World Energy Outlook 2017: Global energy system being reshaped by four major forces

The resurgence in oil and gas production from the United States, deep declines in the cost of renewables and growing electrification are changing the face of the global energy system and upending traditional ways of meeting energy demand, according to the just released World Energy Outlook 2017. A cleaner and more diversified energy mix in China is another major driver of this transformation, according to the International Energy Agency’s (IEA) flagship publication.

Over the next 25 years, the world’s growing energy needs will be met first by renewables and natural gas, as fast-declining costs turn solar power into the cheapest source of new electricity generation. Global energy demand will be 30% higher by 2040 – but still half as much as it would have been without efficiency improvements. The boom years for coal will be over in the absence of large-scale carbon capture, utilization and storage (CCUS) and rising oil demand will slow down but will not be reversed before 2040, even as electric-car sales rise steeply, the IEA predicts.

Over the next two decades the global energy system is being reshaped by four major forces: the United States is set to become the undisputed global oil and gas leader; renewables are being deployed rapidly due to falling costs; the share of electricity in the energy mix is growing; and China’s new economic strategy takes it on a cleaner growth mode, with implications for global energy markets.

Solar PV is set to lead capacity additions, pushed by deployment in China and India; meanwhile, in the European Union, wind becomes the leading source of electricity soon after 2030.

“Solar is forging ahead in global power markets as it becomes the cheapest source of electricity generation in many places, including China and India,” said Fatih Birol, the IEA’s executive director. “Electric vehicles (EVs) are in the fast lane as a result of government support and declining battery costs but it is far too early to write the obituary of oil, as growth for trucks, aviation, petrochemicals, shipping and aviation keep pushing demand higher.”

These themes – as well as the future role of oil and gas in the energy mix, how clean-energy technologies are deploying, and the need for more investment in CCUS – were among the key topics discussed by the world’s energy leaders at the IEA’s 2017 Ministerial Meeting in Paris last week.

This year, WEO-2017 includes a special focus on China, where economic and energy policy changes underway will have a profound impact on the country’s energy mix, and continue to shape global trends. A new phase in the country’s development will result in an economy that is less reliant on heavy industry and coal.

At the same time, a strong emphasis on cleaner energy technologies, in large part to address poor air quality, is catapulting China to a position as a world leader in wind, solar, nuclear and electric vehicles and the source of more than a quarter of projected growth in natural gas consumption. As demand growth in China slows, other countries continue to push overall global demand higher, with India accounting for almost one-third of global growth to 2040.

The shale oil and gas revolution in the United States will continue because of the remarkable ability of producers to unlock new resources in a cost-effective way, the IEA says. By the mid-2020s, the United States is projected to become the world’s largest LNG exporter and a net oil exporter by the end of that decade.

This is having a major impact on oil and gas markets, challenging incumbent suppliers and provoking a major reorientation of global trade flows, with consumers in Asia accounting for more than 70% of global oil and gas imports by 2040. LNG from the United States is also accelerating a major structural shift towards a more flexible and globalized gas market.

The IEA says it is too early to write off oil as it predicts that global oil demand will continue to grow to 2040, although at a steadily decreasing pace. While fuel efficiency and rising electrification will bring about peak oil used for passenger vehicles, even with a doubling of the car fleet to two billion vehicles, other sectors such as petrochemicals, trucks, aviation and shipping will drive up oil demand to 105 million barrels a day by 2040.

While carbon emissions have flattened in recent years, the report finds that global energy-related CO2 emissions will
increase slightly by 2040, but at a slower pace than in last year’s projections. Still, this is far from enough to avoid the severe impacts of climate change, according to the IEA.

The World Energy Outlook 2017 does not offer a forecast of what the energy system will look like in the future but instead presents various projections to 2040 based on different policy assumptions, in order to give policymakers the tools to decide what path to follow.