Technology is profoundly changing the world’s energy equation, and all its geopolitical implications. Energy efficiency in the advanced countries has risen sharply, implying that their demand has peaked, and vast, commercially exploitable discoveries of oil and gas – especially gas – have been made in politically stable areas, including in the US. This suggests that in future, gas will account for a much larger proportion of the world’s energy supply. While these developments are positive for geopolitical stability, they may pose difficulties for the climate.
Since the embargo of 1973, there has been a global preoccupation with the centrality of oil, its supply, its cost and the international politics of it. As economies grew and global demand for energy increased, oil and gas exploration and production increasingly moved to distant and politically unstable countries, such as Russia, Iraq, Libya, Iran and Venezuela. At the same time, Opec rose to power; the US military assumed protection of the Persian Gulf; and concerns grew that the world might run out of oil.
This difficult era is now approaching an end, and technology is the main reason. New techniques of exploring and drilling in very deep water and tar sands have been developed. New approaches to hydraulic fracturing and horizontal drilling have made it possible to extract deposits of oil and especially gas profitably from shale. The implications are huge. Vast reserves of natural gas are now accessible, and the role of gas in world energy supply is growing fast. Within 25 years, gas should outstrip coal to become the second biggest source of global supply, behind oil. This is positive because gas is much cleaner than coal.
America is experiencing both higher efficiency and an energy boom, in both offshore and onshore production. This means that it will reclaim its role as the world’s biggest energy producer and, incredibly, become a net energy exporter. Brazil, Canada and Australia, all stable countries, are experiencing similar energy booms.
Huge changes like these always have a downside. The environmental implications of these new technologies are not clear. The movement towards renewable energy sources, nuclear power and climate stability may be slowed by the new abundance of oil and natural gas, and the relatively low price of gas. Even in 2040, respected forecasts now envision that fossil fuels will still supply 80 per cent of the world’s energy needs.
However, energy security and national security for much of the world will be improved, as the influence of rogue oil states diminishes. That is quite a plus.
The writer is the founder and chairman of Evercore Partners and was US deputy Treasury secretary in 1993-94
