Investments totalling more than $48 trillion will be required to meet the world’s growing energy needs over the next two decades, with around half of this needed for fossil fuel extraction to maintain output from existing oil and gas fields, according to the International Energy Agency (IEA).
Releasing a World Energy Outlook investment report on Tuesday, the Paris-based agency said that current annual spending on energy supply of $1.6 trillion needs to increase to $2 trillion in the period to 2035, while also predicting higher oil prices to meet the costs of tapping fossil fuels in more challenging plays.
Of the total investment figure, around $40 trillion will be required for energy supply of which $23 trillion has to be spent on exploitation of fossil fuels, as well as transport and oil refining, that currently accounts for more than $1 trillion of annual spending.
“More than half of the energy supply investment is needed just to keep production at today’s levels, that is to compensate for declining oil and gas fields and to replace power plants and other equipment that reach the end of their productive life,” the IEA stated in its report.
The remaining $8 trillion of cumulative investment over the period is earmarked for energy efficiency measures, mainly in the European Union, North America and China, with 90% being spent in the transport and building sectors.
The agency forecasts that oil prices could rise by $15 per barrel - compared with the current Brent price of $109 - in order to incentivise investments to tap oil and gas in more difficult environments such as deep water and the frontier Arctic.
It expects about two-thirds of investments in fossil fuel exploitation to occur in emerging economies in Asia, Africa and South America.
Future instability in the key Middle East oil producing region is also likely to lead to oil price swings and a higher average price, according to the agency.
However, the IEA said the current investment scenario “falls well short of reaching climate stabilisation goals” to restrict the global temperature rise to 2 degrees Celsius this century.
It stated “today’s policies and market signals are not strong enough to switch investment to low-carbon sources and energy efficiency at the necessary scale and speed”.
The agency said annual spending on energy efficiency measures needs to rise from $130 billion today to more than $550 billion by 2035.
The IEA estimates that cumulative investment in energy supply and energy efficiency needs to increase to around $53 trillion to meet climate goals.
Of this figure, $14 trillion spending on energy efficiency would cut 2035 fuel consumption by 15% while about $40 trillion investment in energy supply would remain within the current scenario, though with a shift away from fossil fuels, according to the agency.
It estimated that about $300 billion in fossil fuel investments would be left stranded by stronger climate policies.