2007 Global Energy Survey

Demand Pressures

The sleeping giant awakens – and turns on the lights

More than 90 percent of respondents identified China and its dizzying growth forecasts as the primary demand driver over the next five years. While India is also expected to experience solid growth, Chinese industrial forecasts remain extremely high, fuelling speculation that actual growth will outstrip projections.

According to the IEA, globally, fossil fuels will remain the dominant source of energy through 2030. Fossil fuels are estimated at 83  percent of the overall increase in energy demand between 2004 and 2030. The IEA expects the demand share of oil to drop, although oil will remain the largest single fuel in the global energy mix through 2030. Global oil demand is predicted to reach 99 million barrels per day (MB/D) in 2015 and 116 MB/D in 2030 - up from 84 mb/d in 2005. In contrast to IEA’s numbers from 2005, coal will see the biggest increase in demand in absolute terms, driven mainly by power generation. China and India account for almost four-fifths of the incremental demand for coal. It remains the second-largest primary fuel, its share in global demand increasing slightly.

Western demand is expected to grow conservatively. However, when that conservative growth is compounded with Chinese and Asian growth, rising overall global demand is expected to generate price increases across most energy types.

The following sub-sections provide breakdowns of those price projections by energy type:

Oil Prices

More than 65 percent of respondents predict that global oil prices will remain in the $60-$80 per barrel range during the next 5 years (Figure 3). Less than 5 percent of respondents believe that the oil prices will move above $80 per barrel in the next 5 years, while fewer than 30 percent believe that the oil prices may dip below $60 per  barrel.

Most important, however, the vast majority of respondents believe that the $60-$80 per barrel range may be the new “basis” looking beyond the horizon, suggesting that over the long-term oil prices will only move upward rather than decrease.

Coal Prices

Unlike oil, coal is viewed by the vast majority of executives (80 percent) as the key stabilizing demand factor over the medium term.  The ubiquity of coal supply, new extraction technologies and rich, accessible reserves have led a number of respondents to identify the next five years as a “Coal Renaissance” on a global scale. While most respondents (seven in 10) predict coal to range between $50 and $60 per ton, coal is expected to make up a significantly larger share of the overall global energy mix, putting some downward pressure on oil and gas prices. In addition, some executives believe that coal prices could range as low as $30 per ton due to reserve abundance and global investment in coal extraction technology.

Gas Prices

The survey outlook on gas prices represents a purely North American view. Most respondents (approximately eight in 10) believe that  natural gas prices will range between $10 and $15 MM BTU over the next five years. Approximately one in 10 predict prices to be  ignificantly lower – between $3 and $9 MM BTU, while another one in 10 predict higher prices (higher than $15 MM BTU). Most respondents believe that gas will be indexed on fuel prices.

In addition, six in 10 executives believe that natural gas will not play as an important fuel for electricity production. More than 60 percent of executives believe that natural gas will remain in commodity use in buildings and residential sector as well as a commodity for other goods (chemical processes).

Respondents also indicated that the anticipated proliferation of LNG facilities and transportation infrastructure will have a significant impact on the supply/pricing of natural gas in the coming years (i.e., probably three years and beyond).

Electricity Prices

Most executives surveyed (eight in 10) do not see major increases in electricity prices over the next five years (no more than inflation). However, more than 60 percent of respondents warn that electricity demand will grow significantly in the developing economies, forcing some governments to subsidize either nuclear or hydroelectric development to ensure stable electricity supply.

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