Why IEA, OPEC and EIA have such different outlooks for energy consumption

16 May 2018 Consultancy.uk 9 min. read
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Energy is a hot topic that transcends the worlds of business, science, government and international relations. Yet new analysis from consultancy UMS Group highlights how an evolving technological landscape, competing interests, and poor quality information, make forecasting future energy trends an extremely complex endeavour.

Predicting future energy consumption trends is a hazardous science. It is plagued with guesswork related to ‘known unknowns’ and ‘unknown unknowns’. Even leading scientific reports differ considerably in their analysis of current resources and projections for the future of energy. An assessment of this troubled political and scientific landscape from UMS Group, a boutique energy and utilities management consulting firm, compares four major predictions of how energy consumption will change over the next 25 years.

These four separate analyses of future energy trends have been developed by the planet’s leading organisations and institutions in the energy sector. Two distinct predictive models come from the International Energy Agency’s (IEA) World Energy Outlook 2018 report. One is a Sustainable Development Scenario (SDS), which is a ‘what if’ analysis based on the successful implementation of the Paris Climate Accord, the other a New Policies Scenario (NPS) which reflects a more realistic projection. Models from the US government’s Energy Information Administration (EIA), and OPEC – the Organization of Petroleum Exporting Countries – make up the other two projections assessed by UMS Group. 

Yet as noted by Mart Vos, a Consultant at UMS Group, they are a drop in the ocean compared to the thousands of other reports released by actors ranging from Shell and BP, to Bloomberg New Energy Finance and several climate change departments like the DECC. What unifies this web of conflicting reports, according to Vos’ analysis, is that they are all different from one another.

Four scenario’s for the future energy consumption mix by 2040

Fossil fuels

This isn’t to say that similarities and broader unifying patterns don’t exist. Instead the issue raised by Vos is that the differences are substantial, despite each report presumably being grounded in hard science. Consider the varied expectations for future consumption of the traditional fossil fuels – oil, gas and coal.

The EIA expects oil demand to increase by 17% in 2040, almost identical to the 16% projected by OPEC. The IEA’s NPS model offers a slightly lower estimate of 10%. The idealistic SDS model projects a huge 25% drop in oil demand if dream policies are implemented. Main reasons for EIA’s more optimistic outlook on oil demand are the rapid industrial growth that will be witnessed in high population countries like India and China (today the two countries combined represent 18% of global GDP, in 2040 this will be around 39%), and increased demand for transportation as upcoming nations continue their shift to urbanised living.

Gas consumption is predicted to rise 43% by the EIA and 57% by OPEC. The IEA’s NPS outlook is in the same ballpark at 45%, while its SDS projections anticipate a much lower 15% rise in gas usage on the back of following recommended policies. As part of the total energy mix, all predictions are relatively alike – between 24% and 26%. Across the board, the US, followed by the Middle East, are forecast to continue to have the biggest gas demands in 2040 (this situation was the same in 2016).

Demand for coal – the planet’s other major finite resource – is not expected to rise much by any of the experts. The EIA anticipates a minor 2% rise, roughly similar to the 5% projected in the IEA’s NPS model. OPEC has more faith in the future of coal, predicting a larger 10% increase in consumption. For all three scenarios, the role of South-East Asia is paramount, as their rise in energy demand will be huge, with their dependence on coal relatively high. 

By contrast the IEA’s optimistic SPS model estimates that consumption could drop by as much as 53% under ideal conditions. In all scenarios, the growing push to displace coal – the most polluting of the three traditional energy sources – has been factored in.

The globe’s largest producers of oil, coal and gas

Nuclear option

Consumption of nuclear and key renewable energy sources is unanimously projected to rise considerably, although to varying degrees. In contrast to the non-renewable fuel sources, where it generally projected a drop in consumption, the IEA’s SPS model instead predicts increases of 115% and 105% respectively for renewables and nuclear consumption by 2040. The EIA and OPEC are in consensus over the future of renewables, predicting respective consumption increases of 74% and 75%. On nuclear the EIA’s projected 43% increase differs sharply from OPEC’s 76%.

Broader predictions

Regardless of the source, whether oil, gas, or nuclear, OPEC expects energy consumption to rise by a total of 35%, the highest estimate. The EIA projection is 28% and the IEA’s NPS model 27%. If the policies proposed by the IEA are enacted, the SDS estimate is a far more optimistic 2% increase in energy consumption. Key factors used for modelling energy consumption are population growth, GDP per capita changes and energy consumption averages of industrial and household products. 

There is only slightly more consensus when wider energy-related predictions are brought into the mix. While all four reports converge on the outlook for population growth – estimates ranging from 23% to 26% – there is substantial divergence between the EIA (63%) and the IEA and OPEC (125% and 126% respectively). On CO2 emissions OPEC is least optimistic, projecting a 22% increase, which contrasts with the lower 5% under the IEA’s NPS model and the 16% anticipated by the EIA. If the SDS model envisaged by the IEA is implemented, CO2 emissions are expected to drop, not increase, by a huge 46%.

The SDS model however is based on, among others, a huge effort in solar energy (3,250 GW of installed solar PV capacity globally in 2040) and vehicle electrification (875 million plug-in vehicles by 2040). Realising these targets is as it stands a challenging task: at the end of 2017 these numbers were approximately 400GW and 3.2 million – illustrating the daunting sustainability task at hand. “The assumptions basically imply that in 2040 the world will have to be twice as efficient with energy compared to 2017,” remarked Vos. 

Four scenario’s for the future energy consumption mix by 2040

Why so different?

“There are many conflicts of interest”, says Vos, highlighting the immense political influence wielded by oil and gas companies, which have a considerable stake in the recommendations or projections made in any government report. Indeed each of the four reports, despite coming from institutional leaders in the field, is flawed in unique ways, Vos argues. 

“The IEA (for example) has always under-forecasted the role of renewables”, he notes. Then there are the “close similarities between the IEA projections and (biased) European fossil fuel industry projections”, from the likes of Shell and BP. Even OPEC – which Vos says is rarely considered an objective party in predicting energy demands – acknowledges that a lack of oil discoveries might affect forecasts, which the IEA makes no mention of. Despite being an arm of the US government, Vos observes that the “EIA has a high prediction error over the past 10 years”, which calls into question the viability of its International Energy Outlook, particularly with respect to renewables. Going one level deeper into his analysis, Vos points out that while renewables might be known as clean energy, the statistics and assumptions backing them are not exactly transparent.

“Investors in renewable energy also try to influence the crowd”, he states, “which leads to false information becoming widespread, while it is hard to predict future technological developments”. Predicting the future of either renewables or traditional fuel sources is a very inexact science, Vos concludes, hamstrung by the impossibility of accounting for all the dynamic market and technological developments that should form the backbone of any accurate predictions. 

In summary, Vos said: “Because of the different scenarios that are being modelled, and the varying interests on organisational, national and global levels, forecasting energy is an extremely complicated task. And as a result, there are a range of different outcomes, with all different outlooks and hence consequences for policy. Adding to the complexity is the rapid change in technological developments which is disrupting industries, making it even harder to be spot-on with predictions.” 

One major development at the moment seems to be a fact: “while renewables are likely to be the fastest growing source of energy, they will likely not surpass traditional energy sources (oil, gas and coal) before 2040. Gas will however overtake coal as second biggest energy source before 2035,” concluded the UMS Group consultant.