Energy Policies Uncertain, but Rising Demand a Given

Future energy prices, resource availability, and the pace of technological progress create a significant amount of uncertainty about the energy mix over the next decade or two. Lack of clarity about the strength and effectiveness of government support for clean energy and alternative transportation fuels only adds to the forecasting difficulty. Still, the fact that the world will need more energy is beyond debate. Consider that more than half the world has never driven a car and that 20% of the world population still has no access to electricity. Also, consider China’s ambitious urbanization and modernization plans, which, over the next two decades, will require incremental electric power generation equivalent to the current U.S. and Japanese consumption combined. As a result, the International Energy Agency (IEA) expects world energy demand to expand by about 30% by 2035 even if efficiency gains persist and conservation efforts intensify, as it is likely given energy supply challenges in many countries. The IEA estimates that non-OECD (Organisation for Economic Co-operation and Development) countries will account for 90% of world energy demand growth and for about 60% of world energy-related investment by 2035.

Global Energy Investment Is Critical and Already Under Way

The world still has vast untapped sources of energy, but sustained energy-related investment is necessary to keep up with demand and to replace aging infrastructure. Investment has already picked up strongly. In the U.S., for example, the oil-directed rig count is seven times its 2000–2005 level and natural gas production is surprising to the upside following strong investment in shale gas exploration and development technology during the past five years. According to Baker Hughes Inc., the worldwide oil and gas rig count is up 30% since 2005. Global liquefied natural gas (LNG) capacity has surged and continues to expand as more countries turn to imports of natural gas to satisfy growing demand from the consumer, industrial and electric power sectors. So has investment in oil and natural gas pipelines, storage tanks and power lines around the world. Investment in renewable energy has been booming as well and remains on a strong upward trajectory in many countries. Assuming that current energy policies and commitments are pursued, the IEA estimates that about $37 trillion (in 2011 dollars) will have to be allocated to the discovery, development, and efficient delivery of both traditional and new, environmentally friendly energy sources over the 2012–2035 period.

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