Syed Rashid Husain
WHAT the energy world would look like, a quarter of a century later - in 2040 – to be exact? An intriguing question to answer, indeed!
Yet Adam Sieminski and his team with Linda Doman and colleagues at the Energy Information Agency taking the lead, attempted to unravel that in the recently published International Energy Outlook (IEO2016) despite asserting: “The projections in IEO2016 are not statements of what will happen, but what might happen given the specific assumptions and methodologies used for any particular scenario.”
Sieminski too acknowledged that long-term projections like those in the IEO are imperfect and that policy and technology changes can lead to radically different outcomes than the best analysis can predict. “There’s probably a lot of flex in these numbers,” he said. “Does that mean that we are wasting taxpayer dollars doing it? The answer is no. It’s hugely valuable to policymakers, it’s hugely valuable to the public.”
The outcome is interesting. Despite talks all around about the demise of the fossil fuel, IEO2016 shows rising levels of energy demand over the next three decades. Rapid economic growth in China, Indonesia, Brazil and other emerging Asian countries will drive global energy consumption by 48% between 2012 and 2040. As per the projections, the total global energy consumption is set to rise from 549 quadrillions Btu in 2012 to 815 quadrillion Btu in 2040. The unveiled document continues to assert that most of this growth will occur in countries outside of the Organization for Economic Cooperation and Development, particularly in Asia. While US markets and policy will continue to be critical benchmarks for global energy, the United States will not be among the fastest-growing energy markets going forward, the EIA conceded.
In fact, by 2040, nearly two-thirds of all of the world’s energy use will be in developing countries outside the 34-member Organization for Economic Cooperation and Development. Among non-OECD members, Asian countries such as China, India, and Indonesia will account for 55 percent of all new energy use through 2040, the analysis insisted. The growing Asian economies would account for more than half of the world’s total increase in energy consumption over the 2012 to 2040 projection period.
And fossil fuel would continue to dominate, still accounting for 78 percent of global energy use in 2040, even as the growth in non-fossil fuels is expected to exceed that of oil, coal and gas. Consumption of oil and other forms of liquid petroleum will fall - but rather modestly over the next 24 years - from 33 percent of total marketed energy consumption in 2012 to 30 percent of the portfolio in 2040. With oil prices rising in the long term, many energy users would adopt more energy-efficient technologies and switch away from liquid fuels when feasible, the IEO2016 asserted.
And despite all the discussions about battery driven cars overtaking the transportation sector, the IEO2016 asserts that oil will continue to be a primary fuel for the transport sector, as well as a key fuel for industrial uses in emerging countries. “Even in the aftermath of Paris, I think that our numbers suggest that growth and need for petroleum in transportation and industry is still going to be pretty strong,” Sieminski said while rolling out the data at the Center for Strategic and International Studies. “Those numbers could come down over time, but it’s still really hard to compete with the energy density that’s in oil.”
Gas would also be a key driver in the years to come. “Abundant natural gas resources and robust production - including rising supplies of tight gas, shale gas, and coalbed methane - contribute to the strong competitive position of natural gas,” the outlook added.
Yet, concerns about energy security, effects of fossil fuel emissions on the environment, and sustained, long-term high world oil prices are resulting in expanded use of non-fossil renewable energy sources and nuclear power. Renewables and nuclear power today are to be the world’s fastest-growing energy sources over the projection period. Renewable energy increases by an average 2.6% per year through 2040; nuclear power increases by 2.3% per year.
And then a week later, after unveiling the International Energy Outlook, the IEO2016, the EIA also released a preliminary report of its under compilation Annual Energy Outlook, the report on the US domestic energy sector. The AEO asserts that the US crude production will not rise above the 2015 levels in the next decade despite a projected significant rebound in oil prices. The agency is set release its full set of annual projections on July 7.
The AEO says the US crude output is expected to decline to 8.84mn bpd this year and 8.55mn bpd in 2017, rebound to 9.38mn b/d in 2020 and then increase slowly to 9.43mn b/d in 2025. The numbers are based on the reference case scenarios.
As per the EIA report, the onshore output from the continental US is also set to fall by 16pc in 2016-17, before reversing and growing at an average rate of 2.2pc/year between 2018-25. By contrast, offshore production could grow strongly in 2016-17 but then flatten over the next few years before production starts to finally fall in 2022.
The overall crude output growth rate is projected to increase after 2025, lifting the estimated production to 11.26mn b/d in 2040.
As far as the pricing expectations are concerned, the outlook projects the West Texas Intermediate (WTI) price at $36.91/bl this year and $48.08/bl in 2017, with subsequent increases to $71.12/bl in 2020 and $85.41/bl in 2025, all in 2015 dollars. That compares with $48.67/bl in 2015. The EIA expects the Brent price to average $36.84/bl this year and $48.08/bl next year, increasing to $77 per barrel in 2020. After 2020, the prices would continue to rise, the report indicated.
US oil demand in the meantime is projected to increase by an average of 0.7percent between 2016 and 2020, touching 20.11mn bpd in 2020 from 19.42mn b/d in 2015. Demand in the transportation sector is however projected to begin falling in 2019, pushing the overall consumption lower every year after 2021. The projected average annual decline in transportation demand would be 0.4pc between 2016 and 40 reflecting fuel efficiency gains in light-duty vehicles, the EIA said.
Global oil consumption too is forecasted by the EIA to creep up to 95.24 million barrels per day in 2016 and up to 96.78 million barrels per day in 2017, whereas, the global oil supplies are expected at the level of 96.23 million barrels per day in 2016 and 96.99 million barrels per day - in 2017.
The trends are beginning to take a shape and they do not appear too pessimistic from the producers’ viewpoint too. Better days seem in the pipeline!
