Global Energy
Outlook
Global
Energy Outlook
“Would the ‘Arab Spring’
be a ‘Consumer’s Harsh Winter’?”
The movement originated in Tunisia
in December 2010 and quickly took hold in Egypt, Libya and further
spread out to Syria, Yemen, Bahrain, Saudi Arabia and Jordan. The
term had been in use since early 2000’s by several political
analysts and politicians to urge “Washington and Brussels to join
their forces in a partnership with reformers in the Broad Middle
East and North Africa region to promote democratic transformation
and human development as an antidote to those radical ideologies and
terrorist groups that seek to destroy Western society and values” .
Whether these had been the real and humanitarian reasons back in
their mind or had it been the cover-up for their never-ending thirst
to capture the rich hydrocarbon reserves of the MENA region is
always a flaming heading for a passionate debate. However, since
millions of innocent civilians had already been killed and more
seems to be under great threat, the developments deserve much more
than a debate and much more humanitarian responsibility. Innocent
lives are at risk, economies and social developments of the region
is under significant risk.
The Energy Dimension and Global Energy Outlook
Today, the world consumes 12,3 million tons oil equivalent of
energy. In their recent work (WEO 2011) IEA estimates that the world
primary demand for energy increases by 40 % between 2010 and 203 to
16.95 mtoe. Energy-related CO2 emissions will increase by 20%,. If
such a development can not be avoided, the average global
temperature is then expected to rise more than 3.5°C.
Here are the other important outcomes/predictions of the study :
• “The dynamics of energy markets will be determined more and more
by the emerging economies. Over the next 25 years, 90% of the
projected growth in global energy demand comes from non-OECD
economies; China alone accounts for more than 30%, consolidating its
position as the world’s largest energy consumer. China will be
consuming 70% more energy than the U.S. in 2035.
• The rates of growth in energy consumption in India, Indonesia,
Brazil and the Middle East are even faster than in China.
• Emerging economies will dominate the expansion of supply: The
world will rely increasingly on OPEC oil production as it grows to
reach more than half of the global total in 2035. Non-OECD countries
account for more than 70% of global gas production in 2035, focused
in the largest existing gas producers, including Russia, the Caspian
and Qatar.
• World demand grows for all energy sources. The share of fossil
fuels in global primary energy consumption falls slightly from 81%
in 2010 to 75% in 2035. Natural gas is the only fossil fuel to
increase its share in the global mix over the period to 2035.
Absolute growth in natural gas demand is similar to that of oil and
coal combined. Oil demand increases by 15% and is driven by
transport demand. Coal demand, dictated largely by emerging
economies, increases for around the next ten years but then
stabilises, ending around 17% higher than 2010. Oil demand increase
will be 18%.
• Oil demand rises from 87 million barrels per day (mb/d) in 2010 to
99 mb/d in 2035, with all the net growth coming from the transport
sector in emerging economies. The passenger vehicle fleet doubles to
almost 1.7 billion in 2035. Alternative technologies, such as hybrid
and electric vehicles that use oil more efficiently or not at all,
continue to advance but they take time to penetrate markets.
• In the power sector, nuclear generation grows by about 70%, led by
China, Korea and India. Within primary energy consumption nuclear’s
share very modestly grows from 5,8% in 2010 to 7,1% in 2035 mainly
with an impact of Fukushima.
• Renewable energy technologies, led by hydropower and wind, account
for half of the new capacity installed to meet growing demand.
Renewables increase from 13% of the mix today to 18% in 2035; the
growth in renewables is underpinned by subsidies that rise from $66
billion in 2010 to $250 billion in 2035, support that in some cases
cannot be taken for granted in this age of fiscal austerity. By
contrast, subsidies for fossil fuels amounted to $409 billion in
2010.
• $38 trillion in global investment in energy-supply infrastructure
is required from 2011 to 2035, an average of $1.5 trillion per year.
Two-thirds of this is required in non-OECD countries. The power
sector claims nearly $17 trillion of the total investment. Oil and
gas combined require nearly $20 trillion, increasing to reflect
higher costs and a need for more upstream investment in the medium
and long term. Coal and biofuels account for the remaining
investment.
• The energy world becomes more inter-connected and more focused on
Asia. More than half of world oil consumption is traded across
regions in 2035, increasing by around 30% in absolute terms compared
with today. Trade in natural gas nearly doubles, with gas from
Russia and the Caspian region going increasingly to Asia.
• India becomes the largest coal importer by around 2020, but China
remains the determining factor in global coal markets.
• On planned policies, rising fossil energy use will lead to
irreversible and potentially catastrophic climate change.
• Policy action to curb demand for energy-security and climate
reasons, and the ability to develop new supplies, will be critical
to the long-term outlook for international oil and gas markets.
• Global oil production (net of processing gains) reaches 96 mb/d in
2035, a rise of 13 mb/d on 2010 levels. A growing share of output
comes from natural gas liquids and unconventional sources. Crude oil
supply increases marginally to a plateau of around 69 mb/d (just
below the historic high of 70 mb/d in 2008) and then declines
slightly to around 68 mb/d by 2035.
• Nonetheless, gross capacity additions of 47 mb/d – twice current
OPEC Middle East production are needed just to compensate for
declining production at existing fields. Non-OPEC production falls
marginally, while OPEC’s market share expands from 42% in 2010 to
51% in 2035. Increasing reliance on imports in the importing
non-OECD regions, notably Asia, will inevitably heighten concerns
about the cost of imports and supply security.
• In a Deferred Investment Case, we examine the implications of
upstream investment in the Middle East and North Africa running
one-third below the level in the New Policies Scenario in 2011 to
2015. MENA production is, as a result, more than 6mb/d lower by
2020; prices jump to $150/barrel, before falling back as production
rises. MENA exporters earn more in the near term, thanks to higher
prices, but less in the longer term, as they lose market share.
• Short-term pressures on oil markets are easing with the economic
slowdown and the expected return of Libyan supply. But the average
oil price remains high, approaching $120/barrel (in year-2010
dollars) in 2035. Reliance grows on a small number of producers: the
increase in output from Middle East and North Africa (MENA) is over
90% of the required growth in world oil output to 2035. If, between
2011 and 2015, investment in the MENA region runs one-third lower
than the $100 billion per year required, consumers could face a
near-term rise in the oil price to $150 per barrel.
• Oil demand rises from 87 million barrels per day (mb/d) in 2010 to
99 mb/d in 2035, with all the net growth coming from the transport
sector in emerging economies. The passenger vehicle fleet doubles to
almost 1.7 billion in 2035. Alternative technologies, such as hybrid
and electric vehicles that use oil more efficiently or not at all,
continue to advance but they take time to penetrate markets.
• In the New Policies Scenario, world demand increases to 4.75 tcm
in 2035 at an average rate of 1.7% per year. Global gas consumption
almost catches up with coal consumption by 2035.
• Non-OECD countries account for 81% of global gas demand growth. A
major expansion of gas use in China pushes domestic demand above 500
bcm by 2035, from 110 bcm in 2010.
• By sector, power generation is the leading contributor to the
global increase in gas demand.
• Unconventional gas – tight gas, shale gas and coalbed methane – is
set to play an increasingly important role. It accounts for roughly
half the estimated global resource base of over 800 tcm; its share
in output rises from 13% in 2009 to above 20% in 2035 on the
assumption that the industry is successful in dealing with
environmental challenges.
• Gas demand rebounded strongly in 2010, helping Russia regain its
position as the worlds largest producer, which it maintains
throughout the Outlook, with output reaching nearly 860 bcm in 2035;
it makes the largest single contribution to total gas supply growth
over the projection period.
• The energy-policy choices of Russia – a key player in global
energy – in the coming years will shape the prospects for Russia’s
own economic development, but will also have important implications
for global energy security and environmental sustainability. The
energy intensity of Russian GDP has improved in recent years but,
even allowing for Russia’s industrial structure and harsh climate,
energy use in Russia is still highly inefficient.
• New energy-efficiency policies and price reforms in the New
Policies Scenario start to tap into this energy-savings potential,
dampening overall increases in demand.
• Russia has world-class energy resources sufficient to underpin its
continuing role as a major producer and exporter through the
projection period and beyond.
• Russian oil production plateaus at around 10.5 mb/d over the
coming five years before starting a slight decline to 9.7 mb/d in
2035 in the New Policies Scenario. Oil exports decline from 7.5 mb/d
in 2010 to 6.4 mb/d in 2035. There is a shift to new, higher-cost
production areas in Eastern Siberia, the Caspian and the Arctic, but
the key to Russia’s oil outlook remains the incentives for
investment in the core region of Western Siberia.
• Gas production is projected to increase from 637 bcm in 2010 to
860 bcm in 2035. Total gas exports rise substantially, from 190 bcm
to close to 330 bcm.
• Total Russian revenues from the export of fossil fuels is expected
to rise from $255 billion in 2010 to $420 billion (in year-2010
dollars) in 2035.
While the study reflects several “scenarios” based on certain
assumptions, and one can rightly react and say that these are only
“possible” and not certain outcomes, there is no doubt that, such
“scenarios” help us to fine tune our current strategies (if we have
any).
“Arab Spring” and It’s Impact on Energy Supply Security and
Prices
Within the world total primary energy demand, total stake of fossil
fuels (oil, gas and coal) add up to 87,1% while oil contributed a
33,1 percent and followed by coal (30,1%) and gas (23,7 %) in 2011 .
As seen from thes figures, fossil fuels dominate the overall energy
supply today and are expected to continue their dominance with some
decrease (74,7%) through 2035.
World oil and gas reserves are unevenly distributed and Middle East
holds the lion’s share of those proven/recoverable reserves. Out of
the 1483,3 billion barrels of proven oil reserves 48,1 % is in the
M. East. Africa holds 8% while 7,7% is in the CIS region. Middle
East and Africa (MENA) region holds 56,1% of total proven oil
reserves with very significant additional untapped potential.
M. East is also the primary region for the world recoverable gas
reserves (38,4 of the world total: 80 tcm of 208,4 tcm). Russia
holds 21,4% of the proven gas reserves while Iran has 15,9% and
Qatar 12% of the total. MENA region in total, holds 45,4% of the
total gas reserves.
The so-called Arab Spring already changed several regimes in the
MENA region to include Tunisia, Egypt, Libya and there is an
on-going and growing instability in Syria, Yemen, Bahrain and to a
certain extent in Jordan and S. Arabia.
Iraq has a longer and destructive history. Iraq oil production
peaked at 3,6 million barrels a day in 1979 before the Iran-Iraq
war. “The loss of production from the combined effects of the
Iranian revolution and the Iraq-Iran War caused crude oil prices to
more than double. The nominal price went from $14 in 1978 to $35 per
barrel in 1981” . Iraqi oil production was 2,6 million b/d (mmbd)
before Saddam was overthrown. Mainly due to Iraqi instability and
with the contribution of several other factors like the Venezuellan
strike, more than expected Asian demand growth and weaker dolar, oil
prices climbed from less than $40 up to $90 levels in a few years.
Today, Iraqi production hardly had been restored to pre-2003 levels
and there is a serious risk of growing instability between the
Northern Regional Government and the Central Authority. This is an
open threat for future oil supply security since Iraq is one of the
most promising supply source for the coming decades.
Iran’s oil production peaked at 6,7 mmbd in 1976 while today it is
4,3 mmbd.
Iraq holds 8,7% of the world proven reserves while S. Arabia has
16,1%, Iran 9,1% and Libya 2,9%.
There is no doubt that, at the very outset “Arab Spring” had a
negative impact on the oil production and thus caused an increase in
the oil prices and discouraged future investments due to increasing
instability and risks.
Just before Mohammed Bouazizi burned himself to protest the bad
treatment of the Tunisian police , the price of Brent oil was $ 85
per barrel and it sharply has increased to $ 114 in March 2011. In
such a short period, the $ 29 increase came mainly as a consequence
of a series of similar discontents and upheavals in Egypt, Yemen and
Bahrain.
The physical interruption of oil and gas flow due these events is
part of the story, while growing risks are further threatening the
supply security and therefore urging the prices upward.
Investments totalling $38 trillion are needed to meet projected
global energy demand through 2035, and unrest in the Middle East and
North Africa may disrupt this spending, according to the
International Energy Agency (IEA) . In October 2011, Fatih Birol,
the chief economist of the IEA said “energy supplies may be
threatened if unrest in energy-producing countries curbs oil and gas
projects”. He added that “If the investments doesn’t come through
(as was expected) in the MENA region, this will have major
implications on international oil prices since MENA countries will
account for 90 percent of crude production growth in the next 10
years”.
The IEA foresees a $16.9 trillion expenditure on power- generation
infrastructure through 2035, or 45 percent of the total investment
required to meet energy demand. That compares with $10 trillion on
oil, $9.5 trillion on natural gas, $1.1 trillion on coal and $300
billion on biofuels.
There are more optimistic views however, like those of Paolo Scaroni
of ENI. He claims that “it was not easy to assess the potential
impact of Arab Spring on energy security however, there are reasons
to be optimistic” . To justify his optimism he said “the way the
crisis went in Libya was an exception and claimed that Egypt and
Tunisia ‘managed’ things without loosing a single barrel of
production”. He further claimed that “Libya very quickly returned to
the global market and his company resumed production and started to
export gas”. Finally he said that “Iraq offers a great potential and
he expected 12 mmbd production by 2017”. These are his main points
and reasons for optimism.
Scaroni seems to be over-optimistic in his views. First, we have to
note that Egypt produces 735,000 b/d -0,3% of world total - while
Tunisa produces only 75,000 b/d meaning that their total
contribution is rather insignificant in the global scale .
Libyan situation is also not that much promising an instability is
even increasing. The U.S. Energy Department's Energy Information
Administration reported that Libyan oil production rebounded to 1,4
million bpd in April 2012 , however it was 1,8 million bpd in 2008.
But a much more critical indication of instability and threat is the
most recent killing of the US ambassador to Libya and three other
embassy officials with a rocket attack . The U.S. mission in Egypt
was also attacked on 12 September 2012 similarlay in response to the
film depicting the prophet Mohammed as a child molester, womanizer
and ruthless killer . Therefore, the future of Libyan oil and gas
production is not that easy to predict and therefore to count on for
short term global supply security.
Finally, Scaloni’s views on Iraqi oil production also seem “wishfull
thinking” since everyday bombs are exploding and tens of lives are
being lost in suicide attacks. Ethnic and religious conflicts are
being ignited. The conflicts are growing between the Regional
Government in the northern part of Iraq and the Central Government
of Iraq. There is a significant problem of exports since export
routes are exclusively under the control of Maliki government.
Growing instability is discouraging
and delaying new investments and adding risk premium which in turn
increases the cost of oil development and limiting the export
potential. Even existing infrastructure like Kirkuk – Ceyhan (Iraq –
Turkey) Crude Oil Pipeline is frequently being attacked and oil
flows are continously interrupted . Turkey has lost more than $ 1
billion for unpaid transit fees due to interrupted flows. According
to the related agreement, Iraqi side has guaranteed at least the
transportation of 35 million tons of Iraqi crude oil per annum (half
the capacity of the pipeline) while during Saddam period, this
fulfillment was satisfied. However, after the invasion in 2003,
endless attacks made the pipeline almost idle. Therefore, before
talking about new investments, we should try to operate the existing
infrastructure in an uninterrupted manner. The risks are not
imaginative but actual and the impact is factual.
There is an additional risk associated with the impact of “Arab
Spring” which may cause a further increase in the oil price. That is
the “natural” protectionist reaction of regimes like Saudi Arabia,
Jordan, Bahrain, United Arab Emirates and Iran. Watching the regime
changes in Libya, Tunisia and Egypt, those states are diverting more
and more of their oil export revenues to social expenditures for
trying to stop the unrest among their populations. As a result of
the Arab awakening and the Arab street’s disaffection with its
rulers, which spread last year from Tunisia to Libya, Egypt,
Bahrain, the Yemen and Syria, the Saudi government decided to head
off trouble within the Kingdom by boosting civil servants’ salaries
and by spending lavishly on defence, education and manpower
development, health and social services, municipal services etc .
Center for Global Energy Studies (CGES) calculates “the OPEC Basket
price needed by Saudi Arabia (to cover its planned expenditure in
2011) to be around $90 per barrel. According to CGES, other OPEC
countries need even higher prices .
A Chattam House Report states that; “the kingdom becoming
increasingly dependent on debt to support government spending at
home and to pay for imports – or having to make some drastic
spending cuts. Facing a rapidly growing population of 27 million
(including some eight million expatriates), a third of the
population under the age of 14 and high unemployment (officially
10,5–11% of the Saudi labour force, unofficially anything between
20% and 30%), the need to diversify the economy and create jobs is
paramount. If this is not done fast enough – and the signs are it is
not – the subsequent fiscal squeeze would have serious political
consequences.”
Finally, it should be not be unrealistic to expect the “new regimes”
replacing the old ones will try to take position in favour of higher
oil prices. To satisfy their people’s expectations, they also would
like to divert greater shares of the oil revenues to them. This will
no doubt cause a rise in the prices.
Combined effect of these developments which all are the inevitable
consequence of the “Arab Spring” will create a significant
overburden on oil and gas importing countries.
Current spare oil capacity which is around 4 million barrels a day,
strategic reserves of oil importing countries, IEA member states’
emergency stock liabilities, ongoing economic stagnation and lower
demand than expected as a result of it may work in the reverse
direction (to decrease the prices) however all those factors have
limited capacities when compared with the impact of recent and
ongoing geopolitical developments.
A Case in Point: Turkey’s Energy Import Dependency May Further
Hurt
Turkey consumed 114 million tons of oil equivalent (mtoe) equivalent
(mtoe) from primary energy sources in 2011. In the same year,
electricity consumption reached 229 billion kWh, marking a
significant rise (9,9%) from the previous year. Dependency on energy
imports is rising and reached 72% in 2011, while the percentage was
52% in 1990 and 67% in 2000.
The share of fossil fuels in Turkey’s total primary energy
consumption is as high as 89,3%. Despite claims to the contrary,
dependency on both fossil fuels and imports tend to continue or even
rise since the Energy Market Regulatory Authority (EMRA) has already
issued new and additional gas and imported coal fired plant licences
exceeding Turkey’s existent installed generating capacity.
The total share of oil and gas within Turkey’s total energy
consumption reached 62% in 2011. Almost all of these fossil fuels
are imported. Turkey imports 92% of its oil and 98% of its gas,
which causes significant vulnerability in both economic and
geopolitical terms. Turkey spent U.S. $54 billion on oil and gas
imports in 2011. This figure is almost 22% of Turkey’s total import
expenditures. Such a large burden on the budget is not sustainable
however is even growing.
Turkey imported 18,1 million tons of crude oil from eight countries
in 2011. The biggest exporter to Turkey was Iran, with 51% of the
total (9,3 million tons). The other suppliers were Iraq (17%),
Russia (12%), Saudi Arabia (11%), Kazakhstan (7%), Syria and Italy
(1% each) and Azerbaijan, which contributed just 81.000 tons. Turkey
also imports oil products (unleaded gasoline, fuel oil, diesel,
off-road diesel and jet fuel) which totalled approximately 8,6
million tons in 2010.
Natural gas is imported from five different countries and also from
spot markets (in the form of LNG) in minor volumes. Natural gas
consumption in Turkey reached 44,5 billion cubic meters (bcm) in
2011. Of the 43,68 billion cubic meters (bcm) imported, Russia
supplied 57% (25,38 bcm), Iran supplied 18% (8,19 bcm), Algeria and
Azerbaijan supplied 9% and Nigeria supplied 3%. Local production
made a minor 2% contribution to the total amount of gas consumed in
2011, and spot LNG had a similar stake. Turkey also exported 710
million cubic meters (mcm) of gas to Greece.
Foreign policy is one of the most important areas that directly
relates to Turkey’s energy policy. Turkey has a strategic geographic
location. It can be classified as a Middle Eastern, Caucasian,
European or Balkan country. It is a natural bridge between countries
that have rich hydrocarbon resources and countries with energy
thirsty markets. It is a relatively stable country in the region,
and has a relatively advanced legal framework. Nevertheless,
Turkey’s strategic position also makes it vulnerable to potential
geopolitical and economic risks. Turkey has common borders and
history with many unstable countries in the region, such as Iran,
Syria and Iraq.
Turkey is over-dependent to Russia for energy imports and mainly for
gas imports. Iran is the next most important supplier of energy to
Turkey. In 2011, 58% of Turkey’s gas imports and 12% of its oil
imports came from Russia, while 51% of the oil and 18% of the gas it
consumed came from Iran.
On the one hand, with every $10 increase in oil import price will
add approximately $2billion to Turkey’s oil import bill.
Additionally, since gas import prices (with current agrrements) are
linked to several oil products, Turkey’s gas import bill will also
increase. Hence, the so-called Arab Spring will directly and
negatively effect Turkey’s already vulnerable economy since it most
probably will trigger the oil prices significantly upwards.
However, this is not the only problem. Turkey’s foreign policy
choices is another big headache creating instability. With recent
steps, Turkey is recieving reactions from three of its neighbours
namely Iran, Syria and Iraq. Russia is another uncomfortable actor
from which 58% of Turkey’s gas imports comes. Turkey imports 12% of
its oil also from Russia.
Turkey’s hostile policy towards Syria has created significant
reaction both in Russia and Iran. Iran is the closest regional ally
of embattled Syrian President Bashar al-Assad, but has also striven
to keep good relations with Turkey. A strong reaction came from
Iranian side stating that "Any attack on Syrian territory will meet
with a harsh response, and the Iranian-Syrian mutual defence
agreement will be activated," according to Al-Watan newspaper .
As stated before, Turkey imports 51% of its oil and 18% of its gas
from Iran. It should not be a surprise if Turkey faces with gas
supply interruptions in the coldest days of winter possibly due to
“technical” problems. Iran has a track record which increases such
possibility.
“Ankara and Moscow have adopted dramatically divergent positions on
how to deal with the crisis, with Turkish leaders publicly calling
for Syrian leader Bashar al-Assad to step down, and Turkey serving
as a staging ground for the Syrian opposition. Russia, on the other
hand, has emerged as the Assad regime’s most significant
international backer” . London’s Sunday Times went further to claim
that Russian technicians helped Syria shoot down Turkish plane to
warn Turkey and NATO. The Syrian airspace is defended by air defense
systems from Russia, and defined to be a reliable guarantee for the
sovereignty of the country .
Divergency between Turkey, Russia and Iran is not limited with their
Syrian policies. Turkey agreed to host a missile shield in
Malatya-Kürecik in September 2011 as part of NATO’s missile defense
system aimed at countering ballistic missile threats from
neighboring Iran. Ankara claimed that the shield doesn’t target a
specific country . The Iranian reaction came from different centers
while General Amir Ali Hajizadeh, the head of the Guards' aerospace
division, said “Iran will target NATO's missile defense
installations in Turkey if the US or Israel attacks the Islamic
Republic. ”
Turkey’s economy is already vulnerable to Russia. In addition to its
over-dependency for gas imports and overall trade , Turkey’s first
nuclear plant has been decided to be constructed, operated by
Russian Rosatom which means Turkey’s dependency to this country will
furthen deepen. Under such circumstances and with a possibility of
increasing oil and gas prices Turkey will be more vulnerable to
Russia.
To conclude;
Arab Spring has a potential of creating a significant but mostly an
adverse effect on Turkey’s already vulnerable economy and foreign
relations.
Turkey should radically re-evaluate its foreign policy choices
together with its energy policy. It has significant indigenous
energy resources most of them being renewable. Turkey consumed 229
billion kwh electricity in 2011 while the still unused indigenous
sources offer more than 750 billion kwh. Adding the energy
efficiency recovery potential on top of this figure creates an
alternative to current import dependent energy policy.
Turkey deserves a much prosperous, independent and sustainable
future.
Ahmet Necdet Pamir
EnerjiEnergy
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