Davis IntegraCIER Presentation WEC LAC scenarios 2014.11.11 Davis.pdf · A world of change, risk and opportunities ... Climate change Cap-and-trade schemes with emphasis on predictability

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© World Energy Council 2014

The WEC LAC Energy Scenarios to 2030 IntegraCIER 2014

Ged Davis Executive Chair Scenarios World Energy Council Punta del Este 11 November 2014


About WEC ▶  Impartial and independent network of energy leaders

since 1923: –  WEC brings together knowledge from today’s community of energy leaders –  WEC represents all energies –  WEC represents member committees operating in over 90 countries representing

over 3000 organisations –  WEC is a non partisan and inclusive UN-accredited energy body

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A world of change, risk and opportunities

▶  Slow and variable recovery from recent financially-led economic global recession

▶  New geopolitics, global economics: rise of Asia, BRIICS ▶  Information age, and new technologies ▶  Demographic change and rapid urbanisation ▶  Globalisation of trade, flows of people, transmission of

ideas; new and more intense competition ▶  Demand for commodities (agricultural, mineral, energy)

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LAC Economic Growth 2000-2013

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Average 3.5%/year

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Impact on Latin America ▶  Rising but variable Latin American commodity exports ▶  New global competition for Latin American industries ▶  Highly urbanised and onset of aging issues ▶  Mixed socio-economic results across the region,

especially management of ‘commodity windfalls’ ▶  Pressure on already high inequality across the region ▶  Some parts of the region economically successful, others

with capital flight, corruption, low/no growth, high inflation ▶  Mixed experience on integration in the region

Critical question for the region:

“How effective will economic management be?” 5


Energy policies in the LAC region Across the region there are a range of policies, from government-led policies, with both direction and execution of energy policy, to some countries with a full understanding of how to use markets for achieving public policy objectives. These differing approaches to energy policy are broadly encompassed by the WEC’s recently published world energy scenarios: Jazz and Symphony.

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WEC’s world energy scenarios at a glance Jazz Symphony

Price- conscious consumers Environmentally-minded voters

Competitive markets pick technologies Governments pick technology winners

Higher GDP due to efficient market practices.

Lower GDP due to non-optimal economic policies

Increased exports due to free-trade strategies

Reduced exports/imports due to nationalistic strategies

Main players are multi-national companies, banks, venture capitalists

Main players are private- and public sector companies, local governments, NGOs

Carbon market grows more slowly from bottom up, based on regional, national and local initiatives.

Carbon market is top down based on an international agreement, with commitments and allocations.

Critical question for energy policy in the region is:

“Which approach to energy policy will LAC countries embrace?”

© World Energy Council 2014 8

Energy mix for LAC 2013

27.1 Mtoe

251.3 Mtoe

124.5 Mtoe

0.1 Mtoe

4.6 Mtoe

137.1 Mtoe

1.7 Mtoe

0.05 Mtoe

13.9 Mtoe

Total: 560 Mtoe

Unconven'onals Nuclear Wind Solar

Oil

Natural Gas

Hydro

Coal

Biofuels

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Integration and Energy Projects

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Selected LAC Energy Projects

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Project Completion Progress Company Value

Ecuador Coca Codo Hydropower (run of river)

Expected to start production in 2015

Under construction Sinoclair hydro

1.5 GW US$1.7 billion To supply 44% of country’s growing electricity needs.

Argentina Neuquén Shale Gas contracts

2016 / 2017 Contracts with various companies signed in 2014

Chevron, Shell, Petronas, Total, ExxonMobil, Pan American

Seven contracts of total value: US$ 3 billion

Colombian floating LNG plant Mid 2015 Construction started

Pacific Rubiales Energy Corp & Exmar NV

US$ 300 million project with IFC loan covering 80%.

Brazilian Libra pré-sal oil field

Production ETA in mid-2015

Contracts signed Shell, Total, CNPC, CNOOC

3-12 billion barrels or US$400 billion over 30 years

Venezuelan Orinoco oil fields Not stated

Contracts signed in Sept 2013 Sinopec, CNPC

Two Chinese investments: US$28 billion for eventual production of 420,000 bpd

Venezuela-Colombia Pacific Pipeline 2016

After 8 years delay the project restarted last year

Ecopetrol and Enbridge, Canada

3,000 km oil pipeline from Orinocho to Pacific coast. US$6.7 billion.

Panama-Colombia electrical grid interconnection

2019 Talks restarted after change of regime in Panama

UPME 400 MW capacity

Chilean interconnector for regional grids 2016

Regulatory go-ahead received in Jan 2014

Transmisora Eléctrica

~US$ 20 million costs Dual circuit 500kV lines to connect north and central grids

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Scenarios for the LAC region

The LAC scenarios explore the range of energy policies, assuming effective economic management across the region. The two scenarios, aligned with WEC’s world energy scenarios: Jazz and Symphony, are named: Samba and Tango respectively. However, given the range of difficult challenges to the region it is important to examine the possibility of ineffective economic management and this scenario is explored in Blues.

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SAMBA scenario story

With Samba music the beat of the music can go from an average pace to a very fast pace. There is a set of dances, rather than a single dance. Dancers and musicians have freedom to take the lead and improvise; incorporate elaborate tricks, turns, and acrobatic feats into its basic set of figures.

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SAMBA scenario story

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▶  International trade: globalised economy with open-trade strategies lead to increased exports, particularly commodities.

▶  GDP development: an average of 4.5% GDP growth with benefits slowly trickling down resulting in less convergence; higher international competition, and modest environmental constraints.

▶  Consumer focus: on achieving energy access, affordability, and quality of supply with the use of best available energy sources.

▶  Carbon pricing: in the absence of international agreed commitments carbon market grows more slowly from bottom up based on regional, national and local initiatives.

▶  Technologies: innovative options, chosen in competitive markets, e.g. CCGT, decentralised power

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Samba: drivers of change

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▶  Energy markets: competition on basis of price and availability. ▶  Energy diversification: the energy mix across countries

become more diversified. Focus on smaller scale projects. Consumer focus and a competitive market encourages entrepreneurs and start-ups in renewables

▶  Oil, coal and natural gas: local companies take advantage of more open markets and there is an increase in coal, pre-salt oil and gas developments. MNC investment also focusses on the development of unconventional gas and oil.

▶  Hydro: projects are developed based on social acceptance and price competitiveness

▶  Other: renewables and low-carbon energy enter the market faster and on a bigger scale.

▶  Influential players: market-oriented NOCs, multi-national companies, banks, investors, and price-conscious consumers.

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Samba: implications for energy


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Samba: energy policies

Energy security Focus is on quality and reliability, encouraging new investments. Opening markets sees more players, greater diversity

Energy access Innovation & lower costs Climate change Cap-and-trade schemes with emphasis on

predictability Air pollution National targets, but little enforcement

Energy affordability Competition encourages lower prices

Buildings efficiency Efficiency standards set for new buildings

Transport efficiency Focus on expansion of infrastructure

Appliance efficiency

Access to information and choice. Standards implemented

Water use for energy

Not a priority or focus area. Largely uncontrolled regionally

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The Blues is a music form that grew from solo acoustic-based mus ic , t o more comp lex arrangements that implemented the use of full bands. The lyrics often consist of a single line repeated four times. Early blues frequently took the form of a loose narrative and the singer would voice his or her personal woes in a world of harsh reality.

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Blues scenario story


Blues scenario story

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LAC Risks

▶  Map showing risks in/for LAC countries (Risk Control map)

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0 20 40 60 80

100 120 140 160 180 200

Regulatory quality

Enforceability of contracts

Protecting investors TI indicators

Freedom House indicators

Based on South America Oil & Gas: Risk and Reward in the Land of Opportunity, Control Risks 2013


▶  International trade: weak commodity markets even as export dependencies increase; trade is progressively subject to bilateral agreements.

▶  GDP development: GDP at an average of 3% growth due to weak and fluctuating commodity markets and declining investment. There is a large and increasing divide between the ‘connected elite’ and disempowered citizens; the middle class is almost stagnant, while the number of poor increase.

▶  Infrastructure and project selection: influenced by those with political and economic power with bias towards policies, and investments, that are self-serving; distorts the economic structure.

▶  Carbon pricing: absence and low priority for a carbon market. ▶  Technologies: choices based on quick fixes, opportunity and

alliances.

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Blues: drivers of change

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▶  Energy markets: weak international markets; selected energy investments reflect potential self-serving financial gain.

▶  Energy diversification: a focus on short-term solutions and lack of co-ordinated long term planning; energy import dependencies emerge and leave some countries without adequate energy security.

▶  Oil, coal and natural gas: fossil fuel development is mainly focused on export opportunities where feasible.

▶  Hydro: development is limited, since it is capital intensive and return is over a very long-term period.

▶  Other: development of renewables substantial but from a low base and is haphazard, influenced by ‘private deals’ and varying country incentives.

▶  Influential players: public-private alliances are based on mutual benefit and historical ties.

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Blues: implications for energy


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Blues: energy policies

Energy security Energy security not a priority; focus on GDP growth and export of resources

Energy access Limited focus & subsidies

Climate change No co-ordinated policies & little incentive to develop low-carbon projects

Air pollution Recommended targets, but no official regulation

Energy affordability Use of the most affordable resources to keep prices low

Buildings efficiency Government encourages efficiency, but no standards or enforcement

Transport efficiency Focus on public transport infrastructure maintenance

Appliance efficiency No incentives; accidental’ leapfrogging technologies adopted

Water use for energy Local jurisdictions, no control or management

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Tango music is played by an ensemble, known as the ‘orquesta tipica’, and has a very particular structure. Tango dancers must strive to make a strong connection with the music as well as their audience. The tango is a power fu l dance, ear thy, dramatic and with complex footwork. 23

Tango scenario story


Tango scenario story

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▶  International trade: more nationally-oriented strategies and regional arrangements result in reduced international exports/imports, particularly commodities.

▶  GDP development: moderate growth at an average of 4.5% with some economic convergence across countries; environmental constraints and capital-intensive pathway. Government programmes gradually improve general life conditions of the poor and the income disparity decreases.

▶  Public consensus: for environmental sustainability and energy security, through corresponding practices and policies.

▶  Carbon pricing: carbon market operates top-down based on an international agreements, with identified commitments and allocations.

▶  Technologies: directed by governments, who in some cases pick technology winners.

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Tango: drivers of change


▶  Energy markets: selected domestic energy sources are subsidised and incentivised by governments.

▶  Energy diversification: policy emphasis on security of supply; more local content and solutions. Longer-term bilateral import/export agreements lead to a more stable energy environment.

▶  Oil, coal and natural gas: natural gas is the preferred choice over oil and coal where possible, reflecting a tighter environmental policy.

▶  Hydro: Hydro developments are considered, but are subject to strong regulation and public concerns.

▶  Other: some renewables and low-carbon energy options, such as biofuels are actively promoted by governments.

▶  Influential players: governments, public sector and private companies, NGOs, environmentally-minded voters and selected MNCs.

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Tango: implications for energy

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Tango: energy policies

Energy security Feed-in tariffs support development of greener energy & diversity. Regional integration seen as a way of enabling energy security.

Energy access Subsidies, transfers and support Climate change Regional carbon tax / tight regulation and financial

support Air pollution International targets & tight regulation Energy affordability Subsidies & regional co-ordination of energy taxes Buildings efficiency Tax incentives offered, energy savings guidelines

set, with strong enforcement Transport efficiency Focus on integrated ‘greener’ city transport

infrastructure Appliance efficiency Mandated and consumers are incentivised Water use for energy Centrally managed increases in use


Regional integration across the scenarios

Samba Blues Tango Focus on projects that are particularly profitable and can lower overall costs of the energy system. May involve several countries in agreements. Interest in natural gas network expansion and electrical interconnections.

Not a focus of interest. If occurs is primarily bilateral on projects with quick payoffs.

Interest in multi-lateral arrangements that can increase collective security and the resilience of energy and environmental systems. Aided by broad commitment to addressing climate change. Arrangements affect all aspects of energy supply and demand.

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A perspective on regional energy integration

Regional interconnections and eventually integration requires trust, and will be greatly dependent on public consensus and social acceptance.

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Integration can offer a more resilient regional energy system and a stronger foundation for economic growth.

To succeed will need leadership and competence—this cannot be done by ideology and politics alone.

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The region is entering a challenging period in which it has to get a handle on effective economic development—energy integration could make an important contribution to economic success.

Effective economic development is a precursor to effective energy policy, whether government or market led.

© World Energy Council 2014 © World Energy Council 2014

www.worldenergy.org @WECouncil

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Documents

Davis IntegraCIER Presentation WEC LAC scenarios 2014.11.11 Davis.pdf · A world of change, risk and opportunities ... Climate change Cap-and-trade schemes with emphasis on predictability