On Wednesday 6th February, Dr Fatih Birol once again presented the findings of the World Energy Outlook, this time for the 2012 edition. The event was hosted by the Imperial College Grantham Institute; the audience comprised of academics, representatives from think tanks and businesses amongst others.
In the recent past, I suspect journalists and focus groups have spent too much time cherry picking headlines from the WEO to serve their agenda rather than appreciating the complete picture. As Dr Birol stressed at the beginning, his presentation this evening needed to clear up any misunderstanding of the findings. One can’t help wondering that the true message of the WEO is not delivered to the general public as well as it should be by the mainstream media.
Well, here’s an attempt to summarise the findings, but of course it’s my version of events too and I’d like to apologise now for any omissions, which I assure you are not deliberate.
The background: There’s been a resurgence in oil and gas production in the OECD, even though IEA countries now account for a smaller share (40%) of global primary energy consumption (compared with 60% in the 1970s). The EU economic recovery is a major weakness in growth prospects, and judging by the WEO findings below, the EU will have less control of its energy future than ever before.
Fuel subsidies: Fossil fuel subsidies that reduce the end user cost of oil and gas amount to a tax bill of >US$ 500 billion, the main recipients are the middle classes and more wealthy populations located in the Middle East, Africa and the Far East. Cost support measures that do not serve the lower income groups adequately make fuel subsidies ‘public enemy #1’. The (current) 10 $/tCO2 price the EU applies to penalise fossil fuels (under the EU ETS) looks immaterial compared with the equivalent 110 $/tCO2 subsidy paid to cheapen fossil fuels in the MENA countries.
US unconventional fuel boom: This has greatly aided the US economy. However, unless gas prices increase, there’ll be less exploration and the future gas boom may not materialise. Gas prices at Henry Hub (US) have disconnected from gas prices in Europe and Japan. Europe gas prices are 5x that of the US, while Japan pays 8x the price. All major economies (including BRIC) will be import dependent for oil and gas supplies, one exception might be the USA.
The beneficiaries of the unconventional oil and gas boom will be North America and Australia. The US unconventional gas reserves could yield more gas than Russia. The USA will become a net-exporter (of gas and oil) provided prices are high enough to support exploration and development. Regulations for unconventional fossil fuels in the USA continue to be more relaxed than elsewhere around the world (for example, in France even exploration for shale gas is banned). Unconventional oil will propel the USA to being the world’s largest producer (8 Mbbl/d in 2035), overtaking Saudi Arabia.
Energy efficiency: The forgotten fuel, efficiency, can yield massive savings and enhance energy security. It can be achieved using technology that is commercial, low cost and exists today. The most meaningful gains will be made in the industry and transport sectors (which are only achieving 40% of their true potential). The Obama Administration have already demonstrated that the USA car industry can play ball and improve engine design, but are still woefully behind Japan and the EU car designs.
Middle East oil exports by 2035 will shift to Asia: Iraq could become the second largest oil exporter by 2035, overtaking Russia, exporting >6 Mbbl/d. It makes me wonder about the potential uncertainty in future price setting with North American unconventionals and increased Iraqi exports. As more economies become increasingly import dependent on oil and gas (Japan >90% for oil and gas), energy prices face a very volatile future.
Water resource – water extraction for primary energy production and thermal power generation will place a strain on future projects. Water usage for cooling fossil fuelled plants as well the need for water for biofuels will become precarious in countries like China and India, while water needed for primary energy production is also a problem. Water availability will be a major determinant aside from finance.
The path to 450ppm is expiring before 2020 as the world’s energy system emissions continue to rise, and overshoot the trajectory for a global low-carbon future.
A switch away from coal towards gas fired power will not get the world on track to 450ppm. Nuclear is undesirable but may be necessary. Safety and waste disposal issues aside, nuclear generation is CO2 emission free, whichever way the world looks at the hazards and risks of the technology.
My own view is that the WEO is in its 18th year, and so it’s taken 19 years to try and understand the global energy picture and the uncertain future the world faces. Each edition, since the 1990s, has tackled a special topic that has consequences to the world energy economy. It’s therefore taken almost two decades to reach this point, but somehow journalists and vocal commentators still distill 20 years of research into just a few simple conclusions.
It seems too many people with vested interests fall into the trap that they have the answer to cutting CO2, commentators pick on one technology agenda, those in favour of renewables, those for natural gas, and nuclear and so on.
All of these methods working at the same time are essential, but drastic efforts to maximise energy efficiency and support the deployment of CCS make 450ppm achievable. Without them, a 4-6 °C scenario is ever more certain.