Deciding the Future: Energy Policy Scenarios to 2050

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92 Deciding the Future: Energy Policy Scenarios to 2050 World Energy Council 2007 Appendices Table B-1 Energy price drivers Driver Oil Gas Coal Uranium Demand Reserves Costs Market Power Other Possible Price Outcome − Strong growth − Global trend +1-2% per annum − Currently consumed one-third of proven conventional reserves − Peak oil not an issue for some time − Production costs USD2- 25 (conventional), >USD40 (nonconventional) − Rise of oil synthetics? − Strength of OPEC? − Development of reserve capacity − EIA price, falling to USD47/bbl in 2014 (2004 value) − IEA more aggressive − Growth similar to oil − Globally +1.5-2% per annum − Very large reserves − 65 years of proven reserves estimated − At least as much again − Non-conventional, too − Shipping costs are key − Three countries with 55% of reserves − Importance of “gasto-gas” competition − Oil de-link − Regional markets important − No price as yet − Growth similar to oil − Globally +1.4-2% per annum − Huge reserves >200 years − Well distributed − If not locally extracted and used, freight rates key driver − Limited − Fuel substitution − Environmental regulation − Reasonably static at around USD50/t − 2004 demand outstripped supply − Secondary sources − >50 years − Geographically concentrated though − Driver is the cost of extraction and shipping − Small number of suppliers − Impact limited − Much investment in mining needed − Nothing reported 10.1.4. Energy Price Drivers Energy prices continue to drive investments and play a vital role in the development of energy systems, and indeed in driving (or limiting) economic growth. No forecasts of future prices are presented here; instead, we focus on pricing the drivers themselves: Demand Reserves Costs Market Power. Table B-1 summarises some key potential outcomes by energy carrier. Overall, it is expected that: • Demand for all energy commodities will remain strong over the coming years, with a considerable potential for demand to outstrip supply. • Reserves do not appear to present a significant constraint in the period covered by the study. • Production costs will vary, and in several circumstances, will drive overall prices upwards. This is particularly so for oil and to an extent gas. Oil and gas costs will increase, driven not only by declining reserves, but also from the inclusion of alternates such as oil sands and tight gas. • Market power seems most likely to diminish, although some countries, as a consequence of their dominant market position, may be likely to dictate market terms to their own benefit. • Overall, environmental regulation and mitigation costs are seen as being key in the coming years, influencing fuel choice, hence changing the pattern for demand. • Energy sector financial structures must allow for adequate returns to be generated from investments.
Deciding the Future: Energy Policy Scenarios to 2050 World Energy Council 2007 Appendices 93 10.1.5. Investment and Finance Over the coming decades, estimates of investment requirements in the energy sector are huge - on a scale never before seen. Published investment requirements total USD 20 trillion over the next 25 years and are likely to be considerably greater by 2050. This investment is required across the value chain and for all energy carriers, although it is expected that slightly more than half is required in electricity generation and the remainder mostly in oil and gas. There is consensus that this investment can be achieved over time, although there is much to do to facilitate this investment, particularly in emerging markets. The private sector, multilateral agencies, and governments are all in agreement that while the scale of the challenge is enormous, there are sufficient funds available. It is however important to understand that these funds compete for the best projects within the energy sector and also with other infrastructure projects. However, in making investments, a number of critical factors must be actively considered, with some requiring attention so that they do not become barriers: Economic and political stability in the country of investment Stable regulation of the business environment Institutional climate (e.g., contract law) Labour availability Efficient financial system Personal security Environmental regulation stability. Discussions with potential financiers continually suggest that their most preferred investment is one contracted with credit-worthy counterparts in an open and transparent market place established in law. Such requirements are clearly not evident in countries with an uncertain regulatory framework, an unproven market model, as well as in emerging markets, and as such, will undoubtedly require considerable further effort to make investments acceptable. A sound framework to attract these funds is based on two pillars. First, the regulatory environment needs to be robust. Regulatory risk is one of the key risks in the energy sector and has many faces: Discretionary exercise of powers - arbitrary change of quality standards Will the tariff and other key parameters allow investors to reach their return objectives? Impartial dispute resolution CO 2 market after Kyoto?
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