Softening of crude oil prices will not last forever and signs of stress must not be ignored, Chief Economist of Paris-based International Energy Agency (IEA) Fatih Birol said.
Speaking to BusinessLine from London after release of IEA’s World Energy Outlook 2014 , Birol said, “Softening of oil prices is good news for import-dependent countries like India. But, this comfort zone may not last forever. There will be downward pressures on investments (upstream) even as demand for oil increases. This may result in prices rising again.”
In fact, this is the right time for consumers, such as India, to build storage capacities to increase their energy security, he said, adding that there is also need to expand the energy basket with other sources such as gas and renewables.
IEA, an autonomous organisation founded in response to the 1973-74 oil crisis, works to ensure reliable, affordable and clean energy for its 29 member-countries and beyond. The members include the US, the UK, Japan and Australia.
Referring to the report, Birol said, the findings show that world oil supply will rise to 104 million barrels per day in 2040, but this hinges critically on investments in the relatively small number of producing countries. The tight oil output in the US will level off, and non-OPEC supply will fall back in the 2020s, making West Asia the major source of supply growth.
Demand in many of today’s largest consumers — the US, the EU, and Japan — is either witnessing a long-term decline, or has essentially plateaued — China, Russia and Brazil.
China will overtake the US as the largest oil consumer around 2030.
But, as its demand growth will slow down, India will emerge as a key driver, as will sub-Saharan Africa, West Asia and Southeast Asia.
With gas production expected to increase around the world, India can look at newer markets to source from. Besides West Asia, these markets include East Africa. In fact, Birol sees gas prices softening.
“With time, there may be a need to find a balance between coal and liquefied natural gas as fuels to meet energy demand,” he said.
Countries should not overly depend on long-term contracts for gas and cultivate the spot markets, Birol said.
Geo-political issues last year have increased many of the long-term uncertainties facing the global energy sector and the current events must not distract decision-makers from recognising and tackling the longer-term signs of stress that are emerging in the energy system, he added.
Renewable sourcesAccording to the report, world demand for two of the three fossil fuels — coal and oil — will essentially plateau by 2040, although, for both fuels, this global outcome is a result of very different trends across countries. The report expects renewable energy technologies to gain ground rapidly, helped by falling costs and subsidies.
By 2040, world energy supply will be divided into four almost equal parts: low-carbon sources (nuclear and renewables), oil, natural gas and coal.
On nuclear power, the report sees installed capacity grow by 60 per cent by 2040, with the increase concentrated heavily in just four countries — China, India, Korea and Russia. Despite this, the share of nuclear power in the global power mix will still remain very low.
It sees renewables accounting for nearly half of the global increase in power generation by 2040, and overtaking coal as the leading source of electricity.