Energy Investments in Light of
Current Market Conditions
Fatih Birol, Executive Director
Istanbul, 2 October 2015
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Oil market context
 Buoyant supply, led by North America and weaker global demand
helped to bring oil prices down – but for how long?
 Lower prices are curtailing many companies’ upstream investment
plans, with implications for future production
 Oil demand is picking up, but the rebound is constrained by
broader economic uncertainties & by efficiency policies
 A market rebalancing is under way, but working off the overhang in
global oil supply may take time
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It’s not only oil
Dollars per MBtu
barrel
Oil and natural gas prices, 2014-2015
20
120
Oil price:
January 2014
15
90
Latest
10
60
Gas prices:
January 2014
5
30
Latest
0
Oil price
Henry Hub Title Transfer Japan LNG
Facility (TTF) import
Gas (US)
Gas (Europe)
China LNG
import
Amid signs of over-supply for both fuels, oil & gas prices have tumbled since 2014
& the divergence between different regional gas prices has narrowed sharply
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Is energy investment now set to fall?
Billion dollars (2014)
World annual energy supply investment
2 000
1 500
1 000
500
2000
2005
2010 2011 2012 2013 2014
World Energy Investment Report (2014), IEA
$1.7 trillion was invested in 2014 to provide consumers with energy,
a figure that has more than doubled in real terms since 2000
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Lower revenues are hitting
upstream oil & gas investment
Billion dollars
World upstream oil and gas capital investment
800
-20%
700
600
500
400
300
200
100
0
2005
2007
2009
2011
2013
2015
Capex cuts are highest (at up to 40%) in North America, but pressure is widely felt –
also in Iraq – & compensated only in part by cost reductions for services & supplies
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Risks and opportunities
for energy efficiency
 Energy efficiency is a cost-effective way to meet multiple policy
goals: economic development, energy security, environmental
 Three-quarters of car sales now covered by efficiency standards,
but will consumers see the incentive to choose efficient models?
 Lower prices mean longer payback periods for some efficiency
improvements: will households & industry be discouraged?
 Lower world prices an opportunity to reform fossil-fuel subsidies
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Renewables can still thrive in
a low-gas price world
Dollars per MBtu (2014)
Natural gas prices and the share of non-hydro renewables in the US power mix
12
8%
9
6%
6
4%
3
2%
2008
2009
2010
2011
2012
2013
Share of renewables
(right axis)
Natural gas
price
2014
Deployment of renewable technologies depends on policies in most countries,
so a change in prices alone does not derail their advance
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Concluding remarks
 The fall in the oil price is squeezing investment, boosting demand –
market adjustments ahead
 Pressure on natural gas prices is amplified by new LNG supply, a
windfall for gas consumers but a threat to new projects
 Investment in renewables stays strong while costs continue to fall,
but government support is still crucial
 Lower prices could hold back efficiency investment, lock in a less-
efficient capital stock & delay the much-needed energy transition
 The eased market conditions that we see today are no reason to be
complacent on energy policies
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• Energy Security
• Environmental Protection
• Economic Growth
• Engagement Worldwide
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