IEA warns of coal's comeback in energy mix by 2030

China and India are expected to continue using coal as a major source of energy supplies, the IEA warned in a bleak picture looking at energy supply and demand until 2030.

Uchenna Izundu
International Editor

LONDON, Nov. 7 -- China and India are expected to continue using coal as a major source of energy supplies, which would greatly increase the world's carbon emissions, with drastic consequences for climate change, the International Energy Agency warned in a bleak picture looking at energy supply and demand until 2030.

In absolute terms, coal demand is forecast to soar by 73% during 2005-30, with China and India representing over four fifths of the increase in its use to 2030, according to World Energy Outlook (WEO) 2007—China and India Insights. Currently the two nations account for 45% of world coal use.

Fatih Birol, IEA's chief economist, told reporters Nov. 7 in London that the growth in coal use was due to major, ongoing economic developments in both countries, which, on average, is expected to rise by 6%/year until 2030. He told OGJ that coal's use in fuelling power plants was largely responsible for its rise in the energy mix, and that not all power plants being built are using technologies that increase efficiency and reduce emissions. Domestic incentives are needed to encourage developers to use noncoal solutions that are more expensive, he added.

Birol said coal use is also growing in the US and Europe because of high gas prices, which are linked to oil prices.

All energy use rising
Total energy use will increase by 55% by 2030, led by China, if alternative methods are not implemented.

In IEA's reference scenario, oil will continue to be the biggest fossil fuel in the primary energy mix, with demand reaching 116 million b/d in 2030—a 32% increase over 2006. Its share in demand, however, is expected to drop to 32% from 35%. Natural gas demand, in contrast, will rise to 22% from 21% globally.

China and India are phasing out fuel subsidies, which should dampen oil demand. The two countries spend £15 billion on subsidies for oil products. "It will take time to remove them," said IEA Deputy Executive Director William Ramsey. He said the governments are aware of the need to remove subsidies to ease the burden on governmental budgets and to stimulate efficiency. Ramsey said IEA would discuss with the governments their schedules for reducing the subsidies.

Current energy policies of various governments are not sustainable because oil and gas imports are set to rise relentlessly to 2030, if not even faster than anticipated in the last WEO, IEA warned.

Oil production
The Middle East and Russia will dominate oil production, according to the WEO. But timely investment is needed to guarantee that supplies come to market, particularly if the world is to avoid a supply crunch by 2015, Birol emphasized. Investment needed for basic energy facilities would need to increase to $22 trillion, he said, because of cost inflation.

"We are not running out of energy or money, but time," Birol said. "It is the next 10 years that are very important because of the implications this has for climate change."

OPEC's role as an oil supplier is critical, the report emphasized, as its share of production is expected to rise to 52% by 2030 from 42% today. Non-OPEC production rises only slowly to 2030, says the report, with most of the increase coming from nonconventional sources—primarily Canadian oil sands—as conventional output levels off around 47 million b/d by mid-2010.

For every $4 spent on upstream activities in the oil and gas chain, $1 goes towards meeting oil demand, while the other $3 is spent on meeting declines from the fields, Birol said.

"Although production capacity at new fields is expected to increase over the next 5 years, it is uncertain whether it will be sufficient to compensate for the decline in output at existing fields and meet the projected increase in demand," IEA stressed. "A supply-side crunch in the period to 2015 involving an abrupt escalation in oil prices cannot be ruled out."

In its reference scenario China and India alone will have net oil imports jump to 19.1 million b/d in 2030 from 5.4 million b/d in 2006, which would be more than the US and Japan together today. China's transportation sector is a key driver behind growth in oil demand.

Alternative policies
IEA called on governments to implement policies that promote energy efficiency and conservation to help curb energy demand and reduce greenhouse gases. "Global oil demand would be 14 million b/d lower, a saving equal to the entire current output of the US, Canada, and Mexico combined," it said.

"China has some ambitious plans for energy efficiency, and it is quite aware of the global context," the new IEA Executive Director Nobuo Tanaka told reporters. "It is aware of its decision and is forthcoming on energy efficiency and security and hopes to deal with climate change."

Contact Uchenna Izundu at uchennai@pennwell.com.

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