TODAY’S STUDY: EVALUATING THE WORLD’S ENERGY

2013 World Energy Issues Monitor

February 2013 (World Energy Council)

Introduction

Even with improvements in energy efficiency we expect global energy demand to double by 2050. This is the inevitable consequence of global population growth, global economic growth, continued urbanisation, as well as the resulting increased demand on mobility and other energy dependent services. During the same period we will need to reduce global greenhouse gas emissions by half if we want to keep a global temperature increase below two degrees Celsius. And, there are still 1.3 billion people without access to electricity. What seemed unimaginable two decades ago has become reality: energy is again on the top of the political agenda in many countries such as Japan, Russia and Germany, now becoming a priority for prime ministers and presidents.

The post Fukushima nuclear future, the game changing shale gas, supply uncertainty and price volatility related to the “Arab Decade”, the shift of demand to East, tumbling solar cell prices and related trade disputes between Europe and China or the US and China, climate framework uncertainty, and global recession are rocking the foundation of what many believed two decades ago to be a steady roadmap into our energy future.

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The global energy sector will need to invest half of current world GDP over the next two decades in order to address these challenges and expand, transform and adapt the energy infrastructure. In the absence of global agreements and regulations on energy or climate policy that would guide such a transition, the main policy decisions remain in the hands of national and sub-national policy makers.

The World Energy Council supports policymakers around the world in their efforts to develop adequate energy policy frameworks capable of attracting the needed investments and balancing between the conflicting objectives. By developing our World Energy Trilemma framework, supported by our annual Energy Sustainability Index, we are able to provide a coherent framework to help address the challenges of what we call the “World Energy Trilemma”. The World Energy Council’s definition of energy sustainability is based on three core dimensions - energy security, social equity, and environmental impact mitigation. We translate the Energy Trilemma to national contexts and benchmark progress towards the Trilemma objectives over time to enable policymakers to deliver a sustainable energy system for the greatest benefit of all.

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Decision makers face a multitude of choices and possible actions, some of which will succeed through sheer market forces while others require coordination between market signals and policy frameworks. The breakthrough of shale gas in the US exemplifies the market forces driver and the slow progress of energy efficiency measures, in a context where energy prices are subsidised, illustrates the potential role of policy drivers, or what can happen when the signals are not strong enough. We can only advance a meaningful dialogue among the Global Energy Leaders Community if we focus on a set of clearly identified priorities. WEC’s World Energy Issues Monitor provides a snapshot on what keeps Energy Ministers, CEOs and leading experts in over 90 countries awake at night and therefore defines the World Energy Agenda and its evolution over time.

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Assessing the Global Energy Agenda by Christoph Frei

This years’ issues survey has been conducted in the context of a global recession that is symbolised by the lowest GDP growth in China for a decade, only 2% real growth in Brazil and, the Euro-crisis and related currency uncertainty. The geopolitical interests were focused on continued tensions and conflict in the MENA region, a new government in Egypt, a new old President in Russia, US elections and a new Chinese government, as well as the accentuated trade disputes regarding renewables and airline emissions.

Closer to the energy business there were ample headlines related to the continued boom of unconventionals, numerous reports on companies (solar in particular) struggling for survival or going into insolvency. One year after the Fukushima accident the public debate continues on the nuclear front. The Doha Conference of Parties has prolonged the Kyoto protocol until 2020, but in absence of the largest emitters. Finally, UN Secretary General Ban Ki-moon has called energy “the golden thread that runs through development” in the UN declared year of sustainable energy for all, bringing energy back to the centre of the development discussion, 20 years after the Rio Earth Summit.

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WEC’s latest Issues Monitor reflects the impacts of this backdrop on the leadership of the energy sector. The four top insomnia issues are the continued uncertainty towards a future climate framework, the fear of a lack of political stability in the Middle East / North Africa region, the high energy price volatility, as well as the global recessionary context, which has replaced post-Fukushima nuclear that was among the key critical uncertainties.

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It is worth noting that energy price volatility is much more than just the question of low natural gas prices and high differentials between regions that highlight transport bottlenecks, particularly to Asia. The coal to gas substitution in the US electricity mix has resulted in a higher gas than coal share for the first time in US history, with the consequence that US greenhouse gas emissions have decreased. This development has led to a push of discount priced coal from the US to Europe where it has changed the competitiveness of the companies who took advantage of the changing dynamics compared to those who were locked into natural gas at European prices. This development has however pushed up Europe’s greenhouse gas emissions further away from previously reducing levels. Meanwhile, Australia, on the way to become one of the world’s largest LNG exporters, has redirected its interest from North America to Asia and Canada’s infrastructure companies have also started watching out for Asian customers. Price volatility is also about solar, where module costs have collapsed since 2008 from over 4.5 $/Wp to as low as 0.6 $/Wp. This is largely driven by low-cost production in China but has been accentuated by the fact that 2012 demand has not kept up with expectations and absorbed less than half of the global manufacturing capacity of about 100 GWp.

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Where Energy Leaders have changed their views most radically

The issue with the most dynamic change over the past years is carbon capture, utilisation and storage (CCS/CCUS) which is almost flying off the map: without a formal price for CO2 emission avoidance this technology is at risk of simply being seen as adding cost and bringing down energy efficiency. This must be of highest concern as we lock ourselves into a high CO2 emission future for the next 40 to 50 years with every new coal and other carbon emitting plant that is built. Only a combination of CCS/CCUS and, possibly, a partial substitution of coal input with solid biomass can mitigate CO2 emissions of existing plants.

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The issue that is most clearly identified as a game changer, with its solid trend towards the action space, is unconventionals. This is about unconventional oil (shale oil, tight oil, beyond Canadian oil sands or Venezuelan heavy or extra-heavy oil) as much as it is about the still-hot topic of shale gas. The technology revolution is continuing and while further progress is needed to address the energy-water nexus and the costs associated with mitigating greenhouse gas emissions, production volumes continue to increase. This has given rise to North American energy supply independence becoming a possibility within less than a decade. Such supply independence is however put into perspective as crude markets, and therefore prices are global and US prices will continue to depend on international developments. Meanwhile, we do not see other regions replicate the US success at the same speed for a number of reasons including geological, legal, logistical, financial and issues related to the water nexus. However, projects are being developed around the world which will eventually change the global supply map.

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Post Fukushima nuclear remains a closely observed and debated issue. Last year’s map saw nuclear jump into the high uncertainty space. This year’s position of nuclear on the monitor shows that uncertainty is almost back to where it was before Fukushima. However, a slightly lower perceived impact indicates that the nuclear renaissance has been slowed down – a message that also came out of WEC’s World Energy Perspective: Nuclear Energy One Year After Fukushima report.

Recent signals from Japan suggest a reevaluation of the role for nuclear in the country’s energy mix, even though only two out of fifty-four plants have resumed operation. China has cancelled 2nd generation plants that are not already under construction and is concentrating on 3rd generation along the coastline. In India we see continued local manifestations against nuclear and there are active discussions about the right share of nuclear in both France and South Korea. Meanwhile, more supportive signals for nuclear come from countries including the UAE and Saudi Arabia, with recently announced ambitious 2030 objectives. In the US the low gas prices make nuclear more expensive and therefore not an attractive option and Germany is continuing to implement its decision of the Energiewende, with increasing concern that the transition could fail if it comes at too high a cost.

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What keeps Energy Leaders most busy

Renewable energies and energy efficiency have stayed dominant issues in the action space. Renewables are not only driven by climate policy as shown by the weak regional correlation between climate framework uncertainty and renewables.

Renewables are seen as a contribution to diversity and security of supply as well as a critical enabler to enhancing access for the 1.3 billion without access to energy. Large hydro is moving into the action space, explained by huge un-used potential in central Africa, Latin America, Russia and Canada. Regional interconnection, which is often the feasibility basis for large energy projects, is also robust in the action space.

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What should make us think further…

Last but not least, it is interesting to note that concerns for climate and water issues seem not to be shared by the same people. Many of the regions that are mostly concerned about the energy-water nexus are among the least concerned when it comes to climate framework uncertainty. This should make us think, acknowledging the IPCC’s statement that the first thing that we will see from a changing climate is a changing availability of water. Or, does it simply mean that the regions most concerned about water and less about climate framework uncertainty have simply accepted that it is all about adaptation?

In summary, many of the issues that were emerging over the past years have stabilised their position or confirmed their trend, both up and down: Among the big question marks that hasn’t settled yet remains what will happen to nuclear post Fukushima. Making sense of the energy sector is fundamental to the wealth of nations and this report is one of the only tools available to policymakers to enable them to understand the global, regional and national trends affecting their decisions. I pledge the support of the World Energy Council to those tasked with taking the hard decisions required to transition to a better future…

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