IEA Sees Major Role for Natural Gas in World Energy Outlook 2016

| France, Paris

world_energy_outlook_2016The International Energy Agency (IEA) has released its 2016 edition of World Energy Outlook. IEA declares that as a result of major transformations in the global energy system that take place over the next decades, renewables and natural gas are the big winners in the race to meet energy demand growth until 2040. Dr Fatih Birol, the IEA’s executive director, states “There is no single story about the future of global energy: in practice, government policies will determine where we go from here.”

A detailed analysis of the pledges made for the Paris Agreement on climate change finds that the era of fossil fuels appears far from over. As stated in the Executive Summary: “For the moment, the collective signal sent by governments in their climate pledges (and therefore reflected in [the WEO-2016] main scenario) is that fossil fuels, in particular natural gas and oil, will continue to be a bedrock of the global energy system for many decades to come.”

Natural gas continues to expand its role while the shares of coal and oil fall back. “We see clear winners for the next 25 years – natural gas but especially wind and solar – replacing the champion of the previous 25 years, coal,” said Dr Birol.

Traditional security concerns related to oil and gas supply remain – and are reinforced by record falls in investment levels. “In 2015, the volume of conventional crude oil resources that received development approval fell to its lowest level since the 1950s and the data available for 2016 show no sign of a rebound.” (Exec. Summary, Pg. 6) The report shows that another year of lower upstream oil investment in 2017 would create a significant risk of a shortfall in new conventional supply within a few years.

“We are entering a period of greater oil price volatility,” said Dr Birol. “If oil prices rise in the short term, then shale producers can react quite quickly to put more oil on the market, producing a see-saw movement. And if we continue to see subdued investments in new conventional oil projects, this could have profound consequences in the longer term.”

In the longer-term, investment in oil and gas remain essential to meet demand and replace declining production, but the growth in renewables and energy efficiency lessens the call on oil and gas imports in many countries. Increased LNG shipments also change how gas security is perceived.

The gas market is changing, the report states, with the share of LNG overtaking pipelines and growing to more than half of the global long-distance gas trade, up from a quarter in 2000.  In an already well-supplied market, new LNG from Australia, the United States and elsewhere triggers a shift to more competitive markets and changes in contractual terms and pricing.

The Paris Agreement, which entered into force on 4 November, is a major step forward in the fight against global warming but it will not meet the goal of keeping the rise in global temperatures to less than 2° Celsius. However, IEA says meeting more ambitious climate goals will be extremely challenging and require a step change in the pace of decarbonization and efficiency. The path to 2°C can be achieved if policies to accelerate further low carbon technologies and energy efficiency are put in place across all sectors.

“Renewables make very large strides in coming decades but their gains remain largely confined to electricity generation,” said Dr Birol. “The next frontier for the renewable story is to expand their use in the industrial, building and transportation sectors where enormous potential for growth exists.”

World Energy Outlook 2016  — Executive Summary is available by clicking here (pdf file).

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(Source: International Energy Agency)

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