|The global energy landscape is changing rapidly, according to the IEA
Many of the long-held tenets of the energy sector are being rewritten.
That is the first line of the 2013 edition of the International Energy Agency’s (IEA) World Energy Outlook (WEO), the organisation’s annual round-up of what has happened, is happening, and – crucially – what it expects to happen in the world’s energy markets.
Released towards the end of last year, the report is probably the definitive guide to trends in the international power sector. Still published in hard copy, as well as electronically, it runs to a hefty 687 pages, and as IEA chief executive Maria Van de Hoeven stated at its launch, “the messages in it are heavy” as well.
So what are those messages? For the most part they reinforce much of what we already know: that the balance of power (in every sense) is shifting – many would say it had already shifted – from Europe to emerging markets, such as the established BRIC nations, as well as the newly-acronymed MINT countries (Mexico, Indonesia, Nigeria and Turkey). “The centre of gravity of energy demand is switching decisively to the emerging economies,” states the IEA, “particularly China, India, and the Middle East, which drive global energy demand one-third higher.” It says that China will be the dominant energy power between now and 2020, when “India takes over as the principal engine of growth”.
The IEA predicts that India will become the largest coal importer by the early 2020s, by which time China will already be the biggest importer of oil. Meanwhile, thanks to the shale gas boom, the US will meet all of its energy needs from domestic resources by 2035.
These factors “represent a re-orientation of energy trade from the Atlantic Basin to the Asia-Pacific”, says the IEA.
Major importers are becoming exporters, while countries long-established as major energy exporters are also becoming leading centres of global demand growth.
The IEA states that the “right combination of policies and technologies is proving that the links between economic growth, energy demand and energy-related CO2 emissions can be weakened”.
It also stresses the importance for governments to keep pace with global energy trends. “Awareness of the dynamics underpinning energy markets is essential for decision makers attempting to reconcile economic, energy and environmental objectives. Those that anticipate global energy developments successfully can derive an advantage, while those that fail to do so risk making poor policy and investment decisions.”
The energy outlook is more varied between regions than almost ever before, with Europe still faring badly in the fallout of the economic recession.
“It has rarely been more critical in European history to have a sound energy policy as it is right at this moment”, said Fatih Birol, the IEA’s chief economist at the launch of the WEO in London in last November. He said Europe is facing a three-pronged attack on its competitiveness from the US shale gas revolution, the shift in international trade to the Asia-Pacific Basin and the pressure the European Union (EU) faces in cutting cutting carbon emissions during its economic stagnation.
He warned that, “within the EU, utilities contending with low economic growth and the push for renewable energies were not making enough revenues to make new investments”.
Birol stressed that Europe was being given a bloody nose by the American gas boom. “There is a major disparity between US and rest of world because of the shale gas revolution. In Japan, gas is hugely expensive and it is a serious issue for both the Japanese and the EU. The price differentials will remain big, even if they narrow a bit. There is a structural issue these countries must address in terms of their competitiveness.”
And while he conceded that “regional price gaps and concerns over competitiveness are here to stay”, he stressed that “there are ways to react, with efficiency first in line. It is very urgent to find low-carbon solutions despite difficult economic times.”
Meanwhile, the fossil fuel engine room of the world – the Middle East – will continue to stamp its authority, and redefine its role, on global energy markets.
The IEA says that “the importance of the Middle East as a centre of energy demand” will grow significantly, overtaking Russia by 2017, and accounting for almost 70 per cent of the demand for the whole of Europe by 2035. The region’s gas consumption will also eclipse that of Europe by 2020, and by 2035 it will reach levels that put it second to the US.
In Brazil, where energy demand has doubled since 1990 and almost 45 per cent of its primary energy demand is met by renewables, a huge expansion will be seen in its power sector. Energy demand is predicted to rise by 80 per cent on current levels by 2035 and while there will be greater use of domestic oil and gas, renewables – not just hydropower but wind and solar too – will play a vital role in providing electricity.
And in Southeast Asia, energy demand will rise by more than 80 per cent between now and 2035. This, says the IEA, “supports a near tripling of the region’s economic activity and a population increase of almost one quarter”.
Over the same period, the IEA predicts that coal demand in the region will triple, while natural gas demand rises by 80 per cent.
The IEA states: “The power sector is fundamental to the energy outlook for Southeast Asia and coal emerges as the fuel of choice. Deploying only more efficient coal-fired plants should be a major priority in the region.”
Worldwide, emerging economies account for more than 90 per cent of global net energy demand growth, but this comes from multiple and sometimes unexpected sources. The IEA says that “while Asian energy demand growth is led by China this decade, it shifts towards India and, to a lesser extent, Southeast Asia after 2025”.
|Vietnam gas plant: the outlook for both natural gas and southeast Asia is bright
The WEO states that “although current market conditions vary markedly across the world, the overall outlook for natural gas is bright, with consumption in 2035 higher than in 2012”.
The regions highlighted by the IEA for the biggest increases in demand are unsurprising: China – where gas use will quadruple by 2035 and overtake coal as the energy fuel of choice – the Middle East and North America (with Mexico growing faster than the US or Canada).
In contrast, gas demand in Europe will be subdued. The IEA reports that in 2012, demand in OECD Europe fell back to 2003 levels, and it predicts recovery will be slow: it will take until 2025 to reach the same levels seen in 2010.
The WEO states that “the power sector holds the key to demand in Europe and the prospects in this area depend on the relationship between gas, coal and carbon prices. A gradual re-balancing in relative prices favours gas, notably because the extremely low-carbon prices seen in Europe in recent years are not expected to persist.”
The IEA says unconventional gas “will surely play an increasingly important role in future gas supply – not just in North America, the site of the overwhelming bulk of production today, but also in several other parts of the world”.
It highlights the abundant resources of China, Algeria, Argentina and Canada, amongst others.
However the WEO stresses that “there are numerous obstacles to developing these resources at anything like the scale seen in North America, so replicating that region’s success will be neither easy nor quick”. These obstacles include a geological conditions, scarcity of water and land rights, not to mention political and public opposition.
|India’s coal generation will double by 2035
In the IEA’s central forecast scenario, global coal-fired generation increases 35 per cent from 2011 figures by 2035, with all of the growth coming from non-OECD countries, which the WEO states will rely on coal “as a secure and affordable means to support economic growth and development”.
By 2035, China’s coal generation is predicted to exceed current use in the US and Japan combined, while India’s coal-fired generation will more than double.
The IEA forecasts that the efficiency of coal plants worldwide will improve from 36 per cent to 40 per cent as older subcritical plants are retired and replaced by supercritical and other technologies. However the IEA forecasts that the development of carbon capture and storage (CCS) to 2035 will be limited, with 56 GW of coal plants fitted with CCS.
As with coal, non-OECD countries will lead growth in nuclear, according to the IEA.
At the end of 2012 there were 437 nuclear reactors in operation worldwide, 80 per cent of them in OECD countries. But of the 73 GW of capacity currently under construction, around 80 per cent is in non-OECD countries.
The nuclear programme in the United Arab Emirates is advancing apace, while Saudi Arabia is signing memorandums of understanding to speed its nuclear ambitions.
The IEA predicts that from now to 2035, China will add 114 GW of nuclear capacity and Russia 33 GW, while Turkey and Vietnam will become players in the global market.
Of the OECD countries, Korea is forecast to make the most advances, adding an impressive 27 GW of capacity.
Generation from renewable energy sources continues to increase rapidly, growing more than two-and-a-half times from now to 2015, and accounting for almost half of total incremental generation over that period.
This growth is driven by improving competitiveness, a result of falling costs for renewable technologies, rising fossil fuel prices and carbon pricing, but mainly government support, in the form of subsidies to accelerate the deployment of renewables.
Hydropower remains the largest source of renewables generation, continuing to provide 16 per cent of total generation over the projection period, while wind is the third-largest increment behind gas and coal.
Again, non-OECD countries figure heavily, accounting for two-thirds of incremental growth. In China – already the world’s largest producer of renewable electricity – the IEA forecasts 28 per cent of global growth, more than the combined growth of the EU, the US and Japan.
The US and the EU both see generation from renewable energy double.
Hydropower plays a much more significant role in some regions than in others. It accounts for 44 per cent of incremental renewables generation in non-OECD countries, where the IEA states that “a sizeable amount of cost-competitive potential is untapped at present”.
By contrast, OECD countries have already developed much of their economic hydropower potential and incremental renewables generation comes mainly from wind (47 per cent ), biomass (16 per cent) and solar photovoltaics (16 per cent).
Transmission & distribution (T&D)
In the IEA’s central scenario to 2035, the length of T&D lines globally expands from some 69 million km in 2012 to 94 million km in 2035.
T&D networks increase the most in both China (7 million km) and India (3.5 million km), to cover increasing demand and the connection of new end-users. The IEA stresses that by 2035, around half of today’s grid infrastructure will be 40 years old, the average technical lifetime of T&D assets, highlighting the need for significant refurbishments and replacements.
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