Sticky future for oil as IEA warns of 'boom and bust'

The Paris Agreement, ratified by the European Union on 5 October and effective 4 November, has targeted a limit on global warming to below two degrees as part of an ambitious move to tackle climate change.

In a review of the UK's energy policy, published on Wednesday, leading academics called for a clearer focus on energy in the government's forthcoming industrial strategy, as well as new strategies on heat and energy efficiency, progress on which has been stalled by the scrapping of the "green deal" on home improvements. The biggest victor worldwide in the group's projections is natural gas, and the biggest loser is coal.

Its future energy plans are based on the Energy White Paper prepared by the Abbott government, under the auspices of former energy minister Ian Macfarlane, who now heads the mining lobby in Queensland.

Without a pick-up in investment or a slow-down in demand, the stage is set for a new boom and bust cycle for oil, comments the IEA, noting that approvals of new conventional crude projects for 2015-2016 were at their lowest level since the 1950s.

The IEA also warned that risks to energy security would evolve, with falls in investment levels for oil and gas and an increasing role for variable renewables. Some 90 percent of electricity production would need to come from nuclear power plants or renewables such as wind and solar, while fossil fuel generation such as gas would need technology to capture and store emissions, the report said.

Longer term, demand for oil from the transport sector will be replaced in part by electricity thanks to a rise in demand for electric cars, the report noted, although the freight, aviation and petrochemicals sectors will all continue to rely on oil.

Globally, non-OPEC-member country output is expected to "go into retreat from the early 2020s" which could result in OPEC's share of global oil production rising towards 50 per cent by 2040, with a growing share dependent on both Iran and Iraq.

Globally, the coal market is restructuring with supply cuts in China and the United States coupled with expected declining demand in Europe and the USA but with India and south-east Asia to record rising coal use. The extensive buildout of new supply has weighed down prices for gas, making prices for export projects appear uneconomic and pushing the LNG market into oversupply.

"Our Outlook assumes a marked change from the previous system of strong, fixed-term relationships between suppliers and a defined group of customers, in favor of more competitive and flexible arrangements, including greater reliance on prices set by gas-togas competition".

The Paris Agreement, which entered into force on 4 November, is a major step forward in the fight against global warming.

Meeting the most ambitious temperature goal discussed at the conference would be next to impossible, the report stated: "The transformation required for a reasonable chance of remaining within the temperature goal of 1.5 degrees Celsius is stark". The path to 2°C is tough, but it can be achieved if policies to accelerate further low carbon technologies and energy efficiency are put in place across all sectors.

Policies to bring the world on to a 2C trajectory must be implemented as a matter of urgency if the Paris pledge is to be fulfilled, the IEA said, as emissions must peak in the next few years to avoid adding too much to the stock of carbon in the atmosphere.

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