Saturday, March 30, 2013

The Future of Global Energy

We've often heard the familiar warnings that the world's natural resources dwindle year after year, inching humanity closer to a point of no return. Damage to earth's forests, oceans and atmosphere, however, may not be enough to persuade policymakers to take bold steps toward cleaner, alternative energy sources and carbon emission reductions goals. Such steps shape global energy markets and trends, as does energy diversification, supply and demand. Unpredictable events, such as the Fukushima nuclear disaster, can also mold the energy markets of the future. Thus, it is critical to examine the various moving parts involved in world energy markets in order to accurately assess the future of these markets.

A few characteristics of global energy markets give some context for what we should expect in the future. The rise and fall of energy prices have ripple effects across other energy and energy-related industries. OECD countries, including  the United States, are demanding less and less oil, while burgeoning economies in East Asia see an increase in demand for petroleum that drives an expected overall increase in global demand for oil in the coming decades. Countries such as China and Germany are heavily subsidizing solar power, and new technologies in wind and solar could enable more efficient harnessing of these energy sources. And finally, much of the predictions for the future of global energy markets depend on two critical points: bringing Iraq's vast oil reserves online and the potential of unconventional oil and gas extraction (by fracking, for example), especially in the United States.

Unlocking American Energy Potential: Hydraulic Fracturing (Fracking)

The the U.S. Energy Information Administration (EIA), in its 2012 global energy outlook, speculated that the United States could be a net oil exporter by 2030. There is also enormous potential for natural gas extraction. Steadily falling demand for oil in the United States coupled with the development of new alternative fuels technologies and new extraction techniques lead many analysts to predict that the U.S. could be energy independent in the not-so-distant future. This will have huge consequences for America's geostrategic interests abroad, and raises even larger questions concerning the means to this end. Here, I'm referring to the practices of fracking and horizontal drilling that have enabled, and will continue to enable, the extraction of unconventional gas and oil from shale. Fracking is an ultimate result of the high cost of oil, which allows for this expensive technology to be used while still turning profits. A key benefit of fracking and horizontal drilling is that they enable large-scale production of oil and gas. Fracking works by pumping liquids, usually water, at high pressure underground to form cracks in shale rock. From these cracks, oil and associated gases can be harnessed, but not without environmental risk (where does the waste water go?). This has been by far the most significant obstacle for more widespread expansion of fracking and horizontal drilling. However, proponents and opponents of fracking both agree that safety and environmental standards will need to be in place so that any future energy extraction is done responsibly. The recent outcry in New York state reinforces both the public's wariness of fracking and the lack of vetted data on the impacts of fracking and horizontal drilling. Public opinion, though, will most likely shift as soon as the Environmental Protection Agency (EPA) publishes its study on the environmental impacts of fracking. It should come out sometime in 2014.   

Petroleum Supply, Demand and Output

As stated earlier, predictions on the future of energy markets, and especially oil markets, hinge on Iraq's oil reserves and U.S. energy production. Following the American withdrawal, Iraq's political disorder ushered in considerable speculation on the country's ability to extract oil, transport it to ports via pipelines, and get the oil to destination markets. If all goes well, bringing Iraqi oil production online will definitely embolden OPEC in the coming decades, as OPEC countries own a large slice of the world's oil reserves. At existing prices and technology, oil extraction in Iraq is entirely doable, but it is unclear if Iraq can live up to its petroleum potential. Harnessing this potential will help accomodate the overall  growing demand for oil around the globe. 

There is though, something to be said about the nature of global energy markets and how Iraq's success or failure plays into these markets. Today's oil producers are all over the world. Indeed, the United States could even become a major global exporter of oil. Minor disruptions in oil supply at one source can be made up from other oil producers. This would seem to temper speculations on Iraq's oil success in that we could just buy oil from somewhere else if Iraq fails to live up to expectations. But since Iraq is part of OPEC--a cartel of oil-producing countries concentrated in the Middle East and North Africa--the latter's share of oil production is expected to increase, therefore assigning the cartel growing importance in the coming decades. You could even say that the success or failure of Iraq translates to the prominence or waning influence of OPEC in the future. 

Energy Diversification and Carbon Capture and Storage (CCS)
(Graphs from REN21: Renewable Energy Policy Network for the 21st Century)

Renewable and alternative energy sources constitute a greater and greater percentage of global energy production. However, as touched upon above, some sources of energy are falling out of favor. Nuclear energy after the Fukushima disaster is being carefully scaled back in a number of countries. Some countries, such as Germany and Japan, are pursuing programs to eliminate nuclear power altogether. Nuclear energy has, however, expanded in China, Russia, India and South Korea, despite representing a falling share of global electricity production. Like the nuclear energy industry, the biofuels industry is also facing problems, chief of which are the high costs of research and technologies associated with biofuels production and energy extraction from plant life. Nuclear energy and biofuels aside, the real future of alternative sources of energy lies in solar and wind. New technological developments in solar panels with cheaper, more efficient materials mean that the cost of producing electricity via solar energy is falling and rivaling coal. Current solar technology even allows for storage of electricity for later use, which is important if we are truly to expand solar-generated electricity across the country and the globe. Wind energy, too, is gaining momentum. The U.S. Energy Information Administration (EIA) estimates that by 2020, wind power may provide the U.S. with up to 15% of its electricity. Economic--not just environmental--incentive exists for turbine construction, as it pays more than food production does per acre. New turbine technologies have increased efficiency and driven down prices. Both solar and wind power, however, are still slightly out of the price ranges of cheaper energy sources, such as gas and coal. Expanding renewables like solar and wind will necessitate developing cheaper, more efficient materials and methods, but there is also a legislative route that would both make renewables more affordable, more competitive and reflect the global commitment to reduce carbon emissions. The legislation centers around carbon capture and storage (CCS) requirements for pollutive industries. CCS would apply to factories that burn fossil fuels for electricity, and would require these factories to capture the carbon dioxide emissions and store them properly underground. CCS is inherently costly, and that's the point. By requiring industries to adopt these processes, CCS essentially raises the cost of those pollutive energy sources (coal, gas, oil) and therefore would make renewables far more competitive. If we are serious about reducing carbon emissions and expanding cleaner sources of energy, CCS should be seen as a positive means for achieving these goals. 

To The Future?

A few points about the future of world energy markets can be drawn from these findings. In the oil sector, unpredictability in the future of Iraq and of fracking limits how much we can predict. Oil is still on top and will continue to dominate energy markets, with global demand for oil expecting to rise. Also on the rise are renewables and promising technological advancements, in addition to new techniques that will continue to help mainstream these clean energy sources. Looking forward, high oil prices will be necessary to drive developments in other energy sectors, but only until we reach a point when producing turbines and solar panels is cheaper than producing oil. The question is how long it will take for this to happen, and if the price of oil falls, whether renewables will be able to compete. 

The larger picture for more renewables and alternative fuels will entail envisioning a complete transformation in our electric grid system. Geographic constraints of solar and wind are slowly becoming less of a concern with the introduction of new, more efficient technologies that store excess energy from the wind and sun. But that won't address the pressures these technologies will have on our power grids and the challenges we could face transporting solar and wind energy to all corners of the country and the globe. If we are serious about a cleaner energy future, these concerns must be addressed and their obstacles must be met with new, imaginative ideas for an energy diversified world.

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