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World Energy Outlook 2019 highlights deep disparities in the global energy system

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Deep disparities define today’s energy world. The dissonance between well-supplied oil markets and growing geopolitical tensions and uncertainties. The gap between the ever-higher amounts of greenhouse gas emissions being produced and the insufficiency of stated policies to curb those emissions in line with international climate targets. The gap between the promise of energy for all and the lack of electricity access for 850 million people around the world.

The World Energy Outlook 2019, the International Energy Agency’s flagship publication, explores these widening fractures in detail. It explains the impact of today’s decisions on tomorrow’s energy systems, and describes a pathway that enables the world to meet climate, energy access and air quality goals while maintaining a strong focus on the reliability and affordability of energy for a growing global population.

As ever, decisions made by governments remain critical for the future of the energy system. This is evident in the divergences between WEO scenarios that map out different routes the world could follow over the coming decades, depending on the policies, investments, technologies and other choices that decision makers pursue today. Together, these scenarios seek to address a fundamental issue – how to get from where we are now to where we want to go.

The path the world is on right now is shown by the Current Policies Scenario, which provides a baseline picture of how global energy systems would evolve if governments make no changes to their existing policies. In this scenario, energy demand rises by 1.3% a year to 2040, resulting in strains across all aspects of energy markets and a continued strong upward march in energy-related emissions.

The Stated Policies Scenario, formerly known as the New Policies Scenario, incorporates today’s policy intentions and targets in addition to existing measures. The aim is to hold up a mirror to today’s plans and illustrate their consequences. The future outlined in this scenario is still well off track from the aim of a secure and sustainable energy future. It describes a world in 2040 where hundreds of millions of people still go without access to electricity, where pollution-related premature deaths remain around today’s elevated levels, and where CO2 emissions would lock in severe impacts from climate change.

The Sustainable Development Scenario indicates what needs to be done differently to fully achieve climate and other energy goals that policy makers around the world have set themselves. Achieving this scenario – a path fully aligned with the Paris Agreement aim of holding the rise in global temperatures to well below 2°C and pursuing efforts to limit it to 1.5°C – requires rapid and widespread changes across all parts of the energy system. Sharp emission cuts are achieved thanks to multiple fuels and technologies providing efficient and cost-effective energy services for all.

“What comes through with crystal clarity in this year’s World Energy Outlook is there is no single or simple solution to transforming global energy systems,” said Dr Fatih Birol, the IEA’s Executive Director. “Many technologies and fuels have a part to play across all sectors of the economy. For this to happen, we need strong leadership from policy makers, as governments hold the clearest responsibility to act and have the greatest scope to shape the future.”

In the Stated Policies Scenario, energy demand increases by 1% per year to 2040. Low-carbon sources, led by solar PV, supply more than half of this growth, and natural gas accounts for another third. Oil demand flattens out in the 2030s, and coal use edges lower. Some parts of the energy sector, led by electricity, undergo rapid transformations. Some countries, notably those with “net zero” aspirations, go far in reshaping all aspects of their supply and consumption.

However, the momentum behind clean energy is insufficient to offset the effects of an expanding global economy and growing population. The rise in emissions slows but does not peak before 2040.

Shale output from the United States is set to stay higher for longer than previously projected, reshaping global markets, trade flows and security. In the Stated Policies Scenario, annual US production growth slows from the breakneck pace seen in recent years, but the United States still accounts for 85% of the increase in global oil production to 2030, and for 30% of the increase in gas. By 2025, total US shale output (oil and gas) overtakes total oil and gas production from Russia.

“The shale revolution highlights that rapid change in the energy system is possible when an initial push to develop new technologies is complemented by strong market incentives and large-scale investment,” said Dr Birol. “The effects have been striking, with US shale now acting as a strong counterweight to efforts to manage oil markets.”

The higher US output pushes down the share of OPEC members and Russia in total oil production, which drops to 47% in 2030, from 55% in the mid-2000s. But whichever pathway the energy system follows, the world is set to rely heavily on oil supply from the Middle East for years to come.

Alongside the immense task of putting emissions on a sustainable trajectory, energy security remains paramount for governments around the globe. Traditional risks have not gone away, and new hazards such as cybersecurity and extreme weather require constant vigilance. Meanwhile, the continued transformation of the electricity sector requires policy makers to move fast to keep pace with technological change and the rising need for the flexible operation of power systems.

“The world urgently needs to put a laser-like focus on bringing down global emissions. This calls for a grand coalition encompassing governments, investors, companies and everyone else who is committed to tackling climate change,” said Dr Birol. “Our Sustainable Development Scenario is tailor-made to help guide the members of such a coalition in their efforts to address the massive climate challenge that faces us all.”

A sharp pick-up in energy efficiency improvements is the element that does the most to bring the world towards the Sustainable Development Scenario. Right now, efficiency improvements are slowing: the 1.2% rate in 2018 is around half the average seen since 2010 and remains far below the 3% rate that would be needed.

Electricity is one of the few energy sources that sees rising consumption over the next two decades in the Sustainable Development Scenario. Electricity’s share of final consumption overtakes that of oil, today’s leader, by 2040. Wind and solar PV provide almost all the increase in electricity generation.

Putting electricity systems on a sustainable path will require more than just adding more renewables. The world also needs to focus on the emissions that are “locked in” to existing systems. Over the past 20 years, Asia has accounted for 90% of all coal-fired capacity built worldwide, and these plants potentially have long operational lifetimes ahead of them. This year’s WEO considers three options to bring down emissions from the existing global coal fleet: to retrofit plants with carbon capture, utilisation and storage or biomass co-firing equipment; to repurpose them to focus on providing system adequacy and flexibility; or to retire them earlier.

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Russia and the EU’s messy energy divorce places both sides in a race against time

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The debate over Russian gas is heating up across Europe. For instance, Nord Stream’s turbine maintenance procedures would have been a routine issue before, but now it has turned into a major political problem. And then there’s the situation regarding pumping gas through the parts of the Ukrainian pipeline system that are not currently controlled by Kiev.

We will let the experts deal with the legal side of things, but as things stand, we can assume this is not the most important aspect. Europe (not just the EU, but the whole geographical region) is facing a massive force majeure situation, which normally serves as a legitimate basis for suspending any contractual obligations. The fact that the players concerned haven’t stated it officially is a political game, in which each team is trying not to lose too much (yes, some games don’t have a winner at all). Another objective is to postpone a decisive energy battle, which is not inevitable, but very likely.

For over 50 years, energy partnership has served as a strategic foundation for relations between Moscow and Brussels. This partnership has been extremely beneficial for both sides.

The EU received cheap gas, which helped it compete in the global markets even before the end of the Cold War, but especially afterwards. Meanwhile, Moscow gained a steady income and strategic partnership in engineering.

After the USSR’s collapse, the cooperation grew stronger, since bilateral limitations in the areas of politics and security became lax. Even though these restrictions didn’t disappear altogether, mutual dependence and benefits boosted cooperation, which seemed to guarantee peace and stability.

The situation began to change long before 2022. Transit countries trying to capitalize on Soviet pipelines was a major complication. New elements were at play now, something that wasn’t part of the original setup. The political logic behind the EU project with its expansion eastward and the new balance of the whole system amplified the transit factor, which began to influence decisions made by Western European leaders.

On the other hand, the bloc itself started to diversify energy sources, trying to minimize the role of fossil fuels. This inevitably shook the foundation. Since late 1960s, long-term contracts had been the basis for energy cooperation. This allowed the sides to plan ahead. But from the beginning of the 21st century, this planning timeframe started to shrink, which resulted in some anxious behavior.

The events unfolding in 2022 have been indicative of one thing – that political ambitions and impulses have finally trumped economic expediency, and when that happened, mutual dependence became no longer an extenuating factor in an otherwise quite naturally competitive relationship between major stakeholders on the international market, but an aggravating one. Hence the current battle of wills that puts the involved parties’ resolve and resilience to the test.

There is now less incentive for flexibility. Russia and Gazprom right now are simply following the protocol: If maintenance is scheduled, maintenance is scheduled, and so on.

Under normal circumstances, there would be no problem getting the procedure on track, agreeing on the details with the client, or finding workarounds if necessary. However, in circumstances that are far from normal, everything becomes a problem, on top of the fact that trust in politics and business has a very short shelf life, and is not so easy to win back, if at all.

As of today, it’s impossible to imagine Russia and the EU ever returning to the same relationship in the energy sector they enjoyed before. This dynamic is now being used by Moscow for political leverage in response to the measures of economic punishment undertaken by Brussels in the spring and summer.

In theory, this tit for tat could lead to a certain trade-off that could ease the pressure on both sides, but that would require some strictly pragmatic decision-making, and reason hasn’t exactly been a popular approach so far. The case of Hungary tells us that it actually is possible, but remains an exception to the rule. On the other hand, the European Commission’s call on member states to reduce gas use by 15% was met with protests, since members clearly prefer to make any rationing decisions for themselves independently. As a result, it has been agreed that any cuts will be voluntary and have no mandatory cap. The rest will depend on further developments around many fault lines, including those in Ukraine, the EU itself, and between Russia and the West in general.

The short-term significance of Russian-EU relations in the energy sector is obvious – they will set the tone for the relationship in general for some time.

Nevertheless, they do not seem to have the capacity to remain a priority in the long term. The EU sees its goal as finding a Russian gas-free solution for itself. Russia needs to mirror this behavior and urgently develop infrastructure for alternative consumer markets. These might include some Western European states, too, but only on the bilateral track and under conditions varying from case to case.

From our partner RIAC

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Turkmenistan’s energy relations with China: A significant energy nexus

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Turkmenistan is characterized by one of the most energy-intensive economies with its vast pool of oil and gas fields. Turkmenistan followed a ‘national way of development’ which was based on the Soviet model of development. At the time of its independence in 1991, Turkmenistan was heavily dependent on Russia for selling its gas for a long time despite the long-lasting neutrality strategy.  It was dependent on the soviet pipeline network, which connected the country only to European Russia, through the Central Asia-Center (CAC) pipeline. Russia maintained the monopoly in Turkmenistan’s market through the State-owned company Gazprom and bought Turkmen gas at low prices to cover domestic needs while exporting Russian gas to the European States, obtaining huge revenues from the richer European market. The budget and economy of Turkmenistan became dependent on money coming from Russia due to its gas sales. The energy policy of Turkmenistan has seen a shift towards diversification of its energy resources while coming out of the Russian monopoly over the hydrocarbon resources of Turkmenistan with its pipeline system.

Turkmenistan has become one of the most important Central Asian countries for Chinese investment. China has become Turkmenistan’s primary trade and economic partner as a result of the expansion of energy connections and the timely delivery of Turkmen gas in huge quantities to China. The signing of a General Agreement strengthened Turkmenistan’s commercial connections with China in the post-Niyazov era. The signing of a General Agreement on Gas Cooperation between China and Turkmenistan in 2006 solidified Turkmenistan’s commercial connections with China in the post-Niyazov period. This gas transaction paved the way for China National Petroleum Company (CNPC) to develop reserves in eastern Turkmenistan and laid the groundwork for the Central Asia-China pipeline. China has emerged as a crucial ally in Turkmenistan’s diversification policy, which aims to lessen the country’s reliance on Russia. Turkmenistan was able to break Russia’s monopoly on Turkmen exports when the Central Asia-China Gas Pipeline was completed in 2009.

The 1,833-kilometer pipeline that runs from Turkmenistan’s Gedaim to China’s Xinjiang area’s energy-rich Xinjiang region passes via Uzbekistan and Kazakhstan. The Chinese National Petroleum Company (CNPC) initially committed $4 billion to the construction of the Bagtyarlyk gas field (with estimated reserves of 1,3 trillion cubic metres), which served as the pipeline’s primary source of supply. Gradually China’s investment in Turkmenistan’s massive Galkynysh (Renaissance) gas field development, with an unknown value for the first phase and an undisclosed number for the second. Turkmen gas output has grown as a result of Chinese funding for the extraction of the Bagtyyarlyk and Galkynysh large gas resources, which have been successfully supplied via Central Asia. -Gas Pipeline through China

The construction of the Central Asia-China Gas Pipeline has proven to be a significant step forward in Turkmenistan’s diversification plan. Because of its extensive coverage, the Central Asia-China pipeline might be considered the most successful example of regional cooperation in the energy sector. It will expand out through Uzbekistan and Kazakhstan (both suppliers) before reaching Chinese markets, with Tajikistan and Kyrgyzstan acting as transit nations The construction of the gas export route was finished in 2009 and hailed as the “pipeline of the century” by President Gurbanguly. This pipeline proved to be a milestone in the gas trade for Central Asia to bypass Russia. It was a great respite during the tough times when the country suffered the loss from a gas export restriction after the April 2009 explosion in the Central Asia-Center-4 pipeline carrying gas from Turkmenistan to Russia. It led to a nine-month dispute over gas prices between Ashgabat and Moscow, disrupting of flow between the two countries. Although this pipeline opened up a new export channel, Turkmenistan’s energy security remains fragile owing to the lack of shared borders with China, and the passage of Turkmen gas exports is dependent on the agreement of other Central Asian countries

Map 4.4

source: Petroleum Economist; Kazakhstan Railways, UN Carec; FT research 

Turkmen administrations prefer to gradually expand or limit exports to China due to its small population and limited export revenue requirements. Turkmenistan’s strategic hydrocarbon policy appears to be based on the government’s intention to curb the activities of foreign corporations’ engagement upstream (except Chinese state-owned firms). The lack of managerial experience and skilled labour in China, as well as field development and a lack of information, make it difficult to assess the evolution of the country’s gas market, which is rapidly expanding and moving away from fixed and regulated prices toward market mechanisms, as per government policy.

China’s decision to obtain gas from Turkmenistan was based on its industrial strategy, which included providing Turkmenistan with a large-scale credit programme. It made upstream investments and built pipelines with the help of CNPC, a state-owned business, and state banks. The Chinese government encourages the growth of the gas market. The National Development and Reform Commission (NDRC) has adopted a reform plan that is the first significant step toward shifting away from the conventional regulated cost-plus pricing system and toward an oil-linked netback pricing system, which has been tested since November 2011. The objective, according to the NDRC, is to replace a large number of regulated pricing systems in each province with a single city-gate price, and then to “liberalize well-head prices and allow the market to decide the prices” 

Turkmenistan has made a significant contribution to the development of the Lapis Lazuli international transit corridor, which aims to reconnect Afghanistan with world trade by connecting it to the INSTC and BTK lines that run through Turkmenistan, Azerbaijan, Georgia, and Turkey. The Lapis Lazuli International Transit Corridor links Georgia, Turkey, Afghanistan, Turkmenistan, Azerbaijan, and Turkmenistan both by land and rail. It connects to the BTK railway, which travels from China to the Caucasus and then to the EU. Since the beginning of 2018, the corridor has been in use and has been a key factor in Afghanistan’s new economic boom.

Chinese State Councilor and Foreign Minister Wang Yi held a meeting with Turkmen Deputy Prime Minister and Foreign Minister Rashid Meredov on the sidelines of the third “China+Central Asia” (C+C5) Foreign Ministers’ Meeting in Kazakhstan in June 2022 and both sides agreed to intensify energy cooperation Both the countries decided to speed up coordination between the Turkmenistan development strategy and China’s Belt and Road initiative to strengthen global governance, revive the Great Silk Road, and further their cooperation in cyber and biosecurity.

Challenges to the energy partnership with China

Exports to China have increased at a fast pace: in the first half of 2019, China’s imports from Turkmenistan (nearly solely gas) totaled $4.4 billion. While Turkmenistan is China’s largest gas supplier, taking up more than 40% of the country’s totalgas imports, Beijing’s alliances are significantly more broad than Ashgabat’s. Turkmenistan has been using a large portion of its income to repay Chinese loans used to fund its energy infrastructure and is stuck in the debt trap. Turkmenistan owes China billions of dollars in loans for the construction of gas pipes to transport gas from Turkmen fields to China

While Turkmenistan is witnessing a deepening of its energy relations with China with a major boost in its export market, there also emerges a concern about its dependence on China as a gas export market.China has implemented a multi-vector energy policy that includes a well-diversified portfolio of regional gas suppliers, giving it a strong bargaining position when it comes to gas price and volume negotiation. Turkmenistan has become more exposed to Chinese price pressures as a result of China’s 2014 agreement with Russia, which has had a significant influence on the country’s economy. China’s insistence on paying substantially below European prices for Turkmen goods, with the possibility of even lower prices in the future, has Turkmen officials anxious about the country’s rising reliance on China. Ashgabat has become reliant on gas shipments to China, putting Turkmenistan in a weak bargaining position as seen in 2017 when Turkmenistan halted gas supply to Iran over a price dispute. 

The trade pattern between the two countries shows an imbalance in the export and import of hydrocarbon resources. For example, Turkmenistan exports mainly raw materials in the form of hydrocarbons to China, and China on the other hand supplies finished goods, which has negatively affected the local businesses of Turkmenistan. Increasing engagements with China have resulted in the dependent structure of Turkmenistan on China where China is not only interested in achieving energy security but also in politically asserting itself in the region. Having a huge external debt to China, Turkmenistan is not in a position to cut its ties with China but can surely work on reducing its dependence by working on an export diversification strategy. The untapped export market of South Asia in the east and the highly profitable market of Europeans up the opportunity for Turkmenistan to diversify its export routes. The TAPI (Turkmenistan-Afghanistan-Pakistan-India) project offers a potentially lucrative option in the South Asian market as part of Turkmenistan’s diversification strategy. The Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline offers a promising alternative for Turkmenistan to diversify gas exports. It offers the opportunity to reduce the risk of overreliance on a single player. Turkey and Iran also offers the huge the potential to be significant players in Turkmenistan’s diversification strategy.

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Mozambique Risks Economic Stability if it Purchases Russian Oil

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Mozambique risks destabilizing its economy and further loosing western development finance if it goes ahead to purchase sanctioned oil from Russia. With the return of western development finance institutions such International Monetary Fund, World Bank and the USAID, and currently showing tremendous support for sustainable development projects and programmes, Mozambique would have to stay focus and stay clear from the complexities and contradictions of the Russia-Ukraine crisis.

Mozambique needs to seriously concentrate on and pursue its plans of exporting of liquefied natural gas (LNG), extracted from the Coral South field, off the coast of Palma district, in the northern province of Cabo Delgado, possibly starting this October. It marks an economic turning point and opens a new chapter for its revenue sources.

According our research, Mozambique will become the first country in East Africa to export LNG. It will be produced on a floating platform, belonging to a consortium led by the Italian energy company, Eni. The platform, built in a Korean shipyard, arrived in Mozambican waters in January, and is now anchored in Area Four of the Rovuma Basin, some 40 kilometres from the mainland. 

This is the first deep-water platform in the world to operate at a water depth of about two thousand meters. The Coral South project is expected to produce 3.4 million tons of LNG per year over its estimated 25-year lifespan. A second project is planned for Area One of the Rovuma Basin, where the operator is the French company TotalEnergies. The planned LNG plants for this project, are onshore, in the Afungi Peninsula of Palma district. The jihadists seized Palma town in March 2021, and TotalEnergies withdrew all of its staff from the district. Subsequently the Mozambican defence and security forces and their Rwandan allies drove the terrorists out of both Palma and the neighbouring district of Mocimboa da Praia.

Current global economic situation is changing, competition and rivalry for markets also at its height. During the past months, Russia has cut its export of gas as a reciprocal action against European Union members and has redirected its search for new clients in the Asian region. It has already offered discounted prices to China and India, and now looking beyond to Africa.

United States Special Envoy to the United Nations, Thomas-Greenfield, has made one point clear in her speeches with African leaders that “African nations are free to buy grain from Russia but could face consequences if they trade in U.S.-sanctioned commodities such as oil from Russia.”

“Countries can buy Russian agricultural products, including fertilizer and wheat,” Linda Thomas-Greenfield said. But she added that “if a country decides to engage with Russia, where there are sanctions, then they are breaking those sanctions. We caution countries not to break those sanctions because then … they stand the chance of having actions taken against them.”

Russian Ambassador to Mozambique, Alexander Surikov, after a meeting with the Confederation of Economic Associations of Mozambique (CTA), had proposed that the Mozambican authorities could buy Russian oil in roubles, after Moscow presented the option to Maputo. Ambassador Surikov further expressed Russian companies’ continuing interest in investing in Mozambique. Likewise, the possibility was raised of Russia opening a bank in Mozambique focused on supporting bilateral trade and investment.

Russia previously had a VTB bank in Maputo, later involved in opaque deals. It was a financial scandal involving three fraudulent security-linked companies, and two banks – Credit Suisse and VTB of Russia, relating to an illicit loan guarantees issued by the government under former President Armando Guebuza. Until today, it is popularly referred to as “Hidden Debts” scandal involving US$2.7 billion (€2.3 million), the financial scandal that happened in 2013. 

In the aftermath, financial institutions exited and projects abandoned and this southern African country has struggled to rebound economically. Now these institutions are returning with new financial assistance programmes that would promote sustainable and inclusive growth and long-term macroeconomic stability.

In the context of the current cereal crisis, one other issue that the ambassador raised was how Mozambican companies could have direct access to Russian wheat suppliers. In this regard, it was not clear how Russian wheat would enter the market and how it would be paid for because Mozambique uses principally the US dollar in its foreign transactions, and Russia cannot conduct transactions using the US currency due to the sanctions imposed following the invasion of Ukraine.

“The rouble and the metical are worthy currencies that do not need the benevolence of some other countries that control the international system,” the Russian diplomat explained, adding that Moscow wanted to strengthen cooperation with Maputo.

Nonetheless, Minister of Mineral Resources and Energy of Mozambique, Carlos Zacarias, admittedly the possibility of buying Russian oil in roubles. “I am sure that we will study and verify the feasibility of this offer from Russia. If it is viable, for sure Russian oil will be acquired in roubles,” Carlos Zacarias said.

Mozambique’s receptivity to the Russian proposal stems from the fact that the world is experiencing a peculiar moment, characterized by great volatility in oil prices on the international market as a result of the Russia-Ukraine war.

Mozambique was among the countries that abstained on two resolutions that were voted on by the General Assembly of the United Nations, one condemning Russia for the humanitarian crisis in Ukraine as a consequence of the war and the other suspending Moscow from the Human Rights Council.

The Mozambican Liberation Front (Frelimo, the ruling party) was an ally of Moscow during the time of the former USSR, and received military support during the struggle against Portuguese colonialism and economic aid after independence in 1975.

Mozambique and Russia has admirable political relations. Mozambique has to focus on trade and economic development with external partners. According to data provided by CTA, the annual volume of economic transactions between Mozambique and Russia is estimated to be, at least, US$100 million (€98.5 million at current exchange rates).

Experts point to the fact that there is tremendous opportunity window for Mozambique. With partners including ExxonMobil Corp., China National Petroleum Corp. and Mozambican state-owned Empresa Nacional de Hidrocarbonetos, Mozambique has to move towards its own energy development.

Mozambique has considerable gas resources, the right decision is to move toward both an onshore concept and an offshore concept. It has to determine influential external investment partners ready to invest funds and, in practical terms, committed to support sustainble development in the country.

The Mozambique LNG offshore project, valued at around US$20 billion, aims to extract about 13.12 million tonnes of recoverable gas over 25 years and generate profits of US$60.8 billion, half of which will go to the Mozambican state.

The process to achieve this task has started and would generate 14,000 possible jobs in phases – first creating 5,000 jobs for Mozambicans in the construction phase and 1,200 in the operational phase, with a plan to train 2,500 technicians and so forth. These projects also have a great capacity to create indirect jobs, with foreign labour decreasing throughout the project and Mozambican labour increasing. Most of these jobs are expected to be provided by contractors and subcontractors.

Several corporate projects came to a halt due to armed insurgency in 2017 in Cabo Delgado province. The entry of foreign troops to support Mozambican forces mid-2021 has improved the security situation. Since July 2021, an offensive by government troops was fixed, with the support of Rwandan and later by the Standby Joint Force consisting forces from members of the Southern African Development Community (SADC).

Cabo Delgado province, located in northern Mozambique, is rich in natural gas. Although the gas from the three projects approved so far has a destination, Mozambique has proven reserves of over 180 trillion cubic feet, according to data from the Ministry of Mineral Resources and Energy. With an approximate population of 30 million, Mozambique is endowed with natural resources. It is a member of the Southern Africa Development Community (SADC) and the African Union. 

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