© OECD/IEA - 2009© OECD/IEA - 2009

© OECD/IEA - 2009

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1980 1990 2000 2010 2020 2030

Mto

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Other renewables

Hydro

Nuclear

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Gas

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Oil

World energy demand expands by 45% between now and 2030 – an average rate of increase of 1.6% per year – with coal accounting for more than a third of the overall rise

World primary energy demand in tWorld primary energy demand in the he Reference Scenario: this is unsustainable!Reference Scenario: this is unsustainable!World primary energy demand in tWorld primary energy demand in the he Reference Scenario: this is unsustainable!Reference Scenario: this is unsustainable!

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© OECD/IEA - 2009

The continuing importance of coal in The continuing importance of coal in world primary energy demandworld primary energy demandThe continuing importance of coal in The continuing importance of coal in world primary energy demandworld primary energy demand

0%

20%

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Non-OECD OECD

All other fuelsCoal

Shares of incremental energy demand Reference Scenario, 2008 - 2030Increase in primary demand, 2000 - 2007

Demand for coal has been growing faster than any other energy source & is projected to account for more than a third of incremental global energy demand to 2030

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Coal Oil Gas Renewables Nuclear

4.8%

1.6% 2.6%

2.2%

0.8%

% = average annual rate of growth

Office of the Chief Economi

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© OECD/IEA - 2009

Power-generation capacity under Power-generation capacity under construction worldwideconstruction worldwidePower-generation capacity under Power-generation capacity under construction worldwideconstruction worldwide

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Coal Gas Oil Nuclear Hydro Wind Rest ofrenewables

GW Non-OECD

OECD

Total = 613 GW

Over 600 GW of power-generation capacity is currently under construction worldwide & is expected to be operational before 2015, 3/4 of this is outside the OECD

Office of the Chief Economi

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© OECD/IEA - 2009© OECD/IEA - 2009

© OECD/IEA - 2009

Change in oil demand by region Change in oil demand by region in the Reference Scenario, 2008-2030in the Reference Scenario, 2008-2030Change in oil demand by region Change in oil demand by region in the Reference Scenario, 2008-2030in the Reference Scenario, 2008-2030

-2 0 2 4 6 8 10

China

Middle East

India

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Latin America

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Africa

OECD North America

OECD Europe

OECD Pacific

mb/d

All of the growth in oil demand comes from non-OECD, with China contributing 43%, the Middle East & India each about 20% & other emerging Asian economies most of the rest

Office of the Chief Economi

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© OECD/IEA - 2009

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1990 2000 2010 2020 2030

mb/

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Natural gas liquidsNon-conventional oilCrude oil - yet to be Developed or foundCrude oil - currently producing fields

World oil production by source World oil production by source in the Reference Scenarioin the Reference ScenarioWorld oil production by source World oil production by source in the Reference Scenarioin the Reference Scenario

Even if oil demand was to remain flat to 2030, 45 mb/d of gross capacity – roughly four times the capacity of Saudi Arabia – would ne needed just to offset decline from existing fields.

45 mb/d

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© OECD/IEA - 2009

A sea change: world oil & gas production by A sea change: world oil & gas production by company type in the company type in the Reference ScenarioReference ScenarioA sea change: world oil & gas production by A sea change: world oil & gas production by company type in the company type in the Reference ScenarioReference Scenario

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NOCs Private companies

Oil Gas

Almost 80% of the projected increase in output of both oil & gas comes from national companies – on the assumption that investment is forthcoming

Office of the Chief Economi

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© OECD/IEA - 2009

The 11 members of GECF account for 2/3 of global gas reserves,while just 2 of them – Russia & Iran – account for over 40% .

World natural gas reserves and Gas Exporting World natural gas reserves and Gas Exporting Countries Forum (GECF) Countries Forum (GECF) World natural gas reserves and Gas Exporting World natural gas reserves and Gas Exporting Countries Forum (GECF) Countries Forum (GECF)

World total: 179 Tcm (2008)

Office of the Chief Economi

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© OECD/IEA - 2009© OECD/IEA - 2009

© OECD/IEA - 2009

World’s top five energy-related COWorld’s top five energy-related CO22 emitters emitters in the Reference Scenarioin the Reference ScenarioWorld’s top five energy-related COWorld’s top five energy-related CO22 emitters emitters in the Reference Scenarioin the Reference Scenario

  2007 2020

  Gt rank Gt rank

China 6.1 1 10.0 1

USA 5.8 2 5.8 2

EU27 4.0 3 3.9 3

Russia 1.6 4 1.9 5

India 1.3 5 2.2 4

The top 5 emitters account for 70% of world emissions; China overtook the USA as the largest emitter in 2007, while India becomes the fourth largest before 2020

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© OECD/IEA - 2009

Energy-related COEnergy-related CO22 emissions from existing & emissions from existing & future power plants in the Reference Scenariofuture power plants in the Reference ScenarioEnergy-related COEnergy-related CO22 emissions from existing & emissions from existing & future power plants in the Reference Scenariofuture power plants in the Reference Scenario

Although 75% of power sector CO2 emissions in 2020 are already “locked-in”, investments in the next decade will be critical to a low-carbon future in the longer term

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Future plants in OECD

Future plants in non-OECD

Existing plants in non-OECD

Existing plants in OECD“Window for action”

Office of the Chief Economi

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© OECD/IEA - 2008

Reductions in energy-related COReductions in energy-related CO22 emissions in the climate-policy scenariosemissions in the climate-policy scenariosReductions in energy-related COReductions in energy-related CO22 emissions in the climate-policy scenariosemissions in the climate-policy scenarios

While technological progress is needed to achieve some emissions reductions, efficiency gains and deployment of existing low-carbon energy account for most of the savings

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Reference Scenario 550 Policy Scenario 450 Policy Scenario

CCS Renewables & biofuels

Nuclear

Energy efficiency

550 Policy

Scenario

450 Policy

Scenario

54%

23%

14% 9%

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© OECD/IEA - 2009

World energy-related COWorld energy-related CO22 emissions emissionsin 2030 by scenarioin 2030 by scenarioWorld energy-related COWorld energy-related CO22 emissions emissionsin 2030 by scenarioin 2030 by scenario

OECD countries alone cannot put the world onto a 450-ppm trajectory, even if they were to reduce their emissions to zero

World

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© OECD/IEA - 2009

Key results of the post-2012 Key results of the post-2012 climate-policy analysisclimate-policy analysisKey results of the post-2012 Key results of the post-2012 climate-policy analysisclimate-policy analysis

550 Policy Scenario Corresponds to a c.3C global

temperature rise Energy demand continues to

expand, but fuel mix is markedly different

CO2 price in OECD countries reaches $90/tonne in 2030

Additional investment equal to 0.25% of GDP

450 Policy Scenario Corresponds to a c.2C global

temperature rise Energy demand grows, but half as

fast as in Reference Scenario Rapid deployment of low-carbon

technologies Big fall in non-OECD emissions CO2 price in 2030 reaches

$180/tonne OPEC production almost 13mb/d

higher in 2030 than today Additional investment equal to 0.6%

of GDP

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© OECD/IEA - 2009

Cumulative European Union COCumulative European Union CO22 savings savings with 20% reduction target in 2020with 20% reduction target in 2020Cumulative European Union COCumulative European Union CO22 savings savings with 20% reduction target in 2020with 20% reduction target in 2020

EU cumulative savings over 2008-2020 would represent only 40% of China’s annual CO2 emissions in 2020

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ANNUAL 2020 CO2 emissions

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EU-27

CUMULATIVE savingswith 20% CO2 emissions reduction target

(2008 - 2020)

Office of the Chief Economi

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© OECD/IEA - 2009© OECD/IEA - 2009

© OECD/IEA - 2009

How is the financial & economic crisisHow is the financial & economic crisisaffecting energy investment?affecting energy investment?

How is the financial & economic crisisHow is the financial & economic crisisaffecting energy investment?affecting energy investment?

Difficulties in obtaining credit & higher cost of capital> Increased aversion to risk> Paralysed credit markets> Plunging share values have increased debt-equity ratios

Lower prices & cash flows have made new investments less attractive

Falling demand caused by economic recession has reduced urgency & appetite for suppliers to invest

Office of the Chief Economi

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© OECD/IEA - 2009

The crisis is driving down demand & prices for now, but impact on demand, investment, imports & emissions in the medium to long term may be negative

Impact on energy security Impact on energy security & climate change& climate change

Impact on energy security Impact on energy security & climate change& climate change

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© OECD/IEA - 2009

Demand-side investmentDemand-side investmentDemand-side investmentDemand-side investment

Financing problems & lower energy prices are discouraging investment in replacing energy-consuming capital stock

Will also delay the development & commercialisation of more energy-efficient demand-side technologies> Car manufacturers are particularly badly placed to invest because of

a slump in car sales & severe financial problemsStronger government policies to support energy efficiency could

redress the balance

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© OECD/IEA - 2009

Implications of oil/gas upstream Implications of oil/gas upstream investment cutbacksinvestment cutbacks

Implications of oil/gas upstream Implications of oil/gas upstream investment cutbacksinvestment cutbacks

Upstream oil projects involving 2 mb/d of peak capacity delayed so far, more to follow?

OPEC has announced delays at 35 projects, though no detailsCutbacks in spending on producing assets will push up decline ratesDemand in near term may fall more than the loss of capacity……but if demand rebounds quickly with economic recovery, spare capacity may

be squeezed in medium term given investment lead times & financing problems LNG liquefaction capacity is set to rise in near term, but no new investment

decisions are due to be taken in 2009

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© OECD/IEA - 2009

Impact of the crisis on power-sector Impact of the crisis on power-sector investmentinvestment

Impact of the crisis on power-sector Impact of the crisis on power-sector investmentinvestment

Falling demand & financing problems are driving investment cutbacks (little hard data to hand as yet)> Equipment suppliers (turbines etc) report a drop in orders of up to a third

Uncertainty about future electricity demand is a key risk factor influencing power-company investment decisions

Impact varies depending on the region and on the regulatory regime (much bigger in deregulated markets)

Cost of capital has risen sharply due to higher perceived riskCapital-intensive renewables & nuclear especially vulnerable to

financing difficulties & lower fossil-fuel prices > Renewable projects protected by guaranteed feed-in tariffs in some cases> But many wind developers are small (BBB-type rated) & are struggling to

raise finance

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© OECD/IEA - 2009

Impact of financial crisis on global investment Impact of financial crisis on global investment in renewable energyin renewable energy

Impact of financial crisis on global investment Impact of financial crisis on global investment in renewable energyin renewable energy

Q4

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Investment in renewables has been hit by the rising cost of credit and the fall in oil & gas prices which has reduced the economic incentive for “clean”

energy.

Source: NEF

Investment in Q4 2008 was 24% lower than 2007 and 20% lower than Q3

© OECD/IEA - 2009

Implications for energy industry Implications for energy industry structure & ownershipstructure & ownership

Implications for energy industry Implications for energy industry structure & ownershipstructure & ownership

Office of the Chief Economi

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All energy sectors likely to see consolidation as large firms with robust balance sheets take over or buy assets from smaller firms

New wave of oil & gas deals in offing?> Majors, strongest independents & some national companies well

placed to acquire assets from distressed operators> Chinese national oil companies remain active in investing abroad,

including recent deals in Venezuela, Brazil, Iran & Africa Dominance of traditional power companies, with stable grid

businesses, could rise as independents struggle to secure financeSome coal companies struggling with heavy debt

> China’s Chinalco to take 18% stake in Rio Tinto Group in return for $19.5 billion cash injection

© OECD/IEA - 2009

Summary & conclusionsSummary & conclusionsSummary & conclusionsSummary & conclusions

Energy and geopolitics will be increasingly interconnected

We need a major decarbonisation of the world’s energy system – Copenhagen is crucial

Addressing environmental issues will substantially improve energy security

The financial crisis is undermining investment in low carbon energy –

there is an urgent need for governments to respond decisively

The Italian G8 Presidency can provide a bridge between the G20 and Copenhagen by calling for the financial crisis to be addressed in “tandem” with climate change