Watchdog warning over soaring energy prices

The world will lurch from one energy crisis to another unless governments switch from increased burning of fossil fuels to more nuclear, renewable and energy-saving sources, the Western world’s energy watchdog said.

In a landmark report published yesterday, the International Energy Agency (IEA) forecast skyrocketing fuel prices, blackouts and supply disruptions as it pointed to a 50% surge in energy demand by 2030.

Chinese and Indian economic growth will propel global oil demand from 84 million barrels per day to 116 million bpd by 2030 with most of the increased supply coming from Saudi Arabia, Iraq and Iran.

Non-OPEC oil supplies will peak in the beginning of the next decade, reckons the IEA, raising the risk of supply disruptions which could push the crude price as high as US$130 per barrel.

Carbon emissions are set to soar by more than 55% over the period, accelerating the process of climate change. In a striking change to previous forecasts, the IEA predicted that coal is coming back, driven by the high cost of natural gas and the huge reserves of coal in the United States, China and India.

“The biggest increase in energy use will come from coal,” Fatih Birol, the agency’s chief economist, said. “One of the consequences is CO2 will grow faster than energy demand, due to increasing coal use and declining nuclear share.”

In its report, World Energy Outlook 2006, the IEA offered a choice of two scenarios. In its reference case, the agency paints a picture of soaring demand and increasing risk of supply disruptions as dependence rises on a diminishing number of gas and oil suppliers.

“This energy scenario is not only unsustainable but doomed to failure,” said Claude Mandil, head of the IEA.

The IEA describes an alternative scenario in which global energy demand is reduced by 10% by 2030, oil demand reaches 103 million bpd and OECD carbon emissions peak around 2015.

More efficient energy production and consumption would account for 80% of the avoided emissions, says the IEA.

For the first time, the agency recommends the nuclear option but states that “this will happen only if the governments play a stronger role in facilitating private investment”.

The IEA chief said that the alternative policies are cost-effective, despite considerable upfront costs. The production of nuclear power is cheaper than gas-fired power generation at equivalent oil prices of US$40, he said.

“It is far from certain that this investment will actually occur,” said Mr Mandil. The apparent soaring investment by oil companies was illusory, he said, because of inflation in drilling costs.

A second comprehensive report is due next month.

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