IEA future oil forecasts stir debate, World Energy Outlook

The IEA recently released its World Energy Outlook (WEO), an annual long term forecast for energy and the oil market and this year’s WEO raises questions as much as it gives answers due to the alarmist views that were pronounced this year.

This research is usually sought after for the wealth of information it contains and for the forecasts of energy demand and supply as seen by an organisation representing the rich industrial countries as major consumers of all forms of energy.

The IEA prepared this outlook against a background of the worst economic slump in a long time but with some signs of recovery already emerging. The collapse of oil prices in 2008 and their rebound in 2009 affected the outlook. The IEA assumes future oil prices will rise with the marginal cost of energy production, reaching $190 (Dh697.90) per barrel in nominal terms in 2030.

At the same time and because of the above the slump in investment needs time to recover but this may lay the ground for future shortages. Finally the heated activities and conferences to tackle climate change will undoubtedly affect the outlook.

Against this backdrop and in the reference case, IEA forecasts are less than those of 2008 despite the promised economic recovery. Energy demand is forecast to grow from 12,000 million tonnes of oil equivalent (mtoe) in 2008 to 16,800 mtoe in 2030.

The demand increase, or 93 per cent of it, is predicted to happen in the non OECD countries and essentially in China and India where energy demand is likely to grow from 2,700 mtoe in 2008 to over 5,000 mtoe in 2030.

Fossil fuels are seen to contribute about 77 per cent of energy demand and therefore begs the question if this path is sustainable considering the risk of climate change. Oil demand which stood at 85 million barrels a day (mb/d) in 2008 is expected to increase to 105 mb/d in 2030, a huge difference from the 2005 forecast of 120 mb/d.

This reduction is the result of factoring in the impact of the economic crisis, expected higher prices and policies of the industrial countries regarding climate change. But the most important question regarding the oil forecast is the alarming view of the IEA that the majority of oil production in 2030 will be coming from “fields yet to be developed or found”.

The IEA goes on to say “sustained investment is needed mainly to combat the decline in output at existing fields, which will drop by almost two-thirds by 2030″. A few years ago and even when forecasts were very much higher, the IEA was always assured of the availability of resources without such lost and found statements.

This has led some commentators to call this “capitulation to peak oil” and the Guardian on November 9 quoted an unidentified employee of the IEA as saying the world is “closer to running out of oil”. However, the IEA does not want to admit this in case it causes panic buying and a severe impact on oil prices and financial markets.

Tags:  forecasts, IEA, oil, WEO, World Energy Outlook