You asked for a summary of the International Energy Agency's (IEA) 2008 projections regarding global energy demand and supply, particularly with regard to oil. Most of the information in this report is taken from IEA's website, www. worldenergyoutlook. org/. The report's key graphs are at www. worldenergyoutlook. org/key_graphs_08/WEO_2008_Key_Graphs. pdf.

SUMMARY

IEA's 2008 World Energy Outlook projects that global demand for primary fuels such as oil, natural gas, and coal will expand by 45% between 2006 and 2030, an average rate of growth of 1. 6% per year. The vast majority of this growth will occur in developing countries, notably China. It projects that global demand for oil will rise an average of 1% per year from 85 million barrels per day (mb/d) in 2007 to 106 mb/d in 2030. About 75% of the projected increase in oil demand comes from the transportation sector, which the report notes is the sector least responsive in the short term to price changes.

In IEA's projections, world oil production is projected to rise from 82 mb/d in 2007 to 104 mb/d in 2030 in the reference scenario, which assumes that there are no major changes in energy policy. Although IEA believes that global oil production will not peak before 2030, it projects that production of conventional crude oil will level off towards the end of the projection period. Conventional crude oil production will increase by only 5 mb/d from 2007-2030 as almost all the additional capacity from

new oilfields is offset by declines in output at existing fields. The bulk of the increase in total oil production comes from natural gas liquids and from non-conventional resources and technologies, notably Canadian oil sands.

According to the report, due to the depletion of older fields most of the incremental oil and gas production will come from national companies in developing countries. This will result in major structural changes in the energy industry and increased imports in the U. S. and other developed countries.

Among the report's key findings regarding the policy implications of these projections are (1) current energy trends are patently unsustainable; (2) the era of cheap oil is over, although price volatility will remain; and (3) to avoid "abrupt and irreversible" climate change the world needs to substantially reduce its use of carbon-based fuels in its energy system.

INTERNATIONAL ENERGY AGENCY PROJECTIONS

Introduction

IEA is an intergovernmental organization that advises the United States and 27 other developed countries on their efforts to ensure reliable, affordable, and clean energy for their citizens. It was founded during the 1973-74 oil crisis, with a mandate to coordinate measures in times of oil supply emergencies. Currently, IEA conducts a broad program of energy research, data compilation, publications, and public dissemination of the latest energy policy analysis and recommendations on good practices.

Every year, IEA staff produces the World Energy Outlook. In even-numbered years the report projects the possible evolution of energy markets under various scenarios. In odd-numbered years it analyses a specific topic confronting the energy sector. The 2008 report provides energy projections to 2030, incorporating the latest data and using improved modeling techniques.

The report has extended discussions of oil and gas supply prospects and the role of energy in climate policy. Among the questions it addresses are (1) how will the financial crisis and economic slowdown affect energy demand and investment and (2) whether advanced economies are setting themselves up for a supply crunch once the economy recovers. It addresses three scenarios, one of which (the reference scenario) assumes no energy policy changes while the other two project the changes that would need to occur to cap atmospheric concentrations of carbon dioxide (CO₂) at two levels. In one scenario, greenhouse gas concentration in the atmosphere would be stabilized at 550 parts per million (ppm) of CO₂-equivalent, which would limit the global temperature increase to about 3°C (6°F). In the second scenario, the concentration of these gases would be stabilized at 450 ppm, limiting the temperature increase to 2°C (4°F).

Energy Demand

In the report's reference scenario, world demand for primary energy expands by 45% between 2006 and 2030, an average rate of growth of 1. 6% per year. This is slower than projected in 2007, mainly due to the impact of the economic slowdown, prospects for higher energy prices, and some new policy initiatives.

The report projects that fossil fuels will account for 80% of the world's primary energy mix in 2030, down only slightly from today. Oil remains the dominant fuel, though demand for coal rises more than any other fuel. The share of natural gas in total energy demand rises slightly. Renewable technologies grow rapidly, overtaking gas soon after 2010 to become the second-largest source of electricity behind coal.

These projections take account of current policies to reduce subsidies on energy consumption, particularly in oil-producing countries. Nonetheless, the growth in energy demand is dominated by developing countries. In particular, the increase in China's energy demand to 2030, resulting from its market size and projected economic growth, dwarfs that of all other countries. All of the growth in global oil demand comes from developing countries, with China contributing 43%, the Middle East 20%, and other emerging Asian economies most of the rest.

About 75% of the projected increase in oil demand comes from the transportation sector, which the report notes is the sector least responsive in the short term to price changes. The report estimates that the number of vehicles in the world will grow from an estimated 650 million in 2005 to about 1. 4 billion by 2030.

To meet the projected demand would require a cumulative investment in energy supply infrastructure of $ 26. 3 trillion. The report notes that the current credit squeeze could delay spending, especially in the electric power sector, which accounts for more than half the investment needs of the entire energy sector. This could create a supply crunch once the current economic slowdown ends.

Energy Supply

The report has an extensive discussion of oil and natural gas resources and production prospects and analyzes 800 separate oil fields. It estimates the amount of conventional oil available in proven reserves and the resources that will ultimately become recoverable. It discusses technologies that produce oil from unconventional resources, including oil sands and shales, and how injecting carbon dioxide into existing fields can enhance recovery of their remaining oil. Using these data the report projects future oil and natural gas supply by region, and or supply oil country.

In the reference scenario, the report projects that oil production will rises to 104 mb/d in 2030. It anticipates that almost all of the increase in energy production to 2030 will occur in developing countries. The Middle East OPEC countries will account for a substantial majority of oil market growth, with their collective share of the market rising from 44% in 2007 to 51% in 2030. The report anticipates that Saudi Arabia will remain the world's largest producer throughout the projection period, with output climbing from 10. 2 mb/d in 2007 to 15. 6 mb/d in 2030.

In contrast, the report finds that conventional oil production from non-OPEC countries has already plateaued. It projects that non-OPEC production will start to decline in the middle of the next decade and that the decline will accelerate as new discoveries dwindle and the size of new fields falls, driving up marginal development costs. These trends will lead to a substantial increase in reliance on imported oil and gas by the main consuming regions, including the developed countries and the major Asian economies.

The report estimates that close to 80% of the projected increase in output of both oil and gas will come from governments, rather than energy companies. The report notes that international oil companies are facing dwindling opportunities to increase their reserves and production. Many of these companies have their resources in the North Sea and the Gulf of Mexico, which are mature fields where production is declining significantly.

While the report projects the world's oil resources are sufficient to support the projected rise in output, rising oilfield decline rates will push up investment needs. It estimates that decline rates (the rate at which production from individual oilfields decline annually) are likely to

accelerate in the long term in each major world region. The average observed decline rate worldwide is currently 6. 7% for fields that have passed their production peak. The report estimates that this rate will rise to 8. 6% in 2030.

Policy Implications

The report finds that global consumption of primary fuels in the reference scenario is socially, environmentally, and economically unsustainable. It projects that rising global consumption of fossil fuels in this scenario will drive up greenhouse gas emissions and global temperatures, resulting in potentially catastrophic and irreversible climate change. It states that the projected increase in emissions in this scenario would double the concentration of greenhouse gases in the atmosphere to around 1,000 ppm of CO₂-equivalent by the end of this century. This would lead to an eventual global temperature increase of up to 6°C (10. 8°F). On the other hand, achieving the 550 ppm scenario would require investments that would account for 0. 25% of global gross domestic product per year ($ 4. 1 trillion) beyond the $ 26. 3 trillion required in the reference scenario. The cost of the scenario to achieve 450 ppm would be more than twice as costly.

Even if oil demand was to remain flat to 2030, 45 mb/d of capacity would need to be built worldwide by 2030 just to offset the effect of oilfield decline. This is roughly four times the current capacity of Saudi Arabia, the world's largest oil producer. Massive investment will be needed to achieve this. Although the amount of investment needed annually over the projection period is lower than actual spending at present, much more capital needs to go to the resource-rich regions, notably the Middle East, where unit costs (e. g. , the cost to produce a barrel of oil) are lowest.

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