Thursday morning, William Colton, ExxonMobil Vice President for Corporate Strategic Planning, presented the ExxonMobil Annual Energy Outlook.  For many people, the most surprising aspects of the outlook are probably associated with three issues: (1) the decline in the energy use of light duty vehicles, (2) the drop in the role of coal in our global energy supply, and (3) the very significant impact of technology on the growth in the supply of tight oil and natural gas as well as renewables.  The forecast also makes clear that renewables will become a larger part of our energy supply, rising the most rapidly at a 6% growth rate but still representing only 4% of our energy supply by 2040.

Mr. Colton forecast that the energy consumption of light duty vehicles will peak around 2015 and decline through 2040, despite the continued significant growth in the number of vehicles on the road due to both growth in population and rising standards of living in the developing world.  The forecast is premised upon substantially higher fuel economies and declining average miles-driven per vehicle.  By 2040, 40% of light duty vehicles are expected to by hybrid vehicles and substantial improvements in technology will also contribute to the increased mileage-per-gallon of gas.

While coal represents one-half of the generation capacity of electricity today, global demand for coal is expected to decline after 2030.  While the reasons for this decline are complex, they are associated primarily with the extent to which coal is a source of greenhouse gases and other harmful emissions and the likely policy-driven limits on the number of new coal-generated plants that are built and the gradual reduction in coal-generated power plants taken out of electricity-production.  The forecast also considers the potential impact of a widely accepted price of carbon factored into energy production, but it does not rely on this as the primary reason for the decline.  The forecast expects a carbon price to be introduced slowly with relatively low prices per ton by 2040; it also considers the potential that nuclear, natural gas, and renewables such as wind and solar will be able to play in the mix of electricity production.  For example, the forecast expects that between 2030 and 2040, natural gas will represent 30% of the share of energy production for electricity.  Global gas reserves are massive, especially from non-conventional sources such as shale in places like the U. S.  The forecast of the global supply of natural gas represents a 250 year supply.

The forecast depends upon the role of new technology as a foundation for its forecast.  Economic growth theory (see, for example, the work of Paul Romer) makes new technology the primary source of economic growth, and this blog has discussed the impact of new technology with a variety of examples from the research of university-based faculty.  Of course R&D from business is also a very significant source of new technology.  In this ExxonMobil forecast, we are seeing the impact of technology in many ways – in terms of the decline in energy use by light duty vehicles, in the recent technology-related development of the capacity to extract natural gas from non-conventional sources like shale, and in the likely role of technology in the growth of the supply of tight oil.

The ExxonMobil forecast provides a pragmatic view of our energy future, one that continues to depend upon carbon based fuels but one where renewables and new sources of carbon-based fuels play an increasing role.  This is a forecast that is complex in its foundation but clear in its predictions.