Climate Deal Would Sharply Ax Oil Demand Growth-IEA

Climate Deal Would Sharply Ax Oil Demand Growth-IEA

Nov 10, 2009

By Spencer Swartz
DOW JONES NEWSWIRES

LONDON (Dow Jones)--The International Energy Agency Tuesday said a new global deal to limit carbon emissions, if reached in coming months, could sharply curtail the growth in oil consumption in the years ahead as alternative energy resources and efficiency measures are tapped.

The Paris-based agency, in its annual World Energy Outlook, said global crude demand may grow by just 4 million barrels a day from current levels to 89 million barrels a day by 2030 if a major agreement to cut greenhouse gas emissions is signed and implemented by nations, including the U.S.

Such a reduction in the growth in oil consumption, representing just a fractional increase from current consumption of about 85 million barrels a day, could play a key role in keeping a lid on future crude prices.

Without any new climate change deal and developments in non-oil transport technology like electric vehicles, global oil demand by 2030 is expected rise to 105 million barrels a day, which represents a downward revision of 1 million barrels a day from the IEA's forecast a year ago.

A climate change agreement would help drive industries and consumers toward using energy more efficiently and incentivize the auto industry to develop electric vehicles and other non-oil technologies, the agency said in its world outlook, which is seen somewhat as a bellwether among many industry analysts.

The IEA, energy advisor to rich nations like the U.S., said energy efficiency measures in developed nations, along with the lingering effects of the recession, were already making a dent in the number of barrels consumers burn.

Sometimes criticized by industry analysts for overoptimistic demand forecasts in recent years, the agency said global oil consumption over the next five years is now expected to grow to just 88 million barrels a day, well below the 94 million barrels a day the IEA forecast a year ago for total demand in 2015.

Oil prices are expected to rise to $100 a barrel by 2020 and $115 a barrel by 2030, the IEA said in its report. That is up from a current level of around $79 a barrel, but well below a record $147 hit in July 2008.

Various policymakers have recently raised doubts on the prospect that developed and developing nations like China, the world's second biggest oil consumer after the U.S., will soon reconcile differences over exactly how to divvy up the economic burden of reducing their carbon emissions.

Officials from around 190 nations are scheduled to meet in Copenhagen in December to try to agree to a new carbon-abatement deal to succeed the Kyoto Protocol, which expires in 2012. Analysts say a final deal could be delayed until 2010.

But an agreement, which would help oil-consuming nations reduce their dependence on crude imports over time, will cause angst for all oil producers, including OPEC nations like Saudi Arabia.

Various members of the Organization of Petroleum Exporting Countries are expected to attend the meeting in Copenhagen.

"The objective is to make sure oil and the oil industry does not come out a loser," said one senior Gulf OPEC official.

But as much as demand could be potentially squeezed by a climate change deal over time, the IEA said oil will remain the top fuel source globally in 2030--accounting for about 30% of the total fuel mix from 34% today--even under a major deal to reduce greenhouse gas emissions.

It also warned a prolonged drop in drilling investment could ratchet oil prices higher. Drilling investment globally is expected to drop this year by 19%, or $90 billion, due mostly to delays or cancellations of high-cost oil-sand projects in Canada. The IEA had previously forecast a drop of 21% in drilling investment this year versus 2008.

-By Spencer Swartz, Dow Jones Newswires; +44 207 842 9357; spencer.swartz@dowjones.com