The 2006 World Energy Outlook has been released. Put together by the people at the International Energy Agency, the WEO attempts to project the future energy needs, based on todays energy poduction and future trends.

The 2006 report is a mix of optimizim and warning. “World political leaders have decided to act with resolution and urgency to change the energy future. The World Energy Outlook 2006 shows how to make that happen”, said Claude Mandil, Executive Director of the International Energy Agency (IEA).

The report differes significantly from last year, but still project hope for the near future. The IEO2006 projections indicates continued growth in world energy use, despite world oil prices that are 35 percent higher in 2025 than projected in last year’s outlook. Energy resources are thought to be adequate to support the growth expected through 2030.

This hope for the future is strongly tied to the projected use of renewable energy. “[T]he energy future we are facing today, based on projections of current trends, is dirty, insecure and expensive. [The report] also shows how new government policies can create an alternative energy future which is clean, clever and competitive…”, Mr. Mandil emphasised.

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In a Reference Scenario, global primary energy demand increases by 53% between now and 2030. Over 70% of this increase comes from developing countries, led by China and India. Imports of oil and gas in the OECD and developing Asia grow even faster than demand. World oil demand reaches 116 mb/d (million barrels a day) in 2030, up from 84 mb/d in 2005. Non-OPEC conventional crude oil output peaks by the middle of the next decade. Global carbon-dioxide (CO2) emissions reach 40 Gt in 2030, a 55% increase over today’s level. China overtakes the United States as the world’s biggest emitter of CO2 before 2010. These trends would accentuate consuming countries’ vulnerability to a severe supply disruption and resulting price shock. They would also amplify the magnitude of global climate change.

Strong policy action is needed to move the world onto a more sustainable energy path. An Alternative Policy Scenario demonstrates that the energy future can be substantially improved if governments around the world implement the policies and measures they are currently considering. In this scenario, global energy demand is reduced by 10% in 2030 – equivalent to China’s entire energy consumption today. Global carbon-dioxide emissions are reduced by 16% – equivalent to current emissions in the United States and Canada combined – in the same time-frame. In the OECD countries, oil imports and CO2 emissions peak by 2015 and then begin to fall. Improved efficiency of energy use contributes most to the energy savings. Increased use of nuclear power and renewables also help reduce fossil-fuel demand and emissions. (the report calls for nuclear, I am still undecided as to weather or not we will need to resort to nuclear to get us out of this mess.)

Just a dozen specific policies in key countries account for 40% of the reduction in global CO2 emissions. The shifts in energy trends described in this scenario would serve all three of the principal goals of energy policy: greater security, more environmental protection and improved economic efficiency. It all sounds so easy.

“The good news”, said Mr. Mandil, “is that these policies are very cost-effective. There are additional upfront costs involved, but they are quickly outweighed by savings in fuel expenditures. And the extra investment by consumers is less than the reduction in investment in energy-supply infrastructure. Demand-side investments in more efficient electrical goods are particularly economic; on average, an additional $1 invested in more efficient electrical equipment and appliances avoids more than $2 in investment in power generation, transmission and distribution infrastructure.

The energy picture has changed appreciably since the 2004 Outlook. The realities of the energy market have become harsher. Oil and gas prices this year have been between three and four times higher than in 2002 and this is reflected in a new oil price assumption for the projections. But world economic growth has remained robust, as the recessionary effects of higher energy prices have been more than offset by other factors. Dirty coal is now cheaper than natural gas for electricity generation, while nuclear power may, in some cases, be cheaper than both coal and gas – even where there is no penalty for emitting CO2. Coal has led the recent surge in global energy demand and is on a stronger growth path than in previous WEOs. China and India are the predominant sources of global energy demand growth. This in turn drives global warming. Coal produces the most c02 of any fossile fuel.

To quench the world’s thirst for energy, the Reference Scenario projections call a cumulative investment in energy-supply infrastructure of over $20 trillion in real terms over 2005-2030 – substantially more than was previously estimated. Roughly half of all the energy investment needed worldwide is in developing countries. It is far from certain that all this investment will actually occur. There has been an apparent surge in oil and gas investment in recent years, but it is, to a large extent, illusory. Drilling, material and personnel costs in the industry have soared, so that in real terms investment in 2005 was barely higher than that in 2000.

Biofuels can make a significant contribution to meeting future road-transport energy needs, helping to promote energy diversity and reducing emissions. Biofuels reach 4% of road-fuel use in the Reference Scenario in 2030 and 7% in the Alternative Policy Scenario, up from 1% today. The United States, the European Union and Brazil account for the bulk of the global increase and remain the leading producers and consumers of biofuels in both Scenarios. But rising food demand, which competes with biofuels for existing arable and pasture land, and the need for subsidy in many parts of the world, will constrain the long-term potential for biofuels production using current technology. New biofuels technologies being developed today, notably ligno-cellulosic ethanol, could allow biofuels to play a much bigger role.