This is a Listen Up! guest post by Dave Wilkin
This second article in the Our Energy Future series explores the global energy big picture.
My attached chart shows 30 years of global energy history, including a 2021 projection. The energy mix coloured stack (left axis, measured in exajoules) and related key trend lines shown provides some important insights. Note that BP’s primary energy data shown is for commercially traded fuels only and non-fossil fuel energy incorporates an ‘energy-equivalency’ 2.5-times factor uplift for a fairer comparison to fossil fuels. Growth rates referenced are 20-year annual averages (CAGR’s).
First, note that all primary energy grew at two per cent, pushing Energy Intensity (GJ per capita is shown) up about one per cent annually, driven entirely by developing countries’ rapidly expanding middle-class and fast-growing economies (China and India led). Energy efficiency improvements were made, but they were overwhelmed by economic and population growth, so energy and fossil fuel consumption continued to climb.
Looking next at the energy mix, we see fossil fuels remained dominant with an 84 per cent share, down a modest two per cent over the past two decades, leaving Carbon Intensity flat (CO2 emissions per capita is shown). Fossil fuels grew at two per cent, driven entirely by non-OECD (i.e. less wealthy) countries growing at double that, while OECD countries remained flat. Hydro power’s modest growth was offset by nuclear power decline, despite significant Asian growth in both. The renewables share expanded to a modest six per cent, two-thirds of which came from wind and solar power, led by Europe and China.
Oil demand grew at about 1.2 per cent, but more notably, every year three to five per cent of production is lost from conventional oil field natural reservoir declines and coupled with slowing exploration/development, has reduced conventional oil lifespans. This combined with growing demand led to the rapid rise of unconventional oil, doubling in share over 15 years. US shale oil and Canadian oil sands (16 per cent and five per cent global oil share respectively in 2019) led this growth.
It’s important to know that recessions have tended to follow major oil price increases, showing how closely linked energy and the economy are. However, a recession didn’t follow the mid-last decade’s large oil price spike. This was due to central banks’ monetary policies which kept real interest rates at zero/negative while injecting over $25 trillion (i.e. ‘quantitative easing’) into the global economy since the 2008 financial crisis. It continues to this day. These unusual banking policies led to global gross debt/GDP growing over 60 per cent in twelve years, to reach a stunning 355 per cent last year. This meant a significant amount of the economic growth over the period was debt, not productivity fueled. Concerningly, Canada has an even higher gross debt to GDP ratio and a lagging productivity growth outlook compared to OECD countries.
Now note the 2021 projections. With economic growth returning, past energy trends have returned. Global oil prices have surged, with Brent Crude briefly passing $85 per barrel as global demand approaches the 100 million barrels/day mark again. One-hundred-dollar-a-barrel-plus oil next year looks very possible. Similarly, natural gas and coal demand has returned, and prices have rocketed up in most countries, especially in Europe. The ‘Great Reset’ some global elites and politicians called for (including our PM) appears nowhere in sight.
What has changed though is many Western governments’ war on fossil fuels has taken its toll, leading to significant upstream oil and gas investment reductions, triggering today’s supply-demand crunch. Strategically, this benefits OPEC and members most, as they remain immune to environmental activism, ESG investor pressures and they retain their governments’ strong support. But they can’t fully meet global demand, given production capacity limitations. Oddly, despite Europe’s energy crisis, even clean nuclear power is not immune to irrational environmental policies, as Germany and Belgium are demonstrating as they continue closing their remaining nuclear power stations.
So what to make of all of this? What is becoming clear is 2022 is shaping up for even higher prices. It’s looking like a structural global energy crisis has arrived, bringing with it persistently high energy prices and inflation. With interest rate hikes looming, on top of high and still-rising global debt levels, the stage is now set for more turmoil. Geopolitics further complicates things (e.g. Ukrainian – Russian conflict and the energy crisis gripping Europe, China’s even closer ties with energy-superpower Russia).
This is certainly not a good position to be in when faced with the enormous costs associated with a chaotic energy transition. Other high-priority needs, like aging infrastructure, health care, and poverty must not become casualties.
Rapidly upending these deeply embedded historic trends, attempting to cut fossil fuel use in half in under eight years and to near-zero in under 30 years, is not only irrational but extremely dangerous. It will lead to more inequity, social unrest and conflict, while undermining the clean-energy transition sought.
There are far better, more rational paths forward than the one many European countries and Canada are currently on. A future article will examine this picture more closely and consider what may lie ahead. Please watch for it!
Dave Wilkin is a Professional Engineer, with a master’s degree in Electrical Engineering from the University of Toronto. His career spans 45 years in IT, banking, energy and consulting and is a co-owner in a small energy consulting company. He lives in Huntsville, Ontario.
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