Sun, Nov 08, 2015 - Page 9 News List

The tectonic shifts underpinning the world’s energy revolution

By Abdullah Al-Shehri and Julian Popov

For decades, the international energy landscape has been relatively stable, with producers like Saudi Arabia, Iran, and Algeria selling oil and gas to consumers in the US and Europe. However, in a few years, the energy terrain is likely to be unrecognizable, as dramatic technological, economic and geopolitical changes reshape commercial relationships worldwide.

What is needed is a new governance structure, one that moves beyond traditional bilateral relationships between producers and consumers. In a rapidly evolving world, guaranteeing energy security is would require the careful management of multiple, interlocking relationships.

Only an inclusive international forum, in which complex ideas can be shared and debated, is likely to prove adequate to the task of navigating the new era of energy use, production and consumption.

The ongoing changes are profound. In many energy-exporting countries, domestic consumption is rising steeply. Historically, these countries have treated energy as a cheap resource. Today, they are increasingly taking steps to remove subsidies, introduce market prices and increase efficiency — policies that are more typically associated with energy-importing countries.

British Petroleum predicts that in the Middle East, with its extensive fossil-fuel reserves, primary energy consumption will grow 77 percent by 2035.

At the same time, some traditional importers are tapping new sources of energy and becoming producers, changing the direction of energy flows. The shale-energy revolution in the US is perhaps the best-known example of this shift, but it is not the only one.

The rapidly growing renewable-energy industry is another factor disrupting traditional relationships between producers and consumers. In the first half of last year, 13 percent of electricity in Germany came from wind energy alone. Denmark, a country that in the 1970s was almost entirely dependent on energy imports, is now the EU’s only net energy exporter, often generating more than 100 percent of its electricity needs from wind power.

Meanwhile, advances in energy efficiency are also reducing demand for traditional producers’ exports. Highly efficient buildings can often be easily heated with locally produced renewable electricity and supplied with hot water from solar collectors. The introduction of the Near Zero Energy Buildings standard for new buildings in the EU is set to drastically reduce dependence on gas for heating.

The risk is that these rapid changes will combine with destabilizing geopolitics to trigger a retreat from global energy markets. If countries began to define energy security as energy independence and try to supply all their own needs, the result could be expensive overcapacity, massive price distortions, slower technological progress and weaker economic growth.

With the need to maintain trust in the competitive, politically charged and often unpredictable energy sector both greater than ever and more difficult than ever to meet, an international forum dedicated to addressing concerns and easing tensions could be a powerful tool.

However, it must have the right focus. For example, it should not aim to produce legally binding decisions. Plenty of bodies, such as the WTO, the Energy Charter and the Energy Community, already do an excellent job of developing rules or enforcing compliance in the energy sector.

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