(EnergyAsia, November 30 2012, Friday) — North America will dramatically change the global energy map as it sharply raises oil and gas production in coming decades, predicts the International Energy Agency (IEA) in its 2012 edition of the World Energy Outlook (WEO).

“North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world, yet the potential also exists for a similarly transformative shift in global energy efficiency,” said IEA Executive Director Maria van der Hoeven.

“This year’s World Energy Outlook shows that by 2035, we can achieve energy savings equivalent to nearly a fifth of global demand in 2010. In other words, energy efficiency is just as important as unconstrained energy supply, and increased action on efficiency can serve as a unifying energy policy that brings multiple benefits.”

The WEO finds that the extraordinary growth in oil and natural gas output in the US will mean a sea-change in global energy flows.

In the New Policies Scenario, the WEO’s central scenario, the US becomes a net exporter of natural gas by 2020 and is almost self-sufficient in energy, in net terms, by 2035. North America emerges as a net oil exporter, accelerating the switch in direction of international oil trade, with almost 90% of Middle Eastern oil exports being drawn to Asia by 2035.

Links between regional gas markets will strengthen as liquefied natural gas trade becomes more flexible and contract terms evolve. While regional dynamics change, global energy demand will push ever higher, growing by more than one-third to 2035. China, India and the Middle East account for 60% of the growth; demand barely rises in the OECD, but there is a pronounced shift towards gas and renewables.

The IEA expects fossil fuels to remain dominant in the global energy mix, supported by subsidies that, in 2011, surged by almost 30% to US$523 billion, due mainly to increases in the Middle East and North Africa.

It expects global oil demand to grow by seven million b/d to 2020 and to exceed 99 million b/d in 2035, with oil prices averaging US$125 per barrel in real terms and over US$215 per barrel in nominal terms.

A surge in unconventional and deepwater oil is seen boosting non-OPEC supply over the current decade, but the world will rely increasingly on OPEC after 2020. Iraq will account for 45% of the growth in global oil production to 2035 to become the second-largest global oil exporter, overtaking Russia.

While the regional picture for natural gas varies, the global outlook over the coming decades will remain bright as demand increases by 50% to five trillion cubic metres in 2035. Nearly half of the increase in production to 2035 will come from unconventional gas, with most of this taking place in the US, Australia and China.

Whether demand for coal carries on rising strongly or changes course radically will depend on the strength of policy decisions around lower-emissions energy sources and changes in the price of coal relative to natural gas.

In the New Policies Scenario, the IEA expects global coal demand, led by China and India, to rise by 21%.

For the first time, the IEA addressed the growing importance of water given its importance to the production of energy. Already, it notes the energy sector accounts for 15% of the world’s total water use and will have an impact on assessing the viability of energy projects.

“In some regions, water constraints are already affecting the reliability of existing operations and they will introduce additional costs. Expanding power generation and biofuels output underpin an 85% increase in the amount consumed (the volume of water that is not returned to its source after use) through to 2035,” said the IEA.

Fatih Birol, IEA’s chief economist and the WEO’s lead author, said:

“Our analysis shows that in the absence of a concerted policy push, two-thirds of the economically viable potential to improve energy efficiency will remain unrealised through to 2035. Action to improve energy efficiency could delay the complete ‘lock-in’ of the allowable emissions of carbon dioxide under a 2oC trajectory – which is currently set to happen in 2017 – until 2022, buying time to secure a much-needed global climate agreement. It would also bring substantial energy security and economic benefits, including cutting fuel bills by 20% on average.”

The report also makes a case for energy efficiency in helping to cut the growth in global energy demand by half.

Global oil demand would peak before 2020 and fall by almost 13 million b/d by 2035, a reduction equal to the current production of Russia and Norway combined. The accrued resources would facilitate a gradual reorientation of the global economy, boosting cumulative economic output to 2035 by US$18 trillion, with the biggest gains in India, China, the US and Europe.