The International Energy Agency’s has just released it’s annual publication the World Energy Outlook (WEO) 2008. IEA Executive Director Nobuo Tanaka said that the report highlights that current trends in energy supply and consumption are “patently unsustainable, environmentally, economically and socially. They can and must be altered.”
The WEO-2008 Reference Scenario assumes no new government policies, and shows that world primary energy demand grows by 1.6% per year on average between 2006 and 2030—an increase of 45%. This is slower than projected last year, mainly due to the impact of the economic slowdown, prospects for higher energy prices and some new policy initiatives.
One truly shocking statistic, bearing in mind that 500 parts per million is considered the point of no return, is the projected rise in greenhouse gas emissions if there is no change in government policies. It is predicted that they will rise to an atmospheric concentration of around 1 000 parts per million of CO2-equivalent by the end of this century. This would lead to an eventual global temperature increase of up to 6° C.
Despite the predicted progress of Renewable Energy projects, fossil fuels will still account for 80% of the world’s primary energy mix in 2030. Oil remains the dominant fuel, though demand for coal rises more than any other fuel. The share of natural gas in total energy demand rises marginally. Modern renewable technologies grow most rapidly, overtaking gas soon after 2010 to become the second-largest source of electricity behind coal.
These trends take account of current policies to reduce subsidies on energy consumption, which amounted to $310 billion in the 20 largest non-OECD countries alone in 2007 (of which oil subsidies accounted for $150 billion).
The two giants in growing demand are predictably, China and India, which account for more than half of incremental energy demand to 2030 while the Middle East emerges as a major new demand center. The share of the world’s energy consumed in cities grows from two-thirds to almost three-quarters in 2030. Nearly all of the increase in fossil-energy production occurs in non-OECD countries.
World oil demand is set to continue to expand through to 2030 on current trends, albeit more slowly than over the past two decades. In the Reference Scenario, primary demand for oil (excluding biofuels) rises by 1% per year on average, from 85 million barrels per day in 2007 to 106 mb/d in 2030.
This is a significant downward revision from last year’s Outlook, reflecting mainly the impact of higher prices and slightly slower GDP growth. New policies to promote more fuel-efficient vehicles and encourage biofuels introduced in the past year—notably in the United States and Europe—also contribute to slower demand.
The global trend masks big differences across regions—all of the projected increase in world oil demand comes from non-OECD countries. India sees the fastest growth, averaging 3.9% per year over the projection period (to 2030), followed by China, at 3.5%. High as they are, these growth rates are still significantly lower than in the past. Other emerging Asian economies and the Middle East also see rapid growth.
In contrast, demand in all three OECD regions (North America, Europe and the Pacific) falls, due to declining non-transport demand. The share of OECD countries in global oil demand drops from 57% in 2007 to 43% in 2030.
Around three-quarters of the projected increase in oil demand worldwide comes from the transport sector. Despite continuing improvements in average vehicle fuel efficiency, the growth of the world car parc—from an estimated 650 million in 2005 to about 1.4 billion by 2030—is expected to continue to push up total oil use for transport purposes.
There is not expected to be any major shift away from conventionally-fueled vehicles before 2030, though the penetration of hybrid-electric cars is projected to rise, reducing oil demand growth.
The IEA projects that the crude oil import price will average $100 per barrel (in real year-2007 dollars) over the period 2008-2015, rising to more than $120 in 2030. This represents a major upward adjustment from last year’s Outlook, reflecting the higher prices for near-term physical delivery and for futures contracts, as well as a reassessment of the prospects for the cost of oil supply and the outlook for demand.
In nominal terms, prices double to just over $200 per barrel in 2030. However, the IEA cautions, pronounced short-term swings in prices are likely to remain the norm and temporary price spikes or sharp falls cannot be ruled out.
These oil demand projections, combined with the price assumptions, point to persistently high levels of spending on oil in both OECD and non-OECD countries. As a share of world GDP at market exchange rates, oil spending rose from a little more than 1% in 1999 to around 4% in 2007, contributing to the economic downturn experienced by most oil-consuming countries. IEA projects that to stabilize at around 5% over much of the projection period. For non-OECD countries, the share averages 6% to 7%.
The IEA says that total oil production will not peak before 2030, although the production of conventional oil, including crude oil, natural gas liquids (NGLs) and enhanced oil recovery (EOR) is expected to level off toward the end of the production period.
Conventional crude oil production alone increases only modestly over 2007-2030—by 5 mb/d—as almost all the additional capacity from new oilfields is offset by declines in output at existing fields. The bulk of the net increase in total oil production comes from NGLs (driven by the relatively rapid expansion in gas supply) and from non-conventional resources and technologies, including Canadian oil sands.
…The projected increase in global oil output hinges on adequate and timely investment. Some 64 mb/d of additional gross capacity—the equivalent of almost six times that of Saudi Arabia today—needs to be brought on stream between 2007 and 2030. Some 30 mb/d of new capacity is needed by 2015. There remains a real risk that under-investment will cause an oil-supply crunch in that timeframe.
The IEA cautions that one major uncertainty for supply concerns the rate at which output from producing oilfields declines as they mature. A detailed field-by-field analysis of the historical production trends of 800 fields (including all 54 super-giants holding more than 5 billion barrels) indicated that observed decline rates (the observable fall in production) are likely to accelerate in the long term in each major world region.
Decline rates are lowest for the biggest fields: they average 3.4% for super-giant fields, 6.5% for giant fields and 10.4% for large fields. Observed decline rates vary markedly by region; they are lowest in the Middle East and highest in the North Sea. This reflects, to a large extent, differences in the average size of fields, which in turn is related to the extent to which overall reserves are depleted and whether they are located onshore or offshore. Adjusting for the higher decline rates of smaller fields explains the higher estimated decline rate for the world.
Greenhouse gases and global warming. WEO 2008 includes a 550 Policy Scenario and a 450 Policy Scenario as alternative policy scenarios that stabilize greenhouse gas concentrations at 550 ppm (approximate 3°C temperature rise) and 450 ppm (approximate 2° C increase). The two policy scenarios have a similar emissions trajectory until 2020, but emissions fall much more sharply after 2020 in the 450 Policy Scenario.
Both climate-policy scenarios assume a hybrid policy approach, comprising a combination of cap-and-trade systems, sectoral agreements and national measures.
Achieving those levels of reduction requires much more investment in energy-related infrastructure and equipment. Global energy investment in 2010-2030 is $4.1 trillion (or 0.25% of annual world GDP) higher in the 550 Policy Scenario than in the Reference Scenario. Most extra spending is on the demand side, with $17 per person per year spent worldwide on more efficient cars, appliances and buildings.
To achieve the 450 ppm level, the IEA projects global energy investment is $9.3 trillion, or 0.55% of annual world GDP, higher than in the Reference Scenario. Achieving such an outcome will require much more rapid growth in the use of hydropower, biomass, wind and other renewables, which together account for 40% of global power generation by 2030. Yet-to-be-demonstrated technologies such as carbon capture and storage (CCS) also contribute significantly to lower emissions.
For all the uncertainties highlighted in this report, we can be certain that the energy world will look a lot different in 2030 than it does today. The world energy system will be transformed, but not necessarily in the way we would like to see. We can be confident of some of the trends highlighted in this report: the growing weight of China, India, the Middle East and other non-OECD regions in energy markets and in CO2 emissions; the rapidly increasing dominance of national oil companies; and the emergence of low-carbon energy technologies. And while market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over.
But many of the key policy drivers (not to mention other, external factors) remain in doubt. It is within the power of all governments, of producing and consuming countries alike, acting alone or together, to steer the world towards a cleaner, cleverer and more competitive energy system. Time is running out and the time to act is now. WEO 2008
We cannot let the financial and economic crisis delay the policy action that is urgently needed to ensure secure energy supplies and to curtail rising emissions of greenhouse gases. We must usher in a global energy revolution by improving energy efficiency and increasing the deployment of low-carbon energy. Nobuo Tanaka