The annual publication of the International Energy Agency's World Energy Outlook is always a landmark event in the calendar. Even people who disagree with its conclusions acknowledge that it provides a wealth of thought-provoking data and analysis, and the 808-page 2019 edition, published this week, is no exception.
Media coverage highlighted a range of different lines, including the prospect that the continued growth of tight oil would bolster US influence over OPEC member countries, and the IEA's warning that the world's greenhouse gas emissions are set to rise until 2040, even if governments meet their existing environmental targets. Fatih Birol, the IEA's executive director, warned that “the world urgently needs to put a laser-like focus on bringing down global emissions”.
Other analysts have delivered similar messages. Wood Mackenzie's Energy Transition Outlook in August warned that the world was on a path to about 3 °C of warming, rather than the “well below” 2 °C objective of the 2015 Paris climate agreement.
In some respects, however, WoodMac is rather more optimistic about the outlook. The IEA presents its projections as scenarios showing possible future states of the world rather than forecasts, and conditions those scenarios mostly on policy changes. Its three main projections are its Current Policies Scenario, which is essentially a” business as usual” case assuming existing frameworks remain in place, a Stated Policies Scenario, which incorporates announced policy intentions and targets, and a Sustainable Development Scenario, which would achieve the Paris climate goal as well as universal energy access and cleaner air.
Those three scenarios have radically different implications for total world energy demand, as this chart shows. In the Current Policies Scenario total world energy consumption by 2040 grows by 34% from its 2018 level, and in the Stated Policies Scenario it grows by 24%. Those numbers reflect the IEA's caution about the outlook for energy efficiency.
However, David Brown, WoodMac's head of markets and transitions for the Americas, argues that there is greater scope to bend the curve of energy demand than the IEA's scenarios suggest. Even in our base case forecast, which is the closest to the IEA's Stated Policies Scenario, we see more potential for improving the efficiency of energy use in industry, buildings and transport, meaning that by 2040 we see total world demand as rising by just 17%.
There are opportunities to go even further. WoodMac's energy transition team is working on two scenarios showing the scope for curbing greenhouse gas emissions, to be published over the next few weeks, and the potential for faster efficiency gains are a central part of that work.
In June the IEA launched a Global Commission for urgent action on energy efficiency, chaired by Leo Varadkar, prime minister of Ireland. Its aim is to find ways to make sure that potential for efficiency gains is realised. If the initiative is successful, it will push the world towards the energy efficiency path that WoodMac's researchers think is achievable.
How far can US LNG grow?
Another noteworthy point of difference between the IEA's analysis and WoodMac's comes in the projections for future US gas exports.
As this chart shows, the IEA's Stated Policies Scenario projects significant increases in gas exports from Russia, the Middle East and Africa, as well as from North America.
In this scenario, North America's net exports of gas rise steeply from 16 billion cubic metres last year to 150 bcm in 2030, but then remain roughly flat until the end of that decade. The IEA thinks US gas production is likely to grow rapidly until the mid-2020s and then level off, in tandem with a similar plateau in oil production.
WoodMac however, thinks that by 2040 North America's LNG exports could be 100 bcm a year higher than that, as gas production continues to rise.
In the IEA's view of the world, by 2040 Qatar will again be the world's largest LNG exporter, ahead of Australia and the US. WoodMac, by contrast, expects that after the US has overtaken Qatar in the mid-2020s to become the world's largest LNG exporter of LNG, its continued growth means it will retain that position through the 2030s and beyond.
Source: Wood Mackenzie