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Renewables - including wind energy and solar power - will become the world's second-largest source of power generation by 2015 and will close in on coal as the primary source by 2035, according to the recently released 2012 edition of the International Energy Agency's (IEA) World Energy Outlook (WEO).

However, this rapid increase hinges critically on continued subsidies, IEA stresses. In 2011, these subsidies (including for biofuels) amounted to $88 billion, but over the period to 2035 need to amount to $4.8 trillion. Over half of this has already been committed to existing projects or is needed to meet 2020 targets.

In its analysis, the IEA finds that the extraordinary growth in oil and natural-gas output in the U.S. will mean a sea change in global energy flows. In the “New Policies Scenario,” the WEO’s central scenario, the U.S. becomes a net exporter of natural gas by 2020 and is almost self-sufficient in energy, in net terms, by 2035.

In that scenario, North America emerges as a net oil exporter, accelerating the switch in direction of international oil trade, with almost 90% of Middle Eastern oil exports being drawn to Asia by 2035. Links between regional gas markets will strengthen as liquefied-natural-gas trade becomes more flexible and contract terms evolve, the IEA adds.

Fossil fuels will remain dominant in the global energy mix, supported by subsidies that, in 2011, jumped by almost 30% to $523 billion, due mainly to increases in the Middle East and North Africa. The IEA forecasts that global oil demand will grow by 7 mb/d to 2020 and will exceed 99 mb/d in 2035, by which time oil prices will reach $125/barrel in real terms (over $215/barrel in nominal terms).

The global outlook for natural gas over the coming decades predicts that demand will increase by 50% to 5 trillion cubic meters in 2035. Nearly half of the increase in production to 2035 will come from unconventional gas, with most of this coming from the U.S., Australia and China.

Whether demand for coal continues to rise will depend on the strength of policy decisions around lower-emissions energy sources and changes in the price of coal relative to natural gas, the report stresses. In the New Policies Scenario, global coal demand increases by 21% and is heavily focused in China and India.

Ambitions for nuclear power have been scaled back as countries have reviewed policies following the incident at Fukushima Daiichi, but capacity is still projected to rise, led by China, Korea, India and Russia.

Water is essential to the production of energy, and the energy sector already accounts for 15% of the world’s total water use. Its needs are set to grow, making water an increasingly important criterion for assessing the viability of energy projects.

In some regions, water constraints are already affecting the reliability of existing operations, and they will introduce additional costs. Expanding power generation and biofuels output underpin an 85% increase in the amount consumed (the volume of water that is not returned to its source after use) through 2035.

The report can be downloaded here.



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