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A technological revolution is transforming the world's energy landscape as we move from an expectation of shortages of oil and gas to a new era of abundance. The development of natural gas from shale that has already taken off in the US and a variety of technologies are creating new options for oil development, so much so that the notion of peak oil has vanished from the conversation.
We can expect some consequences. Chief among them is the fact that as energy gets more abundant, the incentives to develop clean, renewable energy drop dramatically. As a result, we are no longer looking at an age of increasing solar, wind, and nuclear power. We are actually moving into a renewed hydrocarbon era of oil and gas. And that's very bad news for climate change.
An explosion of natural gas
The natural gas revolution is already playing out in the US. Only a few years ago, domestic gas supplies were running out, demand was rising, and prices were shooting up. The US was desperate to import foreign gas.
Fast-forward to today, and US companies are now trying to figure out how to convert those just-finished import terminals into export facilities. What made tens of billions dollars worth of brand-new infrastructure almost worthless, seemingly overnight? Shale gas.
Over the last 30 years, technology needed to break up those rocks to get at this gas has steadily advanced. As the techniques matured, and the price of gas rose, major energy companies moved aggressively to exploit these new fields. The result has been an explosion in natural gas production. It has led to an 80 percent fall in gas prices and the complete collapse of the natural gas import business.
Cheap gas will have three major affects.
First, it will delay or kill most new competing sources of electricity production--be they coal, nuclear, solar, or anything else.
Secondly, natural gas has become so cheap and abundant that it will soon start win over some transportation markets. Trucks, buses, delivery vans, and a variety of commercial and fleet vehicles all can easily be converted to natural gas.
The third impact will be on climate change. Most new power plants will now be natural gas-based. While natural gas is cleaner than coal, it is obviously dirtier than nuclear, wind, and solar. While some ageing coal plants will be replaced, decreasing overall carbon dioxide output, far more nuclear, solar, and wind plants will be deferred or cancelled.
A number of Asian countries are likely to find shale gas inside their borders, especially today's coal producers China, India, and Australia. Not all shale deposits will be technically or economically viable. But over time many Asian countries will start producing at least some shale gas, especially where the gas infrastructure already exists.
In Asia, gas is used less for electricity and more for heating, cooking, industrial inputs and even transportation. Abundant gas will almost certainly lead gas more into electricity competing with coal, nuclear and renewables. And it is not hard to imagine more gas-to-liquid plants of the sort that are now operating at a large scale in Qatar, employing cheap local gas to produce diesel fuel for the region.
And what cheap gas is doing to renewables, abundant oil will soon do to hybrid and electric vehicles.
The resurgence of oil
Gas markets are regional, but the oil market is global and the resurgence in oil production is also worldwide.
Oil production in the US is on the rise, thanks to the same fracking technology that has given it loads of natural gas. Soon it will be pulling more oil out of Alaska. This uptick, combined with shrinking demand, thanks to successful efforts at efficiency, means that US import needs have shrunk and can now be met by its neighbours to the north and south.
In the near future, the US will finally cease to be dependent on Middle East oil. (That said, China is likely to see its dependence grow. One day US naval ships may leave the Gulf, only to be replaced by the Chinese navy.)
The most recent spike in global oil prices has been entirely driven by the political turmoil in the Middle East and Africa. Sanctions have reduced Iranian exports, Iraq is still not back up to full capacity. Libya, Syria, Yemen and Sudan are all
pumping less, thanks to civil turmoil. But when the politically-shuttered oil comes back, oil prices will fall to eventually somewhere between US$75 and US$100 a barrel.
Relatively steady oil prices, and the knowledge that we're not about to run out, will have a significant impact on the vehicle fleet. Carmakers will no longer feel the relentless drive for more efficient vehicles. Other industries that rely on oil--airlines, shipping, trucking and railroads--will experience similar relief in the demands put on them to improve efficiency.
The result: Starting right now, the American, Asian and global energy markets will once again be dominated by oil and gas. Renewables, coal, nuclear and eventual efforts to make more efficient buildings, planes and cars will all be losers. There is a risk that just as the motorcar industry is bringing a new generation of electric vehicles to market, the buyers--and politicians who offer subsidies for them--may lose interest in them. And many of the huge investments that have gone into solar and wind power are likely to go bad.
The ultimate losers, though, will likely be all of us. The new age of hydrocarbons--while possibly more stable geopolitically--will be just as damaging to our climate. Unfortunately, the seeds of this cycle have already been sown.
Peter Schwartz is a futurist, business strategist and author of several books on scenario planning and future perspectives. He is currently Senior Vice-President for government relations and strategic planning at salesforce.com, the enterprise cloud computing company. More on Schwartz here.
By: Peter Schwartz, salesforce.com