An
extended period of lower oil prices would benefit consumers but would
trigger energy-security concerns by heightening reliance on a small
number of low-cost producers, or risk a sharp
rebound in price if investment falls short, says the International
Energy Agency (IEA) in the 2015 edition of itsflagship
World Energy Outlook
publication
(WEO-2015).
The report finds that the plunge in oil prices has set in motion the
forces that lead the market
to rebalance, via higher demand and lower growth in supply, although
the adjustment mechanism in oil markets is rarely a smooth one. In the
central scenario of
WEO‑2015, a tightening oil balance leads to a price around $80 per barrel by 2020. But
WEO-2015 also examines the conditions under which prices could
stay lower for much longer. Since prices at today’s levels push out
higher-cost sources of supply, such a scenario depends heavily on the
world’s lower-cost producers: reliance on Middle
East oil exports eventually escalates to a level last seen in
the1970s. Such a concentration of global supply would be accompanied by
elevated concerns about energy security, with Asian consumers – the
final destination of a huge share of regionally-traded
oil – particularly vulnerable. Developing Asia, a region in which India
takes over from China as the largest source of consumption growth, is
the leading demand centre for every major element of the world’s energy
mix in 2040 – oil, gas, coal, renewables and
nuclear. By 2040, China’s net oil imports are nearly five times those
of the United States, while India’s easily exceed those of the European
Union.
"It would be a grave mistake to index our attention
to energy security to changes in the oil price,” said IEA Executive
Director Fatih Birol. "Now is not the time to relax. Quite the opposite:
a period of low oil prices is the moment to reinforce
our capacity to deal with future energy security threats.”
The report also underlines that the single largest
energy demand growth story of recent decades is near its end: China’s
coal use reaches a plateau at close to today’s levels, as its economy
rebalances and overall energy demand growth slows,
before declining. India – the subject of an in-depth focus in
WEO-2015 – moves to centre stage in global energy, with high levels of economic
growth, a large (and growing) population and low (but increasing) levels
of energy use per capita all pushing
energy demand to two-and-a-half-times current levels.
Overall, world energy demand grows by nearly one-third between 2013 and 2040 in the central scenario of
WEO‑2015, with the net growth driven entirely by developing countries. The links between global economic growth, energy demand and
energy-related emissions weaken: some markets (such as China) undergo
structural change in their economies and others reach a saturation point
in demand for energy services. All adopt more energy efficient
technologies, although a
prolonged period of lower
oil prices could undercut this crucial pillar of the energy transition;
diminished incentives and longer payback periods mean that 15% of the
energy savings are lost in a low oil price scenario.
Lower prices alone would not have a large impact on the deployment of
renewables, but only if policymakers remain steadfast in providing the
necessary market rules, policies and subsidies.
In advance of the critical COP21 climate summit in
Paris, there are clear signs that an energy transition is underway:
renewables contributed almost half of the world’s new power generation
capacity in 2014 and have already become the second-largest
source of electricity (after coal). The coverage of mandatory energy
efficiency regulation has expanded to more than one-quarter of global
energy consumption. The climate pledges submitted in advance of COP21
are rich in commitments on renewables and energy
efficiency, and this is reflected in the
WEO-2015 finding that
renewables are set to become the leading source of new energy supply
from now to 2040. Their deployment grows worldwide, with a strong
concentration in the power sector where renewables
overtake coal as the largest source of electricity generation by the
early-2030s. Renewables-based generation reaches 50% in the EU by 2040,
around 30% in China and Japan, and above 25% in the United States and
India.
The net result of the changes seen in the
WEO-2015 central scenario is that the growth in energy-related emissions slows
dramatically, but the emissions trajectory implies a long-term
temperature increase of 2.7oC by 2100.
A major course correction is still required to achieve the world’s
agreed climate goal. "As the largest source of global greenhouse-gas
emissions, the energy sector must be at the heart of global action to
tackle climate change,” said Dr Birol. "World
leaders meeting in Paris must set a clear direction for the accelerated
transformation of the global energy sector. The IEA stands ready to
support the implementation of an agreement reached in Paris with all of
the instruments at our disposal, to track progress,
promote better policies and support the technology innovation that can
fulfil the world’s hopes for a safe and sustainable energy future.
”