KEYNOTE SPEECH EMBARGOED UNTIL DELIVERY. KEISUKE SADAMORI Director of Energy Markets and Security International Energy Agency

Transcription

1 KEYNOTE SPEECH EMBARGOED UNTIL DELIVERY KEISUKE SADAMORI Director of Energy Markets and Security International Energy Agency PREPARED FOR PLATTS ASIA AWARDS DINNER, SINGAPORE October 29, 2013 At the occasion of the unveiling of the Platts Top 250 Global Energy Company Rankings 1

2 Ladies and Gentlemen, It is such an honor and pleasure to be invited to speak at this Platts Top 250 Asia Awards Ceremony in front of such distinguished energy executives. I would like to express my sincere appreciation to the organizer of this event for inviting me. My name is Keisuke SADAMORI, Director of Energy Markets and Security at the International Energy Organization in Paris. The top 250 energy companies to be awarded today are navigating through the global energy map that is being redrawn by dynamic factors such as; - Shifting the center of gravity in energy demand towards East of the Suez Region, - Unconventional Energy Revolution going on in North America and - Higher penetration of renewable power sources being subsidized, and increasingly competitive With those fundamental changes in mind, let me walk through recent developments in the oil, gas and renewable markets with a special focus on Asia. [Oil] First is the oil sector. In May, we released the Medium Term Oil Market Report In this report, we envisioned a more comfortable balance in the global oil market toward 2018 compared with the last few years. North American LTO and oil sands, as well as increased production from Iraq will be the major contributor, while reality of above-ground risk will limit OPEC supply growth. Only 5 months have passed since the release of this Medium-Term Oil Market Report, but we are already see more oil than forecasted coming from the non-opec countries. In the most recent Oil Market Report in October, we added 360 kb/d to our growth forecast for 2014 to 1.72 mb/d. Most comes from North American LTO and NGL, but former Soviet Union countries also contribute. Demand will further shift east. From 2012 to 2018, non-oecd demand will grow by 8.4 mb/d, while OECD demand contracts by 1.5 mb/d due to efficiency gains and a slow economic growth. China will continue to play a leading role with a bit subdued 3.7% per year as their economy moves to a less energy intensive stage of development. India and ASEAN will follow. The IEA recently released the WEO Southeast Asia Energy Outlook and my colleague, Fatih Birol, presented its findings Monday, here at Singapore International Energy Week. The WEO ASEAN report foresees that ASEAN region s oil imports will increase from 1.9 mb/d today to over 5 mb/d in 2035, the fourth largest region behind China, India and Europe. These changes in supply and demand comes down to the familiar picture of the global crude trade map, split between busy traffic in the East on the right hand side and quiet trade over the Atlantic on the left. It is not only demand and supply that will go through drastic changes but also the refining sector. Growth in refining capacity in the Middle East, China and India are expected to be even faster than their demand growth, implying longer haul product trade and possible harsh competition in the product 2

3 export market. Turning to the Western Hemisphere, North American refineries and petrochemical sectors are likely to enjoy a huge advantage of access to cheap feedstock and gas energy sources. These changes will surely lead to a more difficult business environment for European refineries already suffering from a shrinking European market. [Gas] Second, let me turn to the gas sector; in particular, LNG. The World Energy Outlook by the IEA used the term Golden Age of Gas in Are we really in the Golden Age? It depends on who you ask. If you ask this question to the European gas industries and utilities, their feeling must be mostly far from that. In Europe, gas powered generation is squeezed between renewables and cheaper coal. In fact, last year, in 2012, global LNG trade decreased by 2% in spite of the strong growth in Asia increasing by 8%. This pushed up the share of Asian LNG imports in the global LNG trade to 70%. We can even say that it was the decrease in gas demand in Europe that supplied the growing Asian gas market. Here again, when we draw the global LNG trading map, it is split to busy traffic in the East and quiet trade in the West. You can find it in the Medium-Term Gas Market Report that we released in June this year. Going forward, Asian gas demand will increase towards 2018, according to our Medium-Term Report, from 664 bcm to 915 bcm. Among them, Chinese demand will double from around 150 bcm in 2012 to nearly 300 bcm in China has pipeline options as well as increasing domestic production. But for most Asian countries, LNG imports are the key. However, global LNG capacity will have limited additions in the coming few years, and we expect a tight LNG market ahead. In addition, new LNG projects have already been contracted to Asian buyers on a long-term basis. One notable and worrying development about this Asian LNG trade is the increased price disparity among the regions of the world. Natural gas has never had a global market. Nevertheless, in the past decade a convergence took place, and by 2009 there seemed to have been something like a global price of gas, between Asia, Europe and North America with less than a 10% difference from each other. Then, the last 3 years witnessed an amazing disconnect. The shale revolution crashed North American gas prices at exactly the same time as persistent oil indexation drove them to a record level in Asia. This is a massive competitiveness burden on Asian economies and will jeopardize the potential energy security and sustainability contribution of gas. Europe is in a similar situation, but, has seen much lower prices than Asia because competition has started to work there. Again, according to the WEO Southeast Asia energy Outlook, ASEAN s generation mix will see a drastic change. Coal fired power generation, which currently generates 217 twh, about 30% of entire generation in 2011, will grow to 439 twh in 2020, and 914 twh in That would amount to an increase of 6% growth per year, and will take half of the entire generation in On the other hand, gas fired generation will increase modestly by 2.2% annually, losing its share from 44% in 2011 to 28% in I need to add that 70% of coal fired power plants under construction in this region are of subcritical type, with low efficiency. 3

4 This is coming from economics, and understandable. But, gas is the least carbon intensive among the fossil fuels, and we should try to seek such benefits as much as we can. That is why the IEA released a report; Developing a LNG trading hub in Asia in February this year. It was also meant to contribute to the LNG Producer Consumer Conference in Tokyo on 10 September. This report points out the need for gas and electricity market reforms in countries such as Japan, Korea and China, raise the systemic and institutional issues related to the development of LNG trading hubs and states that Singapore can be the best candidate for such trading hub in the near future. Also, we need new competitive suppliers in this region, of course. North American LNG is expected to play a crucial role, but new entrants from the east, Russia, Central Asia, and in the longer term East Africa are welcome to bring about more competition. It would take time, but, we have to do our best to bring about competitive market and pricing for gas trade in this region. [Renewable & Electricity Security] Finally, let me discuss renewable sources briefly. As shown in our Medium Term Renewable Energy Market Report, the growth in renewable electricity, solar PV and onshore wind in particular, will be robust in the coming years. Renewable electricity growth is currently on the track of the 2 degrees Celsius scenario by the Energy Technology Perspective of the IEA. This strong growth in renewable deployment is connected to the significant cost reductions in PV and wind technologies in both ways. Renewable sources are becoming cost competitive in a broader area and range of situations. In the area of the rooftop residential PV, we are starting to see what is called grid parity. Grid parity is when the generation cost by the rooftop solar PV is equal to the variable elements of the electricity tariff. Congratulations! This is good news for the renewable deployment and climate change mitigation. On the other hand however, the higher penetration of these renewable sources, together with the more liberalized electricity market is presenting a new set of challenges for electricity systems. One of the concerns is over generation adequacy, how we can secure needed investment for generation capacity that can provide flexibility to support variable renewable grid integration. Network investments in both transmission and distribution are also of concern. The role of transmission and distribution is no longer simple delivery of electricity from big generators to end-users. Transmission grid management requires a more precise and timely situation awareness and bottleneck management. Distribution is another issue. The increasing volume of distributed generation is presenting a totally new situation for grid management. The flow in the distribution network used to be simply from transmission to endusers. Now, we are seeing a more complicated flow from the other end of the network. This is not only about the technical problem of more complicated electricity flow. With more distributed generation source producing electricity while at the same time enjoying the benefit of being connected to the grid, utilities will find it harder to collect the revenue corresponding to the fixed cost for maintaining the grid. 4

5 This would also lead to the discussion as to how the generated electricity from distributed renewable generation should be remunerated. [Conclusion] I quickly looked at the recent developments and policy issues in oil, gas, renewable and electricity. Changes are rapid, and challenges are enormous. It is the energy industries that actually develop, produce and deliver energy to users in order to let the economies move on. Innovations by those energy industries, including the 250 companies awarded today, are critical to achieve secure, affordable and sustainable future energy systems. The IEA will continue to work with member and non-member countries to explore the best policy framework to make that happen. Thank you. 5