An Uncertain Outlook

The International Energy Agency's 2008 World Energy Outlook (read the executive summary here) has mapped out the course of the world’s energy supply and demand until the year 2030. In his appearance at CSIS today, Dr. Fatih Birol, the IEA’s chief economist, outlined some of the key points of the report. Among his comments:

• The global energy situation is unsustainable. Supply is decreasing as production sites age, and any new development will be in difficult areas with shorter production life spans and higher costs (e.g. offshore). Although OECD demand is decreasing, economies such as China and India will grow so quickly that global demand will overtake supply. As Dr. Birol cautioned, “We need to find six Saudi Arabias.”

• International oil companies have a limited share of world reserves. Increasingly, new finds are in national hands, which react to different price signals and invest differently. The market for oil will not behave in tight accordance with price levels in the future because of this and also because oftentimes oil is subsidized by developing governments so that consumers do not feel the price changes.

• Energy security policy and climate change are inextricably linked. All countries have a role to play as well. If all the OECD countries’ economies crashed tomorrow (which Dr. Birol quipped could actually happen), and released no CO2 emissions, the world still would not be at the 450 ppm emissions level needed to halt temperature increases at 2 degrees Celsius.

When asked if he was an optimist or pessimist about governments reacting to the WEO’s startling findings, Dr. Birol said that although he started his job five years ago as an optimist, he is far more pessimistic now. But, he commented that there is still room for optimism. Governments just need to understand the last sentence of the WEO executive summary: “Time is running out and the time to act is now.”