The global energy market is a rapidly changing landscape, but oil and gas look set to dominate for some time to come – says analyst
Widely regarded as the lifeblood of the global economy, energy remains the key to practically all of the products and services of the contemporary world. Energy prices have to remain affordable for us to sustain and improve living standards. With an expected increase in global population and income, the energy demand is likely to remain high. Production and consumption of energy is also going to increase together with continued global integration heralding a very competitive world. And energy security has new connotations following the 2009 recession.
However, the importance of the energy industry - a capital intensive industry - is often overlooked. Yet, its contribution has huge ramifications for the gross domestic product of nations and especially so in a turbulent economic climate. Though the global economy is struggling to emerge from the 2009 recession and subsequent financial debt crisis in certain regions, worldwide energy demand has been sustained. As a case in point, according to World Economic Forum, the United States oil and gas industry's extraction sector is growing at 4.5 per cent though its overall GDP growth rate was 1.7 per cent.
According International Energy Agency, the emerging economies are most likely to determine the dynamics of energy markets over the next two decades. Most of the demand is expected to originate from non-Organisation for Economic Cooperation and Development economies - which are likely to contribute up to 90 per cent of the projected growth in global energy demand. China's demand is likely to account for more than 30 per cent, consuming nearly 70 per cent more energy than the US by 2035.
India, China and Brazil are likely to be the future hot-spots for strategic low-cost sourcing, while developed economies will witness growth from value-added services opportunities. Energy consumption in India, Brazil, the Middle East and Indonesia are expected to grow faster than in China during this period - as these emerging economies are expected to lead the expansion of supply. This energy demand is expected to be catered by Organisation of the Petroleum Exporting Countries, where oil production is expected to grow to 50 per cent by 2035.
Projected increases in oil prices together with the sustainability, or not, of fossil fuels has ensured that the renewable energy sector grew the fastest among the energy sectors in 2011. This has been buoyed by government incentives in many countries across the globe. As renewable energy technologies evolve - especially wind, solar and hydropower - the modern renewable sector is growing faster than other forms of energy. Overall, modern renewables grow faster than any other energy form in relative terms. But in absolute terms, total supply is still not close to the level of any single fossil fuel in 2035. In the developing regions - reasons such as rapidly increasing demand, poor grid coverage and power quality, and the need to sustain economic growth and curb carbon emissions are driving states towards renewable energy adoption. However, in the developed countries aging infrastructure plans to phase out existing nuclear and coal-based plants and the need to curb carbon emissions are the major driving forces behind adoption of renewable energy.
The Japanese earthquake and the subsequent major accident at the Fukushima nuclear facility is also going to have a great impact on the development of energy, leading to realignment of the global energy structure. In some regions, this has led governments to annul the nuclear projects sanctioned while accelerating investments in natural gas. Also, projects in the hydropower, wind power and solar power segments have gained prominence as clean energy is being sponsored.
Although, it is not entirely bad news for nuclear energy supporters. Comparing the number of new projects in power sector, the developed economies had fallen behind the developing economies resulting in higher growth prospects in nuclear power generation in the latter regions. The global nuclear growth is powered by China and India, together with Russia - which is a recognised nuclear country with more reactors under construction. In 2030, according to IEA, Russia is expected to ensure nuclear energy contributes about 25 to 30 per cent of the country's energy mix.
The growth of the unconventional natural gas, which holds the key to future of energy, as per the IEA's 'golden rules' case depends on how governments, industry and other stakeholders across the globe address the associated environmental and social impacts. The technological advancement in shale gas exploration has enabled the US to perform remarkably well in this sector over the last decade. This has changed the landscape of the competition in the oil and natural gas segment, with America catapulted again to the top position as the world's largest natural gas producer - given the economics of exploration and the sheer reserves it owns.
The immense demand for energy in China and other rapidly industrialising economies in the non-OECD is expected to impact the global energy prices and the markets. Growing economies, such as India, the Middle East and Latin America's oil producing economies are likely to substitute for the decline growth experienced in developed countries. In conclusion, the advancement of BRICs and other emerging players in the global economy is likely to increase focus on mitigating the environmental impact; resulting in increased scope for renewable energy though the conventional forms of energy will still dominate the energy mix.Sivakumar Narayanaswamy is programme manager of industrial automation and process control at the Frost & Sullivan consultancy firm