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The way energy is produced, distributed and consumed around the world is undergoing fundamental change of almost unprecedented proportions. This is commonly referred to as the “energy transition”. (watch the video)

 

The Global Energy Architecture Performance Index 2017 (EAPI), tackles elements of this transition in its fifth annual edition, as do the global Regulatory Indicators for Sustainable Energy (RISE) released by the World Bank a month earlier. Of specific interest to this essay are the underlying issues of governance and regulation and their relationship to progress towards sustainable and secure energy systems. In UN development terms, this focus helps us consider the links between Sustainable Development Goal (SDG) 7, which addresses energy, and SDG 16, which is about peace and justice.

Oil Demand Peaks 041316 large_vGY4JHNJO_kYdtxYzoo6F9MhqmWRPtWj8L9rsx-EFZ4

Special from The World Economic Forum

Since the First Industrial Revolution, oil and gas have played a pivotal role in economic transformation and mobility. But now, with the prospects that major economies like the United States, China and European nations will try to shift away from oil, producers are coming to realize that their oil reserves under the ground – sometimes referred to as “black gold” – could become less valuable in the future than they are today.

 

Of the four scenarios for the future of the industry outlined in a new set of whitepapers from the Global Agenda on the Future of Oil and Gas, three of them envisage this type of world. Factors such as technological advancements, the falling price of batteries that power electric vehicles, and a post-COP21 push for cleaner energy could even drive oil use below 80 million barrels a day by 2040 – 15% lower than today.

     Price of batteries and demand for electric vehicles

 

We’re already feeling the effect

So what would a future of falling demand mean for the oil and gas industry?

 

Uncertainty about whether oil demand will continue to grow is already impacting the strategies of oil and gas firms. Through the 2000s and up until last year, the Organization of Petroleum Exporting Countries (OPEC), whose policies influence global oil supply and prices, took a revenues-oriented strategy, believing that scarce oil would be more valuable under the ground than out in the market, as global demand rose exponentially over time. Oil companies, too, responded to this world view by pursuing a business model that maximized adding as many reserves as possible to balance sheets and warehousing expensive assets.

 

Now, with new trends discussed in a new whitepaper, producers are coming to realize that oil under the ground might soon be less valuable than oil produced and sold in the coming years. This dramatic shift in expectations is changing the operating environment for the future of oil and gas.

 

A post-oil world: not all doom and gloom

 

Countries with large, low-cost reserves, such as Saudi Arabia, are rethinking strategies and will have to think twice about delaying production or development of reserves, in case they are unable to monetize those reserves over the long run. Saudi Arabia, for example, has recently announced that it is creating a $2 trillion mega-sovereign wealth fund, funded by sales of current petroleum industry assets, to prepare itself for an age when oil no longer dominates the global economy.

 

Declining revenues that could be reaped from exploitation of remaining oil reserves would adversely affect national revenues in many countries that have relied on oil as a major economic mainstay. Those countries will face pressing requirements for economic reform, with the risk of sovereign financial defaults rising.

 

But for the majority of the world’s population, structural transformations related to the future outlook for oil and gas offers an opportunity. If the global economy becomes less oil intensive, vulnerability to supply dislocations and price shocks that have plagued financial markets for decades will fade, with possible positive geopolitical implications. Moreover, many countries have reeled under the pressures of fuel subsidies to growing populations. According to the IMF, fuel subsidies cost $5.3 trillion in 2015 – around 6.5% of global GDP. Lower oil prices and larger range of alternative fuel choices would reverse this burden and lay the groundwork for shallower swings in prices for any one commodity.

 

    Top 10 energy subsidisers

Image: IMF

Staying competitive in an industry under change

 

Eventually, players who remain competitive in the oil and gas industry will have to consider whether it can be more profitable to shareholders to develop profitable low-carbon sources of energy as supplement and ultimately replacements for oil and gas revenue sources, especially to maintain market share in the electricity sector.

 

This will require a change in the oil and gas industry investors’ mindset. To develop this flexible, supplemental leg to traditional oil and gas activities, the oil and gas industry may find new opportunities by addressing the technological challenges associated with the different parts of the renewable energy space, as well as how one can develop efficient combinations of large-scale energy storage and transportation solutions in a world with a lot of variable renewable electricity.

 

Industry players can benefit from partnerships for flex-fuel technologies to ease infrastructure transitions and improve their resiliency to carbon pricing by achieving carbon efficiency for end-use energy through collaborations with vehicle manufacturers and mobility firms. Such responses will enhance the industry’s attractiveness with customers and investors, and most importantly, will promote a smoother long-term energy transition.

 

The three whitepapers are available here.

WEF 2016 wef_1810917bGENEVA—

World Economic Forum founder Klaus Schwab says the fusion of different technological advances, which are changing the world as never before, will be a major focus at the for Fundamental changes ahead

Taking center stage will be an in-depth discussion about what Klaus Schwab, the founder of the World Economic Forum, calls the Fourth Industrial Revolution. Schwab says the revolution is being driven by advances in artificial intelligence, robotics, autonomous vehicles, 3-D printing, nanotechnology and other areas of science.

“This fourth revolution comes on us like a tsunami. The speed is not to be compared with last revolutions and… the speed of this revolution is so fast that it makes it difficult or even impossible for the political community to follow up with the necessary regulatory and legislative frameworks.”

Impact on employment

Schwab says robotics, with new innovations such as self-guided cars, will destroy employment and wipe out much of the middle class, a major pillar of democratic systems.

“My fear is, if we are not prepared…and we have a concentration of jobs in the high level, more innovative areas and in the low service areas, this could lead to a new problem of social exclusion, which we absolutely have to avoid,” he said.

Read the Full Article Here:

“World Unprepared to Deal with Fourth Industrial Revolution”

Do you agree with WEF Founder Klaus Schwab?  OR …

Do you believe that new Technologies, Materials, Abundant Renewable Energy Sources, Access to Clean Water and Advanced Health Care will propel mankind and our ‘Blue Planet’ … into a new era of Human accomplishment?hydrogen-earth-150x150

Please send us your thoughts and comments. We will post the results and some of the best comments we receive.

Read about Genesis Nanotechnology and ‘Our Vision’ here:

Genesis Nanotechnology Vision


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