The Global Economy & The State of the Gas Market

The Global Economy & The State Of The Gas Market Dr. Fatih Birol Chief Economist International Energy Agency© OECD/IEA 2012

The context: fresh challenges add to already worrying trends  Economic concerns have diverted attention from energy policy & limited the means of intervention  Post-Fukushima, nuclear is facing uncertainty  MENA turmoil raised questions about region’s investment plans  CO2 emissions rebounded to a record high  Durban was a step forward, but is yet to make a noticeable impact on investment© OECD/IEA 2011

Energy efficiency offers real gains for energysecurity, economic growth & the environment Change in global energy intensity for selected periods 1.0% Annual change in global energy intensity 0.5% 0.0% -0.5% -1.0% -1.5% 1971-1980 1981-1990 1991-2000 2001-2008 2009 2010 Global energy efficiency development is going in the wrong direction© OECD/IEA 2011

Coal won the energy race in the first decade of the 21st century Growth in global energy demand, 2000-2010 1 600 Mtoe 1 400 Nuclear 1 200 Renewables 1 000 800 Oil 600 400 Natural gas 200 0 Total non-coal Coal Coal accounted for nearly half of the increase in global energy use over the past decade, with the bulk of the growth coming from the power sector in emerging economies© OECD/IEA 2011

Europe: rising energy prices compound thepain of austerity Cost of net imports of oil and gas in the European Union 700 Billion USD 600 3.3% Debt of Greek government 500 (end of 2011) 2.7% 400 2.1% EU’s net import bills 300 Gas 200 Oil % Share of GDP 100 0 2009 2010 2011 EU spending on imports was almost two-thirds higher in 2011 than 2009 as a result of higher international oil prices & oil-indexed gas prices© OECD/IEA 2011

Fukushima adds to the economic impact of higher energy prices in Japan Cost of net imports of oil and gas in Japan 250 Japan’s net import bills Billion USD 3.9% Gas 200 Oil 2.9% % Share of GDP 150 2.4% 100 50 0 2009 2010 2011 The shutdown of most nuclear plants has created electricity shortages & pushed up spending on oil & gas imports, which in turn has led to Japan’s 1st trade deficit in decades© OECD/IEA 2011

OPEC revenues on track to reach another record high OPEC oil-export revenues 1 400 Net oil export Billion USD revenues 1 200 1 000 * Assuming average crude oil price of $120/barrel 800 600 400 200 0 2009 2010 2011 2012* If prices average $120/bbl in 2012, OPEC is set to earn oil export revenues of $1.2 trillion; And Russian oil & gas export revenues would reach $400 billion, or 25% of GDP© OECD/IEA 2011

Natural gas becoming the“default fuel”  The weak economy weighs on demand for all fuels, including natural gas, but its competitors face other problems  Renewables: subsidy programs uncertain in this age of austerity  Nuclear : renewed debate post-Fukushima  Coal: deployment of CCS is disappointingly slow  Further opportunities for natural gas arise from concerns about local pollution & lack of clarity over climate policy  On the supply side, natural gas is becoming increasingly available & often less expensive compared to other fuels  In many cases, this adds up to natural gas becoming the “default fuel”, although uncertainties remain© OECD/IEA 2011

European natural gas demand fell sharply in2011, but other regions saw growth Change in gas demand (bcm) 40 2010 bcm 2011 20 0 -20 -40 -60 European Union United States Japan China Based on preliminary estimates, EU27 natural gas demand fell by almost 11% in 2011 returning to levels last seen in 2000, while demand in China & Japan rose sharply© OECD/IEA 2011

Gas demand growth comes from China, Middle East, India Projected natural gas demand by region, 2009 and 2035 1 000 Additional bcm to 2035 800 2009 600 400 200 0 North European Middle Russia China India Japan America Union East Gas demand grows fastest in the non-OECD regions, led by China, which accounts for more than a quarter of the worldwide increase in demand between 2009 & 2035© OECD/IEA 2011

Global gas resources represent 250 years of current production Natural gas can enhance security of supply: global resources exceed 250 years of current production; while in each region, resources exceed 75 years of current consumption© OECD/IEA 2011

Natural gas supply outlook Largest natural gas producers in 2035 Russia Conventional United States Unconventional China Iran Qatar Canada Algeria Australia India Norway 0 200 400 600 800 1 000 bcm Gas supply rises by 1.7 tcm by 2035 with Russia, the United States & China being the largest producers© OECD/IEA 2011

“Golden Rules“ for a “Golden Age of Gas” The unconventional gas boom could transform markets if the US success is matched elsewhere, but challenges need to be overcome  land use, water use, risk of water contamination, methane emissions “Golden Rules” to support a potential “Golden Age of Gas” to be published as a WEO-2012 special report on 29 May Confirms environmental concerns can be mitigated using available technologies – if companies follow best practices “Golden Rules” covering:…….  Public engagement & disclosure  Controlling air emissions  Managing water use & the risk  Project planning & regulatory of contamination control© OECD/IEA 2011

Concluding remarks  High oil prices are contributing to the economic malaise; further rises could plunge the global economy back into recession  Market uncertainties are creating opportunities for natural gas  We may see a more competitive LNG market & less pronounced price divergence  Gas has a key role to play in in enhancing energy security, reducing local pollution & in moving to a low-carbon energy economy  Unconventional resources could revolutionise energy markets  but “Golden Rules” are essential to mitigate environmental risks© OECD/IEA 2011

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The Global Economy & The State of the Gas Market

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