The global energy landscape is set to undergo sweeping transformations through to 2035 as traditional suppliers are likely to be displaced by new producers, fundamentally reshuffling global energy flows, the International Energy Agency (IEA) said on Monday.
The biggest winners will be oil and gas producers, while the IEA considers the outlook for the nuclear sector decidedly more pessimistic, the agency said in launching its 2012 World Energy Outlook.
IEA's chief executive Maria van der Hoeven and chief economist Fatih Birol stressed the need for greater energy efficiency and warned about an exponential rise in fossil fuel subsidies, which only last year increased by 30% to $523bn (E413bn) due mainly to increases in North Africa and the Middle East in the wake of the Arab Spring.
The US, Canada and Iraq will be at the forefront of a global energy revolution, affecting all regions of the world and triggering a sea-change in terms of pricing, energy use, energy efficiency and subsidies.
On the consumer side, energy demand will grow by one-third to 2035, with China, India and the Middle East accounting for 60% of that growth. Demand will barely rise in the developed counties that make up the Organisation for Economic Co-operation and Development (OECD), but there will be a pronounced shift towards natural gas and renewables.
The IEA predicts that the US will become the world's largest net oil exporter by 2020, overtaking Saudi Arabia. The growth will come from the country's significant unconventional oil and gas reserves. Meanwhile, Iraq will account for 45% of the growth in global oil production by 2035, overtaking Russia to take second place.
As North America emerges as a net oil exporter, it will also accelerate the switch in direction of international oil trade, as 90% of Middle Eastern oil will be diverted to Asia.
By 2035, global oil demand will have grown to 9m barrels per day, by which time oil prices will reach $125/bbl in real terms and over $215/bbl in nominal terms.
Natural gas demand rising
Demand for natural gas is likely to increase by 50% to 5 trillion cubic metres in 2035, with nearly half of the increase in production from unconventional gas. Most volumes will come from the US, Australia and China, the IEA predicts. The rate of growth will be three times faster in non-OECD countries than in the more mature OECD markets. Worldwide, the power sector will account for 40% of the incremental demand out to 2035.
China, India and the Middle East will lead consumption growth. In China, demand is expected to go up from 110 billion cubic metres (Gm³)/year in 2010 to 545Gm³/year in 2035. The Middle East will also see substantial growth in gas consumption, reaching 640Gm³/year, up from 376Gm³/year in 2010. Meanwhile, India is expected to grow even faster, rising from 64Gm³/year in 2010 to reach 180Gm³/year by 2035.
Iraq, and in particular northern Iraq, which is thought to own gas reserves of anything between 2 trillion to 6 trillion cubic metres is likely to become an important gas supplier to Turkish and European markets in the medium to long-term, the IEA's chief economist Fatih Birol said.
The gas market will become less fragmented, thanks to more LNG suppliers and a gradual shift from oil-indexed to spot prices.
Global demand for electricity is set to continue to grow faster than any other final form of energy. Consumption is expected to expand by over 70% between 2010 and 2035 to almost 32,000TWh by 2035, or an average 2.2% annually. Over 80% of that growth will come from China and India.
Average electricity prices are expected to increase by 15%, driven up by higher fuel costs, a shift to a more capital-intensive generating capacity, CO2 pricing in some countries and growing subsidies for renewables.
The highest electricity prices will be in Europe and Japan, undermining their competitive edge against other parts of the world. The cheapest prices will be in China and the US.
Global generating capacity is likely to expand by 72%, from 5,429GW in 2011 to 9,340GW by 2035.
Gas and wind generation will account for half of that increase, followed by coal and hydro at about 15% each. The IEA estimates that the total investment costs to build new capacity, as well as replace some 1,980GW of antiquated generation, is around $9.7 trillion in 2011 dollar terms. A further $7.2 trillion is needed for transmission and distribution grids.
Coal, nuclear and renewables
Coal will remain the backbone of electricity production, even as global oil and gas production are likely to increase. International demand for coal is expected to increase by 21% and will be heavily focused on India and China.
In contrast, most OECD countries will see their coal use decline. In Europe, demand in 2035 will be 60% of its 2010 level.
However, coal's share of total electricity generation is expected to fall from 41% in 2010 to 33% in 2035, at 11,900TWh globally, while the share of gas will increase from 22% to 23%, at 8,470TWh.
In contrast, the IEA is less optimistic about the nuclear outlook. The agency estimates that by 2035, the world's installed nuclear capacity will be around 580GW, some 50GW lower than last year's estimates. The pessimistic outlook is largely due to a decision by several European countries and Japan to phase out nuclear generation.
Meanwhile, electricity generation from renewable energy sources will nearly triple over the outlook period to 2035, driving up their share of total world power generation from 20% to 31% in 2035. These will account for 47% of the total increase in generation by 2035.
Half of all renewable generation is expected to come from hydro power by 2035, with wind almost one-quarter, and solar photovoltaics accounting for 7.5% of the renewable share.
The IEA also warned that increased use of water for oil extraction and gas fracking will bring supplies under severe strains, particularly in dry areas such as Iraq, the Gulf and south Asia.