(EnergyAsia, November 12 2015, Thursday) — The world is at risk of becoming complacent to energy security threats with an expected prolonged period of low oil and gas prices looming ahead, said the International Energy Agency (IEA).
While consumers stand to benefit, the market is increasingly at risk from both a growing reliance on a few low-cost producers and a sharp rebound in price if investment falls short, the agency said in the latest edition of its flagship World Energy Outlook (WEO-2015) publication.
The global oil markets are still struggling to adjust to the price collapse of the last 18 months, and the increasingly urgent challenges posed by climate change.
In the IEA’s centre-of-the-road scenario of slower supply growth and stimulated demand, the crude oil price would rebound to US$80 per barrel by 2020. The Paris agency expects world energy demand to grow by nearly one-third between 2013 and 2040.
The links between global economic growth, energy demand and energy-related emissions will weaken with China undergoing structural change in its economy while others reach a saturation point in demand for energy services.
The IEA sees the world adopting more energy efficient technologies even if this will slow down under a prolonged period of lower oil prices. As a result of diminished incentives and longer payback periods, 15% of projected energy savings will be lost in a low oil price scenario.
Lower prices alone would not have a large impact on the deployment of renewables, but policymakers will have to remain steadfast in providing the necessary market rules, policies and subsidies.
Low oil prices threaten energy security
The IEA said oil prices could stay lower for much longer as today’s weak outlook stop the development of higher-cost projects. This will result in increased reliance on Middle East oil exports to the levels last seen in the 1970s that set the stage for two oil price shocks.
Asian consumers should worry for their energy security as they represent “the final destination of a huge share of regionally-traded oil.”
WEO-2015 expects India to overtake China as the largest source of energy consumption growth by 2040.
China is nearing its end as the world’s single largest energy demand growth story of recent decades. The country’s coal use will soon plateau at close to today’s levels as its economy rebalances and overall energy demand growth slows, before declining.
India – the subject of an in-depth focus in WEO-2015 – moves to centre stage in global energy, with high levels of economic growth, a large and growing population and low (but increasing) levels of energy use per capita all pushing energy demand to two-and-a-half-times current levels.
China’s net oil imports will grow to nearly five times those of the US while India’s will exceed those of the European Union.
“It would be a grave mistake to index our attention to energy security to changes in the oil price,” said IEA executive director Fatih Birol.
“Now is not the time to relax. Quite the opposite: a period of low oil prices is the moment to reinforce our capacity to deal with future energy security threats.
The climate issue
In advance of the critical COP21 climate summit in Paris now, the IEA said there are clear signs that an energy transition is underway: renewables contributed almost half of the world’s new power generation capacity in 2014 and have already become the second-largest source of electricity after coal.
“The coverage of mandatory energy efficiency regulation has expanded to more than one-quarter of global energy consumption,” it said. The climate pledges submitted in advance of COP21 are rich in commitments on renewables and energy efficiency. As a result, WEO-2015 expects renewables to become the leading source of new energy supply from now to 2040.
The deployment of renewables will grow worldwide, with a strong concentration in the power sector where renewables are set to overtake coal as the largest source of electricity generation by the early-2030s.
The IEA said renewables-based generation will reach 50% in the EU by 2040, around 30% in China and Japan, and above 25% in the US and India.
This will help to sharply slow down the growth in energy-related emissions, although the emissions trajectory could imply a long-term temperature increase of 2.7 °C by 2100. A major course correction is still required to achieve the world’s agreed climate goal.
“As the largest source of global greenhouse-gas emissions, the energy sector must be at the heart of global action to tackle climate change,” said Dr Birol.
“World leaders meeting in Paris must set a clear direction for the accelerated transformation of the global energy sector. The IEA stands ready to support the implementation of an agreement reached in Paris with all of the instruments at our disposal, to track progress, promote better policies and support the technology innovation that can fulfil the world’s hopes for a safe and sustainable energy future.”