IEEJ : April 2015. All Rights Reserved.

Energy Markets Outlook
Tokyo, April 2015

Keisuke SADAMORI
Director of Energy Markets and Security
IEA

1© OECD/IEA 2014

IEEJ : April 2015. All Rights Reserved.

Oil prices ease in March, but recover in earlyApril
Crude Futures$/bbl
Front Month Close
120
110
100
90
80
7060
50 Source: ICE, NYMEX
40
Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15
NYMEX WTIICE Brent

Higher Middle East exports pressure, Yemen tension supports

2© OECD/IEA - 2015

IEEJ : April 2015. All Rights Reserved.

Business as unusual…

76Implied OPECsparecapacity

mb/d54World demand growth

321

World supply capacity
growth0-12004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

 Supply has become more price-elastic
 Demand less so3© OECD/IEA 2015

IEEJ : April 2015. All Rights Reserved.

Oil price drop slows supply growth
2.5

2.0mb/d

1.5
1.0
0.5

0.0
-0.5
2014 2015 2016
OPECcrude capacity
Non-OPEC20172018 2019
OPECNGLsWorld2020

Global capacity growth slows to annual 860 kb/d through 2020
from 1.8 mb/d in 20144
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March non-OPEC supply rose on increased
North America output, but growth is slowing
mb/d Total Non-OPEC Supply, y-o-y Change
3.0
2.5
2.0
1.5
1.0
0.5
0.0

-0.5
-1.0
1Q11

© OECD/IEA - 2015

1Q12
Other

1Q13
1Q14
North America

1Q15Total



Non-OPEC production rose by 100 kb/d m-o-m in March, to57.7 mb/d.



Non-OPEC expected to grow by 630 y-o-y in 2015 vs 2014
growth of 2.1 mb/d

Non-OPEC output expected to post first y-o-y decline in 4Q15
since 2Q115

IEEJ : April 2015. All Rights Reserved.

Iraq dominates OPEC capacity growth
0.6mb/d0.4
0.2
0.0

-0.2
-0.4
-0.6-0.8
2014 2015
Iraq

2016 2017 2018
Rest of OPEC

2019

2020
OPEC



Oil price collapse, ISIL challenge yet to cause substantial slowdown Growth estimated at 1.1 mb/d in 2014-2020 period Elevated risks

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OPEC supply soars to 31 mb/d in March, up
890 kb/d from Februarymb/d

OPEC Crude Supply

333231302928
2008 2009 2010 2011 2012 2013 2014 2015
Higher flows from Saudi Arabia, Iraq and Libya push output tohighest in nearly two years



Biggest month-on-month increase since June 20117
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Survival of the fittest
Change in US liquids production

0.30

2.0

0.20mb/d

1.5mb/dChange in Russian liquids production

0.10

1.0

0.00
0.5

-0.10

0.0-0.20
2009 2011 2013 2015 2017 2019Feb 2015
3Q20142009 2011 2013 2015 2017 2019Feb 2015
3Q2014

US production growth slows in 2015-17
 Oil price, sanctions see Russian output contracting by 560 kb/d by 2020
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Lower oil prices get a mixed demandresponse
Revised demand growth prospects 2014-2019
FSU
Middle East
AfricaLatin America
India
US-600 -400 -200

0200 400 600 800 1000kb/dAlthough many other factors come into play, lower oil prices
generally dampen the demand outlook in net oil-exporters Raise the outlook in net oil-imports
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Eastward pull unabated1998-06
2006-142014-20
Europe36

FSU-296

34-79

103

23

Asia/Pacific
680

AmericasMiddle East345

180

158

-1

255

672

633

227

Africa
76

121

142

Average global demand growth(kb/d)

1998-06

1 352

1.7%

2006-14853

1.0%

2014-20

1 104

1.2%

© OECD/IEA, 2015

This map is w ithout prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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Oil trade tilts to products
Crude Exports in 2020 and Growth in 2014-20 for Key Trade Routes 1(million barrels per day)

0.5 (-0.1)
OECDEurope

0.2

3.6(+0.1)(-0.5)OECDAsia
Oceania 3

0.4(+0.1)
OECD
Americas22.0(-0.5)

1.4

0.5(-0.1)(+0.1)

0.2(+0.2)

1.1 (+0.3)

4.2(-0.6)

China

Other Asia

1.5

3.8
1.4

(+0.6)(+0.1)

-0.2

1.7

1.5

5.5

(+0.5)(+0.1)(-0.3)

0.6(+0.4)Red number in brackets denotes growth in period 2014-201

Excludes Intra-Regional Trade2

Includes Chile

3

Includes Israel

0.7(+0.1)

11© OECD/IEA 2015

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Global recovery in demand gathers pace
Global y-on-y absolute growth
Total products growth rate

mb/d2

11%

00%-11Q2011
LPG
JetKeroOtherNaphtha
DieselTotal (RHS)

Gasoline
RFO

Colder weather provided a particular impetus
Very strong gains seen in Korea & India

Growth of 1.1 mb/d foreseen in 2015 as a whole, to 93.6 mb/d© OECD/IEA - 2015

1Q2013-1%1Q2015+1.3 mb/d in 1Q15, to 93.0 mb/d2%

Up sharply on 2014’s +0.7 mb/d gain

12

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Refining surplus lingers despitescaling backGlobal crude distillation capacity additions

kb/d

2 000

OECDAmericas

1 500

OECDEurope

1 000

OECDAsia Oceania

China500

Other Asia

0Middle East

- 500

Other non-OECD-1 000Total Net2014

2015

2016

2017

2018

2019

2020



New capacity of 6.4 mb/d by 2020, led by non-OECD Asia, Middle East
 Brief margin respite in 2014 on shutdowns
 Startups lift surplus to 5 mb/d in 2020 from 6-yr low ~3 mb/d in 201413
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Global refinery crude demand fallseasonally through Maymb/d80

Global Refining
Crude Throughput

7876
74

72
70
Jan




MarMayRange 10-14
20132015 est.

JulSep
Nov
Jan
Average 10-14
2014

Global refinery runs rose in February, despite US refinery
maintenance
Global crude demand to fall through May, as European, thenAsian turnarounds commence.
 Asia takes as much as 2.5 mb/d of capacity offline at peakin May
14© OECD/IEA - 2015IEEJ : April 2015. All Rights Reserved.

Recent inventory builds unbalanced

heavily skewed to crude and centered in the US and Chinamb/d Demand/Supply Balance until 4Q15 mb/d96
2.5
2.0
94
1.5
1.0
92
0.5
90
0.0
-0.5
88
-1.0
-1.5
86
-2.0
*OPEC production assumed at 30 mb/d through forecast period
84
-2.5
1Q09
3Q10
1Q12
3Q13
1Q15
Impl. stock ch.&misc (RHS)

DemandSupply*S&D balances imply 140 mb stock build in 1Q15
90% of this can be identified from preliminary data: OECD +50 mb
 China + 76 mb
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Despite lower oil prices biofuelscontinue to growGlobal biofuels production
3.0mb/d2.5
2.0

1.5
1.0
0.50.0
2013

2014

2015

United States biofuels
OECDEurope biofuels



2016

2017

2018

2019

2020

Brazil biofuels
Rest of the world biofuels

Biofuel production is mandate not price driven
16© OECD/IEA 2015

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Oil consumption by sector (OECD)
1973

2012
5%

16%
31%

10%
6%

Industry

29%

Petrochemical
Transportation
Power generation
Other

13%

34%

4%
52%

17
© OECD/IEA 2014

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Instability in the Middle Easta major risk to oil markets
Oil production growthin United States, Canada, Brazil & the Middle East
mb/d +15
Increase to 2040: 14 mb/d+10

Middle East
Increase to 2040:
14 mb/d+5

Brazil2013 2015-52013 2015

2020

2030

2040 Canada

Net decline in output from other producers
2020

2030

United States

2040

The short-term picture of a well-supplied market should not obscure future risks as
demand rises to 104 mb/d & reliance growsgrows on Iraq
Iraq && thethe rest
rest ofof thethe Middle
Middle EastEast18© OECD/IEA 2014

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Ever-growing crude trade
between Asia and the Middle East
2013
2040 crude oil imports

EuropeNorth America
India

China

Other Asia
6.3

North America’s oil imports fall as it becomes more self-sufficient, and Europe’s
decrease with falling demand, 90% of Middle East crude exports go to Asia by 2040
19
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US shale gas: LTO associated gas might behit, but benefits from lower drilling costs
US gas production growth across major shale plays (bcf/d)
5.00
4.00
3.00

2.00
1.00
0.00
OtherFayetteville

HaynesvilleMarcellus-2.00

Texas and ND associated

-1.00

20
© OECD/IEA 2014

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Asia LNG spot prices started to fall
sharply well ahead of the drop in oil
Oil and LNG prices in 2014

USD/Mbtu
20

USD/bbl
140

18

120

16100

14
1280

1060

86Asian LNG Spot

440Brent

20

200JanFebMar

AprMayJunJulAugSepOctNovDec

 LNG prices were already falling well ahead of the drop in oil Cheap oil linked gas from the new Australian contracts will reduce demand
for spot gas
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Japan: persistent electricity demand
weakness limits LNG needs

Japanese power generation
Twh1180

WEO 2010
projection

1160

1140
1120

120
TWh

1100
1080
1060
1040
1020

FinancialcrisisEarthquake

1000
980
960
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 201422
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Very high prices have had a major
impact on Asian demand

LNG import volumes in major Asian countries 2011-2014 (Jan-Oct)
Bcm

100
90
80
7060

India

50

Chinese Taipei

40

China

30

Korea

20
1002011

2012

2013

2014

 Korean LNG demand has dropped significantly in 2014 due to the restartof nuclear capacity and switch to coal in the power sector.
 India and China underutilized their LNG infarstructure
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A wave of new LNG supply is coming
Additional LNG capacity (growth relative to theprevious period, bcm)
5045Others
40Australia
353025201510502013 H22014 H12014 H22015 H12015 H224
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Large impact on Japanese energy
costs
Billion/USD

Japanese LNG import bill

80
70
60
50

40
3020102013

20GW nuclear restart but $100/bbl

No nuclear restart but $50/bbl

25© OECD/IEA 2014

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Cheaper LNG enables fasterelectrification in India
India gas-fired capacity and load factors

25~ 11MTof LNG

70%

60%

2050%
1540%

1030%
20%

510%

00%

Gas-firedcapacity end
2011 (GW)

Gas-firedcapacity end
2014 (GW)

Load factor
2011

Load factor
201426© OECD/IEA 2014

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Gas reduces China’s coal dependency outside
the power and steel sectors

27© OECD/IEA 2014

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Significant upside potential in EU power
generation

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….But it requires even lower prices
as coal prices are also in a freefall
European gas prices might need to drop towards $5/mmbtu if gas-tocoal switching is the way to rebalance the market
10.0
TTF forward curve (USD/Mbtu)
9.0

Gas price required to trigger gas to coal switching

8.0

7.0
6.0
5.0
4.0
3.0
Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Note: Based on gas, coal, and carbon forward curves as of May 20 2015 – approximate switching price29© OECD/IEA 2014

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Increasing examples of wind and solar PV costs
comparable to new-build alternatives
Recent long-term remuneration contract prices (e.g. auctions and FITs)

Germany
67-100 $/MWhIreland
69 $/MWh

US~75 $/MWhUS
48 $/MWhUK
75-120 $/MWh

Morocco160 $/MWhBrazil81 $/MWh

Onshore windChile
89 $/MWh85 $/MWh

Utility PV

Turkey73 $/MWhUK
120$/MWhDubai
60 $/MWhChina
80 - 100 $/MWhIndia
88 $/MWh

60 $/MWh

Brazil54 $/MWhSA
97 $/MWhSA
72 $/MWh

South Africa
Base 124 $/MWh
Peak 335 $/MWh

Australia
65 $/MWhSTE

Transition to new era of economic attractiveness for renewables where good
resource and appropriate policy and regulatory framework are in place30© OECD/IEA 2015

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Long term scenario of the Technology Roadmap

Recentbids

 PV could provide 16% of global electricity by 2050 and 20% of CO2 emission cuts Based on cautious cost assumptions and 8% WACC
 Key factor will be flexibility of power systems to integrate large share of v-RE;

STE will play a complementary role to PV

Contact:report@tky.ieej.or.jp

31