Info!
UPDATED 1 Sept: The EI library in London is temporarily closed to the public, as a precautionary measure in light of the ongoing COVID-19 situation. The Knowledge Service will still be answering email queries via email , or via live chats during working hours (09:15-17:00 GMT). Our e-library is always open for members here: eLibrary , for full-text access to over 200 e-books and millions of articles. Thank you for your patience.

IEA report forecasts renewed volatility in oil markets

Decorative image New

The International Energy Agency’s (IEA) authoritative World Energy Outlook 2018 (WEO 2018) is to be launched in the UK at the Energy Institute’s (EI) headquarters in London on 22 November 2018. Its scenario-based analysis offers a thought-provoking range of potential futures for the global energy sector up to 2040, given current and planned policies aiming to meet long-term climate goals under the Paris Agreement.

Major transformations are seen to be underway, from growing electrification to renewables, upheavals in oil production and globalisation of natural gas markets. The IEA is convinced that across all regions and fuels, major policy choices must be made by governments to shape the energy system of the future.

The latest
WEO emphasises that ‘geopolitical factors are exerting new and complex influences on energy markets, underscoring the critical importance of energy security.’

Historic shift
The report maintains that while the geography of energy consumption continues its historic shift to Asia, there are ‘mixed signals on the pace and direction of change’. Oil markets, for example, are entering a period of renewed uncertainty and volatility, with a possible supply gap in the 2020s. Demand for natural gas is on the rise, ‘erasing talk of a glut as China emerges as a giant consume’.

On the renewables front, solar photovoltaics (PV) are charging ahead, but other low carbon technologies and especially efficiency policies, still require ‘a big push’, according to the IEA.

Nevertheless, governments will have a critical role to play in terms of influencing the future direction. Under current and planned policies, modelled in the ‘New Practices Scenario’, energy demand is set to grow by more than 25% to 2040, requiring more than $2tn/y of investment in new energy supply.

The IEA analysis shows oil consumption growing in coming decades, due to rising demand by petrochemicals, trucking and aviation. But meeting this growth in the near-term means that approvals of conventional oil projects need to double from their current low levels.

In the absence of such an ambitious pick-up in investment, US shale production, which has been expanding at record pace, would have to add more than 10mn b/d from today to 2025 – the equivalent of adding another Russia to global supply in just seven years. Obviously, this would be a ‘historically unprecedented feat’, the report admits.

The power picture
Looking at power markets, renewables have become the ‘technology of choice’, making up almost two-thirds of global capacity additions to 2040, due to falling costs and supportive government policies. The transformation of the global power mix is predicted to boost the renewables share in generation from 25% today to 40% by 2040. Though the IEA recognises that coal remains the largest source, followed by gas.

Expansion of renewables is seen to bring major environmental benefits along with a new set of challenges that policymakers will have to address quickly. ‘With higher variability in supplies, power systems will need to make flexibility the cornerstone of future electricity markets in order to keep the lights on,’ says the report. ‘This issue is of growing urgency as countries round the world are quickly ramping up their share of solar PV and wind, and will require market reforms, grid investments, as well as improving demand-response technologies, such as smart meters and battery storage technologies.’

Finally, the IEA’s ‘Sustainable Development Scenario’ suggests a pathway to meeting various climate, air quality and universal access goals in an integrated way. In this scenario, global energy-related carbon dioxide (CO
2) emissions are predicied to peak around 2020 and then to enter a steep and sustained decline, in line with the trajectory required to achieve the objectives of the Paris Agreement on climate change. However, most emissions linked to energy infrastructure are locked-in. In particular, coal-fired plants, which account for one-third of energy-related CO2 emissions today. The vast majority are related to projects in Asia, where coal plants are just 11-years-old on average, compared with 40 years on average in the US and Europe.

Dr Fatih Birol, Executive Director, IEA notes: ‘The message is clear, 70% of global energy investments will be government-driven’ given the size of the challenge ahead.


Dr Fatih Birol, Executive Director, IEA
Source: IEA


 

 

News Item details


Journal title: Petroleum Review

Subjects: Oil and gas, Renewables, Energy policy, Climate change, Forecasting

Please login to save this item