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IEA predicts a volatile world oil market
Sees possible oil supply shortfall in early 2020s, rising natural gas demand and growing use of renewables for power generation Alan Bailey for Petroleum News
In its recently published World Energy Outlook 2018 report, the International Energy Authority sees major changes impacting world energy markets, with the growing use of electrical power, the increasing use of renewable energy sources, instability in oil markets and the globalization of natural gas markets, as gas demand grows. The EIA sees oil consumption continuing to grow, driven by petrochemical, trucking and aviation demand. However, in the absence of an uptick in the number of conventional oil development projects, shale oil development could experience difficulty in keeping up with that increasing demand, possibly leading to a supply gap in the early 2020s.
Demand for natural gas continues to rise as China becomes a major gas consumer. The use of solar photovoltaic power is expanding rapidly, but there is a need to drive other low-carbon technologies and to push for further improvements in energy efficiency, the IEA suggests.
Three scenarios The report considers three possible future energy scenarios: the continuation of current energy policies; the introduction of new policies and energy targets that have been announced; and the implementation of more radical policies that fully address the need to meet global climate change goals. In all cases the report sees government policies as decisive in determining what route energy usage and supply will take.
In general, energy demand is expected to grow, as the center of gravity for energy consumption continues to shift towards Asia. In its new policies scenario, the report anticipates global energy demand increasing by more than 25 percent by 2040, requiring more than $2 trillion per year in investment in new energy supplies.
“Our analysis shows that over 70 percent of global energy investments will be government driven and as such the message is clear - the world’s energy destiny lies with government decisions,” said Dr. Fatih Birol, IEA executive director. “Crafting the right policies and proper incentives will be critical to meeting our common goals of securing energy supplies, reducing carbon emissions, improving air quality in urban centers, and expanding basic access to energy in Africa and elsewhere.”
Transformation of electricity sector The electricity sector is undergoing a particularly dramatic transformation. Its share in global energy use is approaching 20 percent and is expected to grow further. A combination of government policies and cost reductions for renewable energy sources is fueling a rapid growth in the use of renewable energy power generation. However, the characteristics of this form of electricity supply require changes in the manner in which electrical systems operate, to ensure supply reliability.
Even in advanced economies, where there are well developed electricity supply systems, major investment in the infrastructure will be needed, to accommodate changes in the power generation mix. But lack of sufficient revenues generated by wholesale power markets to finance system upgrades could compromise supply reliability, the report suggests. And continuing improvements in energy efficiency have been dampening electricity demand and causing declines in electricity usage in the developed world.
In developing countries, on the other hand, there is rapidly increasing electricity demand with, for example, the increasing use of cooling systems driven by electric motors. While the implementation of cleaner and more universally available and affordable electricity supplies plays a crucial role in economic development and emissions reductions in these countries, there are questions over whether investments will appropriately match the development needs.
Importance of solar PV The report sees solar photovoltaic technology, referred to as solar PV, as a key technology in future electricity generation. With this technology becoming increasingly competitive, the IEA sees solar PV installed capacity moving past that of wind, hydropower and eventually coal in the coming decades. The majority of this capacity would be in utility-scale installations, although there would also be strong support for installation of the technology by individual households.
However, the IEA also predicts that the operation of electrical systems will need to become increasingly flexible, to support the intermittency of solar PV generation. The cost of battery technology is declining rapidly, enabling batteries to increasingly compete with gas-fired peaking plants in the task of leveling out the varying solar powered generation. However, conventional power plants remain the chief means of providing system flexibility, supported by new system interconnections, the use of electricity storage, and adjustments on the demand side, the IEA says.
One interesting question revolves around the extent to which the increasing use of electrically powered vehicles, the use of electric heating and improved electricity access will push up global electricity demand in the next few decades. A more aggressive move in this direction could lead to a 90 percent increase in electricity demand by 2040, relative to the 60 percent increase envisaged in the IEA’s new policies scenario. Increasing electrification would bring benefits in terms of reducing local pollution, but power generation would require further decarbonization if climate change goals are to be met. And some aspects of the energy system, including road freight, shipping and aviation, are not amenable to electrification using current technologies, the IEA report says.
Impact on oil and gas demand Alongside this increasing use of electricity in a number of energy arenas, in its new policies scenario the IEA sees the use of oil-based fuels in cars peaking in the mid-2020s. However, the use of these fuels in aviation and the trucking industry, coupled with growing petrochemical demand, would drive the demand for oil to continue to grow. But the use of oil and oil products in developing countries would account for all of that demand growth.
The IEA anticipates global demand for coal remaining somewhat static. Although fewer new coal-fired power plants are now planned than has been typical in the past, a number of new plants are currently coming into operation.
The IEA expects natural gas to overtake coal as a global energy source in 2030, as trade in liquefied natural gas more than doubles in response to demand from developing countries, especially China. Although the increasing use of solar PV and wind power in Europe will likely dampen the demand for gas for power generation there, gas supplies will remain vital for the heating of buildings and for ensuring uninterrupted power supplies.
Climate change targets But the IEA’s new policies scenario falls far short of meeting targets for addressing global climate change. Achieving those targets would require much more aggressive moves towards the use of renewable energy sources. Interestingly, IEA’s report also points to connections between people’s need for access to water and how this may impact fuel and energy technology choices.
The report also comments on steps that industry can take to reduce greenhouse gas emissions from fossil fuel usage, including the elimination of gas flaring, reducing methane emissions, and the use of carbon dioxide for enhanced oil recovery from oil fields. Another possibility being investigated is the conversion of hydrocarbons to hydrogen, coupled with the capture of the carbon.
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