Recap: IEA Report on MENA Energy Outlook

Yesterday morning I attended a briefing at CSIS by Fatih Birol of the International Energy Agency, as he made a public rollout of the IEA report on the energy outlook over the next 25 years in the Middle East and North Africa (MENA).

His presentation -- click here for a copy (PDF)-- was public and on the record, but the Q&A was off.

Some highlights:

Birol outlined three scenarios for the future:

1) Business as usual, with assumptions on demand, price, regulation and infrastructure investment remaining relatively unchanged (he calls this the "reference scenario"). Global energy prices are projected to increase 50% over the 2004 baseline under the reference scenario.

2) The "deferred investment" scenario, where MENA nations fail to make the necessary investment to keep up with global demand for oil and natural gas -- both in terms of production and refining capacity. Under this model, oil prices will increase 32% above the reference scenario.

3) A final scenario that assumes that consuming nations put policies into place to stem demand (increased CAFE standards, carbon caps, adoption of biofuels and expansion of nuclear). In the case of this scenario, Birol projected a 16% drop in prices and a 10% drop in demand from the reference scenario.

Birol believes that a combination of scenario two and three is very likely -- with scenario two triggering scenario three.

Other observations of note:

a) The world is out of light, sweet crude that works best to make gasoline. What's left has higher sulfur content and will require MENA nations to spend $400 billion to improve refining capacity by 2030 -- 1/3rd of that will have to be used to upgrade current refinery infrastructure. This projection also presumed that there is no viable substitute for petroleum when it comes to powering the transportation sector.

b) Birol said Saudi Arabia does have sufficient reserves to keep up with global demand. The real question is whether or not they have the political will to make the necessary infrastructure improvements.

c) Our reliance on fossil fuel imports from the MENA region will radically increase under every scenario as fossil fuel supplies in OECD nations lose global market share.

d) China will be largest single driver of oil consumption and carbon emissions. Oil imports will increase from 6.3 million barrels per day to 10.3 million by 2030 -- as much as the U.S. imports today.

e) A sustained increase in natural gas prices, combined with a significant drop in demand from consuming nations will most likely result in continued political instability in Saudi Arabia, Iran, Iraq, Algeria, and Qatar.

This is because like Saudi Arabia, these countries continue to refuse to diversify their economies beyond the energy sector. As their populations, most of which will be under 30 years of age, the need for economic growth and new jobs will become paramount. As a result, a sudden drop in revenues earned from natural gas sales could be very damaging. NB: A similar course in oil markets helped contribute to the fall of the Shah of Iran in 1979.

Technorati tags: Energy, Electricity, Environment, Oil, Natural Gas, Iran, Iraq, Saudi Arabia, Algeria