World Energy Outlook

David Gray/Reuters
Fatih Birol

Executive Director, International Energy Agency

Amy M. Jaffe

David M. Rubenstein Senior Fellow for Energy and the Environment and Director of the Program on Energy Security and Climate Change, Council on Foreign Relations

Fatih Birol discusses the newest edition of World Energy Outlook, the prospects for renewable energy, and the outlook for energy markets in the coming year.

JAFFE: OK. Well, thank you, everybody, for being here. We’re delighted that it didn’t turn out to be a bad snowstorm, so we didn’t hopefully lose some of you.

So I am here. I’m looking forward to welcome you today to the Council on Foreign Relations meeting “World Energy Outlook” with Fatih Birol. I am Amy Jaffe, and I will be presiding over today’s discussion.

It’s very fortunate for us today to have our esteemed guest to talk about trends across the energy spectrum. He’ll be talking about the latest edition of the International Energy Agency’s World Energy Outlook for 2017. Dr. Birol is the executive director of the IEA. But more importantly, he’s an honored speaker on energy across the globe, from Davos to Beijing to Riyadh. And I just want to throw out to you that he was named by Forbes magazine among the most influential people in global energy today, and I can confirm that.

So I wanted to share with you a quote from Dr. Birol’s visit to the CFR from 2008 because it was very prescient, and it’s very hard to make a prediction in oil or gas that stands the test of time, you know, a decade later. So he said: “We have made a substantial analysis, we believe, on the U.S. gas markets and its impacts. And as I say, there is a silent revolution taking place in the United States—so silent that nobody’s aware of it, especially in Europe. This is a very bad thing because sometimes when something bad happens it gets a lot of news in the newspaper, but when something good happens we don’t hear a lot about it. And this phenomenon, the boom in unconventional gas in the United States, has far-reaching impacts.” So, you know, very true. And really sets the stage, I think, for today’s discussion to think about what Dr. Birol was seeing in 2008 and what he has in his crystal ball for 2017.

So I thought I would start out with natural gas since you were so on the market 10 years ago, and here’s my question. We’re having a very cold winter in the United States this year, and natural gas prices at the Henry Hub trading exchange have barely passed $3 per million BTU. And the commentators are saying that is because our domestic supply outlook is so changed, we have so much gas. As the United States becomes a larger force in the global market, how do you think this is going to change global markets?

BIROL: Substantially. (Laughter.) It will—it will change a lot of things. The U.S. coming as a major oil producer, gas producer, and as a major gas exporter. We expect in the next five years the United States will be the largest LNG exporter of the world, in the same league with Qatar and maybe Australia. And this will have lots of implications, ranging from the trade—gas trade to the gas prices, from gas prices to the contracts, how the contracts are met, the gas contracts.

And even today the fact that there is U.S. LNG on its way to Europe makes many Europeans happy because they have an alternative to Russian gas. Now, we don’t know yet whether or not the Europeans will use a lot of American gas. But the very fact that there is a(n) alternative now to Russian gas makes the hands of the Europeans stronger in their negotiations with the—with Russia because many of those contracts are being renegotiated, the prices. Now many countries are bringing the price down as they have alternative, which is the United States, U.S. gas. So this is only one of the impacts.

The other impact is I expect in the next years—today, Europe is the largest gas importer. It is moving to Asia. In addition to Japan and Korea, China and India are emerging as major gas importers. And I think the U.S. has a very good chance, together with Australia and Qatar, to play an important role.

Now, if I can tell you one more thing here on that, you know the gas trade is made two ways: pipelines and LNG. And as of today, 60 percent of the gas trade is made by pipelines, 40 percent LNG. And thanks to U.S., thanks to Australia, this is changing substantially. And the biggest part of the growth in international gas trade is coming from LNG now. It is more and more difficult to build pipelines across the world to make it happen. So it will also change the LNG-pipeline dynamics.

And, finally, there is one very important clause in many gas contracts, especially colleagues in Asia are complaining since a long time, is a final destination clause. It makes everything rigid. And more and more, we see that this is becoming more and more flexible as a lot of LNG coming to the market. So U.S. LNG, U.S. gas will change the markets, make it much more flexible, much more market-oriented. And it is very important also for the global gas security.

JAFFE: Now, do you see that over time, as we have—more gas can move by boat and, of course, now we have new technologies where, you know, in the old days you had to have a physical receiving terminal to regasify the liquid gas that’s coming from a ship, but now we have floating regasification terminals where I could move my regasification terminal from one location to another, is that going to make natural gas more like oil? When we—next time you come to visit and we’re talking, is natural gas going to look much more like oil?

BIROL: It depends on when you invite me next time. It’s five years or next year. So, if I come next year, I think it will not be a big change, but the direction is like that. Many countries are building floating terminals. And if I can tell you something, beginning of the year 2000s—so 2001-2002—there were only 15 LNG-importing country. Now, as a result of this FSRU and all the new gas terminals built across the world, in 2020 there will be about 50 countries.


BIROL: So from 15 to 50 countries will import LNG. But we should also mention that some of those countries are opportunistic buyers. They look at the price and see if the prices are good or bad. So if the LNG prices go significantly high, they may switch to coal, they may switch to other things. So LNG has a big advantage, but if the prices go up substantially for a sustained time it may lose this appealing.

JAFFE: So, I mean, I think you raise an interesting point. I mean, one of the things we’re seeing across the energy space is a lot more substitution between different fuels—not only in the electricity sector, where we’ve already had a lot of substitution, but, you know, increasingly, we’re able to move different fuels now into the transportation sector. You have China has a big fleet of natural gas trucks that move freight around the country. We’ve all probably heard the news and read stories about electric vehicles.

So I think that no matter how you cut it, when one talks about energy today, I have to ask you the question, given all the possible technologies that are going to come that could make it more competitive with oil in the transportation sector, where do you stand, looking at the IEA forecasts, on the question of peak oil demand? Do you think we could get to a point where oil demand—you know, and the OECD has been sort of on the decline—could that be a global trend? And if so, when do you think that could start to happen?

BIROL: Now, first of all, I have to apologize to colleagues here. I am a person who gives a lot of numbers because I am a man of numbers. I don’t speak English very well, but numbers are important.

Look, we have a discussion everywhere, in Davos with the oil companies and everybody, are we seeing oil demand peaking? And this started with the discussion with electric cars at the same time. Many people say electric cars will penetrate the markets and, as a result of that, we will see oil demand will peak and we may not need so much oil in the future, and companies are a bit surprised.

So I will tell you a couple of numbers. Today, we have 2 million electric cars in the streets of the world. And we have 1 billion cars, cars, 1 billion, and out of that, 2 million electric cars. Electric cars’ penetration is very strong in some—especially in Europe and China because of, A, battery costs are declining, this is one; second, some countries are giving generous subsidies for electric cars to buy it.

So as a result of that, we are expecting a strong penetration of electric cars, China being the leader, followed by many European countries. And we expect, in the next two decades, the number of electric cars can go up to 300 million cars. This is shared by the car manufacturers, discussed with them, limited technology companies, 300 million cars—from 2 million to 300 million.

Now, does it mean that we are going to see the end of oil or we have peak oil? Our answer is absolutely not, absolutely not, for the following reason: The amount of oil we will use for the cars, in general, will decline for sure. We will use less oil for the cars, A, because of electric cars and, B, cars are becoming more and more efficient anyway. That’s number one.

But there are other drivers of oil demand, which are going to push the oil demand growth stronger. What are those? One, trucks. Two, jets. Three, petrochemical industry. And these are the three major drivers of oil demand growth.

In terms of trucks, in the last three years, about one-third of the oil demand growth came from the Asian trucks only, so the trucks. And then petrochemicals—this is very important—it means the plastics that we use in our daily lives, and also jets, and it is very difficult to substitute oil in these three areas, so it is the reason we believe oil demand growth may slow down. But it will still grow; and therefore, to say that it is the end of oil may be far too early. This is what we believe.

JAFFE: So let’s talk about sort of digital technologies and follow up on that point. So there are a couple of different ways where, even in the areas you’re talking about, you could get sort of a disruption, right? One way could be big data now and logistics. We’re starting in the United States—UPS last year eliminated a hundred million miles of vehicle miles for deliveries just by optimizing the routes for trucks and the packages that are loaded in particular trucks.

And then you have either kind of digital solutions. Suppose we move to more 3D printing, and you have goods produced closer to where they’re going to be delivered. Maybe there’s not so much volume that needs to come from trucks. So you have these sort of two, that you have that sort of competing area. But then the flipside, of course, is, you know, in the sort of delivery, instant delivery world of consumers on the internet and maybe that’s creating more demand for trucks. So how do you see the digital world? Could that possibly bring us a wild card in some of these areas, like trucks or even in our use of cars in cities?

You know, we’re supposed to go from 50 percent of the world’s population living in cities today to 80 percent by, you know, 2050. If everybody is living in a city and we start having automated electric vehicles dropping us off from place to place, does that make a big dent?

BIROL: No. Definitely digitalization will improve the efficiency of energy use substantially. You know why trucks use a lot of energy, a lot of oil? Because in many cases, trucks bring goods from point A to B, and when they come back they are empty. So how we are going to optimize the freight in the trucks is a big issue, and digitalization can well help that. This is completely true.

And we may see also major improvements with the cars where oftentimes it’s the driverless cars that everybody is talking about. But still, it is not a—we still have major drivers of oil demand growth such as, again, the trucks, emerging countries, it is the petrochemical industry, and more and more jets, the planes. So currently, we don’t have major alternatives to that. We see some pictures in the internet here and there, but the internet pictures are not enough to stop the oil demand growth.

JAFFE: Understood. OK. Well, let’s talk—you mentioned China—let’s talk about China for a moment. One of the most interesting things I thought with the current World Energy Outlook was sort of the prominent role that China plays in different kinds of scenarios, whether it’s the, you know, carbon accord scenario, or whether it’s either business-as-usual scenarios. China is such a big share now of the energy market, and the oil market specifically, that they’re really a major influence on future trends. And I know that IEA has spent a lot of time looking at the sensitivities of that. I wonder if you could shed some insights to the audience about the role of China.

BIROL: Now, China is the largest energy consumer of the world today, big time. And let’s remember, six, seven years ago, Chinese energy and economic policies were the most important drivers in the oil demand, supply demand, coal markets, and China is changing now. There is a new economic policy in China, which has been announced two years ago, but mainly in the couple of months with the China’s Communist Party Congress, and President Xi mentioned the motto we should make the skies of China blue again. It was China moving from a heavy-industry, coal-based economy, slowly but surely, to be a leader in the clean-energy technologies.

Today, China is number one in terms of solar energy in the world, number one in terms of wind energy, number one in terms of hydropower, number one in terms of energy efficiency, number one in terms of electric cars, number one in terms of nuclear power, in all these areas. And it’s great to grow, and this will have implications for all of us. I can give you two examples.

One, China using a lot of coal, and this is a major problem for pollution in the cities. And Chinese government now put a cap on that coal use, especially for heating, and switched to natural gas. So what happened is that in less than one year of time, since China bought a lot of LNG in the Asia-Pacific markets, the price of LNG went from $6 to $11. So almost doubled, just as a result of one Chinese environmental policy. But it is their right, because they want to have the cleaner air. But everybody in that region, Japan, Korea, all of them, they have to buy now $11. It will change in the next months, but this is what happened. This is what happened. This is number one.

Number two, for the United States—and it’s on the nuclear power, something—this is very important, in my view—you know, nuclear power builds has started in 1970s and then big push ’80s, after the first and second oil price shock. And the United States was at the forefront of building nuclear power plants, always the leader of the world, many years, but recently no new nuclear powers were built. There is only one under construction now. We don’t know what will happen with that.

And China today is building lots of new nuclear power plants. Of all nuclear power plants under construction today in the world, 40 percent are Chinese—Chinese are building. And—I come to the point—in latest in 10 years of time—and if you invite me in 10 years, I will then check again, right or wrong—China will overtake United States as the country who has largest nuclear power capacity in the world. And this is something very important. China will be number one, United States will be number two, if the governments don’t change their policies.

And what are these implications of that? Implications are very simple. One of the challenges nuclear industry are facing in the world is today—one is the public acceptance, the second one is expensive to build it, as you very well know. But Chinese, building a lot of nuclear power plants, bringing the cost down—because there is a concept in economy, learning by doing. They do it. And Americans are forgetting by not doing, so this is the other thing. And the Chinese bring the cost down. And I wouldn’t be surprised if China, and maybe also Russia, will be now new nuclear technology exporters to the other countries in the world—it can be in Europe, it can be emerging countries—replacing established nuclear technology exporters such as U.S., such as France, Germany, Korea, Japan, and others. So this a very important development with all its implications.

JAFFE: And do think that that will—I mean, I know there are new technologies, and some of the new technologies are a little safer in terms of proliferation—


JAFFE: I mean, does it matter geopolitically that we have maybe different policies or attitudes on proliferation in terms of the overall spread of the nuclear market over time?

BIROL: I think all these countries we talk about are members of International Atomic Energy Agency. I’m sure they play the game in line with the international rules and regulations.

What I’m more—I want to more emphasize is that the technology which has been developed in United States and in Europe is now not any more used here, but is going to other countries. It would be good if not only China but other countries who consider nuclear power as a reliable source—the people and the governments—make use of that.

But it is very difficult in the U.S. and elsewhere building the traditional nuclear power plants. Perhaps a way out would be to look at the small modular reactors there. The small nuclear reactors would help to mitigate the risk of project management—this a major issue—as well as the financing would be a bit easier.

JAFFE: Right. Well, I mean, I think nuclear is sort of an interesting example, but you can sort of go across the spectrum to other technologies, as well, when you think about the Chinese impact. China is making a big push in batteries, for example, and, you know, some people say the same way that China decided to make a push to meet the German market and demand for solar panels, and that caused this, you know, huge collapse—70 percent—in the price of solar panels—some people are speculating that now that they’re going to make this push in batteries for cars that you might see the same collapse in battery prices, which would really bring us back to our original question about the competition for a—between electricity for cars versus oil.

So, I mean, it’s an interesting question. Do you see China becoming the technology leader?

BIROL: Yeah.

JAFFE: Does Silicon Valley have to be concerned that China is going to overtake them in terms of clean energy technology?

BIROL: I think I cannot make a political statement here, but when I look at the numbers, today China is definitely in front of many industrious countries. Solar panels: today—first of all, let me tell you that last year, in the world, of all the power plants built last—installed in the world, 51 percent was solar, 49—other half was the wind, plus hydro, plus coal, plus gas, plus nuclear, plus oil—49 percent, and 51 percent solar. By far more than half of it comes from solar. And where did the solar panels come from? Six out of ten solar panels today manufactured in the world are manufactured by the Chinese companies. But again, an answer who is leading the game.

And when you look at the—when you look at the history, the solar in the beginning was subsidized or pushed by the European countries, many European countries, when they were expensive, but China successfully took it over and brought the price down—again, economies of scales, learning by doing—and it is, as you mentioned, much cheaper. The price of solar—the cost of solar in the last three years is halved, and we expected in the next years—next three years there will be another halving of the price. But I don’t know any good that the price is halved so quickly in three years of time.

JAFFE: So I’m going to make—I’ll make a little statement, and then I think we can open it up to the audience. I’m sure they have a lot of interesting questions and thoughts they’d like to share with you.

But let me just make this statement. I mean, it’s interesting what you are saying about China and their spending to dominate in these markets. And, you know, we talked earlier about the fact that different energies are becoming competitive with each other, and the competition among different fuels is expanding, even in transportation.

So if you think about the Trump administration’s policy of energy dominance, it could wind up that the United States is going to be exporting natural gas, and that natural gas could wind up competing with Chinese solar panels, and battery storage and other kinds of renewable energy, and not just Russian gas.

BIROL: Yes, you are completely right. There can be a lot of competition between the fuels, technologies, and when I look at it from U.S. point of view, one of the, in my view, most important changes—transformative changes in the world today is that U.S. set to become the undisputed leader of oil and gas for many years to come. And it will change a lot of things: prices, the contracts, geopolitics of energy, foreign policy that you are an expert on. So many, many things will change as it changes in United States, as we have—as you said—ten years ago predicted. It is happening and now, looking at the next ten years, the issue is how United States will make the most out of it for its people, for this economy, but also, hopefully, for the rest of the world.

JAFFE: Well, that’s very interesting food for thought.

So I’m going to, at this time, invite members to join our conversations with their questions. As a reminder, this meeting is on the record—we are webcasting.

Please wait for the microphone and speak directly into it. Please stand, state your name and affiliation, and please—I know it has been such an interesting conversation, and we look forward to getting your input, but let’s limit yourself, please, to one question. Keep it concise so we can allow as many members who are here with us live to speak.

Young lady here in the middle.

Q: Hi. Seema Mody with CNBC.

I wanted to get your perspective on the upcoming Saudi Aramco IPO and your thoughts on how this could potentially change the energy investment landscape.

BIROL: So one of the things, as the head of the IEA, I cannot talk about the company’s performance. But I can tell you a bit what I think a major challenge I am seeing for many oil-exporting countries: their vulnerability vis-à-vis the change in the oil markets—I imagine the U.S. is coming big time—plus the technological changes is increasing. Because many countries—oil-exporting countries’ economies are single-product economy, and we have seen that many of them have suffered when the price went down. Saudi Arabia for the first time in the last 15 years had a recession, an economy like Saudi Arabia. So, therefore, it is extremely important, in my view, that the countries, the single-product economic countries, are broadening the economic base, making the energy system much more market-oriented, and diversify their portfolios. In that context, the steps that Saudi Arabia announced that they are going to carry out is very important, including Saudi Aramco’s efforts that you have just mentioned. It will be—definitely if it gets carried out, it will be good news for Saudi Arabia. But when it happens, how it happens, and under which conditions it happens I don’t know.

JAFFE: OK. Gentleman in the front.

Q: Tim Ferguson with Forbes.

Your energy outlook material on page three indicates India as the most significant source of or the fastest-growing source of energy demand in the next generation. Could you speak specifically to the implications of that for the various supply sectors that you mentioned?

BIROL: Thank you very much. It is also, I think, two years ago, 2016, we said here again in this very chair that India is moving to the center stage of global energy affairs. Why it is happening? At least for two reasons. One, Indian economy is doing very well. The GDP growth, 7 percent plus—7 percent plus and very stable growth. And the second thing is, in India, more than 200 million people have no still access to electricity, and the Modi government is very keen to bring electricity to all of its citizens. So there we see the Indian economy’s growth—energy system’s growth impact on the global energy system.

Coal, number one by far. China is keen to reduce its coal consumption, whereas in India we see an increase. It is coal—and India is a significant coal importer.

Second, we see in terms of the solar markets.

And third—this is important, in my view—as a gas importer. Today in the world, 150 countries around the world, they use—about 25 percent of their energy comes from gas, on average, the global energy mix. In India, it is only 5 percent. There is a big gap there. And I think many countries are very keen to export LNG to India, countries in Asia, also this very country. And I see a very strong basis to India making more use of LNG, especially, once again I come to the point I mentioned, if we don’t see price spikes in terms of LNG. Qatar has a big appetite, and they have already some agreements. But I think Australia, the United States, and others, there’s a big room there. And I know that the Indian government, which we work very closely, is keen to make more use of gas in their global energy mix.

So India’s coming for you strongly. And also, in terms of oil demand, India’s oil demand growth is now very close to Chinese oil demand growth.

Q: Hi. Daniel Jaffe with Cornerstone Macro.

I was wondering to see your comments on the economic, say, crisis in Venezuela right now and how it’s going to affect the global backdrop for oil.

BIROL: Thank you. Now, when we look at this year, as I look at the global oil markets, we see a market more or less balanced, market 2018. When we look at the demand, non-OPEC supply, the biggest growth of the supply comes from the United States.

But I see two possible surprises in the oil markets this year, likely surprises. Can the surprise be likely or not? I don’t know, but there can be two surprises.

One, we may well revise up our U.S. production growth once again, especially if the prices remain at this level—$70 Brent, $65 WTI. If it stays at this level, we may have to revise our U.S. oil production, shale production once again, in line with what I said before.

The second surprise may be from Venezuela. Venezuela oil production is in a very dramatic situation. Mr. Chavez came to power 1999 or 2000, I don’t remember exactly. In 1999. And from that day to today, Venezuelan oil production is halved. This is—it’s amazing. And I’ll tell you one more number: Only in the last one year, Venezuelan oil production declined by 500,000 barrels per day, half a million. And this is—in the history of oil, this is the largest unplanned decline of oil. So some—Saudi Arabia has planned to reduce oil production. This is OK. But this unplanned decline in the history.

And when we look at Venezuela, when we talk with the people working over there, there is almost no activity. No rigs. No financing. Decline rates are very steep. So we may see a surprise from Venezuela, even further declines. And this may be, first of all, not good for the markets, but more importantly not good for the Venezuelan people and the Venezuelan economy.

JAFFE: And, Dr. Birol, can I follow up on that question? I mean, do you think, given the balance in the oil market today, and your outlook that you see for the year in terms of demand and economic growth, if something else—if we have a problem in Venezuela and then something else goes wrong, could we see a very volatile market this year?

BIROL: I think I already expect this year and the next years to come volatility is the name of the game in the oil markets now, because our colleagues in the producing countries, in OPEC and as non-OPEC come together, make decisions, some of those decisions lead to price increases. But these price increases will lead to increase of production of U.S. oil, which will mean putting downward pressure on the prices again. More and more volatility, so we have to position ourselves to have a(n) oil market in the next years to come with lots of volatilities, even if there are no geopolitical events, as you mention. If they come on top of that, it will be definitely much more volatility.

Q: Gerald Pollack.

How is the outlook that you portray here compatible with the goal of 2 degrees Centigrade by the—increase by the end of the century?

BIROL: Thank you very much, sir. The current trends we have worldwide bring the global temperature about 3.6 degrees Celsius temperature increase. I don’t know how much this makes for Fahrenheit, but 3.6 degrees. And this is significantly higher than the 2 degrees which the scientists tell us is the level or the threshold to have a planet as we have today, that the really fragile equilibrium of our planet is not disturbed. So if we want to keep the 2 degrees, we should—we should use our energy much more efficiently, making much more use of renewable energies, in my view making more use of nuclear power, and also other technologies. But today, when I look at worldwide whether or not we are in line with the 2 degrees trajectory, I shouldn’t be telling the truth that we are in that—going in that direction. Unfortunately, trends are not showing that direction. We are overshooting.

Q: Hi. My name is Michelle Brouhard.

My question is, is—last year and over the last couple of years, we’ve seen demand growth—oil demand growth around 1 ½ (million) to 2 million barrels a day. And I’ve noticed that there’s been a lack of refining capacity expansion throughout the world. It looks like we’ve seen—we’ll have a dribble in at the end of ’18 and maybe a little bit in ’19. But if we continue to see large demand growth over the next several years due to—due to lower prices and a lack of investment because of everyone thinking that the end of oil is here, what do you think that that’s going to mean for oil prices and oil product prices going forward and what that could do to expedite the renewable—the renewables going forward?

BIROL: Now, we think that the oil prices in the current context we have, in the next few years, there is no expectation, unless there’s a geopolitical event and so on, to go very, very strongly up. Having said that, there is one risk I see, which is the following. 2014, ’15, and ’16, the investments for upstream oil, for the production of oil, declined. We have never seen in the history of oil that the oil investment declined three years in a row. If there was a decline one year, the next year there was a rebound. So three years’ decline to ’17, the best is it is flat. So we didn’t invest three years, or we invested very little, and 2017 we’re flat. So around 2021, 2022, we may well see that we may have a gap between the demand growth and the investments which are not carried out.

I would like to attempt to bring one important concept here, which is a concept that I was not able to communicate, I don’t know, many years, which is very, very important. It is the following. When we make new oil production, it is not only to meet the demand in the oil demand growth, but, more importantly, the fields we have, oil fields we have are in a decline. Oil fields are like human beings. When they are young, they go up. (Laughter.) It is—OK, I should stop here, you think? OK, they go up and they always go up. When they go up, they come to a certain peak, and when they age they start to decline. And this decline is a natural decline. And in order to compensate this decline, we have to make also new oil production just to stay where we are.

Every year, we are losing 2 million barrels per day of oil because of the decline of the existing fields. So if we have 1.5 million barrels per day of demand, it means each year we have to bring oil about 3.5 million barrels per day to compensate the decline and to meet the oil demand growth. Therefore, the investments which were not carried in a sufficient manner in the last three, four years may well provide some surprises, some gap in the next few years to come depending on the investment trends we have in the next few years.

And the amount of oil that we have discovered last year was the lowest in the last 40 years. Why? Because the exploration investments are very, very low. Companies won’t invest in exploration. If you—I mean, you find something if you look for it, in most cases. So we didn’t look for oil and we didn’t find it; therefore, discoveries are very low. So these are some trends, which is—which may well provide a basis for some supply gap beginning of 2020s unless we see major investments coming in the next few years.

JAFFE: Now, could part of that be that companies are using their capital very strategically to produce the oil they’ve already found because there’s this mindset of the end of oil, so maybe it doesn’t show quite as much about geology or investment as more than maybe more strategy?

BIROL: There is strategy. But at the end of the day, investment is not made.

JAFFE: Right.

BIROL: So their strategy, they go for the short-term projects, making profit out of that, but that the long-term, big projects are not carried out.

Q: Steve Hellman, Energy Impact Partners.

Dr. Birol, thank you for all of your insights. In your handout, at the end, there’s a notion that we could be on that much more CO2 reduction path for an extra 15 percent invested in energy infrastructure over the next 30 or 40 years. My question is, how is that tracked dynamically? In other words, what was that number last year? What was the number the year before? What was the number the year before that? And, you know, given the changes in solar, I mean, you saw, you know, 51 percent of new generation last year was solar, the year before that solar and wind were the majority. I mean, it’s really sort of become the generation option of choice in some measure, not because of policy in many, many, many places in the world, but because of economics.

Do you see, between renewable energy, the declining costs of renewable energy and the declining costs of storage and so forth, do you see a scenario where it’s not a 15 percent premium? Next year, when you do that analysis, might it not be a 10 percent premium and then the year after a 5 percent premium, and then maybe there’s even a discount at the—you know, as these technologies develop?

BIROL: So it is also another very good question. So there are two factors there, whether it will be cheaper or more expensive to reach the climate targets. This is it, I think, in a nutshell. So certain technologies, such as renewable technologies, are becoming cheaper. Solar, onshore wind, more and more offshore wind, and some of the efficiency technologies are becoming cheaper; and therefore, this is one good thing which will bring the cost of reaching climate targets downwards.

However, there is another factor which goes the other way around. Namely, many countries, especially in Asia, carrying out some infrastructure projects which are locking in the infrastructure debt. In the—in Southeast Asia, about half of the—first of all, about 80 percent of all power plants are coalfired power plants, but half of them are very primitive coalfired power plants, so their efficiency rate is very, very low. And if you build a coalfired power plant, it is such a primitive one, its lifetime is about 40, 50 years that you lock into before it pays back. To shut them down is very costly.

So therefore, we see two trends: One, the renewable side becoming cheaper. At the same time, there are all of the investments, the infrastructure projects, which are locking in in the countries’ energy system, and it will be very difficult or very costly to shut them down before they pay their money back. Two different trends. So I cannot guarantee, therefore, that next year when we come here it will be not 15 percent, but 14 percent.

Q: Hi. Val Smith with Citigroup.

And I’m going to build on the previous question, actually the last two questions about the Paris Agreement where I was, like, that was the question I was thinking. And it was eloquently expressed.

So sort of building on this discussion around the 2-degree ambition, the 3.6-degree business-as-usual trajectory, are there certain indicators that you think we should be looking for to see if we hit this tipping point more quickly than we expect? For example, would it be an existing technology, a new disruptive technology? Would it be something completely different, like increased transparency around air pollution and everybody walking around with their phones in a particular city? What are a few things you think we could scan the horizon for?

BIROL: So, now, first of all on technologies, second on the countries.

When we look at the technologies, we do not have much time to change the trends. It will be what we say in Paris Agreement, is that 2020 it should peak, the emissions around 2020. 2020 is only two years of time, and it will be very difficult.

But good news is renewables. Another good news is energy efficiency. They are going very strongly. But we are still using a lot of fossil fuels.

Let me give you one example. Today I gave this number to secretary-general of U.N. I don’t know if anybody remember, there was a former Norwegian prime minister, Brundtland, Madam Brundtland. She made the report, and she—for the United Nations, which is the term of sustainability for the first time put in place. And when she made this report, the main idea was, among other things, bringing the share of fossil fuels down, 1987. In 1987, when this report was made, the share of fossil fuels in the global energy mix was 81 percent, 8-1. So 30 years ago. Thirty years’ change, renewables became cheaper, governments changed, technology improved, this and that happened. Today, after 30 years, the share of fossil fuels in the global energy mix is 81 percent still, OK?

So why I’m saying this? There is one technology which is still not commercialized in big terms, but because of this fossil fuel use we have it’s very important, critical, is CC—carbon capture, utilization, and storage. This is extremely important technology that that IEA is working very strongly with several governments, including the United States, Norway, U.K., Australia, China, and others. We have to push that one.

And finally, I should say one technology is—for me I mentioned several times is the nuclear power can be part of the solution in countries—countries accept this.

In terms of which—how we can get more developing countries onboard, in my view, we have to have more empathy with the emerging countries, because their most pressing environmental problem is not climate change. It is air pollution. So it is the reason why we have—in this outlook, we brought the air pollution, climate change together, and what kind of policies we can build. And to be honest with you, we have received from many emerging countries lots of good reaction. So we have to have a much more—our environmental policies should have much more empathy with the emerging countries, what the major concerns are in India, in China, Indonesia, and others. This is air pollution today. So we have to find policies which can bring both of them together.

Q: Thank you for your insights. John Sakowicz, “The Truth About Money,” KMEC radio. I’m also a former energy trader at J. Aron.

My question is this, Doctor. Why don’t you think alternative energy exchanges like the Iranian Oil Bourse on the island of Kish have not taken off and the NYMEX has a virtual monopoly on energy futures trading? And are you satisfied with the liquidity in those markets? Thank you.

BIROL: Am I satisfied or not is (subjective ?). I think it is a very—the level is good, but it could be even better.

Why NYMEX work and the others didn’t work is very simple: Because the instrument, the mechanisms established in this country was much better than the other attempts across the world. And there are also even attempts to—not to use U.S. dollar, but other currencies in the oil trading. These are attempts that come and go, but I believe it is a—the U.S. dollar is a very established currency in the oil trading. It will be with us for many years to come, in my view.

JAFFE: We’ve exhausted the audience? There.

Q: Hi. Rodney—(off mic)—Capital.

So about 15 years ago we had a pitch in Wall Street from a guy that was raising money to do miniaturized nuclear power plants, with the familiar concept that if we had more nuclear we’d have less pollution and we’d have a better chance of meeting climate change things. And he said, well, you know, we’ve been having this for 60, 70 years, nuclear power plants miniaturized on things like Navy submarines and now carriers and so on. Why didn’t this take off? Why the opposition to something that’s much less dangerous, much easier to deal with? Nuclear waste, obviously, doesn’t stop us from having nuclear submarines. Why didn’t this technology, which is right there to use, get developed? And will it help all of us?

BIROL: I am not a big expert on that, but my feeling is that there were safety concerns in many countries, whether or not it is safe enough, whether or not it is something that they are able to deal or not. And since the regulatory framework was not there, I think they were hesitant to go into that.

Having said that, I should say we deal with nuclear waste, you say, but many countries’ hesitation to go for nuclear, or leaving the nuclear and phasing out the nuclear, is also driven by their concerns for nuclear waste, especially in Europe.

JAFFE: Let me—let me circle us back thinking about that, whether nuclear or some other technology is really going to solve the air pollution problem. You know, some of the work we’ve done has looked at the role of urban policy towards automobiles. So you have some cities in Europe that are starting to ban automobiles altogether from certain sections of the city, or you’re having some countries or cities declaring that they’re not going to allow a combustion engine, that if there’s going to be a vehicle it has to be a clean fuel. And some of that, frankly, if you were to make it a big trend, is actually more powerful in terms of peaking demand and lowering climate emissions than some of the other things we’re used to talking about. So do you see cities going in the direction of hitting transportation as a way to address air pollution? Or when you talk to countries that are really, you know, battling air pollution, they’re looking at other kinds of solutions?

BIROL: I think cities are leading across the world, and they are—like our colleague mentioned here, their main driver is to have a better quality of air in the city. But at the end of the day, it also helps to reduce the emissions.

But these are good measures, but to solve this problem require(s) much bigger and collective efforts. And again, I come to China here. China introduced an emission trading scheme recently, and this will have serious implications for the Chinese power sector. It will favor renewables. It will favor nuclear power. It will favor other low-carbon technologies.

In Europe, the carbon system is not working very well, but they are also going to reform it to give it—the price signal, in my view, is the best way to move the technologies in this or that way.

JAFFE: Well, I’m going to leave that as the last word, that even here in the United States we need to think about how to properly price carbon pollution.

So we want to thank you all for joining us. I want to thank Dr. Birol for some very interesting discussion. (Applause.)

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