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Seven megatrends

In the course of history, energy has always been a driving force for change. Nearly no other industry can claim having a more far-reaching effect on other industry sectors or society at large. The world is continually challenged to find answers to pressing questions surrounding energy supply, energy demand, and sustainability issues in the 21st century. In this article, we present seven megatrends which may continue to determine the energy political agenda in coming decades.

 

Lower priority of “climate change”

 

It seems obvious that the discussion regarding climate change has lost its momentum and fallen behind economic priorities. Currently, the top challenges are the global financial crisis, unemployment, and reforming the banking industry. Global leaders are using the term “climate change” less frequently and it seems this trend will continue. Other topics taking precedence are: economic growth, competitiveness, affordability of energy, and the security of energy supplies. 

This paradigm shift doesn’t mean that climate change should disappear from the global agenda. It is part of our daily reality that millions of people, both in developing countries and developed urban areas, often reside under unbearable conditions caused by recurring floods and tropical storms, for example. Because of these conditions, climate questions will not be lost in oblivion.

Climate change will likely stay on the agenda but with lower priority compared to other energy political issues.

 

Growing demand for energy

 

Another megatrend which influences global politics around energy is the increasing global thirst for energy.

Some studies propose that the global demand will grow dramatically especially in developing countries; an increase up to 45% by 2030. The estimated demand growth in developed economies is around 2.5% for the same time frame. The three strong trends driving short to medium term energy demand are growth in population, economic growth, and urbanization.

We can expect a drastic increase both in birth rates and in economically active population in emerging economies.

This demographic trend produces more than double the economic growth of such economies over industrialized ones.

Strong economic growth is accompanied by higher standards of living and prosperity; this results in increased energy consumption. Also, the astronomical growth of urban populations requires additional residential buildings, public transport and infrastructure, water supply, and disposal systems. All of these result in an increase of energy consumption.

Despite a green revolution, fossil energy remains indispensable

 

Renewable energy should be used to cover the growing demand for energy. However, despite all efforts to beef up renewable energy production, we are still too far away to proclaim “the age of renewable energy.” Global energy demand is projected to increase more than 25% by 2030.

As this cannot be supported by renewable energy alone, this will also lead to an increase of fossil fuel production. 

It is projected that about 80% of the global energy mix in 2030 will come from fossil energy sources. Past beliefs that the world would slowly say good-bye to fossil fuels in the coming decades can be safely set aside. Better reclamation techniques, technical advances, and non-conventional hydrocarbon sources such as tight oil, tight gas, shale gas and oil bring a significant increase of available fossil fuel sources. The phenomenon of the American “shale revolution” explains much of this development. For example, the Bakken shale-oil reservoir

in North Dakota and Montana is estimated to hold more than 3.6 billion barrels of oil. This alone is comparable to the total exploitable reserves of the state of Gabon, and represents 13% of the current estimated US reserves. This recent development significantly reduces US oil imports and impacts the geopolitical situation as the US moves towards more energy independence. Time will tell, but it is likely this will also influence the scope and dynamic of future US engagements in the Middle East.

Facing these developments it becomes clear, even though we see more green energy in the future, the lion’s share of the world’s increasing energy demand continues to be covered by fossil fuels.

 

Increasing energy nationalism and imperialism

The ongoing dependency on fossil fuel sources has political and strategic consequences. Government regimes that possess meaningful energy resources exercise political

pressure and also seek to profit economically. State-owned oil companies control about 90% of the global oil reserves and 75% of the global exploitation activities.

As we know, some of the world’s largest conventional gas reserves are geographically spread over Russia, Qatar, and Iran. Currently the world’s largest private oil company, ExxonMobil, only ranks fourteenth with regards to controlled reserves. This also means it is likely that resource rich states may further exploit their resource power to influence foreign affairs. It is worth mentioning that objectives of state-controlled energy companies may differ significantly from private companies which usually follow the laws of economics.

Other nationalistic tendencies which are observable, but less visible, are bound to resource rich states. As we can see from the renewable sector, especially the solar sector, there is a “subsidy war” going on between Europe and China. It seems China has emerged as the winner. China engages on all fronts (e.g. in Africa, South America, Central Asia) to secure sufficient energy supply for its growing economy.

Looking into the future, it is likely that the political powers of the world will continue to secure the projected scarce resources; distorting geopolitics which may bring about major disputes and momentous consequences if not considered thoughtfully.

 

Increased risk for critical infrastructure

Although such conflicts on a global scale still seem distant, we can already observe increasing threats to critical energy infrastructure. Since the beginning of the Arab Spring in January 2011, sabotage activities have become a recurring item on global energy agendas. Oil production plants and pipelines have become assault targets mainly in the MENA (Mid East & North Africa) region, which in turn leads to supply interruptions for oil importing countries. As a most notable example of an attack, Libyan oil production fell by 90% from 1.6 million barrel per day to only 169,000 barrels per day within only three months back in 2011!

Although physical attacks can have significant conse-quences to global energy markets, a bigger threat for critical infrastructure may be cyber espionage and cyber-attacks. The discovery of the Stuxnet worm in 2010 had far reaching consequences for cyber security. The virus was able to infiltrate the SCADA-systems (supervisory control and data acquisition systems), a standard technology which is used to steer industrial complexes and processing units around the world.

Ironically, the more advanced and complex the tech-nology behind critical infrastructure becomes, the more vulnerable it is to cyber-attacks, it seems.

 

An unlikely renaissance of nuclear power

Despite the increased operating risk for critical in-frastructure, we may see an increase of nuclear power utilization. It seems the Fukushima incident from 2011 raised doubts about the secureness of nuclear power generation, even changing policy programs in Germany, Belgium and Switzerland. Italy also halted plans to invest and build new nuclear power plants.

Stronger safety regulations, delayed investments, higher insurance premiums, and more opposition slow down future nuclear expansion; especially in industrial nations with a higher installed nuclear capacity. Comparably low market prices for fossil energy, through planned high production volumes of gas in the coming decades, and the high building cost for nuclear power plants hardly speak for a nuclear renaissance. This is especially true in the indebted OECD countries. A slowdown in nuclear power expansion can be viewed positively or negatively.

Whatever governments may decide, dealing with nuclear power remains an unwanted challenge. However, it is a challenge that mankind needs to deal with for the sake of future generations.

 

Technical innovation and a functioning market economy drive hope

No international agreements regarding climate pro-tection, growing energy demand, dominance of fossil fuels, energy imperialism, infrastructure at risk, and nuclear challenges does not really project a bright and positive energy future. But when we consider these facts, what might be our best option for overcoming these challenges?

The only true hope lies in the power of innovation and a functioning market economy that brings about the following: higher energy efficiency, economic and controlled use of CCS (carbon capture and storage), new energy storage technologies, drastic advances in the efficient use of conventional and non-conventional energy sources and technologies, the substitution of oil through gas or hydrogen in the transport sector, and the deployment of smart grids combined with the ability to market these technologies. This may bring about solutions that are in the interest of our global civilization, supporting healthy people, planet, and profit!

Sources: · Roland Berger Strategy Consultants,  The Trend Compendium 2030 (2011) · Exxon Mobil, The Outlook for Energy: A view to 2040 · IEA, World Energy Outlook (2011) · BP Energy Outlook 2030 (2011) · Friedbert Pflüger, European Centre for Energy  and Resource Security (EUCERS) in KAS · Auslandsinformationen (9/2012)

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