The State and Future of Energy
On 19 June, Webster University Geneva held its second annual event on the state and future of energy. This series of events had been launched last year by Prof. Rouben Indjikian, lecturer in energy, with support of Lundin Petroleum. This year the event was supported by BP and organized around the discussion of 2018 BP Statistical Review of World Energy and Energy Outlook. The keynote of BP by William Zimmern, Lead Economist, Global Macroeconomics and Energy Transition, was followed by discussions with David Fyfe, Chief Economist of Gunvor and Toby Stanway, Planning & Economics Manager, Lundin Petroleum, as panelists, and Prof. Indjikian as moderator.
In his keynote William Zimmern of BP outlined the main findings of the Statistical Review, looking at past and current trends and of Outlook discussing possible future scenarios for global energy demand and supply by 2040, and their implications and related policy, financial and technological challenges. The keynote was followed by short presentation of David Fyfe on changes in structure and geography of international trade in energy commodities. The following interesting discussion and related questions by moderator and participants of the event crystallized the debate around the key challenges that global energy would probably face in coming decades.
BP captured last year’s developments in energy in a title “Two steps forward, one step back”, reflecting the dialectical interaction between shorter term cyclical dynamics and long term structural changes in the energy sector. The relationship is not linear and reflects many factors. Thus, as a result of lower oil and other energy prices and higher economic growth rates, the global energy demand increased by 2.2% in 2017 as compared to average of 1.8% in previous 10 years. For example crude oil consumption went up by 1,8% and reached 98 million barrels per day (4470 million tons per year). Also energy productivity (intensity of using energy per unit of GDP) grew at a lower than previously rates. As a result the world economy produced more carbon emissions. While analyzing the sources of energy used in power sector it was also revealed that no progress has been achieved in decreasing the share of coal. While the share of renewables and namely solar and wind energy increased, it was neutralized by decrease in contribution by nuclear energy as a result of some developed countries decisions to move out from nuclear energy. Higher oil prices in 2017 also reflected bigger than agreed supply cuts by OPEC and non-OPEC, which was not neutralized by increase in the US tight oil production.
At the same time it was revealed that overall trend of decreasing share of coal and oil, and increasing shares of natural gas and renewables or non-fossil fuels will bring in near future a situation where competition between all these energy sources will increase, with each group accounting for around one quarter of global energy consumption.
In perspective the small spare capacities of OPEC, mainly in Saudi Arabia, makes supply crunch in coming years possible unless enough investment will replace maturing fields decline with new oil production or better extraction results due to technological innovation. In one of the BP scenarios, where there was no additional investment in upstream oil projects, a conservative views could see world oil production to shrink to nearly 40mbd. A conclusion of this simple thought experiment implies that in order to meet world energy demand in most scenarios, even with declining shares of oil, significant further investments in oil sector will be needed.
While energy demand from Asia and namely China will continue to change the geography of trade in oil, gas and coal, energy transition towards gas and renewables is also clear policy choice in China and increasingly in other Asian emerging economies. At the same time given the high economic growth and lower average per capita income in India and abundance of cheap domestic coal, coal consumption continues to be a major element in the energy balance of this emerging second Asian giant.
David Fyfe presented some recent shifts in international petroleum trade, based on data from BP’s Statistical Review. He noted the predominant role of Asia as an importer, particularly China and India’s growing appetite for crude oil. The rise of US crude exports this decade has been impressive, but the rate of growth of US refined products exports has been even more striking. Globally too, though crude oil trade is still roughly double that for products, the last decade has seen products trade grow six times faster than crude. Attempts by oil producers to shift their exports up the value chain, and cost and efficiency gains in marine transportation underpin this trend.
Toby Stanway outlined how the trends identified in scenario forecasts such as the BP Energy Outlook, can apply practically to an upstream oil company such as Lundin Petroleum. Lundin has managed to discover and develop low cost oil fields that are very competitive in the forecast supply/demand landscape. Operating in Norway, a region characterized by a stable legal framework and low political risks, further strengthens the competitive advantages and hence the value of his independent oil producing company. He also highlighted the inclusion of electrification in Lundin developments reflecting commitment to environmentally responsible development, but also the commercial value associated with this in light of potential future carbon pricing.
Rouben Indjikian asked a few questions, including the importance of timely data collection on world production, consumption and trade in energy commodities, the drivers behind the increasing share in international trade of oil products as compared to crude oil, relative roles of carbon tax and carbon capture and storage (CCS) techniques as means to successfully manage the level of CO2 emissions. He mentioned that during the last year event one of the panelists while appreciating the role of carbon pricing stressed the importance of technological progress in CCS by making it less costly and hence more widespread and massive.
The event attracted many participants, who were quite active in asking questions. Those questions included: the prospects of new oil exploration and production techniques and technologies; forecasting future energy balance and possibilities for moving away from fossil fuels; transition to renewables and their rate of return in comparison to fossil fuels; the role of biofuels; energy production and consumption in India and possibilities of displacing coal.
At the end of the event Prof. Indjikian thanked the speaker, panelists and participants stressing the importance of having a platform in Geneva, which is a major center for global trade in energy commodities, to regularly discuss and compare the findings of statistical reviews and energy outlooks. Apparently Webster Geneva is assuming such a role by successfully holding its first and second annual state and future of energy events.
Prof. Indjikian interviewed Mr. Zimmern before the event for the Webster Geneva Podcast (listen here).