IEA predicts China will become world energy leader

The International Energy Agency predicts will have a growing role as a world energy leader as gas exports rise to meet the global transition from coal to gas-fired electricity generation.

In its latest World Energy Outlook, the IEA’s forecast for the next 20 years predicts four major shifts in the global energy system , providing multiple scenarios for energy growth through to 2040.

Under its new policies scenario – which examines existing policies and announced governmental intentions – the IEA said a population boom will drive additional demand between now and 2040 equivalent to another China and India. It also outlines how countries will need to fulfil this demand.

It forecast renewables as meeting much of this need, approximately 40 per cent globally, of all energy generation, displacing coal for the most part. Renewables will account for around two-thirds of global investment in future power plants, the IEA predicted, with solar power becoming the largest source of low-carbon capacity by 2040.

Both oil and gas will see massive growth, with natural gas use rising by 45 per cent to 2040, and these two energy sources becoming the first and second most used fuel in the global mix.

Although ‘s electricity infrastructure is currently seen as being under pressure, the International Energy Agency predicted that China will need to add the equivalent of America’s national power system to electricity infrastructure by 2040 to keep up with demand. India will need to add a power system the size of the European Union’s.

Electricity security has been posited as a major issue that is moving swiftly up nation’s policy agendas.

It warned that the sliding cost curve for renewables may not be “sufficient on their own to secure efficient decarbonisation or reliable supply”.

“The policy challenge is to ensure sufficient investment in electricity networks and in a mix of generation technologies that are best fit for power system needs, providing the flexibility that is increasingly vital as the contribution of wind and solar increases,” the IEA said.

This statement echoes the federal government’s NEG framework, which has put greater obligations on generators and retailers to ensure energy security and reliability of supply, which includes coal and gas.

According to Energy Minister Josh Frydenberg, coal and gas energy sources will account for between 64 and 72 per cent of ‘s future generation mix. ‘s energy future

The International Energy Agency predicts will take an increasingly important role in meeting future global energy demand.

was forecast to be one of the world’s largest gas suppliers, aiding the transition from coal-fired power generation to gas-fired generation.

The growing role of gas as a transition fuel from coal to renewables was highlighted in the report. This forecast was supported by the Organization of Petroleum Exporting Countries recent World Oil Outlook, which stated that the largest contribution to future energy demand is projected to come from natural gas.

In absolute terms, demand for gas is expected to increase by almost 34 million barrels of oil equivalent a day, reaching a level of 93 mboe a day by 2040, OPEC said.

Earlier reports by S&P also noted the changing market, as LNG exporters will face increased volatility as decade-old contracting methods change to short-term flexible models.

The longer-term contracts that have been the norm for LNG exporters will change as LNG buyers demand more flexible volumes, S&P Global Platts LNG analyst Abache Abreu told Fairfax Media.

Mr Abreu said that it has shifted from a sellers’ market, driven by policy and regulatory changes in current import markets, “this is forcing buyers to now push their market risks up the chain to sellers”.

“The increasingly buyer-friendly characteristics of global LNG trading is adding further challenges to an exporter that has structured its business model around primarily destination-restricted, oil-indexed long-term contracts,” the S&P Global report stated.

“The traditional ways of doing business, based on destination-restricted, oil-indexed long-term contracts, are disappearing, making room for enhanced flexibility and interconnectivity.”

The International Energy Agency forecast nearly 70 per cent of all gas produced in would leave the nation’s shores. This is major increase from the current share of production, which sits below half.

will also become the world’s largest coal seam gas producer, accounting for nearly half of international output from the 2020s onward. This forecast includes scenarios where NSW, Victoria, Western , and Tasmania continue their moratoriums on gas, however, it is unclear whether this includes the Northern Territory, which is carrying out the Pepper Inquiry into fracking.

The International Energy Agency also forecasts to buck the global oil production trend, and experience the highest rate of compound annual average growth for all non-OPEC nations. The country will see a 3.3 per cent growth in oil production from 2016 to 2040, which will offset the general decline in Asia Pacific output as China and Indonesia wind back production rates. This growth is forecast to be supported by increased shale gas and coal seam gas production.

It forecast a massive increase in long-term oil prices, albeit lower than last year’s predictions. If the world’s sustainable energy policies are followed, the IEA expects oil prices of $US83 ($108) per barrel in 2025, rising top $US111 per barrel in 2040. However, if current policies are followed, the IEA expects oil to reach approximately $US140 per barrel.

However, if the oil prices fails to remain strong, there could be a wave of company collapses, S&P Global states.

“The sector has a significant amount of debt maturing over the next couple of years, and any meaningful drop in prices will lead to defaults and bankruptcies,” S&P said.

The industry saw a swathe of companies issuing or refinancing debt during the market boom between 2012 and 2014, and these debts will come to maturity in the coming years.

“While interest rates are low and the high yield spreads are near the low levels they were in September 2014, any significant declines in oil prices would result in a severe number of companies unable to refinance their debt and would lead to another wave of bankruptcies,” S&P Global said. Coal’s decline

Coal is forecast to be the big loser in the world’s energy mix, slipping from 37 per cent today to 26 per cent in 2040, and will be overtaken by renewables in the late 2020s, under the IEA’s best case scenario for carbon reductions.

This will be somewhat offset by increased coal consumption in Africa and Asia and the fact that existing and future coal plants will burn coal at a more efficient rate.

While thermal and steaming coal is expected to see a slow global decline in usage and exports, with the majority of nations reducing their coal-fired power generation levels, metallurgical coal still remains a major commodity, one which will continue to export.

“There are few alternatives to coal readily available in steel production, and therefore coking coal demand remains slightly more robust than steam coal demand, but it also declines at an average annual rate of 1.9 per cent,” the IEA said.

“With plenty of low-cost coking coal, [will] expand its exports of the coming 25 years,” the IEA report stated.

It predicts a 19 per cent increase in output to 425 million tonnes of coal equivalent compared to 2016 levels of 360 mtce.

This is aided in part by the fact “n exporters stringently maintained cost discipline,” the IEA said.

Due to this increase in production coupled with a global decline in coking coal exports, ‘s share of the coal export market will lift to two-thirds of the global export trade by 2040.

In terms of actual production, n coal tonnages will only increase by 0.5 per cent from 2016 to 2040. This marks as one of the few producers to actually grow output levels, only beaten by India which will experience a 3.8 per cent increase in production rates over the same time period.

OPEC also predicted coal’s decline, peaking about 2035 at a level of 86 million barrels of oil equivalent a day before beginning its downward trend.

But the coal industry will not implode, the IEA predicts.

“Despite the bleak prospects for the fuel, coal investment does not grind to a halt, since existing mines are depleted faster than demand drops,” the IEA said.

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