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© OECD/IEA - 2006

INTERNATIONAL ENERGY AGENCY

World Energy World Energy Outlook 2006Outlook 2006

Hideshi EMOTOSenior Energy Analyst

Economic Analysis DivisionInternational Energy Agency

© OECD/IEA - 2006

The Context

The world is facing twin energy threats Inadequate and insecure supplies Environmental damage, including climate change

There is an urgent need to curb the growth in fossil-fuel demand & related emissions

WEO-2006 is a direct response to G8 request for advice on alternative energy scenarios

Two scenarios depict markedly different energy futures to 2030 Reference Scenario: No new government

policies are adopted Alternative Policy Scenario: Energy-security &

climate-change policies now under consideration are adopted

© OECD/IEA - 2006

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

BiomassNuclear

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

Mto

e

© OECD/IEA - 2006

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

0

20

40

60

80

100

120

1980 2005 2015 2030

mb/

d

OECD Transition economies Developing Asia Other developing countries

© OECD/IEA - 2006

Reference Scenario: Share of Transport in Total Oil use

The rising share of transport – which is relatively price inelastic – makes oil demand less responsive to movements in

international oil prices

10%

20%

30%

40%

50%

60%

70%

World OECD Non-OECD China Rest ofdevelopingcountries

Transitioneconomies

1980 2004 2030

© OECD/IEA - 2006

Economic Value of Energy Subsidies in non-OECD Countries, 2005

World subsidies amount to well over $250 billion per year – Russia has the largest subsidies, amounting to $40 billion per

year

0 5 10 15 20 25 30 35 40 45

Kazakhstan

Venezuela

Egypt

Ukraine

Indonesia

India

Saudi Arabia

China

Iran

Russia

billion dollarsOil products Natural gas Electricity Coal

© OECD/IEA - 2006

Proven Oil Reserves

The Middle East’s share of global oil reserves is much higher than its share of current production, suggesting strong potential

for growth

Iraq9%

Kuwait8%

Saudi Arabia20%

Iran10%

Rest of the world43%

Other Middle East10%

© OECD/IEA - 2006

Reference Scenario: World Primary Oil Supply

OPEC takes the lion’s share of oil market growth as conventional non-OPEC production peaks, but non-conventional oil plays a

growing role

* Including NGLs

0

20

40

60

80

100

120

2000 2005 2015 2030

mb/

d

30%

35%

40%

45%

50%

Middle East OPEC crude* Other OPEC crude*Non-OPEC crude* Non-conventional oilOPEC market share

© OECD/IEA - 2006

Reference Scenario: World Primary Natural Gas Demand by Sector

The power sector accounts for more than half of the increase in primary gas demand worldwide

67% growth

0

1 000

2 000

3 000

4 000

5 000

1990 2000 2004 2010 2015 2030

bcm

Power generation GTL Industry Residential and services Other sectors

© OECD/IEA - 2006

Increase in the Net Oil Import Bill in 2005 over 2002

The increase in international energy prices raised the cost of net oil and gas imports in developing countries

-1% 0% 1% 2% 3%

Oil-importing Sub-Saharan Africa

Developing Asia

OECD Pacific

OECD Europe

OECD North America

share of GDP in 2002GasOil

© OECD/IEA - 2006

Trends in Coal Demand

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

World China0

100

200

300

400

500

600

700

800m

illion

tonn

es

Increase 1993-2003 Increase 2003-2005

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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

Increase of 14.3 Gt (55%)

0

10

20

30

40

50

1990 2004 2010 2015 2030

billio

n to

nnes

Coal Oil Gas

© OECD/IEA - 2006

Reference Scenario:Energy-Related CO2 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

Gig

aton

nes

of C

O 2

United States

China

Rest of non-OECD

Rest of OECD

© OECD/IEA - 2006

Oil 21%

Electricity56%

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%

© OECD/IEA - 2006

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

inde

x (y

ear 2

000

= 10

0)

Nominal Adjusted for cost inflation

© OECD/IEA - 2006

Access to oil reserves

Access to much of the world’s remaining oil reserves is restricted

Total reserves = 1 290 billion barrels

Production sharing11%

Iraq9%

Limited access - national companies

dominant 13%

Concession30%

National companies only37%

© OECD/IEA - 2006

Energy Poverty: Annual Deaths from Indoor Air Pollution

The number of people using dirty traditional biomass for cooking is set to grow from 2.5 billion now to 2.7 billion in 2030 absent

new policies

Source: World Health Organization

2.8

1.6

1.2 1.3

0

1

2

3

Malaria Smoke frombiomass

Tuberculosis HIV/AIDS

milli

ons

© OECD/IEA - 2006

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 countriesGas 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

Global energy-related carbon-dioxide emissions will accelerate

© OECD/IEA - 2006


Alternative Policy Alternative Policy Scenario Scenario

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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 CO2 emissions are 6.3 Gt (16%) lower in 2030 –

equivalent to the current emissions of US and CanadaDelaying action by 10 years would reduce the

impact on emissions in 2030 by three-quarters

© OECD/IEA - 2006

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

© OECD/IEA - 2006

Alternative Policy Scenario: Oil and Gas Imports, 2004-2030

OECD countries see their increase in oil and gas import requirements substantially reduced in the APS

-10%

0%

10%

20%

30%

40%

50%

United States European Union Japan

Reference Scenario Alternative Policy Scenario

© OECD/IEA - 2006

Improved end-use efficiency accounts for over two-thirds of avoided emissions in 2030 in the APS

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 o

f CO

2

Alternative Policy Scenario: Key Policies for CO2 Reduction

© OECD/IEA - 2006

Alternative Policy Scenario: Change in Cumulative Energy-Related Investment, 2005-2030

Avoided supply-side investment more than outweighs the additional investment by consumers in more expensive end-use

capital stock

-4 000

-3 000

-2 000

-1 000

0

1 000

2 000

3 000

Additional demand-side investment

Avoided supply-sideinvestment

Net change inenergy investment

billio

n do

llars

(200

5)

© OECD/IEA - 2006

Alternative Policy Scenario: Investment Payback Periods

The payback periods of new policies are very short, especially in non-OECD countries for policies introduced before 2015

OECD Non-OECD

0

1

2

3

4

5

6

7

8

9

2005-2015 2016-2030 2005-2015 2016-2030

year

s

CarsElectrical equipment (refrigerators, washing machines, lighting, air conditioning)

Motors in industy

© OECD/IEA - 2006

Renewed Interest in Nuclear Power

Growing concerns over energy security, surging fossil-fuel prices & rising carbon emissions

Positive aspects of nuclear power proven technology for large-scale baseload electricity

generation reduce dependence on imported gas no emissions of greenhouse gases or local pollutants produces electricity at competitive & stable cost uranium resources abundant & widespread

But governments need to play a stronger role in facilitating investment where nuclear is accepted

© OECD/IEA - 2006

0%

10%

20%

30%

40%

Wind Nuclear IGCC Coal steam CCGT

incr

ease

in g

ener

atin

g co

st

Impact of a 50% Increase in Fuel Price on Generating Costs

Nuclear generating costs are far less sensitive to fuel price increases than gas or coal plants

© OECD/IEA - 2006

Outlook for Biofuels

Interest in biofuels is soaringBiofuels 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 producedHigher 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

© OECD/IEA - 2006

Share of Biofuels in 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

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

© OECD/IEA - 2006

Making the Alternative Policy Scenario a Reality

Formidable hurdles exist to the adoption & implementation of the Alternative Policy Scenario

It will require considerable political will to push through those policies

Private-sector support & international cooperation will be essential

Action is needed urgently Investment over the next decade will lock in

technology that will remain in use for up to 60 years Delaying implementation by a decade would reduce

cut in cumulative emissions to 2030 from 8% to 2% R&D in carbon capture & storage is particularly

crucial to scope for cutting emissions beyond 2030

© OECD/IEA - 2006

Summing Up

The need to diversify energy sources & mitigate emissions is more urgent than ever

Strong new policies could sharply reduce the rate of increase in demand & emissions

Economic cost of these policies would be more than outweighed by the economic benefits alone

WEO-2006 sets out the essential 1st steps towards a clean, clever & competitive energy future

In the longer term, technology development will be critical to a sustainable global energy system

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