Petroleum Review Editorial December 2008
Call for a global energy revolution
The International Energy Agency (IEA) has warned that massive levels of investment are needed in the oil and gas industry, and in renewable sources of energy, if the world is to avoid a fuel and energy shortage. Launching its World Energy Outlook (WEO) 2008 shortly before Petroleum Review went to press, the agency stressed that although oil prices have fallen in recent months, the era of cheap oil is over. It predicts that once the economy recovers in about 2010/2011, demand from India and China could cause the price of oil to soar as high as $200/b by 2030. ‘We cannot let the financial and economic crisis delay the policy action that is urgently needed to ensure secure energy supplies and to curtail rising emissions of greenhouse gases. We must usher in a global energy revolution by improving energy efficiency and increasing the deployment of low-carbon energy,’ said Nobuo Tanaka, Executive Director of the IEA.
In the WEO 2008 ‘Reference Scenario’, which assumes no new government policies, world primary energy demand grows by 1.6%/y on average between 2006 and 2030 – an increase of 45%. This is slower than projected last year, mainly due to the impact of the economic slowdown, prospects for higher energy prices and some new policy initiatives. Demand for oil rises from 85mn b/d now to 106mn b/d in 2030 – 10mn b/d less than projected last year. Demand for coal rises more than any other fuel in absolute terms, accounting for over a third of the increase in energy use. Modern renewables grow most rapidly, overtaking gas to become the second-largest source of electricity soon after 2010.
China and India account for over half of incremental energy demand to 2030, while the Middle East emerges as a major new demand centre. The share of the world’s energy consumed in cities grows from two-thirds to almost three-quarters in 2030. Almost all of the increase in fossil-energy production occurs in non-OECD countries. These trends call for energy-supply investment of $26.3tn to 2030, or over $1tn/y. Yet the credit squeeze could delay spending, potentially setting up a supply-crunch that could choke economic recovery.
‘Current trends in energy supply and consumption are patently unsustainable – environmentally, economically and socially – they can and must be altered,’ stated Tanaka. ‘Rising imports of oil and gas into OECD regions and developing Asia, together with the growing concentration of production in a small number of countries, would increase our susceptibility to supply disruptions and sharp price hikes. At the same time, greenhouse gas emissions would be driven up inexorably, putting the world on track for an eventual global temperature increase of up to 6°C.’
In addition to providing a comprehensive update of long-term energy projections to 2030, WEO 2008 takes a detailed look at the prospects for oil and gas production. Oil will remain the world’s main source of energy for many years to come, even under the most optimistic of assumptions about the development of alternative technology, notes the report. However, the sources of oil, the cost of producing it and the prices that consumers will have to pay for it are extremely unclear. ‘One thing is certain,’ stated Tanaka, ‘while market imbalances will feed volatility, the era of cheap oil is over.’
‘A sea change is underway in the upstream oil and gas industry with international oil companies facing dwindling opportunities to increase their reserves and production. In contrast, national companies are projected to account for about 80% of the increase of both oil and gas production to 2030,’ noted Tanaka. However, it is far from certain that these companies will be willing to make this investment themselves or to attract sufficient capital to keep up the necessary pace of investment.
Meanwhile, the prospect of accelerating declines in production at individual oil fields is adding to uncertainties. The findings of a field-by-field analysis of the historical production trends of 800 oil fields indicate that post-peak decline rates are likely to rise significantly in the long term, from an average of 6.7% today to 8.6% in 2030. ‘Even if oil demand was to remain flat to 2030, 45mn b/d of gross capacity – roughly four times the current capacity of Saudi Arabia – would need to be built by 2030 just to offset the effect of oil field decline,’ commented Tanaka.
WEO 2008 also analyses policy options for tackling climate change after 2012, when a new global agreement – to be negotiated at the UN Conference of the Parties in Copenhagen next year – is due to take effect (see p3).
Have your say
Earlier this year, the Energy Institute’s editorial team was restructured, with Chris Skrebowski taking on the mantle of Consulting Editor on Petroleum Review, handing over the Editor’s reins to myself. In addition, Louise Smith was promoted to Assistant Editor on the magazine and the team strengthened with the recruitment of an editorial officer, Marc Height, who is primarily responsible for supporting the production of Energy World (the pagination of which will be increasing in 2009).
These factors make it a particularly opportune time to review the future development of the EI’s magazines. With this in mind we are soon to launch a readership survey that aims to gather the views of both Petroleum Review and Energy World readers on how they would like to see their magazines develop and grow in the future.
Past surveys have indicated that the magazines are among the most valued benefits of EI membership. We therefore thank you in advance for your cooperation in helping us make them even more valuable to you and completing the electronic survey that we will email to you in the next few weeks.
It only remains to thank our readers and contributors for their continued loyalty and interest in Petroleum Review, and to wish you all a Merry Christmas and a Happy New Year.
Kim Jackson
Editor
The opinions expressed here are entirely those of the Editor and do not necessarily reflect the view of the EI.
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