World Energy Outlook 2007

on oil and gas from these regions, the more likely it will be that they will seek
to extract a higher rent from their exports.
The results of the High Growth Scenario provide an indication of the extent to
which the rate of expansion of energy demand in China and India affects
energy prices and, therefore, the affordability of energy – a critical component
of supply security – for the whole of the world. It also shows how sensitive
international energy trade is to economic growth in the two countries, through
its impact on energy demand. In this scenario, GDP is assumed to grow on
average by around 1.5 percentage points per year more than in the Reference
Scenario in both China and India. As a result, their international trade in goods
and services with the rest of the world grows more quickly, boosting global
GDP. But higher economic growth in China and India also drives up their
demand for energy and other raw materials, crowding out demand from other
regions and pushing up international energy prices. 6 In some regions, the
overall impact on GDP is negative. The impact on energy demand of increased
economic output in China and India, and of higher international prices, differs
markedly by region, increasing in some and falling in others.
The average IEA crude oil import price over 2007-2030 is $72 a barrel
(in year-2006 dollars), or 21% higher, in the High Growth Scenario than
in the Reference Scenario; the gap reaches $25 a barrel, or 40%, in 2030
(Figure 4.9). 7 Gas prices rise as much as oil prices in percentage terms, as the
prices are linked through indexation clauses in long-term contracts and, in
competitive gas markets, through inter-fuel competition, though to a lesser
extent. Coal prices increase only modestly in response to stronger world
demand. The price elasticity of supply is relatively high – that is, investment in
new coal capacity is more sensitive to price than for oil and gas – because the
marginal cost of coal production rises slowly with higher global production,
thanks to ample reserves worldwide.
In China and India combined, primary energy demand in 2005-2030 grows
on average by 4.1% per year in the High Growth Scenario – 0.8 percentage
points more than in the Reference Scenario. As a result, demand is 9% higher
in 2015 and 21% higher in 2030. The increase in demand relative to the
Reference Scenario is of the same magnitude for coal, which is 8% higher in
4
6. See the Introduction for a detailed explanation of the methodology used to simulate the impact
of higher economic growth on global energy demand and prices. The results of the High Growth
Scenario for energy markets are described in summary form in Chapters 1 and 2 and in more detail
in Chapter 12 (China) and Chapter 19 (India). The impact on world economic growth and trade is
discussed in Chapter 3.
7. The oil price is an assumption in the Reference Scenario. In the High Growth Scenario, the change
in the price vis-à-vis the Reference Scenario is projected using a hybrid model, WEM-ECO (see
Chapter 3 for details).
Chapter 4 - The World’s Energy Security 183