LONDON (ICIS)--A drawn-out period of lower oil prices comes with its own risks, and would generate energy-security concerns by encouraging reliance on a small number of low-cost producers, or a sharp price rebound if investment falls short, the International Energy Agency said on Tuesday.

In its World Energy Outlook 2015, the IEA said it forecasts tightening oil supply-demand balance under its central scenario to lead to a price of around $80/bbl by 2020.

"The report finds that the plunge in oil prices has set in motion the forces that lead the market to rebalance, via higher demand and lower growth in supply, although the adjustment mechanism in oil markets is rarely a smooth one," the IEA said.

Demand growth will increase every year by around 900,000 barrels per day (bbl/d) to 2020, touching an overall demand figure of 103.5m bbl/d by 2040.

"Developing Asia, a region in which India takes over from China as the largest source of consumption growth, is the leading demand centre for every major element of the world's energy mix in 2040 – oil, gas, coal, renewables and nuclear," the IEA said.

By 2040, China's net oil import will be approximately five times that of the US, while India's net oil imports will comfortably outpace those of the EU.

Despite forecasting a rise in oil prices to $80/bbl by 2020, the report also examines conditions under which prices could stay lower for much longer.

"Since prices at today's levels push out higher-cost sources of supply, such a scenario depends heavily on the world's lower-cost producers: reliance on Middle East oil exports eventually escalates to a level last seen in the 1970s," the IEA said in its report.

The heavy reliance would lead to elevated concerns over energy security, leaving Asian oil consumers particularly vulnerable.

An erosion in oil prices since its peak in June 2014 has led to sharp cuts in US shale oil production. Oil companies have scaled back on high-cost shale projects, leading to thousands of job losses.

The Middle East already provides one third of the oil supply in the world, and Birol warns against over-reliance on the few number of countries.

"It would be a grave mistake to index our attention to energy security to changes in the oil price," said IEA Executive Director Fatih Birol. "Now is not the time to relax. Quite the opposite: a period of low oil prices is the moment to reinforce our capacity to deal with future energy security threats."

The report also underlines the end of the single largest energy demand growth story of recent decades: China's coal use. The report estimates China's coal use will reach a plateau at close to current levels, as its overall energy demand growth slows, before declining.

"India – the subject of an in-depth focus in [the report] – moves to centre stage in global energy, with high levels of economic growth, a large (and growing) population and low (but increasing) levels of energy use per capita all pushing energy demand to two-and-a-half-times current levels," the IEA said.

IEA's World Energy Outlook 2015 released ahead of the COP21 climate summit in Paris also pays attention to the energy transition underway. The report says renewables contributed almost half of the world's new power generation capacity in 2014 and have already become the second-largest source of electricity after coal.

"Their deployment grows worldwide, with a strong concentration in the power sector where renewables overtake coal as the largest source of electricity generation by the early-2030s," IEA said.



Renewables-based generation reaches 50% in the EU by 2040, around 30% in China and Japan, and above 25% in the US and India.