2017 Melchett Lecture
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2017 Melchett Lecture by IEA Executive Director Dr Fatih Birol "Global Energy Markets and Environment Challenges: Today and Tomorrow"
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2017 Melchett Lecture
- 1. IEA © OECD/IEA 2017 Global Energy Markets and Environment Challenges: Today and Tomorrow Fatih Birol, Executive Director, International Energy Agency Melchett Award, Energy Institute, London 4 July 2017
- 2. © OECD/IEA 2017 A rapidly shifting energy landscape Since 2010, efficiency measures have slowed down growth in global energy consumption . Renewables and natural gas account for almost two-thirds of the growth. Shares in growth in world energy demand Coal 47% Oil 16% Gas 23% Nuclear 2% Renewables 12% Coal 10% Oil 27% Gas 31% Nuclear 0% Renewables 32% 2000-2010 2010-2016
- 3. © OECD/IEA 2017 Differently from all other regions, US shale oil growth results from technological and market progress rather than the discovery and deployment of huge oil resources US shale the most successful story in the oil history outside Saudi Arabia Largest production increases in the oil history 0 1 2 3 4 5 6 Saudi Arabia 1985 - 1992 mb/d US LTO 2010 - 2017 Iran 1966 - 1973 USSR 1972 - 1979 Russia 1999 - 2006 North Sea 1976 - 1983 Iraq 2009 - 2016
- 4. © OECD/IEA 2017 No peak yet in sight, but a slowdown in growth for oil demand The global car fleet doubles, but efficiency gains, biofuels & electric cars reduce oil demand for passenger cars; growth elsewhere pushes total demand higher Change in oil demand by sector, 2015-2040 -3 0 3 6mb/d Power generation Buildings Passenger cars Maritime Freight Aviation Petrochemicals
- 5. © OECD/IEA 2017 On-track: Electric mobility is breaking records, but policy support remains critical The global electric car fleet passed 2 million last year, but sales growth slipped from 70% in 2015 to 40% in 2016, suggesting the boom may not last without sustained policy support Global electric car fleet 0 500 1 000 1 500 2 000 2010 2011 2012 2013 2014 2015 2016 Numberofvehiclesontheroad (Thousands) Others Germany France United Kingdom Netherlands Norway Japan USA China
- 6. © IEA 2017 Petrochemical Other Transport 70 75 80 85 90 95 Oildemand(mb/d)Trucks drive global oil demand Trucks were responsible for nearly 40% of the growth in global oil demand since 2000; they are the fastest growing source of oil demand, in particular for diesel. 2000 2015Increase by sector Trucks Cars Other transport
- 7. © OECD/IEA 2017 Share of LNG in global gas trade 2015 695 bcm 2040 1 150 bcm 2000 525 bcm LNG 53% Pipeline Pipeline LNG 40% Pipeline LNG 26% A 2nd natural gas revolution is changing the gas security equation A wave of new LNG supply, led by Australia and the US will improve the ability of the system to react to potential demand or supply shocks, but security of gas supply cannot be taken for granted
- 8. © OECD/IEA 2017 Global CO2 emissions flat for 3 years – an emerging trend? IEA analysis shows that global CO2 emissions remained flat in 2016 for the third year in a row, even though the global economy grew, led by emission declines in the US & China 5 10 15 20 25 30 35 1970 1975 1980 1985 1990 1995 2000 2005 2010 2014 2015 2016 Gt Global energy-related CO2 emissions
- 9. © OECD/IEA 2017 Air pollution is a universal problem, especially in emerging economies 6.5 million premature deaths every year are caused by pollution from power plants, factories, cars and trucks globally. Air pollution related health risks are largest in cities around the world. Premature deaths due to air pollution Low (0-50) High (>100) Medium (50-100) Deaths per 100 000 people Source: World Health Organization
- 10. © OECD/IEA 2017 Supply-side investment needs to be re-directed, not increased; demand-side investment for energy efficiency, electrification & renewables needs to ramp up significantly. Efficiency and renewables key to global climate change mitigation Gt 18 22 26 30 34 38 2010 2020 2030 2040 Central Scenario Efficiency Renewables CCS Nuclear Fuel switching Other 2 °C Scenario Global CO2 emissions reductions in the Central & 2 °C Scenario by technology
- 11. © OECD/IEA 2017 Better grids, more flexible power plants and storage & demand side response will be needed to integrate larger shares of wind & solar in a secure and cost-effective way 0% 10% 20% 30% 40% 50% 60% India Chile China Canada Japan United States Australia United Kingdom Italy Germany Spain Denmark % of wind and solar in 2010 % of wind and solar in 2016 Share of wind and solar in total electricity generation in selected countries Wind & solar transforming the power sector: system integration is key
- 12. © OECD/IEA 2017 The potential of clean energy technology remains under-utilised Recent progress in some clean energy areas is promising, but many technologies still need a strong push to achieve their full potential and deliver a sustainable energy future Energy storage Solar PV and onshore wind Building construction Nuclear Transport – Fuel economy of light-duty vehicles Lighting, appliances and building equipment Electric vehicles Energy-intensive industrial processes Transport biofuels Carbon capture and storage More efficient coal-fired power ●Not on track ●Accelerated improvement needed ●On track
- 13. We've tracked a steady $37 billion/year of clean energy and electricity networks R&D spending, with room for growth from the private sector. As a share of GDP, China now spends most on energy R&D Global clean energy R&D funding needs a strong boost Global R&D spending on clean energy and electricity networks Top 3 IT company R&D spenders 0 10 20 30 40 2012 2015 USD(2016)billion Private Public
- 14. © OECD/IEA 2017 Closing remarks • While a continued focus on oil security is essential, a broader approach to energy security is needed to reflect changing nature of natural gas & electricity markets • New oil market dynamics & subdued upstream investment are ushering in a period of greater market volatility • A wave of LNG is the catalyst for a second natural gas revolution, with far- reaching implications for gas pricing & contracts • The next chapter in the rise of renewables requires more work on systems integration & expanding their use beyond the power sector • Limiting the global temperature rise to 2°C would require an energy transition of exceptional scope, depth & speed, including stronger R&D efforts
Hinweis der Redaktion
- The first decade of the century saw an amazing increase in energy demand (from 10,000 Mtoe per annum to 12,900 Mtoe per annum) that was primarily fueled by coal (almost 50% of growth). However, since the CEM’s creation, energy demand increased much more slowly (less than a third of the growth at 900 Mtoe), and this was met almost equally by oil, gas and renewables at close to 1/3 each, with a slight role for coal at 10%. The global energy intensity of GDP (TPED/GDP) declined by 12% between 2010 and 2016; or expressed differently improved by 2.1% per year.
- US tight oil (LTO) production has been growing rapidly since 2010 and by 2017 it will reach 4.5 mb/d – a rise of almost 4 mb/d that has had major implications for oil markets and prices. It is important to note that - as seen over the past two years - US LTO responds more rapidly to price signals than other sources of supply. The production response of shale at different price levels is therefore critical, as it will play a key role in balancing the market over the medium term. To put the spectacular rise of US LTO in the global context, it is useful to look at most significant ramps up of oil supply in key oil countries. Unsurprisingly, the largest increases of oil supply took place in countries endowed with largest amounts of oil resources – and cheapest to produce - such as Saudi Arabia, Russia and more recently in Iraq. North Sea output can also be associated to development of technologies in the offshore sector and a strong incentive of international community to find alternative source of supplies following the crisis in the 70s. CLICK But the shale revolution commenced in the natural gas sector in the second half of last decade has rapidly moved to oil making the US LTO the most successful case in the entire oil history behind Saudi Arabia. Since 2010 - when LTO production started to ramp up in US, the growth of US LTO output is almost 4 mb/d. The striking success of US LTO is even more evident considering that this - differently from all other cases – results from huge technological and market progress rather than the discovery and development of major fields/supergiants. Over the last three years, the US shale industry has not only showed an excepptional resilience to diffcult market context but has been able to accelerate technology developments and cost reductions. This is something that is already impacting the entire oil and gas global industry with significant implications for entire energy markets.
- Electrification is an important component of the transition to clean energy, and can jointly deliver multiple benefits: Energy diversification and energy security in transport, the end-use sector most dependent on oil (by granting access to the diverse primary energy sources used in power generation). Synergies with integration of variable renewables (thanks to its storage capacity) Reducing local air pollution Enhancing industrial competitiveness and innovation If coupled with low carbon power generation, mitigating climate change The global EV car stock reached 2 million units in circulation last year, but sales growth went from 70% in 2015 to 40% in 2016, suggesting an increasing risk of falling off track Today, electric car market mechanisms are still largely driven by policy support. Continued support will be critical to enable a transition to electric mobility, lowering barriers to adoption, reducing risks for investors and encouraging those manufacturers that are willing to develop EV business streams on a large scale to start implementing them. These factors also enable a wider model offer range to consumers, which is key to spurring sales growth. China is leading the global EV deployment, with more than 200 million electric two-wheelers, 3 to 4 million Low Speed Electric Vehicles, more than 600 thousand electric cars on the road and more than 300 thousand electric buses. Its commitment to electric mobility suggests that China will remain the global leader in the future.
- I already mentioned that trucks are an important source of global oil demand. But let me explain how important they really are. [CLICK] Oil demand has grown at a rapid pace over the past one and a half decades. [CLICK] Since 2000, global oil demand has grown by nearly 16 mb/d to more than 90 mb/d today. [CLICK] The transport sector is at the heart of global oil demand growth: more than 80% of global growth was carried by cars, trucks, planes and ships. Much of the remainder comes from the petrochemical feedstocks to produce plastics. When thinking about transport, it is pretty intuitive to think of cars as being the main driver of transport-related oil demand: since 2000, the global stock of cars more than doubled to nearly 1 billion vehicles today. In comparison, the stock of trucks is much smaller: when looking at heavy freight trucks of more than 3.5 tonnes, there are only close to 60 million such vehicles on the road. But trucks consume much more fuel than cars: the largest long haul trucks can use as much as 40 liters of diesel per 100 km, while a car uses only between 5-10 l/100 km. And trucks drive much further than cars: the largest long haul trucks are operated all year round and in some countries drive easily more than 100 000 km per year, compared to only around 15 000 km for a car. [CLICK] The result is that despite the much smaller stock of trucks, their weight on oil demand is huge: road freight transport was the largest single contributor to global oil demand growth over the past one and a half decades, at around 40% of total growth, outpacing even passenger cars. What’s more, trucks are the largest source of diesel demand growth: around 80% of global growth in diesel demand came from trucks. The main global sources of oil demand from trucks today are the United States, the European Union and China. China was the main driver of truck oil demand growth over the past one and a half decades, at around one quarter of the global total. India and other countries in Southeast Asia were also important contributors, and so was Latin America, in particular Brazil.
- Natural gas performs best of all the fossil fuels in our Outlook, with a 50% rise in consumption in 2040. But achieving this kind of rise will not be plain sailing for gas, which faces strong competition from coal in some markets and is being squeezed by the rise of renewables in others. How gas fares will be determined in the coming years by a major set of changes in the way that gas markets operate internationally. We are all familiar with the shale gas revolution in North America. Now we are on the verge of another gas revolution – this time driven by LNG – that will reshape gas markets for decades to come and also change the gas security equation. Over the next five years another 130 bcm of liquefaction capacity will come online – mostly in the United States and Australia, creating new options and greater flexibility for buyers of gas. Looking further ahead, we also see the prospect of other countries, notably Canada, Mozambique, Tanzania, joining the LNG export business later in our projections also makes an important contribution to the emergence of a truly global gas market. By 2040, more gas is traded over long distances as LNG than via the traditional pipelines. But, there comes a point in every revolution when it’s clear that the old rules have gone but no-one is yet sure what the new rules of the game are. This is where we are today. And that presents a risk – the current overcapacity in LNG is absorbed by the mid-2020s but new investment decisions are needed well before this point. The outlines of a new gas market order need to become clear soon if we are to avoid a new round of market tightening in the 2020s.
- Energy-sector CO2 emissions have been stable since 2014 despite continued global economic growth. In 2016, CO2 emissions declined in the United States and China, the world’s two-largest energy users and emitters, and were stable in Europe, offsetting increases in most of the rest of the world. Technology played a significant role in these emissions reductions, particularly in the USA where a surge in shale gas supplies and more attractive renewable power displaced coal. In China, emissions fell by 1% last year, as coal demand declined while the economy expanded by 6.7%. There were several reasons for this trend: an increasing share of renewables, nuclear and natural gas in the power sector, but also a switch from coal to gas in the industrial and buildings sector that was driven in large part by government policies combatting air pollution. It is too soon to say if emissions have peaked, but this decoupling of economic growth and emissions will need to be accelerated if climate targets are to be achieved.
- Air pollution is a major public health crisis. 6.5 million deaths per year – around one in every nine deaths worldwide – are from air pollution, making it the world’s fourth-largest threat to human health, behind high blood pressure, dietary risks and smoking. To put this into perspective – HIV/AIDS kills around 1.1 million people. 429000 died from malaria in 2015. so 15 times more people die from air pollution than malaria. The impacts of air pollution are concentrated in fast-growing Asian economies, Africa and other parts of the developing world. But no country has solved the problem. The energy sector is both a key cause and cure of air pollution around the world. Post-COP decarbonisation policies and targeted pollution measures will help to mitigate pollution trends, but the overall death toll from air pollution is still projected to rise. This is not a problem that will solve itself as countries become richer. It is one that will take concerted and coordinated action to be overcome. The benefits do not end there. A well-designed air quality strategy will have major co-benefits for other policy goals, including universal energy access and making a major contribution to tackling climate change.
- Despite impressive progress the transition of energy supply towards a low-carbon future is not yet in prospect. [Click] Global energy-related CO2 emissions continue to rise in the IEA’s central scenario, which includes NDC pledges. [Click] Under our 2°C scenario, energy-related CO2 emissions peak before 2020 and drop to around 18 Gt by 2040. [Click] Energy efficiency and renewables are the key elements of the transition, while contribution of fuel switching, nuclear and CCS are not negligible.
- -Pushed by support policies and massive technology cost reductions in recent years, wind and solar PV have been the two fastest growing sources of electricity worldwide since 2010. [click] In CEM countries, the share of wind and solar on total average annual electricity generation has increased very significantly in just six years. -For instance Denmark doubled and now wind meets around 50% in annual generation; variable renewables reached 20% in Spain and Germany ; Italy passed from 3% in 2010 to more than 15% at the end of 2016. The UK is also at a similar share. In other non-European CEM countries the shares of wind and solar increased by a factor two-to-five. Most importantly, we see very rapid growth from a low base in countries around the globe, reflecting the increased competitiveness of these technologies. But wind and solar PV are variable renewable resources (VRE) and their input cannot be fully forecast and programmed; system integration of variable renewables has emerged as a major challenge in several countries. While this is not a technical issue, more flexible power systems will be needed to integrate large shares of wind and solar in cost effective way while ensuring security of electricity supply at all times. IEA analysis demonstrates that there are a number of different solutions to handle renewables integration and that we will need all forms of flexibility in the future: Stronger grids and interconnections Power plants operating in more flexible way – e.g. hydro and gas Affordable electricity storage (today hydro; in the future maybe batteries as well) And last, but certainly not least demand side response, which can be very cost effective. For example, combining ice storage with larger air conditioners, these can be 'charged' when the sun shines, while providing cooling also after sunset via the thermal storage The IEA is continuing to develop its expertise on this crucial topic, building upon a decade of experience. I am proud to mention the IEA contribution to the second report on Status of Power System Transformation launched yesterday within the 21st Century Power Partnership Initiative. We are constantly stepping up our efforts and our next focus will be on enhanced flexibility of power plants – both thermal and renewable ones. In this respect we very much welcome the launch of a new CEM campaign on Advanced Power Plant Flexibility under the leadership of China and Denmark.
- Overall Progress: Each year, TCEP assesses the latest progress in technology and market developments, tracks overall progress, and recommends further actions. TCEP this year shows that only 4 of 26 identified clean energy technologies are on track to meet a sustainable energy transition (one more than last year). 15 technologies showed only some progress, and 8 are significantly off-track and in need of renewed action. RED CCS A global portfolio of large-scale CCS projects continues to prove its viability across sectors, but the pipeline of projects has effectively stalled due to lack of new investment decisions.Latest CCS projects include the Illinois industrial CCS project in Decatur, Illinois (start April 2017), the Petra Nova coal-fired power plant project in Texas (January 2017) and the Abu Dhabi "Al Reyadah" CCS project (November 2016). Targeted policy incentives to drive large-scale CCS projects forward into deployment are needed to meet the 2DS target of over 400 million tonnes of CO2 (MtCO2) being stored per year in 2025. Coal 30% of new coal power capacity additions in 2015 used low-efficiency subcritical technology. To stay on 2DS track, coal-based CO2 emissions must decline by around 3% annually to 2025, led by a retirement in the least efficient technologies and a decline in coal generation not equipped with carbon capture and storage (CCS) after 2020. Biofuels Advanced biofuels need a 25-fold scale-up in production volumes by 2025 to be on track with 2DS. Numerous first-of-a-kind commercial-scale advanced biofuel plants are increasing their production, but mandates for advanced biofuels or reducing the carbon intensity of transport fuels are needed to accelerate uptake. Buildings Progress on building energy codes in developing regions last year is a positive step toward 2DS ambitions, but two-thirds of countries still do not have mandatory building energy codes in place. ORANGE Nuclear Nuclear power saw 10 GW of capacity additions in 2016, the highest rate since 1990. This came form 10 ne reactor connections: 5 in China and 1 each in Korea, India, Pakistan, Russia and the US.Doubling of the 2016 annual capacity addition rate to 20 GW annually is required to meet the 2DS to offset planned retirements and phase-out policies in some countries. Moreover, 2016 brought only 3 GW of new construction starts, posing risks to the future growth rates of nuclear power generation. Renewable power Renewable power capacity additions broke another record in 2016, with over 160 GW of capacity additions and a 6% overall generation growth in 2016.Renewable power overall is still falling short of longer-term 2DS levels, despite this record breaking growth. It is forecasted to grow by another 30% between 2015 and 2020 and it needs to accelerate by an additional 40% over 2020-25 to reach the 2DS target. Industry Industrial sector action must accelerate to meet the 2DS trajectory and keep annual growth in final energy consumption below 1.2% from 2014 to 2025, less than a half of the average 2.9% annual growth since 2000. While the sector has continued to progress in energy efficiency and low-carbon technology deployment, industrial production growth must be further decoupled from energy use and carbon dioxide (CO2) emissions. Appliances and lighting The growing shift to light-emitting diodes (LEDs) in the last two years is encouraging, with LEDs representing 15% of total residential lamp sales in 2015 and expected to have grown to nearly 30% in 2016. Leading regions are North-America, Japan and India. North America and Japan because they have always been technology leaders; and India because they implemented a very successful scheme (affordable LEDs for all). However, electricity consumption by lighting, appliances and building equipment needs to halve from the current 3% average increase per year over the last decade to a 1.5% annual increase in the 2DS. Fuel economy of light-duty vehicles Progress in improving the average tested fuel economy of light-duty vehicles (LDVs) has slowed in recent years, from an annual rate of 1.8% in 2005-08, to 1.2% in 2012-15 and only 1.1% in 2014-15. This trend must be reversed, and an annual fuel economy improvement rate of 3.7% through 2030 must be achieved. GREEN Electric Vehicles A new historic record has been reached in the electrification of passenger transportation, with over 750 000 electric vehicles (EVs) sold in 2016, raising the global stock to two million. 20 interim milestone and in turn raises risks toward the 2025 goal. Energy Storage Storage technologies continued rapid scale-up in deployment, reaching almost 1 gigawatt (GW) in 2016. These advances were driven by favourable policy environments and reductions in battery prices. Storage technologies need reaching cumulative capacity of 21 GW by 2025 under the 2DS level, requiring further policy action. Solar PV and onshore wind Strong annual capacity growth continued for both solar PV and onshore wind in 2016, with record low long-term contract prices in Asia, Latin America and the Middle East.
- Better technology is going to play a central role in helping the world to reduce its emissions, expand energy access and maintain economic growth. Without more targeted low-carbon innovation we will have fewer options and higher costs. With more innovation we have the possibility to be very positively surprised. Fifty years ago there were no pocket calculators, communication satellites and microwave ovens, let alone the Internet, drones and 3D seismic surveys. But how will we know if the world is increasing its energy R&D efforts unless we know where we stand today? In our Tracking Clean Energy Progress report this year we have a special feature on tracking clean energy innovation and we have been tracking governments’ and companies’ research expenditure for our World Energy Investment report this year. [Click] Looking at clean energy – renewables, nuclear, storage, electric mobility, CCS, LEDs – and electricity networks, which are essential for a clean energy system, we have identified $37 billion of spending in 2012. The good news is that this is two-fifths of all the energy sector R&D. [Click] The bad news is that it has been stable since 2012 and indications for 2016 do not show an increase. Although the private sector’s share spending on clean energy has risen slightly, it is still smaller than that of the public sector, including state-owned enterprises, which are a significant share in China. In 2014, China overtook Japan to become the highest spender on energy R&D as a share of GDP. This will surely change the energy innovation landscape this century. $37 billion is quite a lot of money, but we got a surprise when we looked at the IT companies that spend the most on R&D. [Click] Just the top three IT companies for R&D spending have a combined research budget higher than $37 billion. There is clearly much more that can be done to raise R&D spending, especially in the private sector. To support this outcome, the IEA is working with governments and others through the Clean Energy Ministerial and Mission Innovation and will continue to develop its R&D tracking capabilities.