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WORLD ENERGY INVESTMENT OUTLOOK Dr. Fatih Birol Chief Economist Head, Economic Analysis Division International Energy Agency / OECD Global Strategic Challenges Security of energy supplies Threat of environmental damage caused by energy use Uneven access of the world’s population to modern energy Investment in energy-supply infrastructure Global Energy Investment Outlook World Energy Investment 2001-2030 Total investment: 16 trillion dollars E&D 72% Refining Other 13% 15% E&D 55% LNG Chain 8% T&D and Storage 37% 46% Electricity 60% Power generation 54% T&D 88% Mining 12% Shipping and ports Oil 19% Gas 19% Coal 2% Production accounts for the majority of investment in the supply chain – except for electricity Energy Investment by Region 2001-2030 3,500 20 3,000 2,500 15 2,000 10 1,500 1,000 5 500 0 0 OECD North America China OECD Europe Other Asia Africa Russia Middle East OECD Pacific Other Latin America India Other transition Brazil economies OECD Europe will account for around 15% of global energy investment needs of $16 trillion share in global investment (%) cumulative investment (billion dollars) 4,000 Energy Investment Share in GDP 2001-2030 Russia Africa Other transition economies Middle East China India Other Asia Latin America World average OECD 0 1 2 3 4 5 per cent The share of energy investment in the economy is much higher in developing countries and the transition economies than in the OECD 6 Global Oil Investment World Oil Production 120 100 mb/d 80 60 40 20 0 1980 1990 2000 OPEC - Middle East Non-OPEC 2010 2020 2030 OPEC - Other Non-conventional oil OPEC countries – mainly in Middle East – will account for almost all the increase in world oil production to 2030 World Oil Investment 1,200 1,000 billion dollars 800 600 400 200 0 2001-2010 Exploration & development Refineries 2011-2020 Non-conventional oil Tankers 2021-2030 GTL Pipelines Upstream will continue to dominate oil investment, but the shares of tankers and GTL increase over projection period Oil Investment by Region Asia Latin America Africa Transition economies Middle East OECD 0 5 10 15 20 25 30 35 billion dollars per year Exploration & development Non-conventional oil Refineries Most investment outside the OECD will be needed in the Middle East and the transition economies – mainly in the upstream Oil Production and Capacity Additions 250 200 mb/d 150 100 50 0 2000 Production 2030 Expansion to meet demand growth 2001-2030 Replacement to maintain capacity The bulk of additions to crude oil production capacity will be needed simply to maintain capacity Investment Uncertainties & Challenges Uncertainties & Challenges Opportunities and incentives to invest Oil prices and rates of return Investment regime and risk Access to reserves Role of NOCs Restrictions on foreign investment Licensing, fiscal and commercial terms Environmental regulations and ethical concerns Demand-side impact Impact on access to reserves and drilling costs Remaining resources and technology Iraqi production prospects Middle East production and investment policies Global Upstream Oil and Gas Investment & Crude Oil Price 150 35 25 100 20 15 50 $/barrel 10 5 0 0 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 billion dollars 30 Investment WTI price (right axis) Upstream investment is sensitive – with a lag of a year or so – to movements in oil prices Access to Oil Reserves Iraq 10% National companies only (Saudi Arabia, Kuwait, Mexico) 35% Concession 21% Production sharing 12% Limited access National companies 22% 1,032 billion barrels Access to much of the world’s remaining oil reserves is restricted Iraq Oil Investment Scenarios 60 cumulative investment (billion dollars) 2030 50 2030 40 2030 2020 30 20 2020 2020 2010 10 2010 201 0 0 2 3 4 5 6 7 8 9 10 production (mb/d) Restoration of production capacity Slow production expansion Reference Scenario Rapid production expansion Iraq will need to invest around $5 billion to raise oil production capacity to almost 4mb/d by 2010 in the Reference Scenario Restricted Middle East Oil Investment Scenario Restricted Middle East Oil Investment Scenario OPEC Middle East Share in Global Oil Supply 50 per cent 40 30 20 10 0 1970 1980 1990 2000 Restricted Investment Scenario 2010 2020 2030 Reference Scenario OPEC Middle East’s share of global oil production is assumed to remain flat at under 30% in Restricted Investment Scenario OPEC Oil Revenues, 2001 - 2030 Restricted Investment vs Reference Scenario billion dollars 12,000 10,000 8,000 6,000 OPEC Reference Scenario OPEC Middle East Restricted Investment Scenario Oil revenues in OPEC Middle East producers are substantially lower in the Restricted Investment Scenario Oil Concluding Remarks Global investment of $3 trillion needed in 2001-2030 Investment more sensitive to decline rate than rate of demand growth – most investment needed just to maintain current production level Major uncertainties about opportunities and incentives to invest, notably Access to reserves and production policies – OPEC (and Iraq) Oil prices Production costs and investment risks Lower investment in Middle East oil would raise global investment needs, lower OPEC revenues & harm global economy Enhanced consumer-producer dialogue to help facilitate capital flows Natural Gas Investment Outlook Gas E&D Investment & Incremental Production 2001 - 2030 Incremental Production E&D Investment OECD 10% Othe 20% Transition economies 18% Other 32% OECD 48% Africa 9% Middle East 8% Transition economies 15% $ 1.7 trillion Middle East 23% Africa 17% 2,767 bcm OECD countries will account for almost half total upstream gas investment, but only 10% of additional production Net Inter-regional Trade & Production 5,400 4,800 4,200 bcm 3,600 3,000 2,400 1,800 1,200 600 0 2001 Production 2010 LNG trade 2020 2030 Pipeline trade A growing share of gas will be traded between regions, much of it in the form of LNG LNG Shipping Fleet 400 350 number of ships 300 250 200 150 100 } 50 0 in operation (2001) Liquefaction project developers Oil & gas companies Projected On order in 2001 additions 2002-2030 LNG buyers Ship owners A 6-fold increase in LNG trade between 2002 and 2030 will call for massive investment in new carriers Indicative LNG Unit Capital Cost 700 dollars per tonne of capacity 600 500 400 300 200 100 0 Mid-1990s Liquefaction 2002 2010 Shipping 2030 Regasification The recent dramatic fall in LNG costs is expected to continue Levelised Cost of LNG Imports into US Gulf Coast 3.50 3.00 Henry-Hub average price, 19982002 $/MBtu 2.50 2.00 1.50 1.00 0.50 0.00 Trinidad Upstream Nigeria Venezuela Liquefaction Shipping Egypt Qatar Regasification Lower capital costs are making LNG imports more economic – and more competitive with domestic supply projects Gas Investment Uncertainties Balance of risk and return – price is key Complexity of financing very large-scale projects – especially in developing countries Access to reserves and fiscal regime – most new investment will be private Impact of market reforms on investment risk – long-term contracts will remain necessary These factors could lead to shortfall in investment, supply bottlenecks and higher prices in some cases Electricity Investment Outlook Electricity Sector Investment by Region 2001-2030 2,500 billion dollars 2,000 1,500 1,000 500 0 China Other Latin Africa Asia America Middle East US and European OECD Canada Union Pacific Other OECD Russia Rest of TE China will need more electricity investment than any other country or region Average Age of Power Plants in the OECD 1,000 800 GW 600 400 200 0 <20 years Fossil >20 years Nuclear U.S. Privately Owned Utilities Profit Margin 12% 10% 8% 6% 4% 2% 0% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Profit margins have fallen sharply in recent years Electricity Investment Uncertainties in US Investment needs will increase over next 3 decades Demand growth of 1.6% Many old plants – including most nuclear reactors – will be retired Shift to higher unit cost renewables Tightening reserve margins Gas prices and capital costs of coal stations & renewables are key drivers of future investment in generation Wind power will be primary renewable source – calling for investment in voltage regulation & network reinforcement New capacity investment may be delayed as investors wait to see what environmental policies – including possible climate action – are enacted Higher investment costs for new capacity may delay decommissioning of old plants and raise emissions Power Generation Capacity Additions in Developing Countries 1971-2000 1,200 1,000 GW 800 600 400 200 0 1971-1980 1981-1990 1991-2000 2001-2010 2011-2020 2021-2030 Developing countries will need to add increasing amounts of new generating capacity over the next three decades Electricity Investment as Share of GDP 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% OECD China India 1991-2000 Indonesia Russia Brazil Africa 2001-2010 Medium-term electricity sector investment needs will increase relative to GDP in almost all non-OECD regions Power Sector Private Investment in Developing Countries 50 45 40 billion dollars 35 30 25 20 15 10 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Developing countries will need to reverse the slump in private capital flows if projected investment is to be forthcoming Energy Investment Challenge Total investment requirements are modest relative to world GDP, but challenge differs by region Energy and financial resources are sufficient, but increasing competition for capital and higher risk Capital needs are largest for electricity Half total energy investment is needed in developing countries – where financing will be hardest Production accounts for the bulk of investment – more than half just to replace old capacity Broader Policy Implications: “Wake-Up Call” for Governments Increasing emphasis on creating right enabling conditions – and lowering barriers to investment Less direct intervention as lender or owner Governments should monitor and assess the need to adjust regulatory reforms in network industries Policymakers need to ensure basic principles of good governance are applied and respected – including costreflective pricing Fiscal and regulatory incentives to develop advanced technologies – carbon sequestration, hydrogen, fuel cells, advanced nuclear reactors, etc. – could speed their deployment and dramatically alter energy investment patterns and requirements to 2030