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The Alarming Results of IEA's Latest World Energy Outlook

Oil prices to reach $210 by 2035

The International Energy Agency just released their World Energy Outlook for 2011. Here's a quick summary with slides and quotes provided below: Oil prices will more than double over the next 20 or so years, despite any short-term reduction in global GDP, since 90% of population growth and energy demand comes from emerging markets. Also, if increasingly volatile regions where most of current oil is located don't significantly increase production, expect to see $150/barrel in the next few years. Lastly, the abandonment of nuclear energy will cause a significant increase in the price of oil and put further strain upon already highly indebted countries reliant upon energy imports.

  • Oil will reach $210/barrel by 2035: "We assume that the average IEA crude oil import price remains high, approaching $120/barrel (in year-2010 dollars) in 2035 (over $210/barrel in nominal terms)"
  • Oil prices will stay high despite lower global GDP: "Despite uncertainty over the prospects for short-term economic growth, demand for energy under the New Policies Scenario grows strongly, increasing by one-third from 2010 to 2035...A lower rate of global GDP growth in the short-term than assumed in this Outlook would make only a marginal difference to long-term trends."

Source: IEA

  • It's all about the emerging markets: "The dynamics of energy markets are increasingly determined by countries outside the OECD [developed nations]. Non-OECD [emerging markets] account for 90% of population growth, 70% of the increase in economic output and 90% of energy demand growth over the period from 2010 to 2035."
  • China's massive appetite will outstrip every other country: "In 2035 [China] consumes nearly 70% more energy than the United States...The rates of growth in energy consumption in India, Indonesia, Brazil and the Middle East are even faster than in China."

Source: IEA

  • Most of the demand comes from car ownership: "All of the net increase in oil demand comes from the transport sector in emerging economies, as economic growth pushes up demand for personal mobility and freight."

Source: IEA

  • If volatile war-torn regions don't start pumping out more oil quickly, expect 0/barrel in the next few years: "A shortfall in upstream investment in the MENA [Middle East North Africa] region could have far-reaching consequences for global energy markets...If, between 2011 and 2015, investment in the MENA region runs one-third lower than the 0 billion per year required...consumers could face a substantial near-term rise in the oil price to 0/barrel."
  • Increasing production of natural gas will be key in meeting global demand, with the greatest increase coming from the US. Not sure how safe their assumptions are? Especially if governments start linking fracking to earthquakes! (link)

Source: IEA

  • Half of energy demand over the last decade was satisfied with dirty coal: "Coal has met almost half of the increase in global energy demand over the last decade. Whether this trend alters and how quickly is among the most important questions for the future of the global energy economy...The implications of policy and technology choices for the global climate are huge."

Source: IEA

  • Without nuclear, expect much higher oil prices and strains on already highly indebted governments: "A low-nuclear future would also boost demand for fossil fuels...the net result would be to put additional upward pressure on energy prices, raise additional concerns about energy security and make it harder and more expensive to combat climate change. The consequences would be particularly severe for those countries with limited indigenous energy resources [i.e. Europe] which have been planning to rely relatively heavily on nuclear power. It would also make it considerably more challenging for emerging economies to satisfy their rapidly growing demand for electricity."
  • Russia-China get more powerful: "Russia's large energy resources underpin its continuing role as a cornerstone of the global energy economy over the coming decades...the share of China in Russia's total fossil-fuel export earnings rises from 2% in 2010 to 20% in 2035, while the share of the European Union falls from 61% to 48%."

Source: IEA

Far from being an energy expert myself, and not having access to the data or assumptions used to model their forecasts, it is hard to comment on the reliability of their conclusions. However, given the reputability of the IEA and their level of scientific rigor it is probably safe to assume that most of their projections are based on the best data currently available with regards to the global energy space.

The future is, of course, very hard to predict since the most sophisticated modeling tools are incapable of anticipating random or unexpected events, let alone complex non-linear relationships. Throw in the psychological and behavioral component on top of that and we'd never be able to predict much of anything. With that said, this report does make a very obvious prediction that governments around the world have, quite unfortunately, done little to prepare for; and that is the end of cheap oil. Barring the outright collapse of our global economic and financial systems, oil will continue to become drastically more expensive in the foreseeable future; and this will have profound implications for the billions today all clambering for limited resources and the highest standard of living their country can afford.

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