The New World Energy Order  

Posted by Big Gav

The CFR journal Foreign Affairs has a look at the evolving global energy environment - worrying about energy security and global warming but remaining uncomfortably blase about peak oil - The New Energy Order.

The last decade has seen an extraordinary shift in expectations for the world energy system. After a long era of excess capacity, since 2001, prices for oil and most energy commodities have risen sharply and become more volatile. Easy-to-tap local fuel supplies have run short, forcing major energy consumers to depend on longer and seemingly more fragile supply chains. Prices have yo-yoed over the last 18 months: first reaching all-time highs, then dropping by two-thirds, and after that rising back up to surprisingly high levels given the continuing weakness of the global economy. The troubles extend far beyond oil. Governments in regions such as Europe worry about insecure supplies of natural gas. India, among others, is poised to depend heavily on coal imports in the coming decades. For these reasons, governments in nearly all the large consuming nations are now besieged by doubts about their energy security like at no time since the oil crises of the 1970s. Meanwhile, the biggest energy suppliers are questioning whether demand is certain enough to justify the big investments needed to develop new capacity. Producers and consumers, each group unsure of the other, cannot agree on how best to finance and manage a more secure energy system.

A crisis is looming, and it will be difficult to resolve because it will strike as two radically new changes are making it harder for governments to manage the world energy system. The first is a shift in the sources of consumption. The era of growing demand for oil and other fossil fuels in the industrialized countries is over; most of the future growth in demand will come from the emerging-market countries, notably China and India. The International Energy Agency (IEA) has projected that by 2030, China will depend on imports for at least two-thirds of its oil, and India, for even more. These countries, especially China, are choosing to secure their energy supplies less by relying on commercial interests -- the standard approach for all the biggest industrial energy users over the last two decades -- than by locking up supplies in direct bilateral deals with producing countries. For instance, China's push into Africa, Central Asia, and other energy-rich regions, which usually involves special government-to-government deals, is a rejection of the reigning market-based approach to energy security. And because oil, gas, and coal are global commodities, these exclusive, opaque deals make it harder for the markets to function smoothly, thus endangering the energy security of all nations. They also complicate efforts to hold energy suppliers accountable for protecting human rights, ensuring the rule of law, and promoting democracy.

The other big shift in the world energy system is growing concern about the environmental impact of energy use, especially emissions of carbon dioxide, an intrinsic byproduct of burning fossil fuels with conventional technology and the leading human cause of global warming. Worries about climate change are one reason why the major stimulus packages passed since the global financial crisis began in 2007 have included hefty green-energy measures: by some accounts, these have made up 15 percent of global fiscal stimulus spending. Some believe that such green-tinted stimulus measures will spur a revolution pushing for cleaner and more secure energy. Perhaps. But there is no doubt that energy systems are in for a major change. Curbing global warming will likely require cutting emissions of carbon dioxide and other greenhouse gases by more than half over the next few decades, and that goal cannot be achieved by just tinkering at the margins. ...

The security of oil and gas supplies is in question not only because the existing supplies are depleting quickly but also because investors are wary of pouring money into finding new resources. The problem is not geology: technological innovation is more than amply offsetting the depletion of conventional fossil fuels. The problem lies in the massive economic and political risks inherent in new projects, particularly those that supply energy across national borders and thus face a multitude of political uncertainties. Suppliers worry that there will not be enough demand to justify the investments, especially now that growing concerns about climate change have cast doubt on the future of fossil fuels without offering a clear alternative.

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