9.
The future of hydrocarbons
9.1.1 The global outlook
for oil and gas
For all the talk about the imminent end of the
petroleum age, oil and gas will continue to play the
leading role in meeting the world’s growing hunger for
energy for at least the next quarter of a century, and
probably well beyond. If governments maintain current
policies (the underlying premise of the World energy
outlook’s reference scenario: IEA, 2005), the world’s
energy needs would be more than 50% higher in 2030
than today, amounting to an average annual growth
rate of 1.6%. Oil and gas are expected to account for
more than 60% of that increase. In the medium term,
uncertainty regarding the prospects for hydrocarbons
concern the rate of investment in new capacity more
than the adequacy of reserves.
Methodology and key assumptions
of the World energy outlook
The IEA’s (International Energy Agency) World
energy outlook adopts a scenario approach to
analyse the possible evolution of energy markets to
2030. The central projections derive from a
reference scenario and are based on a set of
assumptions concerning government policies,
macroeconomic conditions, population growth,
energy prices and technology. The reference
scenario takes into account only those government
polices and measures that have already been
enacted, though not necessarily implemented.
These projections should not be interpreted as a
forecast of how energy markets are likely to
develop, but rather as a baseline vision of how the
global energy system will evolve if governments
take no further action to affect its evolution.
Other key assumptions in the reference scenario
include:
VOLUME IV / HYDROCARBONS: ECONOMICS, POLICIES AND LEGISLATION
• Global GDP (Gross Domestic Product – the
primary driver of energy demand) growth is
assumed to average 3.2% per year over the
period 2003-2030, slightly less than in the
previous three decades. The rate will drop
from 3.8% in 2003-2010 to 2.7% in the last
decade of the projection period, as economies
mature and population growth slows in
developing countries. The economies of
China, India and other developing Asian
countries are expected to continue to grow
most rapidly.
• The world’s population is assumed to expand
from 6.2 billion in 2002 to over 8 billion in
2030 (an increase of 1% per year on
average). Population growth will slow
progressively over the projection period,
mainly due to falling fertility rates in
developing countries. Nonetheless, the share
of the world population living in developing
regions will increase from 76% today to 80%
in 2030.
• In the reference scenario, the average price for IEA
crude oil imports is assumed to fall back from
recent highs of over $60 a barrel to around $35 in
2010 (in year-2004 dollars), and then climb to $39
in 2030 ($65 in nominal terms). Gas and coal
prices are assumed to move broadly in line with oil
prices.
An alternative policy scenario takes into account a
range of new policies to address environmental
problems and enhance energy security that are
currently under consideration by countries around the
world. The 2005 edition of the World energy outlook
also presents a deferred investment scenario, which
analyses the impact of significantly lower upstream oil
investment in the Middle East and North Africa on
global energy markets.
447
FUTURE SCENARIOS
9.1.2 Demand
By 2030, the world will be consuming 16.3 billion toe,
up from 10.7 billion toe today. More than two-thirds of
the growth in world energy use will come from the
developing countries, where economic and population
growth is highest. Fossil fuels continue to dominate
energy supplies, meeting more than 80% of the
projected increase in primary energy demand in this
scenario.
Oil remains the single largest fuel (Fig. 1), with
two-thirds of the increase in oil use coming from
the transport sector. Demand will reach 92 Mbbl/d
(million barrels per day) in 2010 and 115 Mbbl/d
in 2030. Natural gas demand grows faster, driven
mainly by power generation. It will overtake coal
as the world’s second-largest primary energy
source before 2015. The share of coal in world
primary demand will fall slightly, with demand
growth concentrated in China and India. Nuclear
power’s market share will decline marginally, while
that of hydropower will remain largely constant.
The share of biomass will decline slightly, as it is
replaced with modern commercial fuels. The share
of other renewables, including geothermal, solar,
wind, tidal and wave energy, will grow more than
that of any other energy source, but still reach only
2% in 2030.
Oil will remain the single largest fuel in the global
primary energy mix in the reference scenario. Its share
will nonetheless fall marginally, from 35% in 2003 to
34% in 2030. Oil demand is projected to grow by
1.4% per year, from 81 Mbbl/d in 2003 to 92 Mbbl/d
in 2010, and to 115 Mbbl/d in 2030. Two-thirds of the
total increase in oil use will come from the transport
sector, where oil will remain the main fuel. Oil will
6,000
5,000
4,000
Mtoe
3,000
2,000
1,000
0 the World energy outlook period. In the five years to
1970 1980 1990 2000 2010 2020
oil other renewables
coal nuclear
gas hydro
Fig. 1. World primary energy
demand by fuel (IEA, 2005).
448
remain a marginal fuel in power generation, with its
share declining in every region.
Industrial, commercial and residential demand for
oil is projected to increase moderately, with all of the
growth coming from non-OECD (Organization for
Economic Cooperation and Development) countries.
Oil products will remain the main source of modern
commercial energy for cooking and heating in
developing countries, especially in rural areas. The use
of oil in non-transport sectors in OECD countries will
decline markedly.
After registering a strong growth of 2% in 2003,
world oil consumption in 2004 increased even more
quickly, by 3.6%. This marks the fastest rate of growth
since 1978 (Table 1). China, which saw a jump of 16%
or nearly 0.9 Mbbl/d in its oil use in 2004, accounted
for 30% of the global demand increase.
This surge came despite record oil prices. The
average IEA crude oil import price averaged over $36
a barrel in 2004, a jump of almost 30% from 2003.
The price of first-month WTI (West Texas
Intermediate) averaged $41.49 and that of Dated Brent
$38.27 in 2004. In 2005, prices continued to rise,
reaching over $70 for WTI in late summer (a record in
nominal terms). Adjusted for inflation, prices are still
below the levels of the 1970s. The surge in prices has
so far not cooled demand much, though there are signs
that high oil prices are starting to dampen economic
growth and energy demand, especially in Asia.
Assuming that prices fall back in the next few years,
oil demand is projected to continue to grow steadily
over the projection period, with developing countries
(particularly China and Africa as a whole) registering
the fastest rates of growth.
Some 95% of the increase in demand over the
projection period will be for middle distillates and
light fuels. The slight increase in heavy fuel demand in
developing countries, mainly in industry and for
bunkers, will be almost entirely offset by a fall in
demand for these fuels in OECD countries. Global
demand for middle distillates (diesel for road transport
and jet kerosene for aviation) will reach almost
49 Mbbl/d, an increase over 2003 of 18 Mbbl/d. The
increase in demand for light and middle distillates will
be about ten times greater than the increase in heavy
fuels in developing countries. Transport fuels will
account for the bulk of the increase in oil demand over
2030
2004, the entire increase in oil demand in the OECD
came from the transport sector.
Primary demand for natural gas will grow by 2.1%,
meaning that gas will overtake coal by around 2020 as
the world’s second-largest primary energy source. Gas
consumption will increase by three-quarters between
2003 and 2030, reaching 4,789 billion cubic metres
ENCYCLOPAEDIA OF HYDROCARBONS
 THE FUTURE OF HYDROCARBONS

Table 1. World oil demand, Mbbl/d (IEA, 2005)

2003 2004 2010 2020 2030 2004-2030*

OECD 47.0 47.6 50.5 53.2 55.1 0.6%

OECD North America 24.1 24.9 26.9 291.0 30.6 0.8%
OECD Europe 14.5 14.5 15.0 15.4 15.7 0.3%
OECD Pacific 8.4 8.3 8.6 8.7 8.8 0.3%

Transition economies 4.2 4.4 4.9 5.6 6.2 1.3%

Russia 2.5 2.6 2.9 3.3 3.5 1.2%
Developing countries 25.0 27.0 33.9 42.9 50.9 2.5%
China 5.4 6.2 8.7 11.2 13.1 2.9%
India 2.5 2.6 3.3 4.3 5.2 2.8%
Other Asia 5.1 5.4 6.6 8.3 9.9 2.3%
Latin America 4.5 4.7 5.4 6.5 7.5 1.9%
Africa 2.6 2.6 3.3 4.5 5.7 3.0%
Middle East 5.1 5.4 6.5 8.1 9.4 2.2%
Miscellaneous** 3.0 3.0 3.1 3.2 3.3 0.3%
World 79.2 82.1 92.5 104.9 115.4 1.3%

* Average annual growth rate.

** Includes bunkers and stock changes.

(Table 2). The share of gas in world energy demand
will rise from 21% in 2003 to 24% in 2030. Power
generation will account for most of the increase in gas
demand over the projection period because, in many
parts of the world, gas will be the preferred fuel in new
power stations for economic and environmental
reasons. A small but increasing share of gas demand
will come from gas-to-liquid plants, which convert
natural gas into distillate and other oil products, and
from hydrogen plants to supply fuel cells.
9.1.3 Production and trade
The world’s economically exploitable energy resources
are adequate to meet the projected growth in energy
demand in the reference scenario. Proven global oil
reserves today exceed the cumulative projected
production between 2003 and 2030. However,
additional reserves will need to be moved from the
possible and probable categories into the proven
category in order to avoid a peak in production before

Table 2. World natural gas demand by region, Gm3 (IEA, 2005)

2003 2010 2020 2030 2003-2030*

OECD 1,436 1,617 1,872 2,061 1.3%

OECD North America 775 848 964 1,039 1.1%
OECD Pacific 141 176 217 244 2.1%
OECD Europe 520 593 691 778 1.5%

Transition economies 637 705 815 925 1.4%

Russia 417 460 525 591 1.3%

Developing countries 636 893 1,374 1,803 3.9%

China 39 60 106 152 5.1%
India 28 42 71 98 4.7%
Other Asia 162 215 305 387 3.3%
Latin America 107 145 220 318 4.1%
Africa 74 107 165 232 4.3%
Middle East 226 324 507 615 3.8%

World 2,709 3,215 4,061 4,789 2.1%

* Average annual growth rate.

VOLUME IV / HYDROCARBONS: ECONOMICS, POLICIES AND LEGISLATION 449

FUTURE SCENARIOS

the end of the projection period. Exploration will
undoubtedly be stepped up to ensure that this happens.
Global natural gas reserves are even larger relative to
projected rates of production. Nonetheless, there will
be a pronounced shift in the geographical breakdown
of sources of oil and gas production over the
projection period, in response to a combination of cost,
geopolitical and technical factors. Almost all the net
increase in production will occur in non-OECD
countries, mainly in the developing world.
World oil supply in the reference scenario is
projected to grow from 82.1 Mbbl/d in 2004 to 115.4
Mbbl/d in 2030 (Table 3). Non-OPEC countries
contribute most of the increase in global production
throughout the rest of the current decade. In recent
years, high oil prices have started to stimulate an
increased development of reserves in those countries.
Production is expected to continue to grow quite
strongly in transition economies, West Africa and
Latin America. The output of the transition economies,
which has soared in recent years thanks to rapid
growth in Russia, will continue to rise with a greater
contribution from Caspian countries. It will reach 14.5
Mbbl/d in 2010, compared to 11.4 Mbbl/d in 2004.
In the longer term, oil production in OPEC
countries, especially in the Middle East, is expected to
increase more rapidly than in other regions
(particularly in the second half of the projection
period) because their resources are much larger and
their production costs are generally lower. In the near
term, the OPEC cartel’s share, which currently stands
at 36%, will remain roughly stable due to rapid
production increases in several non-OPEC regions,
notably Russia and other transition economies. As
prices return to a level closer to the average of the last
two decades, incentives to raise output in non-OPEC
regions will diminish, increasing the call on oil from
OPEC producers. The second and third decades of the
projection period will see a more rapid growth in
OPEC’s market share. OPEC’s market share is
projected to reach 50% in 2030, slightly above its
historical peak in 1973. Global oil production is not
expected to peak before 2030, although output in most
regions will already be in decline by then. OPEC’s
market share would be lower if the effect of its
members’ policies limit production and increase
prices, thereby stimulating non-OPEC production of
conventional and non-conventional oil, and
encouraging alternative energy technologies.
Natural gas resources can easily meet the projected
increase in global demand through the projection
period, as proven reserves are now equal to about 67

Table 3. World oil production, Mbbl/d (IEA, 2005)

2004 2010 2020 2030 2004-2030*

Non-OPEC crude and NGLs 46.7 51.4 49.4 46.1 0.0

OECD total 20.2 19.2 16.1 13.5 – 1.5
North America 13.6 14.4 12.6 10.8 ⫺0.9
Europe 6.0 4.4 3.1 2.3 ⫺3.7
Pacific 0.6 0.5 0.4 0.4 ⫺1.4

Transition economies 11.4 14.5 15.6 16.4 1.4

Russia 9.2 10.7 10.9 11.1 0.7

Developing countries 15.2 17.7 17.6 16.3 0.3

China 3.5 3.5 3.0 2.4 ⫺1.5
India 0.8 0.9 0.8 0.6 ⫺1.2
Other Asia 1.9 2.1 1.7 1.3 ⫺1.7
Latin America 3.8 4.7 5.5 6.1 1.8
Non-OPEC Africa 3.3 4.9 5.2 4.7 1.4
Non-OPEC Middle East 1.9 1.7 1.5 1.4 ⫺1.3

OPEC crude and NGLs 32.3 36.9 47.4 57.2 2.2

OPEC Middle East 22.8 26.6 35.3 44.0 2.6
Other OPEC 9.6 10.3 12.1 13.2 1.3

Non-conventional oil 2.2 3.1 6.5 10.2 6.1

Miscellaneous 0.9 1.1 1.6 1.9 2.9

World 82.1 92.5 104.9 115.4 1.3

* Average annual growth rate.

** Includes oil sands, biofuels and gas-to-liquids production.

450 ENCYCLOPAEDIA OF HYDROCARBONS


years of production at current rates. The regional
outlook for production stems largely from the proximity
of reserves to markets and from the production costs.
Despite substantial unit cost reductions in recent
years, gas transportation remains very expensive and
usually represents most of the overall cost of gas
delivered to consumers. Production is projected to
grow strongest in terms of volume in the Middle East,
Russia and the other transition economies, which
together have most of the world’s proven reserves.
The growing regional mismatch between demand
and production will result in a major expansion of
international trade in oil and gas, both in absolute
terms and as a share of supply. Trade between
countries within each grouping will also expand. Oil
will remain the most traded fuel.
The volume of oil traded between World energy
outlook regions will reach 64 Mbbl/d in 2030 (well
over half of global oil production and over two-thirds
more than at present). As a result, 51% of all the oil
consumed worldwide will be traded between the main
World energy outlook regions in 2030, compared with
only 39% in 2003. This trend results from the steady
growth in demand in all regions and the increasing
concentration of production in a small number of
countries. The Middle East, already the biggest
exporting region, will see the biggest jump in oil
exports, from 19 Mbbl/d in 2004 to 39 Mbbl/d in
2030. Exports from Africa, Russia and other transition
economies will also continue to expand steadily in the
short to medium term, but all of them will have started
to decline by 2020. The OECD and developing Asian
countries will become increasingly dependent on
imports. Increased trade will strengthen the mutual
dependence among exporting and importing countries.
However, it will also intensify worries about the
world’s vulnerability to oil-supply disruptions, as
much of the additional trade will involve transport
along routes that are at risk of sudden closure. The
share of total gas supply that is traded between regions
will also grow strongly, from 13% at present to 19% in
2030. The largest volume increases in net gas imports
are expected to arise in Europe and North America,
where Canadian exports to the United States will not
be able to keep pace with rising US import needs.
9.1.4 Environmental implications
The projected trends in energy use in the reference
scenario imply that global energy-related
carbon-dioxide emissions will increase by 1.6% per
year over 2003-2030. Emissions will exceed 37 Gt in
2030, an increase of 13 Gt, or 52%, over the 2003
level. By 2010, energy-related CO2 emissions will be
VOLUME IV / HYDROCARBONS: ECONOMICS, POLICIES AND LEGISLATION
THE FUTURE OF HYDROCARBONS
38% higher than in 1990. Power generation is expected
to contribute around half the increase in global
emissions from 2003-2030 and transport will
contribute one-quarter. Developing countries will be
responsible for almost three-quarters of the increase in
global CO2 emissions in the same period. They will
overtake the OECD as the leading contributor to
global emissions in the early 2020s. The increase in
emissions from China alone will exceed the increase
in all OECD countries and Russia combined. OECD
countries accounted for 52% of total emissions in
2003, developing countries for 36%, and transition
economies for 10%. By 2030, the developing countries
will account for 49%, the OECD countries for 42%,
and the transition economies for 9%.
Oil will account for 37% of the increase in energy-
related CO2 emissions over the projection period, coal
for 33% and natural gas for 30%. Emissions from
natural gas will increase most rapidly, doubling
between 2002 and 2030. However, they will still make
up only 24% of total emissions in 2030, up from 21%
now, because gas is the least carbon-intensive fuel. The
share of coal (the most carbon-intensive fuel) will fall
by three percentage points to 36%. Oil’s share will
drop by two points to 39%.
9.1.5 Investment needs
and financing
The global energy-supply projections described above
will call for a cumulative infrastructure investment of
$17,000 billion (in year-2004 dollars) over 2004-2030.
This investment will be needed to expand supply
capacity and to replace existing and future supply
facilities that will be retired during the projection
period. More than half of the investment will go
simply to maintain the present level of supply. Most of
the world’s current production capacity for oil, gas and
coal will need to be replaced by 2030. Indeed, much of
the new production capacity brought on stream in the
early years of the projection period will itself need to
be replaced before 2030. Some power plants and
transmission and distribution infrastructure will also
need to be replaced or refurbished, particularly in
OECD countries. It will be necessary for capital
spending to increase steadily through the period as
existing infrastructure becomes obsolete and demand
increases.
Total investment will amount to $3,200 billion
($118 billion per year) in the oil sector and around
$3,000 billion ($108 billion per year) in the gas sector.
Power generation, transmission and distribution will
require more than $10,000 billion ($380 billion per
year, equal to over 60% of total energy-supply
451
FUTURE SCENARIOS
investments). If investment in the fuel chain to meet
the fuel needs of power stations is included,
electricity’s share rises to more than 70%. Coal
investment will amount to almost $400 billion ($14
billion per year), or 2%. To produce and transport a
given amount of energy, coal is about a sixth as
capital-intensive as gas. Developing countries will
require about half of global energy investments
because their demand and supply will increase most
rapidly.
Exploration and development will dominate
global oil-sector investment, accounting for more
than three-quarters of the total over the period 2004-
2030. Only a quarter of upstream investment will go
to meet rising demand. The rest will be used to make
up for the natural decline in production from wells
already in production and those that will start
producing in the future. In fact, at a global level,
investment needs are far more sensitive to changes
in decline rates than to the rate of growth of oil
demand. Oil investment will be highest in North
America, the transition economies and the Middle
East. Although production in OECD countries is set
to decline in the coming 25 years, their oil-
investment needs will be high, since their unit costs
and decline rates are higher than in other regions.
Upstream unit costs are lowest in the Middle East.
Exploration and development of gas fields will
absorb 62% of global gas investment. Building
downstream infrastructure (high-pressure transmission
pipelines, local distribution networks, storage
facilities, LNG – Liquefied Natural Gas – liquefaction
and regasification plants, and LNG carriers) will
account for the rest. An increasing share of investment
will go to LNG supply. The OECD as a whole will
account for almost half of global gas investment. This
is close to the OECD’s share of the increase in global
demand over the projection period. North America
alone will claim more than a quarter of new
investment. Unit capital costs and production-decline
rates are much higher in the industrialized countries
than in other parts of the world.
The main exporting regions (Russia, the Caspian
region, the Middle East and Africa) will attract most
investment outside of the OECD. Although a bigger
share of drilling will occur in lower-cost regions, a
doubling of global production and a shift in drilling to
offshore fields will cause an overall increase in
upstream investment. Gas-processing costs, included
in exploration and development, may also rise as the
quality of reserves deteriorates. The Middle East will
have the largest requirement for LNG investment,
while the transition economies (including Russia) will
account for the largest share of investment in
transmission networks.
452
Globally, there is enough money to finance the
projected energy investment. Domestic savings alone
are much larger than the capital required for energy
projects. However, in some regions, those capital
needs represent a very large share of total savings. In
Africa, for example, the share is about half.
Although sufficient capital will be available overall
from domestic and international sources, it is far from
certain that all the infrastructure needed in the future
will be fully financed in all cases. Mobilizing the
investment required will depend on whether returns
are high enough to compensate for the risks involved.
More than in the past, capital needed for energy
projects will have to come from private sources, as
governments continue to withdraw from the provision
of energy services. Foreign direct investment is
expected to become an increasingly important source
of capital in non-OECD regions.
Oil and gas prices will play a key role in attracting
investment to the sector. In recent years, upstream
global oil and gas investment has tended to fluctuate
with changes in oil prices. The openness of countries
with large oil resources to foreign direct investment
will be another important factor in determining how
much upstream investment occurs and where. Today,
three major oil-producing countries (Kuwait, Mexico
and Saudi Arabia) remain totally closed to outside
investment. Access to many others, such as Russia and
Iran, is restricted.
Financing the required investments in
non-OECD countries will be a major challenge.
The financial needs in the transition economies
and developing regions are much bigger, relative to
the size of their economies, than in OECD
countries. In general, investment risks are also
greater in these regions, particularly for domestic
electricity and downstream gas projects. The
private sector will undoubtedly have to play a
bigger role in financing new energy projects in the
future. Few governments could fully fund the
necessary investment, even if they wanted to.
Raising private finance will depend critically on
the establishment by governments of an attractive
investment framework and climate.
9.1.6 Major uncertainties
In common with all attempts to describe future market
trends, the energy projections presented in the World
energy outlook are subject to a wide range of
uncertainties. Energy markets could evolve in ways
that are much different from either the reference
scenario or the alternative policy scenario. The
reliability of projections depends both on how well the
ENCYCLOPAEDIA OF HYDROCARBONS

model represents reality and on the validity of the
assumptions it works under.
Macroeconomic conditions have always been a
critical source of uncertainty. Slower GDP growth than
assumed in both of our scenarios would cause demand
to grow less rapidly. Growth rates at the regional and
national levels could be very different from those
assumed here, especially over short periods. Political
upheavals in some countries could have major
implications for economic growth. Sustained high oil
prices (which are not assumed in either of our
scenarios) would curb economic growth in
oil-importing countries and globally in the near term.
The impact of structural economic changes, including
the worldwide shift from manufacturing to service
activities, is also uncertain, especially late in the
projection period.
Uncertainty about the outlook for economic
growth in China is particularly acute. With China’s
emergence as a major energy importer, any faltering of
the country’s economic development would have
important implications for world energy markets.
China has been responsible for a large share of the
increase in world demand for raw materials (including
energy) in the last few years. It is also becoming an
important consumer of final goods, thereby
contributing to economic growth in the rest of the
world. There are increasing signs of overheating in the
Chinese economy and the risk of a ‘hard landing’ (an
abrupt slowdown in economic activity) is growing as
credit is tightened and investment drops. Such a
development could have a major impact on global
economic activity and, therefore, on energy
consumption and import needs worldwide.
The effects of resource availability and supply
costs on energy prices are very uncertain. Resources
of every type of energy are sufficient to meet the
projected demand through to 2030, but the future cost
of extracting and transporting those resources is
uncertain (partly due to a lack of information about
geophysical factors). Oil and gas producers, for
example, do not usually appraise reserves in detail
until they are close to actually exploiting them. The
amount of the world’s resources that can be produced
economically will depend partly on production
conditions and technological progress. Geopolitical
factors will also affect the development of energy
resources.
Changes in government energy and environmental
policies and the adoption of new measures to address
energy security and environmental concerns,
especially climate change, could have profound
consequences for energy markets. Leading
uncertainties in this area include: the production and
pricing policies of oil-producing countries, the future
VOLUME IV / HYDROCARBONS: ECONOMICS, POLICIES AND LEGISLATION
THE FUTURE OF HYDROCARBONS
of energy-market reforms, taxation and subsidy
policies, the possible introduction of carbon dioxide
emission-trading and the role of nuclear power.
An alternative policy scenario, presented in the
World energy outlook analyses the global impact of
environmental and energy-security policies that
countries around the world are already considering, as
well as the effects of faster deployment of
energy-efficient technologies. In this scenario, global
energy demand and carbon-dioxide emissions are
significantly lower than in the reference scenario.
World global primary energy demand in 2030 reaches
14,658 Mtoe – 1,613 Mtoe, or almost 10%, less than
in the reference scenario (Table 4). Primary energy
demand grows by 1.2% per year, 0.4 percentage points
less than in the reference scenario.
Reduced oil and gas use account for most of the
overall fall in energy demand. Oil and gas demand
each falls by 10%. The reduction in demand for coal is
even greater, both in absolute and percentage terms,
thanks to the use of more efficient technology and
switching to less carbon-intensive fuels. The effect of
energy-saving and fuel diversification policies on
energy demand grows throughout the projection
period, as the stock of energy capital is gradually
replaced and new measures are introduced. Global
energy savings achieved by 2010 are very modest, at
only about 244 Mtoe, or 2%.
Improvements in the efficiency of current energy
technologies and the adoption of new technologies
along the energy-supply chain are a key source of
uncertainty for the global energy outlook. It is possible
that hydrogen-based energy systems and
carbon-sequestration technologies, which are now
under development, could dramatically reduce carbon
emissions associated with energy use. If they did so,
they would radically alter the energy-supply picture in
the long term. However, these technologies are still far
from ready to be commercialized on a large scale, and
it is always difficult to predict when a technological
breakthrough might occur.
It is uncertain whether all the investment in
energy-supply infrastructure needed over the
projection period will be forthcoming. Ample
financial resources exist at a global level to finance
projected energy investments, but those investments
have to compete with other sectors. More important
than the absolute amount of finance available
worldwide, or even locally, is the question of whether
conditions in the energy sector are right to attract the
necessary capital. This factor is particularly uncertain
in the transition economies and in developing nations,
whose financial needs for energy developments are
much greater relative to the size of their economies
than is the case in OECD countries. In general, the
453
FUTURE SCENARIOS

Table 4. World primary energy demand in the reference and alternative policy scenarios, Mtoe
(IEA, 2005)

Reference scenario Alternative policy scenario

Difference
with the
2003 2030 2003-2030* 2030 2003-2030* reference
scenario
in 2030

Coal 2,582 3,724 1.4% 2,866 0.4% ⫺23%

Oil 3,785 5,546 1.4% 4,967 1.0% ⫺10%
Gas 2,244 3,942 2.1% 3,528 1.7% ⫺10%
Nuclear 687 767 0.4% 878 0.9% 14%
Hydro 227 368 1.8% 370 1.8% 0.4%
Biomass and waste 1,143 1,653 1.4% 1,705 1.5% 3%
Other renewables 54 272 6.2% 344 7.1% 27%
Total 10,723 16,271 1.6% 14,658 1.2% ⫺10%

* Average annual rate of growth.

risks involved in investing in energy in non-OECD
countries are also greater, particularly for domestic
electricity and downstream gas projects. Creating an
attractive investment framework and climate will be
critical in order to mobilize the necessary capital.
The rate of investment in developing crude oil
production capacity in the Middle East and North
Africa region is a rather critical uncertainty for
world energy markets. A deferred investment
scenario, also presented in the World energy outlook,
analyses how energy markets might evolve if
upstream investment in each Middle East and North
Africa country were to remain constant as a share of
GDP at the average level of the past decade. This
would result in a $110 billion, or 23%, drop in
cumulative upstream Middle East and North Africa
oil investment over 2004-2030.
Lower investment on this scale causes Middle
East and North Africa oil production to drop by
almost a third by 2030 compared with the reference
scenario. Production falls further than investment by
the end of the projection period due to the
cumulative effect over this period. In 2030, total
Middle East and North Africa output reaches 35
Mbbl/d, compared with 50 Mbbl/d in the Reference
Scenario. Saudi Arabia’s production, at 14 Mbbl/d in
2030, is more than 4 Mbbl/d lower than in the
reference scenario. Middle East and North Africa’s
share of world oil production drops from 35% in
2004 to 33% in 2030 (against a rise to 44% in the
reference scenario). As a result, Middle East and
North Africa oil exports are almost 40% lower in
2030. By contrast, higher prices stimulate an 8%
increase in non-Middle East and North Africa oil
production compared to the reference scenario.
Natural gas production in Middle East and North
Africa countries also falls significantly, due to lower
global demand and lower output of associated gas.
Gas exports fall by 46% in 2030, with those of Qatar
falling furthest in absolute terms.
In the deferred investment scenario, the
international crude oil price is significantly higher
than in the reference scenario over the projection
period. In the reference scenario, the average IEA
import price is assumed to fall back from recent highs
to around $35 per barrel (in year-2004 dollars) in
2010, and then to rise slowly to $39 in 2030. In the
deferred investment scenario, the price increases
gradually over time, relative to the reference scenario.
By 2030, it is about $13 higher ($21 in nominal terms)
– an increase of almost one-third.
Natural gas prices rise broadly in line with oil
prices. The coal price also increases slightly. As a
result of higher prices and lower world GDP, global
energy demand is reduced by about 6% in 2030,
compared with the reference scenario. World GDP
growth, the main driver of energy demand, is on
average 0.23 percentage points lower per year.
Lower oil and gas revenues and higher prices cause
primary energy-demand growth in Middle East and
North Africa countries to slow, but less markedly
than in non-Middle East and North Africa regions.
Among the primary fuels, global demand for oil
falls most. Global oil demand, at 105 Mbbl/d in
2030, is 10 Mbbl/d lower than in the reference
scenario. Demand for both gas and coal also
decreases, mainly as a result of lower demand for
fuel inputs to power generation.

454 ENCYCLOPAEDIA OF HYDROCARBONS


9.1.7 Towards a sustainable
energy future
The projections presented here paint a sobering
picture of how the global energy system could
evolve from now to 2030. If governments stick with
the policies in force as of mid-2004, the world’s
energy needs will be more than 50% higher in 2030
than they are now. Fossil fuels (especially oil and
gas) will continue to dominate the global energy
mix, meeting most of the increase in overall
energy use. The shares of nuclear power and
renewable energy sources will remain limited.
Climate-destabilizing carbon-dioxide emissions
would continue to rise. Also, the sharply increased
dependence of consuming regions on imports from a
small number of countries, mainly in the Middle
East, would exacerbate worries about the security of
energy supply.
In no way can this vision of the energy future be
considered sustainable. G8 leaders, meeting with the
leaders of several major developing states at
Gleneagles in July 2005, acknowledged this when they
called for stronger action to combat rising
consumption of fossil fuels and related greenhouse-gas
emissions. Current energy trends are not set in stone.
Although the reference scenario projections above
presented the effects of policies already adopted (for
example, to combat climate change), governments
have declared their intention to do more. As the
alternative policy scenario shows, more vigorous
government action could steer the world onto a
markedly different energy path.
VOLUME IV / HYDROCARBONS: ECONOMICS, POLICIES AND LEGISLATION
THE FUTURE OF HYDROCARBONS
Nonetheless, it is clear from this analysis that
achieving a truly sustainable energy system will
depend on technological breakthroughs that radically
alter energy production and use. The government
actions envisioned in the alternative policy scenario
could eventually stabilize carbon-dioxide emissions,
but they could not reduce them significantly using
existing technology. Carbon capture and storage
technologies, which are not taken into account in
either the reference or the alternative scenario, hold
out the tantalizing prospect of using fossil fuels in a
carbon-free way. Advanced nuclear-reactor designs or
breakthrough renewable technologies could one day
help free us from our dependence on fossil fuels.
These technologies, however, will have to become
much cheaper if they are to be widely applied. This is
unlikely to happen within the timeframe of the
analysis presented here. Developing and deploying
new clean technologies in these and other areas are the
key to making the global energy system more
economically, socially and environmentally sustainable
in the long term. Governments have a critical role to
play in accelerating this process as a matter of urgency.
References
IEA (International Energy Agency) (2005) World energy outlook,
Paris, Organization for Economic Cooperation and
Development/IEA.
Fatih Birol
International Energy Agency
Paris, France
455