Energy Agency Predicts High Prices in Future

oil rigThe world can expect energy prices to continue their generally upward spiral in the years ahead if global energy policies remain the same, the International Energy Agency (IEA) reported this week.

Rapid economic development in China and India, coupled with relatively consistent energy use in industrialized nations, will likely strain the world's ability to meet a projected rise in energy demand of some 1.6 percent a year until 2030, the agency predicted Wednesday in its annual World Energy Outlook report [PDF].

The IEA significantly increased its projections of future oil costs in this year's report due to the changing outlook for demand and production costs. It now expects crude oil to average $100 per barrel over the next two decades and more than $200 per barrel in 2030, in nominal terms. Last year's forecast estimated that a 2030 barrel would amount to only $108.

"One thing is certain," said Nobuo Tanaka, the IEA's executive director, in a prepared statement. "While market imbalances will feed volatility, the era of cheap oil is over."

Oil and natural gas resources are expected to supply the world for more than 40 years at current consumption rates. But the report expressed concern that rising world energy demands will outpace production.

"There remains a real risk that under-investment will cause an oil-supply crunch in that timeframe," the report said. "The gap now evident between what is currently being built and what will be needed to keep pace with demand is set to widen sharply after 2010."

The price of meeting the world's energy demands is estimated at $26.3 trillion through 2030-an average of more than $1 trillion a year, the IEA said.

In addition to higher prices, most new oil fields are offshore or smaller than in years past, making oil extraction more difficult than ever. "Oil resources might be plentiful, but there can be no guarantee that they will be exploited quickly enough to meet the level of demand," the report said.

Demand for oil is predicted to rise from the current 85 million barrels per day to 106 million barrels per day in 2030, the report said. Due to this year's high oil prices, the predictions are 10 million barrels per day less than what was projected last year. Still, this represents an increase of 1 percent per year.

Natural gas demand is expected to grow even faster, at a rate of 1.8 percent per year. And coal demand would advance 2 percent per year on average, according to the report.

China and India are expected to account for more than half of the projected additional energy demand, and their power sectors would consume 80 percent of the additional coal. Overall, countries that are not members of the Organisation for Economic Cooperation and Development, a grouping of 30 industrialized economies, are estimated to represent 87 percent of the increased energy demand.

The result of this energy boom would be a steady rise in energy-related greenhouse gas emissions. The IEA said the emissions increase expected under this scenario would result in a 6-degree Celsius rise in the average global temperature by the end of the 21st century. This would likely devastate many species and coastal communities worldwide.

The report also notes that renewable energy will likely surpass natural gas to become the second-largest source of electricity behind coal sometime after 2010.

These predictions, however, are based on a business-as-usual approach to energy use. If the international community enacts "profound shifts" in energy policies, namely through an international climate change agreement, the world's unsustainable energy path may be avoided, the report said.

The IEA estimates that $4.1 trillion in additional energy-efficiency investments is needed between 2010 and 2030 to stabilize greenhouse gas concentrations at 550 parts per million (ppm) of carbon-dioxide (CO2) equivalent. To reduce concentrations to a lower 450 ppm, $2.4 trillion more would be needed to pay for low- or zero-carbon power plants, and $2.7 trillion for more energy-efficient equipment.

Some climate researchers, including James Hansen of NASA's Goddard Institute of Space Studies, have stated that the atmosphere needs to stabilize greenhouse gas concentrations at 350 ppm in order to avoid "irreversible catastrophic effects" [PDF]. The atmosphere currently contains an estimated 385 ppm of CO2 equivalent.

Representatives from the renewable energy industry have criticized the IEA report for underestimating clean energy's future potential. The IEA projected that renewable energy, excluding hydropower, could supply 4 percent of total power generation in 2030.

"We regret that the IEA still does not fully realize the actual dynamics and economics of renewable energy," said Stefan Gsänger, secretary general of the World Wind Energy Association, in a statement. "The new World Energy Outlook may, as a kind of self-fulfilling prophecy, mislead policy makers to make poor decisions by not putting enough focus on renewable energy and thus slowing down the renewable energy deployment rates."

The Energy Watch Group, a German-based international network of scientists, released a report [PDF] earlier this week that predicted renewable energy could supply between 17 and 30 percent of global electricity and heat demands by 2030 if investments increased significantly.

The IEA report also calls for energy efficiency and renewable energy investments to address the current global financial crisis. Several organizations, including the Worldwatch Institute, have called for similar "Global Green New Deals," just days before leaders from the world's 20 largest economies meet in Washington, D.C., this weekend.

"We cannot let the financial and economic crisis delay the policy action that is urgently needed to ensure secure energy supplies and to curtail rising emissions of greenhouse gases," the IEA's Tanaka said. "We must usher in a global energy revolution by improving energy efficiency and increasing the deployment of low-carbon energy."

Ben Block is a staff writer with the Worldwatch Institute. He can be reached at bblock@worldwatch.org.

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