A report (“International Energy Outlook 2008”) released this week by the Energy Information Agency (EIA) raises some provocative questions regarding the world’s energy future.  With global population, currently 6.7 billion, projected to reach 8.3 billion by 2030, how will the world’s demand for energy be met?  And at what price?

The EIA's report outlines two scenarios.  Under the “reference case” scenario, where current laws and policies remain unchanged, world energy consumption “driven by robust economic growth and expanding populations in the world’s developing countries.” is projected to grow by 50 percent between 2005 and 2030.

But the reference case assumes that world oil prices will decline to around $70 per barrel in 2015, then rise steadily to $113 per barrel in 2030 ($70 per barrel in inflation-adjusted 2006 dollars).

The report, however, includes an alternative “high price case,” in which world oil prices in 2030—at $186 per barrel in nominal terms—are nearly 65 percent higher than projected in the reference case.

So which price scenario is more likely? The EIA concedes “that world oil prices are on a path that more closely resembles the projection in the high price case than in the reference case.” 

Under the “high price” scenario, world consumption of oil and other liquid fuels “totals only 99.3 million barrels per day in 2030, 13 million barrels per day lower than in the reference case.”

This revised “high price” estimate represents a major revision in EIA thinking. Just six months ago, the EIA was projecting that global oil production would rise to 113 million barrels a day by 2030.  As current production levels are somewhere between 85 and 87 million barrels a day, acceptance of the “high price case” suggests that projected increases in liquid fuel production could be nearly 50 percent lower than anticipated just last year.

The EIA report says that the “composition of supply differs substantially between the reference and high price cases.”  Higher oil prices, in other words, would spur development of bio-fuels and other energy alternatives.

So how would the “high price” scenario affect total energy consumption?  Given the wide disparity in oil prices between the “reference case” and the “high price” scenario, one might expect that the higher prices would boost energy conservation and sharply reduce total energy consumption.  Not according to this report. 

In the “reference case,” the world’s total energy consumption rises at an annual rate of 1.6 percent a year between 2005 and 2030. In the “high price” scenario, total energy consumption still rises at 1.5 percent a year. 

The EIA report appears to indicate that even in the developing world, higher oil prices will not dampen demand for energy.  In the “high price” scenario total energy consumption in Africa increases at an annual rate of 1.9 percent a year between 2005 and 2030, only slightly lower than the rate of 2.0 percent a year in the “reference case” scenario.  In Central and South America (excluding Brazil), total energy consumption under the “high price” energy scenario rises at 1.5 percent a year, only slightly less than the 1.7 percent a year increase that occurs in the “reference case.”

It would be comforting to believe that world energy needs—particularly the needs of the developing world—will be met whether or not the price of oil goes to $186 a barrel by 2030.  But if global oil production is going to peak at less than 100 million barrels—and a growing number of experts believe that it will peak well below that level—the impact on developing world could be severe.  Higher oil prices will translate into higher prices for other forms of energy, including coal and natural gas.  In the developed world, higher energy prices means it costs more to drive your car and air condition your home.  In much of the developing world, energy needs are more basic. Higher energy prices mean that it costs more to fertilize fields and harvest and transport crops to market. 

How rising energy prices will affect poor countries with rapidly growing populations is a matter of enormous concern.  This is an area that needs further research. The EIA report may not be the last word.