Energy experts across the globe have a poor track record when it comes to price forecasting. Several leading organisations like World Energy Council, the US Energy Information Administration (EIA) and the Organization of the Petroleum Exporting Countries (OPEC) publish annual reports on future trends in the energy market but projections made in these reports become out-dated sooner than expected and have to be revised. This suggests that projections are not the final word.
The dynamics of energy demand have been stable since 1982 but the latest decade (2010-2020) is proving a turning point in the global energy market. New technologies have been introduced followed by new generations of capital stock. On the resource side, conventional oil production has declined and renewable energy is slowly but steadily moving towards forefront.
As we move beyond 2020, developed countries will become minor energy players in the world in terms of production, demand and trade but will remain key players as far as technological advances are concerned
Another important element that has the potential to come to the forefront of the global energy market is the US shale oil. The arrival of shale oil after 2010 provided much-needed comfort to the tightening market and helped curtail oil prices. Continuity in the production of shale oil in the following years has contributed to a shocking drop in prices – from $100 to less than $30 per barrel.
This would not have happened had the OPEC producers agreed to reduce production of oil to compensate for shale oil production. But there was a method behind this madness by Riyadh. Instead of cutting oil production to compensate for shale oil production, OPEC decided to kill off US shale oil industry with low oil prices by pumping as much oil as possible.
This battle between OPEC and US shale industry will continue in the future until both stakeholders seek coexistence which is not a possibility in the near future because the only commonality between OPEC and shale producers is the abhorring boom-bust of oil prices. Although shale has impacted the global energy market in recent years and will continue to do so, but it is far from being a ‘swing producer’ because the industry is too small, too slow and too competitive.
It is difficult to forecast the results of this on-going battle between shale and OPEC producers but one thing is certain that decline in the prices of crude oil will impede investment in green technology, both at the government and consumer levels, especially in developing economies which rely immensely on conventional energy sources.
For instance in countries like Pakistan, the government’s first priority is to meet the rising demand which is going hand in hand with growth in country’s Gross Domestic Product. Here, funds for cutting-edge technology to integrate intermittent renewable energy resources are absent, further pushing the government to invest in conventional options.
Beyond 2020
Due to the introduction of modern technology and rapid evolution, the world will see autonomous increase in energy efficiency. Two possibilities can arise in the future beyond 2020. If prices and institutional conditions remain the same, then the autonomous trend will follow, which basically involves improvement of energy efficiency which goes hand in hand with the GDP growth.
The second possibility is where prices or behaviours change, new taxes and policy reforms are brought in. Then there is potential for radical improvement in energy efficiency. According to the second assessment report of the Intergovernmental Panel on Climate Change, this improvement can amount to 20 to 30 per cent.
According to a UN report, world population of 7.3 billion is expected to reach 8.5 billion in 2030 and 9.7 billion in 2050. In this period, the world will rapid see urbanisation, especially in developing countries.
“Most of the projected increase in the world’s population can be attributed to a short list of high-fertility countries, mainly in Africa, or countries with already large populations. During 2015-2050, half of the world’s population growth is expected to be concentrated in nine countries: India, Nigeria, Pakistan, Democratic Republic of the Congo, Ethiopia, United Republic of Tanzania, United States of America (USA), Indonesia and Uganda, listed according to the size of their contribution to the total growth.”
At present, 54 percent of world’s population lives in urban areas and these numbers are expected to jump to 66 percent by 2050. The largest urban growth will be seen in India, China and Nigeria. These three countries will account for 37 percent of the projected growth of the global urban population. By 2050, India is projected to add 404 million urban dwellers, China 292 million and Nigeria 212 million.
In China, HVDC technology is being utilised to transmit bulk power generated from renewable energy resources located at its western part to its eastern, more densely-populated urban parts. Similar is the case with India, where they have huge renewable energy resources in their north-western part with no real consumption requirements and so they have also employed HVDC transmission technology to power their southern, more densely-populated parts.
To deal with bottlenecks that will arise with urbanisation, modern HVDC technologies - for instance HVDC Plus by Siemens or HVDC Light by ABB - will play an important role. These cutting-edge technologies provide not only reduced power transmission losses (as low as one percent) but will also have low carbon dioxide emissions.
Principal Consultant of a German Consultancy ‘Power Technology Research’ that specialises in market research Hassan Zaheer in a telephonic conversation from Munich told The Friday Times that: “The global electricity market is increasingly looking towards renewable energy while expanding generation, both in developing and the developed world. This in turn is causing an increase in demand for equipment required to integrate renewables in the grid, including HVDC for off-shore interconnections and FACTS for power quality.”
Moreover, as we will move beyond 2020, developed countries will become minor energy players in the world in terms of production, demand and trade but will remain key players as far as technological advances are concerned.
This scribe called on Planning Commission of Pakistan Deputy Chairman Sartaj Aziz and sought his views on the domestic energy conundrum. Aziz said, “The reason behind this 15-year-long crisis is the Independent Power Plants (IPP) policy of 1994. At that time, our installed capacity was 11,000 megawatts, with 50 percent hydal and 50 per cent thermal input. With oil selling for 15-20 dollars per barrel, Wapda was producing electricity at Rs2-3 per unit which at that time made our energy mix bearable. But under that policy, IPP’s were given an upfront rise of 6.5 cents plus cost of fuel which was to be imported. So now we were generating electricity at Rs15-16 per unit where our sale price was Rs7-8 rupees per unit. Our energy mix was badly disrupted and we had to give subsidy of Rs8 per unit. That’s where the problem of circular debt started.”
Speaking on the performance of his government, Sartaj Aziz said, “During the last five years, we added an additional power capacity of 7,000 megawatts, with hydro power projects of 3,000 megawatts in pipeline which will further improve our energy mix. When we came, our main challenge was to produce electricity below the sale price, which we have achieved. For the very first time in 15 years, our demand and supply gap was covered. Now our installed capacity is 28,000 megawatts and our demand is around 26,000 megawatts. Load shedding in the country is mainly due to transmission-related issues. Areas where electricity theft is high, we deliberately cut electricity supply.”
He further said, “Building dams on the upstream enhances life of dams on downstream. Had we started work on Diamir Bhasha dam in the past after Kalabagh became controversial we would have enhanced the life of Tarbela Dam and other dams on downstream. Our government gave approval to Diamir Bhasha dam which will take around 10 years to complete. It will add 4,500 megawatts to our generation capacity and our national water storage capacity will increase from 38 to 45 days.”