The energy market is unlikely to undergo any radical change in the next twenty years. That at least is the general consensus. The thinking behind it goes broadly like this. Turnover of the industrial capital stock is low and in power generation, residential construction and to a lesser extent transportation, existing technologies, from the combustion engine to gas turbine generators and railway electrification, will continue to hold sway.
What is more, since the early 1980s energy demand patterns have been relatively stable and are expected to remain so for the next couple of decades. An important exception are the developing countries where population growth, rapid urbanisation and higher living standards will drive up energy use markedly. Energy supply virtually everywhere will continue to be dominated by fossil fuels -- oil, gas, coal and other solid fuels. Indeed, these sources are expected to provide some 95% of additional global energy demand over the next twenty years, increasing the pressure to invest in technologies and policies that allow compliance with stricter environmental targets.
But beyond 2020, the energy picture could change dramatically. For a start, the new technologies will come on stream, and new generations of capital stock and infrastructure will have begun to make their mark, bringing significant improvements in energy efficiency. On the supply side, oil production will probably start to decrease, first in the non-OPEC and then in the OPEC countries. The output of gas will follow suit, albeit somewhat later.
The long-term geopolitical consequence will be to increase significantly the already growing share of supplies concentrated in what are today politically sensitive regions -- reserves of conventional oil in the Middle East and natural gas in Russia, Iran and parts of Central Asia. Even if non-conventional oil, such as that extracted from oil shale or tar sands and gas resources fill the gap for some time, there will be growing pressure to find substitute fuels, so that in virtually all long-term scenarios, renewable sources, such as wind and solar power, are expected gradually to expand their shares in primary energy consumption.
Developing countries will start to play a much bigger role than at present, both with respect to energy demand and supply in terms of prices, diversification of sources and competition, and to carbon dioxide emissions. OECD countries will be a smaller player in the world in terms of energy demand, production and trade, but they will be important suppliers of technology.
The devil in the detail
That is the broad brush canvas for energy over the next half century and one that is rather familiar. However, within that big picture, a multitude of outcomes are possible that hinge on developments, trends and trend breaks in a number of key areas. Take, for example, the question of how quickly oil reserves are likely to start declining. It can be argued that given the existence of diminishing returns in oil prospecting, and the strong possibility that estimated ultimately recoverable oil reserves (EUR) are lower than generally believed, production could start to dwindle sooner than expected. According to some estimates that put EUR at 1,800 billion barrels, it could happen as early as 2007.
The consequences of a growing concentration of supplies of conventional oil and conventional natural gas in politically sensitive regions of the world could, then, be with us sooner than generally expected. However, that may not become a major problem in the coming decades, as experience in keeping supply lines open even in politically tense periods would suggest. Anyway, non-conventional sources would rapidly fill the vacuum created by any medium-term disruptions in the supply of conventional resources, though energy costs would possibly rise as a result. Nonetheless, geopolitical surprises cannot be ruled out (see next article).
Developments on the environmental front are also extremely difficult to foresee. From a long-term perspective, the need to avoid too dramatic a change in climate points to an upper limit for greenhouse gas emissions by a future target period, which many believe can only be achieved through concerted international action. But there is disagreement on the likely outcomes of co-operative endeavours. Take, for example, the 1997 Kyoto Protocol, which obliges developed countries -- subject to entry into force -- to reduce emissions for six greenhouse gases by a total of about 5% below 1990 levels by the years 2008-12.
Some experts doubt that those obligations will be upheld, not least because of the difficulty of setting up a viable emissions trading system. Others are confident that the Kyoto obligations will be met and that they will serve as stepping stones for further stricter, legally binding agreements at a later date.
Can technology be the answer to the efficiency and environmental challenges of the coming decades? Some technologies will probably not be available, or at least not for a long time to come. There has, for example, been some excitement about the possibilities offered by nuclear fusion. But it is still not commercially viable. A pilot plant is still at least fifteen years away and it could take up to fifty years to gain a meaningful market share. Nonetheless, there is no doubt that technologies can make a significant contribution. Renewable energies, nuclear fission and cleaner use of fossil fuels hold out good prospects for helping to meet tighter environmental requirements and promote sustainable development.
There is considerable potential for improvements in energy efficiency, in such areas as transport, with lean burn engines and fuel cells for example, and in making smart buildings, with heat pumps, high-tech windows, heat exchangers and so on. More generally, the trend to greater fuel efficiency could be further enhanced if rising global affluence continues to lead to higher demand for environmental quality.
The average per capita consumption of energy in industrialised countries is up to 20 times higher than in developing countries. Over the coming decades there is a risk of a fourfold increase in energy demand in the developing countries as population growth, urbanisation and industrialisation take hold and accelerate. To exacerbate matters, high energy use in industrialised countries is driving increases in global energy use through the world-wide diffusion of life-styles and technologies.
Trend breaks to make the difference
But there is no iron law that dictates replication of economic and social patterns over time. Trends do break, and if they occur over the long run, such as in the relationship between industrialisation and energy intensity, or between energy use and communications infrastructure, the impact could be telling.
The expected structural composition of economic growth in non-OECD countries over the coming decades is a useful illustration. At the very least it seems safe to assume that, even though developing countries will not bypass steel, machinery, chemical and other industries, the changing nature of production and user technologies -- especially the pervasiveness of microelectronics -- will ensure they do not repeat exactly the industrialisation pattern of OECD countries. There could be some "leap-frogging" so that the catch-up process between some developing and developed countries could prove faster than foreseen, with the former shifting rapidly to light industry and service activities.
Energy intensity in those countries could decline faster than expected. Similarly, in the more advanced countries the shift to the information and know-ledge society that is so widely anticipated could have far-reaching implications. The spread of telework, teleshopping and teletrade, for example, and the deep changes that information technology is likely to bring about in the organisation of work and leisure, in mobility patterns, and in urbanisation trends, could radically improve energy efficiency.
Getting the infrastructures right
Envisioning the future so far ahead is clearly a tricky business. But the common thread of almost all projections over this time scale is that the political, economic, social and environmental context in which energy supply and demand will unfold over the next half-century could be very different from today's. It will be characterised by new production and consumption patterns and different communication and information systems; a very much more diversified energy mix; more globalised markets; shifting power structures, new players and new forms of co-operation in the world economic arena. But perhaps the most crucial issue raised by taking a fifty-year perspective is that many end-use devices and systems, such as industrial plant, parts of the building stock and transport and communications, as well as many existing power stations, will have reached the end of their lifetime and will have been replaced by new technologies.
It is the re-casting of such infrastructures in the broadest sense -- energy infrastructures, urban settlement, the construction of dwellings, transport systems -- that offers perhaps the greatest opportunity for setting the evolution of both the economy and society on a much more energy-efficient path. Infrastructures tend to lock societies into distinct, slow-to-change patterns of travel, work, leisure and life-styles in general, thereby acting as a brake on the transition towards a different energy-environment paradigm. Their renewal requires long lead times, as witnessed for example by the transition from steam power to electricity which took several generations. Now is the time, therefore, to plan and start putting in place the infrastructures which shape the global energy landscape. It is a task which demands imagination and creativity, with a stronger emphasis on environmental and social responsibility. Given the magnitude and importance of the changes required, fifty years may not seem such a long time after all.
Energy: The Next Fifty Years, OECD, 1999.
World Energy Outlook to 2020, IEA, 1998.
Nakicenovic, N., A. Grübler, A. McDonald, editors, Global Energy Perspectives, Cambridge University Press, 1998.
©OECD Observer No 217/218, Summer 1999