Energy turmoil to change map of global market

A vast upheaval in energy markets with the rise of shale oil and of demand in emerging economies is changing the fuel map of the globe, the IEA said on Tuesday.

These huge changes, including the growth of renewable energies, will widen differences in energy costs between regions and could hit the competitive positions of industries in Europe and Japan.

Their shares of global exports of goods made with heavy consumption of energy could fall by a third, the International Energy Agency said.

The agency also argued for fuel subsidies to be phased out, and warned that carbon emissions would go on rising, pushing up temperatures around the world.

But new reserves of fossil fuels, notably resources of shale in the United States and Canada, will compensate for the decline of existing oil and gas fields, raising the competitive position of countries which exploit them, the agency said.

It estimated that the average price of oil in 2035 would be $128 per barrel compared with its estimate last year of $125, and excluding the effect of inflation. The price this year would average about $100.

Developing countries are set to become the drivers of energy demand in the next three decades, the IEA said in its annual look at long-term trends.

The shale gas and oil boom in the United States has already shaken up energy markets, and along with increased demand in China, India and the Middle East, is likely to reshape them in the coming years, the Paris-based IEA said.

One of the effects of the shale gas boom has been a drop in energy costs for US companies, raising concerns elsewhere that they are gaining a competitive advantage.

Brazil meanwhile is set to become increasingly significant as a producer of conventional hydrocarbon energy, and of renewable energies, which will account for “nearly half of the increase in global power generation to 2025,” it said.

“Many of the long-held tenets of the energy sector are being rewritten,” the IEA said.

It noted that US natural gas prices were one-third of EU import prices and a fifth of those in Japan.

While the IEA expects gas prices to converge as markets become interlinked with the expansion of trade in liquefied natural gas (LNG), it expects differences in electricity costs to persist.

Demand for energy-intensive goods in Asia is likely to drive increases in their production there.

The relative cost of energy could be critical for the production of chemicals, aluminum, cement, iron and steel, paper, glass and refined oil products.

“The United States sees a slight increase in its share of global exports of energy-intensive goods, providing the clearest indication of the link between relatively low energy prices and the industrial outlook,” the IEA forecast.

“By contrast, the European Union and Japan both see a strong decline in their export shares — a combined loss of around one-third of their current share,” it added.

Countries could reduce unfavorable energy cost factors by promoting efficiency throughout their economies, and the expansion of trade in LNG would help break a link between gas export prices and oil prices.

‘Centre of gravity’ switching to emerging economies

The agency, which provides data and advice to 34 advanced democracies, said that two-thirds of potential gains from increased energy efficiency were still untapped.

Investment in energy efficiency would be aided by the phasing out of fossil-fuel subsidies, which the IEA estimated rose to $544 billion (407 billion euros) worldwide last year.

While the energy supply map is changing with the shale boom helping the United States reach energy self-sufficiency over then next three decades, so too is the demand side.

“The center of gravity of energy demand is switching decisively to the emerging economies, particularly China, India and the Middle East, which drive global energy use one-third higher,” said the report.

China is set to soon replace the United States as the top oil importer, while India is set to take over as top coal importer from China in the 2020s, the IEA said.

“Together, these changes represent a re-orientation of energy trade from the Atlantic basis to the Asia-Pacific region,” it said.

The IEA said that the energy sector, as the source of two-thirds of global greenhouse emissions, would be pivotal in determining whether climate change goals are met.

It sees energy-related CO2 emissions still rising by 20 percent by 2035 despite efforts to reduce emissions, with the world heading for a long-term average increase in temperature of 3.6 degrees Celsius, far above the target of limiting the increase to 2.0 degrees Celsius.