In the latest World Energy Outlook report from the International Energy Agency (IEA), the inter-governmental agency advises global decision-makers to not let events from the last year distract them from recognizing and confronting the longer-term signs of stress that are emerging in the energy system. These stress signs include access to energy and concerns over energy security driven by meeting environmental objectives and uncertainty in supply from oil, gas and nuclear power.
The report projects that global energy demand will drop from the current 2% per annum to 1% per annum after 2025, due to a combination of energy prices, policy measures and a restructuring of the global economy towards services and lighter industry.
The short-term picture of “a well-supplied oil market” based on soaring demand for US shale gas and tight oil is disguising “serious risks to future global energy supplies”, warns IEA Chief Economist Fatih Birol in WEO 2014. According to the report, the shale boom experienced by the US will dwindle from the 2030s onwards and non-OPEC supply will fall in the 2020s, causing global supplies to hinge on low-cost oil producers in areas of possible conflict like the Middle East, which could limit future supply.
In its Central Scenario, the IEA expects the world’s energy supply to consist of four almost equal parts by 2040: low-carbon sources (nuclear and renewables), oil, natural gas and coal. Known formally as The New Policies Scenario, The Central Scenario describes a world of existing policies and relevant future policy proposals. Under this scenario, the IEA projects an oil price of $132/barrel in 2040.
According to the IEA’s Central Scenario, global oil demand will increase by 37% by 2040 - largely driven by the Middle East, Asia, Africa and Latin America. Meeting this demand will cause current extraction rates to increase from 90 million to 104 million barrels per day until 2040 when demand from today’s largest consumers begin to decline – (the US, EU and Japan) or level off (China, Russia and Brazil), forecasts the IEA. However, the IEA further predicts that gas will overtake oil as the primary fuel in the energy mix in the OECD by around 2030, supported by a tripling of Liquefied Natural Gas (LNG) facilities. The IEA estimates that fossil fuel subsidies totalled $550 billion in 2013, more than four times those to renewable energy, which is holding back investment in efficiency and renewables.
Under The Central Scenario power is the fastest growing source of final energy, requiring 7,200 gigawatts of additional capacity by 2040. Renewables are expected to make up one-third of total generation by this time with ensuing challenges to the existing grid infrastructure from the high penetration of variable wind and solar PV. Nuclear power will increase its share of power generation by just 1% to 12% by 2040. The Central Scenario projects that if a carbon budget of 1000 gigatonnes of CO2(approximately the budget for limiting temperature rise to 2C) used by 2040, will set the world for a temperature rise of 3.6C.
The 450 Scenario, which describes a world of strong climate change policies that aim to limit temperature rise to 2C, is characterised by a significant CO2 price in major economies, phase out of fossil fuel subsidies, and greater energy performance standards. A WEO Special Report on meeting the 2C policy target will be released in mid-2015.
- 25 November 2014