The Future of Global Energy Security: Implications for the ...en.ru.is/media/...Global-Energy-Security-Presentation_ArcticCircle.pdf · 2 Introduction: The Global Energy/ Supply Balance

The Future of Global Energy Security: Implications for the Arctic Charles K. Ebinger Senior Fellow Energy Security and Climate Initiative The Brookings Institution Reykjavík University October 15, 2015

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Introduction: The Global Energy/Supply Balance in 2035

By 2035, the world’s population is projected to reach 8.7 billion, adding an additional 1.6 billion people who will need commercial energy. Already, there are 1.2 billion people worldwide who lack electricity access, and 1 billion who rely on biomass as a primary fuel

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Introduction •  China/India are the key drivers of non-OECD

growth

»  While projections must be treated gingerly, these two countries are projected to grow 5.5% per year, becoming the world’s 2nd and 3rd largest economies and accounting for 1/3 of the global population and GDP

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Global energy consumption •  Between 2013-2035, global primary

energy consumption will increase 37%

»  Virtually all growth will be in non-OECD, which average 2.2% per annum while the OECD’s energy consumption will grow at 0.1% over the whole period and then begin to fall after 2030

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Global energy consumption (cont.) •  While growth in renewables and efficiency will be

among the fastest growing contributions to meeting this demand, the reality is that almost all market forecasts project that fossil fuels will continue to meet nearly 75-80% of global energy demand

How do we meet energy demand while simultaneously dealing with the ravages of

climate change?

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Global climate emissions •  Global energy-related CO2 emissions were flate

in 2014 (32.3 GT) despite a 3% GDP growth in the world economy

•  This was the first time in 40 years that a halt or reduction in emissions has not been tied to an economic crisis

•  Across the OECD, emissions continued to decouple from economic growth in 2014

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China’s CO2 emissions •  While China’s emissions figures provide early

signs of a weakening in the link between economic and emissions growth, the IEA’s 2015 World Energy Outlook gives no evidence of a detachment

•  Indeed, some observers believe that in 2013 Chinese emissions actually went up by 0.5%

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Global climate emissions (cont.) •  Total global carbon emissions from energy

consumption are projected to rise by 25% between 2013-2035

•  However, tough commitments and implementation arising out of COP21 may accelerate this decline

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Global climate emissions (cont.) •  According to Christina Figures, Executive Secretary to the

UNFCCC, even if all the national reduction pledges are codified and implemented, the world is on a trajectory that will increase temperatures by 3C (5.4F)

•  Impacts of this increase will include a major drop in food production, heat waves such as those we’ve seen in India, more violent storms, more frequent droughts and wildfires, and growing numbers of climate refugees (ie, Syria)

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Climate impacts in the Arctic •  A 2015 study found that Alaska’s glaciers are losing 75

billion metric tons of ice per year »  This means that although Alaska’s glaciers comprise only 11%

of the world’s total, they contribute 25% of the losses and rising sea levels

•  80% of Alaska is underlain by permafrost, but as the state warms up, permafrost is thawing (hastened by wildfires which burn off trees)

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Climate change impacts (cont.) Scientists estimate that by 2100, melting permafrost around the globe could release 150 gigatons of carbon into the atmosphere, going a long way to insuring that we cannot keep the global temperature rise to under 2 deg Celsius.

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Implications for fossil fuels Global liquids demand (oil, biofuels and other liquids) are projected to rise by 19 mmbd, reaching 111 mmbd by 2035. While the rate of growth declines dramatically over the period, the absolute growth is huge »  Demand growth comes exclusively from non-OECD economies

where consumption reaches 70 mmbd, a 56% rise above 2013 levels »  OECD demand peaked in 2005 and is expected to fall by 6 mmbd to

40mmbd, the lowest since 1986 »  Global oil demand in 2015 is now 900 mbd higher than predicted

before the oil price collapse

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Where will this oil come from? •  Based on what we know today, it must come

from Iraq, Iran, Saudi Arabia, Venezuela (Orinoco), offshore Brazil, Russia, and the Arctic

»  However, many of these areas need high oil prices to justify their development

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Natural Gas •  While natural gas is the fastest growing fuel at 1.9% per

annum, the LNG market is in a state of collapse as weakness in the global economy has led spot natural gas prices in Asia to settle under $6/mmbtu, when just a few years ago they were $18-20/mmbtu

•  Currently, Dr. Feridun Fesharaki, a leading expert on gas markets, estimates that today with LNG projects already in the market that there may be as much as 70 million metric tons of LNG held by brokers with no place to sell it

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Natural Gas (cont.) •  With new projects about to come on line in Australia, the United States,

Papua New Guinea, etc., it appears that after 2020, unless world economic growth resumes, as many as 85 proposed LNG projects will be in deep financial trouble or may never be built

»  Fitch Ratings INC, along with my colleagues and I at Brookings, believe that more than half of the 38 proposed terminals planned for the US may never be built in any reasonable time horizon, including plans by Alaska

»  Plans for 20 terminals in Canada must now be seriously questioned—Canada and Alaska may have missed the market

»  Wood Mackenzie estimates that even if half of the LNG plants planned for the Asian market are built, Asia will remain oversupplied through 2025

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Natural gas (cont.) When combined with the new study by West Virginia University and NREL estimating that the Utica shale, beneath the Marcellus, holds 782 TCF of recoverable natural gas and 2 billion barrels of oil, it seems likely that gas at least in North America is not a bridge to renewables but rather the bridge to greater utilization of gas.

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Coal •  Despite the collapse of coal demand in the US, demand

elsewhere in the world remains strong especially in South and Southeast Asia and China owing to low prices and employment concerns

•  There is a contentious debate over whether it makes sense to build or upgrade existing subcritical coal plants where possible to supercritical and ultra-supercritical plants as a bridge to CCS, assuming CCS proves scalable both technologically and commercially

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Coal (cont.) •  Investments in coal, such as with oil and gas, are under

fierce attack by endowments and pension funds •  India is the major wild card in terms of rising coal

consumption though China also needs to be watched as does Indonesia

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Renewables •  Renewable energy investment was flat in 2014 at $270

billion, with 128 MW of new capacity installed representing almost half of all new electric generating capacity

•  According to the IEA, wind power accounted for 37% of this total and solar almost another third

•  U.S. industry is being buffeted by collapse in share prices (Sun Power), questioning of the viability of the Yieldco financing mechanism, lack of MLP status and questions about continuation of tax credits

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Nuclear •  At the end of 2014 nearly 74 GW was under construction in

China, with an additional 1000 Twh planned by 2035 »  This is an ambitious target, equivalent to completing a new 16 GW

reactor every three months for the next two decades •  Elsewhere, nuclear plants are being seriously built or

planned in about 10 countries •  Nuclear represents today 67% of all carbon free electricity

generation in the U.S. »  Does it make sense to retire them early because they cannot

compete in the wholesale power market?

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It is in this context that Arctic oil, gas and renewable energy must

compete.

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Future of Energy Supply

Source: BP World Energy Outlook 2015

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Arctic Energy Potential

Source: United States Geological Survey

•  Undiscovered reserves: 13% Petroleum 30% Natural Gas 20% NGLs

•  Recoverable reserves: 90 bboe Petroleum 1,670 tcf Natural Gas 44 bboe NGLs

•  Despite these odds, what is the implication of Shell’s exit from the Arctic?

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Changing Geopolitics Russia’s Arctic Ambitions

•  Delivered 2.2 mboe oil in 2014 from Prirazlomnaya field in the Pechora Sea

•  In December 2012, Gazprom’s Ob River LNG carrier became the first to successfully traverse the Northern Sea Route

•  Russia has termed the Arctic ‘Russia’s Mecca’ and significantly increased military presence and operations

•  Future uncertainty in relations due to policy disagreements over Syria and Ukraine

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Changing Geopolitics The Return of Iran

•  As sanctions are lifted, Iranian inventories can boost global supply by 100,000 b/d

•  By the end of the decade, Iran could be supplying ~600,000 b/d

•  Current low prices and this increased supply will lower non-OPEC production

•  Challenge: What is the future of arctic exploration in light of this supply glut?

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New Routes