Green energy growth hit by 'low for longer' crude prices - IEA

Author: Jonathan Lopez

2015/11/11

Interview article by Jonathan Lopez

Tim Gould - IEALONDON (ICIS)--“Lower for longer” crude prices forecast by the International Energy Agency (IEA) will hit green energy policies, reducing incentives for cleaner technologies both in transport and chemicals production, a senior analyst at the Agency said on Tuesday.

Tim Gould, head of resources and investment unit at IEA, said that cheap crude oil will halt development of greener energies as companies find it cheaper to produce petrochemicals from actual crude, rather than greener biobased alternatives.

“Lower crude prices diminish incentives to alternatives for crude oil for transport, but also for petrochemicals. What it means, for example, for electric vehicles, for energy efficiency improvements? It all takes a hit from low crude prices,” said Gould.

An interesting development for the energy markets will be Iran’s potential output after sanctions are lifted following the agreement reached with western countries in July, he added.

Although Gould said political risk remains were the terms of the agreement not to be fulfilled by Iran, the assumption the IEA works with is that the country’s production of crude will increase to 4.4m bbl/day by 2020, to 4.9m bbl/day in 2030 and reach its historical highest by 2040 at 5.4m bbl/day.

“Although these assumptions would require long-term investment, where you would need a much more lengthy process of investment, presumably with some participation of international companies. But the 5.4m bbl/day forecast [in Iranian output] by 2040 is quite conservative given the Iranian resource space, but reasonable given the uncertainties,” said Gould.

While Iran is set for a brighter future as a crude exporter, Iraq’s outlook has somehow darkened over the last quarter, with lower revenue from exports as the country’s fiscal policies tighten, said Gould.

“While Iraq’s output has been well over 1m bbl/day over last years, it is expected to slow down considerably in the next two or three years on the back the country’s fiscal squeeze. If you look back to 2012, earnings for the year were at $95.0bn,” he said.

“This year to August, production is higher, exports are higher, but revenue has been around $35.0bn or $36.0bn for the year to August. So you can see there are big issues for Iraq in managing that decline in revenue,” he added

Iraq’s troubles would, on the other hand, be a contributing factor to create space in the market for Iran’s potential new output to penetrate in the crude markets.

While IEA’s outlook focused on India as the next growing economy which will increase its energy consumption over the next years, China’s former position as the world's biggest consumer of crude oil will somehow slow down as the country moves from a manufacturing model to a services economy.

China’s former impetus for coal-to-gas as source of energy has also dampened in the last years after an initial enthusiasm, although Gould said the country could give new approvals for that type of projects as that choice is “heavily” policy contingent.

IEA’s executive director Fatih Birol said earlier on Tuesday that coal, given its low current prices, continues to be the choice of many Asian countries for production of electricity.

“If unconventionals – specially shale gas – makes significant inroads into the Chinese energy mix, for example starting to see production from the Sichuan basin, or coal-to-methane (CTM) coming in larger volumes, policy support for coal-to-gas might diminish because the need for that sort of extra gas is not so great and the economics would become less compelling,” said Gould.

“If, on the other hand, domestic unconventional gas production remains at lower levels the competition with imported gas may be more favourable to coal-to-gas projects but these are related to significant environmental impact, although that could be change in terms of CO2 emissions were the plants to include carbon capture and storage (CCS) technologies.”