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Adnan Shihab Eldin © KFAS - 2014
The Changing World Energy Landscape: Geopolitical Challenges and Opportunities
Adnan Shihab-Eldin
Austria connect Gulf 2014
Rethink GCC/Gulf - Peak Oil and Beyond
Dubai 16th November
Adnan Shihab Eldin © KFAS - 2014
Outline
• The Changing Energy Landscape
• Challenges Ahead
• Regional Geopolitics
• Implications for GCC producers
• Concluding Remarks
Adnan Shihab Eldin © KFAS - 2014
Changing Landscape - Fundamentals Population growth slows – Increase 1 Billion - all in
non OECD
Prosperity Increases - Doubling of World GDP -mainly non-OECD But OECD GDP/Capita remains 5 x R.o.W (3 x China)
Energy growth Slows - 40% overall increase. Predominantly in Asia
Energy intensity: Reducing and converging Worldwide due efficiency of use, higher technology, higher value added manufacturing & service economies.
CO2 intensity Corresponding reduction increased by changes in energy mix (reduction of coal, increase of gas & Re.)
Total Emissions : Nevertheless increase by 30% (mainly in non OECD) because of GDP growth. China p.c. rises due to development & coal use but remains x 0.5 OECD, << US.
Source BP 2014
Adnan Shihab Eldin © KFAS - 2014
Source BP 2013
Non-OECD Asia63%Africa
12%
Middle East10%
Latin America
8%
Eurasia4%
OECD3%
Shares of growth in total primary energy demand, 2012-2040
Source WEO 2014 Source BP 2014
Adnan Shihab Eldin © KFAS - 2014
Changing Landscape - Primary Energy Supply
Average growth 1.1% through 2040
Solar & Wind have highest growth (7%) equalling hydro. a structural Change
Fossil Fuels share reduces by 6% to ~ 75% but remain dominant. trend to equal shares, 25% each.
Coal and Gas dominate electricity generation. Coal predominant in China India and S.E. Asia on price c.f. LNG
Liquids dominate transport & Petchem. Growth slowed by vehicle efficiency, hybrid/EV, subsidy reduction & low Non-OECD car ownership.
Shale (Oil & Gas) revolution in the US: A game changer?
Adnan Shihab Eldin © KFAS - 2014
IEA, WEO 2014
Adnan Shihab Eldin © KFAS - 2014
Changing Landscape -Generation Technology
Nuclear competitive only with state funding. Best secure zero carbon 60 year asset.
Sources IEA,WNA,IRENA,NREL
05
10152025
5 6 7 8LCO
E C
KW
hr
Overnight Cost $/W
NUCLEAR
5% DR
10% DR
UAE Barakah (Estimate)
UK Hinkley C
0 5 10 15 20Fuel Cost $/MBTU
OECD FOSSIL
Coal fired SteamCoal fired Steam with CCSGas fired CCGTGas fired CCGT with CCSPNGHub LNGOil Indexed LNG
0
5
10
15
20
25
2013 2020 2027
RE (Moderate Solar)
Wind (Typical)
UPV
BAPV
Generating Cost OnlyLoad Serving not included
Adnan Shihab Eldin © KFAS - 2014
05
10152025
5 6 7 8LCO
E C
KW
hr
Overnight Cost $/W
NUCLEAR
5% DR
10% DR
UAE Barakah (Estimate)
UK Hinkley C
0
5
10
15
20
25
0 5 10 15 20Fuel Cost $/MBtu
FOSSIL (GCC)
HFO fired Steam Plant
HFO (100$ Index)
CCGT Associated Gas
Non Associated
Imported LNG
LNG ( 100 $ Index)
0
5
10
15
20
25
2013 2020 2027
RE (High Solar)
Wind (low)CSPUPVBAPV
CSP Needs high solar resourceincludes storage , serves load. Wind & PV Generating Cost OnlyLoad Serving not included
CCGT predominant at US gas prices vs. coal, New Nuclear & RE. Not competitive in Asian (predominantly LNG) gas market vs. coal.
Wind On best sites competitive with fossil.
PV competiveness increasing. Parity in MENA. Subsidy still required in OECD
Adnan Shihab Eldin © KFAS - 2014
Scale of renewables Cheaper solar power Hydraulic fracturing
Energy industry transformed in recent years by innovation and technology-driven changes
Leonhard Birnbaum, e.on 2014
Adnan Shihab Eldin © KFAS - 2014
Changing Landscape – Power Generation Mix
Installed capacity by source
WEO 2013 - more than ½ of new capacity R E, reaching 40% in 2035
Can they replace fossil fuels - to meet all (or most) of world energy needs?
Wind and Solar - Intermittent - require storage backup and grid development
Will continue to require subsidy (> 100 B$ in 2012 250 B, 2035);
Lessons Learned - The German Experience
2 000
4 000
6 000
8 000
10 000
1970 1980 1990 2000 2010 2020 20302035
ProjectionsHistoricalOther renewablesWind
HydroNuclearOil
Gas
Coal
GW Re. Generation grows 3 X (70% non-OECD, ½ in China)
Generation Share 11 – 16 %..
Technology contribution: Hydro 50% wind 24% PV 8%, CSP 2%.
Source: (IEA’s WEO 2013)
Adnan Shihab Eldin © KFAS - 2014
“Energiewende” of Germany
More carbon- intensive Less stable More expensive
Leonhard Birnbaum, e.on 2014
Vision: 60% Re., - 80% GHG , +50% Electrical Efficiency by 2050
Reality: High FIT and guaranteed grid connection reduce cheaper Centralized power to back up, increasing its cost and discouraging its development Storage Available and Grid development Insufficient
Lesson : Coordinated Techno Economic Development for minimum cost essential
Despite efforts of the transition, German power is now:
Adnan Shihab Eldin © KFAS - 2014
Challenges Ahead• World Economic Recovery and Energy Demand. Shift to Asia inevitable but growth depends
on World Markets & societal & economic policies in these countries.
• China & India China slowdown permanent? How urgently can India realize potential ? Development of own resources and urgency of sustainable energy policies ?
• South America Realization of economic and supplier potential of Brazil and Venezuela.
• Russia Conflict with Ukraine & West. Consequences for European Gas supply & Russian economy development & technology to counter high depletion rates & unconventional.
• US energy independence strengthens foreign policy but Rise of Asia re-orients it, reducing commitment to ME security.
• Weakened / Conflicted Government in US, UK and some EU.
• Climate Change. Increasing imperative for action but continuing policy uncertainty. Action will change fuel / technology mix. Ultimate consequences more serious, unquantified if delayed.
• Growth in oil demand weakens we may be seeing peak in oil demand before 2040
• World Resources. Is there a supply constraint? Peak Oil & Gas?
Adnan Shihab Eldin © KFAS - 2014
Peak oil demand likely by or before 2040?
IEA 450 outlook scenario Shows peak in oil demand developing as early as 2020
OPEC WOO (2014) indicate oil demand platueDeveloping by 2040
Adnan Shihab Eldin © KFAS - 2014
Challenge - Response to Climate Change
IEA Present policies: 6 Deg C, New Policies: 4 Deg C, 450 ppm Scenario: 2 Deg C IPCC 5th report: Warming Certain, effects unprecedented. 99% Certain anthromorphic?? Mitigation technology available, Costs relatively small, less than previously estimated Adaption consequences increased but fully quantified. Key Mitigations Efficient buildings & vehicles, RE irreversible, CCS almost inevitable Nuclear role minimized by unjustified demonization; Possible only with Govt. support US commitment to - 26% emissions on 2005 by 2025, China to peak emissions by 2030?.
CO2 abatement
Source: IEA WEO2012
Abatement 2020 2035
Efficiency 72% 44%Renewables 17% 21%Biofuels 2% 4%Nuclear 5% 9%CCS 3% 22%Total (Gt CO2) 2.5 14.8
20222426283032343638
2010 2015 2020 2025 2030 2035
Gt
New Policies Scenario
450 Scenario
Adnan Shihab Eldin © KFAS - 2014
Peak oil, resources, marginal cost and oil price
Peak Oil? Demand peak rather supply peak
Resources abundant - Transform the World market. Diversify & Increases security of supply
Marginal cost from 20$/bbl in GCC. 70$/bbl for shale & Deepwater
Supply breakdown & Price set by:
o Conventional supply Determined by budget requirements and rising costs of incremental production in GCC
o Unconventional (shale and deepwater) price set by technology and financing.
Current oil price vs. long term
* APICORP, Ali Aaissaoui, 2014
Forward Oil Curves
Adnan Shihab Eldin © KFAS - 2014
Challenge : Shale Oil & Gas Revolution in N America
Resource, business and financial environment very different
Hydraulic fracturing technology can be acquired, but production also needs:
Multiple drilling rigs
Strong field logistics and services
Private land and production companies
Cheap credit, liquid forward hedging to finance production
US Oil Supply increasing dramatically,
reducing imports
Shock & counter shock
Most resources outside US are in China, Argentina and Russia.
* OECD/IEA, Resources to Reserves 2013
Resources widespread but can US revolution be globalized ? very uncertain
Adnan Shihab Eldin © KFAS - 2014
Challenge : Shale Oil & Gas revolution in N America
* Bassam Fatouh 2014
US crude oil and liquid fuel production (mb/d)
* BP 2014
Adnan Shihab Eldin © KFAS - 2014
Large Uncertainty of Future Shale (Oil & Gas) production
BP Energy Outlook 2013
Coverage, magnitude & LT sustainability of shale production remain uncertain
Wide range of production Estimates
Yields and production economics are critically dependent on geology of each play
High marginal cost – Supply severely affected by price (Conventional – Low marginal Cost – Supply little affected by price )
Resource and sustainability of production remain uncertain
Adnan Shihab Eldin © KFAS - 2014
Structural Changes in Oil & Gas Trade:Import dependence in Selected Regions (IEA’s WEO 2013)
Energy trade increases for all fossil fuels & biofuels, with differing, but profound, energy security, competitiveness & geopolitical implications
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%Oil
Gas
United States
ChinaIndia
European Union
Japan and Korea
SoutheastAsia
2035
Brazil
Middle East
Russia
Caspian Africa Indonesia
Net gas exporter,net oil importer
Net gas and oil importer
Net gas andoil exporter
Net gas importer, net oil exporter
2011
(IEA’s WEO 2013)
Adnan Shihab Eldin © KFAS - 2014
The changing global LNG landscape
Daniel Yergin, HIS 2014
Key regional trends shaping the LNG market.
Leonhard Birnbaum, e.on 2014
Global LNG trade growth by 49% (2013-2020).
Need for building smarter energy supply chain.
Adnan Shihab Eldin © KFAS - 2014
GCC Energy Challenges
The Changing GCC Energy LandscapeThe Supply Challenge
Adnan Shihab Eldin © KFAS - 2014
Regional Geopolitics
• IS-Most serious challenge to the stability of the Middle East for decades.
– Secure control of major parts of Syria and Iraq. Popular support due to provision of social infrastructure and services and replacement of corrupt regimes.
– Secure Funding from extortion and black market oil sales
– Anti western , anti regime , extremist support throughout region.
– 20,000 + experienced fighters from regime opponents and foreign jihadis. Expert control and command structures , Weapons commandeered from Iraq and provided for use against Assad.
– No viable opposition strategy without ground intervention . Only US, Turkey , Iran are
– militarily credible but all politically blocked. IS defeat not foreseeable.
Will increasingly threaten Iraq national unity , oil production and marketing, regional security investment confidence and development
Adnan Shihab Eldin © KFAS - 2014
Primary Energy intensity & GDP/Capita.(Bubble indicates fossil fuel consumption.
GCC – Energy Efficiency
Sources Chatham House, 2013
Adnan Shihab Eldin © KFAS - 2014
GCC Unsustainable policies &Domestic Energy
• Economies mainly dependent on oil revenues. Minimal Diversification
• State paternalism subsidizes most aspects of life including energy. Increased since Arab Spring
• Infrastructure development Plans
• Increase in “Fiscal oil prices” (to balance budgets)
• This near or above current market price. Will escalate with population growth.
• Highly vulnerable to oil income loss
• Subsidies to 90% of cost of production have destroyed considerations of conservation in building and vehicle size and efficiency
• Near worlds highest per capita consumption unrelated to national productivity
• Waste of national hydrocarbon reserves loss of export revenue
0
5
10
15
20
25
30
35
40
45
50
2010 2012 2014 2016 2018 2020
%Total Domestic Energy consumption
as % Maximum production (sources: Economist Intelligence Unit , National Bank of Kuwait)
Bahrain (NetImporter)Kuwait
Oman
Qatar
KSA
UAE
Adnan Shihab Eldin © KFAS - 2014
02468
1012141618
Electrical Energy (MWhr) (EIA )
*
Adnan Shihab Eldin © KFAS - 2014
Sustainable Energy Policy WIN – WIN for GCC states:-
Potential for 60% new building energy savings by 2020. Existing buildings very inefficient. Reduction by passive design, insulation, efficient windows, reflective coatings, controlled ventilation, Efficient AC Equipment or district cooling, building automation systems.
> 25% savings possible by existing building retrofits and improved operation.
High Solar Resource: > 20% generation by rooftop and Utility PV possible by 2030. Take the lead in CCS with EOR and explore Nuclear.
Exceptional storage potential in chilled water in building AC systems and solar desalination for RE intermittency mitigation.
Subsidy redistribution required – win-win wealth sharing Policy on basis of minimum lifetime cost: essential for public acceptability.
It is Possible to halve energy demand growth. Creates new industries for District Cooling, PV, Energy Services. Quality Employment
Adnan Shihab Eldin © KFAS - 2014
Renewable Energy Targets in the GCC, mid-2013
Adnan Shihab Eldin © KFAS - 2014
Middle East Nuclear Power Programs
KEY
Intended Power Program(Target)
TURKEY @ @(4.8GW by 2021)5 GW to follow
KUWAIT
SAUDI ARABIA17 GW by 2032 ?
EGYPT @@4.8 GW 2019 -2025
ISRAEL @ @
ALGERIA @@MORROCO @
UAE4 x API 1400 by 2020(up to 20 GW by 2030
BAHRAIN
JORDAN(1 GW BY 2020) @
5GW to follow
QATARNo detail yet
OMANNo detail yet
YEMENNo detail yet
Infrastructure & RegulationActive Power Program
(Target)
Preliminary
Program Cancelled
Joint Program
IRAN @ @ (0.9GW Operating,
20 GW by 2030)
Transition
TUNISIAno detail yet
LIBIYA @
@ Research Reactor
Adnan Shihab Eldin © KFAS - 2014
Implications for GCC
Oil is irreplaceable & abundant, Demand will continue to grow. But at a reducing rate.
Growing political instability, and extremism are threats to development & investment.
Domestic Consumption is excessive, rises with population and reduces income.
In the medium term, further reduction due to reducing share of slowing demand & supply increases, mainly of shale oil is an economic threat and calls for:
Economic diversification. This Ultimately essential but large scale requires decades
Reduced social spending,. This is challenging in the present political climate
Sustaining production capacity and development of gas resources to offset domestic liquids consumption. Both require IOC involvement which is politically obstructed in some countries.
Refining to clean fuels to increase export value. (this is limited to Asian Market)
Sustainable Energy Policy (Efficiency of use and renewable energy) is the most readily available option, and is essential in maintaining national prosperity,
In the longer Term: shale oil decline is certain and will return demand share to GCC.
However oil demand will plateau and decline due to increasing economic efficiency.
Ultimately alternative energy sources would emerge (e.g. Methane Hydrate & Fusion Reactors), rendering Diversification and Sustainable energy essential for national survival.
Adnan Shihab Eldin © KFAS - 2014
Concluding remarks (1)
I have presented a changing landscape of unprecedented uncertainty: Uncertainty of rates of growth of major emerging nations, their evolution to lower
energy intensities; & consequently of world energy demand growth they dominate Uncertainty of continuing sources of energy supply: determined by the
sustainability of shale oil and gas revolutions and whether they will proliferate beyond North America. Other (unknown) supply technology breakthroughs !
Uncertainty of response to climate despite strengthening rationale & seminal commitments reached by Obama and Xi Jingpin; & then ability of CCS to meet expectations. RE irreversible but at what penetration level? Nuclear Roles? waiting for G IV & fusion,
Some Certainties have emerged: That sustainable energy, efficiency of use first, and renewable energy second,
is the optimum path for world development. Fossil with CCS will remain for a long time an important factor, nuclear will grow in certain countries –
That “peak oil “ refers to the inevitable plateauing and reduction of demand , not of supply which is abundant.
Adnan Shihab Eldin © KFAS - 2014
Concluding remarks (2)
This region is subject to the greatest uncertainty in its recent history : First: the unsolved problem of IS and its threat to existence of Iraq & Syria, availability of
its resources and to confidence in the whole region, Second: the probability of increased regional superpower tensions and continued
underdevelopment of Iran’s resources consequent on failure to reach agreement on Iran’s nuclear program: 24 November is a date to watch?
Third: Growth of trans-national regional and sectarian alliances facilitated by the internet, which threaten established governments
There are regional certainties: The only way to reduce the geopolitical tensions & regional conflicts is through Education reforms: A generational Enterprise
In the medium term GCC production share & income will fall causing budget difficulties, reducing wealth distribution to citizens and eroding fiscal reserves.
In the long term, the region will be called upon to provide increased oil supply for mobility in Asia
This will invigorate progressive removal of energy subsidies, replaced by win-win sharing of oil rent, but political constraints will limit rate and effectiveness . It will re-emphasize the drive for economic diversification; UAE is leading the way, but urgency is spreading!
Adnan Shihab Eldin © KFAS - 2014
Concluding remarks (3) Thus, by its huge potential to reduce domestic energy consumption and loss of
exports, Sustainable Energy policy stands out as the only certain means ofincreasing income available to governments. It is also the best source ofdiversification and quality employment which will become increasingly importantin future.
This brings me to regional business interaction with Austria (in energy) .
We are impressed with the exemplary energy policies which have proliferatedthrough in Austria from initiation two decades ago in the town of Gussing. Theprogression through efficiency of use, distributed cogeneration andexploitation of renewable energy, minimizing fossil fuel use, creatingemployment and diversifying the economy is precisely the path which we mustnow follow.
The region can learn from your experience, identifying clear specific collaborationsof mutual benefits in Re, energy efficiency and smart energy system in general.
Adnan Shihab Eldin © KFAS - 2014
Thank You