IEA warns of ‘runaway’ energy thirst as oil prices soar

China and India’s emergence in world energy markets and their massive projected energy needs are the focal points of the International Energy Agency’s (IEA) 2007 World Energy Outlook, which calls for a ‘radical shift’ in investment towards cleaner, more efficient energy technologies. 

• The development dilemma 

China and India’s growth is a “legitimate aspiration that needs to be accommodated and supported by the rest of the world”, the IEA said in its WEO, published today (7 November).

But the 674-page report, written in large part by the IEA’s Chief Economist Fatih Birol, also describes “vigorous, immediate and collective policy action by all governments as essential to move the world onto a more sustainable energy path”.

• Growth and CO2

The 2007 WEO makes forecasts to the year 2030 using three different scenarios: a reference or ‘business as usual’ scenario, a high growth scenario and an alternative policy scenario.

Based on reference scenario projections, the world will need over 55% more primary energy than in 2005 to meet the needs of populations in 2030, and 45% of that energy demand will come from India and China, according to the IEA. 

Central to the IEA’s proposed alternative policy scenario are improvements in energy efficiency, and structural changes designed to increase energy savings while still meeting the projected high energy demand.  

But even if the alternative policy recommendations are carried through, the world “faces a fossil energy future to 2030”, with global CO2 emissions in 2030 still 25% higher than today, the report says. 

Reference scenario projections put the increase in global CO2 emissions at 57% by 2030, due in large part to an increasing reliance on coal-fired power generation.

• Coal trains in China and India

Higher oil and gas prices are driving coal take-up in many economies, particularly in India and China, according to the report. 

China uses coal to meet two-thirds of its primary energy demands and is expected to surpass the US in terms of CO2 emissions in 2007. Its overall CO2 output is expected to more than double by 2030, according to the IEA. 

India is expected to use three times more coal by 2030 to meet of its primary energy demand. But unlike China, which is expanding its transport infrastructure to carry vast inland coal reserves to its coastal regions, India has few reserves and must rely increasingly on coal imports. 

India will become the world’s third largest coal importer by 2025 and the world’s third largest CO2 emitter by 2015.

• Oil prices: $250 a barrel?

Some Wall Street speculators have started buying oil options – contracts that guarantee a predetermined future oil price regardless of the market – to protect themselves against possible prices as high as $250 per barrel, according to the Financial Times, which reported on 6 November about an oil options buying frenzy. 

The WEO appears to confirm investors’ concerns. “A supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices, cannot be ruled out”, the report warns.

China and India’s growing thirst for oil are contributing to the shortage: India will become the world’s third largest net importer of oil by 2025, and China’s current daily oil imports of 3.5 million barrels are expected to nearly quadruple by 2030, according to the WEO.   

OPEC, the Organisation of Petroleum Exporting Countries, is expected to provide most of what appears to be a dwindling natural resource. “OPEC’s share of world oil supply jumps from 42% now to 52% by the end of the projection period. Non-OPEC production rises only slowly to 2030, with most of the increase coming from nonconventional sources – mainly Canadian oil sands – as conventional output levels off at around 47 [million barrels per day] by the middle of the 2010s”, the report says.

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