Signs of stress in the energy industry

The new World Energy Outlook (WEO-2014) from the IEA has said that events of the last year have increased many of the long term uncertainties that are currently facing the global energy sector. The report has also warned that current events could distract decision makers from recognising and tackling the longer term signs of stress that are emerging in the energy system.

Central scenario

In the central scenario of the outlook, there is a 37% increase in demand in primary energy demand across the globe in 2040, which puts more pressure on the global energy system. However this pressure would be even greater if not for efficiency measures that play a vital role in holding back global demand growth. This scenario illustrates that world demand for two out of the three fossil fuels (mainly coal and gas) reaches its plateau in 20140, however, for both, this global outcome is a result of very different trends across countries. At the same time, the IEA has said that renewable energy technologies will gain ground rapidly and falling costs and subsidies will help this. By 2040, world energy supply is divided into four almost equal parts: low carbon sources, oil, natural gas and coal.

Renewables

Maria van der Hoeven, IEA Executive Director has said, ‘as our global energy system grows and transforms, signs of stress continue to emerge. But renewables are expected to go from strength to strength, and it is incredible that we can now see a point where they become the world’s number one source of electricity generation.’

The report describes a positive outlook for renewables, as they are expected to account for nearly half of the global increase in power generation to 2040 and overtake coal as the leading source of electricity. Wind power is expected to account for the largest share of growth in renewables based generation, followed by hydro power and solar technologies. However, as the share of wind and solar PV in the world’s power mix quadruples, their integration becomes more challenging both from a technical and market perspective.

Fossil fuels

In 2040 world oil supply is expected to rise to 104 million bpd, however this will hinge critically on investments in the Middle East. As tight oil output in the US levels off, and non-OPEC supply falls back in the 2020s, the Middle East is expected to become the largest major source of supply growth. Growth in world oil demand is also expected to slow to a near halt by 2040 as demand in many of today’s largest consumers will either already be in long term decline or have reached a plateau. China is expected to overtake the US as the largest oil consumer is approximately 2030, yet, as its demand growth slows, India is anticipated to emerge as a key driver of growth, as is Sub-Saharan Africa, the Middle East and Southeast Asia.

Fatih Birol, IEA Chief Economist said, ‘as well supplied oil market in the short term should not disguise the challenges that lie ahead, as the world is set to rely more heavily on a relatively small number of producing countries. The apparent breathing space provided by rising output in the Americas over the next decade provides little reassurance, given the long lead times of new upstream projects.’

When it comes to gas, demand is expected to be 50% higher in 2014 and is the only fossil fuel still growing significantly at that time. The US is anticipated to remain the largest global gas producer, however production levels are expected to tail off in the late 2030s as shale gas output starts to recede. East Africa is going to emerge alongside Qatar, Australia, North America and others as an important source of LNG, which will be an increasingly important tool for gas security. A key uncertainty listed in the WEO-2014 is however gas for outside of North America and if it can be made available at prices that are low enough to be attractive for consumers and yet high enough to incentivise large investments in supply.

The report says that while coal is abundant and its supply relatively secure, its future use is constrained by measures to improve efficiency, tackle local pollution and reduce CO2 emissions. Coal demand is expected to be 15% higher in 2014 but growth is anticipated to slow to a near halt in the 2020s. Regional trends are anticipated to vary, with demand reaching a peak in China, dropping by one third in the US, but continuing to grow in India.

Global energy system

The global energy system is expected to continue to face a major energy poverty crisis. In Sub-Saharan Africa, two out of three people do not have access to electricity, and this is acting as a severe constraint on economic and social development. Meanwhile, costly fossil fuel consumption subsidies are often intended to help increase energy access, but fail to help those that need it most and discourage investment in efficiency and renewables.

A critical sign of stress, according to the report is the failure to transform the energy system quickly enough to stem the rise in energy related CO2 emissions and put the world on a path consistent with a long term global temperature increase of 2 °C. In the WEO-2014 central scenario, the entire carbon budget allowed under a 2 °C climate trajectory is consumed by 2040. This highlights the need for a comprehensive and ambitious agreement at the COP21 meeting in Paris next year.

Edited from press release by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/clean-fuels/12112014/iea-signs-of-energy-stress/