Megatrends

9 Powerful Trends Shaping Our Energy Battles

Eric Rosenbaum, CNBC.com
WATCH LIVE

Rising Nations, Rising Energy Demand

Tim Graham | Getty Images News | Getty Images

The rise of the emerging world nations—in population, access to technology and wealth aspirations—is propelling the world's most critical trends, including the changing face, and more global nature, of energy demand.

We already use all the energy we produce. The higher standard of living in the emerging markets, and another billion-plus people to be added to the planet in the coming decades, will force us to find more ways to supply an energy-starved world.

Emerging world economies present new challenges and potential solutions to sustain economic growth while balancing energy production, demand and intensity of use.

Growth in developing world energy demand will soon increase at an annual rate that is greater than total global energy use in 1970.

If the U.S. were to be erased tomorrow, taking with it all of its carbon emissions, the world would be right back at the same annual level of global emissions in just four years times, due to China's growth alone.

In less than a decade, China's boom will lead to it surpassing the U.S. in emissions per person, as its auto market and appetite for oil explode.

The energy surge is not an insurmountable problem, though. Innovations in drilling--led by the U.S. shale boom, improved energy and transportation market efficiency, and renewable power plant technology and off-grid solutions, will all be part of a global energy dynamic that can rise along with the rising nations of the developing world.

CNBC charts some of the most powerful shifts in the energy market that will shape global responses to increased energy demand from less mature, though booming, nations.

_ By Eric Rosenbaum

June 4, 2013

The Crossover

-
CHG
UNCH
%CHG
UNCH
-
CHG
UNCH
%CHG
UNCH

The emerging world is driving energy demand, and that trend will only increase in the decades ahead. Between 2000 and 2010, non-OECD countries accounted for all world oil demand growth of 14 percent; developed nation demand actually fell.

Energy demand in developing countries will come to represent 90% of global energy demand growth to 2030 and rise 65 percent in absolute terms from 2010 to 2040, according to recent analyses from Exxon Mobil and BP. That demand will more than double OECD demand by 2040: the demand crossover.

It's a trend that officially began in 2005, when non-OECD countries had about the same demand as OECD countries; it will accelerate as half of worldwide energy demand growth will come from China and India alone. The OECD estimates there is a risk that oil prices could rise between $150 and $270 per barrel in real terms by 2020.

Peak Oil's Decline

Kiyoshi Ota | Bloomberg | Getty Images

If the final decades of the 20th century were dominated by fears of peak oil, the early years of the new century have led to a rapid decline in peak oil theory. From the innovations in U.S. shale drilling to the Canadian oil sands and, most recently, Japan's initial success (referenced in this photo of a Japanese exploration vessel) with unlocking deep sea methane hydrate as a fuel source, the world is suddenly awash in unconventional sources of oil and gas that few foresaw a mere decade ago.

Early estimates of the resource potential of similar methane hydrates worldwide suggest an amount as much as twice all other fossil fuels on the planet. The decline of peak oil fears has been most acutely experienced in the U.S., with the rise of shale oil and gas, which has led to a complete rethinking of energy supply and demand.

Sheikh Shale

An oil drilling rig is seen drilled into the Bakken Formation, one of the largest contiguous deposits of oil and natural gas in the United States.
Karen Bleier | AFP | Getty Images

With the arrival of the era of U.S. energy independence, its impacts are broad and just beginning to be felt. A massive shift away from coal and to gas for the U.S. electric industry—power generation will continue to be the largest energy demand source globally in the decades to come—is already lowering carbon emissions at home (though leading more coal abroad).

The shale boom is powering the economy, with a direct impact on job creation, industrial competitiveness and GDP. Natural gas is no longer "the poor stepchild in the oil industry," according to one expert. Yet there is an irony in the rise of America's shale oil and gas industry: The sustainability of its economics may rely on rising energy demand from the rest of the world. And the greatest impact may be felt in the reshaping of geopolitical thinking and foreign policy.

Sheikh Shock/Russia Seeing Red

Dana Smillie | Bloomberg | Getty Images

U.S. oil imports from OPEC producers have fallen more than 20 percent in the past three years. The International Energy Agency predicts the U.S. could become the world's No. 1 oil producer by 2020. Look out, OPEC countries. Ever since Henry Ford persuaded every American to own a car and Winston Churchill converted the British naval fleet from coal, the foreign policy of Western powers has been predicated on access to oil. Yet the Saudi oil tanker pictured here may be making more trips to Asia and less to the U.S. in the future.

If U.S. influence in the Middle East lessens, does China become the predominant geopolitical force obsessed by Middle East access? Will heavily subsidized oil and gas economies such as Saudi Arabia, Iran, Iraq, Venezuela and Russia remain stable and able to modernize their economies, or will the "in the black," natural resource-rich economic stories soon be seeing red?

There are more questions than answers.

Old King Coal

Douglas Graham | CQ Roll Call | Getty Images

While U.S. use of coal has experienced an unprecedented decline—and many experts expect it to be secular rather than cyclical—in the rest of the world, Old King Coal is puffing away, and doing just fine.

The Fukushima nuclear disaster may have led some European nations and Japan away from nuclear for political reasons, but it's only increased the reliance on coal (while driving up the price of natural gas to an all-time high in Japan). In Europe—where the renewable energy leader Germany turned against nuclear after the Japanese disaster—coal consumption is also up, and in the high-growth Asian economies like China, need for coal continues to lead the challenge of meeting rising energy demand.

A World Resources Institute 2012 study found that of the more than 1,000 coal power plants planned worldwide, 76 percent were in China and India. Warren Buffett may receive kudos for his investment in alternative energy power plants, but he's also determined to export more coal to Asia as domestic demand wanes through a Burlington Northern West Coast rail line and export terminal.

The U.S. coal export response to Asia's demand is only a part of the story. Indigenous Asian coal production will account for 48 percent of global energy production growth to 2030, and 35 percent of total global energy production by 2030, according to an analysis from BP.

Given coal's "dirty" reputation, and its continuing ubiquity in the global energy complex—the IEA estimates coal will come close to surpassing oil as the world's top energy source, burning 1.2 billion tons per year, in 2017—there are efforts underway to clean up coal's image, and broaden its use.

Exporting the U.S. Shale 'Miracle'

Diego Giudice | Bloomberg | Getty Images

Geography may be destiny, as military strategists and politicians have opined throughout the modern era, but geology is only a part of destiny when it comes to energy. At the southern tip of the world, countries including Argentina (its legacy gas business in the shale-rich Neuquen region is pictured here) and South Africa, are anxious to exploit the shale. In Poland, early disappointments in drilling are just that—early. Across the vast landmasses of Russia, India and China, the search is underway for shale deposits to repeat the success of the U.S. as a nation on the way to energy self-reliance.

The difference between an average of no more than 3,000-meter deep shale deposits (as in the U.S.), and at least 8,000-meter deep deposits (as in China) is a big difference when it comes to likelihood of success. Access to fresh water—not an issue in the rise of the U.S. shale industry—is a huge issue in other water-starved regions of the world. Technical know-how doesn't exist outside the U.S. and in some markets, like China, the restrictions on foreign ownership of assets may slow the shale process. In India, the overlapping priorities of multiple government agencies can slow permitting to a halt. And that's not even to mention volcanic activity in the South Africa basins where shale deposits may be tapped. Possessing potentially rich shale geology isn't destiny, it's just a start.


The Efficient Frontier

Dibyangshu Sarkar | AFP | Getty Images

Non-OECD countries are going to lead energy demand for decades to come, and they are less-efficient in energy use, and more prone to push up energy use in correlation to economic growth. A 1 percent rise in real GDP pushed up oil demand by a half a percent in OECD countries over the medium to long term, according to a recent OECD analysis, while in the non-OECD nations the same figure is closer to unity.

From now until 2030, low- and medium-income economies outside the OECD are expected to account for 90 percent of population growth (an additional 1.3 billion people), 70 percent of global GDP growth and over 90 percent of global energy demand growth, according to an analysis conducted by BP.

Global energy demand will be about 700 quadrillion BTUs in 2040, but the emerging world should be showing the signs of a more efficient energy-usage economy. Energy-intensive manufacturing in China will have transitioned to a more consumer-focused society, and energy efficiency improvements should be seen across sectors, from manufacturing to utilities and transportation.

If developing nations led by China were not to become more energy efficient, the world would need to double its energy supply by 2030 to sustain economic growth (current estimates range from a 35 percent to 40 percent increase).

Drive My (Electric) Car

Source: byd.com

Tesla is all the rage, but will it change the global transportation paradigm? Not likely. The passenger car market is expected to double in the next three decades, with China representing much of that expansion, but electric cars are not expected to come anywhere close to meeting 800 million units in car growth.

And while the numbers are large, of the four major energy use sectors (power generation, resident/commercial, industrial and transport) transport has the weakest growth in demand, as more efficient engines—Exxon Mobil expects a standard of 47 miles to the gallon by 2040—and use of natural gas and biofuels, begin to allow diversification away from oil.

Natural gas is expected to be the fastest-growing alternative source of transport fuel in the decades to come—especially natural gas engine technology for heavy duty trucking in the world's largest trucking market, China. For all the excitement about electric cars, in the grand scheme of global transportation, electric vehicles may represent no more than 1 percent to 2 percent of the market.

Whether it's 2015, 2020, 2030 or 2040, oil will remain the dominant transportation fuel as the emerging world dominates transport energy demand, surpassing developed world demand by as soon as next year, and with China's transport market surpassing the U.S. transport market energy demand by 2030. At least 800 million new cars are projected to hit the globe's roads between now and 2040—a doubling of today's total car market—according to Exxon Mobil economists.

All Renewables, Great and Small

Sam Panthaky | AFP | Getty Images

There are massive, even multi-gigawatt, solar power plants being envisioned in the deserts of China and North Africa to compete with legacy fossil fuel-power generation. In India, smaller-scale, distributed solar generation is challenging the economics of the diesel generator that has been the status quo in many communities. Solar and wind represent a growing, but small, portion of the overall global power generation mix, especially in coal-intense countries like China.

It may be renewables on the smallest scale that provide the biggest change of life in the developing world, from solar lanterns and solar toilets to dwellings in some of the most disadvantaged urban communities being powered by solar panels on the roofs of typical shanty town huts. The Gates Foundation-supported iShack is an example of this trend: a zinc dwelling insulated with cardboard and recycled milk containers that is topped with solar panels powering three interior lights and a cell phone charger.

In Mali and Nicaragua, among many other countries, solar-powered lamps and lanterns are bringing electricity to towns that have never had it. As the developing world comes of age as an energy consumer, these off-grid renewable energy solutions aim to make fuel sources such as diesel, kerosene and wood a relic of an inefficient, inequitable power era.