‘FOUNDATIONS of the global energy systems are shifting,' the World Energy Outlook (WEO-13) - energy world's most eagerly awaited annual document unveiled last Tuesday in London - underlined once again in rather capital letters. Bringing together the latest data and policy developments, the World Energy Outlook 2013 presented up to date, projections of energy trends through to 2035, fuel by fuel, sector by sector, region by region and scenario by scenario. The document analyzes oil in-depth: resources, production, demand, refining and international trade.
In the New Policies Scenario, the IEA's central scenario, global energy demand is projected to go up by one-third from 2011 to 2035, underlining though that growth in demand would be registered for all forms of energy. And due to developments all around, the share of fossil fuels in the global energy mix would fall from 82 percent to 76 percent in 2035. Low-carbon energy sources (renewables and nuclear) have been projected to meet around 40 percent of the growth in primary energy demand. And nearly half of the net increase in electricity generation would come from renewables. Steadily rising oil prices to $128 per barrel (in year-2012 dollars) in 2035 supports the development of these new resources, the report deduced. The pace of oil demand growth thus slows steadily, from an average of 1 million bpd per year to 2020 to just 400,000 bpd thereafter, as high prices encourage efficiency and fuel switching, and the decline in OECD oil use accelerates, the report projected. On the demand side, the report once again highlights the growing role of Asia in the energy markets. The center of gravity of global energy demand is to move decisively towards emerging economies – they would account for more than 90 percent of net energy demand growth to 2035. Energy demand growth in Asia is led by China this decade, but shifts towards Southeast Asia after 2025, it added. The Middle East emerges as a major consumption center, with its gas demand growing by more than the entire gas demand of the OECD. “The Middle East would be the second-largest gas consumer by 2020 and third-largest oil consumer by 2030, redefining its role in energy markets.” The WEO-2013 also looks closely at how technology is opening up new types of resources, such as light tight oil and ultra-deepwater fields, that were until recently considered too difficult or expensive to access. This would necessarily result in some loss in market share by Middle East, it warned. Yet the WEO-13 once again made it clear, in rather explicit terms, that the energy rich Middle East would remain significant to the global energy balance. “Although rising oil output from North America and Brazil reduces the role of OPEC countries in quenching the world's thirst for oil over the next decade, the Middle East – the only large source of low-cost oil – takes back its role as a key source of oil supply growth from the mid-2020s,” it went on to argue. However, Middle East needs to be prepared for this role beyond 2020, despite the current glut like situation. The region needs to invest adequately in resources, so as to be able to fill in the vacuum, when it arises. Yet in view of the current situation, IEA, the OECD energy watchdog, highlighted the emerging, possible, oil supply crunch and the consequent higher prices as key Gulf producers delay investment in the face of surging US shale output. Warning against complacency in the oil market, the IEA said key Gulf producers have been adopting a “wait and see approach” to investment, because of the perception that the US shale revolution would produce an “abundance of oil”. And this could be disastrous for the global energy balance, the IEA implied while unveiling the WEO-13. In its current outlook, the Paris based IEA has pushed forward the timeframe for the United States to overtake Saudi Arabia and Russia as the world's top oil producer by one year - from it earlier projection- to 2016 at the latest. However, it also underlined that by 2020, the oilfields of Texas and North Dakota will be past their prime and the Middle East will regain its dominance. "We see two chapters in the oil markets. Up to 2020, we expect the light, tight oil to increase - I would call it a surge. And due to the increase coming from Brazil, the need for Middle East oil in the next few years will definitely be less," Fatih Birol, the principal author of the outlook told the press. "Due to the limited resource base (of US tight oil), it is going to plateau and decline. After 2020 there will be a major dominance of Middle East oil." The report also touches the issue of regional energy pricing and its impact on the respective economies. Availability and affordability of energy is a critical element of economic wellbeing and, in many countries, also of industrial competitiveness. Natural gas in the United States currently trades at one-third of import prices to Europe and one-fifth of those to Japan, the report noted. Average Japanese or European industrial consumers pay more than twice as much for electricity as their counterparts in the United States, and even China's industry pays almost double the US level. WEO-2013 thus projects that large variation in energy prices would persist through to 2035. And courtesy this pricing anomaly, the United States would see its share of global exports of energy-intensive goods slightly go up by 2035. In contrast, the share of European Union and Japan in global exports would decline – a combined loss of around one-third of their current share. “Lower energy prices in the United States mean that it is well-placed to reap an economic advantage, while higher costs for energy-intensive industries in Europe and Japan are set to be a heavy burden,” Birol, the IEA chief economist, said. Like the outlook last year, the WEO-13 too highlights the losing battle against global warming. Energy-related carbon-dioxide emissions are now projected to rise by 20 percent to 2035, leaving the world on track for a long-term average temperature increase of 3.6 °C - far above the internationally-agreed 2 °C target. It also emphasizes the importance of carefully designed subsidies to renewables, which totaled $101 billion in 2012 and expand to $220 billion in 2035 to support the anticipated level of deployment. From a producers viewpoint there are a number of contradictory messages included in the WEO-13. It concedes that fossil fuel would still be required, yet it also underlines it would lose market share. On one hand it speaks of the US industrial growth on account of lower energy prices and yet asks the other oil producers to increase its energy market prices – so crucial for the economic development. The WEO also underlines the need to abolish subsidies, so as to improve efficiency, yet it wants subsidies to renewables sector continue. And then despite the fact the growth in global consumption is slowing, and that a number of new energy frontiers are on immediate horizon, yet the WEO-13 is encouraging the energy rich Gulf states to continue investing. Fatih, that may not be taken as granted in the current scenario!
