The International Energy Agency has given us a lot to think about recently. The IEA has produced one major report after the other – on renewables, gas, oil and climate change. How do these outlooks stack up and what do they impy for our energy future? Editor Karel Beckman provides a handy summary – so you won’t have to worry about this anymore over the summer. Or maybe you do…

Photo: Audi A3 Sportback g-tron

Let’s start with the “good news”. On 26 June, the IEA published an extremely upbeat report on the expected progress of renewable energy in the world. This second annual Medium-Term Renewable Energy Market Report (MTRMR) foresees that power generation from hydro, wind, solar and other renewable sources worldwide will exceed that from gas and be twice that from nuclear by 2018.

Renewable power production is expected to grow by 40% over the next five years, says the IEA. Renewables will make up “almost a quarter of the global power mix by 2018, up from an estimated 20% in 2011”. The share of non-hydro sources such as wind, solar, bioenergy and geothermal in total power generation will double, reaching 8% by 2018, up from 4% in 2011 and just 2% in 2006. (This still leaves three-quarters of power production to come from non-renewables of course in 2018 – just so you know.)

“As their costs continue to fall, renewable power sources are increasingly standing on their own merits versus new fossil-fuel generation,” said IEA Executive Director Maria van der Hoeven when she presented the report. “This is good news for an energy system that needs to become cleaner and more diversified, but it should not be an excuse for government complacency, especially among OECD countries”, she added.

2012 was a very good year for renewable power production, notes the IEA. “Global renewable generation rose by over 8% despite a challenging investment, policy and industry context in some areas. In absolute terms, global renewable generation in 2012 – at 4860 TWh – exceeded the total estimated electricity consumption of China.”

Interestingly, growth was especially strong in emerging economies. “Led by China, non-OECD countries are expected to account for two-thirds of the global increase in renewable power generation between now and 2018”, says the report.

The IEA also notes that “in addition to the well-established competitiveness of hydropower, geothermal and bioenergy, renewables are becoming cost-competitive in a wider set of circumstances. For example, wind competes well with new fossil-fuel power plants in several markets, including Brazil, Turkey and New Zealand. Solar is attractive in markets with high peak prices for electricity, for instance, those resulting from oil-fired generation. Decentralised solar photovoltaic generation costs can be lower than retail electricity prices in a number of countries.”

The report also sees gains for biofuels in transport and for renewable sources for heat, though at somewhat slower growth rates than renewable electricity:  “Biofuels output, adjusted for energy content, should account for nearly 4% of global oil demand for road transport in 2018, up from 3% in 2012. But advanced biofuels growth is proceeding only slowly. As a portion of final energy consumption for heat, renewable sources, excluding traditional biomass, should rise to almost 10% in 2018, from over 8% in 2011. But the potential of renewable heat remains largely unexploited.”

Golden age of gas?

So if renewable power production is taking off, does this mean natural gas is doomed? In its Medium-Term Gas Market Report, which came out on 20 June, a week before the renewables report, the IEA notes that indeed “the growth of natural gas in power generation is slowing over the next 5 years”.

However, it adds, that “the Golden Age of Gas” (a term coined by the IEA two years ago) is “still in full swing as gas emerges as a significant transportation fuel”.

This is of course a highly interesting question: will gas increasingly replace oil in transport – e.g. ships, trucks and passenger cars? Some analysts are very upbeat about this, especially now that in the US thanks to cheap shale gas there is strong investor interest in converting trucks and cars to use gas as fuel.

But there is still a long way to go. The IEA notes that in 2012 gas use in road transport represented 1.4% of global gas demand in 2012, but this should rise to 2.5% by 2018. In 2012 there were some 16.2 million natural gas vehicles (NGV’s) on the roads, compared to just 1.3 million in 2000. Still, the current number represents only 1.5% of the total number of vehicles.

The number of NGV’s is highest not in the OECD countries (with the exception of Italy), but, interestingly, in countries like Pakistan, Iran, Argentina and Brazil. India and China come next. The US has very few NGV’s at this moment.

NGV’s will face strong competition from clean diesel cars, biofuel cars and electric cars as they try to expand their market share, but, says the IEA, perhaps “this time may be right” – for a variety of reasons. China, for example, is massively converting trucks to be run on natural gas mainly to improve air quality. Russia is interested because it has a lot of gas. In Europe gas suppliers are trying to develop an alternative market for natural gas.

Nevertheless, the IEA notes there are still major hurdles to overcome: safety, availability of “gas stations” and also whether gas is seen as friend or foe in the fight against climate change. Another interesting question is whether the car industry can and will deliver. Currently, Audi seems to be ahead of the pack with its A3 Sportback G-tron!

As to the global gas market in general, the IEA notes that gas “had a mixed year” in 2012. Demand growth was 2.0%, lower than the average of the past decade (2.8%), but still relatively high considering the state of the world economy. The share of gas in the global energy mix also continued to grow, thanks mainly to China, which saw a 13% growth in gas consumption. Gas demand in Russia went down. OECD Europe saw a 1.6% decline after an 8.2% loss in 2011.

Looking forward, the IEA notes that “the outlook for natural gas among OECD regions is expected to vary dramatically, ranging from booming demand in OECD Americas particularly in the United States) to anaemic growth in OECD Europe, where consumption rises by a mere 12 bcm to reach 525 bcm by 2018.”

This seems a mixed bag, rather than a Golden Age of Gas. Especially when it comes to Europe. According to the IEA, “over the next two years, an unfavourable gas, coal and carbon price relationship will contribute to a further drop in European gas demand to 500 bcm in 2013 (from 513 bcm in 2012). Forward prices indicate a price relationship improving in favour of gas in the second half of the decade, which will lead to a recovery. Nevertheless, gas-fired power generation remains at around 100 terawatt hours below its peak of 2008.”

Our new oil future

If renewables have a sunny future and gas is awaiting a golden age, what will happen to oil? Well, of all the recent reports put out by the IEA, its Medium-Term Oil Market Report, published on 14 May 2013, was perhaps the most significant: it heralded a bright new future for oil – thanks to “the supply shock” created by “the surge in North American oil production”.

This supply shock, says the IEA, “will be as transformative to the market over the next as was the rise of Chinese demand over the last 15. The shift will not only cause oil companies to overhaul their global investment strategies, but also reshape the way oil is transported, stored and refined.”

The North American market was, as you no doubt know, transformed by increased supply from US light and tight oil (LTO) and Canadian oil sands. But what is significant about this development is not just the fact that North American oil production is up after many years of stagnation – it is, says the IEA, that “the technologies responsible for the boom will increase production from mature, conventional fields” all over the world. In other words, the rest of the world will follow suit: “unconventional” oil production will take off globally.

What makes this new oil boom “transformative”, says the IEA, “is not just the sheer production volumes unlocked but the combination of volumetric production growth with other factors: the crude’s distinctively light quality, the unconventional nature of both the plays from which it is extracted and the technologies which have unlocked it, the economic and market impact of the new production, and the chain reaction it is creating in the global transportation, storage and refining infrastructure.”

As to effects on the downstream part of the industry, the IEA notes that “massive refinery capacity increases in non-OECD economies are accelerating a broad restructuring of the global refining industry and oil trading patterns. European refiners will see no let-up from the squeeze caused by increasing US product exports and the new Asian and Middle Eastern refining titans.”

In short, US shale gas revolution move over – we now have the US LTO revolution on our hands (with LTO standing for “light, tight oil”). Expect many presentations in conferences over the next two years about the “light tight oil revolution”.

The climate map

With so many winners, there has got to be losers as well. How about coal? In yet another major report, Redrawing the Energy-Climate Map, published on 10 June, the IEA notes that the world is still on a path towards disastrous global warming, but it also identifies four major policies that could be launched to prevent this disaster from happening. One of them is indeed to “limit the construction and use of the least-efficient coal-fired power plants”. Clearly, something will have to give – and that something will have to be coal – as US President Obama has also apparently concluded.

The other three policies, by the way are: “targeted energy efficiency measures, buildings, industry and transport”, “actions to halve expected methane releases into the atmosphere from the upstream oil and gas industry”, and ‘a partial phase-out of fossil fuel consumption subsidies accounts”.

Where does all this leave us? I guess still in a fossil-fuel world, where coal is receding somewhat, renewable energy is expanding its presence, and the “energy transition” will not quite mean the transition to “sustainable energy” that many people have in mind. Unless of course they take action to ensure a different outcome.