Geou5022 Global Energy Outlook Autumn Assessment Answers

The International Energy Agency (IEA) and the Organisation of Petroleum Exporting Countries (OPEC) track global energy market trends to produce short, medium and long term energy outlooks. Their insights shape perceptions on how energy markets might evolve and influence important policy and investment decisions around the world.

In light of their different objectives and viewpoints, evaluate any differences and similarities between OPEC and IEA in both their outlook and approaches to producing energy forecasts. You may care to use a SWOT analysis, or other suitable analytical framework.

Introduction:

Energy production is one of the most profitable businesses in the world currently. The principal owners such as the Organization of Petroleum Exporting Countries (OPEC) and International Energy Agency (IEA) are reaping well as far as investments in different sectors of the economy are concerned worldwide. Therefore, it is incumbent to state that the evolution of the energy markets has a great impact on investment choices on earth. This matter is due to the notion that power influences almost 95% of all processes and activities were done. Additionally, Kitous et al (2016) outlines that, any small fluctuation in oil products leads to a massive blow to the economy within a short period. According to IEA, energy evolution might take place using the 450 energy scenario or the current energy scenario. Both mechanisms entail production of energy which follows a systematic free damage to the environment. Consequently, this will help in modelling business such that the use of alternative policies regarding emission and growth rate is regulated as much as possible. Conversely, OPEC operates through the adjustment of Gross Domestic Product (GDP) and the energy assumptions so as to come up with the most exclusive way investment motive.  Apparently, the two organisations project an increment in investment rate by 1.0% annually between 2015 and 2050 (Melikoglu, 2014). This projection is due to constant increase in the population rate thus marking an important aspect of their improvement in market size. The rate at which the energy markets are growing gives one a clear indication of a world whose investment decision is majorly directed by their energy producers.

Similarities and the Differences between OPEC and IEA

Despite that the two companies are viewed as the leading producers of the energy around the world, they have their similarities and the differences in which they apply so as to ensure their market is expanded and maintained as well.  One of the major similarities is that the two companies use short-term outlooks to forecast energy demand. It is estimated that they both use a range of eighteen months in analysing of the behaviour of the market in making the ascertainment concerning demand of energy in the market. They reach a conclusion on such through observing of the market condition, policy development, monitoring of macroeconomics and the shift in technology (Hong et al., 2016). Besides, they rely on benchmarking, oil prices and stocks, trade flows and the movement in the product market. More so, they both revise on their methodologies used in reaching out to the clients on a monthly basis. Through such methods, one finds the best way to which the demand for energy is realised in a given region. As a result, it helps the two in making of the relative changes to their forecast. Likewise, the two companies view India as a nation which has a high demand mainly driven by the transport sector (Zimm, 2017). However, they both have notions that China market is small due to the transformation in which they have experienced in the energy and other sectors of the economy. Such forecasts aids in making adjustment concerning reaching out to the clients.

Apart from the similarities discussed, the IEA and OPEC have differences emanating from the outlook and the approaches in which they apply in making of energy production forecasts. Oil prices are one of the main distinctive features of the companies. OPEC uses OPEC Reference Basket (ORB). It entails the measurement of the crude oil supplied to its consumers (Hong, Pinson & Fan, 2014). The more the amount provided, the lower the prices due to the wider market being experienced. Contrary, IEA uses the average import price in making the projection in future prices of its oil. It bases this on the perspective of its members' capability in future crude oil import prices. Another feature which distinguishes the two individual producers of energy around the world is the economic growth assumptions. IEA relies on the short-term Gross Domestic Product report given by the directions of International Monetary Fund (IMF) in coming up with the suitable approach concerning energy estimates (Thomas, 2017).  Nonetheless, OPEC bases its calculations by making their modeling methods to be used in ascertaining of the most appropriate price to be put forward in the oil trading industry.

Importance and the relevance of global energy outlook

The global oil cartel is in pity state in the world. The problem is caused by the complexity of the political system, increasingly competitive carbon market and the economic dynamism which has made the issue on fixing of the oil prices to be difficult. It is appraised that the costs of the oil doubles yearly. In spite of the alarming issues, OPEC after lengthy of discussions adhered to the call of reductions of the oil prices so as to provide an equitable economic growth to both the developing and the well-established countries on economic matters (Cherp et al., 2016). The cutting down of the prices by OPEC proved futile due to the presence of intense competition from other producers. For instance, the rise of shale oil in America as a result of innovation brought forward a stiff rivalry which almost killed the ambitions of OPEC energy producers despite being on the market for over fifty years. Therefore, this causes quite some differences between diverse countries and the organisations since most of the nations driven by the need to use renewable power. This follows a call by World Health Organization (WHO) and the United Nations Environmental Program (UNEP) through their documentation of global warming increase resulting from the extraction of oil. Therefore, for a length of time, it has been hard for nations to harmonise with the key producers of oil due to this problem. Moreover, Coady et al., (2017) reiterates that, the issues of deflation of the prices and diversification of the portfolio beyond gas and oil returns by the companies as led to transitions by other countries. For example, Saudi Arabia is investing in solar energy due to its inability to acknowledge the demand provided by OPEC. In a nutshell, one can summarise that the problems experienced by the oil cartels and different countries are important in shaping up the beauty of the earth by innovating of cheap and healthy forms of energy which have zero effects on the environment, unlike the fossil one.

Energy policy frameworks

Energy regulatory frameworks were developed to ensure that the cost and the health matters worldwide are observed since this two have a great impact. The methods forwarded were entailed to address issues such has distribution and the consumption of energy. Power structures have elements such has the future energy sources, a fraction of the population which might endure energy poverty, goals for future energy and the consequences of national security and policies forwarded by foreigners.  Energy policies are attributed to legislation, guidelines for energy conservation, international treaties, public policy techniques and taxation. According to Bose, (2013), the energy regulatory frameworks are divided into two broad categories which include; national energy policy and state, province or the corporate energy policies. According to national energy policy, measures which involve agency directives, laws and treaties within a sovereign nation are discussed. These agreements outline on the manner in which the usage of the energy made regardless of its distribution within its localities. Additionally, it underscores on the instructions in which the companies dealing with energy sector within a state should incorporate so as to ensure there is a flow of energy throughout the country sustaining its activities (Romero & Linares, 2014). Likewise, the fiscal policies of a nation should be adhered to while one is procuring or distributing power. The traders should pay taxes and provide subsidies so as to prevent exploitation of the power. Another sub-policy under the national policy is the energy security. This system gives the measures such as the international trading agreements and alliances so as to facilitate the continuous supply of power country wide.

Secondly, the state or municipal policy is vital in ensuring that energy used in processes such has construction is well facilitated (Adib, 2015).  The sovereign state cannot be able to control such and thus it is mandatory that this task is performed at other levels. Despite that, some countries in the world have their energy policy to foresee its usage in the country (Bradshaw, 2014). To name a few, the European Union policy, United Kingdom energy policy and the energy policy of Brazil among other many other nations have developed stringent measures to manage oil practices in their countries. All this are geared towards sustainability of different sources of energy used at the country's level.

Conclusion

Energy is the key source of power used in running of various activities in all the sectors of the economy. It is prudent for the distinct bodies mandated to procure and sell like the OPEC and the IEA to work in an ethical way so as to ensure equitable and reliable oil worldwide. By doing so, problems such has poverty level can be contained. Finally, the heads of states should make sure that rules and regulations forwarded concerning energy production should be within reach of the ordinary citizen.

Reference:

Adib, R., 2015. Renewables 2015 Global Status Report.

Bose, B.K., 2013. Global energy scenario and impact of power electronics in 21st century. IEEE Transactions on Industrial Electronics, 60(7), pp.2638-2651. 

Bradshaw, M.J., 2014. Global energy dilemmas: energy security, globalization, and climate change. Polity.

Cherp, A., Jewell, J., Vinichenko, V., Bauer, N. and De Cian, E., 2016. Global energy security under different climate policies, GDP growth rates and fossil resource availabilities. Climatic Change, 136(1), pp.83-94.

Coady, D., Parry, I., Sears, L. and Shang, B., 2017. How Large Are Global Fossil Fuel Subsidies?. World Development, 91, pp.11-27.

Coady, D., Parry, I.W., Sears, L. and Shang, B., 2015. How large are global energy subsidies? (No. 15-105). International Monetary Fund.

Hong, T., Pinson, P. and Fan, S., 2014. Global energy forecasting competition 2012.

Hong, T., Pinson, P., Fan, S., Zareipour, H., Troccoli, A. and Hyndman, R.J., 2016. Probabilistic energy forecasting: Global energy forecasting competition 2014 and beyond.

Kitous, A., Keramidas, K., Vandyck, T. and Saveyn, B., 2016. Global Energy and Climate Outlook (GECO 2016) Road from Paris (No. JRC101899). Joint Research Centre (Seville site).

Melikoglu, M., 2014. Shale gas: Analysis of its role in the global energy market. Renewable and Sustainable Energy Reviews, 37, pp.460-468. 

Romero, J.C. and Linares, P., 2014. Exergy as a global energy sustainability indicator. A review of the state of the art. Renewable and Sustainable Energy Reviews, 33, pp.427-442.

Thomas, C.S., 2017. Petroleum and Coal Proven Reserves: The Case for Coal and the Demise of OPEC. In Stopping Climate Change: the Case for Hydrogen and Coal (pp. 35-40). Springer International Publishing.

Zimm, C., 2017. Global Energy Assessment (GEA) and its Impact.