World Energy Outlook 2009 IEA annual report was released in London on November 10. The document offers forecasts taking into account the impact of the global financial crisis, the economic downturn, and the recent cooling of fuel prices on the energy sector.

On the eve of the presentation, there was an impression that the attention of the audience was mainly focused on the part of the report portraying the current and projected state of the global natural gas market. Overstating some of the trends reflected in World Energy Outlook 2009 The Financial Times published a paper on November 5 eloquently titled Forecast of Gas Glut Challenges Russia's Hold on Europe's Supply. The IEA view is that – with predictable implications for gas pricing - the world gas market is oversupplied and “global gas markets have evolved from a seller's market driven by tight supply and demand to a buyer's market as demand weakens while new supply comes on stream”. The key conclusion drawn from the analysis by The Financial Times (but, notably, not by the IEA) is that the current market evolution erodes the positions of Russia's energy giant Gazprom on the gas market.

It will take time to analyze the massive array of data contained in World Energy Outlook 2009, but several circumstances due to which the negative forecasts concerning the gas markets on the whole and Gazprom's standing in particular should be viewed with caution can be identified right away.

First of all, there should be no illusions about the source of the forecasts. According to the IEA self-description, “the International Energy Agency is an autonomous body which was established in November 1974 within the framework of the Organization for Economic Cooperation and Development (OECD) to implement an international energy programme”. The Financial Times interprets the IEA mission in a more straightforward manner, calling it “the rich countries' energy watchdog”. In other words, the IEA created as a counterforce to OPEC immediately following the 1974 oil crisis is automatically supposed to promote the interests of the industrialized importers. Starting with last year's World Energy Outlook 2008 it has been touting the concept of sustainable buyer-dominated market. The approach can be credited with an extent of realism in the settings of the current global crisis. The exporters, whose strategy until recently used to be based on the notion that fuel consumption would grow indefinitely, are currently facing a dramatic contraction of demand.

Certainly, the efforts made by industrialized nations in the spheres of energy efficiency (backed on the legislative level in the OECD countries) and alternative generation contributed to the trend. While overall the policy lacks consistency and occasionally appears artificial, even a partial completion of the goals set by B. Obama's energy plan and Europe's 20-20-20 program is likely to impose a freeze on the oil and gas demand in the US and the EU. The environment-related part of World Energy Outlook 2009 is obviously meant to support the endeavors. Besides, in its latest report the IEA is dishing out “scientific” foundations for the most controversial forecasts of the proponents of tight greenhouse emissions control as the UN-supervised December, 2009 Copenhagen Conference on global warming is drawing closer.

The IEA alarmist scenario (one of several alternatives presented) projects an increase in COx emissions from 20.9 Gt in 1990 to 40.2 Gt in 2020, which would translate into an average six-degree temperature rise across the planet, and, accordingly, into irreversible environmental damage. Some $10.5 trillion in investments would have to be mobilized to put a 2-degree ceiling above the temperature increase and thus to avoid environmental disaster at least until 2030.

World Energy Outlook 2009 says the overcapacity of gas pipeline and liquefaction facilities will reach at least 200 bn cu m by 2015, four times the reserve capacity in 2007. Generally, an unprecedented 50% gasification capacity buildup is expected in 2009-2013, with the re-gasification facilities having almost twice the throughput of those of liquefaction. Excess capacities continue to be injected into the market regardless of the unfavorable conditions it has to offer. Predictably, the market oversupply echoed with serious price reductions. Having flooded the US market, suppliers had to switch to Europe, where their rushed advent similarly caused saturation and an avalanche of prices.

The crisis benefited the importers and opened opportunities for forming a buyer's market of global proportions. This trend is recorded – and grossly overstated – by the IEA. The truth is that buyers' dominance over market cannot be perpetual, and hydrocarbon markets are known to be cyclic as oversupply and underpricing clip investment activity and eventually breed deficiency of capacities. The IEA is fully aware of the fact and actually laid out the same scheme in its May, 2009 report titled The Impact of the Financial and Economic Crisis on Global Energy Investments, where the key finding was that the crisis sent a wave of project delays and cancellations across the production and refinement industries. In 2009, the investment in oil and gas production shrank by 21%, or $100 bn, and, no doubt, the supply is going to be affected already in the mid-term.

World Energy Outlook 2009 also gives a picture of declining investment in the energy sector. The drop totaled $90 bn, or 19%, in 2009 against 2008. Some 20 projects with the cumulative output of 2 mln bpd of oil have been frozen since October, 2008, plus 29 projects have been delayed for at least 18 months additionally taking 3.8 mln bpd of oil off-line. The IEA estimates the investments that have to be poured in till 2030 at $28 trillion, or $1.1 trillion annually (as measured in 2008 prices).

Allegations of bias in the IEA projections saw the light of day practically at the time World Energy Outlook 2009 was released. For example, claims are made that the IEA deliberately inflates oil production forecasts to reassure the markets. Fuel demand is set to increase by 40% by 2030, growing by 2.5% annually in 2010-2015 and somewhat slower thereafter. The IEA says the oil demand will rise by 1% annually – from 85 mln bpd in 2008 to 105 mln bpd in 2030.

UK's Guardian cited an unidentified IEA whistleblower who opined that “The world is much closer to running out of oil than official estimates admit”. He said it was the US – the country whose ire the IEA would avoid drawing under any circumstances - that encouraged the energy watchdog to distort the picture and “to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves”. The officer said the world's oil reserves aren't as vast as reported, the production is already peaking, and the outlook is dire: “The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year... The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this”. Furthermore, he added that “many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further”.

Gradually the global crisis is inducing a structural overhaul of the energy sector, and the changes routinely include the tailoring of supply terms aligned with the buyer's market concept. Low-cost oversupply on the natural gas spot market makes it possible for buyers to demand revisions of the pricing formulas and of the terms of the take-or-pay contracts so as to negotiate lower payment minimums, and Gazprom had already been confronted with the tendency in dealing with the majority of its clients. Fines totaling $2.8 bn as of late September should be imposed on Italy's ENI, Germany's E.ON, Turkish Botas, and several others according to their contract obligations, and tensions over the issue are gradually escalating. Actually, the problem facing Gazprom is much broader: the increasingly assertive importers are making serious efforts to undermine the practice of long-term commitments in gas supply and to switch the market to the spot mode.

Generally, World Energy Outlook 2009 can be regarded as a PR initiative of importers seeking dominance over natural gas markets. Though it must be recognized that the IEA advanced data-gathering system positions its reports among the best sources of information about the state of the energy sector, the IEA estimates and conclusions cannot be taken uncritically due to serious inaccuracies and bias in them. Recently Russian President D. Medvedev said that most of the energy sector analysis shaping the international discourse originates from fuel-importing countries and that Russia must establish its own energy sector monitoring and analysis service. While currently the positions espoused by Russia in the energy sphere are fragmentary, the Russian President said the country must start forming the public opinion and learn to indirectly influence the views held by its partners.