Washington, D.C.–“We have to learn to live with volatility of gas and oil prices,” said Fatih Birol, Chief Economist of the International Energy Agency, presenting its “2008 World Energy Outlook” to a Capitol Hill audience today.  He expected volatility to increase, and he commented that half of the new oil needed for the report’s main scenario has yet to be discovered.

Birol noted that an IEA study of 800 oilfields found that crude oil production rates were trending higher, so there will be a shortage of 40 million barrels a day by 2030 if we fail to invest upstream.  Total energy investment required will be $26 trillion, more than $1 trillion annually, of which half will go for electricity and about $500 billion for petroleum exploration and investment.  But the Global Financial Crisis has led to postponement of projects–and a likely supply crunch with soaring prices when economic growth picks up.

Bringing production to market is extremely difficult, Birol said, and will increasingly involve geopolitical issues.  Demand for coal has been growing faster than for any other energy source, followed by demand for renewables.  OECD countries’ demand for oil has plateaued, according to Birol.  All the growth in demand to 2030 will come from non-OECD, with China contributing 43% and the Middle East and India each 20%.  The Middle East is emerging as a demand center because of economic and demographic growth, the energy intensivity of desalinization for critically needed water, and heavily subsidized oil products.  And it will gain ever more importance as the leading source of oil and gas.

Almost 80% of the projected increase in output of both oil and gas will come from national companies, Birol remarked, tilting market power away from international oil companies.  A key question:  Will the national oil companies invest as much as international oil companies?  Political and social agendas might lead them to export less at a higher price.

Impact on Climate Change

With two thirds of carbon emissions coming from energy (increasingly from coal), Birol said, the current course is not sustainable and could lead to a disastrous 6º C rise in global temperatures by 2030.  Measuring by parts per million (PPM) of particulate matter, a scenario of 450 PPM leading to a sustainable 2º C could be achieved, with 54% of improvement from energy efficiency, 23% from renewables, 14% from Carbon Capture and Storage, and 9% from nuclear (requiring the construction of 20 plants per year).  Carbon Capture and Storage technology still is unproven.  To get to sustainability, we need to learn how to use coal without emissions, Birol said.  We also have to shift from the current 1% annual improvements in energy efficiency to 2.4% increases.  All these steps would require additional investment equal to 0.6% of world GDP.

The biggest challenge, Birol underlined, is that we simply can’t reach 450 PPM without emerging economies cutting back on emissions.  While India and other countries play some role, the key is China.  We must, he said, get “China on board–and urgently.”  The primary way to cut emissions would be for governments to remove energy subsidies, which they might wish to do for energy security and to reduce local pollution.

According to Birol, the 2008 Outlook forcefully argues that the present Global Financial Crisis should not serve as an excuse for back-tracking or delays in taking action to achieve energy security and a sustainable environment.  We need to think in a long-term way, he stressed.  [2008 World Energy Outlook]

Kenneth J. Dillon


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