Clean energy should fill impending supply gap: IEA

The mismatch between future energy demand growth and upstream oil and gas investment should be bridged with more financing for clean power rather than for fossil fuels, IEA executive director Fatih Birol said today at the launch of the agency's World Energy Outlook 2021 (WEO).

The IEA estimates that the crude price crashes of 2015 and 2020 left global upstream oil and gas investment at just $330bn last year, less than half of 2014 levels. "The industry is able to do more with less, it is much leaner than it was in 2014, but today's oil and gas investment is really geared towards a future in which consumption is stagnant or even in decline," the IEA's chief energy economist Tim Gould said.

Current levels of upstream oil and gas spending are well-aligned with what would be needed for the remainder of this decade in the IEA's Net Zero Emissions by 2050 (NZE) scenario, which sees no need for new oil and gas fields beyond those already approved for development, according to Gould. But investment in clean energy and infrastructure is out of line with that net zero trajectory. The resulting mismatch creates risks for the future including further swings in oil and gas prices and increased volatility, Gould said.

"What we need to do is not to invest more in coal, oil and gas, but in order to cover the gap we have to invest in demand-side policies," Birol said, adding that this includes electrification, solar, wind and hydrogen. To put the world on a path towards net zero emissions by 2050, the IEA says investment in clean energy projects and infrastructure needs to more than triple over this decade, to nearly $4 trillion/yr by 2030.

The IEA's warnings over an impending supply crunch is at odds with Opec's latest World Oil Outlook (WOO), which said the cyclical nature of commodity markets will ensure that high prices resulting from any supply shortfall will stimulate oil and gas investment again. Cumulative investment requirements in the global oil sector amount to $11.8 trillion over the 2021-45 period, of which upstream accounts for 80pc, the WOO said. This is much more in line with the IEA's Announced Pledges Scenario (APS), which assumes all of the net zero emissions pledges announced by governments so far are fully implemented on time. Under the APS, upstream oil and gas investment averages $572bn/yr in 2021-30 and $455bn/yr in 2031-50.

The IEA and Opec may have different solutions to ensuring sufficient energy supply, but both agree that more support is needed to mobilise clean energy investment in emerging economies. "The energy transition is not being handled properly, the narrative is being distorted," Opec secretary-general Mohammed Barkindo told last week's Energy Intelligence Forum. The "hysteria" taking over energy transition discussions is translating into threats that companies investing or planning to invest in the poorest counties in Africa "may come under regulatory or fiscal incumbrances", Barkindo said.

The IEA says 70pc of the additional clean energy investment required by 2030 needs to happen in emerging and developing economies where "financing is scarce and capital remains up to seven times more expensive than in advanced economies".

By Rowena Edwards