World Energy Outlook 2007 Edition

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Oil Market Outlook and Policy Implications

World Energy Outlook 2007 Edition

http://www.iea.org/textbase/speech/2007/birol_us_senate.pdf

Press release

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The World Energy Outlook, 2007, contains some very alarming predictions.

Key points:

• The world is facing twin energy-related threats: that of not having adequate and secure supplies of energy at affordable prices and that of environmental harm caused by its use. The World Energy Outlook 2006 confirms that fossil-fuel demand and trade flows, and greenhouse-gas emissions would follow their current unsustainable paths through to 2030 in the absence of new government action – the underlying premise of the Reference Scenario. It also demonstrates, in an Alternative Policy Scenario, that a package of policies and measures that countries around the world are considering would, if implemented, significantly reduce the rate of increase in demand and emissions. Importantly, the economic cost of these policies would be more than outweighed by the economic benefits that would come from using and producing energy more efficiently.
• Oil demand grows by 1.3% per year through 2030 in the Reference Scenario, reaching 116 million barrels per day (mb/d) in 2030 – up from 84 mb/d in 2005. The pace of demand growth slackens progressively over the period. More than 70% of the increase in oil demand comes from developing countries (notably China and India), which see average annual demand growth of 2.5%.
• The transport sector absorbs most of the increase in global oil demand. In the OECD, oil use in other sectors barely increases at all. In developing countries too, transport contributes the bulk of the increase in oil demand. The lack of cost-effective substitutes for oil-based automotive fuels will make oil demand more rigid.
• Oil supply is increasingly dominated by a small number of major producers, most of them in the Middle East, where oil resources are concentrated. Non-OPEC production of conventional crude oil is set to peak within a decade. OPEC’s share of global supply grows significantly, from 40% now to 48% by 2030. Iran and Iraq have significant potential to expand their production, but Saudi Arabia remains by far the largest producer. The need for more transparent and comprehensive data on oil (and gas) reserves in all regions is a pressing concern.
• The oil industry needs to invest a total of $4.3 trillion (in year-2005 dollars) over the period 2005-2030, or $164 billion per year. The upstream sector accounts for the bulk of this. Almost three-quarters of upstream investments will be required to maintain existing capacity.
• A critical uncertainty is whether the substantial investments needed in the oil production sector in key Middle East countries will, in fact, be forthcoming. These governments could choose deliberately to develop production capacity more slowly than we project in our Reference Scenario. Or external factors such as capital shortages could prevent producers from investing as much in expanding capacity as they would like. As demonstrated by a Deferred Investment Case, slower growth in OPEC oil production drives up the international oil price and, with it, the price of gas.
• The new policies analysed in the Alternative Policy Scenario halt the rise in OECD oil imports by 2015. OECD countries and developing Asia become more dependent on oil imports in 2030 compared to today, but markedly less so than in the Reference Scenario. Global oil demand reaches 103 mb/d in 2030 in the Alternative Policy Scenario – 13 mb/d lower than in the Reference Scenario. Additional policy measures to promote improved fuel efficiency of cars and trucks, as well as a greater market share for biofuels, therefore have the effect of improving energy security.
• Our analysis demonstrates the urgency with which policy action is required. Each year of delay in implementing the policies analysed would have a disproportionately larger effect on energy security. Yet there are formidable hurdles to be overcome. It will take considerable political will to push through the policies and measures in the Alternative Policy Scenario, many of which are likely to encounter resistance from some industry and consumer groups. Politicians need to spell out clearly the benefits to the economy and to society as a whole of the proposed measures. In most countries, the public is becoming familiar with the energy-security and environmental advantages of action to encourage more efficient energy use and to boost the share of renewables.

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