Disrupting the Global Energy Industry

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Disrupting the Global Energy Industry

The global economy is undergoing the energy-driven realignment that has long been predicted by the Trends editors. It's a crucial milestone of the Fifth Techno-Economic revolution as highlighted in Ride the Wave1 by Fred Rogers and Richard Lalich.

We were among the first to explain that "peak oil" as understood by the general public was, at best, a total misreading of the available evidence, promoted by those who had a vested interest in high energy prices. Those included Russia, OPEC members, and some speculators, as well as promoters of so-called "green-energy alternatives."

The reality has turned out to be far different, and markets are just beginning to come to grips with the magnitude of this shift. For instance, with Brent crude under $65 a barrel, compared to $110 a barrel as recently as June, we are faced with a $1.5 trillion income transfer from oil producers to oil consumers. That's equivalent to 1.7 percent of global GDP—and prices are likely to go lower, before they go higher.

To understand why, let's take a moment to remind ourselves of six fundamental economic realities underpinning energy markets:

  • First, energy is required to conduct every type of economic activity, from accessing the World Wide Web, to growing food, to pumping water; nothing happens without energy.
  • Second, energy exists in many forms and can be converted from one form to another, as long as we're willing to pay the price.
  • Third, energy is extremely abundant and it's availability to do useful work depends primarily on how much we can justify paying; that's the appeal of sun and wind power that seem fundamentally free.
  • Fourth, throughout history, innovation has made energy dramatically more available at ever-lower prices and this has led to a dramatic increase in aggregate and per capita consumption; but this has happened in leaps rather than in a smooth, continuous fashion. One of those leaps is now occurring.
  • Fifth, cost-effective energy production is highly capital intensive and such investments have relatively long lead times; this is true regardless of whether we're talking about oil fields, hydroelectric dams, wind farms, natural gas pipelines, or nuclear power plants.
  • Sixth, energy demand is sticky in the short term, leading to temporary shortages or surpluses, but it's highly elastic in the long term; in our No Limits to Growth model, the Trends editors project that by 2050, aggregate energy demand, worldwide, will be 130 percent higher than 2015 levels, even as energy-intensity per unit of real GDP declines sharply...

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