Good news, and bad

As world leaders meet in Doha for the climate change conference, IEA officials presented the World Energy Outlook 2012 at a Carnegie Endowment for International Peace event.  Jessica Matthews, president of the Carnegie Endowment for International Peace, labelled the year “paradoxical.”  Some of the fundamental facts of world energy are changing, especially in the United States, which is on track to becoming the largest oil producer in 2020, passing even Saudi Arabia.  This development, brought on by the unconventional oil and gas revolution, in combination with recent improvements in efficiency, suggests a bright energy future for the U.S.  But Matthews reminded the audience that the Outlook ultimately concludes the U.S. and the rest of the world are not on track for a sustainable energy future.   If trends continue, the world will become 3 degrees Celsius warmer by mid century and 4-6 degrees Celsius warmer by 2100.  Such warming will have catastrophic implications.

Daniel Poneman, the Deputy Secretary of Energy, seconded Matthews’ point that more oil and gas in the U.S., and in turn, more independence, is a result of higher production and decreased demand.  Production of shale gas began slowly, but it now accounts for about 35% of annual gas production.  If trends continue, the US will overtake Russia in 2015 as the largest natural gas producer.  Increasing natural gas production in the U.S., Canada, and Australia will globalize the natural gas market, according Fatih Birol, chief economist of the International Energy Agency (IEA) and overseer of the World Energy Outlook.  New producers will diversify the market and traditional gas exporters will face lower exports and prices.

At the same time, energy consumption is shifting from the West to the East.  By 2035, OECD countries will use only about 30% of total energy production.  Ninety percent of oil from the Middle East will go to Asia.  This is partially due to rising standards of living in China, India, and the Middle East.  About 20% of the global population (1.3 billion people) still have no access to electricity, however.  Birol calls this an energy, economic and moral issue.  Despite electricity generation growth in India, electricity consumption per capita in 2035 India will equal per capita consumption in 1947 America.

Iraq is another game changer.  Right now it is the third largest oil producer.  Its production is expected to increase as exploration discovers greater reserves.  Iraq will produce 6 million barrels per day in 2020 and 8 million by 2035, noted Maria van der Hoeven, the IEA’s Executive Director.  Iraq will account for 45% of growth in global oil production from now until 2035, passing Russia and becoming the second largest oil exporter in the mid 2030’s.  By 2035 almost 50% of world oil production will come from OPEC countries.  Iraq will be a significant contributor, with much of its oil going to China.  Thirty percent of growth in Iraq’s oil exports will come from Chinese-owned oil fields in Iraq.

The prospects for climate change are sobering.  Progress has been made on energy efficiency, but energy demand is growing due to many factors, including population increase and movement away from nuclear power in some countries.  Fossil fuel subsidies, which Birol calls the greatest threat to climate change, are a serious problem.  Fuel subsidies are up 30% to $523 billion in 2011, with the Middle East and North Africa in the lead.

According to Birol, the global goal of a 2 degree Celsius rise in temperature or less will not be met with current policies.  For the first time a decline in renewables is expected in 2012. Much of past and future renewable growth is dependent on subsidies.  If it were possible to halt building of new infrastructure for the next 20 years, we would still use up 80% of the emissions permitted to keep the global temperature change under 2 degrees Celsius.  We are not remotely doing all we can to improve efficiency.  Two-thirds of the economically viable potential for improving efficiency is not being used.  We have until 2017 to make serious changes, which will likely require a legally binding international agreement.  If we don’t make changes by then, there will be no way to keep the planet from warming two degrees Celsius or more.  If we become more efficient now, we might have until 2022 to make serious changes.  The longer we wait, the more costly changes will be, which will make striking an international agreement harder.

The Outlook forecasts good news on energy production, but still bad news for climate change.