Non-OECD countries account for a rising share of CO2emissions, but 2035 non-OECD per capita levels are only half of OECD. Source: IEA. Click to enlarge.

The shift in global energy demand to Asia gathers speed, but India and countries in Southeast Asia will take the lead in driving consumption higher. The Middle East becomes the world’s second-largest gas consumer by 2020 and third-largest oil consumer by 2030, redefining its role in global energy markets.

Demand grows for all forms of energy, but the share of fossil fuels in the world’s energy mix falls from 82% to 76% in 2035. Low-carbon energy sources (renewables and nuclear) meet around 40% of the growth in primary energy demand. Nearly half of the net increase in electricity generation comes from renewables.

High oil prices, persistent differences in gas and electricity prices between regions and rising energy import bills in many countries focus attention on the relationship between energy and the broader economy. The links between energy and development are illustrated clearly in Africa, where, despite a wealth of resources, energy use per capita is less than one-third of the global average in 2035. Africa today is home to nearly half of the 1.3 billion people in the world without access to electricity and one-quarter of the 2.6 billion people relying on the traditional use of biomass for cooking. Globally, fossil fuels continue to meet a dominant share of global energy demand, with implications for the links between energy, the environment and climate change.

As the source of two-thirds of global greenhouse-gas emissions, the energy sector will be pivotal in determining whether or not climate change goals are achieved. … In our central scenario, taking into account the impact of measures already announced by governments to improve energy efficiency, support renewables, reduce fossil-fuel subsidies and, in some cases, to put a price on carbon, energy-related CO₂ emissions still rise by 20% to 2035.

—WEO-2013

Low-carbon energy sources meet around 40% of the growth in global energy demand. In some regions, rapid expansion of wind and solar PV raises fundamental questions about the design of power markets and their ability to ensure adequate investment and long-term reliability.

Brazil, a special focus in WEO-2013, maintains one of the least carbon-intensive energy sectors in the world, despite experiencing an 80% increase in energy use to 2035 and moving into the top ranks of global oil producers.

Oil use grows, but in a narrowing set of markets. Source: IEA. Click to enlarge.

Mobility and oil. Demand for mobility and for petrochemicals keeps oil use on an upward trend to 2035, although the pace of growth slows. The decline in oil use in OECD countries accelerates. China overtakes the United States as the largest oil-consuming country and Middle East oil consumption overtakes that of the European Union, both around 2030.

The shifting geography of demand is further underlined by India becoming the largest single source of global oil demand growth after 2020. Oil consumption is concentrated in just two sectors by 2035: transport and petrochemicals.

Transport oil demand rises by 25% to reach 59 mb/d, with one-third of the increase going to fuel road freight in Asia. In petrochemicals, the Middle East, China and North America help push up global oil use for feedstocks to 14 mb/d. High prices encourage efficiency improvements and undercut the position of oil wherever alternatives are readily available, with biofuels and natural gas gaining some ground as transport fuels.

Biofuels use triples, rising from 1.3 million barrels of oil equivalent per day (mboe/d) in 2011 to 4.1 mboe/d in 2035, by which time it represents 8% of road-transport fuel demand. Advanced biofuels, which help address sustainability concerns about conventional biofuels, gain market share after 2020, reaching 20% of biofuels supply in 2035. Subsidy costs for biofuels increase steadily over time, reflecting limited scope for further cost reductions for conventional biofuels and strong growth in use.

Contributions to global oil production growth. Source: IEA. Click to enlarge.

Technology and oil. The capacity of technologies to unlock new types of resources such as light tight oil (LTO) and ultra-deepwater fields, and to improve recovery rates in existing fields is pushing up estimates of the amount of oil that remains to be produced, the report notes. However, this does not imply a new era of oil abundance, the report cautions.

An oil price that rises steadily to $128 per barrel (in year-2012 dollars) in 2035 supports the development of these new resources, although no country replicates the level of success with LTO that is making the US the largest global oil producer. The rise of unconventional oil (including LTO) and natural gas liquids meets the growing gap between global oil demand, which rises by 14 mb/d to reach 101 mb/d in 2035, and production of conventional crude oil, which falls back slightly to 65 mb/d.

Although rising oil output from North America and Brazil reduces the role of OPEC countries in quenching the world’s thirst for oil over the next decade, the Middle East—the only large source of low-cost oil—takes back its role as a key source of oil supply growth from the mid-2020s.

Brazil is set to become a major exporter of oil and a leading global energy producer. Based mainly on a series of recent offshore discoveries, Brazil’s oil production triples to reach 6 mb/d in 2035, accounting for one-third of the net growth in global oil production and making Brazil the world’s sixth-largest producer. Natural gas production grows more than five-fold, enough to cover all of the country’s domestic needs by 2030, even as these expand significantly.

The increase in oil and gas production is dependent on highly complex and capital-intensive deepwater developments, requiring levels of upstream investment beyond those of either the Middle East or Russia.

The need to compensate for declining output from existing oil fields is the major driver for upstream oil investment to 2035. IEA analysis of more than 1,600 fields found that, once production has peaked, an average conventional field can expect to see annual declines in output of around 6% per year, with variation according to the type of field. The implication is that conventional crude output from existing fields is set to fall by more than 40 mb/d by 2035.

Among the other sources of oil, most unconventional plays are heavily dependent on continuous drilling to prevent rapid field-level declines. Of the 790 billion barrels of total production required to meet projections for demand to 2035, more than half is needed just to offset declining production.

Prices. The availability and affordability of energy is a critical element of economic well-being and, in many countries, also of industrial competitiveness. Natural gas in the United States currently trades at one-third of import prices to Europe and one-fifth of those to Japan. Average Japanese or European industrial consumers pay more than twice as much for electricity as their counterparts in the United States, and even China’s industry pays almost double the US level.

In WEO-2013, large variations in energy prices persist through to 2035, affecting company strategies and investment decisions in energy-intensive industries. The United States sees its share of global exports of energy-intensive goods slightly increase to 2035, providing the clearest indication of the link between relatively low energy prices and the industrial outlook. By contrast, the European Union and Japan see their share of global exports decline—a combined loss of around one-third of their current share.

Among the options open to policy makers to mitigate the impact of high energy prices, WEO‑2013 highlights the importance of energy efficiency: two-thirds of the economic potential for energy efficiency is set to remain untapped in 2035 unless market barriers can be overcome. One such barrier is the pervasive nature of fossil-fuel subsidies, which incentivize consumption at a cost of $544 billion in 2012.

Accelerated movement towards a global gas market could also reduce price differentials between regions. Gas market and pricing reforms in the Asia-Pacific region and LNG exports from North America can spur a loosening of the current contractual rigidity of internationally traded gas and its indexation to high oil prices.

The report emphasizes the importance of carefully designed subsidies to renewables, which totalled $101 billion in 2012 and expand to $220 billion in 2035 to support the anticipated level of deployment.