The global energy system sits at the nexus of some of the deepest dilemmas of our times: prosperity versus poverty; globalization versus security; and growth versus the environment.
The global energy system sits at the nexus of some of the deepest dilemmas of our times: prosperity versus poverty; globalization versus security; and growth versus the environment. Current energy trends are patently unsustainable — socially, environmentally, economically. That said, there is still plenty of oil and gas to be found and produced, most of it is in increasingly difficult places – whether that’s difficult geology, difficult environmental conditions or difficult politics.
Whatever happens, supplies of easy-to-produce oil will certainly not keep up with growing energy demand. This is because, as economies grow and ascend the energy ladder, demand is likely to double over the first half of this century and we simply cannot increase (oil and gas) production that fast. Even if we produce energy from all possible sources it will be difficult to meet the world’s growing needs. Within this context, while oil will remain the leading energy source and there will be some price volatility, the era of cheap oil is over. The key questions being asked here are when is global oil and gas production going to peak? This could be anytime between now and 2040 for oil and a decade later for gas. How can we take it out of the ground fast enough to meet demand? How can we fill the gap between supply and demand from renewable energy such as wind, solar, etc or from coal or nuclear energy when, historically, it has taken 25 years for new energy sources and carriers to obtain a 1 percent share of the global market following commercial introduction? And will there be one leading alternative energy source?
To add more complexity, the oil market itself is also undergoing major and lasting internal structural change, with National Oil Companies (NOCs) in the ascendancy against the Integrated Oils Companies (IOCs) such as Shell, BP and Exxon. The NOCs have different motivations for globalization: For example, as China does not have many of own resources in oil and gas (but lots of coal), the Chinese NOCs such as CNPC, CNOOC and PetroChina all have a responsibility to provide the ‘motherland’ with secure energy supplies. Simultaneously, the NOCs of the major resource holders such as KOC (Kuwait), Petronas (Malaysia) want to expand globally in the downstream, i.e. refineries, forecourts arenas, and so by-pass the ‘middle man’ (IOCs) who traditionally refine and sell their crude oil. Others, like Saudi Aramco, simply want to decrease their dependency on the technology owned by the IOCs and develop their own staff. The key questions being raised here are therefore what will the role of the IOCs be in the future? And how can they play a role in, for example, sustaining supplies of affordable and responsibly produced oil and gas, through better technology, cost reductions, more efficient operations and fresh thinking?
Lastly, turning to the major challenge of climate change, we have to be clear that emissions of CO2 and other greenhouse gases are on an unsustainable pathway. To avoid “abrupt and irreversible” climate change we need a major decarbonization of the world’s energy system.
Read Leo’s views on the Future of Energy http://www.futureagenda.org/?cat=5
Leo Roodhart – President of the Society of Petroleum Engineers and VP Group GameChanger Shell
Leo is currently the 2009 President of the Society of Petroleum Engineers. Prior to this he coordinated GameChanger – Shell’s corporate Strategic Innovation program that identifies and sponsors the development of new breakthrough technologies in the context of the various technology futures for the oil industry. Several new businesses and a multitude of new technologies have been created in this new process. Leo holds an MSc in chemistry and a PhD in Mathematics and Physics from the University of Amsterdam. He is an Associate Fellow on Strategic Innovation at Templeton College and Said Business School, University of Oxford. Leo has worked for Shell for 29 years in various functions including research and development, exploration and production, business development and innovation in The Netherlands, Canada and the UK.