Source: The Financial Times               Date: 11 November, 2010

China will drive a global surge in energy demand over the next two decades, with the country expected to account for more than a fifth of world demand by 2035, according to the International Energy Agency. In its annual World Energy Outlook report released on Tuesday, the global energy watchdog predicted that China’s demand would jump 75 per cent between 2008 and 2035, contributing 36 per cent to the projected growth in global energy use. Global demand would reach 16.74 billion metric tons of oil equivalent by 2035.

“It is hard to overstate the growing importance of China in global energy,” said Mr. Nobuo Tanaka, executive director of the IEA. “How the country responds to the threats to global energy security and climate posed by rising fossil-fuel use will have far-reaching consequences for the rest of the world.”

The greatest driver for oil demand will come from the transportation sector, according to Mr. Fatih Birol, the IEA’s chief economist. Demand for cars in China is set to increase about tenfold by 2035, he added. The country is also investing heavily in clean energy technologies, as well as electric cars, and could become a big exporter, he said. This would have implications for the world’s main car manufacturing countries such as Germany, Japan and the US.

Global oil demand will increase 18 per cent to 99 million barrels a day in 2035, from 84 million a day in 2009, the report states. Oil supply, including production of oils not classified as crude, “comes close” to reaching a peak by 2035, driving prices up to USD113 a barrel in 2009 terms, from around USD86 a barrel today, according to the watchdog. In nominal terms, prices will more than double to USD204 a barrel, it predicted.

OPEC, the producers’ cartel, will see its power increase over the decades, accounting for about 52 per cent of the world’s oil supply by 2035. OPEC currently accounts for some 40 per cent of global supply. More supply will come from Saudi Arabia and Iraq. The watchdog expects Iraq to increase production to about 7 million barrels a day in 2035, surpassing Iranian levels by around 2015.

The IEA predicted that the current global oversupply of gas could last for another 10 years. “The glut of global gas supply capacity that has emerged as a result of the economic crisis . . . the boom in US unconventional gas production and surge in liquefied natural gas capacity could persist for longer than we expect,” the report said.

Cheap gas “may not be good news for some competing fuels such as renewables”, said Mr. Birol. Government financial support for renewables amounted to about USD57 billion in 2009 and could be more than USD200 billion in 2035.