The IEA’s annual outlook on investment, released today, shows annual investment in new fuel and electricity supply has more than doubled in real terms since 2000. Costs to the oil and gas industry also have doubled in that period and the IEA warns of “gradual depletion of the most accessible reserves.”
The IEA estimates $48 trillion US in investment will be needed by 2035 to meet world demand for energy, a 25 per cent increase per year from what is currently invested.
More than half that investment is needed just to keep the energy supply at current levels.
How the investment breaks down:- $8 trillion for energy efficiency.
- $23 trillion in fossil fuel extraction, transport and oil refining.
- $10 trillion is in power generation ($6 trillion in renewables, $1 trillion in nuclear).
- $7 trillion in transmission and distribution
And even more investment will be needed if the world wants to combat climate change, says Maria van der Hoeven, executive director of the IEA.
“Today’s policies and market signals are simply not strong enough to meet the world’s climate change target,” she said in unveiling the report in London today.
Combatting climate change
The IEA warns that $53 trillion in cumulative investment in energy supply and in energy efficiency is required by 2035 to reduce emissions to the point where the globe warms by just 2 C.
It’s going to take some careful planning by regulators and politicians to achieve energy security and meeting environmental goals will take even more effort, said IEA chief economist Fatih Birol.
“These goals won’t be achieved without mobilizing private investors and capital, but if governments change the rules of the game in unpredictable ways, it becomes very difficult for investors to play,” he said in a statement.
Canada is already seeing projects cancelled because of the high costs of developing the oilsands. And its contradictory stance on climate change with rules for the oil and gas industry repeatedly delayed may contribute to future uncertainty.
A large majority of today’s global investment spending is related to fossil fuels – about $1 trillion annually of the world’s estimated $1.6 trillion of investment in energy, with North America seeing one of the highest rates of investment because of expanding shale oil and gas.
But the IEA, an independent agency that attempts to ensure reliable, affordable and clean energy, is forecasting a decline in production at existing oil and gas fields.
By 2020, it estimates non-OPEC oil reserves will be diminishing and the world will again be dependent on the Middle East for continued use of oil, a risk unless investment in OPEC oil fields picks up to meet demand.
Looks at LNG
We’ll also be paying at least $15 more a barrel for most oil, the report estimates, and oil companies will have to amend their profit expectations because more of their capital will be required to extract fossil fuels.
The report puts a focus on liquefied natural gas (LNG), a form of energy British Columbia would like to develop.
The IEA sees LNG playing a vital role in meeting Asia’s energy demands, but van der Hoeven warns that it's a very expensive technology.
“It is worth remembering that moving gas over long distances is expensive – up to 10 times higher than moving an equivalent amount of coal or oil around the world,” she said in her remarks.
“Understanding the scale of this investment in new liquefaction facilities and LNG tankers, and what this means for the cost of delivering LNG, should help provide a realistic assessment of the price at which future LNG will be available,” she continued.