The International Energy Agency said in a report Tuesday that global energy demand would rise by about 1.5 percent a year between now and 2030, providing huge investment opportunities in upgrades and exploration in Russia.
The energy watchdog said in a report that half of the world’s existing production capacity will need to be replaced over the next 20 years. By that time, only one-third of existing facilities will remain in operation.
Global energy demand will be driven largely by India and China, the IEA report says.
Analysts expect Russian capacity to easily keep pace with domestic and external demand in the short to medium term.
Facilities due to come on stream in the next few years are already earmarked in oil majors’ budgets, comfortably financed by reasonably high oil prices and a healthy cash flow, said Svetlana Grizan, an analyst with VTB Capital.
But given the long lead times of energy projects, the IEA report sparks fears that a current drought in investment could trigger shortages when demand rebounds.
“Any prolonged downturn in investment threatens to constrain capacity growth in the medium term. … This could lead to a renewed surge in prices a few years down the line, when demand is likely to be recovering, and become a constraint on global economic growth,” the World Energy Outlook report says.
Russian oil production is expected to increase by 1.2 percent in 2010, on the back of a large increase in output by state-owned Rosneft, the country’s largest oil company, and steady yields from other producers, VTB Capital said. This figure is expected to reach 2 percent to 2.5 percent in 2011.
State gas monopoly Gazprom, which supplies a quarter of the European Union’s natural gas, is unlikely to be able to secure the necessary financing for expansion of its production facilities without reconsidering its investment priorities, said Alexander Nazarov, an energy analyst with Metropol.
“Gazprom will not be able to invest enough. It is too keen on economically inefficient, political projects,” he said.
The IEA report predicts that “increased cooperation between state multinational energy firms” will be necessary to obtain financing and improve extraction technologies.
But Nazarov said the rush to expand supply over the next 20 years could act as a force to depoliticize the energy industry. “Independent ?producers in Russia may replace ?Gazprom’s falling production,” he said.
The IEA report dubs natural gas “a transition fuel to a clean energy future” and expects demand to increase steadily in industrialized nations as well as in emerging economies, reaching a peak in 2025.