IEA warns of upcoming oil supply crunch

International Energy Agency sees crunch on oil consumption

The clamor for global action to dramatically cut emissions has reached fever pitch in recent months following the publication of a United Nations report that called for annual investment of $2.4 trillion in clean energy to avoid irreversible damage to the world.

The good news for the renewable energy sector is that the IEA sees the contribution of renewable technologies to meeting global energy demand increasing by one-fifth over the next five years.

Cumulatively, this is a downward revision of 8.3% in just two years, a downgrade equivalent to three times Australia's entire export volumes in 2017.

Without major government policy interventions and investment in oil supplies, there is likely to be a supply crunch in coming years.

Analyzing the diverse range of energy fuels, the Paris-based agency said the geography of energy consumption continues its historic shift to Asia, but finds mixed signals on the pace and direction of change.

It suggests oil markets are entering a period of renewed uncertainty and volatility, including a possible supply gap in the early 2020s. In fact, approvals of conventional field development need to double if the United States is to boost its production as much as the IEA forecasts it could.

Fatih Birol, executive director at the IEA, noted that with more than 70% of global energy investments set to be government-driven, the "world's energy destiny" is intertwined with global politics.

In the power markets, the report said that renewables have become the technology of choice, making up nearly two-thirds of global capacity additions to 2040, thanks to falling costs and supportive government policies.

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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.

While the increase in renewable energy should benefit the environment, it will nonetheless also pose a challenge, not least because such sources depend on the availability of sun or wind.

With higher variability in supplies, power systems would need to make flexibility the cornerstone of future electricity markets in order to keep the lights on, the report emphasised.

"Electricity markets are also undergoing a unique transformation with higher demand brought by the digital economy, electric vehicles and other technological change", the report said. Electricity will account for a quarter of energy used by end users such as consumers and industry by 2040, it said.

According to the IEA, coal now makes up a third of all energy consumed worldwide and plays an essential role in iron and steel industries. The vast majority of these are related to projects in Asia, where average coal plants are just 11-years-old on average with decades left to operate, compared with 40 years on average age in the U.S. and Europe.

The agency, which released its World Energy Outlook 2018 report this week, is forecasting that electricity will become the "fuel of choice" and is poised to play a greater role in transportation, through electric vehicles, as well as in heating and cooling.

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

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