IEEJ : June 2014. All Rights Reserved.

Oil and Gas : Short & Medium Term Outlook andLong Term Uncertainty

Keisuke Sadamori, Director, IEA

IEEJ, 30 May 2014
© OECD/IEA 2014

IEEJ : June 2014. All Rights Reserved.

The new oil paradox:High supply, high prices
mb/d
2.5

Total Non-OPEC Supply, y-o-y Change$/bbl

2.0120

1.5

115

1.0

110

0.5

105

0.0

100

-0.5

95

-1.0

90

-1.5
1Q10

1Q11
Other

1Q12
1Q13
North America

1Q14
Total

85
Apr 13

Crude Futures
Front Month Close

Source: ICE, NYMEX

Jul 13
Oct 13NYMEX WTI

Jan 14
Apr 14ICE Brent•Non-OPEC Supply remains exceptionally high• Annual growth of 1.8 mb/d in 1Q14 and April• Forecast growth of 1.5 mb/d for 2014 as a whole•US crude supply to exceed 8 mb/d in 2014 reaching 8.6 mb/d in 4Q14
•US NGL supply to exceed 2.8 mb/d in 4Q14
•Total US liquids (exc. biofuels & processing gains) 11.3 mb/d April 2014
•Total US liquids >11 mb/d for the first time since at least the 1980s•Yet oil prices also remain exceptionally elevated© OECD/IEA 2014

IEEJ : June 2014. All Rights Reserved.

Global demand inches upwards…
Global demand growth(mb/d)
1.4
1.2
10.8
0.6
0.4
0.202011

2012

2013

2014

 Global oil demand grows as the economic recovery gains

momentum But inter-fuel competition rises, including in the transport
sector© OECD/IEA 2014

IEEJ : June 2014. All Rights Reserved.

… and rebalances across regions
US resilience offsets China slowdownkb/dChina: Gasoil/Diesel Demand

kb/d

3,450

US 50: Motor Gasoline Demand

9,300
9,100

2,950

8,900
8,700

2,4508,500
8,300

1,950

JAN

APR

JUL

OCTRange 09-13

2013

2014

5-year avg

JAN Chinese economic slowdown

dampens demand Fuel switching out of oil But from a high base
 Chinese demand up 2% y-o-y to
10.2 mb/d in March

8,100
JAN

APR
Range 09-13
2014

JUL

OCTJAN

2013
5-year avg

 OECD demand swung back into

growth in 2013
 US demand grew by 1.3% y-o-y to
19 mb/d in February
 Demand also rising in other nonOECD economies© OECD/IEA 2014

IEEJ : June 2014. All Rights Reserved.

OPEC faces production hurdles…
mb/d

OPEC Crude Production

32.0
31.5
31.0
30.5

30.0
29.5
29.0
28.5
JanMar2011

MayJulSep

2012

Nov

2013

Jan2014

 OPEC’s real production challenges are internal not external (shale) Production back near 30 mb/d in April, up 405 kb/d
 But supply down nearly 1 mb/d on the year Libyan production still at 220 kb/d in April© OECD/IEA 2014

IEEJ : June 2014. All Rights Reserved.

... but must ramp up production
to meet demand
32
31.5
31mb/d30.5
30
29.5
2928.528
27.5
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Call on OPEC + Stock Ch.

1Q12World Demand
Non-OPEC Supply
OPEC NGLs
OPEC Crude
Stock Ch. & Misc.
Call on OPEC + Stock Ch.

2Q12
89.3
53.5
6.1
31.3
1.6
29.7

3Q12
89.5
52.9
6.1
31.7
1.2
30.5

4Q12
90.7
53
6.2
31.5
031.4

OPEC Crude Production

1Q13
91.3
54.2
6.2
30.7
-0.2
30.9

2Q13
90.4
53.9
6.3
30.5
0.3
30.2

3Q13
90.8
54.2
6.3
30.9
0.6
30.3

4Q13
92.1
55
6.4
30.6
-0.2
30.8

1Q1492.4
55.8
6.3
29.8
-0.4
30.2

2Q14
91.3
55.7
6.4
30
0.8
29.2

3Q14

4Q14

92.1
56.1
6.4

93.6
56.3
6.6

94
56.8
6.6

29.6

30.7

30.7

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Ukraine gas transit still vital – Nord Stream
only alternative with excess capacity
Major physical flows in 2013 in bcm

Russian gas exports to Europe

24372930

4
27

74153
62030
1
813

LNG
5Azerbaijan 4
Iran 9
LNG 1

LNG 6

© OECD/IEA 2014

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The engine of energy demand growth
moves to South Asia
Primary energy demand, 2035 (Mtoe)

Share of global growth
2012-2035

Eurasia

Latin
America

Europe
1 370
UnitedStates8%

China

1 710

4 060

2 240

Middle 1 050
East
Brazil480

1 030

Africa1 540

Eurasia OECD

1 000

Africa440

Japan

Southeast
Asia

5% 4%

8%

Middle 10%
East

65%

India
Non-OECD
Asia

China is the main driver of increasing energy demand in the current decade,but India takes over in the 2020s as the principal source of growth© OECD/IEA 2013

IEEJ : June 2014. All Rights Reserved.

A mix that is slow to change
Growth in total primary energy demand
1987-2011Gas

2011-2035

Coal
Renewables
Oil
Nuclear
500

1 000

1 500

2 000

2 500

3 000
Mtoe

Today's share of fossil fuels in the global mix, at 82%, is the same as it was 25 years
ago; the strong rise of renewables only reduces this to around 75% in 2035
© OECD/IEA 2013

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World energy demand by fuelMtoe 5 000

Oil
Coal
Gas

4 000
3 000

2 000

Biomass

1 000

Nuclear
Other renewables
Hydro1980

1990

2000

2010

2020

2030 2035

Demand increases for all forms of energy, with gas growing the most;the share of fossil fuels in the world’s energy mix falls from 82% to 76% in 2035
© OECD/IEA 2013

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Change in world energy demandby fuel & scenario, 2011-2035

Mtoe 2 000

Current Policies Scenario
New Policies Scenario

1 500

450 Scenario
1 0005000-500-1 000-1 500
CoalOilGas

Nuclear

Hydro

Bioenergy

Otherrenewables

There are striking differences in demand for fossil fuels across scenarios,
while global demand for renewable energy increases strongly in all cases© OECD/IEA 2013

IEEJ : June 2014. All Rights Reserved.

Emissions off track in the run-up
to the 2015 climate summit in France
Cumulative energy-related CO2 emissions
Total emissions
1900-2035

Gt 800600
Non-OECD
Non-OECD
49%
OECD

400

200
OECD
51%
1900
-1929

1930
-1959

1960
-1989

1990
-2012

2013
-2035

Non-OECD countries account for a rising share of emissions,although 2035 per capita levels are only half of OECD
© OECD/IEA 2013

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Oil use grows, but in anarrowing set of markets
Oil demand by sectorregionmb/d 105
100

OtherGasoline

95

Diesel90

Other
Middle EastIndia85OECD

China8075
2012

Transport

Petrochemicals

Othersectors

2035

China becomes the largest consumer of oil by 2030, as OECD oil use drops; demand isconcentrated in transport, where diesel use surges by 5.5 mb/d,, & petrochemicals© OECD/IEA 2013

IEEJ : June 2014. All Rights Reserved.

Two chapters to the oil production story
Contributions to global oil production growth
2013-2025

Middle East

2025-2035

BrazilUnited States

Rest of the world-202468mb/d

The United States (light tight oil) & Brazil (deepwater) step up until the mid-2020s,
but the Middle East is critical to the longer-term oil outlook© OECD/IEA 2013

IEEJ : June 2014. All Rights Reserved.

Ever-growing crude trade between theMiddle East & Asia
2035 Middle East crude oil exports by destination

EuropeNorth America
India

China

Other Asia
6.3

N. America’s imports diminish as it becomes more self-sufficient, Europe’s decrease
with falling demand, and Middle East exports are drawn increasingly to Asia
© OECD/IEA 2013

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Turbulent times for the refining sector
Refinery capacity and operation
mb/d 105

OtherMiddle EastIndia
New refinery
capacity
China

100
9590

Existing
spare &excess
capacity8580

Oil bypassing
refineries

Spare &excess
capacity
with 10 mb/d
at risk ofclosureby 2035

Oil processed
demandby refineries

7570652012

2035

More oil bypassing the refining system and new capacity in growing non-OECD
markets piles pressure on existing refiners, especially in Europe© OECD/IEA 2013

IEEJ : June 2014. All Rights Reserved.

Non-OECD oil demand increasing
Growing importance of consuming countries outside IEA

91.3 million barrels per day

101.4 million barrels per day
17© OECD/IEA 2014

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Gas growth strongest in emerging markets
Natural gas demand
United StatesMiddle East
2035

European Union

2011
RussiaChinaIndia
Japan
100

200

300

400

500

600

700

800bcmThe biggest absolute increases in demand are in China & the Middle East,
where gas use overtakes that of the European Union before 2020
© OECD/IEA 2013

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A new diversity in gas supply
Change in annual natural gas production
China
United States
Russia2011-2020
2020-2035

Australia
QatarIraq
Brazil
Turkmenistan
Iran
Algeria-30

0306090120150180210240bcm

Natural gas production increases in every region of the world
between 2011 and 2035, with the exception of Europe© OECD/IEA 2013

IEEJ : June 2014. All Rights Reserved.

Regional Gas Price Disparity© OECD/IEA 2013

IEEJ : June 2014. All Rights Reserved.

Electricity generation in non-OECD countries
has only begun to riseElectricity generation by source

OECDNon-OECD

TWh 10 000
8 000
6 000
4 000
2 000

1990

2011
Coal

© OECD/IEA 20142035 1990
RenewablesGas

2011

2035

NuclearOil

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Impact of gas prices increase on the merit order(Europe)© OECD/IEA 2013

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Impact of gas prices increase on the merit order(US)© OECD/IEA 2013

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Displacing coal in Asia will not be that easy
COAL AND GAS PRICES. IMPLIED CO2 PRICE TO TRIGGER FUEL SWITCHING© OECD/IEA 2014

IEEJ : June 2014. All Rights Reserved.

The power sector is fundamental to the energy
outlook of Southeast Asia
ASEAN incremental electricity generation by fuel, 2011-2035
Coal

Renewables
Gas
NuclearOil-100© OECD/IEA 2014

0100200300

400500600700
TWhIEEJ : June 2014. All Rights Reserved.

Over the long term, the power generation mix
is set to change
Global electricity generation by source, 2010-2035
TWh 14 000
Coal
Renewables

12 000
10 000

Gas

8 000
6 000

Nuclear

4 000
2 000

Oil
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Source: IEA World Energy Outlook 2012

© OECD/IEA 2014

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Wind and solar compensated for thedecline of domestic gas upstream© OECD/IEA 2014

IEEJ : June 2014. All Rights Reserved.

Large-scale integration accomplished today,
but more to comeDenmark
Ireland
IberiaGermany

Great Britain
Italy

Instantaneous sharesreaching 60% andabove

NW Europe
ERCOT
SwedenFranceIndia

Brazil
VRE share of total annual electricity output

Japan

Casestudies© OECD/IEA 2014

0%

5%

Wind 201210%
PV 2012

15%

20%

25%

30%

Additional Wind 2012-18

35%

40%

45%

Additional PV 2012-18

Note: ERCOT = Electricity Reliability Council of Texas, United States
Source: IEA estimates derived in part from IEA Medium-Term Renewable Energy Market Report 2013.

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Interaction is key
Properties of variable
renewable energy (VRE)yrs Variable

Flexibility of other powersystem components
Grids

GenerationStorage

Demand Side Uncertainsec

 Non-synchronous

100skm Location constrained

1 km

 Modularity
 Low short-run cost

© OECD/IEA 2014

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Carbon Intensity of supply is stuck

The political will to make meaningful progress at aglobal scale has yet to be demonstrated© OECD/IEA 2014

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Total primary energy supply© OECD/IEA 2014

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Investment in our future pays off…

…and it is cost effective to make the transition© OECD/IEA 2014

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Systems thinking and integration

A sustainable electricity system is a smarter,
Today’s energyand
systemparadigm
is based
onthata unidirectional
multidirectional
integrated
energysystemrequires long-term
energydeliveryphilosophy
planningfor services
delivery© OECD/IEA 2014

IEEJ : June 2014. All Rights Reserved.

Thank you
Keisuke.sadamori@iea.org
www.iea.org

Contact : report@tky.ieej.or.jp© OECD/IEA 2014