IEA Top Stories and Comments |
Security of demand
Security of oil demand has become a recurrent theme in the producer-consumer
dialogue with producing countries expressing concern that climate-related
and efficiency policies will dampen demand for their oil and increase
alternative sources of supply.
The IEA understands the importance to everyone of forecasting demand as accurately as possible and held in late May a joint session with OPEC to explore the key variables in demand (link to communiqué). The general consensus of those discussions was that the two most important determinants of energy demand are economic growth and price. In an effort to enhance transparency of demand issues, the IEA monthly publishes its Oil Market Report, an assessment of factors influencing oil supply and demand. Furthermore, in its yearly World Energy Outlook the IEA analyses the likely implications on oil demand and supply of new policies consuming governments may implement in the years ahead. The IEA – along with OPEC – is also one of seven international organisations participating in the Joint Oil Data Initiative, a comprehensive effort to improve the reliability, timeliness and transparency of oil data around the world.
While OPEC raises the legitimate question of security of demand,
the IEA analysis shows that even if consuming countries introduce
successful new policy measures to increase efficiency, diversity
and reduce CO2 emissions, there is little doubt that the level
of oil supply required in the next ten years will grow: According
to World Energy Outlook, between now and 2015, the demand for Middle
East and North African oil is projected to increase by 17.9%, with
a range of uncertainty due to policy of less than 1.8 mb/d. This
equals the current level of spare capacity that is needed to calm
markets concerned about the thin capacity cushion. In short, continued
oil demand growth is very likely – barring any economic recession
-- over the next decade and it will be increasingly addressed to
Middle East and North African producers.
Although there is more doubt over projections to 2030, the investment
decisions that will deliver supply at that time need not be taken
until 2015 at the earliest by which time the level of uncertainty
will have decreased significantly. In the next ten years, there
is relatively little doubt about the level of supply required
and therefore producers can invest with confidence.
Consolidation of European Energy industry
The IEA sees the current merger and consolidation considerations across Europe in the context of the liberalisation of European energy markets. The IEA trusts that relevant regulatory and competition authorities will rule appropriately so that the level of competition in European energy markets does not deteriorate at a cost to European energy consumers.
This consolidation underlines the importance of the continued development of an internal European energy market where competition can flourish with full transparency and where efficient trade across borders is ensured. Further progress toward a regulatory framework that enables effective competition is critical, as pointed out repeatedly by the European Commission.
Political interference in a merger and consolidation process by overruling the regulatory procedure can pose a real threat to the development of competition. Such interventions based on national strategic considerations seem outdated and incompatible with the spirit of a transparent, efficient and functional internal market.
Active government involvement and commitment is required to ensure that the liberalisation process leads to effective competition. Key features in all effective markets are the presence of independent regulators, the unbundling of natural monopoly network activities and price signals that reflect real costs and transparency in the market place. (For more information, see the recent IEA publication “Lessons from Liberalised Electricity Markets”)
Choke Points
On average, around 80% of total Middle East oil exports in 2004 were shipped along at least one of three main channels, all of which are predisposed to accidents, piracy, terrorist attacks or war.
- The narrow Straits of Hormuz between Iran and Oman is the most important choke point for oil shipments from the Persian Gulf. Roughly 17 mb/d, more than 20% of the world’s total oil supply, transit this route. If the Straits of Hormuz were blocked, only a small share of the oil could be transported along alternative routes.
- The Bab el-Mandab passage that connects the Gulf of Aden with the Read Sea handles around 3.5 mb/d – oil that is en route to the Suez Canal and Sumed Pipeline (for onward shipment to Europe and the United States).
- The Suez Canal and Sumed Pipeline (both of which connect the Red Sea to the Mediterranean) have a capacity of 1.4 mb/d and 2.5 mb/d respectively. The closure of the Suez Canal or the Bab el-Mandab passage would force tankers to take the much longer route around the Cape of Good Hope in South Africa.
According to the Reference Scenario of the World Energy Outlook 2005, much of the additional oil and LNG that will be exported in the future can be expected to be shipped along these three maritime routes, with oil shipments through the Straits of Hormuz projected to grow to 32 mb/d in 2030, while LNG shipments along the same route will jump from 28 bcm to 175 bcm. By 2030, as much as 28% of the world’s oil supply and 4% of gas supply could flow through the Straits of Hormuz. In the Alternative Policy Scenario, where a more efficient and more environment-friendly energy future is depicted, oil and LNG shipments through the Straits of Hormuz are projected to reach respectively 29 mb/d and 154 bcm in 2030.
Another busy and narrow route is the Malacca Straits between Indonesia, Malaysia and Singapore. Around 13 mb/d of the oil (more than 15% of world oil demand) is subsequently shipped through this channel, much of which is destined to the Far East. Narrow channels, shallow reefs, thousands of tiny get-away islands, and slow traffic with some 900 commercial vessels passing through each day makes the Malacca Straits a sensitive transit point.
A disruption in supply at either of these points could have a serious impact on oil prices
(Source: World Energy Outlook 2005)
Energy Efficiency
Energy efficiency is one of the major tools for strengthening
security of energy supply. But not only does it save energy, it
reduces costs and lowers CO2 emissions. Existing efficiency
technologies can sharply reduce energy consumption per unit of
GDP, at relatively low or sometimes even negative costs and with
a similar or even improved service. Energy prices are an important
signal. In focusing market interest on energy efficiency opportunities,
but governments too, must play an important role.. Here is but
one example.
Recently, the IEA conducted a study on the stand-by energy consumption of household
appliances –that is, the energy consumed by appliances when they are switched
off. Some devices consume up to 10 watt, but others only 1 watt. Unfortunately,
stand-by energy consumption is generally not viewed as an important decision
making criteria when it comes to purchasing appliances. But if all OECD countries
governments could agree on a standard to limit standby power use to no more than
1 watt per device, peak electricity load could be reduced by roughly 20GW, the
equivalent of twenty large power plants.
This so called “IEA 1-Watt-Initiative”was approved by the G8 leaders
at their summit in Gleneagles in July 2005 and is now being put into practice.
The IEA estimates that 10% of world energy demand could be saved by 2030 simply
by seizing available energy efficiency opportunities and applying policies and
measures currently under consideration. This outcome would benefit security of
supply, economic growth and environmental protection as non-consumed energy,
obviously, is the most secure and does not pollute.
