Energy shortages ahead without major investment, IEA says

Today’s lower oil prices and glut of U.S. production should not prevent the world from preparing for major stress ahead in the energy system, according to the latest forecast of the International Energy Agency.

Despite low oil prices now, the picture looks much less clear over the long term

Turbines blow in the wind south of Cheyenne, Wyo. The International Energy Agency is predicting renewables will overtake coal as the major producer of electricity by 2040. (David Zalubowski/ Associated Press)

Today’s lower oil prices and glut of U.S. production should not prevent the world from preparing for major stress ahead in the energy system, according to the latest forecast of the International Energy Agency.

Its latest World Economic Outlook points to rising global demand for energy, with China becoming the biggest energy consumer in the world by 2030.

But it says the U.S. shale oil surge will peter out in 10 years, leaving the world again reliant on the Middle East for fossil fuels and under threat from geopolitical tensions.

That could result in shortages and a sharp spike in prices, the report said.

"The short-term picture of a well-supplied oil market should not disguise the challenges that lie ahead as reliance grows on a relatively small number of producers,” the report said.

"The situation in the Middle East is a major concern, given steadily increasing reliance on this region for oil production growth, especially for Asian countries that are set to import two out of every three barrels of crude traded internationally by 2040."

There is a risk that this year’s lower oil prices will slow development of new energy projects, including unconventional oil and gas, renewables and nuclear power, the report warns.

Long lead times on energy projects

"The apparent breathing space provided by rising output in the Americas over the next decade provides little reassurance, given the long lead times of new upstream projects," according to Fatih Birol, the IEA's chief economist.

Birol says world primary energy demand will rise by 37 per cent by 2040, driven by demand in Asia, Africa, the Middle East and Latin America.

The report predicts demand for coal and oil will plateau because of improve fuel efficiency in North America, Japan and Europe and a shift to cleaner forms of energy.

Even with demand flat, the world needs about $900 million in new oil and gas development by 2030, at a time when oil prices are working against investment in new unconventional projects, such as oilsands.

Demand for gas is forecast at more than 50 per cent higher in 2040, with the U.S. remaining the largest global gas producer. A key question for the gas outlook is whether it can be produced in future at prices consumers will pay.

The report predicts a 60 per cent increase in nuclear power, but points to the significant stresses governments face as they replace aging nuclear plants over the next 20 years.

Renewable use expands

IEA executive director Maria van der Hoeven predicts renewable, including wind and solar with account for nearly half of the global increase in power generation to 2040.

“Renewables are expected to go from strength to strength, and it is incredible that we can now see a point where they become the world’s number one source of electricity generation,” she said.

She points to the need for a comprehensive climate agreement in Paris in 2015.

“A critical “sign of stress” is the failure to transform the energy system quickly enough to stem the rise in energy-related CO2 emissions which will grow by one-fifth to 2040, the report said.

The energy pattern predicted by the IEA would put the world on a path that will lead to a long-term global temperature increase of 2°C, leading to more extreme weather and greater inequity in global development.


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