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IEA launches its World Energy Outlook 2013

Hydrocarbon Engineering,

According to the IEA’s new World Energy Outlook (WEO) technology and high prices are opening up new resources, but this does not mean the world is on the verge of an era of oil abundance. Rising oil output from North America and Brazil will reduce the role of OPEC countries in helping quench global oil thirst over the next decade, however, the Middle East will continue to be a key source of oil supply growth from the mid 2020s.

Report findings
The report is being released today and presents a central scenario in which global energy demand rises by one third in the time to 2035. Global energy demand in Asia will gather speed but China will move towards a back seat in the 2020s as India and countries in Southeast Asia take a lead. The Middle East will also move to centre stage as an energy consumer, becoming the world's second largest gas consumer by 2020 and the third largest oil consumer by 2030.

Brazil is special focus of the report and will maintain one of the least carbon intensive energy sectors in the world, despite experiencing an 80% increase in energy use to 2035 and moving into the top ranks of global oil producers. Energy demand in OECD countries is reported to barely rise and by 2035 is less than half that of non-OECD countries. Approximately 40% of growth in global energy demand will be met by low carbon energy sources and in some regions, rapid expansion of wind and solar PV raises fundamental questions about the design of power markets and their ability to ensure adequate investment and long term reliability.

Energy availability and affordability
A critical element of economic well being and industrial competitiveness in many countries is energy availability and affordability. Natural gas in the US is currently trading at one third of import prices to Europe and one fifth of those to Japan. Average consumers in the two regions pay more than twice as much for electricity as their counterparts in the US. Even China’s industry pays almost double the US level. In WEO, large variations in energy prices are reported to exist through 2035, affecting company strategies and investment decision in energy intensive industries. The US sees its share of global exports of energy intensive goods slightly increase to 2035 which provides the clearest indication of the link between relatively low energy prices and the industrial outlook. In contrast, the EU and Japan see their share of global exports decline, a combined loss of approximately one third of their current share.

Policy options
There are many policy options to help mitigate the impact of high energy prices and WEO highlights the importance of energy efficiency as two thirds of the economic potential for energy efficiency is set to remain untapped in 2035 unless market barriers can be overcome. The pervasive nature of fossil fuel subsidies is one such barrier which had a cost of US$ 544 billion in 2012. A accelerated movement towards a global gas market could reduce price differentials between regions. Gas market and pricing reforms in the Asia-Pacific region and LNG exports from North America can spur a loosening of the current contractual rigidity of internationally traded gas and its indexation to high oil prices.

Taking action to reduce the impact of high energy prices does not mean diminishing efforts to address climate change. Energy related carbon dioxide emissions are projected to rise by 20% to 2035, leaving the world on track for a long term average temperature increase of 3.6 °C which is far above the internationally agreed 2 °C climate target. WEO also emphasises the importance of carefully designed subsidies for renewables.

Focus on oil
The report finally contains an in depth focus on oil and looks at how technology is opening up new types of resources, such as light tight oil and ultra deepwater fields. Despite new resources of being unlocked, national oil companies and their host governments still control 80% if the world’s proven and probable reserves. The pace of oil demand growth slows steadily, from an average of 1 million bpd/y to 2020 to just 400 000 bpd thereafter as high prices encourage efficiency and fuel switching, and the decline in OECD oil use accelerates. The shift in the balance of oil consumption towards Asia and the Middle East is accompanies by a continued build up of refining capacity in these regions. However, in many OECD countries, declining demand intensifies pressure on the refining industry. In the years to 2035, nearly 10 million bpd of global refinery capacity is at risk of low utilisation rates or closure, with Europe being particularly vulnerable.

Adapted from press release by Claira Lloyd

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