Taking all new developments and policies into account, the world is still failing to put the global energy system onto a more sustainable path. Global energy demand grows by more than one-third over the period to 2035 in the New Policies Scenario (our central scenario), with China, India and the Middle East accounting for 60% of the increase. Energy demand barely rises in OECD countries, although there is a pronounced shift away from oil, coal (and, in some countries, nuclear) towards natural gas and renewables.

Despite the growth in low-carbon sources of energy, fossil fuels remain dominant in the global energy mix, supported by subsidies that amounted to $523 billion in 2011, up almost 30% on 2010 and six times more than subsidies to renewables. The cost of fossil-fuel subsidies has been driven up by higher oil prices; they remain most prevalent in the Middle East and North Africa, where momentum towards their reform appears to have been lost.

—WEO-2012

North America emerges as a net oil exporter, accelerating the switch in direction of international oil trade, with almost 90% of Middle Eastern oil exports being drawn to Asia by 2035. Links between regional gas markets will strengthen as liquefied natural gas trade becomes more flexible and contract terms evolve. While regional dynamics change, global energy demand will push ever higher, growing by more than one-third to 2035. China, India and the Middle East account for 60% of the growth; demand barely rises in the OECD, but there is a pronounced shift towards gas and renewables.

Fossil fuel remain dominant. In the WEO, fossil fuels will remain dominant in the global energy mix, supported by subsidies that, in 2011, jumped by almost 30% to $523 billion, due mainly to increases in the Middle East and North Africa.

Growth in oil consumption in emerging economies, particularly for transport in China, India and the Middle East, more than outweighs reduced demand in the OECD, pushing oil use steadily higher in the New Policies Scenario.

Oil demand reaches 99.7 mb/d in 2035, up from 87.4 mb/d in 2011, and the average IEA crude oil import price rises to $125/barrel (in year-2011 dollars) in 2035 (over $215/barrel in nominal terms). The transport sector already accounts for more than half of global oil consumption, and this share increases as the number of passenger cars doubles to 1.7 billion and demand for road freight rises quickly. The latter is responsible for almost 40% of the increase in global oil demand: oil use for trucks—predominantly diesel—increases much faster than that for passenger vehicles, in part because fuel-economy standards for trucks are much less widely adopted.

By around 2020, the United States is projected to become the largest global oil producer (overtaking Saudi Arabia until the mid-2020s) and starts to see the impact of new fuel-efficiency measures in transport. The result is a continued fall in US oil imports, to the extent that North America becomes a net oil exporter around 2030.

This accelerates the switch in direction of international oil trade towards Asia, putting a focus on the security of the strategic routes that bring Middle East oil to Asian markets. The United States, which currently imports around 20% of its total energy needs, becomes all but self-sufficient in net terms, according to WEO-2012—a dramatic reversal of the trend seen in most other energy importing countries.

A surge in unconventional and deepwater oil boosts non-OPEC supply over the current decade, but the world relies increasingly on OPEC after 2020. Iraq accounts for 45% of the growth in global oil production to 2035 and becomes the second-largest global oil exporter, overtaking Russia.

While the regional picture for natural gas varies, the global outlook sees demand increasing by 50% to 5 trillion cubic metres in 2035. Nearly half of the increase in production to 2035 is from unconventional gas, with most of this coming from the United States, Australia and China. Whether demand for coal carries on rising strongly or changes course radically will depend on the strength of policy decisions around lower-emissions energy sources and changes in the price of coal relative to natural gas. In the New Policies Scenario, global coal demand increases by 21% and is heavily focused in China and India.

Renewables. Renewables become the world’s second-largest source of power generation by 2015 and close in on coal as the primary source by 2035. However, this rapid increase hinges critically on continued subsidies. In 2011, these subsidies (including for biofuels) amounted to $88 billion, but over the period to 2035 need to amount to $4.8 trillion; over half of this has already been committed to existing projects or is needed to meet 2020 targets. Ambitions for nuclear have been scaled back as countries have reviewed policies following the accident at Fukushima Daiichi, but capacity is still projected to rise, led by China, Korea, India and Russia.

Water. Water is essential to the production of energy, and the energy sector already accounts for 15% of the world’s total water use. Its needs are set to grow, making water an increasingly important criterion for assessing the viability of energy projects. In some regions, water constraints are already affecting the reliability of existing operations and they will introduce additional costs. Expanding power generation and biofuels output underpin an 85% increase in the amount consumed (the volume of water that is not returned to its source after use) through to 2035.

Energy efficiency. Current efforts on efficiency fall well short of tapping the full economic potential, WEO-2012 finds. In the last year, major energy-consuming countries have announced new measures: China is targeting a 16% reduction in energy intensity by 2015; the United States has adopted new fuel economy standards; the European Union has committed to a cut of 20% in its 2020 energy demand; and Japan aims to cut 10% from electricity consumption by 2030.

While these policies help to speed up slow progress in global energy efficiency seen over the last decade, a significant share of the potential to improve energy efficiency—four-fifths of the potential in the buildings sector and more than half in industry—still remains untapped, according to the report.

WEO-2012 presents the results of an Efficient World Scenario, which shows what energy efficiency improvements can be achieved simply by adopting measures that are justified in economic terms.

Greater efforts on energy efficiency would cut the growth in global energy demand by half. Global oil demand would peak before 2020 and be almost 13 mb/d lower by 2035, a reduction equal to the current production of Russia and Norway combined. The accrued resources would facilitate a gradual reorientation of the global economy, boosting cumulative economic output to 2035 by $18 trillion, with the biggest gains in India, China, the United States and Europe.

Our analysis shows that in the absence of a concerted policy push, two-thirds of the economically viable potential to improve energy efficiency will remain unrealized through to 2035. Action to improve energy efficiency could delay the complete ‘lock-in’ of the allowable emissions of carbon dioxide under a 2 °C trajectory—which is currently set to happen in 2017—until 2022, buying time to secure a much-needed global climate agreement. It would also bring substantial energy security and economic benefits, including cutting fuel bills by 20% on average.

—Fatih Birol, IEA Chief Economist and the WEO’s lead author

450 Scenario. WEO-2012 also presents a 450 Scenario—the actions necessary to limit global warming to 2 °C. The scenario finds that almost four-fifths of the CO₂ emissions allowable by 2035 are already locked-in by existing power plants, factories, buildings, etc.

If action to reduce CO₂ emissions is not taken before 2017, all the allowable CO₂ emissions would be locked-in by energy infrastructure existing at that time. Rapid deployment of energy-efficient technologies—as in our Efficient World Scenario—would postpone this complete lock-in to 2022, buying time to secure a much needed global agreement to cut greenhouse-gas emissions.

No more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2 °C goal, unless carbon capture and storage (CCS) technology is widely deployed.

—WEO-2012

Resources

• World Energy Outlook 2012