World Energy Outlook 2011

EDWARD MORSE: Good afternoon, everyone, and welcome to today's meeting at the Council on Foreign Relations.

Our guest today is Dr. Fatih Birol of the International Energy Agency. We're grateful to him for making this almost an annual event at the council, on the publication of the annual World Energy Outlook -- which is this big tome I have in my hand, and also here.

It's a sort of remarkable book coming from an international organization. It's a -- it's a -- an outlook that changes every year, that takes into account lessons learned. It's a -- an outlook that focuses each year on general subjects, but also on particular subjects.

And in many ways, this World Energy Outlook, like the International Energy Agency, is -- because of Fatih's role in it, it's sort of the world benchmark, if there is a benchmark, in what's happening, what's going right, what's going wrong, what the impact of energy policies are on things that we don't like to talk about, including changes in the global climate, and also takes into account the mission of the -- of the IEA. So through this work, Fatih has become really world- renowned, and it's really a pleasure to have you here with us.

As we get going, I want to remind everyone to turn off and not just put on vibrate, as I myself have turned off, my cellphones, BlackBerrys and all other wireless devices. And there are people who in the press who I gather are here. This meeting is very much on the record. We're going to start with some general banter between Fatih and myself, and then after a while we'll open it up for everybody's interaction.

And I'd like to start by asking you what you think are the main subjects, the main conclusions, the main issues that someone might want to take -- or that you'd like people to take away from this year's WEO.

FATIH BIROL: Thank you. Thank you very much for the very kind introduction, and thank you very much for CFR. I think it is five or six years in a row that you have invited me to come here and talk on the energy issues.

Now, our book is -- as you say, it is very -- it's about 700 pages, and there are many things inside. I would like to pick up a couple of things, some of them, I think, important, and it's already been under public debate.

And some of them are important and, for some reason or another which I don't understand, it didn't see the -- enough attention. So if I can be permitted to highlight this, I wanted to highlight these points. There are just five or six headlines and we can discuss or whatever you wish to do.

One thing, if I can start with the oil markets, one trend that we observe, there will be a major shift in terms of international oil security equation. What do I mean with that?

Years and years, decades and decades -- and you know it very well, as you were with the administration -- when you're talking about oil security, United States was -- that oil security, international oil security, oil productions are so important in this very country, when the prices, the gasoline prices go $4.00 and above, it is always something, a message to the administrations, I mean, as you know much better than me.

And U.S. kept a very good eye on the domestic oil markets, but international oil security, international markets. And many other countries, oil importers, Europeans and others, were taking it easy because U.S. is taking charge of it, taking care of it. And when you go to Europe, many -- in Europe you barely hear the word of "oil security." I don't why I -- since first 25 years, I never understood oil security is at issue.

Now, why it is like that? Because U.S. oil imports is huge, and it has been huge and the U.S. has been the highest oil imports in the world, and therefore the -- what I told you up till now.

However, according to our analysis here, this picture is set to change substantially and fast. U.S. oil imports are going to be halved very soon for two reasons. On the -- and a very important one, first of all -- on the demand side, due to efficiency standards, trucks and cars -- there have been downside pressure on the domestic demand. And second, increase in the domestic production -- and as a result of that, the -- within the -- two decades of time, very small period of time, the U.S. oil imports will be halved. And EU oil imports in 2015 will overtake the United States. EU will have the largest oil imports in the world, and the gap between the EU and the U.S. will be through -- after 2015 will be even bigger. And there is a new one coming: China, 12 million barrels per day oil imports in 2035, twice the United States.

So there'll be new composition of the international oil equation. And I'm sure this will have implications in terms of oil security, whose oil is what at the international domain. And Europe took gas security very seriously at this stage, and so -- and now we will see that Europe will be at the forefront of the oil security. If they wish so or not, it will be a -- it will be a new development, and I think it is very important that the U.S. position is changing vis-a- vis the others. This is the first point I wanted to make.

The second point is on natural gas. We believe that, looking at the supply and demand-side developments on the gas, we may be entering a golden age of gas. Not only in the United States, but also in China, we see lots of supply-side developments.

Australia -- six major new projects, which makes Australia in 10 years of time catching up. Qatar is the largest LNG exporter of the world. And also on the demand side, huge growth. A roadblock here could be the environmental implications of unconventional gas drilling. If you wish, we can come back to that in a minute.

Third point, on coal, I just want to give one statistics (sic) here, not -- will not talk much. Every year we focus in the outlook on one fuel, and this year we made coal. And one number I just wanted to bring to attention: When we go to meetings -- again, in the U.S., I guess, as well in Europe and in Japan, in this part of the world, the Western part of the world, you barely talk about coal. We talk about the PVs, wind, gas and -- (inaudible) -- but we barely talk about coal.

But if you look at the last 10 years -- not for the forecasts, it's the data -- what happened in the last 10 years between 2000 and 2010, global energy consumption -- 50 percent of that growth came from oil plus gas plus all renewables put together -- hydro, solar, wind, geothermal, biomass -- plus nuclear power. Put all the sources of energy in one side, it is equal to the growth came from coal -- the amount of coal we use. It means half of the energy use in the last 10 years came from coal, half all the others put together.

So if we use -- work by 10 years of energy, in the last 10 years, five years from all the other fields and five years from coal; yet we don't talk about coal. This is how much of a decollage there is between the international energy debate and what is going on in the real life with coal.

Other points: nuclear power. After Fukushima, we thought we had to look what happens if we see a major shift away from nuclear power globally. And if we -- there are many countries, such as Russia, China, Korea, India. They said they will continue with their nuclear power programs. But we said we know that there are some question marks, even in France, where I -- where I live. There's a presidential election in France, as well, and one of the two hottest topics in the presidential debate is the nuclear power. I see it for the first time in France. In Japan, it's still a question mark.

So we said what happens if there's a big shift away from nuclear power? So we see that the gap will be filled by three fields, basically: renewables, natural gas and coal. And as a result of that, we see that the coal and gas demands will be additionally going up -- with the implication on the price, of course. You will have less eggs in the basket. Coal goes down -- (inaudible) -- nuclear goes down, and coal and gas goes up to the -- to renewables. There (have been ?) less diversity in the energy mix. Therefore, I believe that's a good news for energy security. And finally, CO2 emissions will be higher as a result of that.

Therefore, I think it is, of course, the governments have to listen to voices of their people, their citizens, but also -- as Germany did. But also, it is also important for the governments to think in the structural needs and interests of their countries.

Last two points -- climate change. We have -- currently we are following a temperature increase about 6 degrees Celsius, which is about 11 degrees Fahrenheit, I understood, on a very consistent and perfectly observable (way ?). Every year we've -- as you said, that we look at every year that the data -- every -- (inaudible). We are on the 6 degrees Celsius increase trajectory despite all these discussions and all of these things. In fact, in the year 2010, despite all this attention given to climate change, we have the highest CO2 emissions ever in the history. It's higher -- the increase there.

And we said we know that the world leaders agreed that we have to limit the temperature increase -- maximum 2 degrees Celsius. So 6 degrees versus 2 degrees. And we said, do we still have some time, and if yes, how much time to be -- since there is not much happening on the climate change front in terms of international legally binding agreement, how much do we have time when we compare this 2 degrees target and where we are today?

What we have done is we look at the older energy-using capital infrastructure -- power plants, factories, cars, trucks, buildings -- that -- because if you look at a power -- if you build a power plant, it has 50 years of lifetime with you, and with the full -- (inaudible) -- lifetime, how much (fuel ?) are you going to -- (inaudible) -- and how does it compare with the permitted emissions given to us in the 2 degrees?

And what we have found out is that, as of today, with the -- if the current power plants, current factories continue as they are, we are -- at the end of the projection period, we are (already with ?) the existing infrastructure eating up 80 percent of the emissions permitted to us (to save ?) the two degrees trajectory -- (hold at ?) 80 percent. And if we do not have a major change in the climate policies, as of 2015, 95 percent of the allowed emissions will be eaten up with the infrastructure.

It is like a -- the doctor gives you a diet and tells you, you have to eat -- you can consume this amount of calories and you eat a big Turkish baklava, for example, and you already eat most of it and the -- (inaudible) -- left for the rest of the day; so it was like that. We have -- (inaudible) -- infrastructures and we have already eaten up that part. And if there are no major changes, as of 2017, a new clean major investment wave, coming for the clean energy technologies the door to two degrees will be closed forever. This is our analysis.

Finally, one issue, which is -- doesn't see the light of the day a lot, but I still want to mention, that, again, the analysis we make in the "World Energy Outlook" (looks ?) at 10 years in (our stubborn ?) way, the fact that today 1.3 billion people -- they have no electricity. It is mainly in sub-Saharan Africa and in South Asia: India, Pakistan, Bangladesh.

And we think this is as important as the oil security, climate change, and it should be one of the specific challenges that we have to face. Because if you don't have electricity, it is not only that you don't have light; you cannot keep the medication for your child in the refrigerator, for example, or you can't have access to Internet or whatever.

But the good news is here the United Nations, the secretary- general, announced the 2012 to be the energy for all in the 2012. And we hope to see the growing attention from the world governments, industrial and so on, to address this issue.

So these are some of the issues came to my mind. And one number just came to my mind. I want to highlight this; I will leave it to you. Because I think this is also a very worrying number; it is just a number. If you look at the world governments worldwide, their energy programs -- oil exporting, oil importing; rich, poor -- there is one item never changes. We would like to improve the energy efficiency in almost all the governments. It is like as if they are -- it's a cut-and-paste type of thing.

And normally -- and most of you know definitely better than me -- normally, global energy efficiency every year improves in a modest scale -- it's about 1 percent every year -- because of the technological innovation taking place, and the old technology goes when their lifetime finishes and new technology comes. And what we would like to see, and the governments: acceleration of this energy efficiency improvement to address the climate change, (blah, blah, blah ?).

However, for the first time since a very long time, in the year -- in the years 2009 and 2010, global energy efficiency has worsened; not only a slower improvement, it has worsened two years in a row.

So again, to putting all of these together, plus the financial crisis we are in, I think the point of departure to fund sustainable energy solutions doesn't seem so bright, hence the major tone of the work done -- (inaudible) -- this year was -- (inaudible). So these are some comments.

MORSE: Thanks very much, Fatih. They are comments that can keep us going for the next five or six hours. I am not going to probe on all of them, but I do want to probe on a couple before we open it up to the members who are present.

And let me start with the last two points you made, the one on energy efficiency and the one on the 1.3 billion people without power. What would happen if next year becomes a year of energy and if next year we find a solution -- a solution is found to bring power to people? What would that do to all the other trajectories you've talked about? What would it do to coal use? What would it do to C02 emissions? How could the world deal with this on a sustainable basis? And what's the path forward?

BIROL: I was very much expecting this question not only from you but from everybody, because many people are say -- as you like to say, 1.3 billion people, we have already very big problems, very big challenges. What happens if so many people would have access to energy, the energy security, C02 emissions and so on? So that's why we have calculated that in our book.

And what we have found out is the additional carbon -- (inaudible) -- emissions, if all these 1.3 billion people would have access to energy, would be only at the order of 1 percent, very small.

Why? Two reasons. One, the amount of energy these people will use will be very small because of the -- their -- the income levels. And second, in many cases, there is rural electrification needed, and in many of them the (off-grid ?) solutions are very suitable for the renewable energy applications.

So as a result of that, I think the implication on the emissions and energy (trends ?) will not be substantial to bring us out of the (balance ?), which are all at (anyways ?), but it should not be an additional -- (inaudible) -- and therefore I think it is something -- compared to the benefits we will get to bring so many people modern energy services, it is definitely negligible.

MORSE: That's the good news coming out of that. Thank you on that.

BIROL: That's one good news, at least, yeah.

MORSE: I'd like to follow up on another question too, and that is on the golden age of gas.

BIROL: Yes.

MORSE: Certainly from a world perspective, I would think, the -- we're not only seeing phenomenal growth of gas utilization in the last few years, partly because of Fukushima, partly because of other things, and as a result of that, there's probably no surplus capacity in the LNG market at the moment.

If we did have a really golden age of gas unfolding, how do you think that would transmit in terms of the structures of the LNG markets, and the link in particular to oil prices? Would consumers globally be able to benefit the way consumers in the U.S., Canada, Mexico and Northwest Europe have from gasoline -- gas competition?

BIROL: First, let me tell you, at least in front of everybody here, since it's on the record, something. We -- at the IEA we review the governments' policies, energy decisions, and we are sometimes critical, sometimes making comments, and it is very easy to review and make some critical remarks about the U.S. and other countries' policies.

But (that ?) requires some compliments -- I think one should do that as well.

And I think what happened in the natural gas markets recently, the shale gas revolution, I think U.S., first of all, gave a major present to the international energy sector. I don't -- it was intentional or not, but at the end of the day, it was definitely a present. And you who don't believe in Europe or you -- if you come to Europe, you will see that everybody sees the benefits of that -- lots of gas coming to the markets.

Coming to the point after this that you make, I see that the -- lots of LNG coming and possibility that it may come if the process are appropriate. For example, there was a recent deal between the -- an English gas company bringing gas from U.S. to Europe, which would put definitely such examples with pressure on the oil indexation, long- term gas contracts. And it makes the hands of the importers much more stronger. There are at least three I know -- revised contracts which were indexed to -- 1-to-1 to oil prices, which improved the terms of conditions of the importers as a result of this lots of LNG coming and may come to the markets and creating pressures there.

So I will think that we will see more and more market developments reflected in the long-term gas contracts and moving gradually -- perhaps not immediately, but gradually moving away from oil indexation.

Therefore, it is, I believe, definitely a good news for many consumers in the world.

MORSE: As we can all see, Fatih's capable of engaging in virtually all aspects of energy dialogue. I didn't in my introductory remarks note that he comes from, as you can see from his biography, from Turkey, an IEA member and OECD member, but a country very much at the crossroads of multiple worlds. He also has had the luxury of working for both the OPEC secretariat and the secretary to the International Energy Agency.

With those two additional facts in your mind, it's now time to open this for members and issues you want to raise. So feel free to raise your hand if you want to be recognized and, in so doing, being recognized, please give us your name and affiliation.

Faisal.

QUESTIONER: Thanks, Faisal Kahn with Citigroup. I find it interesting that you said that, in 2009 and '10, efficiency has actually worsened. I would have thought that, given the high price of oil, the high price of global LNG, the high price of thermal coal, that, you know, this would have actually improved and pricing would actually bring efficiency into the market. Can you -- can explain a little bit more of what's going on there?

BIROL: Yeah.

In fact, this is -- the bad news is this happened despite the high prices of energy. But two things: One, it happened because of the huge growth we have seen in those years from China, India and Middle East countries where the energy efficiency is going in the wrong direction.

And second, in those countries, the oil prices are heavily subsidized, especially in the Middle East. Even though the international oil prices went up, it is not reflected to the final consumers; which didn't create a change in their consumption behavior. As a result of that, we didn't see that effect. And it is the reason we have a rather poor performance in terms of energy efficiency.

MORSE: Let me ask my own follow-up to this.

BIROL: Yes.

MORSE: You and the IEA were instrumental in helping the G-20 think through energy efficiency issues.

BIROL: Yes.

MORSE: And in particular, the removal of subsidies. We're living through a year with the (mean of spring ?) -- so-called (mean of spring ?) -- where oil-producing countries, that have the highest growth of consumption in the world, have more reasons not to remove the subsidies now than they might have even two years ago. What kind of pressures can the IEA and others bring to bear on this so that -- so that the trajectory of energy efficiency gets back on track?

BIROL: You're completely right that we have been -- I mean, since we have been asked by the G-20 during the Pittsburgh summit in the United States to analyze first of all how much subsidies are there, fossil fuel subsidies, and what happens if they -- if we phase them out. We worked on that it is very high, and this and that. We found the numbers first, and therefore this year, 2010, it is about 400 billion U.S. dollar(s), the subsidies. And half of them are in the Middle East, half of them to the rest of the world.

But why give up pushing G-20 countries? I mean, within the G-20 countries, some countries are pushing much more than the others to phase out these subsidies. What we see is that -- leave aside the reduction of subsidies -- subsidies are going up for two reasons: one, because the international oil prices are higher, and they have to put more money in order to keep the products at that level; and second, exactly what you mentioned, because of the recent developments in the Arab Spring, many governments are diverting their money to social spending and subsidies and so on, and because of that, the subsidies are growing.

And there is also one risk here, coming to my mind: Some of the money which is diverted from the budget is the money which we thought would go to oil (upstream ?) investments in the Middle East, and it was diverted to the -- on the consumption side, which will boost oil demand growth in (their ?) countries.

MORSE: Gerry (sp).

QUESTIONER: The shale gas --

MORSE: Please identify yourself.

QUESTIONER: Gerald Pollack. The shale gas revolution in the United States is receiving a very bad press in the Northeast because of the environmental damage caused by fracking. Now I understand that there are alternative methods of getting at the shale gas, but that they are not very practical at this point. Can you comment on what technology can contribute to getting at this gas without the environmental problems?

MORSE: Before you answer that, I just want to note those who buy or otherwise get this, there is an incredible, wonderful primer on shale, shale gas, tight oil, shale oil, and if you are looking for one place to understand these issues, this might be it.

Fatih.

BIROL: Because we have a very good peer reviewers to help us in that, including Mr. Morse, of course. So just to -- just to mention that.

So -- now, first of all, it -- the problem is not only in U.S. I can tell you we have the same problem in Australia, very simply, because of the coal bed methane and the shale gas.

And we have the same problem in France, which is now in France, it is banned by the government decision. Even the drilling to look if there is a shale gas or not is completely banned. In Germany, OK, this is the same thing. Austria, it is the same thing. Only in Poland, there are some efforts there.

Now, second point: If there is a real environmental problem or not because of shale gas extraction and production. The answer is yes. It is a problem. It is not only a green lobbying or the Internet gossip. There is a real problem from water contamination to the local problems. This is the second point.

Third point is -- and now, this is the good news, I think -- these problems can be solved with existing technologies. So we do not need to discover new technologies which is not -- which is not in hand. We can -- with existing technologies, we can solve these problems from the -- blocking the water contamination to the types of chemicals we use for the fracking and so on.

However, to do that, there is a need for the companies to use the best technologies available. And how do they do it? They do it if there is a right prescription, regulation of the governments in a very strict way, without compromising anything. And this is how the companies would do.

And what we say to the governments and the companies, in fact, gas companies, is that if you use the best technologies, according to our analysis, which would increase the cost of production at -- in the order of 15 percent, which still makes the gas business a very lucrative business, you have to use that. And if you want to see gas companies -- if you want to see a golden age of gas, you have to apply golden standards to your extraction and production technologies. Otherwise, this remains as a major roadblock to the golden age of gas.

MORSE: Yeah.

QUESTIONER: Peter Evans, global strategy and planning at GE Energy. One of the things that we grapple with or struggle with when we do our power modeling is understanding how significant water constraints will be out into the future -- we hear a lot about concerns about water, but how binding are those constraints. So I'm interested in your thoughts about whether or not you've included water constraints in your model, particularly with respect to coal because it's a very water-intensive technology. And if you look out to what India and China in particular are going to add over the next two decades, do you see water constraints shifting, either the application of water- reduction technologies through recycling, moving the plants closer to the ocean where they can extract saline water, or a complete shift to non-water-use technologies like wind and solar?

BIROL: You are completely right. Water is becoming a major constraint for the production of energy. And -- (inaudible) -- we need energy in order to get water, for the -- (inaudible) -- especially.

However, I -- two points: One, we have not looked at the water concern in this book; and second, it was saying that every year we come up with a new thing, new subject. One of the special topics next year at the World Energy Outlook will be water and energy, how they -- how they are going to influence each other, because availability of water or not will have implication for the cost of the production, and therefore the competitiveness of different fields is a subject that we are analyzing totally, which we'll publish for the next year's World Energy Outlook.

MORSE: In the back. I can't see your face, but I can see your hand. Yeah.

QUESTIONER: Karin Lissakers from the Revenue Watch Institute. You opened your remarks by saying that there's been a major shift in the oil security landscape and that, in effect, if I understood you correctly, the EU will have to pay a lot more attention to the security of its oil supplies. It will be the biggest importer.

Have you seen that reflected in European energy and other policies, security policies, or is this simply a fact that the European policymakers haven't faced up to yet?

BIROL: In fact we talk here very candidly, and Ed told many things about me, nice and not nice things, but one thing which is -- he didn't -- I'm very bold -- things -- I say very bold -- I'm very shocked that in Europe nobody picked up this message. I'm very -- I'm really very shocked. I thought -- and I thought I always have the instinct for -- when there's a (slot ?), where there's a message, that the people will jump on that.

But in Europe -- I travel so many European countries, so many interviews with the newspapers and all -- nobody picked up this thing. And I think it even confirms how serious the situation is. Even after these numbers, nobody picks it up as a major issue. And we hope that they will pick it up. We will definitely work on it, as the IEA, to highlight the importance of the oil security for the world and especially, given the trends here, for Europe.

But for the time being, to be honest with you, we have not seen much except for, I think, last week there was an article in FT. So this is -- this is it.

MORSE: Yes, in the front.

QUESTIONER: Nisa Afwab (sp), Pace University. You mentioned that about 50 percent of the oil consumption comes from the coal sector. That immediately brings into the mind the relative cost comparison of the various sources of energy. Could you give us an idea of the dollar per kilowatt hour costs of those -- of various sources of energy, with and without externalities?

BIROL: Now first of all, I said 50 percent of the energy came from coal, and this is -- most of them are used in power plants, electricity generation.

If you look at the electricity generation, if you compare in terms of generation costs only, if you compare -- if you say 1 for gas, I think it is about 1.2 for -- 1.2 for coal, and it is 0.8, 0.9, depending on the size, nuclear power, and about 1.5, 1.6 about the wind energy. This is in that order, without taking the externalities into account.

If we take the externalities into account, the picture changes, of course, significantly, in favor of wind and nuclear, if we have a C02 price or something like that, and works against coal-fired power plants.

QUESTIONER: Alberto Weisser from Bunge. When do you see that the natural gas prices will converge globally? And -- because we have prices all over the place. And what would be the marginal cost today both of gas and oil?

BIROL: OK. So first of all, I don't see that the process will converge very easily and very quickly now. We need more and more trade, to see more and more LNG come into the markets.

When the Australian LNG project finishes, when hopefully we see more LNG coming from the United States, I think this put the pressure on the oil index process, as I tried to explain, and this (will ?) emerge, but I don't see a major convergence before 2020 that these things would happen.

The cost of production changes from country to country. The -- in terms of oil -- I don't know -- perhaps about $80 for -- at least 75 (dollars), $80 for the unconventional oil in Canada and elsewhere or the -- (inaudible) -- offshore 70 (dollars) to $80 versus less than $5 in the Middle East. So this is -- of course, this is only cost of production, and there are many aspects between the cost and the price as you'll know.

QUESTIONER: Hi, Kassia Yanosek with Tana Energy Capital. I have a question about investment in upstream infrastructure. You had mentioned earlier that the Arab Spring has diverted funds away from investment in infrastructure, and I'm just wondering if we're in for high oil prices or if the Western Hemisphere investment is actually going to help save the day.

BIROL: You are right. We -- our numbers show that more than 90 percent -- and so is the numbers coming from the EIA -- U.S. EIA, similar numbers -- more than 90 percent of the growth in oil production need to come from the Middle East and North African countries in order to keep the -- keep pace with the demand and the decline in the existing fields.

And to do that, we calculate around $100 billion equivalent investment need to come in the MENA -- Middle East, North African -- countries. But we see when we look at the investment plans -- these are not even investment happening, but the plans -- they are -- they fall very short of the $100 billion. And I do not expect that in many of those countries the capital, the Western Hemisphere capital, can easily flow in. So I see many difficult -- and in some countries, in fact, it is forbidden by law, by constitution, that the investment can flow in. And in some countries there are some other political and other difficulties; it can't go in. It can go in in different -- in some countries, but it will not be at a level that it would make a major change, at least in the current political context we are in.

But what would happen is that if, as a result of this, if we see a difference in the investments -- if the price of oil goes up -- if enough production doesn't come from that, then the price of oil goes up. This will in turn -- will induce investment in the Western Hemisphere for the -- in the fields which are outside of this MENA region; such as we saw the example of light tight oil, another success story which can be (found with us ?). It can make the -- investment going, and increase production with the high price -- in a high price context.

QUESTIONER: Thank you. I'm Vincent Lauerman from Energy Intelligence.

Dr. Birol, you made mention that the shale gas revolution has been contributing to at least the beginning of a breakdown of oil- based pricing for export contracts for natural gas.

Back in the late 1950s, the cutting of posted prices for oil contributed to the creation of OPEC. Do you have any concern that natural gas -- major gas natural gas exporters may, you know, come together, and create a gas OPEC?

BIROL: In fact, they are coming together once or twice a year and meet, and they built an organization called Gas Exporting Countries Forum. But I think given the current gas market context we are in, (the life ?) will not be very easy for them to have the same role that OPEC plays in the oil markets -- again, thanks to the unconventional gas coming -- and just -- (inaudible) -- the good thing is, unconventional gas coming from different countries in the world -- Australia, China, the U.S., Canada and of course (conventional ?) from Russia. So I see major difficulties that they can -- they can insert pressure in the markets. Having said that, I know that there are efforts in the direction to do so, but I don't think that they will be very successful.

QUESTIONER: Cartan Sumner with --

MORSE: Wait for the --

QUESTIONER: Thanks. My name is Cartan Sumner with Peabody Energy. We're the world's largest private sector coal company, based in St. Louis, Missouri. And I just want to compliment Dr. Birol and his staff on what they've done over the last year in elevating the issue of global energy poverty to the agenda world's policymakers. It's been an issue that our CEO has raised over the last few years to policymakers about establishing a goal of achieving global energy access by 2050.

But for Dr. Birol and the International Energy Agency to elevate that message and bring it to the forefront -- it's really been dwarfed among all the world's climate goals, and I really think it's a credit to you and what you've done over the last year in bringing that attention -- that issue to the forefront of the world's policymakers. Thank you.

BIROL: Thank you.

MORSE: And now a question. Yeah, in the back.

QUESTIONER: Drosten Fisher, Monitor Group. If you look at the oil price over the last 40 years, it averaged between 20 (dollars) and $40 a barrel in real terms. Could you ever see a scenario in which the oil price goes back to that historical average?

BIROL: No. (Laughter.)

MORSE: Do you want to elaborate either on the -- on the dollar basis or the cost basis?

BIROL: No, I don't see that happening. And in fact, as you know, the IEA is an organization of the oil-importing nations. It would be very, very good news if prices went down. But I don't see this happening unless we see similar size of surprise on the oil -- unconventional oil sector that we have seen in the unconventional gas. But I don't see it is happening now. So therefore, I think we should prepare ourselves -- (inaudible) -- under the price levels that we are seeing now. And I may be even afraid that when the global economy come back on its feet, the prices may even go higher, which is definitely not a good news and something that we wouldn't like to see.

MORSE: Over here.

QUESTIONER: Minoru Takada from the United Nations secretary-general's office. And first, thank you very much, Fatih, for supporting the secretary-general as part of the High-Level Group on Sustainable Energy for All.

Now, next year is the International Year of Sustainable Energy for All, designated by General Assembly for the first time in history. So, given the trend that you describe, what would you like to see happen next year?

BIROL: We have (this 1.3 people ?) to -- in order to have everybody have access in the next 20 years, we have to find money which is about 45 billion U.S. dollar(s) each year, which is about 3 percent of the entire energy investments -- which is peanuts, to be honest with you. So we need -- we have three financing resources: One, the country, domestic country, they have to make something; second, the multilateral organizations; and third, private capital are going there.

And I hope that the -- in 2012, if the United Nations' efforts with the governments, with the industries' help, could provide some type of attractiveness for the private investment going in the countries and making the investment necessary, it will be a big thing, it will be a big change. And it could change lives of many peoples.

This can be in different forms. I don't want to go -- it can be some guarantees given by the international multilateral organizations, to other things, or some governance issues can be dealt, but this is what I would like to see. There is some move in the private sector to pay more attention, given the right conditions, in the electricity investments in the developing countries. This is the hope I have.

MORSE: (Off mic.)

QUESTIONER: (Inaudible) -- going back to the price not going down, could you elaborate if you think there's a political price premium in the current price of oil, and if so, how much you think it is, given the Iranian, Iraqi, Libyan situation?

BIROL: Do you want to answer this, Ed?

MORSE: Your -- it's your floor. (Laughter.)

BIROL: OK, my turn. OK.

Now, in the -- in the oil markets, when the buffer zones, the spare capacity or the stocks in the OECD countries are thin, then the geopolitical tensions' implications on the prices are always amplified. And currently, in terms of the stocks in the OECD countries, we are seeing, in average terms, a five-years low. And we -- therefore, what is going on in some Middle East countries definitely play a role in the current price levels.

But I think the main issue here is the fundamentals. A main issue is that there is a(n) expectation that there will be a demand growth this year and after the economy is in order in -- coming from Middle East, China and India. And there were some disappointing news on the some -- non-OPEC suppliers we have seen in some countries. And as a result of that, we have today, despite the weak economy, about $100 of oil prices.

And some of them is definitely as a result of these political tensions. But these are only playing a magnifier role rather than being the source of these high prices.

It will be very difficult to quantify how many dollar(s). It is -- it is difficult for me to quantify.

MORSE: On this point, by some statement somebody in your organization made, either in March or April, if we really had the data, sometime next year it would appear that non-OECD demand will overtake OECD demand for the first time when it comes to -- when it comes to oil. A lot of this comes from fuzzy numbers. We don't have data. You, through the WIA (ph), through dialogue with OPEC, dialogue on an individual basis with China and India and Russia try to get more transparent data. But going forward, how much do you think lack of transparency will create a price premium, and what degree do you think if we had honest data from and high-frequency data from around the world, we would have, in fact, lower prices?

BIROL: I (can ?) tell you the following without giving a country name, but if the major non-OECD consummate countries and major oil-producing countries would take the similar data transparency standards like the OECD countries -- not that they are the golden standard, but at that level, if they would -- I think it will definitely have to put a downward pressure on the prices. It would be a much more stable, much more transparent markets. And I think this is definitely a key part of the equation. I don't want to again put a dollar -- (inaudible) -- but it will definitely put a downward pressure; it will be a good news for the consumers.

But unfortunately -- OK, let me give you again a bad news -- unfortunately, we are far from that.

And I don't think, personally, that we will see it in the next few years to come. And I am afraid that it will be even going the wrong direction, even in the OECD countries, not because of the data methodologies, but many countries are cutting budgets of the key institutions who need to look after the data, good data, collated data, reliable data, unfortunately.

MORSE: Yeah.

QUESTIONER: Manuel Pinho, of Columbia University. I think that these figures for oil should be right because the share of non-OECD countries in world income is 45 percent; so for oil, it should be around the same.

Dr. Birol, please correct me: Regarding the oil market, the U.S. will be better strategically because they will import less. But from an economic point of view, the difference between the U.S. and Europe is that the American consumer will pay to oil companies; the European consumer will pay to the OPEC in economic terms. They will both lose, because the amount for oil will increase very substantially in the next 25 years. Am I wrong with this?

BIROL: Yeah, Mr. Minister, you are completely right. But what I see is that in -- what I was trying to say is that in Europe we do not see that Europe takes oil as a serious issue. Europe now takes gas as a serious issue, after what happened with Russia-Ukraine and -- in terms of security. And now, in fact, Europe has started to take gas security seriously, but now gas security is becoming of a less of importance -- fortunately, of course, but for -- in the context of Europe. But now we have to make Europe understand that oil security is a key issue and they shouldn't leave everything to U.S. to take care of, because U.S. may well, slowly but surely, leave the task to others.

MORSE: Yes. Microphone over here, please.

QUESTIONER: Claire K. Segar Nofgov (sp). I was hoping you could elaborate on how the current fiscal crises in the U.S., Europe and, arguably, Japan could impact your reference case in terms of support for clean technologies.

BIROL: Now, first of all, in terms of the global energy demand, the financial crisis today will be only a small blip in the long-term structural trends. It will not change -- the demand will grow when the economy is back on its feet.

But what is happening is that in many governments today, as a result of these financial difficulties they have, they are diverting the money from the clean energy sources to address the budget deficits.

An example: At least three major European countries who are promoting renewables since ages, they are cutting the subsidies for renewable energies. And three of them, they are big countries, and they have been championing the renewable energies.

Second, there were many CCS -- carbon capture and storage -- projects in European -- key European countries and one Asian country, all (IEA ?) members. They are slowing down those projects as they have to divert the -- divert the -- their financial resources somewhere else because of the financial crisis they have now.

So to sum up, I think the financial crisis would not change the energy demands, expectations much, but the attention and the funds going to clean energy technologies will be negatively affected because of that, which is a pity, I would say.

MORSE: Yes.

QUESTIONER: Yes, Tina Vitale (sp) from Booz Allen. I was wondering, what actions do you think need to be taken to increase investment in energy infrastructure worldwide, and what are the bottlenecks?

BIROL: It's changed so much from country to country and to -- fuel to fuel. But today if I can highlight two areas which I would like to see more investment, one is the -- as I said, in the key oil- producing countries which can bring the oil production easily to the markets, because demand will grow. I would like to see more oil investment in the upstream sector there, and the bottleneck is the -- as I see it now, the changing in the mindset of some governments. More nationalistic feelings are dominating some of the decisions there. And again, as Ed also said, they are diverting upstream investment money to the -- some social spending. These are one of the bottlenecks I can highlight.

The second area where I would like to see more investment is the -- in the electricity sector in the developing countries. As I said, the -- it is a -- there is a big injustice -- there is a(n) unjustice or injustice between the rich and poor today. The amount of electricity consumed in sub-Saharan Africa, where you have 800 million people live, is equal to electricity consumed in New York. And so this is a bit to show you the differences. I would like to see more investments there. And there are of course problems in terms of the (favored ?) conditions.

But also, there is one thing I can tell you, since you talk about oil and gas, to link it together. There is, for example, one oil and gas major exporter country in that -- in Africa, in sub-Saharan Africa region, one of the leading oil and gas exporting country, and around 52 percent of the population has no access to electricity.

And we have calculated that every year if they would only spend 0.6 percent of their export revenues building power plants, they would have solved the problem. Not even 1 percent -- 0.6 percent would have solved the problem. This is another area that I can highlight.

MORSE: You have the last question. I hope it's short so we can end in time. Thank you.

QUESTIONER: Michael Sedoy, Diamondback. When the global economy stabilizes and oil price is going to move up, will IEA look to release reserves to address the high price, or you would look at that high price as transitionary and wait for industry to invest in new capacity?

BIROL: Our policy is we never, ever release stock in order to have an impact on the prices. We have released -- in fact, if I can give you two last examples, one is due to Libya crisis. That was a -- the disruption of oil supply is Libya -- in Libya was going through difficult times. So therefore, we made it all available to the markets. And the previous one was during Katrina in the United States, and we released -- as a result of the natural disaster, we released oil. We will never, ever release oil in order to manipulate the prices.

MORSE: Fatih, we all appreciate your coming to us once again this year, and we hope we see you again next year, and we look forward to another wonderful interaction. Thanks very much.

BIROL: Thank you very much. (Applause.)

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THIS IS A RUSH TRANSCRIPT.

EDWARD MORSE: Good afternoon, everyone, and welcome to today's meeting at the Council on Foreign Relations.

Our guest today is Dr. Fatih Birol of the International Energy Agency. We're grateful to him for making this almost an annual event at the council, on the publication of the annual World Energy Outlook -- which is this big tome I have in my hand, and also here.

It's a sort of remarkable book coming from an international organization. It's a -- it's a -- an outlook that changes every year, that takes into account lessons learned. It's a -- an outlook that focuses each year on general subjects, but also on particular subjects.

And in many ways, this World Energy Outlook, like the International Energy Agency, is -- because of Fatih's role in it, it's sort of the world benchmark, if there is a benchmark, in what's happening, what's going right, what's going wrong, what the impact of energy policies are on things that we don't like to talk about, including changes in the global climate, and also takes into account the mission of the -- of the IEA. So through this work, Fatih has become really world- renowned, and it's really a pleasure to have you here with us.

As we get going, I want to remind everyone to turn off and not just put on vibrate, as I myself have turned off, my cellphones, BlackBerrys and all other wireless devices. And there are people who in the press who I gather are here. This meeting is very much on the record. We're going to start with some general banter between Fatih and myself, and then after a while we'll open it up for everybody's interaction.

And I'd like to start by asking you what you think are the main subjects, the main conclusions, the main issues that someone might want to take -- or that you'd like people to take away from this year's WEO.

FATIH BIROL: Thank you. Thank you very much for the very kind introduction, and thank you very much for CFR. I think it is five or six years in a row that you have invited me to come here and talk on the energy issues.

Now, our book is -- as you say, it is very -- it's about 700 pages, and there are many things inside. I would like to pick up a couple of things, some of them, I think, important, and it's already been under public debate.

And some of them are important and, for some reason or another which I don't understand, it didn't see the -- enough attention. So if I can be permitted to highlight this, I wanted to highlight these points. There are just five or six headlines and we can discuss or whatever you wish to do.

One thing, if I can start with the oil markets, one trend that we observe, there will be a major shift in terms of international oil security equation. What do I mean with that?

Years and years, decades and decades -- and you know it very well, as you were with the administration -- when you're talking about oil security, United States was -- that oil security, international oil security, oil productions are so important in this very country, when the prices, the gasoline prices go $4.00 and above, it is always something, a message to the administrations, I mean, as you know much better than me.

And U.S. kept a very good eye on the domestic oil markets, but international oil security, international markets. And many other countries, oil importers, Europeans and others, were taking it easy because U.S. is taking charge of it, taking care of it. And when you go to Europe, many -- in Europe you barely hear the word of "oil security." I don't why I -- since first 25 years, I never understood oil security is at issue.

Now, why it is like that? Because U.S. oil imports is huge, and it has been huge and the U.S. has been the highest oil imports in the world, and therefore the -- what I told you up till now.

However, according to our analysis here, this picture is set to change substantially and fast. U.S. oil imports are going to be halved very soon for two reasons. On the -- and a very important one, first of all -- on the demand side, due to efficiency standards, trucks and cars -- there have been downside pressure on the domestic demand. And second, increase in the domestic production -- and as a result of that, the -- within the -- two decades of time, very small period of time, the U.S. oil imports will be halved. And EU oil imports in 2015 will overtake the United States. EU will have the largest oil imports in the world, and the gap between the EU and the U.S. will be through -- after 2015 will be even bigger. And there is a new one coming: China, 12 million barrels per day oil imports in 2035, twice the United States.

So there'll be new composition of the international oil equation. And I'm sure this will have implications in terms of oil security, whose oil is what at the international domain. And Europe took gas security very seriously at this stage, and so -- and now we will see that Europe will be at the forefront of the oil security. If they wish so or not, it will be a -- it will be a new development, and I think it is very important that the U.S. position is changing vis-a- vis the others. This is the first point I wanted to make.

The second point is on natural gas. We believe that, looking at the supply and demand-side developments on the gas, we may be entering a golden age of gas. Not only in the United States, but also in China, we see lots of supply-side developments.

Australia -- six major new projects, which makes Australia in 10 years of time catching up. Qatar is the largest LNG exporter of the world. And also on the demand side, huge growth. A roadblock here could be the environmental implications of unconventional gas drilling. If you wish, we can come back to that in a minute.

Third point, on coal, I just want to give one statistics (sic) here, not -- will not talk much. Every year we focus in the outlook on one fuel, and this year we made coal. And one number I just wanted to bring to attention: When we go to meetings -- again, in the U.S., I guess, as well in Europe and in Japan, in this part of the world, the Western part of the world, you barely talk about coal. We talk about the PVs, wind, gas and -- (inaudible) -- but we barely talk about coal.

But if you look at the last 10 years -- not for the forecasts, it's the data -- what happened in the last 10 years between 2000 and 2010, global energy consumption -- 50 percent of that growth came from oil plus gas plus all renewables put together -- hydro, solar, wind, geothermal, biomass -- plus nuclear power. Put all the sources of energy in one side, it is equal to the growth came from coal -- the amount of coal we use. It means half of the energy use in the last 10 years came from coal, half all the others put together.

So if we use -- work by 10 years of energy, in the last 10 years, five years from all the other fields and five years from coal; yet we don't talk about coal. This is how much of a decollage there is between the international energy debate and what is going on in the real life with coal.

Other points: nuclear power. After Fukushima, we thought we had to look what happens if we see a major shift away from nuclear power globally. And if we -- there are many countries, such as Russia, China, Korea, India. They said they will continue with their nuclear power programs. But we said we know that there are some question marks, even in France, where I -- where I live. There's a presidential election in France, as well, and one of the two hottest topics in the presidential debate is the nuclear power. I see it for the first time in France. In Japan, it's still a question mark.

So we said what happens if there's a big shift away from nuclear power? So we see that the gap will be filled by three fields, basically: renewables, natural gas and coal. And as a result of that, we see that the coal and gas demands will be additionally going up -- with the implication on the price, of course. You will have less eggs in the basket. Coal goes down -- (inaudible) -- nuclear goes down, and coal and gas goes up to the -- to renewables. There (have been ?) less diversity in the energy mix. Therefore, I believe that's a good news for energy security. And finally, CO2 emissions will be higher as a result of that.

Therefore, I think it is, of course, the governments have to listen to voices of their people, their citizens, but also -- as Germany did. But also, it is also important for the governments to think in the structural needs and interests of their countries.

Last two points -- climate change. We have -- currently we are following a temperature increase about 6 degrees Celsius, which is about 11 degrees Fahrenheit, I understood, on a very consistent and perfectly observable (way ?). Every year we've -- as you said, that we look at every year that the data -- every -- (inaudible). We are on the 6 degrees Celsius increase trajectory despite all these discussions and all of these things. In fact, in the year 2010, despite all this attention given to climate change, we have the highest CO2 emissions ever in the history. It's higher -- the increase there.

And we said we know that the world leaders agreed that we have to limit the temperature increase -- maximum 2 degrees Celsius. So 6 degrees versus 2 degrees. And we said, do we still have some time, and if yes, how much time to be -- since there is not much happening on the climate change front in terms of international legally binding agreement, how much do we have time when we compare this 2 degrees target and where we are today?

What we have done is we look at the older energy-using capital infrastructure -- power plants, factories, cars, trucks, buildings -- that -- because if you look at a power -- if you build a power plant, it has 50 years of lifetime with you, and with the full -- (inaudible) -- lifetime, how much (fuel ?) are you going to -- (inaudible) -- and how does it compare with the permitted emissions given to us in the 2 degrees?

And what we have found out is that, as of today, with the -- if the current power plants, current factories continue as they are, we are -- at the end of the projection period, we are (already with ?) the existing infrastructure eating up 80 percent of the emissions permitted to us (to save ?) the two degrees trajectory -- (hold at ?) 80 percent. And if we do not have a major change in the climate policies, as of 2015, 95 percent of the allowed emissions will be eaten up with the infrastructure.

It is like a -- the doctor gives you a diet and tells you, you have to eat -- you can consume this amount of calories and you eat a big Turkish baklava, for example, and you already eat most of it and the -- (inaudible) -- left for the rest of the day; so it was like that. We have -- (inaudible) -- infrastructures and we have already eaten up that part. And if there are no major changes, as of 2017, a new clean major investment wave, coming for the clean energy technologies the door to two degrees will be closed forever. This is our analysis.

Finally, one issue, which is -- doesn't see the light of the day a lot, but I still want to mention, that, again, the analysis we make in the "World Energy Outlook" (looks ?) at 10 years in (our stubborn ?) way, the fact that today 1.3 billion people -- they have no electricity. It is mainly in sub-Saharan Africa and in South Asia: India, Pakistan, Bangladesh.

And we think this is as important as the oil security, climate change, and it should be one of the specific challenges that we have to face. Because if you don't have electricity, it is not only that you don't have light; you cannot keep the medication for your child in the refrigerator, for example, or you can't have access to Internet or whatever.

But the good news is here the United Nations, the secretary- general, announced the 2012 to be the energy for all in the 2012. And we hope to see the growing attention from the world governments, industrial and so on, to address this issue.

So these are some of the issues came to my mind. And one number just came to my mind. I want to highlight this; I will leave it to you. Because I think this is also a very worrying number; it is just a number. If you look at the world governments worldwide, their energy programs -- oil exporting, oil importing; rich, poor -- there is one item never changes. We would like to improve the energy efficiency in almost all the governments. It is like as if they are -- it's a cut-and-paste type of thing.

And normally -- and most of you know definitely better than me -- normally, global energy efficiency every year improves in a modest scale -- it's about 1 percent every year -- because of the technological innovation taking place, and the old technology goes when their lifetime finishes and new technology comes. And what we would like to see, and the governments: acceleration of this energy efficiency improvement to address the climate change, (blah, blah, blah ?).

However, for the first time since a very long time, in the year -- in the years 2009 and 2010, global energy efficiency has worsened; not only a slower improvement, it has worsened two years in a row.

So again, to putting all of these together, plus the financial crisis we are in, I think the point of departure to fund sustainable energy solutions doesn't seem so bright, hence the major tone of the work done -- (inaudible) -- this year was -- (inaudible). So these are some comments.

MORSE: Thanks very much, Fatih. They are comments that can keep us going for the next five or six hours. I am not going to probe on all of them, but I do want to probe on a couple before we open it up to the members who are present.

And let me start with the last two points you made, the one on energy efficiency and the one on the 1.3 billion people without power. What would happen if next year becomes a year of energy and if next year we find a solution -- a solution is found to bring power to people? What would that do to all the other trajectories you've talked about? What would it do to coal use? What would it do to C02 emissions? How could the world deal with this on a sustainable basis? And what's the path forward?

BIROL: I was very much expecting this question not only from you but from everybody, because many people are say -- as you like to say, 1.3 billion people, we have already very big problems, very big challenges. What happens if so many people would have access to energy, the energy security, C02 emissions and so on? So that's why we have calculated that in our book.

And what we have found out is the additional carbon -- (inaudible) -- emissions, if all these 1.3 billion people would have access to energy, would be only at the order of 1 percent, very small.

Why? Two reasons. One, the amount of energy these people will use will be very small because of the -- their -- the income levels. And second, in many cases, there is rural electrification needed, and in many of them the (off-grid ?) solutions are very suitable for the renewable energy applications.

So as a result of that, I think the implication on the emissions and energy (trends ?) will not be substantial to bring us out of the (balance ?), which are all at (anyways ?), but it should not be an additional -- (inaudible) -- and therefore I think it is something -- compared to the benefits we will get to bring so many people modern energy services, it is definitely negligible.

MORSE: That's the good news coming out of that. Thank you on that.

BIROL: That's one good news, at least, yeah.

MORSE: I'd like to follow up on another question too, and that is on the golden age of gas.

BIROL: Yes.

MORSE: Certainly from a world perspective, I would think, the -- we're not only seeing phenomenal growth of gas utilization in the last few years, partly because of Fukushima, partly because of other things, and as a result of that, there's probably no surplus capacity in the LNG market at the moment.

If we did have a really golden age of gas unfolding, how do you think that would transmit in terms of the structures of the LNG markets, and the link in particular to oil prices? Would consumers globally be able to benefit the way consumers in the U.S., Canada, Mexico and Northwest Europe have from gasoline -- gas competition?

BIROL: First, let me tell you, at least in front of everybody here, since it's on the record, something. We -- at the IEA we review the governments' policies, energy decisions, and we are sometimes critical, sometimes making comments, and it is very easy to review and make some critical remarks about the U.S. and other countries' policies.

But (that ?) requires some compliments -- I think one should do that as well.

And I think what happened in the natural gas markets recently, the shale gas revolution, I think U.S., first of all, gave a major present to the international energy sector. I don't -- it was intentional or not, but at the end of the day, it was definitely a present. And you who don't believe in Europe or you -- if you come to Europe, you will see that everybody sees the benefits of that -- lots of gas coming to the markets.

Coming to the point after this that you make, I see that the -- lots of LNG coming and possibility that it may come if the process are appropriate. For example, there was a recent deal between the -- an English gas company bringing gas from U.S. to Europe, which would put definitely such examples with pressure on the oil indexation, long- term gas contracts. And it makes the hands of the importers much more stronger. There are at least three I know -- revised contracts which were indexed to -- 1-to-1 to oil prices, which improved the terms of conditions of the importers as a result of this lots of LNG coming and may come to the markets and creating pressures there.

So I will think that we will see more and more market developments reflected in the long-term gas contracts and moving gradually -- perhaps not immediately, but gradually moving away from oil indexation.

Therefore, it is, I believe, definitely a good news for many consumers in the world.

MORSE: As we can all see, Fatih's capable of engaging in virtually all aspects of energy dialogue. I didn't in my introductory remarks note that he comes from, as you can see from his biography, from Turkey, an IEA member and OECD member, but a country very much at the crossroads of multiple worlds. He also has had the luxury of working for both the OPEC secretariat and the secretary to the International Energy Agency.

With those two additional facts in your mind, it's now time to open this for members and issues you want to raise. So feel free to raise your hand if you want to be recognized and, in so doing, being recognized, please give us your name and affiliation.

Faisal.

QUESTIONER: Thanks, Faisal Kahn with Citigroup. I find it interesting that you said that, in 2009 and '10, efficiency has actually worsened. I would have thought that, given the high price of oil, the high price of global LNG, the high price of thermal coal, that, you know, this would have actually improved and pricing would actually bring efficiency into the market. Can you -- can explain a little bit more of what's going on there?

BIROL: Yeah.

In fact, this is -- the bad news is this happened despite the high prices of energy. But two things: One, it happened because of the huge growth we have seen in those years from China, India and Middle East countries where the energy efficiency is going in the wrong direction.

And second, in those countries, the oil prices are heavily subsidized, especially in the Middle East. Even though the international oil prices went up, it is not reflected to the final consumers; which didn't create a change in their consumption behavior. As a result of that, we didn't see that effect. And it is the reason we have a rather poor performance in terms of energy efficiency.

MORSE: Let me ask my own follow-up to this.

BIROL: Yes.

MORSE: You and the IEA were instrumental in helping the G-20 think through energy efficiency issues.

BIROL: Yes.

MORSE: And in particular, the removal of subsidies. We're living through a year with the (mean of spring ?) -- so-called (mean of spring ?) -- where oil-producing countries, that have the highest growth of consumption in the world, have more reasons not to remove the subsidies now than they might have even two years ago. What kind of pressures can the IEA and others bring to bear on this so that -- so that the trajectory of energy efficiency gets back on track?

BIROL: You're completely right that we have been -- I mean, since we have been asked by the G-20 during the Pittsburgh summit in the United States to analyze first of all how much subsidies are there, fossil fuel subsidies, and what happens if they -- if we phase them out. We worked on that it is very high, and this and that. We found the numbers first, and therefore this year, 2010, it is about 400 billion U.S. dollar(s), the subsidies. And half of them are in the Middle East, half of them to the rest of the world.

But why give up pushing G-20 countries? I mean, within the G-20 countries, some countries are pushing much more than the others to phase out these subsidies. What we see is that -- leave aside the reduction of subsidies -- subsidies are going up for two reasons: one, because the international oil prices are higher, and they have to put more money in order to keep the products at that level; and second, exactly what you mentioned, because of the recent developments in the Arab Spring, many governments are diverting their money to social spending and subsidies and so on, and because of that, the subsidies are growing.

And there is also one risk here, coming to my mind: Some of the money which is diverted from the budget is the money which we thought would go to oil (upstream ?) investments in the Middle East, and it was diverted to the -- on the consumption side, which will boost oil demand growth in (their ?) countries.

MORSE: Gerry (sp).

QUESTIONER: The shale gas --

MORSE: Please identify yourself.

QUESTIONER: Gerald Pollack. The shale gas revolution in the United States is receiving a very bad press in the Northeast because of the environmental damage caused by fracking. Now I understand that there are alternative methods of getting at the shale gas, but that they are not very practical at this point. Can you comment on what technology can contribute to getting at this gas without the environmental problems?

MORSE: Before you answer that, I just want to note those who buy or otherwise get this, there is an incredible, wonderful primer on shale, shale gas, tight oil, shale oil, and if you are looking for one place to understand these issues, this might be it.

Fatih.

BIROL: Because we have a very good peer reviewers to help us in that, including Mr. Morse, of course. So just to -- just to mention that.

So -- now, first of all, it -- the problem is not only in U.S. I can tell you we have the same problem in Australia, very simply, because of the coal bed methane and the shale gas.

And we have the same problem in France, which is now in France, it is banned by the government decision. Even the drilling to look if there is a shale gas or not is completely banned. In Germany, OK, this is the same thing. Austria, it is the same thing. Only in Poland, there are some efforts there.

Now, second point: If there is a real environmental problem or not because of shale gas extraction and production. The answer is yes. It is a problem. It is not only a green lobbying or the Internet gossip. There is a real problem from water contamination to the local problems. This is the second point.

Third point is -- and now, this is the good news, I think -- these problems can be solved with existing technologies. So we do not need to discover new technologies which is not -- which is not in hand. We can -- with existing technologies, we can solve these problems from the -- blocking the water contamination to the types of chemicals we use for the fracking and so on.

However, to do that, there is a need for the companies to use the best technologies available. And how do they do it? They do it if there is a right prescription, regulation of the governments in a very strict way, without compromising anything. And this is how the companies would do.

And what we say to the governments and the companies, in fact, gas companies, is that if you use the best technologies, according to our analysis, which would increase the cost of production at -- in the order of 15 percent, which still makes the gas business a very lucrative business, you have to use that. And if you want to see gas companies -- if you want to see a golden age of gas, you have to apply golden standards to your extraction and production technologies. Otherwise, this remains as a major roadblock to the golden age of gas.

MORSE: Yeah.

QUESTIONER: Peter Evans, global strategy and planning at GE Energy. One of the things that we grapple with or struggle with when we do our power modeling is understanding how significant water constraints will be out into the future -- we hear a lot about concerns about water, but how binding are those constraints. So I'm interested in your thoughts about whether or not you've included water constraints in your model, particularly with respect to coal because it's a very water-intensive technology. And if you look out to what India and China in particular are going to add over the next two decades, do you see water constraints shifting, either the application of water- reduction technologies through recycling, moving the plants closer to the ocean where they can extract saline water, or a complete shift to non-water-use technologies like wind and solar?

BIROL: You are completely right. Water is becoming a major constraint for the production of energy. And -- (inaudible) -- we need energy in order to get water, for the -- (inaudible) -- especially.

However, I -- two points: One, we have not looked at the water concern in this book; and second, it was saying that every year we come up with a new thing, new subject. One of the special topics next year at the World Energy Outlook will be water and energy, how they -- how they are going to influence each other, because availability of water or not will have implication for the cost of the production, and therefore the competitiveness of different fields is a subject that we are analyzing totally, which we'll publish for the next year's World Energy Outlook.

MORSE: In the back. I can't see your face, but I can see your hand. Yeah.

QUESTIONER: Karin Lissakers from the Revenue Watch Institute. You opened your remarks by saying that there's been a major shift in the oil security landscape and that, in effect, if I understood you correctly, the EU will have to pay a lot more attention to the security of its oil supplies. It will be the biggest importer.

Have you seen that reflected in European energy and other policies, security policies, or is this simply a fact that the European policymakers haven't faced up to yet?

BIROL: In fact we talk here very candidly, and Ed told many things about me, nice and not nice things, but one thing which is -- he didn't -- I'm very bold -- things -- I say very bold -- I'm very shocked that in Europe nobody picked up this message. I'm very -- I'm really very shocked. I thought -- and I thought I always have the instinct for -- when there's a (slot ?), where there's a message, that the people will jump on that.

But in Europe -- I travel so many European countries, so many interviews with the newspapers and all -- nobody picked up this thing. And I think it even confirms how serious the situation is. Even after these numbers, nobody picks it up as a major issue. And we hope that they will pick it up. We will definitely work on it, as the IEA, to highlight the importance of the oil security for the world and especially, given the trends here, for Europe.

But for the time being, to be honest with you, we have not seen much except for, I think, last week there was an article in FT. So this is -- this is it.

MORSE: Yes, in the front.

QUESTIONER: Nisa Afwab (sp), Pace University. You mentioned that about 50 percent of the oil consumption comes from the coal sector. That immediately brings into the mind the relative cost comparison of the various sources of energy. Could you give us an idea of the dollar per kilowatt hour costs of those -- of various sources of energy, with and without externalities?

BIROL: Now first of all, I said 50 percent of the energy came from coal, and this is -- most of them are used in power plants, electricity generation.

If you look at the electricity generation, if you compare in terms of generation costs only, if you compare -- if you say 1 for gas, I think it is about 1.2 for -- 1.2 for coal, and it is 0.8, 0.9, depending on the size, nuclear power, and about 1.5, 1.6 about the wind energy. This is in that order, without taking the externalities into account.

If we take the externalities into account, the picture changes, of course, significantly, in favor of wind and nuclear, if we have a C02 price or something like that, and works against coal-fired power plants.

QUESTIONER: Alberto Weisser from Bunge. When do you see that the natural gas prices will converge globally? And -- because we have prices all over the place. And what would be the marginal cost today both of gas and oil?

BIROL: OK. So first of all, I don't see that the process will converge very easily and very quickly now. We need more and more trade, to see more and more LNG come into the markets.

When the Australian LNG project finishes, when hopefully we see more LNG coming from the United States, I think this put the pressure on the oil index process, as I tried to explain, and this (will ?) emerge, but I don't see a major convergence before 2020 that these things would happen.

The cost of production changes from country to country. The -- in terms of oil -- I don't know -- perhaps about $80 for -- at least 75 (dollars), $80 for the unconventional oil in Canada and elsewhere or the -- (inaudible) -- offshore 70 (dollars) to $80 versus less than $5 in the Middle East. So this is -- of course, this is only cost of production, and there are many aspects between the cost and the price as you'll know.

QUESTIONER: Hi, Kassia Yanosek with Tana Energy Capital. I have a question about investment in upstream infrastructure. You had mentioned earlier that the Arab Spring has diverted funds away from investment in infrastructure, and I'm just wondering if we're in for high oil prices or if the Western Hemisphere investment is actually going to help save the day.

BIROL: You are right. We -- our numbers show that more than 90 percent -- and so is the numbers coming from the EIA -- U.S. EIA, similar numbers -- more than 90 percent of the growth in oil production need to come from the Middle East and North African countries in order to keep the -- keep pace with the demand and the decline in the existing fields.

And to do that, we calculate around $100 billion equivalent investment need to come in the MENA -- Middle East, North African -- countries. But we see when we look at the investment plans -- these are not even investment happening, but the plans -- they are -- they fall very short of the $100 billion. And I do not expect that in many of those countries the capital, the Western Hemisphere capital, can easily flow in. So I see many difficult -- and in some countries, in fact, it is forbidden by law, by constitution, that the investment can flow in. And in some countries there are some other political and other difficulties; it can't go in. It can go in in different -- in some countries, but it will not be at a level that it would make a major change, at least in the current political context we are in.

But what would happen is that if, as a result of this, if we see a difference in the investments -- if the price of oil goes up -- if enough production doesn't come from that, then the price of oil goes up. This will in turn -- will induce investment in the Western Hemisphere for the -- in the fields which are outside of this MENA region; such as we saw the example of light tight oil, another success story which can be (found with us ?). It can make the -- investment going, and increase production with the high price -- in a high price context.

QUESTIONER: Thank you. I'm Vincent Lauerman from Energy Intelligence.

Dr. Birol, you made mention that the shale gas revolution has been contributing to at least the beginning of a breakdown of oil- based pricing for export contracts for natural gas.

Back in the late 1950s, the cutting of posted prices for oil contributed to the creation of OPEC. Do you have any concern that natural gas -- major gas natural gas exporters may, you know, come together, and create a gas OPEC?

BIROL: In fact, they are coming together once or twice a year and meet, and they built an organization called Gas Exporting Countries Forum. But I think given the current gas market context we are in, (the life ?) will not be very easy for them to have the same role that OPEC plays in the oil markets -- again, thanks to the unconventional gas coming -- and just -- (inaudible) -- the good thing is, unconventional gas coming from different countries in the world -- Australia, China, the U.S., Canada and of course (conventional ?) from Russia. So I see major difficulties that they can -- they can insert pressure in the markets. Having said that, I know that there are efforts in the direction to do so, but I don't think that they will be very successful.

QUESTIONER: Cartan Sumner with --

MORSE: Wait for the --

QUESTIONER: Thanks. My name is Cartan Sumner with Peabody Energy. We're the world's largest private sector coal company, based in St. Louis, Missouri. And I just want to compliment Dr. Birol and his staff on what they've done over the last year in elevating the issue of global energy poverty to the agenda world's policymakers. It's been an issue that our CEO has raised over the last few years to policymakers about establishing a goal of achieving global energy access by 2050.

But for Dr. Birol and the International Energy Agency to elevate that message and bring it to the forefront -- it's really been dwarfed among all the world's climate goals, and I really think it's a credit to you and what you've done over the last year in bringing that attention -- that issue to the forefront of the world's policymakers. Thank you.

BIROL: Thank you.

MORSE: And now a question. Yeah, in the back.

QUESTIONER: Drosten Fisher, Monitor Group. If you look at the oil price over the last 40 years, it averaged between 20 (dollars) and $40 a barrel in real terms. Could you ever see a scenario in which the oil price goes back to that historical average?

BIROL: No. (Laughter.)

MORSE: Do you want to elaborate either on the -- on the dollar basis or the cost basis?

BIROL: No, I don't see that happening. And in fact, as you know, the IEA is an organization of the oil-importing nations. It would be very, very good news if prices went down. But I don't see this happening unless we see similar size of surprise on the oil -- unconventional oil sector that we have seen in the unconventional gas. But I don't see it is happening now. So therefore, I think we should prepare ourselves -- (inaudible) -- under the price levels that we are seeing now. And I may be even afraid that when the global economy come back on its feet, the prices may even go higher, which is definitely not a good news and something that we wouldn't like to see.

MORSE: Over here.

QUESTIONER: Minoru Takada from the United Nations secretary-general's office. And first, thank you very much, Fatih, for supporting the secretary-general as part of the High-Level Group on Sustainable Energy for All.

Now, next year is the International Year of Sustainable Energy for All, designated by General Assembly for the first time in history. So, given the trend that you describe, what would you like to see happen next year?

BIROL: We have (this 1.3 people ?) to -- in order to have everybody have access in the next 20 years, we have to find money which is about 45 billion U.S. dollar(s) each year, which is about 3 percent of the entire energy investments -- which is peanuts, to be honest with you. So we need -- we have three financing resources: One, the country, domestic country, they have to make something; second, the multilateral organizations; and third, private capital are going there.

And I hope that the -- in 2012, if the United Nations' efforts with the governments, with the industries' help, could provide some type of attractiveness for the private investment going in the countries and making the investment necessary, it will be a big thing, it will be a big change. And it could change lives of many peoples.

This can be in different forms. I don't want to go -- it can be some guarantees given by the international multilateral organizations, to other things, or some governance issues can be dealt, but this is what I would like to see. There is some move in the private sector to pay more attention, given the right conditions, in the electricity investments in the developing countries. This is the hope I have.

MORSE: (Off mic.)

QUESTIONER: (Inaudible) -- going back to the price not going down, could you elaborate if you think there's a political price premium in the current price of oil, and if so, how much you think it is, given the Iranian, Iraqi, Libyan situation?

BIROL: Do you want to answer this, Ed?

MORSE: Your -- it's your floor. (Laughter.)

BIROL: OK, my turn. OK.

Now, in the -- in the oil markets, when the buffer zones, the spare capacity or the stocks in the OECD countries are thin, then the geopolitical tensions' implications on the prices are always amplified. And currently, in terms of the stocks in the OECD countries, we are seeing, in average terms, a five-years low. And we -- therefore, what is going on in some Middle East countries definitely play a role in the current price levels.

But I think the main issue here is the fundamentals. A main issue is that there is a(n) expectation that there will be a demand growth this year and after the economy is in order in -- coming from Middle East, China and India. And there were some disappointing news on the some -- non-OPEC suppliers we have seen in some countries. And as a result of that, we have today, despite the weak economy, about $100 of oil prices.

And some of them is definitely as a result of these political tensions. But these are only playing a magnifier role rather than being the source of these high prices.

It will be very difficult to quantify how many dollar(s). It is -- it is difficult for me to quantify.

MORSE: On this point, by some statement somebody in your organization made, either in March or April, if we really had the data, sometime next year it would appear that non-OECD demand will overtake OECD demand for the first time when it comes to -- when it comes to oil. A lot of this comes from fuzzy numbers. We don't have data. You, through the WIA (ph), through dialogue with OPEC, dialogue on an individual basis with China and India and Russia try to get more transparent data. But going forward, how much do you think lack of transparency will create a price premium, and what degree do you think if we had honest data from and high-frequency data from around the world, we would have, in fact, lower prices?

BIROL: I (can ?) tell you the following without giving a country name, but if the major non-OECD consummate countries and major oil-producing countries would take the similar data transparency standards like the OECD countries -- not that they are the golden standard, but at that level, if they would -- I think it will definitely have to put a downward pressure on the prices. It would be a much more stable, much more transparent markets. And I think this is definitely a key part of the equation. I don't want to again put a dollar -- (inaudible) -- but it will definitely put a downward pressure; it will be a good news for the consumers.

But unfortunately -- OK, let me give you again a bad news -- unfortunately, we are far from that.

And I don't think, personally, that we will see it in the next few years to come. And I am afraid that it will be even going the wrong direction, even in the OECD countries, not because of the data methodologies, but many countries are cutting budgets of the key institutions who need to look after the data, good data, collated data, reliable data, unfortunately.

MORSE: Yeah.

QUESTIONER: Manuel Pinho, of Columbia University. I think that these figures for oil should be right because the share of non-OECD countries in world income is 45 percent; so for oil, it should be around the same.

Dr. Birol, please correct me: Regarding the oil market, the U.S. will be better strategically because they will import less. But from an economic point of view, the difference between the U.S. and Europe is that the American consumer will pay to oil companies; the European consumer will pay to the OPEC in economic terms. They will both lose, because the amount for oil will increase very substantially in the next 25 years. Am I wrong with this?

BIROL: Yeah, Mr. Minister, you are completely right. But what I see is that in -- what I was trying to say is that in Europe we do not see that Europe takes oil as a serious issue. Europe now takes gas as a serious issue, after what happened with Russia-Ukraine and -- in terms of security. And now, in fact, Europe has started to take gas security seriously, but now gas security is becoming of a less of importance -- fortunately, of course, but for -- in the context of Europe. But now we have to make Europe understand that oil security is a key issue and they shouldn't leave everything to U.S. to take care of, because U.S. may well, slowly but surely, leave the task to others.

MORSE: Yes. Microphone over here, please.

QUESTIONER: Claire K. Segar Nofgov (sp). I was hoping you could elaborate on how the current fiscal crises in the U.S., Europe and, arguably, Japan could impact your reference case in terms of support for clean technologies.

BIROL: Now, first of all, in terms of the global energy demand, the financial crisis today will be only a small blip in the long-term structural trends. It will not change -- the demand will grow when the economy is back on its feet.

But what is happening is that in many governments today, as a result of these financial difficulties they have, they are diverting the money from the clean energy sources to address the budget deficits.

An example: At least three major European countries who are promoting renewables since ages, they are cutting the subsidies for renewable energies. And three of them, they are big countries, and they have been championing the renewable energies.

Second, there were many CCS -- carbon capture and storage -- projects in European -- key European countries and one Asian country, all (IEA ?) members. They are slowing down those projects as they have to divert the -- divert the -- their financial resources somewhere else because of the financial crisis they have now.

So to sum up, I think the financial crisis would not change the energy demands, expectations much, but the attention and the funds going to clean energy technologies will be negatively affected because of that, which is a pity, I would say.

MORSE: Yes.

QUESTIONER: Yes, Tina Vitale (sp) from Booz Allen. I was wondering, what actions do you think need to be taken to increase investment in energy infrastructure worldwide, and what are the bottlenecks?

BIROL: It's changed so much from country to country and to -- fuel to fuel. But today if I can highlight two areas which I would like to see more investment, one is the -- as I said, in the key oil- producing countries which can bring the oil production easily to the markets, because demand will grow. I would like to see more oil investment in the upstream sector there, and the bottleneck is the -- as I see it now, the changing in the mindset of some governments. More nationalistic feelings are dominating some of the decisions there. And again, as Ed also said, they are diverting upstream investment money to the -- some social spending. These are one of the bottlenecks I can highlight.

The second area where I would like to see more investment is the -- in the electricity sector in the developing countries. As I said, the -- it is a -- there is a big injustice -- there is a(n) unjustice or injustice between the rich and poor today. The amount of electricity consumed in sub-Saharan Africa, where you have 800 million people live, is equal to electricity consumed in New York. And so this is a bit to show you the differences. I would like to see more investments there. And there are of course problems in terms of the (favored ?) conditions.

But also, there is one thing I can tell you, since you talk about oil and gas, to link it together. There is, for example, one oil and gas major exporter country in that -- in Africa, in sub-Saharan Africa region, one of the leading oil and gas exporting country, and around 52 percent of the population has no access to electricity.

And we have calculated that every year if they would only spend 0.6 percent of their export revenues building power plants, they would have solved the problem. Not even 1 percent -- 0.6 percent would have solved the problem. This is another area that I can highlight.

MORSE: You have the last question. I hope it's short so we can end in time. Thank you.

QUESTIONER: Michael Sedoy, Diamondback. When the global economy stabilizes and oil price is going to move up, will IEA look to release reserves to address the high price, or you would look at that high price as transitionary and wait for industry to invest in new capacity?

BIROL: Our policy is we never, ever release stock in order to have an impact on the prices. We have released -- in fact, if I can give you two last examples, one is due to Libya crisis. That was a -- the disruption of oil supply is Libya -- in Libya was going through difficult times. So therefore, we made it all available to the markets. And the previous one was during Katrina in the United States, and we released -- as a result of the natural disaster, we released oil. We will never, ever release oil in order to manipulate the prices.

MORSE: Fatih, we all appreciate your coming to us once again this year, and we hope we see you again next year, and we look forward to another wonderful interaction. Thanks very much.

BIROL: Thank you very much. (Applause.)

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