Responding to urgent energy challenges

(Rome) — 21 April 2008

“With oil prices surging over USD 110 a barrel and growing concerns over the environmental repercussions of the world’s spiraling energy demand, the dialogue between energy producing and consuming countries is more meaningful than ever,” said Nobuo Tanaka, Executive Director of the International Energy Agency (IEA), in his keynote address to the 11th International Energy Forum (IEF) today in Rome. Stressing the value of this unique forum for policy dialogue to which Ministerial delegations and senior policy makers from more than 90 countries have been invited this year, he detailed IEA analysis of the key global energy challenges the world needs to address in the coming years.

High Oil Prices
“Current oil prices are too high, especially for developing countries which face other significant cost increases, and considering the threats to global economic growth at the moment,” Mr. Tanaka emphasised. Amid various views about the reasons behind the price rally – some blame market fundamentals, others speculation and financial flows  the IEA sees a combination of different factors driving this phenomenon: primarily, strong demand growth in the developing world coupled with constraints in bringing new oil to the market. During the past five years, spare capacity has fallen below the 3 to 4 million barrels per day (mb/d) typical of the past decade. IEA analysis shows that there is no quick fix on the supply side and spare capacity is likely to remain tight. This underscores the need for more investment.

“Investment is one of the main challenges we are facing in the global energy sector,” Mr. Tanaka said: “USD 22 trillion in investment will be needed in energy-supply infrastructure by 2030. The oil sector alone needs USD 5.4 trillion. Although spending has recently increased, supply growth could remain sluggish, because of increasing costs and a proliferation of aboveground risks, such as more frequent access limitations and tighter fiscal and regulatory regimes.”

The IEA calls for investment now to ensure adequate supplies of all forms of energy. Unless current policies change, world energy demand will more than double by 2030. There is a clear need for governments and industry to do all they can to increase the output response of new investment and for national and international oil companies to enhance co-operation. In the short to medium term, increased energy efficiency can yield substantial savings in energy consumption and can help improve the country’s energy security while at the same time reducing CO2 emissions.

Climate Change
Climate change is another key challenge, against the background that fossil fuels will still continue to dominate the global energy mix in the foreseeable future. Without new policies, CO2 emissions could jump 56% by 2030, leading to an eventual increase in average global temperature of up to 6 degrees C.

With this in mind, the IEA is currently analysing what would be needed to meet the most ambitious IPCC scenario of cutting emissions by 50% by 2050. A report to be presented at the Group of Eight Summit in Hokkaido will show that meeting such a target would entail a huge amount of investment and unprecedented technological breakthroughs such as in carbon capture and storage (CCS). Mr. Tanaka urged Ministers gathered in Rome to support making CCS eligible to receive revenues generated by the Clean Development Mechanism (CDM) as it could accelerate deployment of this crucial new technology. “The deployment of CCS should be a ‘litmus’ test for the seriousness of environmental negotiators dealing with climate challenge.”

“In short”, Mr. Tanaka said, “the world´s energy economy is on a pathway that is not sustainable”. This is valid for the oil market, where there is an urgent need for investment, to ensure an adequate cushion between supply and demand returns to the market. This is also true from an environmental perspective. “In the long term, to meet environmental concerns, we will require a veritable energy revolution that completely transforms the way we produce and use energy. However, the energy sector should not be viewed only as the cause of the climate problem but also as part of the solution,” Mr. Tanaka said. After all, it readily lends itself to provide the type of transferable skills required to prosper in a low-carbon economy.

An essential step in this process would be to continue the dialogue between producers and consumers, Mr. Tanaka said and stressed that the dialogue had already resulted in concrete achievements such as the Joint Oil Data Initiative (JODI). “It must now focus on areas where progress is needed and where mutually beneficial outcomes are possible,” he said, citing as an example co-operation between the IEA and OPEC on carbon capture and storage  a technology which would be doubly beneficial as it would lead to lower CO2 emissions while enhancing oil recovery.