Prepare for US energy independence and an overshooting climate change
The new World Energy Outlook has just come out. This is just a first quick look, we will drill deeper later. At the first sight, the most interesting statement (and one that news portals picked up) is that the US oil production is going to be the highest in the world (surpassing both Saudi Arabia and Russia) by around 2020. This is of course due to unconventional oil, and represents a roughly 50% increase from current production levels.
The IEA expects the US to become a net oil exporter by about 2030 in its baseline scenario – in contrast to what they forecasted in their 2011 Outlook. But they rightly point out that the country will still face the possible oil price shocks of the rest of the world. So do not worry that (as some say) the US will not care about oil supply security elsewhere (see our post on this, based on the 2011 WEO). Despite the strong supply in the US, the IEA still expects high real oil prices ($125/barrel at current prices by 2035).
The dog that did not bark in the press release was that the IEA did not make a fuss about the fact that it seems to think that the climate goal of 2 C° temperature increase is practically not achievable. The way they put it was “Energy efficiency can keep the door to 2 C° open for just a bit longer”, which is as PC as you can get. In its baseline scenario, it expects a 3.6 C° increase, which is huge. Even in its brand new Efficient World Scenario, the temperature increase is 3 C°, still huge. (Energy efficiency also gets this year’s special focus. For example, the analysis highlights that without further measures four fifth of the huge potential in the buildings sector would remain untapped.)
So your baseline scenario should be something like this: by the time everyone realizes the consequences of climate change, it will be too late, and there will be frenetic action (or large scale geo-engineering) to mitigate the consequences. Interesting times,good for German red wine production, bad for a lot of other things, including the existence of energy markets.