World Energy Outlook report examines global energy market projections

26-11-2018

The main points from the WEO 2018 summarised for you.

The World Energy outlook (WEO) was written by the International Energy Agency (IEA) and presented in London on 13 November 2018. It paints a picture of energy on a global scale.

The WEO report is considered to be the most reliable source for worldwide energy projections and analysis. The report gives an insight into medium- to long-term energy market forecasts, extensive statistics, analysis and recommendations, not only for the energy sector but also for governments. We have set out below for you the main points from the WEO 2018.

Locked into the energy infrastructure

Government decisions will define the future of the energy supply. There are mixed signals on the pace and direction of change:

  • The oil market is anticipating a period of renewed uncertainty and volatility, including a possible supply gap in the early 2020s.
  • The demand for natural gas is increasing, partly due to the emergence of China as a major consumer.
  • Solar PV continues to evolve but other renewable technologies require more support.
  • In total, the energy demand will grow by more than 25% up to 2040. This means that 2 trillion dollars must be invested every year in the energy supply.
  • For the first time, the number of people without access to electricity has fallen below 1 billion.

The IEA also noted that many CO2 emissions are essentially locked into the energy infrastructure. Coal-fired power plants represent more than a third of cumulative locked-in emissions up to 2040. This is because there are many relatively new coal-fired plants in Asia that will continue to operate for decades. The proportion of fossil energy in the world has remained stable at 81% for the last 30 years but the absolute energy demand has risen considerably. What is clear is that we are moving in a different direction to that predicted by the targets and the substantial increase in solar and wind energy is not enough to compensate for the emissions from the remaining energy sources.

China is switching from coal to gas

As far as the gas market is concerned, this is mainly determined by developments in China. The sharp increase in demand in China ensured that an excess supply on the global gas market never happened. The Chinese five-year plan agreed last year showed a commitment to gas, to the 'blue skies policy' among other things, entailing a switch from coal to gas. The IEA sees the gas market being affected in the same way as the oil market was 10 years ago. LNG will become the primary form of trading; LNG accounts for 80% of the growth in the gas trade. Previously, it was assumed that gas was used predominantly for generating electricity; it now has a much greater part to play in industry.

The IEA anticipates that in the EU the share of gas in the energy mix will rise slightly to around 20%. The greatest share, of around 30%, will be made up by wind in 2040 and it is here that Europe, and the Netherlands in particular, can become frontrunners. That is not been achieved with solar PV, for 6 out of 10 panels are Chinese.

Focus on electricity

This year, the WEO has focused specifically on electricity. The demand for electricity is increasing twice as quickly as the demand for energy as a whole, however that will not cause oil demand to fall excessively. Furthermore, electrification of the energy demand will not lead to a drop in emissions; this can only be achieved when combined with decarbonisation of the electricity supply. The supply will also lead to integration challenges and flexibility will become more important. The IEA has developed a scale for this, according to which an increase in renewables will ultimately lead to a requirement for all technologies for the transition to be successful. Hydrogen is also mentioned as an option and next year Japan will put this on the agenda when it hosts the G20.

Despite an increase in electric cars, the demand for oil is rising, for such sectors as shipping and aviation, but at the same time current oil production is declining and there is not much interest in investment. That leads to scarcity and it is also an example of perception and reality appearing to diverge with consequences for the future market.

Share of nuclear energy is falling

There is also a shift in nuclear energy. The United States is the country with the most nuclear power plants, but since virtually no new plants are being built in the US or Europe, their lifespans are not being prolonged and they are being closed early, the share of nuclear energy is falling in the western world. The net effect on emissions is neutral because renewable energy is making up for the decline in nuclear energy. Many nuclear power plants are currently being built in China, which will make this country the biggest nuclear energy producer within the next 10 years.

The total investment in energy that is required during the outlook period (from now until 2040) is 42.3 trillion dollars. Of these necessary investments, 30% would be purely private, market-driven and 70% would come from the government or ‘state-directed entities’. The latter category includes network operators, subsidies for renewable energy and changes prompted by policy. The 'fate' of the planet and of the economy will be determined therefore by government action, according to the IEA

What can we conclude from this for the Netherlands?

The Netherlands has ambitious targets for dealing with climate change. The Dutch government wants greenhouse gas emissions to be 49% lower in 2030 than they were in 1990; a reduction this great will require tough measures. The government is therefore involved in defining a policy setting out how we can complete that process. We are waiting for the final version of the Climate Agreement, which contains agreements with the electricity sector, industry, the built environment, the transport sector and agriculture.