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World Energy Outlook 2016 released

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LNG Industry,

According to the latest edition of the International Energy Agency’s World Energy Outlook, renewables and natural gas are the big winners in the race to meet energy demand growth by 2040.

An analysis of the Paris Agreement on climate change found that the era of fossil fuels appears far from over. Government policies, as well as cost reductions across the energy sector, will enable a doubling of both renewables. Natural gas continues to expand its role while the shares of coal and oil fall back.

“We see clear winners for the next 25 years – natural gas but especially wind and solar – replacing the champion of the previous 25 years, coal,” said Dr Fatih Birol, the IEA's Executive Director. “But there is no single story about the future of global energy: in practice, government policies will determine where we go from here.”

The transformation of the global energy mix described in WEO-2016 means that risks to energy security will evolve. The report expects that another year of lower upstream oil investment in 2017 would create a significant risk of a shortfall in new conventional supply within a few years.

In the longer-term, investment in oil and gas remain essential to meet demand and replace declining production, but the growth in renewables and energy efficiency lessens the call on oil and gas imports in many countries. Increased LNG shipments will change how gas security is perceived. The variable nature of renewables in power generation, especially wind and solar, entails a new focus on electricity security.

“We are entering a period of greater oil price volatility,” said Dr Birol. “If oil prices rise in the short term, then shale producers can react quite quickly to put more oil on the market, producing a see-saw movement. And if we continue to see subdued investments in new conventional oil projects, this could have profound consequences in the longer term.”

Global oil demand continues to grow until 2040, mostly because of the lack of easy alternatives to oil in road freight, aviation and petrochemicals, according to WEO-2016. However, oil demand from passenger cars is expected to decline due to improvements in efficiency, but also biofuels and rising ownership of electric cars.

The report states that coal consumption will grow very little in the next 25 years, as demand in China starts to fall back. The gas market will also be changing, with the share of LNG overtaking pipelines and growing to more than half of the global long-distance gas trade, up from a quarter in 2000.

The Paris Agreement, which entered into force on 4 November, is a major step forward in the fight against global warming. But meeting more ambitious climate goals will be extremely challenging and require a step change in the pace of decarbonisation and efficiency. Implementing current international pledges will only slow down the projected rise in energy-related carbon emissions from an average of 650 million tpy since 2000 to around 150 million tpy in 2040.

“Renewables make very large strides in coming decades but their gains remain largely confined to electricity generation,” said Dr Birol. “The next frontier for the renewable story is to expand their use in the industrial, building and transportation sectors where enormous potential for growth exists.”

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