To understand what has been happening it is instructive to compare the new IEA report with that published 10 years ago. Hydrocarbons — oil, gas and coal — accounted for 81 per cent of total global energy supply in 2008. The figure today is still 81 per cent and will decline only marginally over the next 20 years to 74 per cent in 2040.
The key driver of change in the global market is not climate change or the political chaos affecting oil producers in the Middle East and elsewhere, or the fall in the cost of renewables. All those things matter, of course, but their impact is minimal compared with the shift in the geography of supply and demand that has transformed the market in the last decade and will continue to do so.
That is the most interesting message from the new edition of the International Energy Agency’s annual World Energy Outlook published last week.
To understand what has been happening it is instructive to compare the new Outlook with that published 10 years ago. Hydrocarbons — oil, gas and coal — accounted for 81 per cent of total global energy supply in 2008. The figure today is still 81 per cent and, according to the 2018 Outlook, that will decline only marginally over the next 20 years to 74 per cent in 2040.
In 2008, renewables led by wind and solar (including modern bioenergy but excluding hydro power) supplied just 1 per cent of global demand. The latest Outlook puts the figure at 7 per cent — very significant growth but still insufficient to alter the global market or have a major impact on emissions. Renewables are not replacing hydrocarbons but rather nuclear, hydro and subsistence biofuels.
Emissions of energy-related carbon dioxide are still rising and are more than 40 per cent higher than in 2000. Despite all the policy measures taken by different countries and mounting evidence of the impact of climate change they are projected to keep growing, albeit more slowly, for the next two decades.
Two things, however, have changed. One was predicted, the other is a complete surprise.
The first is the growing role of Asia in global energy consumption. From 18 per cent of the total in 1980, Asian demand has risen to 41 per cent now and is projected to account for almost half by 2040. Two-thirds of all the growth in energy consumption to 2040 will come from Asia.
China has led the way, with sustained economic growth lifting hundreds of millions of people out of subsistence poverty and giving them the means to buy commercial supplies of energy to provide heat, light and mobility. A decade ago, European companies dominated the list of the world’s top power suppliers. Now six of the top 10 are Chinese.
The pattern of trade has also shifted. China now imports 9m barrels of oil a day, making the political instability of the Middle East and Venezuela a greater threat to the country than to any other; energy security is now a Chinese issue.
As India, too, begins to grow rapidly, the geography of emissions is changing. The future of the climate will be determined above all over the next few decades by Asian countries — China, India and Indonesia, all of which continue to rely on coal for the bulk of their power supplies.
The second change is the re-emergence of the US as one of the world’s leading energy suppliers, meeting its own needs and beginning to export both oil and gas. The shale revolution was completely unexpected. In the 2008 Outlook it is not mentioned. Now, only 10 years later, the US will produce some 7.6m barrels of oil a day from the main shale formations, with the prospect of much more to come.
These shifts have affected not just the geography of trade but also prices. In 2008, with Brent crude averaging $97 a barrel, the IEA was anticipating an average of $100 (in 2007 money) over the period to 2015 and double that by 2030. Now, after a brief surge earlier this year, Brent is below $70 a barrel.
Because of its origins in the 1973 supply crisis , the IEA has always been concerned about security of supply. Insecurity remains because of the unsettled political situation in major exporting countries such as Saudi Arabia, Iran and Venezuela. But even with the growth of demand in Asia, we live in a world of plentiful supplies. Prices may not be stable but they are on a structural downward trend. And the US story shows that the assumption that a finite resource must always lead to higher prices is no longer valid.
The two trends seem set to continue. Shale is still in its infancy and significant development of resources has yet to extend beyond the US. Equally, there remains huge potential energy demand growth in Asia.
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November 26, 2018 at 04:07AM