ENERGY SECURITY: OIL - IEA

Issue 3 – Autumn 2012
ENERGY SECURITY: OIL
COMMENTARIES by
MINISTER AL-NAIMI and DANIEL YERGIN
PRIVATE SECTOR VIEWPOINTS:
EXXONMOBIL and PETROBRAS
How SPECULATION lowers
OIL-PRICE VOLATILITY

INTERNATIONAL ENERGY AGENCY
The International Energy Agency (IEA), an autonomous agency, was established in November 1974.
Its primary mandate was – and is – two-fold: to promote energy security amongst its member
countries through collective response to physical disruptions in oil supply, and provide authoritative
research and analysis on ways to ensure reliable, affordable and clean energy for its 28 member
countries and beyond. The IEA carries out a comprehensive programme of energy co-operation among
its member countries, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports.
The Agency’s aims include the following objectives:
• Secure member countries’ access to reliable and ample supplies of all forms of energy; in particular,
through maintaining effective emergency response capabilities in case of oil supply disruptions.
• Promote sustainable energy policies that spur economic growth and environmental protection
in a global context – particularly in terms of reducing greenhouse-gas emissions that contribute
to climate change.
• Improve transparency of international markets through collection and analysis of
energy data.
• Support global collaboration on energy technology to secure future energy supplies
and mitigate their environmental impact, including through improved energy
efficiency and development and deployment of low-carbon technologies.
• Find solutions to global energy challenges through engagement and
dialogue with non-member countries, industry, international
organisations and other stakeholders.
© OECD/IEA, 2012
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also participates in
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IEA member countries:

WELCOME
UPFRONT
SINCE 1974, KEEPING
A CLOSE EYE ON OIL
Maria van der Hoeven: © OECD/IEA, 2009
Since the International Energy Agency was founded 38 years ago, its mandate has expanded
beyond the initial focus on oil security. The IEA champions a broader form of energy
security, its core concern, not just by guaranteeing oil reserves and other safeguards
against supply disruptions but by working to reduce dependency on oil overall and oil imports in
particular. From climate concerns to geopolitical risk, the best ways to build a secure and reliable
future are to improve efficiency and to shift to a sustainable low-carbon energy system.
But until we attain that goal, oil remains central to energy security. By providing authoritative
data and analysis to member countries and the world at large, the IEA enhances market
transparency as well as understanding among policy makers – both of which make the world’s
oil supply more secure. At the same time, the Agency stands ready to respond to oil supply
disruptions.
Indeed, IEA coordination of emergency response among its member countries is a unique
responsibility. The response system for oil supply emergencies includes a varied toolbox, and the
processes for identifying disruptions and carrying out emergency actions are regularly practised
and improved by Emergency Response Exercises. These steps are designed to mitigate the
consequences of acute and severe oil supply shortages by making additional oil available to
the global market. Emergency response measures include both increasing supply and reducing
demand. Member countries’ emergency preparedness is peer-reviewed on a rotating cycle,
and key recommendations are delivered to governments for consideration and implementation.
The news media tend to focus on the power of member countries to tap their emergency
stocks during a disruption – and while there have been only three IEA collective actions in the
Agency’s history, governments stand ready to act when member countries collectively agree on
such a course of action.
But the IEA is continuously engaged to improve oil security, through its emphasis on diversification
of energy sources and development and promotion of alternatives and through its emergency
preparedness work and its expert oil market analysis – including the monthly Oil Market
Report. This monitoring is one aspect of the Agency’s larger mission to promote energy security
across the board. By encouraging the use of new and lower-carbon sources of electricity, by
setting targets for energy efficiency, by encouraging research and policy to foster technologies
from electric vehicles to carbon capture and storage, the IEA contributes to energy-supply
security and reduces dependency on oil imports in general. The most secure barrel of oil will
always be the one we don’t use.
One vital way the IEA brings greater stability to energy markets is through international
engagement. The Agency fosters ongoing dialogue and co-operation with oil producers, particularly
in the context of the Producer-Consumer Dialogue with OPEC and participation in the
International Energy Forum. But it also engages closely with major non-member consumers
on issues of oil security and emergency response. India this year joined Thailand as the first
non-members to host IEA Emergency Response Exercises tailored for their own needs. Such
engagement can help prepare those partner countries to analyse national or regional emergencies
and respond effectively, or possibly to take part in global collective actions on a voluntary
basis. Both also participated in the 2010 joint Emergency Response Exercises in Paris for IEA
members, together with Chile, China, Croatia, Estonia, Indonesia, the Philippines, Slovenia and
South Africa.
In order to continue to contribute effectively to market stability and energy security, the IEA
itself must show flexibility and embrace change. By forging close international relationships, by
expanding the concept of energy security and by confronting the intertwined challenge of energy
sustainability, the IEA can provide dynamic solutions to protect its members and the global
economy from energy insecurity.
By Maria van der Hoeven
Maria van der Hoeven recently completed
her first year as Executive Director of the
International Energy Agency, where she has
worked to promote the Agency’s effectiveness
in global energy security. Before taking
over the helm of the IEA in September 2011,
she served as Minister of Economic Affairs
for the Netherlands from February 2007 to
October 2010, during which time she demonstrated
leadership on energy policy at the
national, regional and global levels.
www.iea.org 3

TABLE OF CONTENTS
UPFRONT
7
3 WELCOME
As long as the world relies on oil, the IEA will be at the cutting edge of monitoring it
7 THE OUTSIDE PERSPECTIVE
• Ali Al-Naimi: To attain true energy security, the Saudi Oil Minister’s top priority
is tackling energy poverty
• Daniel Yergin: The author of The Prize and The Quest reflects on the evolution
of energy security and the different challenges in this century
9 WHAT DO YOU THINK?
Whither oil in 25 years? Have your say and win a free book
FEATURE TOPIC
22
11 FLASHPOINT
The “Arab Spring” means different things in different countries: for oil analysts, it
means a lot to keep track of. But not all change in the Middle East is about disruption
12 OIL SECURITY
The critical role oil plays in the ever-evolving IEA mandate to preserve energy security:
a valedictory interview with Energy Markets and Security Director Didier Houssin
15 LONG VIEW
A special look at just how important a role Iraq is beginning to play once again
in oil production, and the very serious challenges it must first overcome
16 OIL MARKET REPORT
After a decade at the Agency’s authoritative monthly short-term forecast,
the outgoing editor looks back fondly at a pretty turbulent time
18 UPSTREAM
Light tight oil’s opportunities and constraints: why shale oil won’t end US imports
20 ON STATISTICS
JODI, best known for its database on oil supply and demand, has shown
how important data transparency is – and not just for energy markets
22 DOWNSTREAM
Why oil analysts, including those at the IEA, count tankers and what it tells them
23 PRIVATE SECTOR
• ExxonMobil’s CEO and chairman on how the company helps safeguard energy
and what should be the proper role for government
• Petrobras: The Brazilian national oil company’s president on making the leap
from regional player to integrated global powerhouse
MARKETS & SECURITY
36
31 FOCUS:
• Gas: A heavy reliance on Qatar puts the global LNG trade at risk
• Nuclear: Lessons to take from Switzerland’s gradual phase-out
• Renewables: New sources of financing emerge
34 IN DEPTH
• Volatility: Speculation is often blamed for high oil prices and market volatility.
But speculation can actually temper volatility while not affecting prices.
• Technology Platform: An IEA initiative for decarbonisation worldwide
helps galvanise biofuels and efficiency in Russia and solar power in Morocco
4
The Journal of the International Energy Agency

ISSUE 3 – AUTUMN 2012
11 COVER STORY
11
ENERGY SECURITY: OIL
HISTORY OF CRISES
AND SOLUTIONS
From the birth of the IEA amid the 1970s oil
shocks to the disruptions during the “Arab
Spring”, the Middle East has been a focus
for energy market analysts. IEA Energy
and Agency experts look at the state of oil
security there and worldwide.
40 INNOVATION & ENVIRONMENT
TECHNOLOGY
Once-disdained buses are increasingly the silver bullet of urban mass transport
38
CLIMATE
How much of what greenhouse gases are there in the sky?
40
COMMENTARY
Water is a critical element of energy security, so we need to monitor it carefully
43
SPOTLIGHT
Novel financing programmes aim to get Britons to improve buildings’ energy efficiency
44
GETTING IT RIGHT
China maps out its windy energy future
46
50
1981 1991 2001 2011
ENERGY, ETC.
EVENTS
Snapshots from around the world of the IEA in action
47
PUBLICATIONS
Four new books and two selected research papers from the IEA
48
ENERGY BASICS
Oil supply in terms of years remaining: not scraping the bottom of the barrel
50
Issue 3 - Autumn 2012
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OUTSIDE PERSPECTIVE
UPFRONT
PRIORITY IS ENDING
ENERGY POVERTY
Minister Al-Naimi: photo courtesy of Ministry of Petroleum and Mineral Resources, all rights reserved
Saudi Arabia is in the midst of a remarkable journey. The kingdom’s vast natural
resources have powered unprecedented economic progress and development over
the last 75 years, transforming the country from one of the world’s poorest to, today,
a member of the Group of 20. Its infrastructure, medical and educational facilities, and
standard of living are unrecognisable from 40 years ago.
The wider world has also benefitted from these great resources, using them to fuel extraordinary
improvements for the good of mankind. And as the global population continues
to grow, it is this energy that will help further transform the lives of millions.
Of course many energy challenges remain in the world, not least energy poverty and
energy security. While some concern themselves with geopolitical tensions highlighted on
the 24-hour news channels, for many millions of people in the world, energy security boils
down to having enough gas to cook their family a meal or enough physical infrastructure
to enable them to turn on a light.
It is clear that the real issue is tackling poverty, to enable people in developing countries
to access reliable energy supplies so that they can take advantage of the many things
we regard as commonplace. These are day-to-day issues for individuals, but major challenges
for societies, and it is incumbent on all nations and policy makers to work together
to continue to boost economic growth. Great progress has been made, but there is much
work to do.
For its part, Saudi Arabia has been, and remains, a stable supplier of oil to the world –
and this security of supply brings reassurance to world markets. Time and time again the
kingdom has stepped up to offset any losses: during the Iraq war, post-Hurricane Katrina
and more recently as a result of the revolution in Libya. This year it boosted production to
levels not seen for 30 years, and it remains poised to supply the market whenever called
upon.
Let me be clear: Saudi Arabia is not happy with a high price for oil, particularly one
which does not reflect market fundamentals, and in this regard, we have worked hard in
recent months to do what we can to moderate prices. We highlighted how the market was,
and is, fundamentally well-supplied and balanced, and backed up our rhetoric by meeting
all customer requests for additional barrels. Saudi Arabia understands the vital role oil
plays in economic growth and knows the value and progress which can be derived from
energy resources – but the price must be reasonable.
The future of energy will be a future characterised by an increasing mix. It is clear that
oil and gas will remain pre-eminent but that other sources will be increasingly utilised, particularly
wind and solar. Whatever the source, whatever the technology, the priority must be
to provide reliable energy worldwide, especially to developing countries – to help improve
the lives of men, women and children around the world.
I am pleased that consuming and producing nations are increasingly working together,
realising that their interests are aligned more often than not. This is exemplified by the
increasingly important role of the International Energy Forum and other inter-governmental
organisations, but it can also be seen in Saudi Arabia’s ever-expanding and deepening bilateral
ties. It is vital that we continue to develop relationships, cooperation and trust.
By Ali I. Al-Naimi
His Excellency Ali Ibrahim Al-Naimi has been
Minister of Petroleum and Mineral Resources
for the Kingdom of Saudi Arabia since 1995.
He is a member of the Cabinet of the Council of
Ministers, the Supreme Petroleum Committee
and the Supreme Economic Council. Previously
he was chairman of the national oil company,
Saudi Aramco, as well as chairman of the Saudi
Geological Society and of the King Abdullah
University of Science and Technology.
www.iea.org 7

UPFRONT
OUTSIDE PERSPECTIVE
NEW CHALLENGES
TO ENERGY SECURITY
By Daniel Yergin
Daniel Yergin is vice chairman of IHS and
founder of IHS Cambridge Energy Research
Associates. He chaired the US Department
of Energy’s Task Force on Strategic Energy
Research and Development and currently
serves as a member of the US Secretary of
Energy Advisory Board and a trustee of the
Brookings Institution. His new book, The
Quest, follows on The Prize, his Pulitzer
Prize-winning examination of world oil.
Since the beginning of the 21 st century, a periodically tight and volatile oil market, combined
with sharply rising consumption in emerging-market countries, has renewed concerns
about energy security. The tension over Iran’s nuclear programme and Tehran’s threat
to disrupt Strait of Hormuz tanker traffic have put these concerns front and centre. Fortunately,
there is an energy security system in place, underpinned by key operating principles.
This was not the case when the energy crises and disruptions of the 1970s initiated the modern
era of energy security. In writing The Quest, I was struck both by how much the energy security
agenda has evolved in the years and by the new challenges ahead.
The energy security focus has expanded to include the global natural gas trade, the reliability
of electricity supply systems and the scale and concentration of energy infrastructure itself. This
includes protecting infrastructure against terrorism and conflict. It also applies to natural disasters,
as was demonstrated by the devastating impact of hurricanes Katrina and Rita on oil and gas
supplies in the Gulf of Mexico in 2005 and by the Fukushima disaster in 2011. In fact, the 2005
hurricanes triggered what was only the second use ever of the IEA emergency release system.
One can be sure that the founders of the IEA never contemplated that the system would be used
to offset a disruption in the United States.
One of the most significant changes is the dialogue and coordination between the IEA member
countries and major producers, led by Saudi Arabia. That would have seemed highly unlikely at a
time when “North” and “South” were thought to be in permanent confrontation. But this change
reflects a recognition of common interests in stability and a well-functioning world economy, buttressed
by geopolitical interests.
The energy security system faces two big new challenges today. The first is to bring China,
India and other major emerging markets into alignment with it. This simply reflects reality. At the
beginning of the 1970s, the industrial countries accounted for 80% of world oil consumption.
Today, they’re down to little more than 50%; and their share will continue to decline, as virtually
all the growth in oil demand will be in the developing world. Already, China uses more total energy
than the United States.
The other challenge is to prepare for what the CEO of one major corporation called the “bad
new world” of cyber-vulnerability. The infrastructure that produces and delivers our energy is at
the top of the list of “critical infrastructures”, and the risks only grow as the world continues to
digitise and the Internet becomes ever more pervasive.
In The Quest, I identify key operating principles that have become clear over the years and that
will help underpin the energy security system of the future. The first is diversification of supply.
A second is to build resilience into the energy system by ensuring a “security margin” – additional
capacities and capabilities – that provides a buffer against shocks and facilitates recovery. The IEA
strategic oil stocks program is the best-known example. The third is the recognition of the integration
of global energy markets. Fourth, experience has demonstrated the importance of high-quality
information and data both for decision-making and public confidence. To this need, the IEA makes
a major contribution. The fifth principle is that flexible and well-functioning energy markets contribute
significantly to security, including the ability to adjust and rebalance quickly. Sometimes,
during a time of turmoil, governments have to resist the popular call to “do something” when the
“something” would aggravate rather than mitigate the situation.
The dependence on energy systems, and their growing complexity and reach, all underline the
need to understand the risks and requirements of energy security in the 21 st century. Increasingly
in a growing world economy, energy trade traverses national borders and ties nations together. That
is why energy security is not just about countering the wide variety of risks and threats. It is also
about relations among nations, how they interact with each other, how energy impacts their overall
national security – and about cooperation and collaboration in the international community.
Daniel Yergin and book cover: © Daniel Yergin, 2012
8
The Journal of the International Energy Agency

YOUR OPINION COUNTS
UPFRONT
WHAT DO YOU THINK?
Compared with today, how critical will oil be as an energy source in 25 years?
One respondent chosen at random will win a free copy of the Medium-Term Oil Market Report 2012.
Share your thoughts and submit your raffle entry by 30 November 2012 at: http://svy.mk/ieaEnergySurvey
FROM OUR
LAST ISSUE:
What do you see as the biggest obstacle to wider use of renewable energy,
and what can help renewables prosper?
STOP SUBSIDISING FOSSIL FUELS.
DIRK V.E. | Brussels
Easier access to micro finance for green projects and access
to incubator set-ups for start-ups. More large-scale investment
into research on low-cost nano technologies.
FERGAL D. | Meath, Ireland
BEHAVIOUR, TECHNOLOGY AND GOVERNMENTAL SUPPORT.
MIHAI M. | Newcastle upon Tyne, United Kingdom
First: establishing Public-Private Partnership (PPP) Models to
develop infrastructure. Second: government will have to factor
in renewables in energy portfolios by introducing minimum
renewables purchase obligations to all power plants. Third: promoting
solar photovoltaic rooftops in rural areas.
BIREN G. | Gandhinagar, India
EMPLOYING MORE RESEARCH RESOURCES AS WELL AS
CARRYING OUT EDUCATION ON RENEWABLES.
TIMOTHY K. | Nairobi, Kenya
The use of renewable energy will not grow rapidly as long
as there is no support from the government – especially
in Indonesia. In addition, the fossil fuel price in Indonesia
is low nowadays due to subsidies. Hence, it holds up investments
for renewable energy. Therefore, governmental support in
terms of regulation and incentives and the gradual removal of
subsidies for fossil fuel will boost the use of renewable energy
in Indonesia.
LIES A. | Jakarta, Indonesia
CARBON PRICING.
F. J. | Canberra, Australia
35%
30%
25%
20%
15%
10%
5%
0%
Tooexpensive
With a combination of increased government support for
renewable energy and a relentless outreach and education
campaign from NGOs, hopefully people will begin demanding
clean energy, instead of feeling like it’s being forced down
their throats.
CAMERON | Chevy Chase, United States
USE OF ENERGY STORAGE TECHNOLOGIES.
ERIC | Singapore
Fossilfuel
infrastructure
Notreliable
(intermittency)
Inclusive approach of governance wherein investors get government
support and consumers pay a market-competitive
electricity tariff.
KARAN C. | Wuppertal, Germany
Lackof
government
support
Notenough
investment
By first enabling producers to get incentives from their
government and then developing energy storage technologies
to counterbalance intermittency of this means of
production. Renewables’ development must be a target in all
energy policies.
GUILLAUME D. | Saint-Nazaire, France
The winner of the previous raffle for a copy
of the Medium-Term Renewable Energy Market Report
is Richard Carlson of London, Canada.
www.iea.org 9

HOW TO SECURE THE SYSTEM BALANCE?
THE ANSWER IS SMART POWER GENERATION
GW
Time
Daily variations in electricity demand are increasing, and the continuous variations of
growing shares of solar and wind power need to be balanced. Conventional power
generation alone is not agile enough to respond to the new challenges. The highly
efficient and flexible solution which enables power systems to deliver affordable,
clean and reliable energy can be found at www.smartpowergeneration.com

FLASHPOINT
FEATURE TOPIC
THE VORTEX THAT IS THE MIDDLE EAST
OIL AND UPHEAVAL
As “Arab Spring” turmoil affects oil output, analysts are scrambling.
But they have many positive developments to consider, too.
By Antoine Halff
Antoine Halff newly heads the
IEA Oil Industry and Markets
Division, where he worked
as a demand analyst in
2001-05. In between, he was
a US Energy Information
Administration lead industry
economist and an adjunct professor at Columbia
University’s School of International and Public Affairs.
Syria: photo by Bo Yaser, http://creativecommons.org/licenses/by-sa/3.0/deed.en
For the oil markets and industry, the
Middle East is a perennial flashpoint.
Given the region’s critical importance to
world energy supply and its reputation for “instability”,
news from there moves the market
sometimes in knee-jerk fashion. But rarely has
so much been going on across so much of the
region as in the past two years. And rarely have
developments there seemed so pregnant with
consequences for energy markets.
Keeping track of it all is enough to make oil
analysts feel punch-drunk.
The term “Arab Spring”, that catch-all journalistic
shortcut, disregards the vast differences
in cultural, demographic and political outlook
among the North African and Middle East countries
recently caught up in domestic turmoil
or international discord. The energy profiles of
those countries are just as varied as their populations
and political arrangements.
Unrest affects output as well as regimes
Tunisia doesn’t quite rank as an energy
heavyweight, yet once calls for greater political
participation began there in late 2010,
the news gave rise to speculation about “contagion
effects” in other countries, including
the large oil producers on Tunisia’s borders.
As unrest spread to Egypt, markets became
concerned about potential tanker traffic disruptions
in the Suez Canal. Problems with
Egyptian gas exports notwithstanding, those
fears proved largely unfounded. But the
Libyan civil war did cause a major disruption
in oil supply, eventually leading to an IEA stock
release.
Political turmoil has since taken a toll on oil
production and exports from Yemen and Syria,
while conflict between Sudan and the new
state of South Sudan cut supply from there.
None of those countries is a major producer; in
aggregate, though, the disruptions have been
substantial. But the potential fallout from the
Syrian civil war far exceeds that country’s importance
as an oil producer. The outcome could
prove game-changing not only for the country
itself but for the region as a whole and beyond.
Meanwhile, the tightening of international
sanctions on Iran, the third-largest OPEC producer,
has had a profound impact not only on
Iranian exports but also on oil trade flows more
generally. For analysts, this is not just a question
of counting how many Iranian barrels the
sanctions may in effect have removed from the
market – however tricky that accounting exercise
may be. The questions are many: which
producers are picking up the slack left by the
drop in Iranian supply, and where do their increases
leave spare output capacity? How are
refiners and importers coping with the Iranian
shortfall and adjusting for changes in supply
sources? What is the effect on the shipping industry?
How is Iran adjusting to the sanctions,
and how will a reduction in exports and potentially
production affect its longer-term production
capacity? How does this all look as seen
from the oil trading floors, and how are market
expectations shaping trading behaviour both
in physical crude and product markets and in
futures exchanges? And, inevitably, how is it
affecting prices?
Amid disruptions, positive developments
Yet for all the concerns about unrest and conflict,
it is important to keep in mind that current
Middle East oil developments are not all about
disruption risks. There are many success stories
in Middle East production, and the region has a
knack for defying expectations on the upside as
well as the downside. Already Iraqi production
has reached highs unseen not only since the
first Gulf war but since the Iran-Iraq war of the
1980s. Given the size of Iraq’s endowment, the
country’s potential to play a pivotal role in global
oil supply is considerable. Libyan output has
recovered from the 2011 civil war much faster
than expected. Developments in Saudi Arabian
production entail feats of cutting-edge technology
that have helped the kingdom maintain substantial
spare production capacity. Saudi Arabia
has used that cushion on several occasions,
including during the past two years, to make
up for supply shortfalls elsewhere, a substantial
contribution to global energy security.
Last but not least, the region, long acknowledged
as a major production centre, is emerging
as a key demand centre in its own right – so
much so that fast-growing domestic consumption
is threatening to encroach on future export
availability. Assessing, analysing and forecasting
Middle East oil markets increasingly will entail not
just measuring production and reserve levels but
also monitoring regional efforts at fuel efficiency,
demand control, de-subsidisation and fuel diversification.
In addition it will require efforts by
the region’s major producers to capture more of
the oil and petrochemical value chain and use
oil revenues to sustain a more diversified and
balanced model of economic growth.
The fighting in Syria threatens to disrupt more than just the country’s modest oil output.
www.iea.org 11

FEATURE TOPIC
OIL SECURITY
IEA Energy: Is oil still the IEA’s main concern?
Didier Houssin: Oil remains the number one
energy source at global levels, so it will remain
very important. It is true that when the IEA was
created, oil was more important than today;
consequently the efforts that, in particular, IEA
countries have made in terms of diversifying
the energy mix have been quite successful. But
while at the global level we are less dependent
on oil, we continue to rely on it for the transportation
sector, and this is true for every kind
of transportation. In the global economy, where
trade is so important, this means that the strategic
impact of any oil supply disruption is maybe
even more vital than was the case when the IEA
was created.
But looking at oil security, at energy security,
clearly the role of the IEA has changed. When
the Agency was created, the key concern was
the first oil shock and the vulnerability of OECD
countries towards any oil disruption, and that’s
the reason the IEA was founded: to have a
framework in which IEA countries could defend
their interests as key oil consumers.
This remains an important part of our activities,
but our vision of energy security has broadened.
It is not just about oil, it is also about gas
and electricity. And we’ve seen over the recent
years how vulnerable our economies can be to
other sorts of disruptions. Remember the gas
crisis between Russia and Ukraine, and how
high on the agenda it was in 2006 and 2009?
Even this year, when there was no clear conflict
between Russia and Ukraine: when, during the
cold spell in February, Gazprom cut exports to
Europe, immediately it created a lot of concerns
which came at a time when gas demand was
very high in Europe – and it reminded us that
DIDIER
HOUSSIN
DIDIER HOUSSIN IS COMPLETING MORE THAN
FIVE YEARS AT THE IEA. HE LED THE DIRECTORATE
OF ENERGY MARKETS AND SECURITY, WHERE
AGENCY STAFF MONITOR OIL MARKETS. IN A
VALEDICTORY INTERVIEW BEFORE COLLEAGUES,
HE ADDRESSED THE NATURE OF OIL SECURITY
AND THE AGENCY’S ROLE IN SAFEGUARDING IT.
we are very dependent on Russia in terms of
gas supply in Europe.
Looking at electricity, there are also many
examples: some of the blackouts that happened
in Europe and the United States, even if they
lasted just for a couple of hours, had an enormous
impact on the economy and on the daily
life of all citizens. Another example of course is
the earthquake in Japan and the key problem
that it has raised in terms of power supply, especially
in the Tokyo area.
So energy security is broader than just oil,
but oil remains quite important.
What are the greatest changes since 1974 in
how the IEA monitors the oil situation?
When the IEA was created, we had a market
that was based on long-term contracts and a
very stable relationship between suppliers and
refiners: this has changed with the globalisation
of the oil markets, the importance of the spot
market and the development of real-time information
through the internet. So the information
flow is extremely rapid and requires that we be
able to respond at the same speed and with the
capacity to analyse very rapidly what is happening
on the market. This has been one of the key
changes on the oil market.
Also now the bulk of the demand increase
is in non-member countries. So we need to pay
more attention to developments outside of the
IEA countries and in the emerging world.
As their share of the global economy shrinks,
can IEA countries still use stockpile releases
to respond effectively to a major disruption?
The fast-increasing demand of emerging
countries, particularly from China, has indeed
changed the global picture in terms of oil
markets, but it doesn’t mean the Agency’s
operational tool, Emergency Response, is no
longer relevant. It means that we need to be
prepared for the future.
If we look at the energy outlook, we see
these trends continuing over time, and the
share of IEA countries in global energy demand
shrinking gradually, and this is the reason why
we have an outreach strategy and are working
more and more with key partner countries in all
sectors but particularly in oil security.
One of the messages of the IEA over the last
year has been to encourage these countries to
think about their own oil security strategy. We’ve
seen China and India looking very seriously at
building up emergency stocks: the IEA has made
great efforts over the last years to encourage
them on that path.
The next very important step for the IEA will
be to strengthen our co-operation with these
countries in the way we react to and respond
to oil supply disruptions: we are all convinced
that the oil market is global and if there is disruption,
it would impact everyone. We have
seen this scenario recently, when we had price
spikes: they hit all countries and in particular the
emerging countries that are even more reliant
on oil than we are.
How is the IEA developing such co-operation?
We started by building awareness, by providing
training and by sharing IEA experience with
these countries and their governments. Now
we are going a little further in terms of having
a framework to work with them in the case of
an emergency.
For instance, we have permanent contact
points in the governments to be in touch when
there is a disruption. We do Emergency Response
Exercises with these countries. We’ve had several
exercises in Paris, where we’ve invited more and
more non-member countries. We had about ten
non-member countries in our last global exercise.
We’ve also embarked on a programme of
having Emergency Response Exercises in these
countries. We had one recently in India [see accompanying
article]. Last year we also organised
one with APEC and ASEAN countries that
took place in Thailand.
At a more political level, the Executive
Director of the IEA signed a Memorandum of
Understanding last October, on the sidelines
of the last IEA Ministerial meeting, with India,
where India agreed to make some commitments
in terms of working closely with the
IEA to be prepared in the case of an oil supply
Didier Houssin: © OECD/IEA, 2012
12
The Journal of the International Energy Agency

OIL SECURITY
FEATURE TOPIC
India: © Ministry of Petroleum and Natural Gas in India
disruption and to respond and work together
during such a disruption.
What is the IEA’s relationship with OPEC?
The relationship between the IEA and OPEC
has completely changed since the creation of
the IEA. We’ve moved from confrontation to cooperation,
and we work very closely with our
OPEC colleagues. We have a joint programme
of work with OPEC and the International Energy
Forum to address very sensitive issues such as,
for instance, the role of financial markets in oil
price formation. We fully recognise that when a
supply disruption happens, one of the key tools
that should be used is increased production by
OPEC. This is what we requested from OPEC last
year during the Libya disruption, and the same is
true this year with potential loss of Iranian supply.
So we work closely with OPEC.
Of course sometimes we do not agree. They
have their own constituency and their own objectives.
But we are in close contact.
If we look at the current oil market situation,
OPEC has significantly increased its production,
the market is much better supplied and this has
been reflected in the evolution of prices. The IEA
regularly stresses that oil prices are a key component
in global economic activity, and at a time
when there are wide concerns about economic
recovery, too-high prices might jeopardise this
recovery. And I think this is a message we’ve
shared with some of the OPEC countries, in particular
with Saudi Arabia.
The IEA founding treaty requires each member
country to hold oil stocks equivalent to
90 days of net imports in the prior year. Why?
This is a commitment that any country
takes when it joins the IEA: to be a member
you need first to be a member of the OECD and
second to be compliant with this obligation and
able to participate in collective actions. This
operational tool remains a key part of our role.
If we look at the numbers, most countries actually
go beyond their obligation. If we just look
at IEA countries that are oil importers, the level
of their stocks is 144 days of their net imports.
In this context, Emergency Response
Reviews are part of the tools we use vis-à-vis
our own member countries to make sure that
they are able to participate in collective actions
and that their level of stocks is real. We also
check the whole system of emergency preparedness
in each country. Because if solidarity is
to have meaning, every country must be able to
participate. We carry out these checks on a regular
basis, and to a large extent, it is a technical
UNIQUE IEA EXERCISE HELPS
INDIA TEST ENERGY SECURITY
In an IEA milestone of co-operation with
partner countries, India assessed its
emergency response readiness in the
Agency’s second-ever exercise tailored to
a specific country. The event highlighted
New Delhi’s growing co-ordination with
the IEA to safeguard against any major
international energy supply disruption.
The two-day Emergency Response
Exercise (ERE), co-hosted by the IEA and
the Ministry of Petroleum and Natural
Gas near Delhi in May, focused on emergency
response procedures in India
and at the IEA as well as on the role of
the news media during a supply crisis.
Representatives of Indian industry and
government worked together to develop
strategies to respond to a pair of supplydisruption
scenarios.
Didier Houssin, Director of Energy
Markets and Security at the IEA, said the
Agency’s team was very impressed with
the robust discussions that took place
during the exercise.
“India is a vital partner to the IEA, particularly
as its oil demand is projected to
more than double over the next quartercentury,”
Houssin said. “With this exercise
we have strengthened our links with
India, and we look forward to continuing
to work together closely in the years to
come.”
The event, which was preceded only
by an ERE for Thailand in 2009, built on
years of IEA collaboration with India
on emergency security matters. Since
2004, India has taken part in all-membercountry
EREs in Paris. But the biggest
step forward came in October 2011 on
the sidelines of the IEA Ministerial meeting,
when the Indian ministry signed a
Memorandum of Understanding on cooperation
on oil and gas security, the
IEA’s first such agreement with a partner
country. Besides the ERE near Delhi, the
memorandum qualifies India to participate
as an ad-hoc observer on the
Agency’s Standing Group on Emergency
Questions (SEQ).
SEQ representatives from Japan,
Spain and the United States moderated
the ERE in India, which involved about
The participants modelled two dire scenarios.
40 Indian participants, including general
managers or executive directors of private
and public oil companies as well as
13 government officials.
Indian and IEA officials briefed the
participants on national and global oil and
gas market developments and emergency
response procedures before the two
simulation exercises were introduced
by news-service-style video reports.
To address the fictional disruptions, the
participants, led by SEQ officials, broke
into groups based on their professional
responsibilities.
Like the Agency’s usual EREs, the
simulations aimed to help India test and
review its national oil supply disruption
response and refine its contingency plans
– including the use of the media – for
any disruption. Another purpose of the
exercise was to identify and better understand
India’s near-term oil security
risks in a global context. Finally, the ERE
had the specific goal of strengthening the
ministry’s bilateral co-operation with the
IEA in oil and gas security and emergency
preparedness.
“The ability to respond to energysupply
emergencies is at the very heart
of the IEA’s mission,” Houssin said, “but
the effectiveness of any response hinges
on the level of preparedness. That is why
exercises like the one in India are so crucial:
they enhance the ability to respond
while also imparting valuable knowledge
to all participants.”
After the ERE, the two sides announced
that next year the IEA would lead
an Emergency Response Assessment
(ERA) of India. ERAs are comprehensive
reviews of a country’s preparedness for
a major disruption to its oil and gas supplies
that also recommend which best
practices for security the country should
undertake. Thailand last year was the first
partner country to undergo an IEA ERA.
– Dagmar Graczyk
www.iea.org 13

FEATURE TOPIC
OIL SECURITY
process. We are talking to experts who are
familiar with our procedures. We look at what
has changed. And a lot of things are changing in
all countries in terms of infrastructure, refining
capacity, the role of oil in the energy mix.
So we have a buffer which is very important
and goes beyond the 90 days; it places us in a
position to respond to a global crisis even without
contributions by non-member countries.
What are the main triggers for IEA action?
The main trigger is a physical disruption of oil
supply or an imminent threat of supply disruption.
If the threat of disruption is quite imminent
and quite sure, then we ask ourselves, should
we act or not? But there is a second criterion:
this threat of disruption should have a severe
economic impact that could not be compensated
for by either increased supply by others or
by lower demand. This explains why we need to
look very carefully and on a case-by-case basis,
under real market conditions. This is why there
is a strong link between the team in charge
of emergency preparedness and the team in
charge of the oil market. And this is why, also,
we expanded the Oil Market Report. It underlies
our capacity to propose to our member countries
a response to disruption if spare capacity
is needed, depending on market circumstances.
All disruption doesn’t warrant reaction by
the IEA. But sometimes we need to act to prevent
a price surge that could be very damaging
to the global economy.
Let me give you just one example. The second
time the IEA used emergency stocks was
in 2005 to respond to the disruption that happened
in the United States because of hurricanes
Katrina and Rita and against the backdrop
of very tight markets. We had the same sort of
event in 2008 with hurricanes Gustav and Ike.
But at that time it was the end of 2008, when
the global economic situation was deteriorating
very rapidly and there was a much looser market:
then there was no need for us to respond.
We need to have a supply disruption and
we need to have market circumstances that
necessitate a response of the IEA.
Who actually decides to act?
The decision is made by the IEA’s Governing
Board, so it is by the member governments
around the table. When we think a collective action
is necessary, the Executive Director sends
what we call an initial response to the member
governments to propose a stock release. Why?
Because we cannot spend hours on meetings
with the pressure of the market and the
pressure of the press. We need to be able to take
action very rapidly and in a discreet manner. So
that’s why the position of the Secretariat is quite
important in the decision-making process.
“All disruption doesn’t warrant reaction by the IEA.”
What can the IEA do about small disruptions?
What is important is the potential impact of
the disruption, and that depends on its degree
but also on the underlying market conditions. In
a tight market such as today’s, any small disruption
can have a very significant impact. For
example, last year the amount of lost production
from Libya was only 1.6 million barrels a day.
Compared with the global oil demand, you could
consider it a small disruption, but if you compare
it to the level of actual spare capacity, it is huge.
So we look at the level of spare capacity and
the trend in terms of other supply and versus
demand and the economy. The IEA examines
all these aspects before making a decision to
recommend a release.
CHANGING OF THE GUARD
Keisuke Sadamori has worked with the IEA.
It is striking that there have been just
three stock releases since the IEA was created,
more than 35 years ago. But it seems
that the pace is accelerating. We had one
last year, and as you know there was lots of
discussion this year about a potential stock
release to counter the loss of Iranian supply.
This is not highly surprising because the level
of spare capacity remains tight. If we look forward,
in our World Energy Outlook forecast,
we see that the underlying trend of increased
demand from emerging countries continues
and some tightness of supply. Of course the
market will ebb and flow over time depending
on the level of investment, but the potential
for more frequent stock releases in the future
is probably there.
What was the most interesting experience
during your time at the IEA?
The oil market. We saw the price surging
to USD 144 per barrel in 2008, within one
year of when I arrived, amid the feeling that
the price would skyrocket without any limit
in the future – then the price dropped to less
than USD 35. We have seen unprecedented
events on the global economy that were reflected
in the oil market. It has been a very,
very vivid and active period of time.
The experience of a stock release – as we
had last year with Libya – was quite interesting
from A to Z. The whole process of how to
make a recommendation when the impact of
the Libyan disruption was still uncertain; then
when the decision was made and implemented,
the relationship with the press; but also the
assessment and the discussion with the member
countries about how they implemented
and how they assessed the whole action.
It was extremely interesting and rewarding
for me.
Keisuke Sadamori, Deputy Director General
for Policy Co-ordination at the Japanese
Ministry of Economy and Industry (METI), is
succeeding Didier Houssin as IEA Director
of Energy Markets and Security.
In 1983, Sadamori joined what later
became METI, rising to Deputy Director-
General in 2009. In 2011, he was Executive
Assistant to the Prime Minister. He was the
chair of the International Partnership for
Energy Efficiency Co-operation preparatory
meetings that led to the IEA’s hosting of the
partnership’s secretariat starting in 2009.
Didier Houssin: © OECD/IEA, 2012; Keisuke Sadamori: © OECD/IEA, 2009
14
The Journal of the International Energy Agency

LONG VIEW
FEATURE TOPIC
IRAQI GROWTH
FUELLED BY ENERGY
Iraq’s improving stability and signs of economic progress provide the foundation for a major
increase in oil production. But challenges remain to consolidate the gains made on economic
and security issues, to resolve outstanding questions about the legal framework for
hydrocarbon development at the national and regional levels, and to ensure that the necessary
infrastructure for transportation, storage and export is in place. Thus far, Iraq’s oil production has
grown from an average of 2.4 million barrels a day (b/d) in 2010 to more than 3 million b/d in
mid-2012, the highest level in several decades, with oil exports rising to 2.5 million b/d.
The country’s hydrocarbon potential is immense. Proven reserves amount to 143 billion barrels,
but the total resource potential is much larger: Iraq remains one of the least-explored major
hydrocarbon resource holders. The largest share of output growth is set to come from major oil
projects in the south of Iraq, for which the national authorities and international oil companies
have signed technical service contracts. The Kurdistan regional government has also awarded
contracts for exploration and development of areas in the north of Iraq; Baghdad contests the
legitimacy of these contracts, but activity is, in many cases, under way.
Even conservative projections of Iraq’s production over the coming years imply profound effects
on the Iraqi economy, as revenue from oil exports accounts for around 95% of government
income and amounts to more than 70% of gross domestic product. Translating growth in oil
receipts into tangible benefits for the Iraqi population will be crucial, with progress in resolving
the continued and widespread shortages of electricity a particularly urgent task. Growing production
of associated and non-associated natural gas, and a reduction in natural gas flaring, will
provide a valuable source of fuel for power generation and, potentially, for export.
This year we are preparing our first-ever in-depth energy outlook for Iraq as part of our annual
flagship publication, the World Energy Outlook. This work has been greatly facilitated by
the support and close co-operation of the government of Iraq led by the Deputy Prime Minister
for Energy, Dr. Al-Shahristani. As part of this collaboration, we have had a small team of Iraqi nationals
seconded to the IEA for the duration of the project. We have also held consultations with
senior officials, industry representatives and experts from all over the world, including through
an expert roundtable meeting in London in March and a high-level workshop held in Istanbul in
May, as well as fact-finding missions to Baghdad, Erbil and Basra.
Working on this project, including the experience gained during my visits to Iraq, has given
me cause for hope, but also for concern. Hope because the timely development of the country’s
hydrocarbon resources could fuel Iraq’s reconstruction and growth, but concern because in
the absence of sustained higher levels of Iraqi output the global oil market could be headed for
troubled waters.
I trust that once the special report is released on 9 October it will improve global understanding
of just how important a role Iraq could play, as well as the very serious challenges that first
must be overcome.
By Fatih Birol
Fatih Birol is the Chief Economist of the
IEA and oversees the annual World Energy
Outlook, the Agency’s flagship publication.
He is also responsible for the IEA Energy
Business Council, which provides policy makers
with a business perspective on energy market
issues. He joined the IEA in 1995 after six
years in the Secretariat of the Organization of
the Petroleum Exporting Countries (OPEC)
in Vienna.
Group photo: © OECD/IEA, 2012
Consultations for the WEO’s first-ever in-depth Iraq energy outlook included a high-level workshop in Istanbul.
www.iea.org 15

FEATURE TOPIC
OIL MARKET REPORT
A DECADE OF WORK ON THE OMR
EDITOR’S FINAL NOTE
Oil Market Report Editor David Fyfe weathered a whirlwind of rising prices
and geopolitical upheaval. Not that he minded a bit, as he reminisces here.
Having had the privilege to be part of
the Oil Market Report (OMR) team
since October 2002, and of editing the
monthly report since September 2008, I can
say one thing for sure – it has never been dull.
Surprise after surprise has buffeted the oil
markets, where prices have risen sharply since
2002. The higher prices are one reflection of
several forces that have come to bear on energy
and commodity markets simultaneously
in the past decade.
The rise to prominence of the non-OECD
markets is one of those factors. That has had
profound impact, among other things, on the
refining industry in the OECD countries. At the
same time, development lead times for new
production capacity have stretched and investment
costs have spiralled. A tide of resource
nationalism, alongside other geopolitical issues,
has kept markets on edge and provided
a floor for prices, even when economic activity
has weakened.
More recently, however, the supply side of
the equation has responded to sustained high
prices, with new sources of supply from the
Americas, suggesting that earlier prophesies
of supply-side doom may have been premature.
Finally, assessing oil price trends this last
decade has necessitated keeping one eye on
turbulent economic and financial markets, as
the headwinds confronting the world economy
have buffeted the entire commodity complex.
Editing a crucial market resource
The main role of the OMR is to provide a
balanced, independent view of current physical
market conditions (supply, demand, stocks, refining,
trade and prices), along with an outlook
for the next 12 to 18 months.
Together with the associated Monthly Oil
Data Service (MODS), the OMR is one of the
main sources of IEA revenue. Readership includes
upstream and downstream oil companies,
financiers, investors, traders, consultants,
At CNBC’s Paris office, the news network interviews David Fyfe on the findings in August’s OMR.
researchers and analysts. But the primary
audience remains the governments of IEA
member countries. The report is a crucial
tool to inform decision making in the event
of an oil supply disruption, when government
policy makers need to decide whether a
coordinated release of IEA stocks might be
warranted.
The OMR’s foundation stone since its
1983 inception has of course been data.
Many analysts use OMR and MODS historical
data as the starting point for their own analysis
and short-term forecasts. In the 1980s
and 1990s, a clear view of evolving market
fundamentals in the OECD markets provided
key insights into what was driving global
markets. But as both absolute levels of, and
growth in, oil demand and supply become
ever more concentrated in the emerging
markets outside of the OECD, the importance
of broader and deeper market data has become
apparent. Both the statisticians of the
IEA Energy Data Centre and the analysts in
the Oil Industry and Markets Division, where
I work, now must track and assess data from
a much wider cross section of sources than
they used to. That includes not only official
government data, but also company reports,
shipping and trade indicators, financial transaction
data, third-party information and market
intelligence.
The need to stay on top of the data
Timely access to reliable and consistent
data is essential for the OMR to retain
its place as a benchmark publication for the
oil market and its value to member countries
in explaining complex market dynamics and
highlighting prevailing and future market
conditions.
But at a time of squeezed national budgets,
governments often turn a deaf ear to calls
for more data gathering or more statisticians.
And while programmes such as the Joint
Organisations Data Initiative are welcome, providing
a consistent framework for developing
countries to submit more regular data, there is
still much work to do to ensure that the data
flow is as good as it can be. Aggregate national
supply, demand, refining, trade and stocks
data are all well and good, but in markets
where product specifications diverge, where
shifts in feedstock quality can dramatically
change refinery operating regimes and outputs,
and where non-conventional oil supplies
are proliferating, data granularity is ever more
important. Private data providers increasingly
David Fyfe at CNBC: © OECD/IEA, 2012
16
The Journal of the International Energy Agency

OIL MARKET REPORT
FEATURE TOPIC
David Fyfe at IEA: © OECD/IEA, 2012
are stepping in to fill gaps that governments,
given budget constraints, are unable to fill.
That is all to the good, but there are of course
cost, accessibility and consistency issues that
the IEA and its fellow analysts have to confront
amid such a proliferation of non-official data
sources.
A further challenge for market analysts is
anticipating, or at least recognising, pivotal
moments, when world events or structural
changes within the industry cause
seismic shifts in perception about
future market direction. Examples
include the rise to prominence of
the national oil companies, developments
in non-conventional
oil supplies and the investment
challenges posed by sudden regime
change in producer countries
(Iraq, Libya). Predicting such major
changes is often impossible, but
recognising that the rules of the
game may have shifted and adjusting
one’s outlook accordingly
can also be difficult. Readers are
often wary or outright hostile to
projections that change over time.
These can challenge conventional
thinking and call into question
plans, policies and investments
made on the basis of the prevailing,
perceived reality. But analysts
should not be afraid of ripping up
their view and starting again. Due
either to momentous events, or
more frequently to more mundane
revisions to baseline data, a forecast
must evolve over time. That
is a strength, not a weakness in
analytical terms.
Since 2006, the Oil Industry and Markets
Division has also generated projections twice
a year that look further forward, for a five- to
six-year forecast. These projections take current
investment plans for oil production and
refining, adjust for likely levels of capacity closure
or oilfield decline, and stack the result up
against expected oil demand, given reasonable
assumptions for economic growth, prices and
a backdrop of prevailing oil and energy policies.
The forecast, published in the Medium-
Term Oil Market Report (MTOMR), provides a
hard analytical bridge between the very shortterm
focus of the OMR and the longer-term,
policy-dependent forecasts contained in the
World Energy Outlook. In short, MTOMR projections
test the adequacy of today’s stream
of investment in new capacity to meet the
growth in oil demand expected in an “all other
things being equal” set of economic and policy
assumptions.
The MTOMR also affords a chance to step
back from short-term market noise and consider
what is really driving investment in the
industry, which factors truly influence prices
and where this may lead over a longer time
frame. The success of the early medium-term
As OMR editor, David Fyfe forecast the state of the oil market in 12 to 18 months.
oil outlooks encouraged the development this
year of a whole series of IEA publications that
look at the medium-term horizon individually
for oil, gas, coal and renewable energy.
A decade of significant change
So what have been some of the other
dominant events and trends seen in the last
decade? The shift towards higher prices had
already begun in 2002, reflecting first and foremost
the challenge of ensuring rapid enough
investment for supply growth to keep pace
with burgeoning emerging market demand.
Many ascribed rising prices to the phenomenon
of imminent peak oil production, based
on physical scarcity. Although oil is ultimately
a finite resource, the argument that resource
exhaustion is imminent is premature. Recent
developments in Iraq and Libya and in North
American light tight oil all suggest there may
be life in the old dog yet.
But it is justified to question how aboveground
uncertainties and risks could impede
investment in years to come and cause a renewed
cycle of higher prices. Where markets
can respond to higher prices by naturally rationing
demand, there the economic impact may
be manageable. But in emerging
markets, where end-user subsidies
are rife, the economic pain
can be more intense.
Examining why prices rise
High and volatile prices have
shone a spotlight on derivatives
markets and speculation. Some
argue that if highly visible physical
market fundamentals in the OECD
cannot wholly explain price trends,
then the shady hand of “speculators”
must have underpinned the
shift to higher prices. Over the last
five years, the OMR and MTOMR
have both tried to explain the relationships
between physical and
financial markets, the gaps in data
on non-OECD supply and demand,
and the crucial role of risk management
tools in an increasingly
capital-intensive industry. We have
also noted that commodities are
inherently volatile by nature and
that inelastic (unresponsive) supply
and demand in the short term
mean that prices will tend to move
sharply, even in the event of minor
unexpected shifts in demand or
supply. Clearly, the debate goes on, although
arguably policy makers would do better to focus
their efforts on creating markets where oil
demand and supply are more price responsive,
rather than simply seeking a single smoking
gun for higher prices.
I hope future OMR editors will have as
much fun in observing an ever-changing oil
market as I have had. Oil remains by far the
most global of commodities, the most pervasive
and influential of energy forms and
one that is shepherded by an industry that is
continually innovating to respond to changing
physical, economic and political realities. Oil
market analysis and oil supply security rightly
remain at the core of the IEA mission statement:
long may that continue.
www.iea.org 17

FEATURE TOPIC
UPSTREAM
A RENAISSANCE IN US PRODUCTION
LIGHT TIGHT OIL
Shale oil is generating talk that the United States can cease importing
oil. But causes for caution range from pipeline constraints to prices.
By Michael Cohen
Michael Cohen oversees
short- and medium-term
non-OPEC supply forecasts
and writes the monthly Oil
Market Report’s supply section.
Prior to joining the IEA
in 2011, he worked in the
US Energy Information Administration and Energy
Department’s Policy and International Affairs office.
Five years ago no one would have been
talking about the prospect of US energy
independence. But this year, domestic
crude oil production should rise by
10%, and within five years the United States
is likely to break the record output high
reached more than two decades ago, to flirt
with the position of top world producer.
The prospect of energy independence is
very complex, though, and depends heavily
on the types of crude oil that refiners consume,
the composition and level of energy
demand, infrastructure constraints and oil
prices.
The new volumes of production are coming
mostly from shale reservoirs composed
of low permeability, fine-grained rocks that
formed from the compaction of silt and
slightly larger sediment. The rapid increase
in production from these so-called light tight
oil plays has dramatic implications for world
oil markets, geopolitics, the environment
and the macroeconomy.
New tricks for old reservoirs
The rapid increase in tight oil production
occurred in part because in many cases
companies were already familiar with the
resource base from previous, conventional
drilling for oil or from natural gas production.
Horizontal drilling and hydraulic fracturing
techniques, based on lessons learned from
extracting shale gas, boosted oil recovery
rates. Companies have been producing
from the Williston Basin, including the
newly prodigious Bakken fields in North
Dakota, Montana and Saskatchewan, since
the 1950s. The same phenomenon is true in
some Oklahoma and Texas plays.
This tight oil renaissance has wideranging
implications. Rising oil production from
the mid-continent is competing with other
marginal oil prospects in North America,
including the Canadian oil sands, and any
sustainable price impacts will arguably have
implications for OPEC output and capacity
decisions. Increasing output is already
reducing Gulf Coast refineries’ demand for
equivalent light sweet (lower-sulphur) crudes
from Africa.
Not all oil is the same
But those predicting US energy independence
often confuse the country’s total
crude imports with the substitutable, light
component of those imports. Gulf Coast refineries’
capacity to process heavier crudes
is increasing, so imports of heavier crude are
unlikely to fall in the future despite greater
production of light oil.
The tight oil renaissance has become a
hot-button political issue. While North Dakota,
epicentre of the Bakken shale, has the country’s
lowest unemployment rate, companies
report that one of the toughest aspects of
drilling in the area is finding hotel rooms for
employees. The state’s murder rate is rising,
locals complain about horrendous traffic
jams and there are long waiting lists for spots
in day-care centres. Citizens are concerned
Shale around the Grand Mesa, in the US state of Colorado, is a source of the rapidly expanding production of light tight oil that is the shale-oil revolution.
Grand Mesa: photo by Dsearls, http://creativecommons.org/licenses/by-sa/2.0/legalcode
18
The Journal of the International Energy Agency

UPSTREAM
FEATURE TOPIC
Oil rig: photo by Lindsey Gee on Flickr, http://creativecommons.org/licenses/by/2.0/; Rig chart source: Baker Hughes; Price chart source: Rystad Energy
about contamination of the water supply,
and the World Bank reported this year that
increased gas flaring in North Dakota lifted
the United States to among the top five flaring
countries in 2011.
But the biggest reason the IEA and many
other analysts urge caution is how takeaway
capacity from areas of the Williston Basin in
North Dakota and eastern Montana could constrain
growth, increasing producer reliance on
more expensive modes of transport and hurting
the realised price for their oil. Light tight
oil is swelling inventory levels at the Cushing
storage site in Oklahoma, causing a structural
disconnect between the benchmark West
Texas Intermediate (WTI) oil price and that of
other grades. Temporary transport bottlenecks
have already caused drastic discounts of the
price of oil offered for sale from the Permian
Basin in Texas and the Bakken play. Although
takeaway capacity in the Texas plays should
be ample for rising output levels, short-term
bottlenecks are likely, and producers must rely
on truck and rail-based modes of transit.
Texas has its advantages
Production in the less constrained Eagle
Ford shale area of Texas tripled over the course
of 2010. In 2011 to early 2012, it more than
doubled again to exceed 400 000 barrels a
day. Producers there benefit from close proximity
to the Gulf Coast refining centre, high
gas liquids content and significant initial
oil production rates. Takeaway constraints
should disappear soon because of increasing
processing plant capacity and new pipeline
capacity. In fact, some analysts hint that the
rapidly increasing Eagle Ford volumes will
most directly reduce US light sweet imports,
and challenge the economics of other light
tight oil plays in the mid-continent.
But while the majority of American tight
oil production is economic at WTI prices even
1800
1500
1200
900
600
300
0
1991 1995 1999 2003 2007 2011
Gas Oil
The number of US rigs shot up in recent years.
A rig in North Dakota: the state’s jobless rate is the lowest in the country thanks to the boom in shale oil.
below USD 80 a barrel, new plays without
ample infrastructure or where producers
are less familiar with the geology are more
expensive.
ANOTHER LIMITING FACTOR WILL
BE THE EXTENT OF DRILLING
THAT CAN OCCUR WITHOUT
REDUCING THE PRESSURE
IN THE BAKKEN FORMATION.
Furthermore, tight oil production requires
extensive infrastructure to collect small volumes
from dispersed wells, and it experiences
steep decline rates. Drilling and completion
costs sometimes reach USD 10 million per
well, largely due to constrained quantities of
oilfield services in the Bakken and the need
for longer horizontal laterals.
Another limiting factor will be the extent
of drilling that can occur without reducing the
PermianDelaware
Bakkenshale
EagleFordshale
PermianMidland
Cardiumshale
Niobrarashale
AlbertaBakken
Anadarkotightoil
Uticashale
pressure in the formation, with concomitant
effects on already-producing wells.
Much opportunity but also limits
Analysts maintain that if the Bakken can
support multiple wells, then future exploration
and development would shift to new prospective
areas such as Three Forks formation
and could result in even higher output.
The Eagle Ford and Bakken plays, along
with shale plays in Colorado, New Mexico,
California and the Midwest, are making the
United States the single largest contributor to
non-OPEC supply growth in 2012, and without
a doubt, it will remain the top contributor
for the next five years. Tight oil production
growth will ease oil market fundamentals in
the short and medium term, while spurring
economic growth and reducing oil imports.
But many constraints, current and future,
will maintain US interdependency with world
oil markets.
0 10 20 30 40 50 60 70 80
Tight oil break-even prices in dollars per barrel: cost will help decide the fate of the production renaissance.
www.iea.org 19

FEATURE TOPIC
ON STATISTICS
HAVE YOU MET JODI?
By Jean-Yves Garnier
Jean-Yves Garnier joined the IEA in 1995
and heads the Energy Statistics Division.
Before coming to the IEA, his career spanned
over five years in Indonesia, three years in
Ivory Coast, two years in Djibouti, two years
in Berkeley and the rest in Paris, where he
was in charge of National Energy Plans,
energy-efficiency policy and building energy
information systems.
More information at
www.jodidata.org.
The JODI database can be accessed
at http://bit.ly/TcJ6L3 or using
this QR code.
At the end of the 1990s, the oil market experienced high volatility in terms of oil prices,
and analysts pointed to the poor quality of oil data as one reason for the volatility. The six
main organisations dealing with oil statistics met in Paris in November 2000 to assess the
situation on monthly oil reporting. Some collected statistics through well established systems; others
collected oil data only on an annual basis. Moreover, definitions on flows and products differed from
organisation to organisation, as did units and methodologies used to collect the data.
The six organisations – the Asia Pacific Economic Cooperation (APEC) forum, Eurostat, the IEA,
the Latin American Energy Organization (OLADE), the Organization of Petroleum Exporting Countries
(OPEC) and the United Nations Statistics Division (UNSD) – then held a major conference in May 2001
in Bangkok. All the main producer and consumer nations participated, together with many international
and national oil companies. It was decided to launch a six-month exercise: each organisation
would collect monthly statistics using a standardised questionnaire. Within the six months more than
50 countries were participating; the exercise was extended by another six months, and participation
increased to 70 countries; after an additional six months it rose to 90 countries, covering almost 95%
of global oil demand and supply. Countries and organisations then decided to make the exercise a
permanent compulsory reporting system: the Joint Oil Data Initiative (JODI) was born.
In 2005, the newly established International Energy Forum (IEF) took over the coordination of the
initiative, and one of the first achievements was to assemble all the monthly data collected from
the six organisations into a world database. On 19 November 2005, King Abdullah of Saudi Arabia
launched the JODI database live on the Internet with energy ministers of more than 70 producer and
consumer countries. The database, which contains detailed information on production, stocks, trade,
refining and demand of crude and products, is updated every month. More and more users access
the freely available database every month, with a peak on the day of the update.
Recent expansion of JODI
With the growing success of JODI, policy makers asked the six organisations and the IEF to
expand the initiative to natural gas, and possibly to reserves and planned infrastructure capacities. In
2010, the groups started to collect monthly data on natural gas. At the 2 nd Conference on Natural Gas
Transparency, held in Doha in May 2012, countries and organisations decided to build a joint world
natural gas database, similar to the JODI database. This database is to be made available progressively,
first to participating countries and then to other users through 2013. As JODI was expanding,
what originally was the Joint Oil Data Initiative became the Joint Organisations Data Initiative.
JODI is much more than a database
When countries and organisations embarked on JODI, the aim was simply not to build a global
database but to raise the importance of data transparency for effective functioning of the oil market.
TIME
Country
Apr2011 May2011 Jun2011 Jul2011 Aug2011 Sep2011 Oct2011 Nov2011 Dec2011 Jan2012 Feb2012 Mar2012 Apr2012 May2012 Jun2012
Total Top 30 Demand 64,483 64,188 65,966 65,504 65,228 67,110 65,920 67,357 64,723 64,193 66,795 65,331 64,264 65,023 63,529
United States of America 18,612 18,364 19,278 18,556 19,154 18,798 18,564 18,734 18,738 18,268 18,736 18,022 18,282 18,710 19,125
China 9,034 8,994 8,817 8,823 9,025 9,265 9,325 9,674 9,567 9,003 8,905 8,754 8,619 9,076 8,997
Japan 4,079 3,794 3,995 4,306 4,535 4,377 4,484 4,711 5,532 5,242 5,652 5,236 4,537 4,457 4,293
India 3,050 3,037 2,919 2,740 2,585 2,694 2,837 3,090 3,035 2,864 3,115 3,169 3,048 3,170 3,300
Saudi Arabia 1,903 2,241 2,205 2,419 2,289 2,385 1,994 2,112 1,874 1,791 1,682 1,945 2,066 2,202 2,470
Korea 2,049 2,055 2,159 2,224 2,271 2,308 2,272 2,324 2,511 2,455 2,493 2,257 2,168 2,291 2,410
Germany 2,249 2,406 2,261 2,414 2,635 2,565 2,528 2,470 2,275 2,139 2,480 2,219 2,231 2,297 2,404
Canada 1,934 1,981 2,160 2,123 2,235 2,130 2,006 2,075 2,061 1,941 1,931 2,167 2,027 2,033 1,988
Mexico 1,907 1,881 1,992 1,929 1,982 1,880 1,828 1,880 2,044 1,837 1,868 1,945 1,906 1,952 1,968
Brazil 2,331 2,374 2,384 2,345 2,304 2,574 2,463 2,562 1,936 1,792 1,909 1,974 1,909 1,929 1,949
France 1,750 1,741 1,793 1,804 1,803 1,930 1,771 1,718 1,713 1,736 1,921 1,706 1,677 1,664 1,783
United Kingdom 1,520 1,466 1,586 1,476 1,525 1,583 1,493 1,510 1,447 1,350 1,475 1,516 1,505 1,429 1,487
Indonesia 1,325 1,273 1,306 1,343 1,300 1,312 1,333 1,580 1,332 1,237 1,288 1,315 1,250 1,327 1,346
Italy 1,427 1,395 1,484 1,456 1,374 1,509 1,440 1,375 1,377 1,225 1,260 1,274 1,256 1,257 1,335
Spain 1,377 1,326 1,392 1,428 1,347 1,380 1,331 1,355 1,321 1,292 1,376 1,318 1,277 1,257 1,323
Netherlands 1,035 1,089 1,129 1,079 1,083 1,114 1,134 1,033 1,049 1,078 1,090 1,032 1,088 1,115 1,130
Thailand 966 933 945 915 921 918 869 833 930 920 998 1,003 986 1,001 958
Venezuela 624 609 677 638 694 688 662 666 670 787 821 792 776 887 821
The top entries on the page listing the leading oil consumers in the August update of the JODI database.
JODI launch: © Joint Organisations Data Initiative, courtesy of the International Energy Forum
20
The Journal of the International Energy Agency

ON STATISTICS
FEATURE TOPIC
Policy makers now better understand the critical nature of timely and detailed statistics for any sound
energy policy, leading to major improvements to energy statistics and balances of many countries
observed over the past years. The importance of exchanging data to enhance the transparency of
global energy commodity markets has been recognised as being beneficial to energy security and
in the interest of producers and consumers alike. By helping to mitigate some of the uncertainties
that may be detrimental to market functioning, JODI aims to moderate undue price volatility, thereby
increasing investor confidence and contributing to greater stability in energy markets worldwide.
A second impact of JODI is the advancement which has been made in terms of international
cooperation among organisations. The seven JODI partner organisations – including the IEF –
meet three or four times a year to monitor progress and give new impetus when needed; they de
facto constitute a think tank for developing energy statistics beyond JODI. They paved the way
for the InterEnerStat (International Energy Statistics) initiative which includes, besides the seven
JODI partner organisations, 15 bodies that either collect (e.g. the African Energy Commission) or
use (e.g. the International Monetary Fund and the World Bank) energy statistics. After five years of
discussion and negotiation, InterEnerStat led to an international harmonisation of definitions of all
energy flows and products used by the participating organisations. In February 2011, the United
Nations Statistical Commission adopted those definitions as the basis for all collection of energy
statistics data.
Moreover, the JODI questionnaire on monthly oil statistics paved the way to a harmonisation
among a variety of organisations of annual questionnaires for all energy forms. First, the IEA, Eurostat
and the United Nations Economic Commission for Europe harmonised questionnaires; three years
ago, APEC adopted similar questionnaires for its member economies; and UNSD is redesigning its
annual questionnaire along the lines of those four organisations. The more the questionnaires are
harmonised, the less work countries will have to do and the better the data should be.
A major step towards more transparency and better data, but …
JODI has certainly paved the way for better coverage and more timely and higher quality data
about oil as well as all energy forms. The effect extends beyond energy: other organisations have
adopted the JODI concept, including the United Nations Food and Agricultural Organization’s global
initiative on cereals. JODI has also raised the profile of statistics and statisticians. Tribute should be
paid to the JODI partner organisations, statisticians and policy makers all around the world.
However, the current economic crisis is having an impact on the resources allocated to statistics:
for instance, in many countries surveys have stopped and departing statisticians are not being replaced.
There are already signs of deterioration in quality. This is true for energy statistics in general
but for JODI data in particular.
All of the JODI partner organisations are committed to increasing the coverage and the usefulness
of the JODI database; however, transparency will happen only if all countries and companies are fully
transparent. Moreover, success will require sufficient resources and universal commitment. The IEA
will continue to act with other organisations to offer analysts more and better statistics but this cannot
be done without the participation of all.
– Mieke Reece of the IEA Energy Data Centre co-wrote this column.
Screenshot: © Joint Organisations Data Initiative
King Abdullah of Saudi Arabia launching the JODI World Database in Riyadh in 2005.
www.iea.org 21

FEATURE TOPIC
DOWNSTREAM
DECIPHERING THE OIL MARKET BY...
TRACKING TANKERS
With official data often tardy, the IEA counts oil tankers for an up-to-date
assessment of trade flows. Right now, the focus is on Iranian shipments.
By Andrew Wilson
Andrew Wilson joined the
IEA in 2006 to work on
monthly oil data in the
Energy Statistics Division.
He became the freight
and trade analyst in the
Oil Industry and Markets
Division in 2010, contributing to the benchmark
monthly and medium-term oil market reports.
Longer than three football pitches, weighing
more than 200 000 tonnes when fully
laden and travelling at speeds of up to
15 knots, oil tankers inspire awe. Besides being
important cogs in the global oil supply system,
transporting as much as 500 million barrels of
crude oil by sea at any time, these modern-day
leviathans and their movements provide insights
into the workings of the global oil market.
In contrast to the difficulty of tracking pipeline
shipments, especially when official data
are unavailable or delayed, monitoring tanker
voyages gives an up-to-date view of developments
in oil trade flows. The IEA benchmark
monthly Oil Market Report employs tanker
data on an ongoing basis not only for trade
analysis but also to build fundamental supply
and demand estimates.
Vessel movements routinely feed into the
report’s monthly estimations of OPEC crude supply.
Current official data are often unavailable at
the time of publication, but tanker information is
up-to-date and includes cargoes still en route,
permitting as close to a real-time determination
of a country’s exports as possible. Tanker
data are especially useful for monitoring countries
that deliver most of their oil by sea, such
as Saudi Arabia, but must be combined with
pipeline and rail shipment volumes for countries
such as Russia that also dispatch a significant
portion of their oil overland.
Cat-and-mouse tracking of Iran’s cargoes
Tanker data also aid in monitoring specific
events such as the threat that political
upheaval in Egypt posed to the Suez Canal,
supply outages in the North Sea and the civil
war in Libya. Presently, the IEA Oil Industry and
Markets Division is closely monitoring how
much oil Iran is exporting and who is buying
that oil. Official customs data from many OECD
and non-OECD customers of Iranian oil are
available only after a lag of a couple of months,
so tanker shipments are invaluable for a timely
determination of which countries are buying
how much Iranian oil.
Vessel monitoring, when combined with
information supplied by shipbrokers, also provides
insight into floating storage: oil that is
stored at sea and does not yet have a buyer. Iran
has limited land-based storage and is storing
crude oil on vessels owned by the national carrier,
National Iranian Tanker Corporation (NITC).
Monitoring exports and floating storage permits
At any given moment, tankers are shipping upwards of 500 million barrels of oil across the world’s waters.
IEA analysis confirms a traffic shift favouring the East.
an estimate of Iranian crude production that can
establish the effect of sanctions on the Iranian
oil industry.
Iran has ordered NITC tankers to deactivate
their automatic identification system
beacons routinely and to re-flag and rename
many vessels. Because ships are required to
activate their beacons when in port and when
transiting certain maritime regions such as the
Middle East Gulf, these attempts to hinder the
monitoring of carriers have succeeded only in
adding an extra layer of complexity to the data.
But the actions have raised the prospect of
covert ship-to-ship transfers at sea to disguise
cargoes’ origins, though without firm evidence
it is impossible to establish whether such
manoeuvres have taken place.
Data detail a shift towards the East
Oil Industry and Markets Division analysis
sees increasing seaborne-transported oil volumes
over the coming years and a rebalancing
of the trade in crude oil towards the East.
The rapid development of non-OECD Asian
economies, notably China and India, with their
seemingly unquenchable thirst for oil, is taking
more and more Middle Eastern and African
grades Eastwards, while the mature regions of
Europe and North America slowly reduce their
seaborne imports.
As customs data from non-OECD countries
are generally not as precise or timely as
those from OECD members, tanker tracking
will become ever more valuable to oil market
analysts.
Polar Adventure:photo by Johan Wieland on Flickr, http://creativecommons.org/licenses/by-nd/2.0/legalcode;
Grey and red tanker: photo by MD111 on Flickr, http://creativecommons.org/licenses/by-sa/2.0/legalcode
22
The Journal of the International Energy Agency

PRIVATE SECTOR
FEATURE TOPIC
A BUSINESS LEADER SPEAKS:
REX W. TILLERSON
ExxonMobil’s chairman and CEO details how the firm finds and recovers
the resources critical to energy security, and how government can help.
Rex W. Tillerson: photo courtesy of Exxon Mobil Corporation, all rights reserved
In meeting the world’s increased need for
energy to fuel economic growth, all of us
have a role to play. ExxonMobil’s primary
contribution to meeting this challenge is in developing
and applying new technologies and
proven techniques to safely, effectively and responsibly
produce and deliver reliable and affordable
supplies from the world’s vast endowment
of oil and natural gas.
In today’s energy industry, technology is as
important as ever, since significant portions of
the world’s oil and gas resources are found in
challenging environments, including deepwater,
dense shale formations and Arctic areas.
Innovative tools, techniques and minds are
needed to conquer these energy frontiers.
One such innovation is horizontal drilling.
ExxonMobil and others in our industry can now
drill not only vertically but also horizontally for
extended lengths and with amazing precision.
This lets us develop large resource areas from
a single location. In Russia’s Far East, for example,
we have been using directional horizontal
drilling technology on Sakhalin Island to safely
reach oil and gas reserves 11 kilometres (km)
offshore. Another example was in Southern
California, where we completed the world’s
longest extended-reach well, at nearly 9 km,
drilled from an existing offshore fixed platform.
Four decades ago, ExxonMobil pioneered
an exploration technology called 3-D seismic,
which uses sound waves to form sharp threedimensional
images of underground formations,
facilitating the location of oil and gas deposits.
Now, 3-D seismic is standard throughout the
energy industry. Four-dimensional seismic technology,
which compares 3-D seismic surveys
from the same field at different times of depletion,
is extending our ability to recover resources.
One particularly promising area is our research
into subsurface imaging. We’ve begun
to move under salt into tougher areas of imaging.
So we are working on an extensive effort in
developing proprietary capacities around computational
capabilities that will, we think, fundamentally
change the way we are able to image
the subsurface.
Cutting-edge techniques for gas as well
ExxonMobil has also integrated and refined
technology for the production of cleanerburning
natural gas. Our shale gas development
and production activities are guided by
proven methods and high standards of operational
integrity. Hydraulic fracturing – a process
our industry has safely and successfully
applied for nearly four decades – is now being
used in combination with horizontal drilling
to enable us to unlock enormous amounts of
natural gas previously trapped in dense shale
and tight-oil rock formations many hundreds
of metres beneath the earth’s surface. In addition,
ExxonMobil is a world leader in the production
of liquefied natural gas (LNG), working
with partners such as Qatar Petroleum to bring
affordable supplies of previously stranded
resources to market on a great scale. We
are also developing an LNG project in Papua
New Guinea and are a major participant in the
Gorgon LNG project in Australia.
In addition to corporate-level research,
technology groups specific to each business
line support their technology investment.
For example, our upstream research affiliate
ExxonMobil Research Qatar is developing a
remote gas detection system that pairs infrared
camera technology with a sophisticated
algorithm that detects hydrocarbons. When
deployed, remote gas detection will improve
process safety and reduce hydrocarbon
emissions by identifying leaks quickly and
automatically.
Our Downstream Research & Engineering
Company works continually on process enhancements
to reduce flaring and associated
emissions. We also invest in new technologies
to improve energy efficiency.
In working to help satisfy the world’s growing
energy needs, we take on all these technology
challenges with an unwavering commitment
to safety and risk management. ExxonMobil
analyses every significant operation we undertake
using our Operations Integrity Management
System (OIMS). Applying OIMS requires us to
identify potential safety, environmental and
social impacts and to implement procedures
and processes to mitigate risks.
The roles of industry and government
Our industry’s greatest strength is developing
and deploying advanced technologies and techniques
in a safe, economic and environmentally
sound manner to promote prosperity and better
living standards while maximising the value
of energy resources. The private sector has an
incentive to find and deploy game-changing
technologies and projects – and we do it every
day. But to be successful, government and business
must understand our respective roles and
responsibilities in spurring technology gains.
Business must engage in long-term planning,
sustained investment and risk management to
ensure we develop energy and petrochemicals
in a safe, secure and responsible way.
Government has a role to play in creating a
climate that encourages investment, innovation
and long-term partnerships that allow for new
applications of technology. It can also facilitate
information sharing and the use of practical performance
standards based on sound science,
cost/benefit analyses, economic impact assessments
and effective consideration of risks
and rewards posed by various options. Policy
makers are in a unique position to encourage
the fundamental academic research that companies
typically do not undertake themselves.
Governments can best fulfil this role when
they allow markets to operate freely and openly.
Sound energy policies do not pick winners and
losers, whether through subsidies, mandates,
punitive tax policy or arbitrary and discriminatory
regulatory approaches. Policies that are
designed to encourage competition will drive
innovation and new developments. They allow
www.iea.org 23

FEATURE TOPIC
PRIVATE SECTOR
In Russia’s Far East, ExxonMobil uses directional horizontal drilling technology to reach oil and gas reserves located undersea 11 km off Sakhalin Island.
companies to invest today and over the long
term in the innovations that will give them a
competitive edge for delivering energy more
safely, more securely or more efficiently.
We have seen the positive impact of government
support for basic research in the past. In
the United States, for example, the internet and
the semiconductor were facilitated by government
support for ground-breaking researchers
who were re-thinking science and technology
at the most fundamental level. Many of our
technologies were built on their research. These
successes are reminders that government is
most effective when it acts as a research catalyst
on broad-based, pre-commercial opportunities,
not as a venture capitalist.
The means to meet global challenges
As we consider the global economic challenges
at hand, there are reasons for optimism
– reasons rooted in a clear view of the
long-term outlook for economic development
and progress. From ExxonMobil’s perspective,
we see an encouraging story of long-term economic
growth coming in the decades ahead.
Significant population growth, new technologies
and transformative economic opportunities
– particularly in the developing world – will
combine to drive economic expansion and
rising standards of living. We project that by
2040, global economic output will double and
global population will increase by a quarter to
8.7 billion men, women and children who need
access to energy, and this will mean global energy
demand in 2040 will be about 30% greater
than today.
This need for energy is not a reason for concern
but rather a recognition of the role energy
plays in enabling progress for all. This clear recognition
of the growth ahead gives us insights
into the nature of the energy challenges confronting
leaders in both politics and business.
In developed economies, we project essentially
stable overall energy use even as these
countries achieve economic growth and higher
standards of living. This outlook highlights the
critical role ongoing energy efficiency gains play
in supporting stable economies. By contrast,
energy demand from developing economies will
grow by close to 60% even considering efficiency
gains. For those economies, therefore, the
delivery of new and growing supplies of energy
will be the bridge to a better future – providing
hospitals, schools, better sanitation, cleaner water,
technological advancement and improved
infrastructure for transportation and trade.
Keeping this in mind leads us to another fundamental
insight: The world will need to invest in
and pursue all economically competitive sources
of energy if we are to meet projected demand.
Where ExxonMobil is finding more oil
ExxonMobil has interests around the world
and believes there are opportunities in a number
of new areas.
An obvious example is North America, where
the industry is crossing new energy frontiers in
the safe and responsible production of shale
gas, tight oil and oil sands, and is developing
ultra-deepwater resources in the Gulf of Mexico.
We see encouraging results – results that can
be achieved elsewhere with the application of
innovative technologies, proven techniques and
rigorous operational standards.
In Canada, we are developing oil sands that
are providing access to one of the world’s largest
known reserves of energy – approximately
170 billion recoverable barrels, or the energy
equivalent to fuelling North America’s truck fleet
for 140 years at current demand levels. The
energy industry’s innovative techniques and
technologies are allowing us to develop these
resources in safe and environmentally responsible
ways.
Also in North America, but with applicability
in other parts of the world, we continue advances
in deepwater exploration and production. In
Sakhalin Island: photo courtesy of Exxon Mobil Corporation, all rights reserved
24
The Journal of the International Energy Agency

PRIVATE SECTOR
FEATURE TOPIC
just over a generation, our industry has taken
the concept of deepwater drilling from drawing
board to execution – building some of the most
complex engineering marvels in human history.
In the process, we opened up a new frontier for
energy production that has spread around the
world. By 2040, we can expect global deepwater
production to double.
Another emerging area is Russia, where
ExxonMobil recently reached an agreement with
Rosneft to undertake a USD 3.2 billion exploration
programme in the largely unexplored Kara
Sea in the Arctic and in the Russian sector of
Black Sea. Both of these offshore areas have a
high potential for liquids and natural gas.
Also in Russia, ExxonMobil and Rosneft
signed an agreement for a pilot exploration programme
to advance the development of hardto-produce
tight oil in the Western Siberia basin,
one of the most prolific conventional oil basins
in the world. The region is thought to have potential
for unconventional development using
directional drilling and multiple-stage hydraulic
fracturing.
There are many other areas of the world
– Africa, the Middle East and throughout the
Asia-Pacific region – with potential new production
enabled by continuous technology advancements
in safety and environmentally responsible
production of the energy that’s necessary to enable
economic progress.
The ExxonMobil energy outlook for 2040
Oil and natural gas will continue to play a central
role in meeting the world’s energy needs, by
virtue of their availability, versatility and affordability.
In 2040, oil and natural gas will continue
to supply some 60% of global energy needs.
Over this period we will likely see the continuation
of an important trend already transforming
energy markets: the rise of global trade in
natural gas. As nations develop, the global economy
will continue to need increasing amounts of
electric power. By 2040, demand for electricity
worldwide is expected to be 80% higher. This
will create a growing need for fuel for power
generation. Natural gas has proven itself to be
safe and reliable for meeting this need. With this
successful track record and the availability of
abundant economic supplies, we expect natural
gas will grow to provide 30% of the world’s
electricity-generation needs by 2040 – up from
just over 20% today.
Natural gas will be increasingly attractive for
another reason. It is cleaner-burning than coal
when used for electricity generation, which
will help meet our shared goals for reliable
and affordable energy, reduced emissions and
environmental stewardship.
National oil firms as partners
Our industry has an important role to play
in unlocking and delivering new supplies of
energy in a safe, secure and environmentally
responsible way. In fulfilling this role, we practice
effective risk management. We engage in
long-term planning and investment despite the
ups and downs of regional and global economic
performance. We invest with discipline and ingenuity.
And we focus relentlessly on operational
integrity and best practices – to protect our employees
and the communities where we operate.
Fortunately, our track record as an industry
shows that not only can we fulfil these responsibilities,
but we can do so in a manner that
generates new economic opportunities for host
nations and maximises value for consumers and
shareholders, always mindful of where and how
we operate. One of the most effective ways we
do this is by building international partnerships
that leverage our strengths.
For instance, over the years, national oil companies
(NOCs) have demonstrated a wide range
of capabilities as strong partners in energy development,
including secure access to resources,
detailed experience operating in specific environments
and a firsthand understanding of the
local and national governments’ regulations and
requirements. These strengths are augmented
by the educational and cultural leadership that
NOCs bring to their people as they pass on new
skills and create employment opportunities.
Our industry is further strengthened by the
contributions of the international oil companies
(IOCs). IOCs have an unparalleled breadth and
depth of experience in taking on energy challenges
around the world, developing, across a
wide range of conditions, new approaches and
best practices that can be brought to new partnerships
and countries. We invest in large-scale
capital projects, develop technologies and use
our global perspective to maximise value along
the entire energy value chain.
As we look at the energy needs in the decades
ahead, it will take our entire industry combining
these strengths to meet growing energy
demand. We will need access and knowledge,
technology and expertise, project excellence
and operational integrity, to deliver reliable and
affordable energy to the billions of people who
need it. ExxonMobil and the energy industry,
in partnership with national oil companies and
with the support of governments, can help meet
this global energy challenge.
HOW TO LIMIT GHG EMISSIONS
Technology is the key to meeting our
shared aspirations for expanding access
to reliable, affordable energy supplies,
increasing efficiency and reducing emissions.
At ExxonMobil, we believe that we
must manage the risks associated with
rising greenhouse-gas (GHG) emissions.
A comprehensive approach is required to
meet the world’s growing energy needs
over the coming decades.
Effective strategies must include
putting policies in place that start the
world on a path to reduce emissions while
recognising that addressing GHG emissions
is one among other important world
priorities, such as economic development,
poverty eradication and public health.
As we pursue the long-term objective
to minimise risks, near-term objectives
should include the following:
• promoting energy efficiency;
• deploying existing technologies that reduce
GHG emissions cost-effectively;
• supporting research and development of
new low-emissions technologies; and
• supporting climate research to help inform
the ongoing policy response.
Throughout the world, national and regional
policy makers are considering a variety
of legislative and regulatory options
to mitigate GHG emissions. In our view, assessing
these options requires an understanding
of their likely effectiveness, scale
and cost, as well as their implications for
economic growth and quality of life. Within
ExxonMobil, we analyse and compare the
policy options by evaluating the degree to
which they meet these principles:
• ensure that any cost of carbon is uniform
and predictable across the economy;
• let market prices drive the selection of
solutions;
• promote global participation by considering
priorities of the developing world
and recognising the impacts of imbalances
among national policies;
• minimise complexity to reduce administrative
costs;
• maximise transparency to companies
and consumers; and
• adjust to future developments in climate
science and economic impacts of climate
policies.
www.iea.org 25

WORLD
ENERGY
OUTLOOK
2012
RELEASE: 12 NOVEMBER 2012
Industry and government decision makers and others with a stake in the energy sector all need
WEO-2012. It presents authoritative projections of energy trends through to 2035 and insights into
what they mean for energy security, environmental sustainability and economic development.
Oil, coal, natural gas, renewables and nuclear power are all covered, including the outlook for
unconventional gas, building on the recent WEO special report on the Golden Rules for a Golden
Age of Gas. Global energy demand, production, trade, investment and carbon dioxide emissions are
broken down by region or country, by fuel and by sector.
Special strategic analyses cover:
• the Iraqi energy sector, examining its role both in satisfying the country’s internal needs and in
meeting global oil demand;
• what unlocking the potential for energy efficiency could do, country by country and sector by
sector, for oil security, the climate and the economy;
• the cost of delaying action on climate change, as more and more carbon-emitting facilities are built;
• the water-energy nexus, as water resources become increasingly stressed and access more contentious;
• measures of progress towards providing universal access to modern energy services; and
• recent developments in subsidies for fossil fuels and renewable energy.
No one can be sure today how the future energy system might evolve, but many decisions cannot
wait. The insights of WEO-2012 are invaluable to those who must make them.
For more information, please visit our website: www.worldenergyoutlook.org

PRIVATE SECTOR
FEATURE TOPIC
A BUSINESS LEADER SPEAKS:
MARIA DAS GRAÇAS
SILVA FOSTER
The president of Petrobras describes the Brazilian national oil company’s
development from regional player to an integrated global powerhouse.
The best strategy for dealing with
uncertainties and changes in the
energy industry is to become a true
energy company.
In the Petrobras 2020 Strategic Plan, we
expanded our vision from being a leader in
Latin America to being one of the largest
integrated energy companies in the world.
To achieve this goal, we are promoting excellence
in management, human resources
and technology, with attention to issues of
sustainability and climate change.
Also, energy diversification is a great instrument
for dealing with changes in consumer
preferences. Although we cannot
know the exact trajectory of new technologies,
integrated energy companies can take
advantage of “game changer” technologies.
As an integrated and diversified energy
company Petrobras aims to offer more highquality
products and services to our customers,
in an efficient and sustainable way.
The pre-salt discoveries off the Brazilian
coast – huge oil deposits deep beneath the
sea and salt deposits – raise us to a new
level of reserves and production, ranking
us in a prominent position among the major
energy companies.
E&P as the core of Petrobras
Petrobras remains focused on Exploration
and Production (E&P). In our current Business
and Management Plan, considering the total
investments under implementation during
the 2012-16 period (USD 209 billion),
almost 66% are for E&P projects and 25%
for Refineries, Transport and Marketing.
Considering all approved investments, including
projects under evaluation, the E&P
share is 60%.
The total investment in downstream
projects will be USD 71.6 billion, of which
44% will be spent on refining capacity expansion,
21% on quality and conversion
and 17% on operational upgrading. The
main reason behind the investment in refining
is our competitive advantage: the
Brazilian market for oil products, which
is located just kilometres away from the
Petrobras pre-salt reserves and which is
growing faster than the global average, at
more than 8% on average over the past two
years, with the prospect of an average annual
growth above 4% until 2016.
Currently Brazil is a net importer of oil
products. The expanding market brings great
opportunities in this segment to Petrobras.
In addition to new refining capacity, we
need to anticipate changes in product
specifications, adding complexity to the
system, resulting in an oil-product mix output
of higher added value.
How Petrobras will increase output
The Petrobras target for 2016 worldwide
production of oil, natural gas liquids (NGLs)
and natural gas is 3.3 million barrels of oil
equivalent (boe) a day, of which 3.0 million
boe/day will be produced in Brazil.
PETROBRAS-IEA CO-OPERATION
All photos: © Agência Petrobras
Petrobras has developed its deepwater drilling expertise off the Brazilian coast and in the Gulf of Mexico.
Petrobras is always open to collaborating
with the International Energy Agency. We
have deepened our co-operation with the
IEA through information exchange, setting
up technical meetings and as a reviewer
of World Energy Outlook (WEO) documents
and forecasts. We have worked as a Peer
Reviewer of the WEO, and currently have
an economist from our staff working with
the IEA team to prepare WEO 2012.
It has been rewarding for Petrobras to
move forward with this partnership, assisting
IEA in the building of the WEO as
well as Medium-Term Market Reports for
oil, gas and renewable energy.
www.iea.org 27

FEATURE TOPIC
PRIVATE SECTOR
Oil and NGL production in Brazil is expected
to reach 2.5 million barrels per day (b/d)
in 2016. Most of the production growth
should occur from 2014 onwards, with an
estimated increase of 5% to 6% per annum
for the period 2014 to 2016. For 2012 and
2013, the company expects to maintain its
2011 level of production, plus or minus 2%.
The new production curve is based on
the review of the efficiency of systems in
operation in the Campos Basin and on the
scheduled start-up of new units during the
course of our Business and Management
Plan. We are implementing the Campos
Basin Operational Efficiency Improvement
Programme, with a greater contribution to
production as of 2016 when several new
units in the pre-salt Santos Basin and in the
Transfer of Rights area begin operation.
By 2015, 12 new production units already
under construction will go on-stream,
representing an increase of 1.2 million b/d
in capacity. In addition, from 2016 to 2018,
seven new systems per year will add a
further 2.3 million b/d in capacity.
Long term, the Petrobras target for 2020
is to produce a total of 5.2 million boe/day
of oil and natural gas in Brazil.
The commitment of the Petrobras workforce
to achieve the Business and Management
Plan targets will be incorporated into individual
performance metrics. The annual
employee performance evaluation process
will be based on targets that are aligned
to the achievement of those 2012-16
objectives.
Experience in offshore activities
Experience in E&P in deep and ultradeep
waters has allowed Petrobras to find
the technological solutions for the production
development in the pre-salt layer, and
the initial challenges related to the distance,
depth and extensive layer salt are
being overcome.
So far, we are producing about
180 000 boe/day of oil and gas.
As far as a new oil province, composed
of heterogeneous and unusual carbonate
reservoirs, is concerned, there are of
course challenges in optimising development,
such as the improvement of the geological
characterisation of the deposits, the
implementation of methods to increase
the ultimate recovery of hydrocarbons and
the reduction of production-system costs,
particularly in the construction of wells and
subsea systems.
EXPERIENCE IN E&P IN DEEP
AND ULTRA-DEEP WATERS
HAS ALLOWED PETROBRAS
TO FIND THE TECHNOLOGICAL
SOLUTIONS FOR THE
PRODUCTION DEVELOPMENT
IN THE PRE-SALT LAYER.
Moreover, the existing challenges are
those inherent to the implementation of
projects on schedule, i.e. the delivery capacity
of suppliers of goods and services,
in Brazil and abroad; human resources
training; management of local content; cost
optimisation and operational efficiency. To
mitigate these risks, Petrobras is implementing
a comprehensive integrated portfolio
management and performance system,
focused on meeting the physical and financial
goals of each project. For instance, in
the construction of wells, the use of new
techniques and procedures already has allowed
a gradual reduction in the time frame
and cost of operations.
Petrobras will increase the local content
of goods and services. The first 12 rigs for
the definitive systems of pre-salt Santos
Basin production are already under construction
in national shipyards.
Finally, a great challenge for the industry
is the construction and supply of production
systems on time and within the cost limits
of the projects.
Petrobras is expanding its oil output by drilling deep beneath the sea and salt deposits to reach pre-salt reserves.
Offshore, pursuing safety as well as oil
Petrobras, as the world’s largest deepwater
operator, is recognised as a reference in
excellence in this area, with modern technical
and technological knowledge and always
having safety as its main goal.
The company follows strict operating
procedures, complying with both domestic
and international safety rules. It undertakes
risk analyses for offshore drilling projects,
and the equipment that is used − both in
the pre-salt area and at other sites off the
Pre-salt deposits: © Agência Petrobras
28
The Journal of the International Energy Agency

PRIVATE SECTOR
FEATURE TOPIC
The Petrobras fleet of 200 ships is available for emergencies as well as setting up and servicing well operations.
Rising Brazilian demand drives growth at Petrobras.
All photos: © Agência Petrobras
Brazilian coast − meets the requirements
of the industry’s most advanced safety
standards, incorporating Brazilian and international
experience accumulated over
the years in well-drilling operations.
All offshore drilling rigs are equipped
with detection systems that ensure immediate
and automatic well closure in case of
an emergency, keeping the situation from
spinning out of control. There are gas detectors
installed in several places on the
platform and alarms that signal pressure or
volume increases inside the well, in addition
to systems to prepare and inject fluids
into the well, which also serve as safety
barriers.
Controlling rock formation stability while
drilling oil wells is essential and a part of all
Petrobras well projects. The pre-salt wells
are drilled using synthetic fluid designed to
inhibit the dilution of the salt rock.
Internal well-safety training has been
provided since 1971. The workers on the
platforms have International Association of
Drilling Contractors-accredited certification
and participate in weekly accident drills.
Emergency plans and resources in place
There are emergency plans in place for
oil spills in all Brazilian oil basins, over and
above local plans specific to each drilling
and production unit in operation.
To ensure both maximum protection for
Petrobras operations and fast responses,
Environmental Defense Centres − located
at strategic points of operation − keep
collector boats, ferries, chemical dispersants,
bio-remediation agents and up to
20 000 linear metres of containment and
oil absorption barriers constantly available.
Petrobras has 14 large ships dedicated
solely to responding to environmental
emergencies, and if necessary, these vessels
can get support from other resources
among the company’s fleet of more than
80 aircraft and 200 ships.
The emergency plan response capacity
was designed taking worst-case incident
scenarios into account and to cover all
areas where Petrobras operates, including
the pre-salt cluster.
Committed to sustainable development
The Petrobras environmental strategy
aims at sustainable development and contributing
to improvement of the industry’s
environmental responsibility. The strategy
is underpinned by three pillars:
• business and investment management
taking environmental issues into account:
our goal is the continuous improvement of
projects, initiatives, programmes and actions
aimed at the company’s sustainable
development;
• interaction among public authorities,
academia, the third sector, suppliers, research
and development institutions, and
national and international companies by
forming partnerships and networks that consider
the main environmental themes: water
resources, effluents, climate, wastes, environmental
licensing and biodiversity; and
• dissemination of information about sustainable
development.
This strategy helps us to address the
challenges of climate change by supplying
low-carbon fuels. As a leading energy company,
Petrobras has identified opportunities
and returns on investments in renewable
energies, particularly biofuels.
We seek to diversify our portfolio to meet
the new global sustainability agenda, at the
same time aligned with the renewable vocation
of the national Brazilian Energy Mix
programme. In the Petrobras Business and
Management Plan, the company allocates investments
of USD 3.8 billion for the biofuels
segment, of which USD 1.9 billion are for implementing
new projects and for acquisitions,
especially regarding ethanol.
www.iea.org 29

2012
&
Data and analyses
Coming soon

FOCUS
MARKETS & SECURITY
FOCUS
FOR LNG, A WEB
OF VULNERABILITY
By Anne-Sophie Corbeau
Anne-Sophie Corbeau is an
IEA Senior Gas Analyst.
She previously worked at
Cambridge Energy Research
Associates, focusing on
European gas markets, and
in PSA Peugeot-Citroën’s
fuel cell and hydrogen department. She studied
engineering in France and Germany.
The Qatari skyline: the Gulf state supplies about a third of the global trade in liquefied natural gas.
Qatari skyline: photo by Larry Johnson on Flickr, http://creativecommons.org/licenses/by/2.0/;
tankers: photo by Nicolas Lannuzel on Flickr; Flickr, http://creativecommons.org/licenses/by-sa/2.0/
Concerns about a gas supply crisis
usually focus on pipeline disruptions,
but large parts of the world depend on
liquefied natural gas (LNG). Japan, South Korea,
Chinese Taipei and India rely entirely on LNG for
their gas imports, helping LNG represent a total
of 9% of global gas demand. Those economies’
dependency brings critical and specific vulnerabilities,
especially since any disruption to LNG
supply would have global implications.
LNG can be redirected fairly easily, and the
liquefaction trade has increased significantly
since 2009. But that growth hides the fact that
global LNG trade is very dependent on one gas
producer: Qatar, which provided 30% of the 2011
LNG trade and sent almost half of that supply to
just those four most dependent economies. Any
event significantly reducing Qatari LNG supplies
could have severe effects on energy security.
Not only would the LNG importers suffer, but so
would other gas importers, with prices potentially
rising sharply as economies dependent on
LNG diverted supply from other markets.
There is currently little spare LNG output
capacity in the world, as LNG producers tend
to produce as much as they can. Therefore,
other options would have to be used: primarily
increased domestic output, notably in the
Americas and possibly China, and fuel switching
in the power sector.
In such a crisis, the United States could reroute
all the non-Qatari LNG it receives, thanks
to its surging domestic production from unconventional
gas drilling and by switching back to
coal from gas in power generation. But as North
America does not yet have an LNG export infrastructure,
it cannot add to LNG supply, limiting its
adjustment contribution to just reducing imports.
Tanker deliveries in Singapore: the four economies that rely entirely on LNG imports for gas are in Asia.
Unfortunately, increasing domestic production
and re-routing from the United States
would not suffice to replace missing LNG to
the four most dependent economies. Besides,
both Japan and India currently operate their
electricity systems at near capacity, limiting
fuel switching. Additional diversions would be
needed, mostly from Europe. Since incremental
gas supplies from other suppliers, particularly in
North Africa, are limited, Europe would have to
increase reliance on Russian pipeline gas. With
the Nord Stream pipeline operational, there is
enough excess capacity to get the gas from
Russia to Europe, but Russia’s ability to ramp
up production quickly would be a constraining
factor. European countries could also switch
to coal, especially if gas prices indeed surged,
although a significant switch could result in
bottlenecks in coal production and transport.
Timing defines the knock-on effects
A disruption of a week, a month or more
would have varied consequences on global gas
markets, calling for different types of responses.
Timing, too, matters. In late January to early
February, storage is relatively empty and demand
in Asia and Europe is traditionally higher. A
disruption then would affect storage deliverability,
which decreases with the volume of gas left
in facilities. A disruption of a couple of months in
the second or third quarter of the year would hit
Japanese power demand, which peaks in summer.
In Europe, a disruption then would affect the
refilling of underground gas storage facilities, so
there would be problems in the next Northern
Hemisphere winter for residential users, the one
customer group that cannot change fuels.
www.iea.org 31

MARKETS & SECURITY
FOCUS
A GRADUAL SWISS
DENUCLEARISATION
By Alexey Lokhov
Alexey Lokhov is an analyst
in the Nuclear Development
Division at the OECD
Nuclear Energy Agency who
focuses on small reactors
and the economics of the fuel
cycle’s back end and power
plants’ long-term operation. He recently served on
the IEA review team for Swiss energy policies.
In the post-Fukushima Daiichi era, many
countries have had second thoughts about
nuclear power, and some – notably
Germany – have firmly turned their backs on
the industry, ordering shutdowns of plants.
Switzerland, where several referendums on
nuclear energy over the years have shown
guarded support, has taken a middle path:
dropping all plans for new plants but allowing
existing plants to keep operating so long
as the government regulator validates their
safety.
Switzerland has five operating nuclear
power reactors, ranging in age from 28 to
43 years old. They generated two-fifths of
the country’s electricity needs in 2010, with
most of the rest coming from hydropower.
The Swiss Energy Strategy 2050 initiative
is working out the policy implications of the
decision to build no new plants.
When hesitation turned into opposition
Switzerland, thus, offers one roadmap
for dealing with nuclear power amid
opposition born of the nuclear crisis that
followed the tsunami that hit Fukushima
Prefecture, Japan, in March 2011.
The decision not to permit construction
of any new nuclear power plants essentially
means that Switzerland will phase out nuclear
energy, but gradually and slowly.
Sudden policy changes bring uncertainty
to industry and make it hard to attract and
maintain a skilled workforce. Knowing well
in advance when nuclear power plants will
mostly likely end operations permanently
is critical to ensure staffing and funding
for safe operation and then decommissioning.
Those resources are also necessary
to continue associated research and
development.
How to solidify the public’s trust
Rebuilding public confidence in nuclear
power requires clear messages and more information
on long-term operation of plants.
The International Energy Agency and the
Nuclear Energy Agency urge governments
to engage with the industry to ensure wellplanned
implementation policies. The public
and stakeholders also need to be informed
in detail about intended and ongoing refurbishment
programmes and other activities
related to long-term operation of plants so
that they have ever-greater confidence in
the safety of the existing plants.
At a general level, the public should be
informed in an objective and transparent
manner of the benefits and challenges of
using nuclear power. This will enhance confidence
in the plants and support regulatory
activities.
A Swiss anti-nuclear rally. Opposition to the energy source grew after the 2011 Fukushima Daiichi incident.
Switzerland demonstrates useful steps
towards strengthening that confidence,
some of which it undertook before the
Fukushima Daiichi accident.
Most importantly, the Swiss Federal
Nuclear Safety Inspectorate (ENSI) was
detached from the Swiss Federal Office of
Energy in 2009 and established as a fully
independent body under the ENSI Board,
which is elected by the Federal Council and
reports directly to the council.
ENSI not only closely monitors safety
and security at the power stations, but it
also oversees the interim storage facility for
radioactive waste and all nuclear research
facilities. ENSI supervises the transport of
radioactive materials to and from nuclear
facilities (Switzerland does not have a nuclear
fuel-cycle industry and imports all its
nuclear fuel) and is involved in the siting of
deep geological repositories for radioactive
waste.
THE PUBLIC SHOULD BE
INFORMED IN AN OBJECTIVE
AND TRANSPARENT MANNER OF
THE BENEFITS AND CHALLENGES
OF USING NUCLEAR POWER, IN
ORDER TO ENHANCE CONFIDENCE.
After the Fukushima Daiichi accident,
ENSI re-examined safety levels at Swiss
nuclear plants, focusing on plant design
in respect to earthquakes, external flooding
and any combination of those two
events, as well as safety and auxiliary systems’
coolant supply and cooling of pools
for spent fuel. It ordered some immediate
rectifications such as establishing external
storage facilities for emergency equipment
and reinforcing the cooling of the spent fuel
pools.
ENSI also required that operators of all
the Swiss plants participate in stress tests
that were mandated by the European Union,
even though Switzerland is not a member
state.
After the batteries of tests, ENSI reported
that the plants in the country were
highly resistant to the effects of all natural
hazards, including earthquakes and flooding,
as well as able to withstand electrical
power failures and extended station blackout
events.
Protest: photo by twicepix on Flickr, http://creativecommons.org/licenses/by-sa/2.0/
32
The Journal of the International Energy Agency

FOCUS
MARKETS & SECURITY
WHO’S INVESTING
IN RENEWABLES
By Michael Waldron
Michael Waldron, a senior
market analyst in the IEA
Renewable Energy Division,
is one of the lead authors
of the Medium-Term
Renewable Energy Market
Report. Prior to joining the
IEA, he worked as a senior energy market analyst
at Lehman Brothers.
Google has invested more than USD 900 million in renewable energy, like the solar panels at its headquarters.
Google campus: © Google; Osórlo wind farm: photo by Paulo rsmenezes, http://creativecommons.org/licenses/by-sa/3.0/br/legalcode
As the economy stumbles along in some
areas of the world, the cost and availability
of financing is a growing source
of uncertainty for renewable energy deployment.
Global investment levels in the sector fell
during the first half of 2012 versus a year earlier,
market data suggested, amid an increasingly
cautious macroeconomic and policy outlook,
particularly in Europe and the United States.
Meanwhile, two traditional sources of financing
for the sector – European bank project finance
and utilities – look increasingly at risk.
But emerging markets, particularly Brazil,
China and India, are now driving renewable
investment. Banks, institutional investors and
corporations in Asia are taking larger roles in
the financing of projects at home and abroad.
For example, Chinese power companies, which
have access to significant amounts of low-cost
finance, have recently invested in renewablelinked
companies and projects in Portugal and
Australia. And compared with European lenders
that have relatively weak capital positions, Asian
banks are expected to be constrained less by
Basel III, new global regulations set to take effect
starting in 2013 that aim to strengthen the
banking sector against economic shocks.
Development banks and export credit agencies
are also taking on larger roles, often providing
loans at better rates than private sources
can offer. Multilateral institutions such as the
European Investment Bank and country-level
entities such as the Brazilian Development
Bank and Germany’s KfW have significantly increased
their activity in recent years. Others are
emerging, including the United Kingdom’s new
Green Investment Bank and its potential pool of
GBP 3 billion for investments in offshore wind,
energy efficiency and power generation from
waste.
Institutional and non-traditional corporate
investors represent another potentially large
source of renewable financing. Private pension
funds, with USD 28 trillion under management
in 2009 (in OECD countries), seek steady, longterm
returns such as those provided by renewable
projects with power purchase agreements.
So far, such funds have engaged carefully,
needing to invest in financial instruments that
minimise exposure to construction risk. But
pension fund financing has already emerged for
wind projects in Denmark, for example.
INFORMATION TECHNOLOGY
COMPANIES ARE LIKELY TO
PROVIDE MORE CORPORATE
INVESTMENT TO HELP MEET
THEIR RISING ELECTRICITY NEEDS.
Sovereign wealth funds, insurance funds
and non-utility corporations are also expected to
play larger roles. Allianz, the biggest European
insurer, already has a wind portfolio of 658 MW
(roughly equivalent to the annual consumption
of 400 000 OECD households). American
companies, largely banks, have provided tax
equity financing, using the renewable energy
tax credits associated with projects to offset
their own tax burdens. While there is uncertainty
over this funding going forward, information
technology companies are likely to provide more
corporate investment to help hedge against
electricity utility price increases and meet rapidly
rising electricity needs for data servers and
overall growth in global internet usage. Google
has already invested more than USD 900 million
in 1.8 GW of renewable generation capacity; in
2010, the company used 2 260 GWh of electricity
for its operations worldwide.
A smaller but potentially more important
development is the growth of programmes to
finance new distributed capacity. For example,
some American residential and commercial
entities are deploying solar photovoltaic (PV)
panels via third-party leasing programmes, defraying
the upfront costs associated with project
financing. Another emerging idea to enable financing
is securitisation of small-scale solar PV
– the pooling of assets to sell as financial securities
on secondary markets – though to date its
uptake has been slow.
The Brazilian Development Bank has financed the majority of the Osório wind farm in Rio Grande do Sul.
www.iea.org 33

MARKETS & SECURITY
IN DEPTH
SPECULATION DEMYSTIFIED:
VIRTUOUS VOLATILITY
Speculation is often blamed for high prices and volatility in oil markets. But
speculation can actually temper volatility while not affecting long-term prices.
By Bahattin Buyuksahin
Bahattin Buyuksahin, senior
analyst for price formation
in the IEA Oil Industry and
Markets Division, has more
than seven years of experience
in oil and energy finance,
covering the spectrum of energy
derivatives markets, from the financialisation of
commodities to the evolving regulatory framework.
In recent years, the oil market has been
characterised by rising, and at times, rapidly
fluctuating price levels. From April 2012
to June 2012 alone, Brent crude oil prices gyrated
between USD 125 and USD 89 per barrel.
Higher volatility adversely affects oilexporting
countries’ fiscal revenues and investment,
reducing confidence in the economy,
while it worsens inflation and growth prospects
for oil importers.
In 2011, the Group of 20 (G20) nations
called for policy options to combat increased
volatility in commodity markets in general, and
in oil markets in particular. In response, a G20
experts group emphasised the importance of
improving data transparency in both financial
and physical markets as well as phasing out
inefficient fossil fuel subsidies. The experts
group also urged the use of country-specific
monetary and fiscal responses to support inclusive
growth in order to mitigate the impacts
of excessive price volatility.
However, it is important to note that volatility
itself is not the main problem. Instead, the
main challenge would be elevated price levels
combined with higher volatility.
Volatility is nothing new for oil
Oil prices, like those of many other commodities,
are inherently volatile, and volatility
itself varies over time. Because of inelastic
supply and demand curves, at least in the short
run, any shock to demand or supply will lead
to large changes in oil prices. Much recent
attention focused on how annualised average
volatility peaked in January 2009 at 92%, followed
by a rapid decline to relatively low levels.
However, the historical peak for volatility
was in January 1991, at an average annualised
116%.
In 2012, average annualised volatility was
relatively stable at about 23% until mid-March.
Note that from January to mid-March, oil
prices increased from USD 110 per barrel to
USD 128 per barrel. Volatility in Brent prices
surged especially in June 2012, reaching an
annualised rate of more than 34% – at the
same time that the price level declined by
more than USD 15 per barrel.
This pattern – volatility increasing as oil
prices decline and volatility declining as oil
prices increase – is consistent with the empirical
evidence for stock markets. Increased
volatility when oil prices decline can be explained
by the fact that falling oil prices often
accompany deteriorating global activity and
resulting uncertainties for global oil demand,
such as the collapse in demand observed immediately
after the demise of the investment
bank Lehman Brothers in September 2008. On
the other hand, increasing oil prices imply improving
economic activity and greater stability.
Thus, oil shows smaller daily price fluctuations,
i.e. lower volatility.
Although policy makers and market participants
generally point to peak oil prices in 2008,
the average Brent oil price for all of 2008 was
USD 96.94 per barrel, peaking at USD 144 per
barrel only on 3 July 2008. Moreover, oil prices
were above the USD 100 threshold level for
only 128 days of the year. Brent oil prices averaged
USD 61 per barrel after that September,
when the worst financial crisis since the Great
Depression hit the global economy. By contrast,
from mid-February 2011 to June 2012, oil prices
averaged more than USD 100 per barrel.
Given the fragile state of the global economic
recovery, the impact of high oil prices
on growth, especially in importing countries,
is potentially more severe now than in 2008.
High oil prices already threaten to aggravate
the economic slowdown by widening global
imbalances, reducing household and business
income and boosting inflation.
Blaming the speculators
In the meantime, high oil prices have once
again brought attention to the role of speculators
in oil markets.
Producers, consumers and policy makers
increasingly blame speculators for fluctuations
in commodity prices, particularly for energy,
even though a futures market lacking speculators
to place counter-investments against the
price-hedging transactions of physical market
players would arguably be much more volatile.
Perhaps inadvertently, some commentators
even associate speculative activity with manipulation.
Speculation and speculators have
become so unpopular that some proposals
seek an outright ban on speculation in commodity
exchanges, especially oil markets.
%
USD/bbl
12
160
10
140
120
8
100
6
80
4
60
40
2
20
0
0
1987 1991 1995 1999 2003 2007 2011
Volatility (GARCH(1,1))
Brent price
Daily volatility and price for Brent oil: in recent years, high volatility coincided with falling prices, and vice-versa.
But just what constitutes speculation?
In general economic terms, buying or selling
any asset in the anticipation of a price change
constitutes speculation. In this sense, the distinction
between hedging and speculating in
futures markets is not so clear. Traditionally,
traders with a commercial interest in, or an
exposure to, a physical commodity have been
called hedgers, while those without an underlying
exposure to offset have been called
speculators. However, hedgers may also “take
a view” on the price of a commodity or may not
Chart source: US Energy Information Administration
34
The Journal of the International Energy Agency

IN DEPTH
MARKETS & SECURITY
Oil trading: © BP plc
hedge in the futures market despite having an
exposure to the commodity, choices that could
be considered speculative.
In this broader view of speculation, motorists
who tank up their cars in anticipation of higher
prices amid fear of future oil supply disruption
can be considered speculators. If their prediction
is correct, though, the motorists actually are
smoothing out supply availability between the
present and the future, thereby reducing price
volatility by putting upward pressure on prices
when oil is abundant, while putting downward
pressure on oil prices when oil is scarce. The
same principle applies to other speculators.
If speculation is stabilising oil prices, why
do politicians seem so worried about the impact
of speculators? For example, as part of
initiatives to strengthen oversight of energy
markets, US President Barack Obama declared
in April, “Rising gas prices mean a rough ride
for a lot of families. We can’t afford a situation
where speculators artificially manipulate markets
by buying up oil, creating the perception of
a shortage and driving prices higher, only to flip
the oil for a quick profit.” He was arguably referring
to speculation by financial institutions,
such as hedge funds and commodity index
traders. The increased participation of traditional
speculators as well as other financial
institutions in commodity derivatives markets
has led to claims that the trading activities of
these speculators destabilise markets.
Primer on speculative-stabilising theory
It is obvious that there is a tight link between
physical and financial oil markets. If
speculators anticipate higher demand for oil in
the future based on information coming from
physical markets, then futures prices will increase.
In turn, spot prices will rise because
some oil will be pulled off the market today due
to the anticipation of higher prices in the future;
however, that oil comes back to the market
again in a future period of relative scarcity,
leading to a lower future spot price than what
would have otherwise occurred without inventory
accumulation.
The connection between inventory level and
price level tends to moderate the volatility unless
speculators are wrong. If they are wrong,
they incur a loss, so they have every incentive
to be right in their anticipation. This is why
speculators would normally be expected to
reduce volatility, without having any effect on
the long-run price level, which is determined
by supply and demand. In other words, traditional
speculative-stabilising theory suggests
Oil traders in Houston: leaders of the Group of 20 nations back efforts to limit volatility in commodity markets.
that profitable speculation must involve buying
when the price is low and selling when the
price is high, and therefore irrational speculators
or “noise traders” acting on irrelevant information
will not survive in the marketplace.
No smoking gun
But some theoretical models find some
reasons for concerns about hedge fund and
index trading activities, in which noise traders,
speculative bubbles or herding can drive
prices away from fundamental values and
destabilise markets. Ultimately the question
of whether these speculative groups destabilise
markets or simply supply needed liquidity
becomes an empirical issue.
SPECULATORS SHOULD NOT BE
VIEWED AS DISTORTING PRICES.
RATHER, THEY ARE ESSENTIAL
PARTICIPANTS FOR THE PROPER
FUNCTIONING OF COMMODITY
DERIVATIVES MARKETS.
Recent research indicates that increased
participation of commodity swap dealers and
hedge funds has improved linkages between
crude oil futures prices at different maturities,
providing long-term hedging opportunities
that would not otherwise have been possible.
Furthermore, ample research shows
that volatility in the crude market is reduced
by the activity of speculators in general, and
hedge funds and commodity swap dealers in
particular.
Of course, these traders might attempt to
move prices and increase volatility over short
intervals of time. However, research using
state-of-the-art econometrics finds no systematic
evidence that speculative activity leads to
movements in oil prices. In a 2012 paper, The
role of speculation in oil markets: What have
we learned so far?, that reviewed the existing
literature on the impact of speculation in oil
markets, the economists Lutz Kilian, Bassam
Fattouh and Lavan Mahadeva concluded that
“the existing evidence is not supportive of an
important role of speculation in driving the spot
price of oil after 2003. Instead, there is strong
evidence that the co-movement between spot
and futures prices reflects common economic
fundamentals rather than the financialisation
of oil futures markets.”
Speculators should not be viewed as distorting
prices. Rather, they are essential participants
for the proper functioning of commodity derivatives
markets who provide necessary liquidity,
thereby reducing market volatility. Recent regulatory
measures, such as speculative position
limits, aimed at limiting the participation and reducing
the risk-bearing capacity of speculators,
will potentially have adverse consequences,
such as reducing liquidity, raising hedging costs
and amplifying volatility in energy markets.
Michael Dunn, a Commissioner of the
Commodities Futures Trading Commission in
the United States until last year, perhaps best
summed up the debate on position limits when
he said in October 2011 that “my fear is that position
limits are, at best, a cure for a disease that
does not exist or a placebo for one that does.
At worst, position limits may harm the very
markets they are intended to protect.”
www.iea.org 35

MARKETS & SECURITY
IN DEPTH
CATALYST TOWARDS DECARBONISING
PLATFORM OF ACTION
IEA Technology Platform champions low-carbon advances worldwide,
including North African solar power and Russian efficiency and bioenergy.
By Marie-Laetitia Gourdin
Marie-Laetitia Gourdin
joined the IEA in 2010 and
is now an Energy Analyst
on the International Low-
Carbon Energy Technology
Platform. Before, while
studying at La Sorbonne and
Assas universities in Paris, she worked at the French
Prime Minister’s Office for European Affairs.
Decarbonising energy systems is a huge
challenge, but the IEA Technology
Platform catalyses deployment of lowcarbon
technology around the world.
Besides activities with IEA members,
the initiative works on country-specific and
regional initiatives with emerging economies
and developing countries, and it collaborates
with various stakeholders from
the private sector and other international
organisations.
Formally known as the International
Low-Carbon Energy Technology Platform,
the Technology Platform identifies shortcomings
in the development of low-carbon
technologies, and then develops strategies,
including roadmaps, to foster innovation,
implementation and best practice for these
technologies.
In its two years, the Technology Platform
has developed 20-plus projects covering more
than ten different clean energy technologies
and systems, including hydropower, smart
grids, energy efficiency, solar technologies
and bioenergy.
Working with Morocco on solar power
Morocco has some of the world’s best
resources for renewable energy, and its
government plans for 14% of electricity, or
about 5% of total national energy demand,
to come from solar power by 2020.
But despite impressive recent advances
worldwide in solar energy technology, for
Morocco to meet its target, the country will
need to adopt not just the latest technology
but also “best practice available” in policy.
The Technology Platform seeks to help
Morocco decarbonise and also set a regional
example that can be replicated with other
national as well as local governments around
the Mediterranean Basin. Existing infrastructure
links to neighbouring countries in North
Africa and Europe will help Morocco share
power in the region, fuelling a low-carbon
energy transformation not just at home but
across North Africa. This increased supply
should encourage greater energy trade with
both Europe and sub-Saharan Africa.
In support of King Mohammed VI’s decision
to designate Morocco Oriental as a
pilot region for the development and deployment
of renewable energy technologies, the
IEA is collaborating with R20 Regions of
Climate Action, an organisation of subnational
governments co-operating with the
United Nations, and Morocco Oriental authorities.
The Agency organised a training
workshop in March 2012 that addressed
policy, technology and planning for roadmap
development and led to a pilot project
for the creation of a local solar technologies
roadmap that can be expanded to regional
and national levels.
Spreading across North Africa and the sea
The Technology Platform subsequently
facilitated IEA participation in the 5 th Middle
East and North Africa Renewable Energy
Conference, held in early May in Marrakech.
The event focused on the prospects and
challenges for sustainable regional socioeconomic
development through renewable
energy.
In October, the Technology Platform will
join forces with the IEA Renewable Energy
Working Party to organise a workshop in
Rome on deploying renewable energy in the
Mediterranean area. Other partners are Italy
and Res4Med, an industry association created
in 2011 by Italian power-sector companies,
including Enel Green Power.
The Technology Platform’s increasing activities
in the Mediterranean will help the IEA
multiply its interactions with countries of the
region, in particular Morocco but also potentially
Libya and Egypt.
A combined gas-concentrated solar power plant in Morocco Oriental, a pilot region for deploying renewables.
Embracing efficiency in Russia
The Technology Platform is also working
with Russia on energy efficiency and
bioenergy, two areas which can help Russia
reduce its carbon emissions and increase
energy security.
According to the IEA World Energy
Outlook 2011, if Russia had used energy as
efficiently as comparable OECD countries in
each sector of its economy in 2008, it could
Ain Beni Mathar plant: © OECD/IEA, 2011
36
The Journal of the International Energy Agency

IN DEPTH
MARKETS & SECURITY
have saved more than 200 million tonnes
of oil equivalent, equal to 30% of its consumption
that year. Russia has particularly
great potential for energy efficiency in power
generation.
Following then-Prime Minister Vladimir
Putin’s April 2011 decision to create a series
of national technology platforms focused on
modernisation and innovation of the Russian
economy, the IEA Technology Platform has
worked closely with the Ministry of Education
and Science and the utility Inter RAO UES of
Russia.
Those organisations and the Technology
Platform jointly sponsored a September 2011
conference where international experts advised
on the project series, with a particular
focus on thermal power, renewable energy
and smart grids.
The Technology Platform then organised
two events in June 2012: a conference on
bioenergy and a training workshop on roadmap
development at the national level that
focused on Russian priorities for efficient
thermal power and bioenergy use.
The Technology Platform works with Russia to galvanise the use of bioenergy in the agriculturally rich nation.
Russian hay field: photo by akk_rus on Flickr, http://creativecommons.org/licenses/by-nd/2.0/deed.en;
Moscow: photo by koraxdc on Flickr, http://creativecommons.org/licenses/by/2.0/legalcode
Next steps as Russia takes on G20 role
In 2013, while Moscow holds the presidency
of the Group of 20 (G20) nations forum,
the Technology Platform will work with
Russia on bioenergy. In June 2012, the IEA
signed an agreement to cooperate on the
development of a How2Guide for Bioenergy
publication with the Russian Biotechnology
Society, which acted on behalf of the
Russian Bioenergy Technology Platform. The
How2Guide, as part of a wider IEA series,
will provide guidance on policy and methods
for technology-specific roadmaps at the
national level.
Collaborating with the IEA on this project
while developing its own national roadmap
for bioenergy may help Russia become a
higher-profile bioenergy player in the global
market.
In parallel, following Moscow’s stated
priorities and previous Technology Platform
efforts, the IEA plans to help Russia develop
a roadmap on clean and efficient thermal
power.
Technology Platform around the world
The Technology Platform was created
under mandates from the Group of Eight
leading industrialised countries and IEA
members to address the rapidly closing window
for reducing carbon emissions in time
If efficiency in Moscow and all Russia were at the comparable OECD average, energy use could fall by 30%.
to minimise global temperature increase.
The initiative is ready to pursue activities in
a wide range of nations, including all 28 IEA
member countries plus Chile and Estonia,
which are pursuing IEA membership, as well
as Brazil, China, India, Indonesia, Mexico,
Morocco, Russia, South Africa, Vietnam and
the United Arab Emirates.
The Technology Platform is preparing
its first annual report, which will detail its
progress towards its three aims: catalyse
partnerships and support activities to accelerate
deployment of low-carbon technologies;
facilitate the sharing of best practice
in policy; and identify and remedy gaps in
international cooperation on low-carbon
energy policy.
More Information about
Technology Platform
activities is available at
http://bit.ly/MxQpNh
www.iea.org 37

INNOVATION & ENVIRONMENT
TECHNOLOGY
CATCHING THE BUS TO THE FUTURE
A QUIET REVOLUTION
Bus rapid transit – a mix of efficient service and land-use policies –
provides a low-cost, energy-efficient solution to urban transport woes.
By Tali Trigg
Tali Trigg became an IEA
Energy Analyst in 2010. He
specialises in transportation
technology policy, with an
emphasis on smart growth,
electric vehicles (spearheading
the Agency’s work on
the Electric Vehicles Initiative) and bus-centred
rapid transit.
Tight budgets and a rapidly warming
world have governments scrambling
for technology solutions that meet
the energy demand of a larger and more
urban population. Many cities around the
world have found an answer in buses, as
an innovative re-imagination of a low-tech
mass transit option, to ease the modern
problems of increased congestion and
pollution.
From South America and now dramatically
in China, the quiet revolution of bus
rapid transit (BRT) reconfigures traditional
bus systems and combines them with innovative
land-use policies to fashion an integrated,
cost-effective and highly efficient
mode of transportation.
BRT systems combine speedy, articulated
buses with rapid boarding and dedicated
lanes to create very efficient transport systems
with high load factors. Besides fast
operational speeds, BRT systems have good
frequencies of service (a bus shows up
HOW THE IEA SUPPORTS BRT
The International Energy Agency developed
the first global BRT database
with EMBARQ, compiling data on all
completed systems worldwide, as
well as those in the planning stage.
EMBARQ is a programme of the World
Resources Institute and a member of
the BRT-ALC Center of Excellence.
The IEA also recognised the extensive
potential of BRT systems in
its biennial report Energy Technology
Perspectives 2012. IEA senior transport
analyst Lew Fulton said during
the flagship technology book’s launch
in June, “In the 2012 edition, the IEA
calls for a doubling of the world’s BRT
systems by 2020.”
More Information at www.brtdata.com
almost every 30 seconds in Mexico City
and Bogotá, Colombia). The accompanying
unique marketing identity has been shown
to increase ridership by 10% to 15%. They
are budget-friendly and usually politically
feasible, unlike many other major infrastructure
projects, which are expensive and often
disrupt the urban sphere.
BRT systems were developed in Curitiba,
Brazil, in the mid-1970s and then won bigger
international attention with a successful
implementation in 2000 in Bogotá that
resulted in nearly half of commuters there
taking the bus, compared with less than
10% just ten years before the programme
was launched.
There are more than 140 BRT systems
operating worldwide today, up from about
20 in 2000 and nearly 100 by the end of
2010. The recent surge comes as the original
Latin American locus of BRT shifts to
China. There are 13 systems already in
operation in China, with 16 more under
development. The two-year-old system in
Guangzhou is already considered to be one
of the most efficient in the world, outperforming
many metro, or urban underground
rail, systems in moving passengers per
hour per direction (pphpd), the common
term of measurement for bus and metro
passenger flows.
The frontline of the BRT revolution may
be shifting to China, but Latin America continues
to innovate. Bogotá is looking at battery
electric buses from BYD Corporation of
China, while Argentina just started its first
system, in Buenos Aires. Mexico is looking
to expand its BRT success in Mexico City to
several other cities. And Brazil is specifically
focusing on BRT for the 2014 FIFA World
Cup and the 2016 Olympics.
Not just a South-to-South export
This innovation is not merely a Southto-South
expansion, but also has taken
hold in cities from Cleveland, Ohio – where
it raised ridership by 60% in four years – to
Caen, France. One of the earliest “Northern”
adopters of BRT was Ottawa, Ontario, whose
BRT system started in 1983 and today
serves 10 000 pphpd. Other star performers
in North America include Chicago, Illinois;
Las Vegas, Nevada; Nashville, Tennessee;
Pittsburgh, Pennsylvania; Cincinnati, Ohio;
and Montgomery Country, Maryland, a suburban
area near Washington, DC. All of
these regions plan to expand and enhance
their BRT systems.
The innovativeness of BRT is shown by
not only the rate of its adoption, but also the
geographic diversity of its implementation.
From Rio de Janeiro to Eugene, Oregon, and
One way BRT systems speed service is levelised boarding, in which the platform and the bus door line up evenly.
Levelised bus entry: photo by EMBARQ Brasil on Flickr, http://creativecommons.org/licenses/by/2.0/
38
The Journal of the International Energy Agency

TECHNOLOGY
INNOVATION & ENVIRONMENT
from Jakarta to Ahmadabad, India, the concept
and reinvigoration of public transit is walletfriendly,
pollution-reducing, and easy and
comfortable enough to tantalise new riders
to adopt it. Finally, it can be planned, budgeted
and implemented within one political
term, a powerful alchemy for a transit innovation
trying to make a name for itself.
Europe has a different approach altogether,
developing an alternative, Buses with
High Level of Service (BHLS), which adopted
some of the features of BRT, including
a system focus as well as a high level of
comfort and good performance. Due to the
higher urban density of European cities
and the existing proliferation of metros and
tramways, BRT was rarely imported wholecloth
(Ankara, Turkey, being a possible
exception); instead, ideas from BRT were
incorporated into existing systems, and the
idea of BHLS was born.
Old-style vehicle’s high-tech makeover
BRT’s efficiencies include levelised boarding
– avoiding steps by making the platform
the same height as the bus, much like
many metro trains – to speed the exit and
entrance of passengers. Another example is
the use of an intelligent transport system
(ITS) that counts passengers, tracks vehicles
and gives signal priority to BRT vehicles.
An ITS allows for better analysis of the
system performance, which translates into
better service and better real-time information
for the passenger.
BRT systems are not the only recent
change in bus transit. More intercity coaches
feature Wi-Fi and other amenities that
make them more comfortable. In fact, intercity
buses have been the fastest-growing
transportation mode in the United States
for three years running. A 2010 study from
DePaul University in Chicago shows that
the overall rate of US growth for curbside
bus services from 2009 to 2010 was at
least 33%.
Governments are realising that light rail
and metro systems are not always their best
option, and such projects are being scaled
back around the world because of relatively
high costs and the global financial crisis. In
their place, urban buses are increasingly
attractive, as BRT and other technological
developments help bus transit spread more
widely than ever before.
BRT EFFICIENCIES RANGE FROM
LAND-USE POLICIES TO COMPUTER
TRACKING OF VEHICLES TO
ELIMINATING STEPS AT BUS
STOPS TO SPEED LOADING.
Finally, minibuses continue to provide
a flexible transport solution in much of the
Southern Hemisphere.
Efficient use of land and technology
Land use is the component that fundamentally
ties in the system efficiencies and
ends up making BRT so efficient.
But what does system efficiency look
like? Think of Japan’s high-speed rail system.
When policy makers were considering
how to make the trains go faster, they
approached the question with a systems
framework and realised that the limiting
factor was not the trains but the tracks.
The Japanese then set out to level ground
where possible, avoid any crossings and
lay as much uninterrupted straight track
as possible. More than the world-renowned
bullet trains themselves, this broader approach
led to the system efficiencies associated
with the service.
In that same fashion, BRT systems harness
whole systems thinking to deliver a
mobility solution that can actually benefit
from urban density. BRT can symbiotically
integrate into the city and evolve along with
a changing city. As the number of BRT systems
worldwide increases, so do the urban
corridors they serve. For example, Leeds,
England, and Beijing are two cities adding
capacity as their BRT systems mature.
The key trend running in parallel to BRT
system uptake is the increased urbanisation
of the world. According to United Nations
estimates, about 50% of the world lives in
cities today, and that share should rise to
75% in 2050 – a demographic revolution.
Increased urbanisation very likely will exacerbate
congestion and pollution, unless
cities make sustainable and long-term
decisions that address this demographic
shift. Urbanisation is paramount for transportation
since public transit systems are
viable only with density and the resulting
high ridership potential. BRT could become
part and parcel of an increasingly appealing
path towards efficient and sustainable
cities, transporting citizens safely, comfortably
and speedily.
What not long ago was the most maligned
urban transit solution, bus systems
may come to redefine the spaces of hundreds
of cities clamouring for a solution
against increasingly urbanised space and
concomitant pollution and congestion. Watch
this space for a low-tech path towards
sustainability.
Guangzhou bus traffic: photos by Karl Fjellstrom, ITDP, all rights reserved
Buses-only lanes and other BRT efficiencies (right) in Guangzhou, China, cleared past congestion. China now has 13 BRT systems, with 16 more under development.
www.iea.org 39

INNOVATION & ENVIRONMENT
CLIMATE
A WORLD OF IMBALANCES
STORING UP TROUBLE
Humanity’s increasing impact on the Earth’s climate system involves
more than just the emission of a trillion-plus tonnes of CO 2
since 1750.
Julian Smith
Julian Smith, who studied
science at the University of
Queensland in Australia,
joined the IEA Energy Data
Centre in 2008, focusing on
electricity, solid fossil fuels and
carbon capture and storage.
He is a collaborator on the IEA Coal Information
book and assists the CCS Technology unit.
Each day, the Earth receives on the order
of 15 billion terajoules (TJ) of solar radiation.
Approximately 30% of this is
immediately reflected, refracted or scattered
back into space, while the planet’s surface or
atmosphere absorbs the remainder before reemitting
it.
Viewed from space and based on the absorption
rate, the theoretical average temperature
on the Earth should be -18°C, not
the 14°C that was the 1951 to 1980 annual
global mean.
What keeps the bulk of the planet’s surface
above freezing is the greenhouse effect. The
vast majority of gases in the Earth’s atmosphere
are transparent to electromagnetic radiation
at the frequency distributions emitted
by the Sun and the Earth. But other, trace gases
are responsible for the retention of heat: these
greenhouse gases (GHGs) are essential for life
as we know it.
CO 2
and other long-life GHGs
The IEA publication CO 2
Emissions from Fuel
Combustion (2012) calculated global CO 2
emissions
from fossil fuel combustion to be more
than 30.5 gigatonnes (Gt) in 2010, equivalent
to atmospheric concentrations of 3.9 parts per
million (ppm). The United States Department of
Energy’s Carbon Dioxide Information Analysis
Center has data extrapolated back to 1750
showing that of the 1 337 Gt of CO 2
emitted
from use of fossil fuels in the 261 years since
the dawn of the steam age, 24% occurred in
the 11 years from 2000 through 2010.
Oceans and other carbon sinks absorb
some of that extra CO 2
, decreasing the ocean’s
natural alkalinity in the process. But most
of it remains in the atmosphere, increasing
CO 2
concentrations from 280 ppm in 1750 to
391 ppm in 2011.
Other GHGs also play significant roles.
Besides CO 2
, the 1997 Kyoto Protocol covers
methane, nitrous oxide, sulphur hexafluoride
and various groups of fluorocarbons. The 1987
Montreal Protocol addresses ozone-depleting
GHGs like chlorofluorocarbons.
The efficacy and atmospheric longevity of
all these gases can be calculated in terms of an
equivalent amount of CO 2
(generally based on
a 100-year period). Some have a global warming
potential thousands of times more per
molecule than CO 2
at current concentrations,
but they are not as large a by-product of human
activities.
The 391 ppm CO 2
figure comes from
the US National Oceanic and Atmospheric
Administration’s annual greenhouse gas index.
But, using some estimates, all Kyoto GHGs totalled
446 ±6 ppm CO 2
-equivalent (CO 2
-eq). All
long-life GHGs, which include chlorofluorocarbons,
were 474 ±8 ppm CO 2
-eq.
What other GHGs are there?
Ozone is not a long-life GHG, but it is a GHG.
A naturally occurring gas in the stratosphere, it
absorbs electromagnetic radiation (EMR) emitted
by the Earth very effectively in a window
of frequencies where very few other gases do.
Human-caused emissions of ozone-depleting
gases have decreased ozone concentrations
in the stratosphere, creating a small cooling
effect, or a negative radiative forcing (RF; see
sidebar). But a significant increase in tropospheric
ozone production (caused by the release
of other pollutants) ensures a solid overall
warming effect even though ozone survives
only a brief three weeks in the troposphere. The
WHAT IS RADIATIVE FORCING?
EMR intensity depends upon the temperature
of the object emitting it. EMR
absorbed by the Earth and the total EMR
that the Earth emits must be equivalent
for the planet to neither gain nor lose
energy.
Altered factors (such as an increase
in greenhouse gas concentrations) that
change this radiative balance are known
as “forcings”, as they demand a reaction.
They are usually calculated showing their
effect at the tropopause (see map of atmosphere
on last page of article), and are
measured from a start time (e.g. 1750).
As potential flows of energy, they tend to
be expressed in Watts per square metre.
Argentina’s Perito Moreno glacier: terrain changes affect albedo (reflectivity), altering the Earth’s energy absorption.
Perito Moreno: photo by S. Rossi, http://creativecommons.org/licenses/by/3.0/legalcode
40
The Journal of the International Energy Agency

CLIMATE
INNOVATION & ENVIRONMENT
human effect on ozone concentrations currently
results in an RF of about 0.31 Watts/m 2 (W/m 2 ),
equivalent to approximately 23 ppm CO 2
-eq.
Water vapour is the most prevalent GHG,
and the main contributor to the naturally occurring
greenhouse effect. With concentrations
tending to range between 1% and 4% of the
atmosphere at sea level, water constitutes
about 0.4%, or 4 000 ppm, of the atmosphere
as a whole. It, too, is not a long-lasting GHG,
as the hydrological cycle – via clouds and precipitation
– ensures that water vapour lasts for
just days in the troposphere. Anthropogenic
hydrological warming effects include higher
tropospheric concentrations of water vapour
resulting from the effects of irrigation (which
are still being quantified). In the stratosphere,
concentrations have been changing of late for
several reasons, including the decomposition
of methane, increasing the greenhouse effect.
The mixed impact of aerosols
Made up of many components, aerosols
have both the largest negative impact on RF
and the largest uncertainty range. Like water
vapour and ozone, they are naturally occurring
phenomena in our environment, but human
activities alter the type, pervasiveness and
persistence of aerosols’ concentrations. Their
effects can be classified as direct (i.e. the scattering
and absorption of radiation) and indirect
(providing nucleation that forms more clouds
or clouds with different properties, increasing
their albedo, or reflectivity). Currently, the anthropogenic
indirect effect from aerosol particles
contributes about 1% to the overall cloud
albedo effect.
Direct effects from other sources (such as
mineral dust from mining) are also often minor
The Sun emits 385 x 10 18 MW of bolometric luminosity, sending Earth 15 billion TJ of radiation daily.
fractions of natural equivalents. Exceptions
stem from combustion of fossil fuels: black
carbon particles provide a notable heating influence
when airborne, and anthropogenic sulphate
emissions are several times larger than
the amount of airborne dimethyl sulphide produced
by phytoplankton.
The global picture
The combination of all these variables
and many more result in a change in RF from
1750 to 2011 of 2.07 W/m 2 , or 409.4 ppm
CO 2
-eq, up from 406.4 ppm CO 2
-eq in 2010.
The other factors include anthropogenic forcings
like the effects of deforestation and
small natural changes in how much radiation
the Earth receives from the Sun. But not all
anthropogenic effects are currently counted,
as they are still being quantified; exclusions
include effects from aviation.
There is a considerable delay between
changes in RF and the climate system’s
Sun: photo courtesy of NASA
EARTH’S ONE IN A MILLION
Atmospheric parts per million (ppm) are a
concentration based on evenly distributed
volume, not mass, so all gases are equivalent,
regardless of molecular weight. The
Earth’s atmosphere weighs 5.14 million
billion tonnes excluding water vapour.
Based on its constituents (N 2
78.08%,
O 2
20.95%, Ar 2
0.93%, etc.), it has a mean
mass of 28.97 grams per mole. This means
1 ppm in the atmosphere contains more
than 177 trillion moles. In terms of CO 2
,
every ppm has a mass of approximately
7.81 Gt.
That sum is equivalent to the weight
of iron you would need to construct more
than 1 069 000 Eiffel Towers. Standing
upright, side-by-side, those towers would
cover an area almost the size of Kuwait.
One ppm of CO 2
equals the displacement
of 75 000 Nimitz-class aircraft carriers.
The weight is six times the capacity of the
world’s entire merchant fleet, or heavier
than all the road vehicles with an internal
combustion engine that humanity has ever
made.
At standard temperature and pressure,
one millionth of the atmosphere would occupy
about 4 trillion cubic metres, which
would cover the entirety of the United States
to a depth of 40 centimetres. One ppm is
equivalent to all Russian natural gas exports
from 1991 through 2010, or 122% of the
global consumption of natural gas in 2010.
CO 2
emissions from fossil fuel combustion
totalled 3.9 ppm in 2010, up
from 1.1 ppm in 1959. In 1909 they were
less than 0.4 ppm (from the use of about
1.5 billion tonnes of coal).
Some of these annual emissions will be
removed from the atmosphere as a part of
the carbon cycle. Nevertheless, CO 2
concentrations
in the atmosphere are increasing
at an exponential rate.
www.iea.org 41

INNOVATION & ENVIRONMENT
CLIMATE
(km)
120
110
100
Temperature and pressure vs altitude
Thermosphere
90
80
70
Mesopausee
Mesosphere
60
50
40
Stratopause
30
20
Stratosphere
Tropopause
10
Troposphere
0
( o C) -100 -80 -60 -40 -20 0 20 40 60 80
0%
100%
Pressure (atm) Temperature ( o C)
absorbing sufficient heat to respond fully.
Studies show that the oceans have taken up
more than 90% of the extra heat absorbed
to date – well over 200 billion TJ from 1955
through 2003. By contrast, the total heat generated
from combusting fossil fuels (not only
useful heat but waste, too) was 11.5 billion TJ
over those 49 years.
James Hansen was the lead author of
a 2005 study that used data through 2003
to quantify the Earth’s thermal imbalance
at 0.85 ±0.15 W/m 2 . That means that the
planet was absorbing somewhere between
360 TJ and 510 TJ more every second around
2003 than it would normally re-emit. The
implication is that the Earth’s climate must
heat up by 0.6°C to address this imbalance,
based on a climate sensitivity assumption
of 0.75°C per W/m 2 . But that temperature
change will take decades – during which
time the RF imbalance most likely will increase
further.
The ramifications of this imbalance
Average annual GHG emissions have increased
substantially since 2003, with atmospheric
CO 2
concentrations alone rising by more
than 2 ppm per year at present. Adding 1 ppm
of CO 2
-eq to the atmosphere effectively contributes
about 7 TW of heating – approximately
twice the capacity of the world’s collective
fossil-fuel electricity generation systems.
As the amount of GHGs in the atmosphere rose, the 20 hottest years since 1880 were all in the past 24 years.
Globally, according to data collected by the
Goddard Institute of Space Studies in the United
States, the 20 hottest years since 1880 have all
occurred in the 24 years dating back to 1988,
and the hottest decade on record (2001-10)
was 0.23°C warmer than the second-hottest
decade (1991-2000) and 0.55°C hotter than the
1951-80 benchmark.
ADDING 1 PPM OF CO 2 -EQ
IN EFFECT CONTRIBUTES 7 TW OF
HEATING – TWICE THE CAPACITY
OF THE WORLD’S COLLECTIVE
FOSSIL-FUEL ELECTRICITY
GENERATION SYSTEMS.
Other feedback mechanisms including terrain
changes such as the thawing of permafrost
and albedo changes from melting ice will
exacerbate the warming of the Earth and, in
turn, increase the concentration of GHGs, setting
up further warming.
Some measures to reduce emissions can
have unwanted side effects. In the early 1970s,
concerns over aerosol-induced global dimming,
acid rain and other health and environmental
problems led countries to use engineering
measures to reduce particulate emissions.
Germany, for example, cut its sulphur pollution
by more than 90% in 30 years. But according
to the Intergovernmental Panel on Climate
Change’s Fourth Assessment Report, anthropogenic
aerosols could still be providing -1.2 W/m 2
of forcing – that is, a cooling effect – about
three-quarters of which can be attributed to sulphates.
Given the short lifespan of tropospheric
aerosols (hours to weeks), halving this concentration,
while necessary, would be the equivalent
of adding an extra 50 ppm CO 2
-eq to the
atmosphere in a short time frame.
Some sobering implications
During the last great climate-change event,
the Paleocene-Eocene Thermal Maximum,
some 55 million years ago, the Earth heated
up about 6°C over 20 000 years and then took
200 000 years to return to near pre-perturbed
conditions. The planet underwent significant
changes during this period; ocean acidification
accompanied mass extinctions on land and in
the sea. The sedimentary rocks that formed
before and after this event are so different
that they were divided into separate geological
epochs long before scientists discovered what
had caused the split.
For a great many species, adaptation was
simply not possible, even over many thousands
of generations. Business-as-usual scenarios
using current emission trajectories suggest
that a similar degree of climate change is
likely, but over less than 1/100 th the amount
of time.
Chart: adapted from http://en.wikipedia.org/wiki/File:Comparison_US_standard_atmosphere_1962.svg under Creative Commons licence http://creativecommons.org/licenses/by-sa/3.0/deed.en
Desertification: photo by pizzodisevo on Flickr, http://creativecommons.org/licenses/by-sa/2.0/legalcode
42
The Journal of the International Energy Agency

COMMENTARY
INNOVATION & ENVIRONMENT
THIRSTY ENERGY
Energy and water underpin human prosperity and are, to a large extent, interdependent. Water
is ubiquitous in energy production; in power generation; in the extraction, transport and
processing of fossil fuels; and, increasingly, in irrigation for crops used to produce biofuels.
Similarly, energy is vital to the provision of water, needed to power the systems that collect, transport,
distribute and treat it.
Energy systems are vulnerable to constraints on water resources that affect the reliability and cost
of energy projects. In August, water shortages in India from a delayed monsoon concurrently raised
electricity demand (largely for groundwater pumping) and lowered electricity supply from hydropower,
contributing to a power outage that lasted several days and affected more than 600 million people.
In the United States and Europe, droughts and heat waves have affected operations at nuclear and
fossil-fuelled power plants – which rely on water for cooling and other processes – forcing reductions
in electricity output and, in some cases, imposing additional costs for importing electricity and/or
investing in adaptive measures. In Iraq, sustained increases in oil production hinge on the availability
of water for injection to maintain pressure in the country’s southern fields, with vital implications for
Iraq’s future prosperity and global oil markets. Water availability in parts of China, which is estimated
to have the world’s largest shale gas resources, will strongly influence the pace of development.
Water-related energy security and economic risks are heightened in regions where water availability
is limited, but energy production can face detrimental impacts from water shortages even in
regions with seemingly ample resources. Supplies can be seasonal, and their distribution uneven or
affected by unexpected climatic events. In addition to constraints on availability, risks to water quality
by some types of energy production can require additional safeguards at added cost.
Looking ahead, pressures on both energy and water are set to increase. Economic growth and
expanding populations, particularly in emerging economies, will drive greater demand for energy
and water. Moreover, climate change portends a more water-constrained future: besides higher air
and water temperatures, its expected impacts include decreasing average surface water flows; a
reduction of snowpack and change in the timing of the snowmelt season; sea level rise, which will
contaminate freshwater supplies; and droughts, heat waves and floods that are more frequent and
more severe.
Such prospects have prompted us to spotlight the relationship between energy and water in the
forthcoming World Energy Outlook 2012, which will be released on 12 November. We will include a
stand-alone chapter that addresses present and future energy sector vulnerabilities to water and that
estimates, for the first time, water needs by scenario, energy source and region through 2035. Our
aim is to present readers with a picture of trade-offs between energy and water, and I hope that it will
encourage decision makers to better integrate energy and water policies.
By Fatih Birol
Fatih Birol, Chief Economist of the IEA, has
been named by Forbes Magazine as one of
the world’s most powerful people in terms of
influence on the global energy scene, and is
the Chairman of the World Economic Forum’s
Energy Advisory Board. He was awarded the
Order of Merit of the Italian Republic in 2012.
In 2009, alongside awards from the Dutch and
Polish governments, he received the German
Federal Cross of Merit. He was awarded the
Golden Honour Medal of Austria in 2007 and
was made a Chevalier dans l’Ordre des Palmes
Académiques by France in 2006.
Cooling tower: photo by erix! on Flickr, http://creativecommons.org/licenses/by/2.0/
Nuclear and fossil-fuelled power plants are critically reliant on water for cooling and other processes.
www.iea.org 43

INNOVATION & ENVIRONMENT
SPOTLIGHT
OLDER HOMES INSULATED “FOR FREE”
EFFICIENCY IN THE UK
The United Kingdom offers loans for energy-efficiency improvements
that are repaid from the savings in the property’s unchanged utility bill.
By Yamina Saheb
Yamina Saheb, with 13 years
of experience in buildings and
appliances efficiency, joined
the IEA’s Energy Efficiency
and Environment Division in
February 2011 and heads the
Sustainable Buildings Centre.
Before, she was an energy efficiency analyst at IFRI
(Institut français des relations internationales).
From Windsor Castle to the Tower of
London, the United Kingdom revels
in its older buildings. But it is not
just historical monuments that are built to
last there: in 2050, at least two-thirds of
homes in the country will be ones already
in place now, many of them constructed
before much thought was given to energy
efficiency. This preservation comes at a
price: existing homes in the country now already
use twice as much energy per square
metre as the average new one.
The government is adopting a variety of
policies and measures to buff up older buildings’
energy efficiency, as a result of European
Union regulations and some national ones.
Rules for old and new buildings
One of those EU directives requires an
energy-efficiency rating for any building
when it undergoes a transaction, either
a sale or new rental. From “A” (the most
efficient buildings) to “G” (the least efficient
ones), the ratings appear on Building
Energy Certificates required for all transactions.
Not only does each building get a rating
when sold or rented, but its certificate
IF THE BUILDING IS SOLD
OR THE TENANT MOVES,
THE BENEFITS AND PAYMENTS
FROM THE GREEN DEAL
FINANCING ARE PASSED ON TO
THE NEW OWNER OR TENANT.
comes with recommendations and advice
for cost-effective actions to improve energy
efficiency.
Another result of the EU directive is
strengthened regulations for new homes’
energy performance. These building rules
apply across the European Union; the United
Kingdom’s implementing legislation took
effect in 2010 and will get progressively
tougher every three years through 2016, at
which time all new homes should be zerocarbon.
But the lion’s share of houses in the
United Kingdom then will have been built
before 2010, never mind 2016, and thus
never subject to zero-carbon requirement.
So to save fuel and improve energy
security, the emphasis in the country is
The Green Deal and other programmes encourage UK building owners to insulate lofts, among other efficiencies.
on insulating existing homes today and
making them efficient for tomorrow.
Insulation against energy waste
What are the best improvements for immediate
efficiency? The main focus has
been insulation of walls and under roofs
to cut loss from space heating, which the
Department of Energy and Climate Change
(DECC) estimates accounted in 2011 for
60% of final energy consumption in the
domestic sector and 45% in the services
sector.
As a result of new construction and retrofitting
of existing houses, the number of
homes with cavity wall insulation increased
by 34% from April 2007 to April 2012,
to 11.4 million of the possible 19 million
homes. DECC’s latest estimates are that the
number of remaining homes with the potential
for cavity wall insulation will have fallen
by January 2013 to 5.8 million. The figures
on loft insulation are even more significant:
DECC estimates that just 1% of homes will
lack any loft insulation in January 2013. Still,
about 5.7 million homes will have insulation
of less than 125 millimetres (mm), the DECC
threshold for “full insulation”, though agencies’
minimum thicknesses can range from
100 mm to the UK Energy Savings Trust’s
270 mm for lofts.
Investing the future savings
To complement the regulatory framework,
the government has developed, under
the national Energy Act 2011, a market
framework called “the Green Deal”, which
will be starting in October 2012.
The Green Deal aims to enable privatesector
companies to offer owners or tenants
of homes, businesses or public buildings a
loan for energy-efficiency improvements at
no up-front cost. The initial financing will
come from a provider specialising in Green
Deal loans. The contractor receives payment
right away from the provider, but the energy
bill customer pays off the loan in instalments
Insulation installation: photo by mjtmail (tiggy) on Flickr, http://creativecommons.org/licenses/by/2.0/legalcode
44
The Journal of the International Energy Agency

SPOTLIGHT
INNOVATION & ENVIRONMENT
Building site: photo by Denna Jones on Flickr, http://creativecommons.org/licenses/by/2.0/legalcode;
Energy monitor: photo by tirstanf on Flickr, http://creativecommons.org/licenses/by/2.0/deed.en
on an unchanged energy bill. Energy and
Climate Change Secretary Ed Davey said
that “in addition to creating huge opportunities
for Green Deal providers and businesses
along with thousands of new jobs, this new
market in energy efficiency will deliver the
very best deal for consumers”.
Green Deal financing applies only when
the package of insulation and other energy-efficiency
measures can pay for itself
through savings on the energy bill over the
lifetime of the Green Deal, making the net
cost under the programme zero. The Green
Deal stays with the property: if the building
is sold or the tenant moves, the benefits
and payments from the Green Deal financing
are passed on to the new owner or tenant,
potentially increasing the property’s
value because the new buyer or tenant will
receive an energy efficient and more comfortable
building whose energy bill will be
no larger than the energy costs would have
been without the improvements.
“The UK Green Deal scheme is innovative
in overcoming several of the major barriers
to energy retrofitting of residential buildings,”
said Lisa Ryan, Energy Economist at
the IEA. “It provides easy access to finance
with no upfront cost to the resident; ties
finance repayments to the building rather
than the resident to encourage longer-term
finance and deeper retrofits; and through
the Green Deal provider creates a one-stop
shop for customers to finance and arrange
energy-efficiency measures that makes it
easy to translate interest into action.”
Extending the savings to rentals
In addition to introducing the Green Deal,
the Energy Act 2011 will require private
landlords as of 2016 to make reasonable
energy-efficiency improvements requested
by tenants. In addition, by 2018 landlords
must improve least-efficient properties to a
minimum energy performance standard or,
if able to use the Green Deal, to the maximum
efficiency rating financed under the
programme.
To protect consumers, the government
has set in place a framework that will require
contractors to have a quality certification,
register with the body that oversees the
Green Deal and adhere to a code of practice.
Consumers can get information from
an impartial energy savings help line that is
funded by the government, and a Green Deal
ombudsman will deal with complaints.
Retrofitting an old home in England. In 2050, just a third of UK houses will be less than 40 years old.
“We anticipate that strong quality assurance
and government promotion of the
scheme will be key to success,” Ryan said.
“Innovative financial and operational mechanisms
like the Green Deal will be key to scaling
up energy performance of buildings.”
Extra funding for needy households
As not every property can be improved
in a cost-effective enough manner to qualify
for the Green Deal, the new Energy
Company Obligation (ECO) makes available
extra funding, particularly for the poorest
and most vulnerable households.
The ECO complements existing fuel
poverty policies such as the Warm Home
Discount, which provides direct support for
the payment of energy bills. England’s Warm
Front programme provides efficient heating
systems and other energy-efficiency improvements
to eligible low-income households
occupying low-efficiency homes. Since
its 2000 launch, Warm Front has assisted
about 2.3 million households with annual
average potential savings of approximately
GBP 650 per household. ECO will take over
the functions of the programme in England to
provide energy-efficiency measures to lowincome
and vulnerable households as Warm
Front ends in fiscal year 2012/13.
The ECO will also provide support for
properties that may be more expensive
to treat, such as those needing solid wall
insulation instead of a cavity wall solution,
and require extra funding to pay back within
the Green Deal finance period at no upfront
cost to the household.
An opportunity for change
The Green Deal can make each household’s
energy performance a critical contribution
to the United Kingdom’s goals of reduced
emissions, improved energy security
and lower spending on fuel. Its success will
depend on independent monitoring and the
stringency of energy requirements, tools
that can turn the Green Deal’s innovative
financing and energy saving ambitions into
a low-energy future.
The Green Deal is just one plan to warm homes.
www.iea.org 45

INNOVATION & ENVIRONMENT
GETTING IT RIGHT
CHINA’S AMBITIOUS AIM
A WINDY FUTURE
As China shifts from coal power, an IEA-assisted roadmap shows how
wind can generate 17% of the surging economy’s electricity by 2050.
By Cecilia Tam
Cecilia Tam is Head of the
Energy Demand Technology
Unit and also leads the
Technology Roadmaps programme
at the IEA. She has
written for numerous IEA
publications. Before joining
the Agency, she was a Senior Equity Research
Analyst at Dresdner Kleinwort Benson.
China’s ambitions in wind power rival
those of many IEA member countries:
it plans to use turbines both on- and
offshore to generate 8.4% of the country’s
electricity by 2030 and then double that share
just 20 years later.
To reach those levels, a “roadmap” developed
with the IEA sees China adding about
15 gigawatts (GW) of wind power each year
to its 2010 base of 31GW, leaping from 1.3%
of electricity production to 5% by 2020.
The roadmap was the result of a joint effort
led by the Chinese National Development
and Reform Commission’s Energy Research
Institute (NDRC ERI) with close technical support
from the IEA. It not only set the expectations
for developing wind power but also
assessed the country’s strengths, obstacles
and priorities for fulfilling the roadmap.
China’s energy requirements have been
surging along with its economy, with growth
in electricity demand expected to outpace
overall energy demand growth as it nearly
doubles by 2020 to 8 000 terawatt-hours
(TWh), then increasing to 10 000 TWh
ten years later and 13 000 TWh in 2050. The
roadmap plans for wind power to make up
15% of all installed capacity by 2030 and
26% by 2050.
China’s track record so far lends credence
to these ambitions: the country’s proportion of
newly installed capacity worldwide increased
from less than 10% in 2006 to 49% in 2010.
Wind power to reduce coal-related pollution
Coal is the main fuel used in Chinese
power generation, so the shift to wind power
will help reduce pollution by avoiding the
burning of 130 million tonnes of coal equivalent
(Mtce) in 2020, 260 Mtce in 2030 and
660 Mtce in 2050, according to the roadmap.
This will reduce sulphur dioxide emissions
in 2020 by 1.1 megatonnes (Mt) and
in 2050 by 5.6 Mt. Of course, CO 2
emissions
will be limited as well, with the equivalent
of 300 Mt less of this greenhouse gas entering
the atmosphere in 2020, because of
the expected growth of wind power, and
1 500 Mt less in 2050.
China also expects wind power to generate
jobs, especially as its nascent industry
gets off the ground. Based on a sampling from
2009 to 2010 and average manufacturing
productivity, China expects each megawatt
(MW) of wind power installed in the country to
generate 15 jobs, including at least 13 in the
CHINA NEEDS TO DO MORE
THAN JUST INSTALL NEW WIND
TURBINES: IT NEEDS TO REFORMAT
SIGNIFICANT ELEMENTS OF
ITS ENERGY SYSTEM. ALSO,
CHINA’S GRID WILL NEED TO BE
STRENGTHENED AND EXPANDED.
manufacturing industry. That ratio will fall to
as little as 10 jobs per megawatt by 2050 as
efficiencies and economies of scale improve.
Construction and installation should particularly
benefit the economy of Western China,
where the greatest onshore wind opportunities
lie, by improving roads and other developmental
benefits.
Going offshore to be close to biggest demand
As the roadmap unfolds, the country will
need to develop offshore wind to keep pace
with growing demand for low-carbon electricity
in Eastern China. While land-based wind
generation is expected to cost no more than
CNY 7 500 per kilowatt in 2020, the roadmap
sees only slight improvement by 2050. By
contrast, near-shore production is forecast to
cost CNY 14 000 in 2020, or double the landbased
rate, but fall to CNY 10 000 by 2050.
The price per kilowatt from now-expensive
deep offshore turbines is to fall by 60% in
those 30 years, to just double the near-shore
rate.
Though costlier, offshore installations benefit
from higher load factors and reduced transmission
costs, as the offshore potential is located in
Eastern China, site of the main demand centres.
To reach its goals, China needs to do more
than just install new wind turbines: it needs to
reform significant elements of its energy system.
As in other countries that are shifting to renewable
energy, one major challenge is to orient
pricing so it reflects the cost of environmental
externalities – i.e. the price of carbon – as well
as the value of flexibility and integration costs.
Also, China’s grid will need to be strengthened,
expanded and integrated to allow wind
power from windier but more remote parts
of the country to reach easily and efficiently
the main energy demand centres in the east,
while also encouraging these windier areas
to maximise their own use of wind power.
Transparency in power prices and an interprovincial
grid must be in place by 2020.
The mechanics for building expertise
In the immediate term, the roadmap calls for
China to establish a renewables research and
development fund and an experimental platform
to develop and deploy 5MW wind technology
by 2015. Near-offshore experimental technology
must be in place by 2020. To build such
expertise, the roadmap calls for specialist windpower
training courses and curricula to be
added at Chinese universities by 2015.
A wind idfarm in Xinjiang in western China.
China wind farm: photo by kudumomo, http://creativecommons.org/licenses/by/2.0/legalcode
46
The Journal of the International Energy Agency

EVENTS
ENERGY, ETC.
IEA IN ACTION
IEA Director Maria van der Hoeven presents Freedom Award to
Iraq Deputy Prime Minister Hussain al-Shahristani | Netherlands
HRH Prince Charles, IEA Chief Economist Fatih Birol
Global Assessment Initiatives Meeting | Clarence House, London
Energy Technology Perspectives
Press launch | Paris
IEA Deputy Director Richard Jones, Vice-Chancellor Michael Arthur
Energy Building unveiling | University of Leeds, UK
Executive Director Maria van der Hoeven visits three Indian companies taking big steps in renewable energy and building efficiency:
from left, Omax Auto Systems’ factory; ITC Hotels’ Green Centre; and Chelsea Jeans’ textile mill | Gurgaon
Four Freedoms Awards: © The Roosevelt Stichting/Lex de Meester Fotografie; Global Assessments Initiatives: photograph by Paul Burns/Clarence House, all rights reserved; ETP 2012 launch: © OECD/IEA, 2012; Leeds Energy
Building inauguration: © University of Leeds; Indian site visits: © OECD/IEA, 2012
www.iea.org 47

ENERGY, ETC.
PUBLICATIONS
ENERGETIC READING
WORLD ENERGY OUTLOOK 2012
Language: English; Release: 12 November 2012; Price: €135
WEO 2012 presents authoritative projections of
energy trends through to 2035 and insights into
what they mean for energy security, environmental
sustainability and economic development.
Global energy demand, production, trade, investment
and CO 2
emissions are broken down by
region or country, by fuel and by sector. Special
strategic analyses include coverage of the Iraqi
energy sector, examining its role both in satisfying
the country’s internal needs and in meeting global oil demand; what
unlocking the potential for energy efficiency could do, country by country
and sector by sector, for oil security, the climate and the economy; and the
water-energy nexus, as water resources become increasingly stressed
and access more contentious.
MEDIUM-TERM RENEWABLE ENERGY MARKET REPORT 2012
Language: English; Release: Available now
Pages: 182; Price: €100; ISBN: 978-92-64-17799-4
ENERGY TECHNOLOGY PERSPECTIVES 2012
Language: English; Release: Available now
Pages: 690; Price: €150; ISBN: 978-92-64-17488-7
Energy Technology Perspectives (ETP) is the
most ambitious IEA publication on developments
in energy technology. It demonstrates
how technologies – from electric vehicles to
smart grids – can help limit the global temperature
rise to 2°C and enhance energy security.
ETP 2012 presents scenarios and strategies to
2050 to guide decision makers on what needs to
be done to build a clean, secure and competitive
energy future. Among other revelations, it documents current progress on
clean energy deployment, and how to accelerate it; links energy security
and low carbon energy; and as energy systems become more complex,
shows why systems integration is beneficial and how it can be achieved.
ENERGY POLICIES OF IEA COUNTRIES - IRELAND
Language: English; Release: Available now
Pages: 176; Price: €75; ISBN: 978-92-64-17146-6
Renewable energy has emerged as a significant
source in the global energy mix, accounting
for around one-fifth of worldwide
electricity production. Massive investment
has taken place on a global scale, with costs
for most technologies falling steadily. This
new annual IEA publication, Medium-Term
Renewable Energy Market Report 2012, provides
a key benchmark, assessing the current
state of play of renewable energy, identifying the main drivers and
barriers to deployment and projecting renewable energy electricity
capacity and generation through 2017. Starting with an in-depth analysis
of key country-level markets, the report examines the prospects
for renewable energy finance and provides a global outlook for each
renewable electricity technology.
Visit the online bookshop at www.iea.org
or email: books@iea.org
Despite a severe economic downturn, Ireland
remains committed to moving towards a lowcarbon
economy, including a goal to produce
40% of its electricity from renewable sources
by 2020. This IEA review of Ireland’s energy
policies lauds that commitment, noting that
the country’s location at the edge of the
Atlantic Ocean ensures one of the best wind
and ocean resources in Europe. But to reach
its targets and break its heavy use of imported fossil fuels, Ireland
must invest even more in renewable technologies, improve energy efficiency
and successfully develop a range of gas and electricity infrastructure
projects and market solutions while continuing to integrate
its energy markets with regional neighbours.
CALENDAR
September
18-21 World Shale Conference.
Houston.
www.world-shale.com
October
8-9 Global Green Growth Forum.
Copenhagen. www.globalgreengrowthforum.com
9 World Energy Outlook
excerpt on Iraq. London.
www.worldenergyoutlook.org
15-16 Chatham House Conference
on Climate Change: Security,
Resilience and Diplomacy.
London.
www.chathamhouse.org/
climatechange2012
22-25 Energy Week. Singapore.
www.siew.sg
25-26 Energy Week. Moscow.
www.ieweek.ru/en/conf2012
November
12 World Energy Outlook 2012
release. London.
www.worldenergyoutlook.org
13-14 Oil and Money Conference.
London. http://tiny.cc/gruohw
16 IEF-IGU Ministerial Gas
Forum. Paris. www.ief.org
18 IEA’s 38th anniversary.
26 Start of COP18. Qatar, ends
7 Dec.
http://tiny.cc/xduohw
27-29 Shale Gas World Europe.
Warsaw.
www.terrapinn.com/shalegas
48
The Journal of the International Energy Agency

PUBLICATIONS
ENERGY, ETC.
IEA ENERGY FEATURED RESEARCH
GAS PRICING AND REGULATION:
CHINA’S CHALLENGES AND OECD EXPERIENCE
Authors: Anne-Sophie Corbeau, Dennis Volk, Jonathan Sinton, Julie Jiang
China, the world’s fourth-largest user of natural
gas, is seeking to double the share of gas
in its primary energy mix within the next five
years. To expand its gas industry successfully,
it will have to look to the experiences of other
countries.
Gas Pricing and Regulation finds that
strong policy drivers are necessary, especially
for the reform of gas pricing and market
opening. China needs a clear vision about the future of its gas industry
– which requires a natural gas law or an energy law with a gas
section – and the government must avoid splitting responsibility over
the gas business among different ministries and agencies as well as
limit the influence from the three big national oil companies.
The main issues in increasing domestic production are technology,
pricing and development of the infrastructure to bring gas to the
market. The pricing reform is already engaged on a regional level but
needs to be expanded. China must move away from its regulated
cost-plus approach, which fails to send the appropriate market signals
in terms of upstream development and demand response, and
move instead to a more market-oriented approach.
China’s gas market is relatively recent and growing fast. By comparison,
most OECD countries studied by the IEA had decades-old
gas industries before they started to liberalise their gas markets,
and few had such dynamic growth. Additionally, in most cases, the
OECD countries had already built significant gas transmission and
distribution infrastructures, which had been largely or fully amortised.
China’s transmission network is more limited and is still being
expanded.
UNDERSTANDING ENERGY CHALLENGES IN INDIA:
POLICIES, PLAYERS AND ISSUES
Authors: Sun-Joo Ahn, Dagmar Graczyk
A combination of rapidly increasing energy
demand and fuel imports plus growing concern
about economic and environmental
consequences is generating increasing calls
for effective and thorough energy governance
in India.
Numerous policy reforms over the past
20 years have shifted the country’s energy
sector from a state-dominated system towards
one that is based on market principles. However, with the
reform process left unfinished, India now finds itself trapped halfway
along the transition to an open and well-performing energy
sector.
India suffered the largest-ever power outage in late July 2012,
which affected nearly half of the population. While this incident
highlights the importance of modern and smart energy systems,
it indicates that the country is increasingly unable to deliver a secure
supply of energy to its population, a quarter of which still
lacks access to electricity.
Understanding Energy Challenges in India aims to provide an
informative and holistic understanding of the country’s energy
sector to stakeholders in India, as well as the broad public.
The publication explores in detail the policies, players and issues
of the country’s power, coal, oil and gas, renewable energy
and nuclear sectors.
It also highlights key challenges that must be resolved for the
evolution of India’s fast-growing energy sector towards a sustainable
future and which are eventually critical for the prospects of
the Indian and global economies.
Read or download these
and other IEA papers at
http:bit.ly/O6Jhbq
Join the IEA
The International Energy Agency recruits all year
round and also takes staff on loan from ministries,
agencies and companies. Work with the energy
analysts, modellers, data managers, statisticians and
technicians, to gain valuable experience and help
keep the IEA at the heart of global energy dialogue.
Positions frequently available include Energy
Data Manager | Statistician and Energy Analyst |
Technology Platform. To see all current openings,
visit the jobs page at www.iea.org.
Employment at the
www.iea.org 49

ENERGY, ETC.
ENERGY BASICS
NOT HEADLINE HITTING HERE THE BOTTOM
OF THE BARREL
Proven oil reserves, worldwide
(billions of barrels)
Years of supply remaining
at then-current production
2 400
60
2 000
50
1 600
40
1 200
30
800
20
400
10
0
1981 1991 2001 2011
0
Pessimists have long warned that we are about to run out of oil. Yet the prospects
for future supply don’t show obvious signs of worsening: as the tops of the derricks
and the peaks of the plumes indicate, the ratio of proven oil reserves to annual
production has actually improved over the last 30 years. The resource base
from which proven reserves are developed is ultimately finite but also immense.
And although these resources can be increasingly difficult and expensive to
produce, what can be recovered profitably grows with technological advances
and higher oil prices. What is less certain is whether the conditions will exist to
produce the oil and whether consumers decide – from both a financial and
environmental perspective – that they can afford to use it.
Graphic: © OECD/IEA, 2012;
source BP Statistical Review of World Energy June 2012; photo: © Fancy
50
The Journal of the International Energy Agency

HOW MUCH ENERGY
GOES INTO
A MOMENT IN TIME?
50 YEARS OF ENERGY, MILLIONS OF MOMENTS SHARED
BETWEEN US. AND MANY MILLIONS MORE TO COME.
50.enel.com

October 2-3, 2012
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