IEA Chief Economist offers a look at our energy future

July 18, 2011 by  
Filed under Insights

The era of cheap oil is over, and policies fall short of what is needed for a secure and sustainable energy future, says Dr Fatih Birol, Chief Economist of the International Energy Agency, in his lecture titled “A Glimpse into the Energy Fututre” at today’s EMA Distinguished Speaker Programme. This lecture is jointly organised by the Energy Market Authority and the Energy Studies Institute.

Era of cheap oil is over

Dr Birol shares that the era of cheap oil is over because of structural changes, and there is growing risk that the upturn in oil prices could undermine economic recovery.

On the demand side, strong growth from the transportation sector due to booming demand for mobility in emerging economies drives up oil use. The global car fleet continue to surge as more people in China and other emerging economies buy a car.

On the supply side, oil production becomes less crude. Global fossil fuel production reached 96 mb/d in 2035 on the back of rising output of natural gas liquids and unconventional oil, as crude oil production plateaus.

There is now more oil from fewer producers. The MENA region (Middle East and North Africa) would account for 90% of net global increase in oil production in 2020, and if current unrest defers investment, it could have implications for global energy security.

Oil prices is reaching a danger zone, and rising oil prices pose inflationary risks. High oil prices also represent significant redistribution of wealth from oil importers to oil exporters, and the impacts differ across OECD, emerging economies and less developed countries.

OECD spending on oil imports will be higher than 2008, if oil prices remain at current levels through 2011, and will present a serious risk to derail global economic recovery.

Stronger penetration of natural gas

Dr Birol shares that stronger penetration of natural gas could have profound implications for global energy markets. The majority of global natural gas production will continue to come from conventional sources but unconventional gas becomes increasingly important.

Natural gas can enhance the security of fuel supply. Global natural gas resources exceed 250 years of current production, while in each region, resources exceed 75 years of current consumption. Natural gas are also dispersed in many countries, unlike oil.

However, challenges remain in shale gas production due to environmental problems. The process need large volumes of water to fracture rocks, and uses chemicals that lead to the contamination of water.

The good news is that the challenges can be fixed with existing technologies, the government putting in the right regulations, and companies using the best technology.

The growing liquefied natural gas (LNG) production also enhances supply security and market flexibility. Australia is becoming the leading LNG supplier, followed by Qatar. Singapore could also become the regional hub for LNG.

Coal and renewable energy

Dr Birol explains that coal would remain the backbone of global electricity generation. The drop in coal-fired generation in OECD countries is offset by big increases elsewhere, especially in China, where 600 GW of new capacity exceeds the current capacity of US, EU and Japan.

Renewables would enter mainstream as the use of renewable energy triples between 2008 and 2035, but only if there is enough government support. Government support remains as the key driver, rising from $57 billion in 2009 to $205 billion in 2035, but higher fossil fuel prices and declining investment costs also spur the growth of renewable energy.

China

Dr Birol believes that China will be instrumental in shaping all energy markets. China would become the market leader in low-carbon technologies, given the sheer scale of China’s market. Its push to expand the role of low carbon technologies is poised to play a key role in driving down costs, to the benefit of all countries. If China becomes the low-carbon technology champion, this would have impacts on current champions in Europe and US.

Door to 2°C may be closing

Dr Birol warns that given the current status quo of international climate policy and efforts, the “door to 2°C may be closing” soon. The 2°C scenario assumes vigorous implementation of the Copenhagen Accord and Cancun Agreement pledges to 2020 and much stronger action thereafter. In this scenario, energy related CO2 emissions need to peak before 2020. This does not seem to be happening. In addition, all major emitters have to move, if not, the problem would not be solved.

Nuclear energy

Dr Birol shares that lower nuclear use would have implications for fuel mix, pushing up demand for coal, natural gas and renewables, and have a corresponding knock-on effect on energy prices. The implication for CO2 is that the growth in emissions from the power sector in 2008-2035 would be almost 30% higher in a lower nuclear case.

Dr Birol concludes that existing and announced policies can make a difference, but fall well short of what is needed for a secure and sustainable energy future. Energy and geopolitics will also be more and more interwoven.

[This article was first published at Green Business Singapore]

Related Posts

Add New Comment

Tell us what you're thinking.