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Shale gas and tight oil production will have profound implications, predicts industry expert.
by Graham Chandler on May 28, 2013 expertise
Watch the recorded webinar on Mining IQ: Revealed! How energy growth will increase by 36% by 2030 – BP’s Leading Chief Economist, Christof Rühl Shares Insights.
In 2030, the planet’s population will be 8.6 billion, worldwide GDP will be double what it is now, and energy consumption will have grown by 1.6% per year, or 34% more than it is today, according to Rüehl, who manages BP’s global economics team. Growth in gas consumption will lead the way at 2.1% annually, with oil growing0.8%; and coal, somewhere in between. About 80% of the planet will still be dependent on fossil fuels.
What’s interesting is the mix of fossil fuels: seventeen years from now, no single fuel will be dominant and demand for gas, oil and coal will be about equal, at just under 30% each. Meanwhile nuclear energy along with renewable sources such as nuclear, hydro, wind, solar, geothermal and biomass will grow and, to some degree, converge yet remain relatively small. Rüehl figures nuclear has hit a glass ceiling and other renewables may go the same way, “particularly if costs don’t come down.”.
Huge improvements in the efficiency of fossil fuels are expected and indeed have already begun, driven by high prices. “We are becoming capable of producing more and more economic output with less and less energy,” Rüehl says. “If this continues, we see additional efficiency improvements.” Already, energy efficiency is the highest it has been in 120 years, mostly because of new technologies.
These new technologies have brought about important changes in the production of shale gas and tight oil, which, combined, are expected to account for 20% of the projected 2030 production increase. In the U.S., oil imports are projected to be 6.5 million barrels at the end of this year, compared with about 12 million bpd in the 2004-2007 period. Most of this huge decrease is due to an increase in the domestic production of tight oil. That increase has come chiefly from the U.S. and Canada – not, Rüehl says, because that’s where the reserves necessarily are but because the two countries have competitive free market systems that foster the technologies.
With oil production in 2030 pegged at 104 million bpd, and tight oil accounting for about 9 million of that amount, the question arises: What will be the impact on prices?“Our best guess is that OPEC will be willing and capable of cutting its own production in response,” Rüehl says, Iran and post-Chavez Venezuela remain wild cards.
“The role of the political process in government decisions will be much bigger than we are used to because of the widespread nature of the resources,” he adds, citing China’s decision to allow foreign investment and Poland and Ukraine’s acceptance of fracking as examples of this trend.
All of which affects the geopolitics of energy. Traditionally oil has been the essential fuel and the Middle East was the essential producer. With production in Mexico and Canada projected to rise, that may no longer be the case.
The impact of these and other energy production trends on world economies is not fully known, but Rüehl figures the effect on trade balances could be substantial as the U.S. pares its oil import bill and China expands its own, One thing is certain: as prices come under pressure, the Middle Eastern surplus will become eroded. “All of a sudden a force for good is emerging for rebalancing the global economy,” Rüehl notes hopefully.
The response of environmentalists to these trends is both positive and negative – positive because the U.S.is shifting from coal to gas applications and negative because of fracking concerns. Fear of fracking is a local problem, and fear of emissions is a global one, and they clash, concedes Rüehl. “It’s a decision point most people haven’t quite woken up to.”