Importance And Relevance Of Global Energy Outlook And Energy Policy Frameworks

1. Explain the importance and relevance of global energy outlook within cmontemporary organisations and evaluate the relationship between these organisation and countries.

2. Analyse the different energy policy frameworks in relation to the impact of the different elements of energy sources and sustainability

Changes in the Worldwide Energy Sector

The worldwide energy sector is undergoing rapid changes. The world energy demand is being pulled up by increase in the world population and economic proliferation that are happening all over the planet. Additionally, technological advancement wave sweeping across the globe is not only decreasing the cost but also boosting efficiency of the energy sector. Besides, atypical energy resources are now becoming usable; the end result being the unstoppable and fast changing trends in the way energy is produced, consumed and how trade is carried out (IEA, 1998a).

The Organization of Oil Exporting Countries and International Energy Agency, thereof known as OPEC and IEA respectively, are two major players in the international energy discourse (Commissariat al l’Emergie Atomique, 2000). They give direction on decision-making process by ensuring the availability of myriad of energy data, forecasts and analyses every year. These aid decision makers to come up with well informed decisions. The two organizations follow the worldwide energy market dynamics to give forward both short, medium and long term energy point of views. In the process, they offer their intuition into the way energy market keep on changing (Commissariat al l’Emergie Atomique, 2000). Due to significant role that these outlooks perform in equipping the decision makers with relevant and information required, the mode of presenting the information by these outlooks is very important and worth studying. All the same, they have similarities and differences.

The concepts underlying some energy sources such as biomass and fossil fuels are easily understood because they are combustible and their primary energy content can easily be measured. On the other hand, determining primary energy for other sources is more complicated and the approach is tedious (IEA, 2000). For instance, calculating the primary energy of wind, hydro, solar and geothermal involves identification of the amount of electricity produced, which the secondary energy got after transformation and thereafter dividing the estimated transformed energy by the rate of conversion efficiency.

The assumptions made by the OPEC and IEA while carrying out conversion efficiency are the same. These assumptions are based on the sources of renewable electricity and nuclear energy (IAE, 2014). The two organizations use the fact that biomass undergo combustion just like other fossil fuels. They assume 35% conversion efficiency. The percentage assumed is determined by the mean energy composition of biomass. Thus both OPEC and IEA assume the same energy conversion efficiency for biomass of 35 percent. When it comes to nuclear energy, the two organizations divide the amount of electricity generated by the nuclear power, by efficiency conversion value that is taken to be 33% for common nuclear plant or steam generating plant. The amount of primary nuclear energy taken in this case is as a result of the amount of nuclear reactor that are generated. The same approach is applied to geothermal energy that transform steam energy to electrical energy. However, when it comes to wind and hydro energy, the OPEC and IEA assume that the two do not lose any energy thus their efficiency is 100%. The conversion efficiency for different energy sources discussed above are displayed in the table above.

Role of OPEC and IEA in International Energy Discourse

Both OPEC and IEA bring forward the new trends and milestones that indicate how internal oil markets are changing over short and long period of time. That is in their forecasts about the oil market’s future, the two organizations do agree that the current and future oil market is volatile and is bound undergo dynamic changes. IEA recommended that those countries that are not members of Organization for Economic Co-operation and Development will have higher oil demand than members of the same in 2104. Similarly, OPEC said the trend will come into reality in 2015.

Additionally, another similarity between OPEC and IEA is their approach in evaluating the level of the field when it comes to supply capabilities for a specific country is that they both assume bottom-up method. The information is sought from the smallest geographical/political subdivision such as municipal level and thereafter uses the information to model the entire region needed. However, that does not mean that they take the same upstream approach to produce oil.

The speed of production growth of the countries not members of OPEC is expected by IEA to go down. They further agree that it is not only production that will decelerate but also quantities supplied. The volatility of the price in the market which non-OPEC do not assess will account for the slack in both production and supply. Although the amount of decrease associated with production and supply by countries who are not members of OPEC differ technically and historically, the trend agree in both organizations in that they all conclude that production and supply will decelerate.

Despite the many similarity between OPEC’s and IEA’s outlooks and approaches, we too have conspicuous differences between the two. Medium-term and liquids demand is fragmented by sector by IEA. Using this disaggregation method, the transport sector has always taken control taking more than half of the entire demand posed in the market over medium term period. IEA further adds that the trend being observed, that is petrochemical sector being the fastest growing sector while power and residential sector declining, will continue. On the other hand, OPEC follows a different approach when it comes to sector analysis and forecast. OPEC centers on trends over long period of time in demand by sector (World Bank, 2000).

IEA forecasts for Organization for Economic Co-operation and Development (Americas) is more that OPEC’s projections. The difference in their projection was about 0.5mb/d by 2009. The difference can be accounted by differences in their forecast in supply to Mexico. OPEC is more assertive when it comes to the growth of supply that comes from Latin America. This leads to the 0.5mb/d difference (World Bank, 2000). 

Fossil fuel fix composition over long term forecasts is another major difference between OPEC and IEA projections. IEA projects that the amount of natural gas in supplied in the year 2040 will be 16mb/d lower than the total amount projected by OPEC. On the other hand, the amount of coal and oil supply projected by IEA are both 7mb/d more than the amount forecasted by OPEC for the same energy sources (European Commission, 1997a). Looking at the Current Policies scenarios, IEA notes that share of renewable sources of energy will rise to 15 percent by 2040 whereas OPEC recommends that the rise will be 16 percent. Although both IEA and OPEC Policies Scenario and Reference Case, respectively, coal takes over oil as a leading primary energy being consumed by the year 2040, the decline amount is different. OPEC says that the decline will be from 32 percent to 24 percent while IEA states that the reduction will be from 32 percent to 27 percent.

Reference case of OPEC and Current Policies Scenario of IEA differs when it comes to assumptions related to pricing and valuation. IEA has very high assumptions on pricing leading to 21/bbl difference US dollars and 53/bbl US dollars in the year 2020 and 2040 respectively. Additionally, OPEC speculates that there will be 60 percent rise in the global demand for primary energy sources in the year 2040 as compared to the year 2010 whereas IEA projects that there will be 55 percent increase. Which is a difference of 5% in the demand for primary energy sources between the two (European Commission, 1997a).

A controversial difference arise between OPEC’s and IEA’s comparison approach to Gross Domestic Product growth rate for same geographical regions. The sharp difference arise because IEA make use of the year 2012 whereas OPEC uses the year 2014 as baseline to compute the compound mean growth in a year. 

The plan for the future in the energy industry in a collective responsibility by a number of stakeholders who make decisions based on the information and analysis given by outlooks in the energy sector. For that reason, it paramount that a close attention and sensitivity is given to the outlooks given out to avoid making misguided decisions that might set the industry on fire. That is why information and data given out by industry players such as OPEC and IEA need to analyzed and relevant decision drawn from them; despite the differences and similarities that dominate their forecasts and outlooks.  

Reference

International Energy Agency (2014), Power Generation in the New Policies and 450 Scenarios, https://www.iea.org/media/weowebsite/energymodel/ 

International Energy Agency (2000), Competition in Electricity Markets, Paris

International Energy Agency (1998a), Energy Policies of IEA, Denmark 1998 Review, Paris.

European Commission (1997a), Communication from the Commission: Energy for the future: Renewable Energy Sources-White Paper for a Community Strategy and Action Plan (COM(97)599 final of 26.11.1997). Brussels.

Commissariat al l’Energie Atomique (2000), Nuclear Power Plants in the World, 2000 Edition, Gif-sur-Yvette.

World Bank (2000), Energy for the World’s poor: Energy and Development Report 2000, Washington, DC.