In this year’s World Energy Outlook, the International Energy Agency (IEA) breaks with its tradition of allaying concerns about the availability of oil. Instead, it calls for an urgent transition to a more sustainable global energy system to avert a potential climate catastrophe.
“Current global trends in energy supply and consumption are patently unsustainable – environmentally, economically and socially,” writes the agency in the executive summary of its 2008 outlook, unveiled on 12 November.
The IEA report came as oil prices reached their lowest level since January 2007, with investors worried about the effects of the global economic downturn on oil demand. Light sweet crude traded at only $56 a barrel on Wednesday (12 November) after hitting a peak of $147 in July.
This year’s report contains a similar message to the 2006 edition, which called for “strong policy action” to give relief to a “dirty, insecure and expensive” energy future. But the financial crisis and growing concerns that the climate is changing rapidly and dangerously put the 2008 report, which calls for a “global energy revolution,” in a different context.
Findings of “unprecedented field-by-field analysis” on the historical output of 800 oil fields are also included in the report.
“Even if oil demand was to remain flat to 2030, 45 mb/d of gross capacity – roughly four times the current capacity of Saudi Arabia – would need to be built by 2030 just to offset the effect of oilfield decline,” IEA Executive Director Nubuo Tanaka said in a statement.
The report is expected to stir up the peak oil debate, which is often embroiled in the distinction between access to oil and actual levels of remaining reserves of crude.
Irrespective of how much oil actually remains available on the planet, major structural changes are taking place in the global energy system, whereby oil reserves are increasingly under the control of non-OECD countries, the IEA points out in the report. Oil companies say this change restricts not only their access to fields but also their ability to act based on market principles, whereby supply and demand levels, profits, and access remain stable. National governments, meanwhile, have little incentive to verify real reserve levels and to report on those levels in a transparent manner.
BP Chief Economist Christoph Rühl, who has “no reason to accept [peak oil] as a valid statement either on theoretical, scientific or ideological grounds,” told EURACTIV that “there is no resource constraint at the moment for oil” (EURACTIV 01/10/08).
But Rühl admits that surging demand in developing countries and global fossil fuel supply constraints are creating volatility in energy markets and will keep prices up over the long term.
The IEA acknowledged that oil companies face “dwindling opportunities to increase their reserves and production,” but insisted that too much attention is given to the demand side of the equation. “Decline rates are actually a far more important determinant of investment needs,” said Tanaka.
Green Bretton Woods?
Meanwhile, the OECD announced “two-pillar action” to address the financial crisis. Policymakers should not lose sight of climate change and should keep global trade and investment flows open so that clean technology development can proceed, the organisation said in a 12 November press statement.
International credit flows have ground to a near-standstill in some sectors, leading to delays and cancellations in industrial orders and a slowdown of economic activity. There are concerns that the situation will complicate efforts to drive a structural shift in the economy towards ‘greener’ buildings and less polluting energy and transport systems, particularly if economic systems remain highly fossil fuel dependent but constrained by decreasing availability and price volatility.
On 15 November, the foundations of the global financial system will be scrutinised by world leaders during a major ‘Bretton Woods’ meeting in Washington, DC. It is unclear, however, what shape the reformed global financial system will take or how much time it will take for the reforms to be tested by renewed global economic growth.
EU member states recently formulated their position for the meeting, at which the bloc will call for greater transparency and regulation as well as a convergence of accounting standards (EURACTIV 07/11/08). The document makes no reference to clean technology development, but lists climate change as one of several “challenges” along with food security and the fight against poverty.