The age of cheap energy is over, IEA Executive Director warns
21 April 2011
The Executive Director of the International Energy Agency (IEA) has warned that curbing rising fossil fuel prices will require significant investments and further development and deployment of renewable energy technologies, energy efficiency, and advanced vehicles.
Nobuo Tanaka noted that the renewed debate on nuclear energy could have an impact, not only on climate change but also energy security.
“The age of cheap energy is over,” Mr Tanaka said, speaking at the Bridge Forum Dialogue in Luxembourg on 13 April 2011. “The only question now is, will the extra rent from dearer energy go to an ever smaller circle of producers, or will it be directed back into the domestic economies of the consumers, with the added benefits of increased environmental sustainability?”
50 million barrels of oil per day need to be produced from new fields by 2035
Mr Tanaka presented scenarios found in the World Energy Outlook 2010, the IEA’s flagship publication, at the Luxembourg meeting.
One of these scenarios – the New Policies Scenario – takes account of the broad policy commitments that have already been announced by governments. It assumes cautious implementation of national pledges made at the UN Climate Change conference in Copenhagen to reduce greenhouse-gas emissions by 2020, and also assumes that new measures are introduced after 2020 to maintain the pace of decline in carbon intensity.
In this scenario, by 2035, three-quarters of the world’s oil production from existing fields will need to be replaced, Mr. Tanaka said.
That works out to just over 50 million barrels per day, which is equivalent to about four times the production capacity of Saudi Arabia, the world’s largest oil producer.
IEA analysts calculated that this amount of oil is needed to compensate for the predicted decline in production at existing fields, as they pass their peak and their production rates drop. (Crude oil output from fields that were in production in 2009 is expected to fall from 68 million barrels per day in 2009 to 16 million per day by 2035.)
Replacing production from existing fields
In this scenario, the IEA projects that crude oil production achieves an undulating plateau of 68-69 million barrels per day over the projection period (to 2035).
“Despite the fact that crude oil production doesn’t increase, the need for new capacity on a gross basis is still very large, because so much of the world’s existing production capacity will have been lost by the end of the projection period [of 2035],” said Mr. Tanaka.
“Another 15 million barrels per day of oil-production capacity is needed to meet the increase in global demand. We project that it will come from natural gas liquids and unconventional oil [sources].”
Slowdown in development of nuclear capacity will have significant consequences
He also stressed that the ongoing nuclear incident in Japan has “renewed debate surrounding the future role of nuclear power in the global energy mix”.
Mr. Tanaka explained that “investment in nuclear capacity may be delayed or deferred at least in the short-term and plants may be retired early due to the introduction of more stringent safety regulations”.
He warned: “Any slowdown in the development of nuclear capacity will have implications for energy prices, the overall fuel mix, climate change and investment.”
Particularly if nuclear does not play as large a role in the future as was expected, rapidly rising demand for relatively cheap gas could herald a golden age of gas, he said. (On 6 June, a special excerpt of the World Energy Outlook 2011 will be released, which will look at just how bright – and just how likely – a "golden age of gas" might be).
Movement from China
Mr. Tanaka added, however, that Chinese policies on gas, as well as on renewables, nuclear, power, electric vehicles, and efficiency will have major impacts on the global energy economy.
“China has become a world leader in renewable energy, planning major new investments in wind, solar, and biomass projects as well as in advances vehicle technologies. Given the sheer scale of China’s domestic market, its push to increase the share of new low-carbon energy technologies could play an important role in driving down their costs by contributing to improvements in technology learning rates.”