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Energy Policy Scenarios to 2050

10.1.4 Energy Price Drivers

Energy prices continue to drive investments and play a vital role in the development of energy systems, and indeed in driving (or limiting) economic growth. No forecasts of future prices are presented here; instead, we focus on pricing the drivers themselves:

• Demand
• Reserves
• Costs
• Market Power.
  

Table B-1  summarises some key potential outcomes by energy carrier.
Overall, it is expected that:

• Demand for all energy commodities will remain strong over the coming years, with a considerable potential for demand to outstrip supply.
• Reserves do not appear to present a significant constraint in the period covered by the study.
• Production costs will vary, and in several circumstances, will drive overall prices upwards. This is particularly so for oil and to an extent gas. Oil and gas costs will increase, driven not only by declining reserves, but also from the inclusion of alternates such as oil sands and tight gas.
• Market power seems most likely to diminish, although some countries, as a consequence of their dominant market position, may be likely to dictate market terms to their own benefit.
• Overall, environmental regulation and mitigation costs are seen as being key in the coming years, influencing fuel choice, hence changing the pattern for demand.
• Energy sector financial structures must allow for adequate returns to be generated from investments.