The long-term projections have changed little in the year since this column last reported on the annual International Energy Agency (IEA) “World Energy Outlook,” but the tone is much different.
Last year’s report was concerned about finding the investments to meet demand; now the world has surpluses of oil and gas and a booming renewables industry.
One interesting observation in last year’s report that may help to explain the energy surplus: 2013 investments to provide energy were $1.6 trillion, double those in 2000.
The 2015 World Energy Outlook (WEO) includes optimistic projections for substantial growth of all energy forms, although coal consumption will grow only 0.4 percent per year to 2040. This WEO analysis reflects the rapid changes in energy markets over the past year and, in its “New Policies” scenario, considers the implications of emissions reduction pledges submitted in advance of the United Nations Climate Change Conference in Paris.
Under new policies:
♦ Global energy consumption would grow by 32 percent by 2040, driven primarily by China, India, Africa, the Middle East and Southeast Asia. The European Union, Japan and the United States would lead the consumption declines characteristic of economically advanced countries. This year’s growth projection is significantly lower than last year’s (37 percent), based on the assumption that developed countries will cut their energy consumption more than previously estimated.
♦ Global oil demand would grow rapidly to 2020, driven by low prices. The WEO models predict that the global oil price reaches $80 per barrel in 2020 and climbs to $128/bbl in 2040 (in 2014 dollars). Constrained by higher prices, demand grows more slowly after 2020. From now to 2040, China’s and India’s consumption grows 6 and 5 million barrels per day (mb/d), respectively, while developed nations’ consumption declines by about the same total amount (11 mb/d).
The modest growth in oil consumption as the standard of living grows in much of the developing world reflects the expectation that energy use per unit of GDP will continue to decline due to industrial and agricultural efficiencies, and growth in the services sector.
♦ Non-hydro renewable energy (bioenergy, geothermal, wind, solar and marine) grows significantly under all modeling assumptions, but is projected to benefit the most from new policies. Non-hydro renewable electricity generation would grow 450 percent, to 19 percent of the total electric supply.
Government regulation will drive that growth – renewables power generation would be almost 30 percent larger under new policies than current policies. However, WEO projects that renewable production can expand without subsidies as the cost of production technology declines and production moves to areas with higher-quality resources.
♦ Hydropower would grow more than 50 percent under either current or new policy models, driven by China’s current, and probably ongoing, emphasis on hydropower.
Of course, policy reality may be quite different from the 2015 Paris pledges assumed in the new policies projections. For example:
♦ Congress is working to eliminate the Clean Power Plan that is part of the emission reductions pledged by the United States in advance of the Paris climate change summit, and some presidential candidates promise to eliminate some emissions regulations.
♦ Population growth and the need to provide electricity and cleaner cooking fuels to billions of people may lead to unexpected policy decisions.
♦ Future increases in the cost of oil may prompt some countries to reinstate recently revoked government subsidies, thus encouraging fuel consumption.
Comparison of the future of fossil fuels under new policies and current policies is interesting – the differences are not striking, suggesting population growth and an increasing standard of living in less-developed countries will dominate energy trends.
♦ Under IEA’s current policies scenario, oil production in 2020 is only slightly higher than in its new policies scenario. By 2040, world oil supply reaches 117 million barrels per day (mb/d) under current policies and 103.5 mb/d in the new policies scenario.
♦ Under either the current or new policy scenarios, global natural gas production rises more than any other fossil fuel to 2040. The WEO models show global gas production growing 45 percent to 2040 under new policies; current policies would support almost 60 percent growth. These projections are lower than in the 2014 WEO, reflecting current expectations of lower growth in gross domestic production (GDP) and increased efficiency measures.
♦ The IEA report also models two less likely but more impactful scenarios: severely restricting carbon emissions and long-term low oil prices. This column will not discuss these outlier scenarios.
IEA notes that the long-term ramifications of the recent oil-price drop are hard to predict in light of the fact that both oil producers and consumers are not reacting to the price changes as rapidly as they have in the past. In addition, technological innovation can be a significant factor in changing energy supply and demand, but continues to be difficult to predict.
One area in which technology plays an important but difficult-to-predict role is tight oil and shale gas. IEA projects that U.S. tight oil production will plateau in the early 2020s at slightly more than 5 mb/d. The U.S. Energy Information Administration 2014 global projection is similar. On the other hand, ExxonMobil’s and BP’s long-range forecasts – 2040 and 2035, respectively – expect unconventional hydrocarbons to continue to grow, aided by technological innovation.
Population growth will also play a major role in total energy consumption and choices in energy type. The world’s population is expected to rise from 7.1 billion in 2013 to 9 billion in 2040. The increase will be concentrated in Africa, India, Southeast Asia and the Middle East. These areas of high population growth are also areas that use lower cost, carbon-intensive fuels. The new policies scenario predicts that gas demand grows almost 250 percent from 2013 to 2040 in China and India, and 75 percent in the Middle East as these areas expand overall energy use and include lower-emission fuels. China will cut coal consumption, but India will need cheap coal to provide electricity to 600 million new consumers and gasoline for increased car ownership (growing from 6 percent of households having a car).