the changing world energy landscape: geopolitical ... · changing landscape - fundamentals...

Adnan Shihab Eldin © KFAS - 2014

The Changing World Energy Landscape: Geopolitical Challenges and Opportunities

Adnan Shihab-Eldin

Austria connect Gulf 2014

Rethink GCC/Gulf - Peak Oil and Beyond

Dubai 16th November


Outline

• The Changing Energy Landscape

• Challenges Ahead

• Regional Geopolitics

• Implications for GCC producers

• Concluding Remarks


Changing Landscape - Fundamentals Population growth slows – Increase 1 Billion - all in

non OECD

Prosperity Increases - Doubling of World GDP -mainly non-OECD But OECD GDP/Capita remains 5 x R.o.W (3 x China)

Energy growth Slows - 40% overall increase. Predominantly in Asia

Energy intensity: Reducing and converging Worldwide due efficiency of use, higher technology, higher value added manufacturing & service economies.

CO2 intensity Corresponding reduction increased by changes in energy mix (reduction of coal, increase of gas & Re.)

Total Emissions : Nevertheless increase by 30% (mainly in non OECD) because of GDP growth. China p.c. rises due to development & coal use but remains x 0.5 OECD, << US.

Source BP 2014


Source BP 2013

Non-OECD Asia63%Africa

12%

Middle East10%

Latin America

8%

Eurasia4%

OECD3%

Shares of growth in total primary energy demand, 2012-2040

Source WEO 2014 Source BP 2014


Changing Landscape - Primary Energy Supply

Average growth 1.1% through 2040

Solar & Wind have highest growth (7%) equalling hydro. a structural Change

Fossil Fuels share reduces by 6% to ~ 75% but remain dominant. trend to equal shares, 25% each.

Coal and Gas dominate electricity generation. Coal predominant in China India and S.E. Asia on price c.f. LNG

Liquids dominate transport & Petchem. Growth slowed by vehicle efficiency, hybrid/EV, subsidy reduction & low Non-OECD car ownership.

Shale (Oil & Gas) revolution in the US: A game changer?


IEA, WEO 2014


Changing Landscape -Generation Technology

Nuclear competitive only with state funding. Best secure zero carbon 60 year asset.

Sources IEA,WNA,IRENA,NREL

05

10152025

5 6 7 8LCO

E C

KW

hr

Overnight Cost $/W

NUCLEAR

5% DR

10% DR

UAE Barakah (Estimate)

UK Hinkley C

0 5 10 15 20Fuel Cost $/MBTU

OECD FOSSIL

Coal fired SteamCoal fired Steam with CCSGas fired CCGTGas fired CCGT with CCSPNGHub LNGOil Indexed LNG

0

5

10

15

20

25

2013 2020 2027

RE (Moderate Solar)

Wind (Typical)

UPV

BAPV

Generating Cost OnlyLoad Serving not included


05

10152025

5 6 7 8LCO

E C

KW

hr

Overnight Cost $/W

NUCLEAR

5% DR

10% DR

UAE Barakah (Estimate)

UK Hinkley C

0

5

10

15

20

25

0 5 10 15 20Fuel Cost $/MBtu

FOSSIL (GCC)

HFO fired Steam Plant

HFO (100$ Index)

CCGT Associated Gas

Non Associated

Imported LNG

LNG ( 100 $ Index)

0

5

10

15

20

25

2013 2020 2027

RE (High Solar)

Wind (low)CSPUPVBAPV

CSP Needs high solar resourceincludes storage , serves load. Wind & PV Generating Cost OnlyLoad Serving not included

CCGT predominant at US gas prices vs. coal, New Nuclear & RE. Not competitive in Asian (predominantly LNG) gas market vs. coal.

Wind On best sites competitive with fossil.

PV competiveness increasing. Parity in MENA. Subsidy still required in OECD


Scale of renewables Cheaper solar power Hydraulic fracturing

Energy industry transformed in recent years by innovation and technology-driven changes

Leonhard Birnbaum, e.on 2014


Changing Landscape – Power Generation Mix

Installed capacity by source

WEO 2013 - more than ½ of new capacity R E, reaching 40% in 2035

Can they replace fossil fuels - to meet all (or most) of world energy needs?

Wind and Solar - Intermittent - require storage backup and grid development

Will continue to require subsidy (> 100 B$ in 2012 250 B, 2035);

Lessons Learned - The German Experience

2 000

4 000

6 000

8 000

10 000

1970 1980 1990 2000 2010 2020 20302035

ProjectionsHistoricalOther renewablesWind

HydroNuclearOil

Gas

Coal

GW Re. Generation grows 3 X (70% non-OECD, ½ in China)

Generation Share 11 – 16 %..

Technology contribution: Hydro 50% wind 24% PV 8%, CSP 2%.

Source: (IEA’s WEO 2013)


“Energiewende” of Germany

More carbon- intensive Less stable More expensive


Vision: 60% Re., - 80% GHG , +50% Electrical Efficiency by 2050

Reality: High FIT and guaranteed grid connection reduce cheaper Centralized power to back up, increasing its cost and discouraging its development Storage Available and Grid development Insufficient

Lesson : Coordinated Techno Economic Development for minimum cost essential

Despite efforts of the transition, German power is now:


Challenges Ahead• World Economic Recovery and Energy Demand. Shift to Asia inevitable but growth depends

on World Markets & societal & economic policies in these countries.

• China & India China slowdown permanent? How urgently can India realize potential ? Development of own resources and urgency of sustainable energy policies ?

• South America Realization of economic and supplier potential of Brazil and Venezuela.

• Russia Conflict with Ukraine & West. Consequences for European Gas supply & Russian economy development & technology to counter high depletion rates & unconventional.

• US energy independence strengthens foreign policy but Rise of Asia re-orients it, reducing commitment to ME security.

• Weakened / Conflicted Government in US, UK and some EU.

• Climate Change. Increasing imperative for action but continuing policy uncertainty. Action will change fuel / technology mix. Ultimate consequences more serious, unquantified if delayed.

• Growth in oil demand weakens we may be seeing peak in oil demand before 2040

• World Resources. Is there a supply constraint? Peak Oil & Gas?


Peak oil demand likely by or before 2040?

IEA 450 outlook scenario Shows peak in oil demand developing as early as 2020

OPEC WOO (2014) indicate oil demand platueDeveloping by 2040


Challenge - Response to Climate Change

IEA Present policies: 6 Deg C, New Policies: 4 Deg C, 450 ppm Scenario: 2 Deg C IPCC 5th report: Warming Certain, effects unprecedented. 99% Certain anthromorphic?? Mitigation technology available, Costs relatively small, less than previously estimated Adaption consequences increased but fully quantified. Key Mitigations Efficient buildings & vehicles, RE irreversible, CCS almost inevitable Nuclear role minimized by unjustified demonization; Possible only with Govt. support US commitment to - 26% emissions on 2005 by 2025, China to peak emissions by 2030?.

CO2 abatement

Source: IEA WEO2012

Abatement 2020 2035

Efficiency 72% 44%Renewables 17% 21%Biofuels 2% 4%Nuclear 5% 9%CCS 3% 22%Total (Gt CO2) 2.5 14.8

20222426283032343638

2010 2015 2020 2025 2030 2035

Gt

New Policies Scenario

450 Scenario


Peak oil, resources, marginal cost and oil price

Peak Oil? Demand peak rather supply peak

Resources abundant - Transform the World market. Diversify & Increases security of supply

Marginal cost from 20$/bbl in GCC. 70$/bbl for shale & Deepwater

Supply breakdown & Price set by:

o Conventional supply Determined by budget requirements and rising costs of incremental production in GCC

o Unconventional (shale and deepwater) price set by technology and financing.

Current oil price vs. long term

* APICORP, Ali Aaissaoui, 2014

Forward Oil Curves


Challenge : Shale Oil & Gas Revolution in N America

Resource, business and financial environment very different

Hydraulic fracturing technology can be acquired, but production also needs:

Multiple drilling rigs

Strong field logistics and services

Private land and production companies

Cheap credit, liquid forward hedging to finance production

US Oil Supply increasing dramatically,

reducing imports

Shock & counter shock

Most resources outside US are in China, Argentina and Russia.

* OECD/IEA, Resources to Reserves 2013

Resources widespread but can US revolution be globalized ? very uncertain


Challenge : Shale Oil & Gas revolution in N America

* Bassam Fatouh 2014

US crude oil and liquid fuel production (mb/d)

* BP 2014


Large Uncertainty of Future Shale (Oil & Gas) production

BP Energy Outlook 2013

Coverage, magnitude & LT sustainability of shale production remain uncertain

Wide range of production Estimates

Yields and production economics are critically dependent on geology of each play

High marginal cost – Supply severely affected by price (Conventional – Low marginal Cost – Supply little affected by price )

Resource and sustainability of production remain uncertain


Structural Changes in Oil & Gas Trade:Import dependence in Selected Regions (IEA’s WEO 2013)

Energy trade increases for all fossil fuels & biofuels, with differing, but profound, energy security, competitiveness & geopolitical implications

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%Oil

Gas

United States

ChinaIndia

European Union

Japan and Korea

SoutheastAsia

2035

Brazil

Middle East

Russia

Caspian Africa Indonesia

Net gas exporter,net oil importer

Net gas and oil importer

Net gas andoil exporter

Net gas importer, net oil exporter

2011

(IEA’s WEO 2013)


The changing global LNG landscape

Daniel Yergin, HIS 2014

Key regional trends shaping the LNG market.


Global LNG trade growth by 49% (2013-2020).

Need for building smarter energy supply chain.


GCC Energy Challenges

The Changing GCC Energy LandscapeThe Supply Challenge


Regional Geopolitics

• IS-Most serious challenge to the stability of the Middle East for decades.

– Secure control of major parts of Syria and Iraq. Popular support due to provision of social infrastructure and services and replacement of corrupt regimes.

– Secure Funding from extortion and black market oil sales

– Anti western , anti regime , extremist support throughout region.

– 20,000 + experienced fighters from regime opponents and foreign jihadis. Expert control and command structures , Weapons commandeered from Iraq and provided for use against Assad.

– No viable opposition strategy without ground intervention . Only US, Turkey , Iran are

– militarily credible but all politically blocked. IS defeat not foreseeable.

Will increasingly threaten Iraq national unity , oil production and marketing, regional security investment confidence and development


Primary Energy intensity & GDP/Capita.(Bubble indicates fossil fuel consumption.

GCC – Energy Efficiency

Sources Chatham House, 2013


GCC Unsustainable policies &Domestic Energy

• Economies mainly dependent on oil revenues. Minimal Diversification

• State paternalism subsidizes most aspects of life including energy. Increased since Arab Spring

• Infrastructure development Plans

• Increase in “Fiscal oil prices” (to balance budgets)

• This near or above current market price. Will escalate with population growth.

• Highly vulnerable to oil income loss

• Subsidies to 90% of cost of production have destroyed considerations of conservation in building and vehicle size and efficiency

• Near worlds highest per capita consumption unrelated to national productivity

• Waste of national hydrocarbon reserves loss of export revenue

0

5

10

15

20

25

30

35

40

45

50

2010 2012 2014 2016 2018 2020

%Total Domestic Energy consumption

as % Maximum production (sources: Economist Intelligence Unit , National Bank of Kuwait)

Bahrain (NetImporter)Kuwait

Oman

Qatar

KSA

UAE


02468

1012141618

Electrical Energy (MWhr) (EIA )

*


Sustainable Energy Policy WIN – WIN for GCC states:-

Potential for 60% new building energy savings by 2020. Existing buildings very inefficient. Reduction by passive design, insulation, efficient windows, reflective coatings, controlled ventilation, Efficient AC Equipment or district cooling, building automation systems.

> 25% savings possible by existing building retrofits and improved operation.

High Solar Resource: > 20% generation by rooftop and Utility PV possible by 2030. Take the lead in CCS with EOR and explore Nuclear.

Exceptional storage potential in chilled water in building AC systems and solar desalination for RE intermittency mitigation.

Subsidy redistribution required – win-win wealth sharing Policy on basis of minimum lifetime cost: essential for public acceptability.

It is Possible to halve energy demand growth. Creates new industries for District Cooling, PV, Energy Services. Quality Employment


Renewable Energy Targets in the GCC, mid-2013


Middle East Nuclear Power Programs

KEY

Intended Power Program(Target)

TURKEY @ @(4.8GW by 2021)5 GW to follow

KUWAIT

SAUDI ARABIA17 GW by 2032 ?

EGYPT @@4.8 GW 2019 -2025

ISRAEL @ @

ALGERIA @@MORROCO @

UAE4 x API 1400 by 2020(up to 20 GW by 2030

BAHRAIN

JORDAN(1 GW BY 2020) @

5GW to follow

QATARNo detail yet

OMANNo detail yet

YEMENNo detail yet

Infrastructure & RegulationActive Power Program

(Target)

Preliminary

Program Cancelled

Joint Program

IRAN @ @ (0.9GW Operating,

20 GW by 2030)

Transition

TUNISIAno detail yet

LIBIYA @

@ Research Reactor


Implications for GCC

Oil is irreplaceable & abundant, Demand will continue to grow. But at a reducing rate.

Growing political instability, and extremism are threats to development & investment.

Domestic Consumption is excessive, rises with population and reduces income.

In the medium term, further reduction due to reducing share of slowing demand & supply increases, mainly of shale oil is an economic threat and calls for:

Economic diversification. This Ultimately essential but large scale requires decades

Reduced social spending,. This is challenging in the present political climate

Sustaining production capacity and development of gas resources to offset domestic liquids consumption. Both require IOC involvement which is politically obstructed in some countries.

Refining to clean fuels to increase export value. (this is limited to Asian Market)

Sustainable Energy Policy (Efficiency of use and renewable energy) is the most readily available option, and is essential in maintaining national prosperity,

In the longer Term: shale oil decline is certain and will return demand share to GCC.

However oil demand will plateau and decline due to increasing economic efficiency.

Ultimately alternative energy sources would emerge (e.g. Methane Hydrate & Fusion Reactors), rendering Diversification and Sustainable energy essential for national survival.


Concluding remarks (1)

I have presented a changing landscape of unprecedented uncertainty: Uncertainty of rates of growth of major emerging nations, their evolution to lower

energy intensities; & consequently of world energy demand growth they dominate Uncertainty of continuing sources of energy supply: determined by the

sustainability of shale oil and gas revolutions and whether they will proliferate beyond North America. Other (unknown) supply technology breakthroughs !

Uncertainty of response to climate despite strengthening rationale & seminal commitments reached by Obama and Xi Jingpin; & then ability of CCS to meet expectations. RE irreversible but at what penetration level? Nuclear Roles? waiting for G IV & fusion,

Some Certainties have emerged: That sustainable energy, efficiency of use first, and renewable energy second,

is the optimum path for world development. Fossil with CCS will remain for a long time an important factor, nuclear will grow in certain countries –

That “peak oil “ refers to the inevitable plateauing and reduction of demand , not of supply which is abundant.


Concluding remarks (2)

This region is subject to the greatest uncertainty in its recent history : First: the unsolved problem of IS and its threat to existence of Iraq & Syria, availability of

its resources and to confidence in the whole region, Second: the probability of increased regional superpower tensions and continued

underdevelopment of Iran’s resources consequent on failure to reach agreement on Iran’s nuclear program: 24 November is a date to watch?

Third: Growth of trans-national regional and sectarian alliances facilitated by the internet, which threaten established governments

There are regional certainties: The only way to reduce the geopolitical tensions & regional conflicts is through Education reforms: A generational Enterprise

In the medium term GCC production share & income will fall causing budget difficulties, reducing wealth distribution to citizens and eroding fiscal reserves.

In the long term, the region will be called upon to provide increased oil supply for mobility in Asia

This will invigorate progressive removal of energy subsidies, replaced by win-win sharing of oil rent, but political constraints will limit rate and effectiveness . It will re-emphasize the drive for economic diversification; UAE is leading the way, but urgency is spreading!


Concluding remarks (3) Thus, by its huge potential to reduce domestic energy consumption and loss of

exports, Sustainable Energy policy stands out as the only certain means ofincreasing income available to governments. It is also the best source ofdiversification and quality employment which will become increasingly importantin future.

This brings me to regional business interaction with Austria (in energy) .

We are impressed with the exemplary energy policies which have proliferatedthrough in Austria from initiation two decades ago in the town of Gussing. Theprogression through efficiency of use, distributed cogeneration andexploitation of renewable energy, minimizing fossil fuel use, creatingemployment and diversifying the economy is precisely the path which we mustnow follow.

The region can learn from your experience, identifying clear specific collaborationsof mutual benefits in Re, energy efficiency and smart energy system in general.


Thank You

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