Renewables and natural gas will be the big winners in the race to meet energy demand growth until 2040, according to the 2016 edition of the World Energy Outlook, the International Energy Agency’s flagship publication. However, traditional concerns related to oil and gas supply remain—and are reinforced by record falls in investment levels, IEA noted in its most recent WEO.
The conventional crude oil resources (e.g. excluding tight oil and oil sands) approved for development in 2015 sank to the lowest level since the 1950s, with no sign of a rebound in 2016. The outlook shows that another year of lower upstream oil investment in 2017 would create a significant risk of a shortfall in new conventional supply within a few years.
“We are entering a period of greater oil-price volatility,” said IEA Executive Director Fatih Birol, “If oil prices rise in the short term, then shale producers can react quite quickly to put more oil on the market, producing a seesaw movement. And if we continue to see subdued investments in new conventional oil projects, this could have profound consequences in the longer term.”
The responsiveness of tight oil has limits, so cannot be relied upon to cover a major shortfall in baseload oil supply. If there is no pick-up in 2017, then it becomes increasingly unlikely that demand—as projected in main scenario—and supply can be matched in the early 2020s without the start of a new boom-bust cycle for the industry, according to the outlook.
Global oil demand continues to rise until 2040, mostly because of the lack of easy alternatives to oil in road freight, aviation, and petrochemicals, according to WEO 2016.
Growth in oil consumption slows but reaches 103.5 million b/d by 2040. Oil demand from passenger cars declines, even as the number of vehicles doubles in the next quarter century, due to improvements in efficiency, biofuels, and rising ownership of electric cars.
A more flexible global gas market, linked by a doubling of trade in LNG, supports an expanded role for natural gas in the global mix, according to WEO 2016.
“The development of a more globalized market and its status as the least-polluting of the fossil fuels helps gas gain ground, overtaking coal in the global mix. Changes in market operation, business models, and pricing arrangements are catalyzed by a new diversity among suppliers, with North America, Australia, [and] East Africa all emerging as major exporting regions,” the report said.
Nevertheless, gas faces strong competition from coal in some markets, and from renewables in many others. Key points of the WEO 2016 about today’s global energy context include:
• The Middle East’s share of global oil production in 2016 is at its highest level in 40 years.
• Transformation in gas markets is deepening with a 30% rise in LNG.
• Additions of renewable capacity in the electric power industry was higher in 2015 than coal, gas, oil, and nuclear combined.
• The Paris Agreement enters into force, as global emissions stall.
• Billions worldwide remain without basic energy services.
The outlook empathizes that there is no single story about the future of global energy. Policies will determine where the world goes from here.