Global energy prospects and their implications for Indonesia
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Presentation given by Dr. Fatih Birol in Jakarta on 16 July, 2018.
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Global energy prospects and their implications for Indonesia
- 1. © OECD/IEA 2018 Global energy prospects and their implications for Indonesia Jakarta, 16 July 2018 IEA Dr. Fatih Birol, Executive Director, IEA
- 2. © OECD/IEA 2018 Old ways of understanding the world of energy are losing value as shifts occur in demand and supply; Southeast Asia, with China and India, is moving to the centre of the global energy demand picture Southeast Asia becoming pivotal to the global energy landscape Change in energy demand, 2016-40 (Mtoe) India 1 005 420 Southeast Asia China 790 United States -30 Japan -50 Europe -200 270Central and South America 485 Africa 135 Eurasia 480 Middle East
- 3. © OECD/IEA 2018 Global oil demand remains robust Global oil demand is set to rise by 1.4 mb/d in 2019, with Southeast Asia, China and India making up 60% of the increase; Southeast Asia is becoming increasingly dependent on oil imports, making energy security a pressing concern 0 0.4 0.8 1.2 1.6 2 2005-2014 mb/d 2016 2017 2018 20192015
- 4. © OECD/IEA 2018 Higher oil prices unleash second wave of US supply Supply growth from the United States alone will cover 80% of the world’s demand growth to 2023, with Canada, Brazil and Norway – all members of the IEA family – also growing strongly Changes in global oil supply capacity 2017-2023 -1.0 0.0 1.0 2.0 3.0 4.0 US Brazil Canada Iraq Iran Norway Colombia Indonesia China Mexico Angola Venezuela mb/d
- 5. © OECD/IEA 2018 Prices & reforms have cut the global subsidy bill Estimated value of global fossil-fuel consumption subsidies Subsidy reforms have made global oil demand more price-sensitive, but the recent rise in prices mean governments face growing pressure to reinstall subsidies 10 20 30 40 50 60 70 100 200 300 400 500 600 700 2009 2010 2011 2012 2013 2014 2015 2016 2017 Billiondollars,2017 Electricity Coal Gas Oil ASEAN total subsidies (right axis)
- 6. © OECD/IEA 2018 The global gas supply outlook The US accounts for almost 75% of growth in global LNG exports to 2023; Southeast Asia will need to increasingly import LNG from Qatar, Australia & the US to meet growing demand Natural gas production growth for selected countries and regions, 2017-23 6 -50 0 50 100 150 200 United States Middle East China Australia Russia Egypt Europe bcm Domestic market Export market
- 7. © OECD/IEA 2018 Global coal trade: age of rapid expansion is over but levels remain robust Global coal trade remains robust to 2040, as a drop in imports into China and mature economies is offset by higher imports in South and Southeast Asia Global steam coal exports 100 200 300 400 500 600 700 800 2000 2005 2010 2016 2025 2030 2035 2040 Mtce Indonesia Australia Rest of world
- 8. © OECD/IEA 2018 Southeast Asian electricity generation is set to more than double by 2040, requiring additions greater than Japan’s current power capacity Electricity generation by selected regions The future is electrifying Indonesia 500 1 000 1 500 2 000 2 500 Japan TWh 2016 Growth to 2040 Southeast Asia Korea
- 9. © OECD/IEA 2018 Air conditioning is driving electricity demand higher Air conditioners will represent 35% of the growth in ASEAN electricity demand to 2050; In Indonesia, 10% of households have air conditioners compared to over 90% in Japan and the US Share of final electricity demand growth to 2050 in ASEAN countries Cooling 35% Lighting and appliances 21% Other buildings 11% Industry 26% Other 7%
- 10. © OECD/IEA 2018 Technology progress and competition have driven down prices to record-low levels in countries with good renewable resources, transparent policies and well-designed auction schemes Announced wind and solar PV average auction prices by commissioning date Wind and solar PV costs falling rapidly 0 20 40 60 80 100 120 140 160 180 2012 2013 2014 2015 2016 2017 2018 2019 2020 USD/MWh Onshore wind average auction price Solar PV average auction price
- 11. © OECD/IEA 2018 Global energy – Implications for Indonesia • Higher oil prices are hurting consumers & putting pressure on governments to reintroduce subsidies; crucial that any subsidies are carefully targeted • The emergence of a competitive, global gas market with the rise of LNG provides opportunities for Indonesia on both the demand & supply sides • Energy investment is a critical issue for Indonesia – particularly in the power sector to respond to rapid demand growth & sustainability challenges • Renewables & energy efficiency can cost effectively tackle air pollution and fossil fuel imports, but need best-practice policy to lock-in cost reductions & aid deployment • The IEA stands ready to support Indonesia navigate its energy transition, with data, analysis, an “all fuels and technologies “ approach & real-world solutions
Hinweis der Redaktion
- Excellencies, ladies and gentlemen, it is a great pleasure to be with you today in Jakarta, thank you to MEMR for kindly hosting this event.
- Global demand in the period 2005-2014 averaged just over 0.8 mb/d and included two years (08/09) when demand fell y-o-y. For the period as a whole Brent prices were high, averaging $86/bbl and in 2011-2014 they averaged $108/bbl. OPEC moved to a market share policy at the end of 2014 which changed the oil demand growth dynamic dramatically. CLICK Demand growth soared in 2015 and remained solid in 2016 as prices slumped. In 2015-2016 they averaged $50/bbl, including a period at the start of 2016 when they fell below $30/bbl. CLICK Moving into 2017, the Vienna Agreement cut output in an attempt to boost prices. Strong underlying GDP growth meant that oil demand was buoyant for most of the year, but prices started to rise and by early 2018 they were 70% above the mid-2017 level. CLICK Growth in 2018 slowed as higher prices took their toll. But it remains buoyant and in 2019 we expect growth to be about the same. In both years petchem will contribute about 20% of the global demand growth. Demand is not the only factor affecting the oil market of course. The outlook in 2018 and 2019 will be heavily influenced by the continuing decline in Venezuelan oil production and the possible impact of sanctions against Iran. If exports from these countries falls sharply it will be necessary for other producers to fill the gap if we are to avoid the possibility of prices rising sharply. Statements by several parties (Saudi Arabia/Russia) suggest that action in terms of higher supply could be on the way. In terms of this relatively robust oil market demand, Southeast Asia is expected to make up about 12% of the demand growth in 2019 – about the same as the percentage of demand growth in 2018. China, India and Southeast Asia make up 60% of demand growth. With oil demand growing rapidly in the region and domestic production stagnant , Southeast Asia is set to become ever more dependent on oil imports, making energy security a more and more pressing policy concern. Oil imports currently cost the region USD 65 billion, which will rise to USD 280 billion in 2040 under current policy conditions. While energy efficiency is the best way to enhance energy security, the IEA is monitoring the market situation closely, and, as ever, stands ready to advise its member governments on any action that might be necessary. We are also in regular dialogue with large oil consumers in the IEA Family such as Indonesia [Thailand]. The IEA supports all efforts to minimise supply disruptions that, as history shows us, are not in the interests of either producers or consumers.
- However, during our forecast period production from the non-OPEC countries booms, led by the United States. Gains from the United States alone will cover 80% of the world’s demand growth, with Canada, Brazil and Norway – all members of the IEA family – able to cover the rest through 2020. Total non-OPEC supply growth is 5.2 mb/d. The OPEC countries manage only to increase their capacity by 1.2 mb/d, as Venezuelan and Angolan production is collapsing and renewed US sanctions on Iran could derail capacity growth there. There remain long term concerns about political stability in Libya and Nigeria. The largest expansion in OPEC is seen in Iraq. Our forecast assumes that production from the Neutral Zone resumes.
- Fossil fuel subsidies encourage inefficient use of energy, discourage investment in low-carbon technologies and energy-efficient equipment and thus increase energy-related CO2 emissions. Reforming subsidies gives more fiscal space to address environmental concern and enhance energy security. With multiple benefits embedded in the subsidy reform, it provides a necessary condition for sound energy-policy making. Therefore, reforming fossil fuel subsidy constitutes one of the key policy initiatives to foster energy transition, and if the reform is accompanied by other energy policies and measures, it can help governments to achieve other energy policy goals, such as efficiency and renewables. The IEA has been placing emphasis on phasing out fossil fuel subsidies (FFS) for well over a decade in the context of its World Energy Outlook (WEO) publication.Every year we publish the estimated value of fossil fuel consumption subsidies in the World Energy Outlook, and following up the policy developments in the world to reform subsidies. In our estimate, the value of the subsidies declined from over $500 billions in 2012, to around $270 billion in 2016. The decline is driven by lower international oil prices, as the gap between international benchmark and end-user prices is closed by decreased international prices of energy. However, it is also partly due to the on-going reforms in many emerging economies in the world. Countries in Southeast Asia like Indonesia [Thailand], which were traditionally large subsidizers of energy prices, have taken dramatic steps to reduce subsidies, which is a difficult process and which should therefore be applauded. CLICK In the ASEAN region, driven by national reform processes, subsidy trends have been very similar to those experienced globally, with general declines in subsidy spending since 2012. However battle is not yet over and keeping this momentum is vital. In our latest estimate, the value of global fossil fuel subsidies increased in 2017 to over $300 billion, as international oil prices went up, as did subsidy spending in ASEAN. Sustaining the reform is a major challenge, especially as prices of fuels go up. In such a case, many governments could be under pressure to reinstate subsidies. There were many cases in the world where reforms were reversed and subsidies were reintroduced, in face of political or public pressure. To avoid such situation, governments can for example provide targeted assistance to the vulnerable groups, while making efforts to convince public to implement subsidy reforms through an effective communication program.
- In terms of gas production, the United States accounts for the largest share of supply expansion driven by ample supply from shale gas, both dry and associated with light tight oil. (CLICK) US production growth, together with Australia and Russia, are expected to be the main contributors to export growth – the United States accounts for almost 45% for production increase and almost three quarters of LNG exports growth (with a market share of 20% by 2023 Vs. 4% in 2017). LNG is the main driver of inter-regional trade growth and one of the key ‘winners’ of the global energy landscape, sustained by strong export capacity expansion with new liquefaction coming principally from these countries - the United States, Australia and Russia. LNG trade is expected to pass the 500 bcm mark in 2023, accounting for almost 40% of inter-regional trade – a significant jump from a third as of 2017. ASEAN supply is effectively flat over the forecast period, with increases in supply in Indonesia being offset by small declines in production in other countries. Strongly growing gas demand will therefore likely be increasingly met through LNG imports. The rapid growth and depth of LNG markets is therefore a welcome development for gas importers in Southeast Asia. FOR THAILAND: According to IEA forecasts, Thailand’s LNG dependence is set to triple to 15 bcm by 2023, making up 28% of gas consumption. Gas diversification in power, as well as among gas suppliers, is therefore critical to energy security.
- Coal trade saw an outstanding growth since 1992 until 2015, especially steam coal for power generation in Asia. Currently, coal is the second largest seaborne traded bulk commodity by volume, after iron ore, well over 1 billion tonne per year. The main driver of that growth was China. In the 2000-2011 period, went from being one of the largest exporters to become the largest importer. But strong import levels in Japan, Korea and Taiwan and growing volumes to India also played a role on that growth. Looking ahead, we do not think that the growth in trade volumes seen in 2017 and 2018 is sustainable and we rather see stabilisation. There will be indeed areas of import growth, like some countries in South or South East Asia, and areas of decline, i.e. Europe. But global trend will depend on China and, to a lesser extent, India. These are two large domestic markets, in which imports play a balancing role and in which policies tend to rein in imports. In India, owing to scarce resources, imports of coking coal will grow in the future, whereas steam coal imports are much more uncertain, amidst the government’s policy of reducing coal imports as much as possible. In the supply side, China’s mirrored country was Indonesia, that went from almost no exports in 1990 to over 50 mt in 2000 to over 250 mt in 2010 and over 400 mt in this decade. Despite the stabilisation of global trade volumes and increasing domestic needs in Indonesia, Indonesia will remain one of the big players in the global market in the decades to come. <Will be cut for Thailand>
- We have touched on oil, gas and coal, but the emerging giant of global energy is electricity, with the power sector now attracting more investment than oil and gas combined – a new milestone in the history of the energy sector. Global electricity demand doubled between 1990 and 2016, outpacing other fuels, and is set to grow at twice the pace of energy demand as a whole in the next 25 years. According to IEA analysis <CLICK> Southeast Asia will more than double installed generation capacity to 2040, adding capacity equivalent to more than the entire current Japanese power sector, while Indonesian electricity generation close-to triples in the period. There are many factors behind the electrification of the global energy system, including the electrification of heat and transport, the growth of connected devices, and the digitalization of modern economies. Demand for energy services, especially air conditioning, is set to expand in households as incomes rise, while the use of electric motor systems drives demand growth in industry. At the same time, the global power supply is in a major transition, moving away from a century-old model of dispatchable fossil fuels, which brings with it unique challenges. For all these reasons, I have named 2018 as the year of electricity at the International Energy Agency, during which we will have an unprecedented focus in our work on electricity, including in this year’s World Energy Outlook. The power sectors of countries in Southeast Asia are in full transition, needing to manage rapidly growing electricity demand, disruptive business models and the imperative for greater sustainability. This will require extensive investment as well as learning amongst policymakers. The IEA stands ready to assist our partners in the IEA family to achieve this.
- A good example of the growing importance of electricity is cooling. Today, 90% of households in the US & Japan have air conditioners versus 32% in developing Asia, or less than 10% in Indonesia or less than 30% in Thailand. Cooling is already the fastest growing end use in buildings today - having tripled since 1990. In China, cooling electricity demand grew a staggering 70-fold since 1990. This is a path that many emerging economies will follow in the coming years, including in this very region. • In our recently released report on the Future of Cooling, we have found that energy demand for cooling globally could triple again by 2050, requiring new electricity capacity the equivalent to the combined electricity capacity of the United States, the EU and Japan today. • This critical ''blind spot'' will be one of the top drivers of global electricity demand over the next three decades. • The rise in cooling demand will be particularly important in the hottest regions of the world, such as Southeast Asia, and will have major implications for the amount of power sector investment necessary over time. In ASEAN, we predict cooling to make up a full 35% of demand growth to 2050 – by far the largest end-use sector growth • But energy-efficient air conditioning can halve that electricity growth, cutting additional power capacity needs by 1300GW globally - equivalent to all the coal-fired power generation in China and India today. • In ASEAN, the 35% of electricity demand growth that is made up by cooling could also be cut by half if policies are put in place to support the deployment of high-efficiency AC, which would make a tremendous difference to power sector investment needs, and greenhouse gas emissions. Put in perspective, the 35% of demand growth made up by cooling is equivalent to 230 GW of generation capacity in ASEAN by 2050.
- The combination of technology progress, competition and deployment in countries with good renewable energy resources is driving down costs of wind and solar PV very quickly. CLICK This graph shows the average auction prices for onshore wind and solar PV by commissioning date (obviously announced for >2017) CLICK The reduction of PV prices is particularly remarkable: a factor of 2 between 2014 and 2016/17 and another factor of (2-2.5) between now and 2020. Large scale deployment has been driven by large countries or regions such China, the US and Europe. But record-low prices in the range of 30-50 USD/MWh have been reached in new markets and countries as diverse as India, Mexico, Morocco and Chile and the Middle East (UAE and Saudi Arabia) The receipt for success is clear: clear and transparent policies and well-designed auctions schemes that foster competition, innovation and attract global investors. Deployment of renewables in ASEAN has been slower than in other world regions so far. But I am convinced that with effective strategies and policies, ASEAN could rapidly converge to best international benchmarks for renewables, both in terms of costs and deployment Policy predictability is particularly important. The example of recent PV policy changes in China shows once again that – despite their increasing economic attractiveness - renewables remain critically dependent on appropriate policy and regulatory frameworks