Global Energy Markets in Transition: Implications for the economy, environment & geopolitics

1. IEA © OECD/IEA 2017 Global Energy Markets in Transition: Implications for the economy, environment & geopolitics Dr. Fatih Birol, Executive Director, International Energy Agency 15th IAEE European Conference 2017 Vienna, 4 September 2017
2. © OECD/IEA 2017 The global energy context today • Global energy markets are changing rapidly Renewables supplied half of global electricity demand growth in 2016 Global energy intensity fell by 2.1% in 2016 Electric car sales were up 40% in 2016, a new record year • Universal access to modern energy remains a distant goal 1.2B people lack access to electricity; 2.7B people lack access to clean cooking • Energy & geopolitics remain intrinsically linked, but the changing energy landscape is altering the nature of this relationship
3. © OECD/IEA 2017 A rapidly shifting energy landscape Since 2010, efficiency measures have slowed down growth in global energy consumption; Renewables and natural gas account for almost two-thirds of the growth. Shares in growth in world energy demand Coal 47% Oil 16% Gas 23% Nuclear 2% Renewables 12% Coal 10% Oil 27% Gas 31% Nuclear 0% Renewables 32% 2000-2010 2010-2016
4. © OECD/IEA 2017 US shale oil is shaking up global markets even at lower oil prices US shale oil production US shale oil has surged in recent years on enormous cost savings & technological improvements; The US is set to lead the growth in global oil supply over the next 5 years 1 2 3 4 5 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 mb/d
5. © OECD/IEA 2017 Share of LNG in global gas trade 2015 695 bcm 2040 1 150 bcm 2000 525 bcm LNG 53% Pipeline Pipeline LNG 40% Pipeline LNG 26% A 2nd natural gas revolution is changing the gas security equation A wave of new LNG supply, led by Australia and the US will improve the ability of the system to react to potential demand or supply shocks, but security of gas supply cannot be taken for granted
6. © OECD/IEA 2017 Wind & solar transforming the power sector: system integration is key Better grids, more flexible power plants and storage & demand side response will be needed to integrate larger shares of wind & solar in a secure and cost-effective way 0% 10% 20% 30% 40% 50% 60% India Chile China Canada Japan United States Australia United Kingdom Italy Germany Spain Denmark % of wind and solar in 2010 % of wind and solar in 2016 Share of wind and solar in total electricity generation in selected countries
7. © OECD/IEA 2017 Global energy-related CO2 emissions 5 10 15 20 25 30 35 1970 1975 1980 1985 1990 1995 2000 2005 2010 2014 2015 2016 Gt Global CO2 emissions flat for 3 years – an emerging trend? IEA analysis shows that global CO2 emissions remained flat in 2016 for the third year in a row, even though the global economy grew, led by emission declines in the US & China
8. © OECD/IEA 2017 The potential of clean energy technology remains under-utilised Recent progress in some clean energy areas is promising, but many technologies still need a strong push to achieve their full potential and deliver a sustainable energy future Energy storage Solar PV and onshore wind Building construction Nuclear Transport – Fuel economy of light-duty vehicles Lighting, appliances and building equipment Electric vehicles Energy-intensive industrial processes Transport biofuels Carbon capture and storage More efficient coal-fired power ●Not on track ●Accelerated improvement needed ●On track
9. © OECD/IEA 2017 Petrochemical Other Transport 70 75 80 85 90 95 Oildemand(mb/d)Trucks drive global oil demand Trucks were responsible for nearly 40% of the growth in global oil demand since 2000; they are the fastest growing source of oil demand, in particular for diesel. 2000 2015Increase by sector Trucks Cars Other transport
10. © OECD/IEA 2017 CO2 emissions growth in the Reference Scenario, 2015-2050 A modern truck sector is still a long haul away Without further policy efforts, trucks will account for 40% of the oil demand growth to 2050 and 15% of the increase in global CO2 emissions Power sector Industry sector 100 200 300 400 500 600 700 800 900 Trucks Coal use Mt
11. © OECD/IEA 2017 We've tracked a steady $37 billion/year of clean energy and electricity networks R&D spending, with room for growth from the private sector. As a share of GDP, China now spends most on energy R&D Global clean energy R&D funding needs a strong boost Global R&D spending on clean energy and electricity networks Top 3 IT company R&D spenders 0 10 20 30 40 2012 2015 USD(2016)billion Private Public
12. © OECD/IEA 2017 Closing remarks • While a continued focus on oil security is essential, a broader approach to energy security is needed to reflect changing nature of natural gas & electricity markets • US shale oil triggers a deep transformation of oil industry dynamics • A wave of LNG is the catalyst for a second natural gas revolution, with far-reaching implications for gas pricing & contracts • The next chapter in the rise of renewables requires more work on systems integration & expanding their use beyond the power sector • Limiting the global temperature rise to 2°C would require an energy transition of exceptional scope, depth & speed, including stronger R&D efforts

Hinweis der Redaktion

Thank you Minister……

Following the mandate from the 2015 ministerial, the IEA has made great progress in becoming a global clean energy hub, for instance, creating a new Energy Efficiency Division and a new Systems Integration of Renewables Unit; strengthening our Technology Collaboration Programmes; and building Association Partnerships with key countries like China, India, and Indonesia.

The IEA has also been proud of our long and extensive history of partnership with the CEM and its various initiatives since its formation, including the more recent decision by CEM countries to house the CEM Secretariat at IEA.

During this new phase of the CEM going forward focussed on ensuring strong and enduring multilateral leadership, the IEA looks forward to continuing to strengthen its ability to help the CEM and its Members. We eagerly look forward to further conversations on how we can strengthen our support for various initiatives, campaigns, and, more broadly, all CEM governments in their efforts to efficiently and securely transition to clean energy economies.
Examples of energy digitalization: End-use devices from LED bulbs, electric vehicles, industrial compressors, refrigerator, freezers and thermostats are increasingly being controlled remotely over the internet enabling energy savings and making life more convenient.
Smart grids are the heart of the digital energy future. Advanced metering infrastructure (AMI) can act as control hub, and enable two-way communication between energy suppliers, consumers and intermediaries.

Digitalization has the potential to serve as a key enabler to help G7 countries and others meet key policy objectives, including to increase productivity and enhance sustainability.
But there are also serious challenges that need to be overcome, including data ownership and data privacy, ensuring digital resilience, and effectively dealing with economic and job disruptions.
Especially given digitalization’s potential for disruption, the IEA is making a big push to enhance our capabilities, including the release of a first-ever digitalization and energy report that in October.
The Energy sector can be a substantial job creator. There is no clear one directional employment impact from the energy transition: clean energy investment is a meaningful job creator, but conventional energy also has a large employment, the balance depends on the regional context.
The IEA stands ready to continue supporting G7 activities through our data, analysis , and solutions – both in areas of traditional G7 focus such as energy security and markets, as well as underpinning new energy drivers such as research and innovation, energy-related employment, and global issues such as energy access and investments.
US light, tight oil (LTO) production grew rapidly from 0.4 mb/d in 2010 to 4.2 mb/d in 2015.
There was a dip in 2016 as lower prices held back production, but this will be reversed in 2017 with continued growth over the next five years – even if prices remain in the USD 50-60/bbl range.
US LTO responds more rapidly to price signals than other sources of supply and as such it will play a key role in balancing the market over the medium term.
What is behind the expectation of continued strong growth?
It’s all about cost savings, operational efficiency and technology improvements.
Average costs were creeping higher until around 2012: when US tight oil producers, on average, needed prices at more than $70 per barrel to break even.
But since then, costs have come down significantly, a fall that accelerated after the oil price came down in 2014. We estimate that the average price required in 2016 to break even had fallen to $40/bbl – a remarkable drop.
Some of these cost reductions are cyclical and will be given back as activity picks up and the cost of supplies and services starts to rise. But there has also been substantial gains in well performance and operational efficiency that continue to underpin a positive production outlook.

Global oil production capacity expands by 6.3 mb/d by 2022, of which non-OPEC contributes two-thirds. Growth is heavily front-loaded with a comfortable supply situation in the early part of our forecast. By 2020 however, capacity growth slows considerably as the two-year spending drought of 2015-16 has left few projects in the pipeline.

The United States is the number one source of extra supply. In 2017, the recovery in drilling has been faster than expected, so the production outlook for the US has been raised. Assuming current prices, US oil output is now seen increasing by 2.35 mb/d by 2022. Of this, LTO accounts for 2.1 mb/d, NGLs expand by 0.9 mb/d and other supplies (e.g. GoM) decline.
Natural gas performs best of all the fossil fuels in our Outlook, with a 50% rise in consumption in 2040. But achieving this kind of rise will not be plain sailing for gas, which faces strong competition from coal in some markets and is being squeezed by the rise of renewables in others.

How gas fares will be determined in the coming years by a major set of changes in the way that gas markets operate internationally. We are all familiar with the shale gas revolution in North America. Now we are on the verge of another gas revolution – this time driven by LNG – that will reshape gas markets for decades to come and also change the gas security equation.

Over the next five years another 130 bcm of liquefaction capacity will come online – mostly in the United States and Australia, creating new options and greater flexibility for buyers of gas. Looking further ahead, we also see the prospect of other countries, notably Canada, Mozambique, Tanzania, joining the LNG export business later in our projections also makes an important contribution to the emergence of a truly global gas market. By 2040, more gas is traded over long distances as LNG than via the traditional pipelines.

But, there comes a point in every revolution when it’s clear that the old rules have gone but no-one is yet sure what the new rules of the game are. This is where we are today. And that presents a risk – the current overcapacity in LNG is absorbed by the mid-2020s but new investment decisions are needed well before this point. The outlines of a new gas market order need to become clear soon if we are to avoid a new round of market tightening in the 2020s.
-Pushed by support policies and massive technology cost reductions in recent years, wind and solar PV have been the two fastest growing sources of electricity worldwide since 2010.
[click] In CEM countries, the share of wind and solar on total average annual electricity generation has increased very significantly in just six years.

-For instance Denmark doubled and now wind meets around 50% in annual generation; variable renewables reached 20% in Spain and Germany ; Italy passed from 3% in 2010 to more than 15% at the end of 2016. The UK is also at a similar share. In other non-European CEM countries the shares of wind and solar increased by a factor two-to-five. Most importantly, we see very rapid growth from a low base in countries around the globe, reflecting the increased competitiveness of these technologies.

But wind and solar PV are variable renewable resources (VRE) and their input cannot be fully forecast and programmed; system integration of variable renewables has emerged as a major challenge in several countries.
While this is not a technical issue, more flexible power systems will be needed to integrate large shares of wind and solar in cost effective way while ensuring security of electricity supply at all times.

IEA analysis demonstrates that there are a number of different solutions to handle renewables integration and that we will need all forms of flexibility in the future:
Stronger grids and interconnections
Power plants operating in more flexible way – e.g. hydro and gas
Affordable electricity storage (today hydro; in the future maybe batteries as well)
And last, but certainly not least demand side response, which can be very cost effective.
For example, combining ice storage with larger air conditioners, these can be 'charged' when the sun shines, while providing cooling also after sunset via the thermal storage

The IEA is continuing to develop its expertise on this crucial topic, building upon a decade of experience. I am proud to mention the IEA contribution to the second report on Status of Power System Transformation launched yesterday within the 21st Century Power Partnership Initiative. We are constantly stepping up our efforts and our next focus will be on enhanced flexibility of power plants – both thermal and renewable ones. In this respect we very much welcome the launch of a new CEM campaign on Advanced Power Plant Flexibility under the leadership of China and Denmark.
Before I talk about the long-term Outlook for the energy sector, let me spend a few more moments on the facts and figures. As we all know, one main reason why we discuss the need for an energy sector transition towards low-carbon is the fact that energy-related CO2 emissions have been rising stubbornly for more than a century, in line with rising energy demand and economic growth. On the rare occasions that this has not been the case, it has been driven by some form of major economic shock, such as after the oil price shock and US recession in the early 1980s; in 1992 after the collapse of the former Soviet Union; and in 2009 during the global financial crisis.

[CLICK] 2014 was a major change in this regards. It was the first year where emissions stayed flat even though the global economy grew. There were several energy sector trends backing up this observations, but, at the same time, there were also reasons to wonder if this really a structural energy sector change, or rather a cyclical phenomenon.
[CLICK] In 2015, then, the IEA could announce the second consecutive year of no additional growth in energy-related CO2 emissions. Evidence for this being related to an energy transition was mounting: for example, renewables accounted for nearly all of the growth of global electricity demand.
[CLICK] And now, today, I can inform you that 2016 was yet another such year of a stall in global CO2 emissions, although the global economy grew by 3.1%. This clearly shows that some positive trend is emerging.

In the UK emissions fell by 6% due to a record drop in coal use in power generation, enabled by a switching towards gas.

In the US emissions fell by 3.1% the main driver was switch from to coal to gas, renewables and nuclear in the power sector.

In Japan emissions fell by 1.9%, but GDP fell by 0.9%, dragging oil use down across all sectors. Emissions rose in other G7 countries.
Overall Progress: Each year, TCEP assesses the latest progress in technology and market developments, tracks overall progress, and recommends further actions.
TCEP this year shows that only 4 of 26 identified clean energy technologies are on track to meet a sustainable energy transition (one more than last year).
15 technologies showed only some progress, and 8 are significantly off-track and in need of renewed action.
RED
CCS
A global portfolio of large-scale CCS projects continues to prove its viability across sectors, but the pipeline of projects has effectively stalled due to lack of new investment decisions.
Latest CCS projects include the Illinois industrial CCS project in Decatur, Illinois (start April 2017), the Petra Nova coal-fired power plant project in Texas (January 2017) and the Abu Dhabi "Al Reyadah" CCS project (November 2016).
Targeted policy incentives to drive large-scale CCS projects forward into deployment are needed to meet the 2DS target of over 400 million tonnes of CO2 (MtCO2) being stored per year in 2025.
Coal
30% of new coal power capacity additions in 2015 used low-efficiency subcritical technology.
To stay on 2DS track, coal-based CO2 emissions must decline by around 3% annually to 2025, led by a retirement in the least efficient technologies and a decline in coal generation not equipped with carbon capture and storage (CCS) after 2020.
Biofuels
Advanced biofuels need a 25-fold scale-up in production volumes by 2025 to be on track with 2DS.
Numerous first-of-a-kind commercial-scale advanced biofuel plants are increasing their production, but mandates for advanced biofuels or reducing the carbon intensity of transport fuels are needed to accelerate uptake.
Buildings
Progress on building energy codes in developing regions last year is a positive step toward 2DS ambitions, but two-thirds of countries still do not have mandatory building energy codes in place.
ORANGE
Nuclear
Nuclear power saw 10 GW of capacity additions in 2016, the highest rate since 1990.
This came form 10 ne reactor connections: 5 in China and 1 each in Korea, India, Pakistan, Russia and the US.
Doubling of the 2016 annual capacity addition rate to 20 GW annually is required to meet the 2DS to offset planned retirements and phase-out policies in some countries. Moreover, 2016 brought only 3 GW of new construction starts, posing risks to the future growth rates of nuclear power generation.
Renewable power
Renewable power capacity additions broke another record in 2016, with over 160 GW of capacity additions and a 6% overall generation growth in 2016.
Renewable power overall is still falling short of longer-term 2DS levels, despite this record breaking growth. It is forecasted to grow by another 30% between 2015 and 2020 and it needs to accelerate by an additional 40% over 2020-25 to reach the 2DS target.
Industry
Industrial sector action must accelerate to meet the 2DS trajectory and keep annual growth in final energy consumption below 1.2% from 2014 to 2025, less than a half of the average 2.9% annual growth since 2000.
While the sector has continued to progress in energy efficiency and low-carbon technology deployment, industrial production growth must be further decoupled from energy use and carbon dioxide (CO2) emissions.
Appliances and lighting
The growing shift to light-emitting diodes (LEDs) in the last two years is encouraging, with LEDs representing 15% of total residential lamp sales in 2015 and expected to have grown to nearly 30% in 2016.
Leading regions are North-America, Japan and India. North America and Japan because they have always been technology leaders; and India because they implemented a very successful scheme (affordable LEDs for all).
However, electricity consumption by lighting, appliances and building equipment needs to halve from the current 3% average increase per year over the last decade to a 1.5% annual increase in the 2DS.
Fuel economy of light-duty vehicles
Progress in improving the average tested fuel economy of light-duty vehicles (LDVs) has slowed in recent years, from an annual rate of 1.8% in 2005-08, to 1.2% in 2012-15 and only 1.1% in 2014-15.
This trend must be reversed, and an annual fuel economy improvement rate of 3.7% through 2030 must be achieved.
GREEN
Electric Vehicles
A new historic record has been reached in the electrification of passenger transportation, with over 750 000 electric vehicles (EVs) sold in 2016, raising the global stock to two million.
China was by far the largest EV market in 2016 with 336 thousand new electric cars registered.
EV sales in China were more than double the amount in the United States (160 thousand units after a slight drop in the previous year)
In Europe, most of the EVs sold in 2016 were registered in just six countries: Norway, the United Kingdom, France, Germany, the Netherlands and Sweden.
Norway is the incontestable global leader in share of vehilce sales, with a 29% market share
Norway was followed by the Netherlands, with a 6.4% EV market share, and Sweden, with a 3.4% share
China, France and the United Kingdom all had EV market shares close to 1.5%.
A slowdown in market growth of 40% in 2016 from 70% in 2015 still maintains EVs on track to reach 2°C Scenario (2DS) levels in 2025, but puts the technology at significant risk of missing the 2020 interim milestone and in turn raises risks toward the 2025 goal.
Energy Storage
Storage technologies continued rapid scale-up in deployment, reaching almost 1 gigawatt (GW) in 2016. These advances were driven by favourable policy environments and reductions in battery prices.
Storage technologies need reaching cumulative capacity of 21 GW by 2025 under the 2DS level, requiring further policy action.
lar P and onshore wind
Strong annual capacity growth continued for both solar PV and onshore wind in 2016, with record low long-term contract prices in Asia, Latin America and the Middle East.
I already mentioned that trucks are an important source of global oil demand. But let me explain how important they really are.
[CLICK] Oil demand has grown at a rapid pace over the past one and a half decades.
[CLICK] Since 2000, global oil demand has grown by nearly 16 mb/d to more than 90 mb/d today.
[CLICK] The transport sector is at the heart of global oil demand growth: more than 80% of global growth was carried by cars, trucks, planes and ships. Much of the remainder comes from the petrochemical feedstocks to produce plastics.

When thinking about transport, it is pretty intuitive to think of cars as being the main driver of transport-related oil demand: since 2000, the global stock of cars more than doubled to nearly 1 billion vehicles today. In comparison, the stock of trucks is much smaller: when looking at heavy freight trucks of more than 3.5 tonnes, there are only close to 60 million such vehicles on the road. But trucks consume much more fuel than cars: the largest long haul trucks can use as much as 40 liters of diesel per 100 km, while a car uses only between 5-10 l/100 km. And trucks drive much further than cars: the largest long haul trucks are operated all year round and in some countries drive easily more than 100 000 km per year, compared to only around 15 000 km for a car.

[CLICK] The result is that despite the much smaller stock of trucks, their weight on oil demand is huge: road freight transport was the largest single contributor to global oil demand growth over the past one and a half decades, at around 40% of total growth, outpacing even passenger cars. What’s more, trucks are the largest source of diesel demand growth: around 80% of global growth in diesel demand came from trucks. The main global sources of oil demand from trucks today are the United States, the European Union and China.
China was the main driver of truck oil demand growth over the past one and a half decades, at around one quarter of the global total. India and other countries in Southeast Asia were also important contributors, and so was Latin America, in particular Brazil.
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