World Energy Outlook 2010

Wednesday, December 1, 2010

Fatih Birol, chief economist of the International Energy Agency, speaks about the four major components shaping the current World Energy Outlook: oil, natural gas, China, and climate change.

PETER C. GOLDMARK: Good evening, and welcome to the council, those of you who are not often here, and welcome everybody to the last month of the first decade of the 21st century.

Our economic prosperity and very possibly the survival of our civilization depend upon the quantities and kinds of energy we generate and consume. And that's one of the reasons that the annual World Energy Outlooks prepared by the International Energy Agency, are carefully and widely read by virtually everybody.

Who prepares these documents? Who is responsible for synthesizing the influential judgments and findings they contain?

The answer to that question is, Dr. Fatih Birol does, and we are fortunate to have him as our guest this evening.

Dr. Fatih Birol is the chief economist of the IEA. He was born in Ankara, educated in Istanbul and Vienna. Now, you may think that having gotten an engineering degree in Istanbul that he set off for Vienna to do more engineering or to enter the recondite world of energy economics. You would be wrong. He went to Vienna to make movies. He made documentaries.

I hesitate to say this in such august surroundings, but he made romances and dramas. He couldn't make it work for him in the Vienna Film Academy, which he found a little stuffed, a little tight. And a friend of his told him one evening -- I'm picturing this in a Viennese cafe with a string quartet playing and a little kaffee mit schlag on the table -- the friend says, there's a scholarship open in energy economics.

He applied, and he tells me he got the scholarship the next day. And the rest is history. And he knew as soon as he got into it, as soon as he started writing, that this was what he was meant for.

He has been with IEA now for 15 years, which is unusual, those of you familiar with how the IEA staffs itself and the rotation policies.

I've asked Dr. Birol to talk about one other thing. If you're like me, you always want to know what a name means. And I do want to put you on your guard. I understand this was not explained last year that Fatih in Turkish means conqueror. Forewarned. (Chuckles.)

I've asked Dr. Birol to talk about the global energy outlook for 15 minutes or so, and then I will put a few questions to him and open the session for general discussion.

For those of you who come often to council, this is probably a little earlier in the program than is sometimes done, from the few of you I know, this is a knowledgeable audience, and Dr. Birol is very comfortable with give-and-take. When you do ask your question or make a comment, please identify yourself. We are on the record this evening. And therefore, go at it freely and fully.

So Fatih, I want to give you the floor to talk about the world of energy and all its aspects and dimensions as you see fit.

FATIH BIROL: Okay. First of all, thank you very much for this kind and generous and frank introduction. I didn't know that you would tell everything that we talked earlier -- (laughter) -- but very nice.

Now, I thought -- the book is about 700 pages, there are lots of numbers, lots of analysis and so on. I picked up four topics or four highlights that I would like to share with you -- at least the ones that I thought are crucial and have a strategic importance. One on oil; the second one is on gas; the third one is on China; and the fourth one is on climate change. Oil, gas, China and climate change, a couple of words on each of them.

First of all, on oil. Our analysis on oil tells us that the age of cheap oil is over and forever. When we look at what kind of structural changes happens on the oil consumption and what will that mean in the future, and when we look at what kind of changes are happening on the production side of oil in terms of the -- (inaudible) -- in terms of the growing share of national oil companies, I can easily say that, if there are no major new policies coming from the consuming nations, moving from an oil-based system to an electricity-based transportation system, I think we will see higher prices.

I was lucky enough to be invited here five years in a row. And in three years ago when the price was $60, my expectation was the prices -- at that time, I said this is low, prices will go up. And still today, we are at $86 as of now. And I wouldn't be surprised when the global economy recovers, we will see higher prices even from now.

And I think this is a very important indicator for many things from the -- for governments, for industry, for private consumers like the car drivers. And when we make our plans, this is the first thing, and the high oil prices will be with us for some time to come.

Second, on natural gas. I don't know if you have colleagues here who were here last year when we talked about the outlook. There was a major analysis about natural gas. And what I said or we predicted at that time, that there may be a natural gas glut. And what we see today is -- there's a natural gas glut, all supply of gas, and moreover, I think this will be with us for many years to come, looking at the supply and demand trends in North America, Europe, Asia Pacific, it may be with us some 10 years if there are no major surprises, positive surprises in terms of unexpected economic growth boom, especially in Europe and elsewhere as a consumer.

So what does it mean, 10 years of a lot of gas in the markets? It means the LNG gas as a commodity will be cheap. This is good news for many of us. But for the gas exporters, this is not necessarily very good news, especially the biggest one.

Why? Because of the following, and this is what U.S. did -- in fact a very good service for Europe for a change. Namely, what happened is the following. Since U.S. doesn't need to import gas anymore, there's a lot of LNG in the markets. And up to now, many European or Asian countries had long-term gas contracts which are indexed to oil prices. So when the oil prices went up, gas prices at the time followed the oil prices, which was, with an increasing oil price projected, which was bad news, really bad news for many gas importers.

But now in the new long-term contracts, more and more we see that there are more creative formulas, not only linked to oil but the LNG and other market instruments are there, which makes the hands of Europeans and Asians much more stronger vis-a-vis the gas exporters; it is changing habit. And this is the start of the change with the new contracts.

The second implication that turned into an unintended consequence, energy markets, the fuels compete with each other. And when they compete with each other, there are advantages and disadvantages.

Cost is one issue. Environmental performance is another issue. Convenience is another issue. And I see that the gas being cheap, in terms of environment, a good performance makes the life for some other fuels difficult, starting with renewable energies. In many countries I am visiting, I see that governments, most of the time have huge budget deficits, have difficulties to continue with generous renewable subsidies. In Europe, there are many, many cases.

And on top of that, when a natural competitor for renewables, namely natural gas, becomes cheap, not bad in terms of environmental performance comes up, this makes the life of renewables difficult.

And plus, there are some other technologies which we wanted to see coming, such as carbon capture and storage, a promising technology, but still promising and the cost is high, and a lot of gas in the markets and cheap, and the expectation of staying there for some time, leads many countries losing appetite for carbon capture and storage for coal at least.

So this is the guess, and guess may change the picture substantially in the future, especially if we see a similar success to U.S. in terms of gas in some other countries, and my potential here, just as a speculation, is China.

It may not be necessarily shale gas. It may be shale gas or coal bed methane or something else. But wait and see, we may see something from China. Australia is coming with the coal bed methane, many projects there. So we may see some unconventional gas coming.

So this is the second point, oil, and second one is gas.

Third, China. If the emerging countries altogether will shape our energy and climate future when you look at the growth, where will the growth come from? From emerging countries. If you ask me, there are five countries which will be the drivers of energy demand growth and CO2 emissions: China, China, China -- (scattered laughter) -- India and Middle East. So -- and those are in order of magnitude. These are the main five drivers of the energy demand growth.

In terms of oil demand, about 60 percent of the growth in global oil demand will come from China only -- 60 percent from China only. And yet, this is very well justified when you look at a couple of numbers.

Today in U.S., 700 persons out of 1,000 persons own a car. In Europe, 500 out of 1,000. In China, only 30 out of 1,000 own a car. And in 25 years of time, when China becomes a huge oil importer with all its consequences on the oil markets, China's car ownership in 25 years of time will be only 240 persons out of 1,000.

So China will be about one-third of U.S. of today in 2035 when it becomes a huge oil importer with all its consequences. But it is well justified when you look at the U.S. example or European example.

About 60 percent of the CO2 emissions will come from China only. So whatever decisions will be taken in China will affect all of us substantially, because they are so big, it will affect all of us, a miner in the United States, a car manufacturer in Europe or a renewable producer in Denmark.

There's another part of the China story, which I think is also very important to note. All of us are aware of China's growing importance on the commodity markets and CO2 emissions, but there's other part of the coin. Namely, when we look at our projections here in this book, in terms of the growth in clean energy technologies, China becomes number one in all of them in terms of capacity additions -- solar, wind, nuclear power, advanced car technologies such as electric vehicles -- bulk of the growth will come from China.

What does this mean? This means at least two things or two indications. One, there is a concept in technology or in industry, learning by doing. The more you do something, the better you do it, in most cases, and the cheaper you do it.

When China brings so much wind, solar, advanced car technologies in the markets, they will bring the cost of production down of all those technologies, which is good news for everybody because while we have the problem of having stronger penetration of this clean energy technologies because they are more expensive compared to traditional ones. But China, by bringing the cost down through putting a lot of these things in the markets, therefore in the world, they can bring the cost down and provide a service to the rest of the world. Unintended or intended consequence, but this is good news for all of us, lower costs of clean energy technologies.

But there is other problem or there's other implication, I should say. Namely, as I said, for example, in terms of electric cars, when you look at the Chinese programs compared with the U.S. or Europeans and others, there is an order of magnitude of difference in terms of seriousness and in terms of strategic planning.

China brought the car manufacturers (inaudible) -- providers, intermediate equipment producers and all of them together, give the finance, put the subsidies and make it strategic. And won't we be surprised if China becomes the champion of advanced car technologies in 20, 25 years of time.

And what does this mean? This means, if China becomes a champion, the current champions will not be the champion anymore. They go to the second division. And this means, for example, in OECD countries today, about 3 percent of the GDP comes from car industry. In Europe, where I live, about 8 percent of the employment comes from car manufacturing. So this will have implications, China's role, growing role, in these clean energy technologies, on the current technology leaders by losing their share. And beyond energy, it will have implications for trade and the general industry picture.

After highlighting oil, gas and China, my last point here, and I will finish with this, climate change. Last year, I was very enthusiastic when I was here to provide you what needs to be done in Copenhagen so that we can limit the temperature increase 2 degrees Celsius, what needs needs to be done in the energy sector.

Energy sector is key. About two-thirds of the emissions come from energy sector. So it means if we cannot find a solution in energy sector, if we cannot transform the energy sector, no chance whatsoever we have a meaningful solution to climate change.

But we did fail in Copenhagen -- we did fail in Copenhagen -- to have a legally binding agreement. And there are many -- after the Copenhagen meeting, there are many pledges, targets submitted by the governments to the United Nations. Most of them are rather vague, very difficult to understand, on purpose or not, at targets. And the lack of ambition is very, very apparent.

And now, where we are today, when I look at after one year, where we are with Cancun and next year South Africa, the -- (inaudible) -- meeting. On one hand, I look at this issue, on the other, I look at what is going on in the energy sector, all the investments are being carried out without taking climate into consideration. Nothing will ever -- this is the main thought that I can easily say, unfortunately that we are only a few inches away to lose our chance forever to fix the climate problem, because there is and there will be a lot of lumped-in investments. And it will be very difficult to return, make a U-turn from those investments in the next few years to come.

If you -- (inaudible) -- today, it will be with you 50, 60 years. So this is where we are with the climate change. The situation is not very bright. And to come to 2 degrees, to limit the temperature increase 2 degrees Celsius, is getting out of reach. And as I said, I believe we are only a few inches away from that.

So this is the fourth point I wanted to make after oil, gas, China and climate change. And I will be very happy to discuss further.

GOLDMARK: Thank you very, very much. Oh, I have 100 questions, Fatih. Let me start with just one or two.

One of the things that struck me in the Energy Outlook this time around is how sharply different the outlook for demand was. And yet, at the time of the last one, we already knew we were going into a global recession. So the numbers sound small, but to go from two to a little over one is actually quite a change in course. Can you tell us a little bit? Am I wrong to see that as a large change, given that even in 2009 we saw the recession coming? What -- just talk to us a little bit about that change in demand.

BIROL: Change in demand, what is going on is that in many countries now, we see new policies are put in place. And what are those countries? I can say at least three, four countries; namely, China, Europe, little bit India and little bit United States. And to be fair, except for Europe, the new policies put in place in terms of efficiency, renewable energy standards and measures, a bit of a push of nuclear power, especially our side of the OECD, these are -- except for Europe, these are driven by energy security concerns rather than climate change concerns.

And they have slightly to slow down the energy demand growth, increase a bit the share of renewable energies, increase a bit the share of nuclear energy, but still fossil-fuel dominated. Plus, we are a bit more optimistic on the penetration of natural gas throughout the world.

So these are the changes. But for me, the most important change is with the penetration of Asian economies in the global economy, how strong have they become in the total energy demand structure and that they are going to dominate the game.

So these are some changes. But the main message doesn't change. We are heading towards an unsustainable energy future, a, in terms of climate change, and, b, in terms of oil markets.

GOLDMARK: And you certainly put that to us very starkly this evening.

If you were to -- this is hard to ask you to do -- if you can step outside a minute your IEA role, and let's say you were a graduate student in a university, looking at the situation as you've described it, is the implication of this report in terms of climate change, or is it not -- this is the way I see it, and you seem to have confirmed it -- is not the implication of this year's outlook report that we are on a track that will lead most likely to climate disaster, the present track?

BIROL: Yeah, definitely so. We are going to -- I mean, the present track is bringing us in an optimistic interpretation of the Copenhagen results, brings us, Copenhagen, to a temperature increase of 3.5 degrees Celsius This is the optimistic interpretation. And you don't need to be a climate scientist, which I am not, but I know many climate scientists say that this would have drastic, damaging effects for sea levels, availability of water, migration, species and all of these things.

I'm sure there are people, our colleagues here who know much better than me. But 3.5 degrees is not tolerable, but we are heading there if we are lucky. And this 3.5 degrees is based on after Copenhagen, these intentions, these submissions, these pledges and targets.

For example, United States would make a substantial reduction in CO2 emissions about 8 percent compared to the 2005 level, a reduction. So this would be part of the 3.5 degrees Celsius trajectory, which I think is not terrible, but this is where we are heading. So dramatic effect for all of us.

So perhaps the time comes we are not only -- we shouldn't only focus on the mitigation options if the things go like this, we should look at other options as well, how we deal with the climate change issue.

GOLDMARK: I'm going to ask one more question and then throw it open so that you can prepare yourselves.

This is a question about a topic which is not normally the headline topic in these annual reports, but it's a topic that Dr. Birol has helped to put on the IEA agenda, and that is the question of energy access, also known as energy poverty.

Tell us a little bit about where we are around the globe in the effort to give energy access to those who don't have it. And again, if you would, where the present track will take us in that regard.

BIROL: First of all, let me tell you gladly that this energy access issue, when we released the report, became a headline in New York Times and (IHT ?) that you run sometime ago. So this is --

(Cross talk.)

BIROL: I know, especially five years ago, it was even better. So this is definitely an issue that the energy community doesn't pay enough attention.

What is the issue? I can tell you. The issue is the following. Today, 1.4 billion people, about 20 percent of the global population, they do not have access to electricity. Sub-Saharan Africa -- we have two problematic regions, Sub-Saharan Africa and South Asia, India, Pakistan and Bangladesh.

What does it mean not to have access to electricity? It's not only that you cannot read your newspaper, but you cannot keep the medication for your children in the refrigerator. This is a series of things. And this is a big imbalance. It is so unfair. The amount of electricity consumed, used in sub-Saharan Africa where there's 800 million people live, the amount of electricity used by 800 million, is equal to electricity used in New York.

GOLDMARK: City or state?

BIROL: State. But still, it's a big, big, big, big, big inequality here. And we have calculated that to fix this problem is very easy, because most of those people live in the rural areas and they have access, in many cases, to renewable energy sources. And with very little investment, we can bring energy to those people and change their lives completely.

Now, you are right, we are -- at least six, seven years, we are pushing this agenda, and we are very -- now, there is a growing interest in that. But many people ask us, if these people, 1.4 billion people, if they have access to energy, wouldn't it even aggravate the climate change problem using a lot of energy and CO2 emissions and so on?

And this became a major discussion point in the international energy policymaking forum. But we have calculated that even if all those 1.4 billion people would have access to energy -- electricity, I should say -- the global CO2 emissions would increase only 0.8 percent. It's completely peanuts.

Why? Because the amount of energy they use is very small, very small quantities. And second, in most cases, they will have access to the cheapest sources, renewable energy sources.

So as a word, we do not have any excuse, to be honest with you, not to have some international concerted efforts in order to give some help to those countries, of course, together with their own domestic efforts, to bring electricity to 1.4 billion people in Africa and in South Asia. So this is one of the point that we have, as you said, highlighted in the outlook.

GOLDMARK: Thank you.

We turn now to you. Please remember to identify yourself.

Yes, sir.

QUESTIONER: (Off mic.) My name is -- sorry. My name is Timothy Reuter, and I'm with Development Transformations. I was wondering, what are some of the technologies that you're following as potential game changers? And how long do you think it'll be before those technologies start having an impact?

And I'm going to cheat and compound this. What was the favorite romance movie that you made? (Laughter.) Thank you.

GOLDMARK: You don't have to answer every question.

BIROL: (Chuckles.) Okay. So I don't know which one is more difficult of those, technology or the romance.

Now, I see two technologies which can change the game here. One of them is the electric cars on the consumption side. It can change the game, and it can change the game, both in terms of oil challenge by lowering the oil demand because, as I said, all the growth in the oil demand is coming from transportation sector. And when I come to CFR, one of the very standard questions about peak oil. Before it is asked, I can answer it, perhaps, in context.

Peak oil is thought to be or discussed to be only an issue of resource constraint and reserves. Do we have enough reserves? Are we going to -- of course, one day we will reach the peak.

But if the countries can make use of the alternative transportation technologies, such as the electric cars, they can have the peak of demand much earlier. I think the electric cars is a major instrument in the hands of the oil importers to reshape the oil -- our oil future, to move from an oil-based transportation system to an electricity-based transportation system. So this is, I think, a very powerful potential technology. And I know that many countries, led by China, have great efforts there.

Second, carbon capture and storage. This is a -- coal is still the backbone of our electricity generation. China in the next 25 years, China will build 600 gigawatts of coal-fired power plants. So some of you may not know the numbers very well, but what does it mean? Six hundred gigawatts means China will have in the next 25 years equivalent of the capacity of U.S. plus all European countries plus Japan in terms of coal. And this is about one-third. Only the coal plants, in terms of China, is one-third of the total global CO2 in terms of everything.

CCS can -- be carbon capture and storage. For the colleagues who are not very familiar with the subject, this is to capture the carbon during the process of using coal and put it under the earth. This is the technology, but this is not yet proven, and there are lots of cost issues, cost problems here.

So if this technology proves to be cost-effective through the sort of financial helpers, including carbon price, and if it is accepted as an important technology by China, India and the U.S., these are the three major coal users, then this can change the game as well in terms of climate change.

So electric cars, climate change and oil and carbon capture and storage in terms of climate change. But if you ask me, if I have to bet some something which I like a lot, but especially not football, I don't do that, I would bet more on electric cars now rather than carbon capture and storage, because there is a very important additional driver there, which is important for China -- the oil import dependency issue.


I will, if we have time for a glass of wine, I will answer the second question. (Laughter.)

GOLDMARK: Any questions here? Yes, ma'am.

QUESTIONER: Hi, I'm Kassia Yanosek with Tana Energy Capital. One thing we haven't heard about tonight is nuclear. And I'm wondering what your view is on how that's changed given the global gas glut and also the failure to come to a, you know, global carbon price. And that's a view that I think many people hold. Thanks.

BIROL: Nuclear is a very crucial technology to address the climate change. It can produce, generate electricity in BOC terms without intermittent (ph) problems which we have with wind, for example. And the generation costs are very reasonable.

Now, the problem with nuclear power is the first down payment is very expensive. It's about 6 billion (dollar), average, $6 billion medium-sized nuclear power plant.

Now, currently there are about 60 nuclear power plants under construction. Out of 60, 30 are in China, 30 rest of the world. And out of the rest, we have Russia, India and the others.

We do not see much new nuclear power plants in the OECD world because since this first down payment is very big and the OECD markets are designated, it is very difficult in the liberal markets to get -- put the 6 billion (dollar) down payment on the table.

But what I see is a change in the policies of some governments. Germany a few years ago, German government wanted to phase out nuclear power plants. Now they made a U-turn since the last time. Sweden, the same. Belgium is the same. Italy country, which banned nuclear power in -- with a referendum in 1992, is now going back to nuclear plants.

I know that a few other countries, like Poland, like Turkey, like Korea, they have plants to go in the OECD countries, but the bulk of the growth will come out of the OECD countries.

Having said that, with the cheap gas in the markets, I do not see -- I will say unfortunately, unfortunately -- a major strong wave coming from nuclear power. There will be -- (inaudible) -- growth, the prospects are brighter than a few years ago, but I will be surprised if there was a huge wave of nuclear power plants coming to the market.

GOLDMARK: Including China that has enormous capital resources?

BIROL: China, yeah. I meant mainly in the OECD countries. In China, definitely. China is number one. China is number one in nuclear power plants, and they will be -- as I said today, 60 power plants are built, half of them in China. It's tremendous. It's very big.

GOLDMARK: Other questions here? In the back. There's a mic behind you, sir.

QUESTIONER: I'm Eric Seeve, I'm with Golden Tree Asset Management. I think, for economists and businesspeople and investors, a lot of the mistakes that people make when thinking about the future is, extrapolating a current trends for a long time. Right now, it seems that there's a largely consensus view that, because there's this growing demand for oil and we're constrained on the supply side, there's going to be this, you know, higher and higher prices and a growing and growing problem. And it certainly seems the way that things are going to play out for the next decade or longer.

You know, but as you mentioned, you know, we could start to see peak demands in certain countries. It seems like maybe we've already seen it in some of the OECD countries.

What -- how might this view of oil that the world seems to share right now, that it's going to be higher and the prices are going to continue to increase, how might we be wrong? And what might the realistic timing be for that to play out?

BIROL: Well, I think, first of all, if one had to extrapolate the past to the future, oil prices should be on the lower side. Because in the past, up to 2007, we had oil prices on the low levels.

What makes me think that the oil prices may be higher is couple of factors. One is, as you also mentioned, the market is strong.

The second is that there is a strong decline in many existing fields, especially in the non-OPEC areas which are run by the international oil companies, according to the rules of the market. There is oil in many Middle East countries, run by the national oil companies, but their global dominance may mean that when and how much to be invested and how much to be produced will not be, the decisions, will not be based on the market factors, but there may well be other considerations there.

For example, many national oil companies in Middle East, in North Africa, they have a lot of other things to do rather than investing in oil. One of them, they have invested in oil, but the other main revenue generator is not only of those countries. They have to build schools, they have to build infrastructure, hospitals and all of these things.

So I wouldn't be surprised that an oil supply picture dominated by the national oil companies and the oil-producing countries working together is different than in the past when the international oil companies were dominating the game.

The good old days of international oil companies are passe, they're over. The reserves are declining, and they have difficulties to access the new reserves and increase the production. It will be dominated by the national oil companies.

Having said that, if the -- I think it would be wrong to think that the oil prices will increase -- (inaudible) -- because of the following. I mentioned the electric cars or advanced car technologies story. And this is not going to happen today or even tomorrow -- if it happens the day after tomorrow. If the oil prices are high and give the trust or the confidence to the investor set, they are going to increase and increase in the future the penetration of the alternative technologies. Advanced technologies could build much, much quicker, much, much faster; a, governments will push them, and, b, they'll be more economic since oil prices will go up.

So the message is also to the oil producers here. If they push the process too high, it is not necessarily good news for them. At the end of the day as it will accelerate the technologies which look to alternatives to oil in a radical way.

GOLDMARK: On this side of the room -- yes, sir.

QUESTIONER: (Off mic) -- with Mackenzie. Is there -- in your view, are there any places in the world where solar, either photovoltaics or concentrated solar thermal, will be a major piece of the answer? Or will it remain more of a distributed play or, frankly, an afterthought?

BIROL: I think it will not be in the country which puts most of the money there, which is Germany. You wouldn't believe -- most of the subsidies for solar goes to Germany where we have very little amount of sun.

When I look at a couple of things together, a, the radiation; b, unexpected economic growth prospects; and c, the number of people who have not access to electricity, a figure for me is a very important potential candidate.

For the time being, the conditions are not yet, in terms of financing, but I see Africa could be a very good candidate for substantial growth in the solar markets in the future. This is the country.

Second, China. China is making huge efforts. And if you look at the cost of solar equipments produced by China, they are growing substantially, and they are going to not only use themselves, but export to the rest of the world, which would help to increase the share of solar.

So these are the two countries. One is a surprise country or region, which is Africa. The other one is China, which puts a lot of money in terms of improving the technology, making technology mature, using at home and exporting it outside.

GOLDMARK: There was a hand here. Yes, sir.

QUESTIONER: Hi. Rick Miller from JPMorgan. In your words, you mentioned oil and then you mentioned electric vehicles. And I'm curious as to what your thoughts are around alternative fuels sort of as the gap between the two.

BIROL: Now, in fact, I should talk about the advanced car technologies, all the transportation system. The transportation system, for me, there are many things. First, biofuels, plug-in hybrids, advanced cars, the electric cars, many different technologies, which are a potential response to the high or higher oil prices and, to a lesser extent, climate change.

Within biofuels, we have the current way of producing biofuels, and there is another way of using biofuels. We call them second generation, which is using cellulosic, this is a bit making more use of industry, industrial and agricultural coming together and lowering energy cost and lowering the environmental impact of technology which is coming. So there are different technologies.

And these are in competition with each other. I know that there is a competition, everybody wants to get the market share before the future market. I think the transportation sector, (automotive ?) system now, is like a pregnant woman. The woman is going to deliver a baby definitely, this is for sure that it will come, but if it is a boy or a girl or a twin or not, we don't know yet. But there will be a response because of the -- especially because of what will happen in oil markets and that many governments are putting a lot of money, subsidies, there.

So it is difficult to say which will be the winner, but I expect biofuels, especially the examples like Brazil gives us some courage, their penetration will increase. But according to our projections, the share of biofuels in 2035, 25 years from now, will be about 5 percent of the total liquid consumption, it will not be a game changer. And it will be having a share from the advanced car technology alternative fuel.

GOLDMARK: Yes, ma'am.

QUESTIONER: (Off mike) -- from Wellington Management Company. Could you comment more specifically on the supply side of oil and tell us where you think it's most likely to see an increase in production. And specifically comment also on Iraq and Brazil in that vain.

BIROL: Of course. Now, when we look at which countries can bring the growth, the top three countries are, for me, Saudi Arabia, Iraq and Brazil. Now, Saudi Arabia, no surprises. Brazil was a surprise, and not becoming less of a surprise thanks to a world-class national oil company. I talked about national oil companies because of -- perhaps too much of a black and white picture of the national oil companies. But Petrobras is an oil company, which is a top class, world class, which made, if not a miracle, a big success in terms of off-shore growth.

And this will definitely come, growth will come from Brazil. But how much, there's a question, and our thought is about additional 4 million barrels per day can come from Brazil.

But the question is, for me, if I say the question mark on the demand side is electric cars or advanced car technology, how it can change the demand picture. On the supply side, the question for me is Iraq. What will happen in Iraq is crucial. There is no other country which is so crucial as Iraq in the future when you look at all the parameters.

Today, Iraq produces about 2.5 million barrels per day. And we expect that Iraq can increase its production at least 4 (million), 4.5 (million) additional, 6.5 (million), 7 million barrels per day, which is still much lower than Iraqi government's own targets.

What is the barrier here? There are many barriers, but there is one very crucial one for me. It is the political stability and security in the country. If it doesn't happen, if it is not established, I think, even though there are many investments and bits and all of these things, we may not see this growth coming, and this may well put us in difficulty if we cannot see significant growth from Iraq coming. It is a very important growth area, Iraq. And without Iraqi oil growth, oil markets may tighten much earlier than we think, and this would definitely be very bad news for the oil markets.

So for me, if the electric cars is a game changer on the demand side or advanced car technologies on the supply side, on the production side is the success or failure of Iraq, which I hope, as an energy person, that it's a success story.

GOLDMARK: Okay, another hand here. In the middle -- ma'am -- and then we'll come over here for a couple more. Yes, ma'am.

QUESTIONER: I'm Mimi Barker with Standard & Poor's. Nice to see you. I'm wondering, if President Obama decided that we needed like an Apollo mission and said, within 10 years, the United States is going to capture the carbon and sequester it, do you think that's possible? And would that get us back from the edge of being inches away from climate change?

BIROL: I mean, it is a definitely very likely if it was decided to go in that respect. But it would have definitely cost implications for the U.S. And it will definitely have implications for the other fuels, competing fuels. But if U.S. will take the lead on this, it would be very good news for China.

Today, when you talk with Chinese, it will definitely happen. It will definitely happen, because it will bring the cost down. We do not have many, or if any, large-scale carbon capture and storage projects now. If U.S. was the leader here, it will be very good in terms of the technology, in terms of cost and in terms of also leadership here. But to see a huge carbon capture and storage, a sweeping project as such, I am not sure if it's in the agenda of the current administration, even though I know that the current administration is very keen for the new energy technologies, advanced technologies.

But of course, I am not aware of a large-scale carbon capture and storage implementation, at least at this stage.

GOLDMARK: Next question here in the front. Raul (ph), please.

QUESTIONER: Hello, Jordi Visser from George Weiss Associates. Over the summertime, you unofficially, or officially, named China the largest energy consumer in the world. And my question gets into, if we're starting a new business cycle at this point, the fact that China as an energy consumer is focused on coal, can you talk about the supply disruptions for the coal side and what that will mean to the overall energy side and the difficulties in going from an easily transferable energy to a more difficult one for the largest energy consumer?

BIROL: This summer, I don't know if you follow, I said that China, officially, according to our definitions, became the largest energy consumer of the world, overtaking the United States after 100 years of U.S. dominance here.

Chinese colleagues had a different on that. There was a bit of, I think, it was a 4 percent difference between China and U.S. But if it doesn't happen this year, it will happen next year, even for the Chinese. So there is no point there.

But what is also very striking for me, two things. One, China in the year 2000, only nine years ago, China was using half of the energy that the U.S. was using. And this is amazing that in less than a decade they doubled their energy consumption, they use a bit more than the United States. This is one.

Second, just for the records, in the year 2008, I made a similar statement. I said that China became the largest emitter, carbon emitter, of the world. Again, was not accepted by the Chinese colleagues at that time. And last week, China has admitted officially that they are the largest emitter of the world. This is for the records.

Now, let's come to the issue of coal. This is a crucial issue. I didn't mention coal much because, in general, I don't know -- the audiences are not really interested in the coal issues.

Now, coal prices are skyrocketing. Do you know what is the reason? The reason is very simple. China imports only 3 percent of its use -- only 3 percent -- and this is enough to change all the balances in the coal markets. And according to our analysis in this book, we think at least, if there are no big surprises, at least until the end of 2015, at least, China will continue to import coal with -- putting pressure on the coal markets.

Now, what is going on is the following. In fact, China has reserves, coal reserves, but most of the coal in China or industrial or energy, I should say, in general, is used in the coastal region, and the coal resources are more in the western, in Mongolia, western China. It is becoming more and more difficult, therefore costly, to bring that coal to the coastal region. It is much cheaper to import coal from Indonesia or Australia or somewhere else, plus even a better quality.

And I would think that if there are no major changes, China will continue to import coal, which is, of course, lots of implications on the coal markets in terms of price.

Of course, another reason, which is perhaps a compliment for China, China also shut down many inefficient, small coal mines in central China and elsewhere.

So to look at this thing, I expect China to use a lot of coal, and in the next years to come continue to be an importer with implications on the coal markets and coal prices.

GOLDMARK: This will be the last question, and I need it to be a compact question, sir.

QUESTIONER: Okay. I'll try to condense it. I'm Fred Fucci from Arnold & Porter, and this follows on to what you're saying about China. I mean, one interpretation of what happened in Copenhagen was that the Chinese, while there were failures, the Chinese refused to accept mandatory limits on greenhouse gas reduction. Yet, from everything you said, including your response to the last question, you're suggesting that China is the largest emitter, and if they refuse to agree international context to reduce their emissions, what are the prospects for controlling climate change? I mean, we can do all we want in the United States and Europe, but it won't make a difference.

BIROL: First of all, to be fair, the climate change issue -- I'm sure, again, there are colleagues here who know the science much better than me -- is not only emissions of today and tomorrow, but also the historical emissions.

OECD countries, including the United States, during the Industrial Revolution, they used a lot of coal and put it in the atmosphere. So we have to be fair and which countries have a major responsibility to clean it up. This is one.

Second, however, without China and U.S., which make altogether almost 50 percent of the emissions, global emissions, without their move, not much will happen.

Let me give an example from Europe. I was last week in Brussels, a similar meeting like this. In Europe, I don't know if any of you follow the European climate change discussions. The governments are divided into two. Some of them are -- in Europe, you're always divided, by the way, by definition, on many subjects. Some of them say, in 2020, we have to reduce emissions by 20 percent. Some of them say, we have to reduce by 30 percent. It's a big debate.

There are summits, conferences, meetings, papers, discussions. And I said the following, and I will repeat it here to you. The difference between 20 percent and 30 percent reduction is equal to two weeks of emissions of China. So only two weeks of emissions of China is equal to the difference between 20 percent and 30 percent, just to put things in context.

So what I would like to say is, for Europe, Europe is very important in terms of the intellectual, in terms of the action, concrete measures to address climate change. But Europe today is only 14 percent of the CO2 emissions -- their share -- and it's going to decline.

So therefore, I think there are two countries which have to move here, China and the United States. Of course, Europe, Japan, India and Russia, these are the biggest emitters. Otherwise, it will be impossible to solve this problem. But if I have to make a very, very narrow down this target, the two countries which need to take the lead need to be China and the United States.

GOLDMARK: We have just spent an hour on some of the most complex and important, almost fateful terrain that exists anywhere on this globe, among all the issues we face, and we have had a really remarkable guide. And I suggest to you a guide, not only with a strong mind, but with a large heart. And we thank you for that, Dr. Birol. (Applause.)








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