Oil markets are entering a period of renewed uncertainty and volatility, including a possible supply gap in the early 2020s, the International Energy Agency (IEA) said on Tuesday.
Demand for natural gas is on the rise erasing talk of a glut, as China turns into a giant consumer, it said. Solar PV is surging ahead, but other low-carbon technologies and especially efficiency policies still require a big push.
These facts came to light in the IEA publication World Energy Outlook 2018, which detailed global energy trends and what possible impact they would have on supply and demand, carbon emissions, air pollution and energy access.
Major transformations were underway for the global energy sector, from growing electrification to the expansion of renewables, upheavals in oil production and globalisation of natural gas markets.
Across all regions and fuels, policy choices made by governments would determine the shape of the energy system of the future.
At a time when geopolitical factors were exerting new and complex influences on energy markets, underscoring the critical importance of energy security, the World Energy Outlook’s scenario-based analysis outlines different possible futures for the energy system across all fuels and technologies.
It offers a contrast with different pathways, based on current and planned policies, and those that can meet long term climate goals under the Paris Climate Change Agreement, reducing air pollution and ensuring universal energy access.
While the geography of energy consumption continues its historic shift to Asia, the World Energy Outlook finds mixed signals on the pace and direction of change.
In all cases, governments would have a critical influence in the direction of the future energy system.
Under current and planned policies, modelled in the New Policies Scenario, energy demand is set to grow by more than 25 per cent by 2040, requiring more than $2 trillion a year of investment in new energy supply.
“Our analysis shows that over 70 per cent of global energy investments will be government-driven and as such the message is clear, the world’s energy destiny lies with government decisions,” IEA’s Executive Director Fatih Birol said.
“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 centres, and expanding basic access to energy in Africa and elsewhere.”
The analysis also showed that oil consumption would grow in the coming decades, due to rising petro-chemicals, trucking and aviation demand. But meeting this growth in the near term meant that approvals of conventional oil projects needed to double from their current low levels.
Without such a pick-up in investment, US shale production, which has already been expanding at a record pace, would have to add more than 10 million barrels a day from today to 2025, the equivalent of adding another Russia to global supply in seven years, which would be a historically unprecedented feat.
In power markets, renewables have become the technology of choice, making up almost two-thirds of global capacity additions to 2040, thanks to falling costs and supportive government policies.
This is transforming the global power mix, with the share of renewables in generation rising to over 40 per cent by 2040, from 25 per cent today, even though coal remains the largest source and gas remains the second-largest.