higher international prices for cement, steel and other materials used in building production, processing and transportation facilities.
-	also increased charges for oilfield equipment and services, plus increased energy-input costs. 
-	In cost inflation-adjusted terms, the capital investment in 2005 was only 5% higher than that of 2000. In 2001-2004, real spending was, on average, 10% higher than in 2000.
Spending (in CIA terms) projected to grow by about 40% between 2005 and 2010 assuming unit costs level off in 2007 and then decline gradually. 
-	By 2010, cost inflation-adjusted spending is expected to be 46% higher than in 2000.

## The Energy Future Absent New Policies

- Security of oil supply is threatened
*Oil production in non-OPEC countries is set to peak*
*Production will be increasingly concentrated in a small number of countries*
- Gas security is also a growing concern
*Europe’s production has already peaked - US to follow*
*Import dependence in both regions & other key regions  will grow absent new policies*
- Investment over the next decade will lock in technology that will remain in use for up to 60 years

## Alternative Policy Scenario: Mapping a Better Energy Future

- Analyses impact of government policies under consideration to enhance security & curb emissions
- Demonstrates that we can significantly reduce growth in energy demand & emissions and stimulate alternative energy production
*Oil demand is reduced by 13 mb/d in 2030 - equivalent to current output of Saudi Arabia & Iran*
*Oil savings in 2015 savings reach 5 mb/d *
*CO**2** emissions are 6.3 Gt (16%) lower in 2030 – equivalent to the current emissions of US and Canada*
- Delaying action by 10 years would reduce the impact on emissions in 2030 by three-quarters

## Alternative Policy Scenario: OECD Oil Imports

- 26

- 28

- 30

- 32

- 34

- 36

- 2005

- 2010

- 2015

- 2020

- 2025

- 2030

- mb/d

- Reference Scenario

- Alternative Policy Scenario

- 1.8 mb/d

- 5.2 mb/d

**Alternative Policy Scenario: ****OECD Oil Imports**

***In stark contrast with the Reference Scenario, OECD oil imports level off soon after 2015 & then begin to decline***

**Notes:**
In sharp contrast with RS, where OECD oil-import needs continue to increase throughout the Outlook period to 36 mb/d in 2030, in the APS oil imports into the OECD reach a peak of 31 mb/d around 2015 and then begin to fall. 
 By contrast, oil imports into developing countries continue to increase over the period, albeit at a slower rate. 
 China and India temper their imports compared to RS, but they still rise significantly
 by 6.6 mb/d from 2005 to 2030, reaching 9.6 mb/d in 2030 for China 
 by 2.3 mb/d reaching 4.1 mb/d in 2030 for India.

## The Alternative Policy Scenario: Global Oil Supply

***OPEC’s share of global oil production rises from 40% now to 43% in 2030 in the APS, compared with a jump to 49% in the RS***

- 0

- 20

- 40

- 60

- 80

- 100

- 120

- 2005

- 2015

- 2030

- mb/d

- 35%

- 40%

- 45%

- 50%

- OPEC market share

- Alternative Policy Scenario

- Reduction compared with Reference Scenario

- OPEC share in APS (right axis)

- OPEC share in RS (right axis)

**Notes:**
Policies under consideration in the APS lead to the same level of OEACD oil production in the APR as in the RS.

we assumed that oil production in OECD and
other net oil-importing countries – as well as the international crude oil price –
remain at the same levels as in the Reference Scenario. As a result, the call on
oil supply from the net exporting countries is reduced in the Alternative Policy
Scenario. OPEC members and major non-OPEC producing regions,
including Russia, the Caspian region and west Africa, are most affected (Figure
7.6). OPEC production reaches 38.8 mb/d in 2015 and 45.1 mb/d in 2030.
The average growth of 1.2% per year is just over half the growth in the
Reference Scenario. OPEC’s share of the global oil market rises from the
current 40% to nearly 44% in 2030, but this is five percentage points lower
than that in the Reference Scenario.

## The Alternative Policy Scenario: Gas Imports, 2004-2030

***Gas imports in the main consuming regions are significantly lower in the APS compared with the RS***

- 0

- 200

- 400

- 600

- 800

- United States

- European Union

- Japan

- bcm

- 2004

- Reference Scenario 2030

- Alternative Policy Scenario 2030

## The Alternative Policy Scenario: Key Policies for CO2 Reduction

**Alternative Policy Scenario**

**Reference Scenario**

- Increased nuclear (10%)

- Increased renewables (12%)

- Power sector efficiency & fuel (13%)

- Electricity end-use efficiency (29%)

- Fossil-fuel end-use efficiency (36%)

-  26

-  30

-  34

-  38

-  42

- 2004

- 2010

- 2015

- 2020

- 2025

- 2030

- Gt of CO2

**The Alternative Policy Scenario:**** ****Key Policies for CO****2**** Reduction**

**Notes:**
 Largest contributor to avoided CO2 emissions is improved end-use efficiency, accounting for nearly two-thirds of total savings. 
 Fuel savings, achieved through more efficient vehicles, industrial processes and heating applications, contribute 36% in 2030
 Lower electricity demand, from more efficient appliances, industrial motors and buildings, represents 29%. 
 Switching to less carbon-intensive fossil fuels, mainly from coal to gas in power generation
 Improved supply-side efficiency account for a further 13%. 
 Increased use of renewables in power generation and of biofuels in transport account for 12%. 
 Increased reliance on nuclear is responsible for the remaining 10%.

## The Alternative Policy Scenario: Cost Effectiveness of Policies

- Total energy investment – from production to consumption – are lower than in the RS
- Consumers spend $2.4 trillion *more* in 2005-2030 in more efficient cars, refrigerators etc
- ..but producers need to spend almost $3 trillion *less*
*Each $1 invested in more efficient electrical appliances saves $2.2 in investment in power plants & networks*
*Each $1 invested in more efficient oil-consuming equipments (mainly cars) saves $2.4 in oil imports*
- The higher initial investments by consumers are more than outweighed by fuel-cost savings

## Outlook for Biofuels

- Interest in biofuels is soaring
- Biofuels can help address twin threats of growing energy insecurity & climate change through
*Increased diversity of geographic & fuel sources*
*Lower greenhouse-gas emissions - depending on how they are produced*
- Higher oil prices have made biofuels more competitive, but further cost reductions are needed
- Availability of arable land will constrain biofuels potential in the medium term
- Long-term prospects hinge on new technology

## Biofuels Production in 2005

**Biofuels Production in 2005**

***The United States is thought to have overtaken Brazil in 2006 as the world’s biggest producer of biofuels ***

## Share of Biofuels in Total Road-Transport Fuel Consumption, 2004

***Biofuels currently meet less than 1% of road-fuel demand worldwide, but close to 14% in Brazil***

## Share of Biofuels in Road-Transport Fuel Consumption

***Biofuels are set to play a much larger role in meeting world road-transport fuel demand ***

- 0%

- 4%

- 8%

- 12%

- 16%

- 20%

- 24%

- 28%

- 32%

- World

- United States

- European Union

- Brazil

- 2004

- 2030 Reference Scenario

- 2030 Alternative Policy Scenario

**Notes:**
Biofuels are expected to make a significant contribution to meeting global road-transport energy needs, especially in the Alternative Policy Scenario. 
They account for 7% of the road-fuel consumption in 2030 in that scenario, up from 1% today. In the Reference Scenario, the share reaches 4%. 
In both scenarios, the United States, the European Union and Brazil account for the bulk of the increase and remain the leading producers and consumers of biofuels. 
	- Ethanol is expected to account for most of the increase in biofuels use worldwide, as production costs are expected to fall faster than those of biodiesel – the other main 	biofuel. 
The share of biofuels in transport-fuel use remains far and away the highest in Brazil – the world’s lowest-cost producer of ethanol.

## Outlook for Biofuels Supply Costs

***Significant production cost reductions are expected – especially for     2******nd******-generation ligno-cellulosic ethanol  ***

**Indicative Biofuels Costs vs. Gasoline and Diesel Prices**

**Range of gasoline spot price (2000-2006)**

**Notes:**
 The growing interest in biofuels stems partly from the potential that is thought to exist for lowering the costs of production through technological advances.
 In most parts of the world outside Brazil, biofuels cost significantly more to produce than conventional gasoline or diesel (without subsidy), even with crude oil prices of over $70/B - a critical barrier to commercial biofuel development. 
 But costs have been declining over the last few years as the technology has improved and economies of scale have been exploited & fFurther cost reductions are achievable, even using existing technologies. 
 Cost of producing 2nd generation biofuels, including enzymatic hydrolysis and gasification of ligno-cellulosic biomass, might eventually fall as low as $40 - $50/B, which would make them competitive with conventional gasoline and diesel without subsidy at the crude oil prices assumed in the Reference Scenario.
 It may also be possible to produce better-quality biofuels, with better performance characteristics (would allow biofuels to be blended with gasoline and diesel in higher proportions than are currently feasible without engine modifications).

## 1st-Generation Biofuels Production Costs

***Production costs are expected to drop in all regions, with Brazil remaining the lowest-cost producer***

**European Union**

**United States**

**Brazil**

**Notes:**
Average production costs are projected to
drop by around a third between 2005 and 2030. Costs in Europe
and the United States would be significantly higher without crop and ethanol
subsidies.

## Land Requirements for Biofuels

***A significant proportion of the world’s arable land is turned over to biofuels production – even in the Reference Scenario***

**Notes:**
Producing biofuels on a large scale requires large areas of land.. About 14 million hectares of land are currently used for the production of biofuels and by-products, equal to about 1% of the world’s available arable land. Given that 1% of global transportation fuels are currently derived from biomass, increasing that share to 100% is clearly impossible unless fuel demand is reduced, land productivity is dramatically increased, large areas of pasture are converted to arable land or production is shifted from conventional sources of biomass to new ones, such as crop residues or trees and grasses that can be grown on non-arable land. The share of the world’s arable land used to grow biomass for biofuels is
projected to rise from 1% at present to 2.5% in 2030 in the Reference Scenario and 3.8% in the Alternative Policy Scenario, on the assumption that biofuels are derived solely from conventional crops (Table 14.7). The amount of arable land needed in 2030 is equal to more than that of France and Spain in the Reference Scenario and to that of all the OECD Pacific countries – including Australia – in the Alternative Policy Scenario. If second-generation technologies based on ligno-cellulosic biomass were widely commercialised before 2030, arable land requirements could be much less per unit of biofuels
output. In a Second-Generation Biofuels Case, ligno-cellulosic based technologies are assumed to be introduced on a large scale, pushing the share of biofuels in transport demand globally to 10% in 2030 compared with 5% in the Alternative Policy Scenario and 3% in the Reference Scenario. In this case, land requirements are only 0.4 percentage points higher than in the Alternative Policy Scenario. This is because a significant share of the additional biomass needed could come from regenerated and marginal land not currently used for crops or pasture, as well as from agricultural and forest residues and waste. In addition, the conversion efficiency of second-generation technologies is expected to be considerably higher.

## Summing Up

- The Reference Scenario projects a vulnerable, dirty and expensive global energy system
- The WEO maps out a cleaner, cleverer and more competitive energy future based on new policies
- Strong political will and urgent government action is needed to create clear incentives to change existing investment patterns
- Trade and subsidy policies will be critical to further boost market share of biofuels
- New technologies could allow biofuels to play a much bigger role in the longer term

**Notes:**
Economic cost of these policies would be more than outweighed by the economic benefits

## Thank you

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