IEA’s Jones warns of new spike in energy prices if investment pace doesn’t recover soon

BY FRANZ BROTZEN
Rice News staff

Richard H. Jones, deputy executive director of the International Energy Agency (IEA), warned that another major energy crisis is possible in the next few years if the current slowdown in investments remains in effect too long. In a recent presentation at the James A. Baker III Institute for Public Policy, Jones said, “Sustained lower investment in supply in the coming months and years could lead to a shortage of capacity and another spike in energy prices in several years’ time — just when the economy is on the road to full recovery.”

	RICHARD H. JONES

Jones laid out two possible scenarios for global oil markets in his presentation of this year’s World Energy Outlook report, produced by the IEA.

The first scenario reflects a “business-as-usual” approach that includes “a baseline scenario of how global energy markets would evolve if governments made no changes to existing policies and measures,” Jones said. The second approach, called the “450 scenario,” is based on governmental and intergovernmental action that would result in limiting the concentration of greenhouse gases in the atmosphere to the equivalent of 450 parts per million by the end of this century.

Jones used the two scenarios to explain how energy production and consumption are likely to play out over the next 20 years.

He began by noting the upheavals in the energy markets over the last year. The economic downturn led to the first “pause” in rising energy use in more then 20 years, Jones said. This was accompanied by another phase in the energy industry’s boom-and-bust cycle, which included a significant drop in energy investment such as oil-well and gas-well drilling and spending on refineries, pipelines and power stations.

According to the IEA report, the business-as-usual scenario “would mean rapidly increasing dependence on fossil fuels, with alarming consequences for climate change and energy security.” World energy demand would rise by 1.5 percent per year through 2030, with fossil fuels accounting for more than three-quarters of the overall increase. The price of a barrel of oil would reach $100 by 2020 and $115 by 2030 (in 2008 dollars). Coal would also play an important part in the energy equation. The long-term concentration of greenhouse gases in the atmosphere would surpass 1,000 parts per million and result in a 6-degree Celsius rise in the global average temperature by 2100.

In contrast, the 450 scenario calls for “a plausible combination of policy instruments — notably carbon markets, sectoral agreements and national policies and measures — tailored to the circumstances of specific sectors and groups of countries.” These steps would lead to what the IEA called “a veritable low-carbon revolution” and result in a relatively small 2-degree C rise in the global average temperature by the end of the century.

Under either scenario, investment in energy infrastructure would have to increase dramatically. Under the business-as-usual scenario, $26.5 trillion would have to be invested through 2030; the 450 scenario calls for an additional $10.5 trillion. Natural gas assumes a key role as an energy source under both scenarios. Increased efficiency is vital to the 450 scenario because it accounts for 65 percent of carbon dioxide emissions reduction by 2020 and 57 percent by 2030.

The 450 scenario would lead to what Jones termed “a massive decarbonization of the energy sector.” He described the current outlook as dire and urged world leaders attending the U.N. Climate Change Conference in Copenhagen to adopt appropriate policies immediately.

“We think a 450 path to green growth, so to speak, would bring substantial benefits, which would help avoid the worst effects and costs of climate change,” Jones said. “It would also have energy security benefits, lower oil and gas costs and reduce energy bills and [produce] much less air pollution, which would have huge health benefits.”

To view Jones’ presentation, go to http://www.bakerinstitute.org/events/world-energy-outlook-2009 and click on “webcast.”