Oil demand could peak within 10 years, but only if governments act aggressively to curb carbon emissions, the International Energy Agency (IEA) predicts in its latest long-term energy outlook.
"Clearly, global oil production will peak one day but that peak will be determined by factors affecting both demand and supply," said the IEA, which advises 28 industrialised countries on energy, in its World Energy Outlook 2010, released last week.
In this year's outlook, the IEA evaluated three scenarios based on worldwide trends in government energy policies.
Its "current policies" case is essentially business as usual, with only those policies adopted before the middle of this year remaining in effect for the forecast period up to 2035.
The second and arguably most likely case, called "new policies", examines what would happen if governments adopted all of the energy policy initiatives they have already announced.
The third case, the "450 scenario", assumes governments increase their efforts to cut carbon emissions to limit the atmospheric concentration of carbon dioxide to 450 parts per million.
That is the maximum concentration that climate change experts believe would keep global warming below 2°C.
But at an international summit in Copenhagen last December, officials failed to reach a consensus on how to achieve the required worldwide reduction in emissions of carbon dioxide and other greenhouse gases.
"[Currently] the growing concentration of oil use in transport and a shift of demand towards subsidised markets are limiting the scope for higher prices to choke off demand through switching to alternative fuels," the IEA contends.
That means there is scope for prices to rise, at least in the medium term.
Under its "new policies" scenario, the IEA predicts constraints on investment and higher crude prices will result in only modest increases in oil production.
Therefore it estimates the price of crude climbs to US$113 a barrel in 2035 from an average last year of just over $60. "Oil demand, excluding biofuels, continues to grow steadily, reaching about 99 million barrels per day (bpd) by 2035 - 15 million bpd higher than in 2009," the agency predicts.
All of the incremental demand would come from developing countries, almost half from China alone, boosted mainly by increasing demand for transport fuels.
Under this scenario, conventional crude oil output fails to regain its all-time peak of 70 million bpd, reached in 2006, while the production of natural gas liquids and unconventional oil grows rapidly. OPEC's share of the global oil supply will increase to more than 50 per cent by 2035, the IEA forecasts.
"The size of ultimately recoverable resources of both conventional and unconventional oil is a major source of uncertainty," it adds.
Under the "450 scenario", which the IEA deems less likely but more desirable for the planet, oil output peaks at 86 million bpd shortly before 2020, because of weaker demand, and falls briskly thereafter. This results in "much lower" oil prices.
"The message is clear: if governments act more vigorously than currently planned to encourage more efficient use of oil and the development of alternatives, then demand for oil might begin to ease soon and, as a result, we might see a fairly early peak in oil production," the agency said.
"That peak would not be caused by resource constraints. But if governments do nothing or little more than at present, then demand will continue to increase, supply costs will rise and the economic burden of oil use will grow," it continued.
"Vulnerability to supply disruptions will increase and the global environment will suffer serious damage."
The IEA acknowledged constraints on the speed at which renewable energy technology could be deployed around the world and suggested gas might serve as an important bridge to a lower carbon economy. China might lead the way to a "golden age of gas".
"It is hard to overstate the growing importance of China in global energy markets," the agency stated. "Prospects for further growth [in energy demand] remain strong, given that China's per-capita consumption level remains low … and that it is the most populous nation on the planet."
The IEA predicts Chinese gas demand will rise by 6 per cent annually under the new policies scenario, or faster if Beijing restrains coal use for environmental reasons.
Over the next 15 years, China is predicted to add power generation capacity, much of it gas-fired, equal to the current installed capacity of the US.
A surprising prediction, given the current gas shortages in most GCC countries, is that much of the incremental gas demand will be supplied from the Middle East.
The IEA suggests annual gas output from the region might double to 800 billion cubic metres by 2035.
The new policies scenario would lead to a continuing boom in gas production from unconventional sources such as shale beds and coal seams, especially in the US and Asia-Pacific regions.
"The glut of global gas-supply capacity that has emerged as a result of the economic crisis, the boom in US unconventional gas production and a surge in liquefied natural gas capacity could persist for longer than many expect," the IEA added.
Renewable energy development would hinge critically on strong government support, it said.
But the use of biofuels in transport is predicted to rise sharply over the forecast period because of rising oil prices and government support.