Oil price to reach $137 in 2040?

International Energy Agency sees crunch on oil consumption

The International Energy Agency (IEA) says that higher shares of variable renewable energy in electricity systems will require a "step change" in the requirement for flexibility, which is the capability to balance electricity supply and demand at all times so as to keep the lights burning.

The report said that the global energy market will undergo major transformations ranging from growing electrification to the expansion of renewables, upheavals in oil production and globalisation of natural gas markets.

While solar power is charging ahead, other low carbon technologies and especially efficiency policies "still require a big push". "The Chinese effect on the gas markets now is very similar to the effects we saw 10 years ago on the oil markets from Chinese demand", Dr Fatih Birol, executive director of the IEA told a press briefing in London on Tuesday.

Considering the growth and investment required in the sector, the report underlines that governments will have a critical influence in the direction of the future energy system.

"Today's flow of new upstream projects appears to be geared to the possibility of an imminent slowdown in fossil fuel demand, but in the New Policies Scenario this could well lead to a shortfall in supply and a further escalation in prices", the report read.

Under a "sustainable development scenario" - which will meet a global goal on climate change, air quality and access to energy - carbon emissions would peak around 2020 and then decline steeply.

Under current and planned policies, energy demand is set to grow by more than 25% to 2040, requiring more than $2 trillion (£1.5tn) a year of investment in new energy supply.


Still, oil consumption will continue to grow in coming decades, due to rising petrochemicals, trucking and aviation demand.

Approvals of conventional oil projects need to double from their current low levels, the IEA warned. Without such a pick-up in investment, United States shale production, which has already been expanding at record pace, would have to add more than 10 million barrels a day from today to 2025, the equivalent of adding another Russian Federation to global supply in seven years - which would be a historically unprecedented feat.

Within the power sector, wind and solar photovoltaic (PV) have emerged as the technologies of choice and are expected to make up nearly two-thirds of global capacity additions to 2040.

Hydrocarbon production from North American shale plays will enable the United States to maintain and expand its lead as the world's largest oil and gas producer, accounting for almost half of global oil and gas production growth to 2025 and ratcheting up pressure on countries that traditionally have relied on oil and gas exports to fund their economies, the IEA said.

"The New Policies Scenario puts energy-related Carbon dioxide emissions on a slow upward trend to 2040, a trajectory far out of step with what scientific knowledge says will be required to tackle climate change", the report read. Electricity will account for a quarter of energy used by end users such as consumers and industry by 2040, it said.

Smarter use of the existing energy system could include carbon capture, utilisation and storage technology along with hydrogen, further efficiency gains "and in some cases, retiring capital stock early", Birol said.

"In other words, the United States alone would need to add the equivalent of another Russian Federation to global supply by 2025".

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