INTERNATIONAL
ENERGY
AGENCY
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World Energy Investment Outlook
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Prospects and Challenges
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FINDINGS FROM Awaardcalf
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Annaalyti
WORLD ENERGY INVESTMENT OUTLOOK 2003 A ellencee
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Hiroyuki Kato AMRO O
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Energy Analyst, Economic Analysis Division
KEEI-IEA Joint Conference on Northeast Asia Energy Cooperation
March 16, 2004
Contents
Introduction
Global Energy Investment Outlook
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Natural Gas Investment Outlook
Coal Investment Outlook
Electricity Investment Outlook
In Summary
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Introduction
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Increase in World Energy
Production and Consumption
7,000
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2,000
1,000
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Production Consumption Production Consumption
1971-2000 2000-2030
OECD Transition economies Developing countries
More than 70% of energy demand growth and almost all energy production
growth over the next three years will come from outside the OECD
Central Findings
Unless policies change, energy demand, CO2 emissions
and import dependency will continue to grow steadily
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Fossil fuels will remain dominant in the energy mix
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Energy markets will shift toward developing countries
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China will emerge as a strategic buyer in international
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energy markets
The projections highlight four strategic energy challenges:
Security of energy supplies
Threat of environmental damage caused by energy use
Investment in energy infrastructure
Uneven access of the world’s population to modern energy
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Global Energy
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Investment Outlook
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World Energy Investment
2001-2030
Total investment: 16 trillion dollars
46% Power
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E&D 72% generation
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60%
Other 15%
Oil 19%
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E&D 55% Gas 19%
Coal 2% 88% Mining
LNG Chain 8%
T&D and 37%
Storage 12% Shipping
and ports
Electricity investment will dominates. In each sub-sector, production
accounts for the majority of investment – except for electricity
Energy Investment by Region
2001-2030
4,000
cumulative investment (billion dollars)
3,500
20
share in global investment (%)
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5
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0 0
OECD China OECD Other Asia Africa Russia Middle East OECD Other Latin India Other Brazil
North Europe Pacific America transition
America economies
Nearly a third of energy investment requirements of $16 trillion will
be needed in East Asia
Energy Investment Share in GDP
2001-2030
Russia
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India
Other Asia
Latin America
World average
OECD
0 1 2 3 4 5 6
per cent
The share of energy investment in the economy is much higher in
developing countries and the transition economies than in the OECD
Fuel Share in Energy Investment
Requirements
2001-2030
India 87 4 6 3
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China 85 5 4 5
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Africa 50 30 18 2
Russia 36 31 32 1
Middle East 25 50 25 0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Electricity Oil Gas Coal
Electricity sector dominates investment in most regions,
especially in Asian countries
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Oil Investment Outlook
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Oil Investment by Region
Asia
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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, while refinery
investment will be largest in Asia
Oil Investment Challenges
$3 trillion over the next three decades
Investment more sensitive to decline rate than rate of
demand growth – most investment needed just to maintain
wa
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Oil prices and rate of returns
Investment regime and risks
National oil companies financial resources
Retained earnings – government budget needs
Access to and cost of external financing
Wild card – short and longer term prospects for Iraqi oil
industry
Oil Production and Capacity
Additions
250
200
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50
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2000 2030 2001-2030
Production Expansion to meet demand growth Replacement to maintain capacity
The bulk of additions to crude oil production capacity will be
needed simply to maintain both existing and future capacity
Access to Oil Reserves
Iraq
10%
National
companies only
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Production Limited access -
sharing National
12% companies
22%
1,032 billion barrels
Access to much of the world’s remaining oil reserves is restricted
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Natural Gas
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Investment Outlook
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Net Inter-regional Trade
& Production
5,400
4,800
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1,800
1,200
600
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2001 2010 2020 2030
Production LNG trade Pipeline trade
A growing share of gas will be traded between regions, much of it
in the form of LNG
Global Gas Investment
Annual Average in Each Decade
140
120
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40
20
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1991-2000 2001-2010 2011-2020 2021-2030
Exploration & development Transmission Distribution LNG Storage
E&D will continue to account for 55% of gas investment, but the
share of LNG jumps in the current decade
LNG Shipping Fleet
400
350
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} On order
in 2001
in operation (2001) additions 2002-2030
Liquefaction project developers LNG buyers
Oil & gas companies Ship owners
Projected
A 6-fold increase in LNG trade between 2002 and 2030 will call for
massive investment in new carriers
Future Gas Supply Infrastructure
in China
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Gas Investment Challenges
$3 trillion needed up to 2030 - increasing share of E&D and
distribution network investment
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Balance of risk and return – price is key
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Access to reserves and fiscal regime – most new
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Complexity of financing very large-scale projects –
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Impact of market reforms on investment risk
Non-OECD countries need to ensure basic principles of good
governance are applied and respected
Cost-reflective pricing and adequate returns in regulated
businesses are critical to attracting capital
These factors could lead to shortfall in investment, supply
bottlenecks and higher prices in some cases
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Coal Investment
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Coal Industry Investment
2001-2030
Mining by
region OECD
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Shipping China
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Mining
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Ports economies
$12.9 $32.0
Other
Developing
countries
$70.3
Total investment: $ 397.8 billion
Almost all coal investment will be for mining – a third of it in
China alone
Global Coal Investment &
Production
Reference and Alternative Policy Scenarios
160 7,500
140
7,000
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80 6,000
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40
5,000
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-20 2001-2010 2011-2020 2021-2030 4,000
Investment -Reference Investment - Alternative
Investment - difference Production - Reference (right axis)
Production - Alternative (right axis)
Lower coal production worldwide and lower OECD imports yield a
6% reduction in global coal investment
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Electricity Investment
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World Electricity Sector Investment
2001-2030
4,500
4,000
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2,500
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1,500
1,000
500
0
2001-2010 2011-2020 2021-2030
Power generation (new and refurbishment) Transmission Distribution
Transmission and distribution networks will account for well over
half of electricity-sector investment
Electricity Sector Investment
by Region
2001-2030
2,500
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1,000
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China Other Latin Africa Middle US and European OECD Other Russia Rest of
Asia America East Canada Union Pacific OECD TE
China will need more electricity investment than any other
country or region
Electricity Investment
as Share of GDP
3.0%
2.5%
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OECD China India Indonesia Russia Brazil Africa
1991-2000 2001-2010
Medium-term electricity sector investment needs will increase
relative to GDP in almost all non-OECD regions
Return on Energy Investment
1993-2002
16
14
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6
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4
2
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Oil and gas upstream Electricity Gas downstream
OECD Non-OECD
Higher returns generally in non-OECD countries reflect higher risks –
but not the case for electricity
Energy Company Capital Structure
1993-2001
60
Debt equity ratio Debt maturity
50
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30
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10
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Oil and gas Electricity Gas Oil and gas Electricity Gas
upstream downstream upstream downstream
OECD Non-OECD
Lower leverage and shorter debt maturity in non-OECD countries reflects
their more limited borrowing capability – especially long-term debt
Electricity Revenue and Return on
Capital of Indian SEBs
100
80
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1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Return on capital Revenue as % of cost
The desperate financial straits of Indian state electricity boards
underlines the urgent need for pricing reform
Electricity Investment Challenges
In OECD countries, there are increasing uncertainties
about impacts of market reforms on investment
$4 trillion needed (2001-2030)
Blackouts have underscored reliability needs
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In Non-OECD countries, financing will be the greatest
challenge
Almost $6 trillion needed (2001-2030) – far more than in past 3
decades
Local financial markets are not deep enough
Access to international capital is more limited due to non-
tradable nature of electricity than fossil fuel sectors
Poor sector governance including inefficient pricing and
collection undermines viability of investment
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In Summary
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Summary on Energy Investment
Energy investment will shift toward developing countries,
particularly China and other Asia
Capital requirements are largest for electricity
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Investment opportunities and decline rates are key
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Financial resources are sufficient, but financing electricity-
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Asian countries
Realising this investment will call for:
Development of domestic financial markets
More rigorous sector reforms – notably more cost-reflective pricing
and improved collection
More stable and predictable investment regimes
Better corporate governance
World Energy Outlook 2004
Long-term projections of energy market development up to
2030
Global trends
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20 regions including Japan/Korea, China, Indonesia and
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World Alternative Policy Scenario to be developed to
evaluate impacts of policies to address energy efficiency,
climate change and energy security on energy demand and
on CO2 emissions
BOTH OECD and non-OECD countries to be analyzed (WEO2002
focused on OECD countries)
To be released in fall, 2004