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IEA releases World Energy Outlook 2013

12 November 2013

The International Energy Agency (IEA) released the 2013 edition of their World Energy Outlook (WEO-2013). The report presents a central scenario in which global energy demand rises by one-third in by 2035. While technology and high prices are opening up new oil resources, this does not mean the world is on the verge of an era of oil abundance, cautions the IEA. Although rising oil output from North America (light tight oil) and Brazil (deepwater) reduces the role of OPEC countries in world’s oil supply 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.

The pace of oil demand growth slows steadily—from an average of 1 mb/d per year to 2020 to just 400 kb/d thereafter, as high prices encourage efficiency and fuel switching, and the decline in OECD oil use accelerates. The shift in global energy demand to Asia continues, but China plays a lesser role in the 2020s as India and countries in Southeast Asia take the lead in driving the growth in energy consumption. The Middle East is predicted to become the world’s second-largest gas consumer by 2020 and third-largest oil consumer by 2030, redefining the role of the region in global energy markets. Brazil maintains one of the least carbon-intensive energy sectors in the world, despite experiencing an 80% increase in energy use to 2035 and moving into the top ranks of global oil producers. Energy demand in OECD countries barely rises and by 2035 is less than half that of non-OECD countries. Low-carbon energy sources meet around 40% of the growth in global energy demand. In some regions, rapid expansion of wind and solar PV raises fundamental questions about the design of power markets and their ability to ensure adequate investment and long-term reliability.

The availability and affordability of energy is a critical element of economic well-being and of industrial competitiveness, states the report. Natural gas in the United States currently trades at one-third of import prices to Europe and one-fifth of those to Japan. 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. Large variations in energy prices are predicted to persist through 2035, affecting investment decisions in energy-intensive industries. The United States sees its share of global exports of energy-intensive goods slightly increase to 2035. By contrast, the European Union and Japan see their share of global exports decline—a combined loss of around one-third of their current share.

Among the options open to policy makers to mitigate the impact of high energy prices, IEA highlights the importance of energy efficiency: two-thirds of the economic potential for energy efficiency is set to remain untapped in 2035 unless market barriers can be overcome. One such barrier is the pervasive nature of fossil fuel subsidies, which incentivize wasteful consumption at a cost of $544 billion in 2012. Accelerated movement towards a global gas market could also reduce price differentials between regions. Gas market and pricing reforms in the Asia-Pacific region and LNG exports from North America can spur a loosening of the current contractual rigidity of internationally traded gas and its indexation to high oil prices.

Energy-related CO2 emissions are projected to rise by 20% to 2035, leaving the world on track for a long-term average temperature increase of 3.6°C, far above the 2°C climate target. The report 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. Even with the projected growth of renewable energy, the share of fossil fuels in the global energy mix—currently at 82%—will be still at about 75% in 2035.

The shift in the balance of oil consumption towards Asia and the Middle East is accompanied by a continued build-up of refining capacity in these regions. In many OECD countries, on the other hand, declining demand intensifies pressure on the refining industry: by 2035, nearly 10 mb/d of global refinery capacity is at risk of low utilization rates or closure, with Europe particularly vulnerable.

Source: IEA