Transformation in the Energy Industry

The evolution of the energy industry is a change that has been evident for some time now. Shifts in energy demand from developed countries to developing countries continue to expand and what is most apparent is the shift in the mix of energy sources under demand.  While demand for renewable energy has not grown very rapidly, it is becoming a larger part of the energy consumed.  As Penley on Education and Energy has previously reported, consumption of energy from renewable sources has doubled in many parts of the world, including developing countries.

Still, it is the demand for “clean energy” that is changing at a rapid rate.  While clean energy includes renewables, it is increasingly represented by a shift from oil to natural gas.  A recent piece by The Economist titled “Yesterday’s Fuel” highlighted this shift from oil to natural gas and the concept of reaching “peak oil”. The Economist argues that consumers will reach “peak oil” consumption soon. In recent years, there has been much discussion and debate on the peak in available oil, an argument that has been a repeatedly discounted over the years as more reserves have been discovered and formerly inaccessible reserves have become available through new technology.

What is different, reports The Economist, is the shift in consumption, essentially having created a peak in demand for oil rather than a peak in its supply. Penley on Education and Energy has repeatedly described the growth in known resources of natural gas, our recently acquired access to those sources via hydraulic fracturing, and the more favorable impact of natural gas on the environment.  Natural gas produces substantially lower atmospheric methane and carbon, two major sources of environmental change.

What is especially new in The Economist’s article, Yesterday’s Fuel, is the geopolitical implications of the shift in the mix of energy consumption.  The Economist highlights the impact that this potential shift from oil to natural gas will have on the global balance of power.  The piece notes that the Saudis have the capability to increase production, lowering the price of oil, and slowing the shift to natural gas, however, the changes in transportation and power generation will gradually make oil less desired, even at a somewhat lower price than natural gas.  Moreover, the power shift will swing the energy influence to Russia and the U.S.  With decreased dependency on oil, Russia’s potential for dominating its consumer’s declines.  And the U.S., with its very large reserves of natural gas, will continue on its way to energy independence. This newfound energy independence makes the U.S. far less vulnerable to foreign decision-makers.

Lowering U.S. vulnerability to foreign powers will be welcomed benefit here at home while increasingly clean energy use will be applauded globally.  The energy industry has been in a state of considerable change for some time.  An increasingly decentralized and complex industry along with substantial changes in energy sources consumed will alter the landscape in the next decade.  Most of this change will be welcomed, even by traditional energy giants that have already made substantial changes to their supplies and marketing.

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