Emerging Markets Focus
energy and lowering cash flow. It is estimated by IEA that global upstream oil and gas investment budgets for 2009 were cut by around 19 percent compared with 2008—a reduction of over $90 bn. The 2010 figures were not encouraging, either.
Fourth, Although the OECD countries are still the largest oil consumers, the current increase in demand for oil and gas is mainly driven by fast economic development in developing countries such as India and China, which account for one-third of the world population but only consume 17 percent of world energy.
Each Chinese, however, consumes only two barrels a year, so even a small increase in Chinese consumption could have a massive impact on the market. Global energy demand is expected to nearly double in the first half of this century. That is partly due to population growth, going to about nine billion people in 2050 from 6.8 billion today. Different from OECD countries, these newly emerging major oil consumers are less supportive of free market principles and are guarded by national oil companies that are controlled and supported by their governments.
Fifth, a rising security of demand concern of major oil producer countries may prevent large scale of investment from happening. To meet the rising energy demand, huge amount of investment is needed. Due to environmental pressure, consumer governments around the world are seeking to reduce consumption and reliance on traditional fossil fuels given that the energy sector is the main contributor of emissions of greenhouse gases.
This rising uncertainty of future consumption level for conventional energy, increases the security-of-demand concern of major export countries, and impedes much needed investment.
As a result of these developments, the global energy scene is going through a fundamental transformation that will not only change the rules of the game; it will also change the game itself and its players.
The “Green Economy” and Energy Alternatives
New sources of energy are desperately needed to compensate for the eventual disappearance of existing fuels as well as to slow the buildup of climate-changing "greenhouse gases" in the atmosphere. In 2030, fossil fuels will still account for exactly the same share of world energy as in 2004 while the expected increase in renewables and biofuels is so slight - a mere 8.1 percent - as to be virtually meaningless. In global warming terms, the implications are nothing short of catastrophic:
Rising reliance on coal (especially in China, India and the Us) means that global emissions of carbon dioxide are projected to rise by 59 percent over the next quarter-century, from 26.9 billion metric tons to 42.9 billion tons. The meaning of this is simple. If these figures hold, there is no hope of averting the worst effects of climate change.
The winds of economic destruction are flattening not just retirement accounts but also naive visions for a green economy. Public support for costly new green mandates is weakening, and government budgets to fund them are bleeding red ink. The market, it is now clear, is not a reliable force for driving the adoption of green technologies.
Just as the role of government is rising across banking and other sectors of the economy, new green will be much more wary of market forces as the route to profit. Supporters of renewable energy have been much more effective in affecting regulation: in most of the US it is now nearly impossible to get approval to build new coal plants (even when they replace older, less efficient units) and half the states force power companies to buy rising amounts of renewable electricity almost regardless of cost.
Final Word
What makes the world energy somehow unstable are "above-ground factors." Ironically, the choices we made to achieve our unprecedented prosperity may bring about our downfall. In 1950, there were 2.5 billion people and a global economy of $7 trillion. Today, the consequences of energy use are felt in every wallet, on each continent, coastline and in our shared atmosphere. The new energy future will likely be a world powered by cleaner fossil fuels, more renewable energy and nuclear.
It will be a world where cars, appliances and buildings are much more energy-efficient. Biofuels, wind and solar will grow rapidly from their small base. Renewables could make up 30 per cent of the world’s energy by 2050, if we include hydroelectricity. Fossil fuels and nuclear will make up the rest. In the transport sector, consumers will enjoy a wider array of fuel choices. Vehicles will be powered by everything from advanced petrol and diesel to biofuels, electricity and, eventually, hydrogen.
The global business community is the crucial link that will enable the world to get to grips with the energy challenge of the coming decades. Governments will set the framework, scientists will invent the technologies and consumers will adapt to a less energy-intensive world, but it is business that will develop, deliver and apply the technologies at every level. How successful it is will determine how successfully the world copes.
About the Author: A former Turkish diplomat, IEA Principal Administrator, Head of OECD Global Forum, Mehmet Öğütçü is Director of a major multinational energy corporation (UK); Chairman, The Bosphorus Summit; a teaching fellow with London School of Economics, Reading University; and a regular columnist in international and Turkish publications.
The views expressed in this paper are the author’s and do not necessarily reflect those of any organisation he is associated with. He can be contacted at
ogutcudunya@yahoo.co.uk
Drillers and Dealers :::
::: February 2011 Edition
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