TOWARDS THE END OF EACH YEAR, THE INTERNATIONAL ENERGY AGENCY (IEA) PRODUCES ITS CURRENT FORWARD-LOOKING VIEW OF FUTURE ENERGY PRODUCTION, PRICES AND DEMAND
Published in November 2015, the latest Outlook is the first to be compiled against the background of what is sometimes viewed as a sea change in the energy sector over the past year due in particular to the following factors:
The substantial fall in oil prices, from around $115 in mid-2014 to levels often below $50 per barrel through 2015, precipitated largely by OPEC’s decision in November 2014 to defend its current share of the world oil market
Continued production growth of unconventional production sources in the form of US shale oil and gas
China’s pronounced demand slow-down
These factors have resulted in a build-up of oil inventory levels which are expected to overhang the market in the short term, at least.
A World Energy Model
Central to the report’s methodology is a modelling framework which incorporates a World Energy Model. In essence it is a large scale simulation tool devised to replicate how energy markets function developed and refined over more than 20 years. In previous reports, the following three key scenarios have been considered:
The New Policies scenario
This is the central scenario of the Outlook, incorporating policies and measures affecting energy markets that had been adopted up to mid-2015 and also taking account of other relevant intentions announced but without full definition of measures to be implemented
2. The Current Policies scenario
This considers only those policies for which implementation measures had been formally adopted as of mid-2015 and assumes that these remain in situ unchanged. Though unlikely to be achieved, this scenario provides an insight as to how global energy markets would evolve without new policy intervention – acting as a benchmark to assess the worth of the additional measures accounted for in the New Policies scenario.
3. The 450 scenario
This looks at a specific outcome, which is the international goal to limit the rise in the long term global average temperature to 2 degrees C and illustrates how this might be achieved.
And, new for this year – The Low Oil Price scenario
In the light of oil market developments since late 2014, the 2015 Outlook includes an additional scenario, termed the Low Oil Price which illustrates the impact of a persistently lower oil price than assumed in the New Policies scenario. Market equilibrium is not projected to be achieved until the 2020s, with prices in the $50-$60 per barrel range
(2014 $), after which levels begin to rise, reaching $85 per barrel by 2040.
The IEA Outlook’s key conclusions
- Low prices bring consumer gains, but also sow the seeds of future risks to energy security – no room for complacency.
- India’s energy needs are huge with a strong, shared interest to support India’s push for clean and efficient technologies
- China’s transition to a more diversified and much less energy intensive model for growth will reshape energy markets
- The energy transition is underway with a strong signal from COP21 – governments must ring fence policies against market swings
- With looming energy security and environmental challenges, international cooperation on energy is more vital
From 82% to 60% of the energy mix by 2040
The 450 scenario tells the oil & gas industry that in order to limit global warming to no more than the 2 degrees C target , fossil fuels will need to fall to 60% of the energy mix by 2040, representing a significant shift versus the current 82% share!
This has prompted the IEA’s executive director, Fatih Birol, to comment ‘there should be no energy company in the world which believes that climate policies will not affect their business’.
Much food for thought……and action!
The impact of climate change on future energy demand
With the world’s attention more closely focused on the impact of climate change and the December 2015 meeting in Paris under the auspices of the 21st Conference of Parties (COP21), the whole issue of future energy demand is put into much sharper perspective.
Apart from its detailed projections, the Outlook provides an in-depth analysis of several topical issues:
A lower oil price future
The price decline has changed market conditions and raised the question of when the oil market will re-balance. The analysis looks at the implications for markets, policies, investment, the fuel mix and emissions if prices remain lower for longer.
The country is set for a period of rapid, sustained energy demand growth. The analysis assesses the many challenges and opportunities facing the country as it develops the resources and infrastructure needed to meet this demand.
Renewables and energy efficiency
With COP21 in mind, the Outlook looked at the competitive position of renewable energy technologies in different markets, their likely evolution and policy implications, along with the increasing coverage of energy efficiency policies.
The report provides an update on the opportunities and challenges facing the global development of unconventional gas, beyond the boundaries of North America, in particular considering the prospects in China and how it might affect the country’s energy outlook as well as regional and global balances.