World Energy Outlook 2014

Fatih Birol, chief economist at the International Energy Agency, joins Michelle Patron, senior director for energy and climate change at the National Security Council, to discuss the current energy landscape and findings from the 2014 edition of the World Energy Outlook, which focuses on sub-Saharan Africa. Stating that Africa may be the first continent in the world to use renewable energy instead of coal in its economic development, Birol expresses hope that more of its energy production will be used to provide for the two out of three African citizens currently without electricity. Birol also gives overviews of the global oil, gas, and renewables markets.

PATRON: Good morning, everyone. Thank you for joining us for today's Council on Foreign Relations meeting. And I want to join all of the—welcome all the members who are joining us from around the country and around the world on the livestream happening on CFR.org. I'm Michelle Patron, senior director for energy and climate on the National Security Council.

And I am extremely delighted to be here today with Fatih Birol, who's chief economist of the International Energy Agency. You have his full bio in the sheets today, but I will say that Fatih just told me this is his 10th anniversary coming to the Council on Foreign Relations to talk about the world's energy outlook, so we're extremely fortunate to have him for that grand anniversary. And every year, both IEA members and the public look forward to this time of year to hear insights of Fatih and his team about what to watch out for in the years ahead in the energy. So, thank you.

It has been quite an eventful year in the energy markets. We've seen oil prices skyrocket with concerns about supply in Iraq and the Middle East, and then more recently dropping 30 percent to trading around $80 a barrel, given the increase in supply, particularly here in the United States, and weaker demand. And the question now is how low they'll go and what will set the floor.

In terms of the gas market, as well, we've seen some dynamic events, particularly in Europe, with questions about security of supply from Russia and a new momentum for European energy integration. And then on the climate side, particularly in the last few weeks we've seen real momentum building for the first time for domestic action, global action, historic announcement that President Obama made in China with President Xi Jinping, the E.U. taking ambitious steps, and then countries around the world committing close to $10 billion in the Green Climate Fund, putting momentum towards Lima and Paris next year, so a lot to talk about this morning.

Let's start with the oil market. Right, if you've looked at the headlines, right, you'd see all of these geopolitical developments in the Middle East, sanctions on the two largest oil producers. You'd expect prices to be in triple-digits, yet we are trending around $80 a barrel right now. Is this an anomaly? Is this a structural paradigm? And how do you see oil in the timeline of your outlook?

BIROL: Thank you very much, Michelle. First of all, good morning to everybody. And many thanks to CFR for hosting me ten years in a row.

Now, as far as the oil markets are concerned, I would say that currently we see, yes, downward pressure on the prices, mainly for two reasons. First, there is a lot of oil in the market, big production mainly coming from the United States, and the second, demand is very weak, very, very weak, you look at the previous several years, mainly because the economy is weak in Europe, economy is weak in Europe, and at the same time China's slowing down, Japan is in recession.

So putting all of these things together, there is a downward pressure on the prices. And I expect this to continue one or two years, but the lower oil prices would put downward pressure on the investments, especially the high-cost areas, which is one. Second, lower prices would give an upward pressure on the demand growth. And as a result of that, I wouldn't be surprised if within one or two years of time, if not earlier, we see an upward pressure on the prices to come, looking at the global oil markets. I wouldn't be surprised to see in one or two years of time prices coming back to the levels that we have seen in the last few years.

PATRON: And then which are the producers you think are most at risk when you talk about the high cost?

BIROL: I think it is—first of all, North America. If the prices still continue to go down, I would think that some of the companies may give a second look at their investment plans in North America, including United States. Brazil, because many of the projects in Brazil are financed through cash flows and lower revenues may mean that Petrobras will have to get more debts, which will make life even more difficult. So these are the areas which are going to have some challenges. And Russia, in addition to the sanctions with the lower prices, may well also see some serious challenges in front of it.

PATRON: Very interesting. In reading through the outlook, I thought it was very compelling and interesting that on the power side, globally, you are forecasting a doubling in the entire generation capacity of the world.

BIROL: Yeah.

PATRON: How does that new generation capacity that you foresee coming online differ from what's online today? Where is it going to be built? What kind of energy is it going to use? At what cost?

BIROL: First of all, for the OECD world, Western world, there is an important concept we have to put on the table. In the OECD world, namely in the United States, in Europe, in Japan, we have to build a lot of new capacity, you mentioned, not because the electricity demand is growing very strongly, but because a big chunk of the existing power plants are going to retire. A big chunk of the power plants today we have in the OECD world were constructed forty, thirty-five, fifty years ago, when the economy was growing very strongly, and now, given the age—the retirement age of those power plants, we will see a major wave of retirement of the power plants. Today, we have about 6,000 gigawatts worldwide, worldwide, 6,000 gigawatts, and about half of it is going to retire. And it is not because the demand is growing, because they are getting old, that power plants are like human beings. They are very strong. They produce a lot of energy, but when they come to a certain level, they retire and they're out of the system. We get rid of them.

So—and this gives us opportunity also not only to change the power mix. If we are coal-based, we can go to renewables. If we were—I don't know—if we have oil, we can go to gas, we can change the power mix. This gives us the opportunity.

Now, the news is—according to our projections and based on the government plans and all the constructions throughout the world—about 50 percent, half of the new capacity will be renewables based, 50 percent. And this is hydro, solar, and wind. This is very good news, first of all, from an environmental point of view, from a climate change point of view. But at the same time, it's a challenge, for example—in Europe, it's a challenge, because we have so much renewables in Europe that we have sometime difficulties to find the reliability in the system, because of the intermittence issue of the renewables.

In February, when you look at Europe, the peak time for electricity is in an evening in February. Why we don't have sun most of the time in Europe in the evening of February. And so therefore, we need a reliable system, and for the reliable system, it can be gas, it can be (inaudible), whatever. There is not enough appetite for investments in Europe. And this is a problem that we are facing in Europe. There are some colleagues who work on the European energy system here.

So therefore, to—future will be a marriage of renewables and natural gas, in terms of power mix, huge investment challenges in many countries, and what I see is that there will be two types of choice—renewables, gas in the OECD world, and renewables, coal on the Asian side.

PATRON: Which that leads me to kind of the next question, and it was great to see in this year's outlook the focus on Africa, and particularly on access to energy, where I think that according to the outlook, at least 600 million currently are without reliable access. And then again, in India, it's close to 300 million. How do we—how can we accomplish the shared goal of increasing access to energy, but doing so in a low-carbon way, that it doesn't need to be a tradeoff between the two?

BIROL: Let me tell you something. First of all, about the Africa energy resources, Africa is a very, very rich—energy-rich continent. In the last five years, about 30 percent of all new oil and gas discoveries were made in Africa, 30 percent in the last five years, a huge number of the world. When you get to renewables, huge hydropower potential, wind, and solar, 325 days in a year, very strong solar energy coming to Africa.

And yet two out of three African citizens have no access to electricity. This is really an issue for energy, but also for economy for security in general and leave aside everything for the moral values. It is something horrible, I will say. It is 625 million people have no access to electricity. And without changing the policies, even though many people will gain access to electricity in Africa, strong growth, in 2040, there will be still half a billion people who will have no access to electricity in 2040. Even to think this, makes somebody, I think, one (inaudible).

Now, but what we see is there is an investment coming in Africa, but when we look at the numbers, today, $3 investment in African energy, out of $3, $2 are for projects to export African energy to other countries, $1 only for domestic energy system for power plants, for transmission lines, and so on. So out of $3, $2 to export the energy and one for the domestic energy infrastructure.

This will change. And when we look at the projects going on today, they are changing. And my expectation and hope is the following. The bulk of the electrification in Africa will be based on renewable energies, especially in rural areas. And this is not because of climate change and anything. This is mainly because of the pure economics of it, because you do not need to build transmission, distribution lines, which are very costly, so mini-hydro, solar, wind, they will be the drivers of the electrification in Africa, of course, in addition to large hydro that we are going to see in many countries. And to be honest with you, there is one development that I would just put somewhere here, perhaps if CFR in ten years later, we can check if it is right or wrong.

This is the following. Africa may well be the first continent, first countries in the world which is going to realize an economic development on the basis of renewable energies and not coal. When we look at the history, Europe, U.S., China, their main economic development was based on coal consumption. U.S., we know it. Europe is the same. China is the same. And Africa may make a big use of renewable energies, hydro, solar, and others, to make this happen. And this is very important for Africa and for the rest of the world.

PATRON: Obviously, it's an issue that the U.S. takes very seriously and President Obama has the Power Africa initiative to double capacity—generating capacity, access to electricity in Africa, and what's been amazing about it, since the president launched it in the summer of 2013, has been the financial commitments that have come forward, both with the U.S. government, World Bank, private sector, totaling about $29 billion willing to work in this cause.

So it's very interesting to see the potential that is there. It will be interesting to know, is that just Africa-specific or are those things that could also be expanded, particularly on the renewables side, to other—other areas that don't have power in the world?

BIROL: I think Africa has huge potential—renewable resources are huge, when we compare with any other parts of the world. And, second, you are completely right. Power Africa is an excellent—it gives a kickoff, the start to many projects. But it will depend on whether or not the countries will be able to make use of that. And some countries will make use of that, some not—I believe the future of the African energy will be at the end of the day determined by the internal dynamics of those governments, but the initiatives such as Power Africa will be very good.

Now, the second part of the world where we see major excess problems is Asia, and East Asia, and I am afraid the coal will be the—currently, in the current context, coal will be the choice of power, because of the cost concerns there, and especially India today. About more than 300 million Indians have no electricity, and what the India will go, which way India is going to choose, will have major implications also for the global trends and for climate change.

In the case of Africa, one thing is very, very important to note. Africa's responsibility in the global CO2 emissions are less than 3 percent (inaudible) from 1900 to today, less than 3 percent. Almost no responsibility, no sins of Africa at all. But if there's climate change, Africa will be the continent which will be punished the worst in terms of droughts, sea level rise, immigration, and changing climate and everything, so it is a very bizarre situation. Even though you are not fault of doing something bad, you are the one who is going to be punished as a result of this thing happening, but done by other people.

PATRON: And we see that happening throughout most of the poorest in the world, that they're the ones who are going to be most vulnerable to the impacts of climate. Turning back now to more of the traditional energy into natural gas, obviously you've seen the developments over the last few months and the last year, really, in Europe and experiencing basically another energy crisis, the cutoff of Russian gas to Ukraine this summer and some lower supply volumes going to Eastern Europe. How do you see this playing out in Europe? How do you—is this an opportunity? How do you see Europe taking advantage of building a more flexible and diverse both gas and energy system?

BIROL: I think we—what happened between Russia and Ukraine this year, we have seen this movie before, two times. It is like "Rocky I," "Rocky II," "Rocky III."

PATRON: I like that.

BIROL: We have 2006, 2009, and this year. So—and this is—and I think—but we are now there, that the world—the—especially European leaders are aware that this is an issue, a structural issue now. And what we are seeing is that even though the European gas demand is more or less flat in the next years to come, European gas imports will increase significantly because the European domestic production is going down.

Now, the question is, how are we going to meet that import growth? Where are we going to get it? This is a big question in Europe. And in my mind, one of the major options are getting natural gas from Caspian countries or east Mediterranean. There are opportunities there. And, second, lots of LNGs coming to markets. Not only the amount of LNG is increasing, but the number of countries that are producing LNG are increasing, as well, providing diversification for the European and other importers. And, therefore, it may not be a better idea that the European leaders, when they look at the gas security issues—first of all, I believe they take it seriously now—and if they don't, I think it will be really bad news for Europe.

If they take the gas security issues seriously, for the energy, for the economy, and for their foreign policy, I think it is important to look at diversification, which I believe should include the new pipeline routes and also the LNG.

But if I may say one thing, Michelle, we talk about the oil markets. Prices are going down today, definitely, but this calm in the oil markets I believe should not disguise the energy oil security challenges we have in front of us. When we look at the Middle East today, what is happening in Iraq and (inaudible) gas security—looking at Russia, Ukraine, I believe energy security will move high up in the international policy agenda, and I think the colleagues in the NSC will have a lot to do in the next months—as if you don't have much to do—so you have a lot to do in the next months to come, because both gas security and oil security, I think they will be very important issues, not for the energy world, but maybe beyond that.

PATRON: So why don't we kind of continue on that line for a little bit? I mean, what does the forecast say about continued dependence on the Middle East and oil supply?

BIROL: Now, this is one issue that I think we have to make it—we all have to make it understood well. We are seeing a big boom of U.S. oil, which is extremely good news for everybody, let's say, most of the players, not all everybody, but most of the people. Why? Because it brings more oil to the markets. Oil security is improved. Downward pressure on the prices, giving a comfort zone for the consumers. This is all very good and, of course, very good for the United States.

But we should put this into perspective. The world oil demand will increase in the next twenty years about 14 million barrels per day, and the United States oil in terms of the production growth will be—perhaps the maximum, will be enough for its own consumption. There may be some exports, some imports there. But United States alone will not be able to meet the global oil demand of it all. And this is—let's understand this. We will see some production growth coming from Canada, Brazil and so on, but we will, especially around 2020s, we will badly need Middle East oil production growth. Impossible. There is no—even with mathematics, it's just—if anybody knows for operations can find this out.

Now, the point is, in order to see production growth in Middle East in 2020s, you have to invest today. The oil production is not something like you push the electricity button and the light comes on. There is six, seven years of lead time of the projects, and today, when we look at the security situation in the Middle East, Iraq will have the most important provinces, Iraq, Libya, other countries, when you look at that predictability for investments and the appetite for investments is close to zero. And if this continues like that and if the geopolitical situation today is a structural situation, many people—many observers believe so, then we may well have some challenges to see a production growth in Middle East around 2020s as a result of lack of investment of today.

PATRON: Also related to oil is the issue that the IEA has been at the forefront on, which is fossil fuel subsidies. And pretty striking that as many times as we talk about it, it's still $550 billion annually, right? We've seen some interesting news over the past few weeks, I would say, that with lower prices, you've seen countries like India, Indonesia, Malaysia taking advantage of the situation. You know, you could make the argument of why removing fossil fuel subsidies makes sense, but in practice, we haven't seen as much progress as we'd like. What more can we do in this space? Because it's so important for the stability of these countries, even those in the Middle East, particularly those in the Middle East, not just oil producers, but a lot of the oil importers. It's important from a climate perspective. It's important just from an overall fiscal stability perspective.

BIROL: No, you are right. As you know, as the colleagues know here, almost ten years very closely and stubbornly we follow this issue, fossil fuel subsidies, and today there are more than half a trillion U.S. dollars. And what is fossil fuel subsidy? It means the governments put the price of oil, coal, and gas for the consumer artificially low. They make it very, very cheap, because governments pay the bill instead of the consumers, and the message to their citizens in terms of subsidizing fossil fuels is very simple. Governments tell the citizens, "My citizen, please emit CO2 as much as you want. I'm going to give the money for you that, so don't worry about this". Or they say, "Waste your energy, don't worry, I will pay. This is very cheap. Don't worry about that. Use it inefficiently."

This is the message. This is a signal, given the consumers, and it boosts the CO2 emissions growth, and it also created many inefficiencies, because if something is too cheap, we human beings tend to use it in a wasteful manner, whatever it is. It is what's happening there.

Plus, plus, it chokes off the renewable energies, because renewable energies, although they have difficulties to compete with traditional energy sources, such as gas, coal and others, because of the cost, if you put the price of these very low, renewables have big difficulties. I am very surprised—there are some countries on one time, they want to push renewables. On the one hand, they subsidize the fossil fuels. It is a very bizarre way of looking at the energy policies, I personally believe.

PATRON: It's bailing out the boat while you still have a hole.

BIROL: Exactly. Exactly the same thing. So—and—but it is also hurting the budgets of the governments. It's also hurting the budget of the governments. And the reason why we are seeing—Indonesia, very good example, India are reforming their subsidy regime is not because of the climate change driven, to be honest with you, but mainly because of their budgets are hurting. And Middle East, out of this 550 million, half of these in Middle East countries. Today, in Middle East, we are using 2 million barrels per day of oil for electricity generation. It is—from economic point of view, it is suicidal. It is the least—least economic thing that you can do in your life, such as to run your car, not by gasoline, but by Chanel scent perfume, so it is more or less the same type of—the philosophy there.

So now they are trying to replace oil by gas in order to free up oil to export. But this is the—this is the way how it is going, and I feel that we will—some—what is happening today in Indonesia, India will be followed up by others, and China is a very good example, made a lot of effort there.

PATRON: And just to point out, both China and the United States are undertaking joint peer reviews of our own fossil fuel subsidies, both on the production side and the consumption side within the context of the G20 to try and learn from each other and also show examples to other countries of things that have worked and things that haven't worked, particularly in the—using—replacing the subsidies with much more efficient social safety net programs for the poorest and most vulnerable.

One final question, and then we'll open it up both to the audience and to the members around the country and the world, so we'll talk a little bit about climate change. We have had this momentum building over the last—particularly over the last few weeks with the U.S.-China announcement, with the Europeans' ambitious post-2030 target, with HFC progress, last week, Montreal Protocol, the Green Climate Fund. How does this momentum play out in—how does it impact your forecast?

BIROL: So, first of all, let me tell you that we all know energy sector is the main responsible sector when we're talking about climate change. Without fixing the problem in the energy sector, we have no chance whatsoever to find a solution to climate change problem. And what did the world leaders told us, based on the scientists, that we have to limit the temperature increase to 2 degrees Celsius or 3.6 degrees Fahrenheit in order to have a planet in the future, more or less what we have today, so got to make big changes.

But we are completely going in the wrong direction, completely. And we are very soon, I believe, if you're not able to get a meaningful result from Paris, we may well be very soon saying goodbye to the lifestyle we had since several centuries here. This is because we are looking in our future. Therefore, Paris is extremely important, extremely important to get an agreement, to get a signal from there.

So in that context, I believe U.S.-China joint commitment is of historical nature for three reasons. One, in terms of numbers, these two countries make 45 percent of the emissions, plus Europe, which a few months ago major commitment, 15 percent. It means 60 percent of the emissions, you have a political will at the highest level that we are going to address the climate change. This is in terms of numbers.

Second, I think even perhaps more importantly, this injects badly-needed political momentum into the—on the way to Paris. It will be very difficult for other big emitters not to be part of a group of countries which are led by U.S., China, 28 European countries who are trying to find a solution, one of the most important challenges that the humankind faces today. It will be very difficult to find excuses not to be part of this coalition through Paris, so political momentum is extremely important.

Third, China. I think it is very important what the U.S. is going to do. But the China for the first time acknowledging the climate change targets is extremely important again in Europe, I believe in United States, in Japan, many people have been saying, so we can make efforts to reduce the CO2 emissions, but China is the biggest emitter. If they don't move, why should we move alone? And this is perhaps a genuine thinking or perhaps it was an excuse not to do anything, but China being a part of the now—the solution together with the United States will slowly but surely remove that very psychological barrier.

So as such, I believe with European decision, followed by the historical U.S.-China joint statement, gives me the hope that we may well get a positive outcome from Paris, which will in turn give a signal to the investors in the energy sector, which can still have the (inaudible) for 2 degrees or 3.6 degrees Fahrenheit target alive. So therefore, it was a historical one, I would say.

PATRON: Why don't we open it up to questions? If you have a question, please raise your hand, and if you're called upon, please identify yourself and your information. Right there, middle of the room. Yes.

QUESTION: Andrew Gundlach from First Eagle. In your forecast of 14 million barrels by '20, which is basically a million barrels demand a year, how much credit do you give to new technologies in refining and the midstream area, especially catalysts and the new refining—refiners being built in India that really have the most modern technology, in the sense that the most bearish argument I've heard on oil, which I have no answer for, is that all of that demand—which is of fuel, not of crude—can be met with new technologies about to come onboard, and the crude investment that's needed is much less. I have no answer for that, and I'm curious if you've heard it and what your thoughts are.

PATRON: Why don't we go one at a time right now?

BIROL: OK. So I would say, first of all, we expect 14, 14 million barrels per day of the demand growth in the next twenty-five years, and this will be mainly coming from the transportation sector. It means we will need lighter and lighter products. Gasoline and diesel will be the major drivers there.

But we may well see as a result of the—what is happening with the NGL in many countries, light tight oil, as the role of refineries may be well less pronounced than today. It may go the—pass by the refineries, may well go to—directly to the consumers in many cases. But we will still, of course, I believe, whatever the technological developments is, under normal conditions, we will still need refineries for many years to come. But the news is, most of the refineries will be built outside of the OECD, as we expect, mainly in India, China and in Middle East countries themselves.

PATRON: Right. And as a follow-up, be interesting to hear, it's not as if we're standing still and we're just having an incremental 14 million barrels or whatever the number is...

BIROL: Exactly.

PATRON: What is the decline rates that you've been assuming in your forecast?

BIROL: This is exactly the—one of the most important issues, because we don't need to increase the oil production, not only to meet the oil demand growth, 14 million barrels per day, but more importantly, to compound that the decline in the existing fields, which will be in the next 25 years, about 30, three-zero, million barrels per day.

So just to sum up, this is the main thing that I keep on trying to discuss with different colleagues to understand importance of decline. If we have to produce three barrels of oil in the next 25 years, three barrels of oil new production, after these three barrels are two barrels to (inaudible) that the decline in the existing fields and one barrel is to meet the growth demand. So the decline is much more important than the demand itself when it comes to the new production.

PATRON: Why don't we take the next question? Right here.

QUESTION: Hi, Kassia Yanosek from McKinsey and Company. My question is actually about looking south of the United States to both Mexico and Brazil. I'm wondering if you could comment on your forecasts and if they changed at all for these two countries, given that, you know, certainly we're seeing constrained macroeconomic growth in Brazil and also falling oil prices. And also just curious how Mexico fits into your forecast through 2040. Thanks.

BIROL: For Brazil, huge offshore discoveries, huge potential. But the question is whether or not Petrobras alone will be able to turn these resources into production in a timely way. So my main worry is whether or not the investments will be forthcoming and whether or not we will see continuous delays in the projects in Brazil.

If the prices remain at these levels, and if there's downward pressure, I think Brazil will be one of the areas which would be negatively affected from the prices are going down, because as I tried to say before, the bulk of the investments are financed through cash flows. And if they go down, we may see some difficulties in Brazil.

Now, Mexico is a different story. And in Mexico, if the reform efforts now see the light of day, if we see a modernization of the hydrocarbon sector in Mexico, we are hopeful that we see a bounceback of the production, oil production, and Mexico may well be seeing upward trend in the production and may well be one of the countries that would contribute to the global oil markets in a positive sense.

But one thing is important. In fact, two things are important. One is what Michelle just mentioned, the issue—the decline rates in the Mexican fields are rather steep. Therefore, we need technology and capital to flow in very quickly. And, second, I think Mexico cannot afford one more time stop-and-go policy and not to lose the confidence of the investors once again. So there's a historical chance for Mexico to reform its hydrocarbon sector, get the investment, increase the production, and as such improve the wealth of Mexico's citizens.

PATRON: Well, do you mind saying a word about natural gas, either in Mexico or Argentina or the rest of the region? As well as—we talked about Asia, we talked about Africa, but Latin America as an engine for growth in demand.

BIROL: Demand is growing in Latin America also very strong, mainly, of course, coupled with the economic growth, but looking at the current economic situation in Latin America, it will be not fair to say that Latin America will be one of the engines of the global energy demand growth. For—in my view, China energy demand growth is slowing down. Unlike the last ten years, the dragon is slowing down in terms of energy demand growth. India is going to come as a new tiger. And Latin America will be one of the medium level of demand growth centers in the world, not one of the forefronts.

PATRON: OK. Why don't we take another question in the back of the room?

QUESTION: Craig Charney from Charney Research. I wanted to follow up specifically on India, in fact. You had talked about the importance of the U.S.-China accord on global warming. India, on the one hand, with its fractious democratic politics seems, like our own country, having a lot of difficulty weaning itself off of coal and having a lot of difficulty, as well, accepting the need for emissions restrictions. So what are your thoughts both about India's energy future and its emissions future?

BIROL: Now, today in India, more than 300 million people, they have no access to electricity. And when we look at the Indian energy resources, coal is definitely one of the important fuels, even though we believe around 2020 India will be the second-largest coal importer of the world—coal user of the world, second-largest coal user of the world, overtaking United States right after China.

Why? Because the—it's the issue of price. I can tell you something, not only in India, but generally in Asia, when you look at the LNG price versus coal price, if you want to build a power plant, OK, to produce one kilowatt of electricity in Asia from LNG is 2.1 times more expensive than producing it from coal. I'm not saying 10 percent, 20 percent; 2.1 times. It's huge.

So in the absence of that, in the absence of any amount of regulation, any climate policy, then people go and build coal-fired power plants because it is cheaper, full stop. I mean, you cannot push a country which is extremely poor to go for more expensive options if you don't have the regulations, if you don't have any mechanisms there.

So I think, as it stands now, we expect India to use—to make more and more use of gas, both their own gas—they have shale gas resources, they look at it and they want to produce their own gas, but import a lot of LNG. Also, India is one of the countries which pushes the nuclear power—nuclear power plants button. But I will be surprised, the bulk of the new power plants will be coal-based, as it stands now.

When it comes to the climate change, I think it is extremely important, when we talk about the U.S., China and Europe, to have India in one way or another to be a part of this coalition and try to find some political diplomatic negotiations to bring them together. The U.S.-China deal was—I had mentioned—it was not made in one day. It was long, long discussions. And I'm sure Michelle knows it very well. She is one of the architectures of that deal with China. And with India, we have to find ways to get India also on board, even though India has major challenges today in terms of its own domestic energy problems to go for the cheapest option, which happens to be the dirtiest option today.

PATRON: I'll just add a point or two on India. As Fatih mentioned, you have 300 million people who don't have access to electricity, and building out the infrastructure is just too costly. And one of the things that there's a huge opportunity for in India is a lot of off-grid renewables, and it's something that different agencies in the U.S. government are working with.

Also, we have a very interesting opportunity with Prime Minister Modi coming into office. He's a different type of politician. He's really pursued a lot of energy alternatives when he was head of Gujarat state. So, you know, it was a conversation that President Obama had with Prime Minister Modi, and then, as you know, President Obama is going to be going back to India in January. So it is an issue that we're hoping to expand cooperation on, both clean energy and climate with India.

BIROL: May I say one more thing about India? Not as important as Obama is going to India, but the World Energy Outlook next year is going to focus on India, as well. So it's Africa this year, so...

PATRON: Great. We'll take one more and then we'll go to the webcast, I guess. Are people calling in, or no?

QUESTION: Good morning, and thank you. Allen Hyman from Columbia University Medical Center. As we speak, OPEC is meeting in Vienna in a face of declining prices. What is the future of the cartel in controlling supply and price?

BIROL: So before coming to IEA, as you know, I worked for OPEC secretariat in Vienna, so it is the reason I have not talked about OPEC today. So this is—I will avoid talking about OPEC, as it's a very important day for the oil markets. But what I can tell you is that the Middle East is and will remain critical to the global oil markets. It is very important for all of us to look at the numbers, to see the picture, because the—when we see the current instability in the Middle East, it brings another dimension for the future of the global oil markets, and what does it mean for the investments—forthcoming or not coming in that very region? So many of those countries are members of the OPEC, and I think we should look at it from that very angle.

Middle East will be still critical, and especially here, I want to make a small footnote for Iraq. In our projections and projections of many other similar institutions, about half of the growth in the Middle East production is expected to come from Iraq, because very easy geology, very easy geology, lots of—lots of oil which can be produced at very, very low cost, less than $5 per barrel, and only problem here is the political stability.

One good news about Iraq, which I would underline, is that Baghdad and Erbil are getting closer to each other and trying to find a solution how to address Iraqi domestic production, how to export it. It's a very good development, especially after the new Iraqi government took to office. We saw this leader working closely between Baghdad and Erbil, which is very good news for all of us.

PATRON: And was there any adjustment that you made to the forecast this year on Iraq...

BIROL: Yes, we did...

PATRON: ... and the situation on the ground?

BIROL: Exactly. We did lower our projections—1 million barrels a day—as a result of lack of investments, and if we were to revise in couple of months, I'm afraid this revision may well be on the down side, if the current political situation continues in that—in this direction.

PATRON: Let's take another question. Right there.

QUESTION: Hi, Peter McNally with Kingdon Capital Management. How do you expect all these light tight oil producers in the United States to respond? And what gets production momentum to slow, in light of very low interest rates, cheap equity financing, efficiency, billions of infrastructure put in the ground? Is there a way to stop it, other than much lower prices?

BIROL: Now, first of all, we expect in a normal price and regulatory environment, we expect light tight oil production to increase around 2020s and then slowly the growth slows down as a result of the rather currently non-limited sources. So we do not think that the light tight oil production with the current resource knowledge we have, with the USGS and others, U.S. Geological Survey and others, given the data, it will not grow forever.

Second, the current price levels will put pressure on the—especially light tight oil, because of the rather short-term business cycle of the investment cycle of the light tight oil.

And, third, as a result of that, we expect that there may be some revisions to the investment plans in light tight oil next year, perhaps up to 10 percent decline in the investment plans, if the prices remain at these levels, which will in turn—will show its effects first, not immediately, perhaps in 2016 and beyond. So this is—again, the very steep decline rates, making it a short-term business cycle, and this would mean that prices will affect the light tight oil investment and, therefore, the production.

PATRON: The main constraint is prices and then in the long term is geology.

BIROL: Exactly.

PATRON: If I could just expand on the question, the United States is not the only—or North America—is not the only region of the world that has this type of geology, that has the shale formations. What does the outlook say about expanding and the development of tight shale, both gas and oil, outside of North America?

BIROL: There are a couple of provinces which has some good potential, such as Argentina. It was in Russia, was—I say because the sanctions which will be affected, but—and also in Canada, but we do not think that the amounts coming from there will be a major contribution as they stand now.

PATRON: Great. Any other questions? Middle of the room.

QUESTION: Hi, Ron Gonen, Columbia University. There's a tremendous amount of food waste and organics out there around the globe, and we're seeing a lot of organics now starting being turned into compressed natural gas and being used in vehicles. In your world, is anyone starting to look at the amount of food waste that's out there and the potential to actually convert it into compressed natural gas or any other energy sources?

BIROL: Yes, but they're all at the experimentary level. In Europe, I know that in Germany, in Austria, and in Switzerland, there are such experimental work going on for CNG.

PATRON: Can you just talk a little bit more about the alternative vehicle space and how the forecast looks at it, especially relative to two years past, is there the same kind of momentum? What do we need to kind of engender additional momentum?

BIROL: I think the—when we talk about alternative cars, electric cars come—is the first option on the table, but I am not very optimistic, to be very frank, about the future of electric cars. Now, many countries are having very serious programs in electric cars, and I ask my colleagues, if those government targets, government plans would be 100 percent realized, how many percent of the car fleet worldwide would be electric cars? Because U.S. has targets, China, European countries, Japan and all of that.

My question—and all of them—all the government targets is if they were going to be realized, and as you all know, government targets are not always reached, except for the United States, of course. So if you—all of these targets (inaudible) which meant in ten years of time, if all these government targets are reached in terms of electric cars, the share of electric cars in the total car fleet will be less than 1 percent, nothing.

So—to put it in perspective, with the current programs, current agenda, without major changes in the economics of either through financial aid or in terms of big change, it will not happen. Either governments have to take it much more seriously or we have to find other ways to push the electric cars. There are other, of course, options, such as the hybrid cars, such as biofuels and so on, but today, about 99 percent of the cars in the world are internal combustion engines, the normal car, the traditional cars, and we think they'll be a big majority still in the next twenty-five years to come.

One more thing, if I may add. This is important for the G20 context, as well, and I think G20 looked at it in Brisbane. When we talk about the transportation demand, we think of cars, the first thing comes to our mind. But the—in terms of fuel demand, the contribution of trucks are increasing substantially.

Today, three out of four new cars sold in the world—it's new data—three out of four new cars sold in the world are subject to efficiency standards, within Europe followed by Japan, first, Obama administration introduced new CAFE standards, and now in China and India, but in terms of trucks, there is almost no significant efficiency standards in the world. And according to our numbers, one-third of the global oil demand growth—global oil demand, one-third, comes from the Asian trucks only. It's huge.

So, therefore, it is very important that our efficiency or our kind of technologies for transportation system shouldn't be only focused on the cars, private cars, but also the trucks, heavy-duty vehicles, as we say. And I know that in Brisbane, the G20 leaders took it as option, and I know that the next G20 in Turkey will look at this issue, as well.

PATRON: Just to provide a little bit of background, this is a new area of work that the G20 decided to take forward to figure out ways to improve the heavy-duty vehicle standards and the fuel quality in all the G20 members, so it's an exciting piece of work we're looking forward to carry forward in the next year.

I think we have two more minutes. Let's do a quick lightning round if there's any additional questions.

QUESTION: Bob Belfer, Belfer Management. As you know, in the U.S., we've mandated ethanol as a gasoline additive, and yet in many countries like China and Israel, methanol is being explored as a gasoline additive, and there's the concept of flex-fuel cars. You know, you can occasionally see a sign for E85 at a fuel station here. What do you see as the outlook for additional—for methanol or other gasoline substitutes and the future of flex-fuel cars?

BIROL: Future of—you want to get one more question? OK. Future of flex-fuel cars will be mainly depending on two things, how the global oil prices will develop and what kind of policies the governments will have. But for the countries which are putting a lot of emphasis on oil security, for the countries which are putting a lot of emphasis on the diversification of the energy source, I think the flex-fuels will be a very important option, and I wouldn't be surprised if the current examples in Israel and other countries would be followed by others, especially for those countries which put a lot of emphasis on the reduction of oil in their total energy mix.

PATRON: Great. Well, I think we've run out of time. Thank you all for those very interesting questions. And I feel like we've done a tour de force around the world and through different fuel types. And so please join me in thanking Dr. Birol.

END