Doris Leblond
OGJ Correspondent
PARIS, Nov. 10 -- Fossil fuels will dominate the energy market through 2030 as oil's share slips to 33% from 35%, according to the International Energy Agency's World Energy Outlook 2006.
The report said the reliance on fossil fuels prevails both in a reference scenario, where current policies remain the same, and in an alternative policy scenario where governments act strongly to create "an energy future which is clean, clever, and competitive," but at a lower level.
In the reference scenario, oil demand would grow by 1.3%/year during 2005-30—broadly in line with gross domestic product— averaging 1.7% in 2005-15 and 1.1% in 2015-30. It would reach 99 million b/d in 2015 and 116 million b/d in 2030, up from 84 million b/d in 2005.
Sources of demand
Over 70% of the oil demand increase will come from developing countries where economic growth, the main driver of oil demand, is highest. Demand rises more slowly in developed, Organization for Economic Cooperation and Development countries, especially in Europe and the Pacific region, but the report notes "the absolute increase in North America —5.9 million b/d over the Outlook period—is the second largest over any region because it is already by far the largest consumer.
The share of natural gas also rises, but grows less than projected in the last Outlook due to higher prices. However gas demand grows faster than coal, which sees the biggest fossil fuel demand increase in absolute terms, but it does not overtake it before 2030.
The main demand for oil to 2030 will be from the transport sector, which rose to 47% in 2004 from 35% in 1980. It is projected to increase to 52% in 2030. Although biofuels are expected to make a significant contribution to meeting the sector's energy needs, their share by 2030 will reach only 4% as rising food demand competes for the needed land. However, points out the report, new biofuels technology, notably lingo-cellulosic ethanol, could allow biofuels to play a much larger role.
Supply sources
Oil supply is increasingly dominated by a small number of major producers where oil resources are concentrated. Organization of Petroleum Exporting Countries's share of global supply grows to 48% by 2030 from 40% now and 42% in 2015. Conventional crude production from non-OPEC countries peaks by the middle of the next decade, but natural gas liquids production continues to grow.
Conventional oil accounts for the lion's share of the increased oil supply over the Outlook period, but nonconventional resources—mainly oil sands in Canada—and, to a lesser extent, gas-to-liquids plants play a growing role. Canadian oil sands are projected to triple to 3 million b/d by 2015 and reach 5 million b/d by 2030.
The oil industry needs to invest $164 billion/year over 2005-30—a total of $4.3 trillion (in 2005 dollars). Three quarters of this will go to the upstream, indicates the Outlook, adding that upstream investment needs are more sensitive to changes in decline rates at producing fields than to the demand growth rate of oil.
IEA admits there is no guarantee that all of the investment needed will be forthcoming, as the possible impact of government policies, geopolitical factors, unexpected changes in unit costs, and prices and new technology could affect the opportunities and incentives for private and publicly owned companies to invest. IEA considers particularly uncertain the ability and willingness of major oil and gas producers to step up investment in order to meet rising global demand.
It notes, in this context, that capital spending by the world's leading oil and gas companies increased sharply over the first half of the current decade and, under company plans, will rise further to 2010. But "the impact on new capacity of higher spending is blunted by rising costs" and was only 5% higher than in 2000.
Prices
In its analysis of oil prices over the Outlook period, IEA has revised them upwards in the expectation that crude oil and refined-product market remains tight. Market fundamentals point to a modest easing of prices as new capacity comes on stream and demand growth slows. But prices could be driven up by new geopolitical tensions or a major supply disruption.
The Outlook assumes that the average IEA crude oil import price—$51/bbl in 2005—will average slightly over $60/bbl through 2007, then decline to $47/bbl by 2012. It would rise slowly thereafter, reaching $50/bbl in 2020 and $55 in 2030. Assuming a 2.3%/year inflation rate, the price in nominal terms would reach $97/bbl in 2030. Natural gas prices should follow this trend because of inter-fuel competition and the continuing use of oil-price indexation in long-term gas supply contracts.
The Outlook, however, noted that oil demand is becoming less sensitive to changes in final prices, as consumption increasingly is concentrated in transport where demand is the least price-elastic. Income, which has continued to grow strongly in most regions, remains the primary demand driver for oil as well as other energies.
The result is that oil demand in global oil consumption becomes less and less responsive to movements in international crude prices and this means prices would fluctuate more than in the past to future short-term demand and supply shifts. IEA blames the "cushioning effect" of subsidies to oil consumers as well as taxes for the insensitivity of oil demand to higher prices.
However, it is careful to add: "Oil prices still matter to the world economy," which would have grown more rapidly had oil prices and other energy prices not increased, the impact being higher on heavily indebted poor countries.
