Building a world of
resilient communities.

MAIN LIST

 

Review of the IEA World Energy Outlook 2005

Jőrg Schindler and Werner Zittel of LB-Systemtechnik in Munich offer the following review of the IEA’s latest World Energy Outlook:

Every second year, the International Energy Agency (IEA) has published an outlook forecasting the development of the world’s energy consumption over the next 20 to 30 years. The last “World Energy Outlook 2004” (WEO 2004) forecasted a strong increase of energy and oil consumption with a growth rate of about 1.6% p.a. Breaking the usual biannual rhythm, the IEA has now published an extra issue for 2005, covering the period to 2030. The reason for this unexpected extra publication probably was the unprecedented rise of oil prices during the last year causing much public concern.

The Reference Scenario describes what is depicted as the most probable development of energy markets until 2030 as seen by the IEA. In addition, two alternative scenarios are considered, a Low Investment Scenario (if investment in upstream activities is much lower than expected) and an Alternative Scenario (if policy measures are introduced to cut energy demand). For details see Figure 1.

These scenarios include also renewable energy. Solar, wind and geothermal energy will increase their contribution in the Reference Scenario until 2030 to provide 2% of primary energy supply, whereas under the Alternative Scenario they increase their contribution by 30%, with a share of 2.6%.

In the face of the expected growing demand for oil and gas until 2030, the IEA raises the question of where the necessary additional upstream capacity could come from, seeing the potential for a considerable increase in the Middle East and North Africa. According to the IEA, these countries still hold large reserves which are sufficient to meet the expected future demand. But there is a caveat: the known reserves are limited meaning that growth depends on large new discoveries. If they fail to materialise, world oil production would peak before 2030. In other words, contrary to the initial statement, known reserves in these countries are not a sufficient basis for the projected production increases. Nevertheless, the impression is given that the projected capacity increases are feasible. The Alternative Scenario discusses the option of reducing the demand growth by political measures. This is seen by the IEA as being possible and desirable, although the effect on demand is minimal, leading to a reduction of less than 10%.

According to the IEA, energy consumption in the oil and gas producing countries of the Middle East and North Africa will rise as a consequence of the growing population. However, this additional demand pressure is expected to be an incentive to increase production, which with a strange sense of logic is depicted as increasing the net export capacity of these countries - a conclusion which probably will not be shared by many.

A necessary precondition for expanding the production in these countries is increased investment in exploration and production. According to the report, a doubling of present budgets is called for.

After describing the conditions for supply expansion, the IEA addresses possible problems. It suggests that if these countries are unable or unwilling to increase their investments, it would lead to the entry of foreign investment.

A second problem mentioned by the IEA is that all scenario calculations and conclusions are based on data that are completely unreliable: Uncertainties about just how big reserves are and the true costs of developing them are casting shadows over the oil market outlook and heightening fears of higher costs and prices in future.

Rather unexpectedly at this point, the IEA casts doubts on the feasibility of increasing oil supplies in the future. However, instead of addressing the problem of inadequate or uncertain reserves, it concentrates on the problem of insufficient investments.

The IEA gives much emphasis to the argument that increased production, involving huge investments, is in the interest of the oil producing countries in the Middle East and North Africa. It is argued that higher investments will result in higher overall income for these countries. This result is achieved by assuming different oil prices for the alternative cases of large and small capacity extensions (see figure 2). The assumed price levels leading to this result are far below present oil market prices and are completely arbitrary. Obviously, the IEA seeks to try to convince the OPEC countries that huge investments in oil exploration and production are in their best own interest.

It remains to be seen whether these arguments will convince the OPEC countries. One should be sceptical, however, in view of the experiences the OPEC countries had in the last years in which they saw prices rise far beyond the “automatic price band” of $22-$28, a development which did not lead to a shrinking of oil demand and had no dramatic effects on the world economy, contrary to the predictions of western sources. By the way, presently, none of the countries seems to be able to increase supplies to control crude oil prices.

The question remains why did the IEA publish this new World Energy Outlook just one year after the last report. Is it possible that it believes that its scenarios are so unlikely that only massive arguments put forward in this additional report could create the necessary preconditions?

The key messages of the World Energy Outlook 2005 are:

• The oil reserves of the world are sufficient to supply a considerable demand growth until 2030, subject only to the necessary investments to so secure If this can be achieved there will be no “peak oil” problem before 2030.

• The main difference from the preceding reports is the expectation of a considerable increase in oil import prices until 2030. From the chosen wording it can be concluded that the IEA regards not the Reference Scenario as the most probable, but the Low Investment scenario which projects an increase of oil import prices up to $52/barrel by 2030.

• Renewable energies will not reach a significant market share within the next 25 years.

The negligible role attributed to renewable energies by the IEA even in the long term is an obvious attempt to influence the energy policy of governments, a position which meets strong criticism, especially in Europe. Why does the IEA not investigate what effect an investment level as proposed for the oil industry would have if applied to renewable energies? The answer points to vested interests influencing the IEA’s findings.

Fundamental and - according to our opinion - much more important questions are not addressed by the IEA, especially:

• Are oil production increases in the Middle East countries and North Africa really possible even when the investment is doubled? This is rather doubtful with regard to the size, structure, age, and the depletion status of the producing fields.

• Is it really in the long term interest of oil producing and consuming countries still to increase the production? This would result in a higher maximum production which would necessarily be followed by a steeper decline. Because the ultimate recoverable amount is a fixed quantity, only the production profile over time can be influenced. The inevitable transition from oil to renewable energies will not be made easier, and the energy problems will be enhanced.

Possibly, these questions are not addressed by the IEA because they would trigger quite a different discussion.

What do you think? Leave a comment below.

Sign up for regular Resilience bulletins direct to your email.

Take action!  

Make connections via our GROUPS page.
Start your own projects. See our RESOURCES page.
Help build resilience. DONATE NOW.