It's no longer just oil
At a time of so much uncertainty and with so many policy changes affecting the energy mix I felt it was important to take a step back and to consider the wider picture- what will impact the global energy markets over the next decade?
Firstly as pointed out by Exxon Mobil and BP energy consumption is going to grow by a third over the next two decades- and this growth will come entirely from developing nations.
In developed nations improvements in efficiency relating to energy production and use will keep demand consistent with a modest level of economic growth.
The worlds population will increase by over 25% from 2010 to 2040 (over 9billion by 2040) with 75% of the global population coming from Asia Pacific and Africa by then.
Add in the 1.3Billion people who don't currently have access to electricity and you can see how the additional demand for energy generation creeps upward.
Of course, there is plenty of time between now and 2040 for developing nations to make the transition to low carbon economy's (much like the UK is doing now).
Exxon Mobil believe China will increase industrial demand up until 2025 at which point it will begin the transition to a low carbon economy with a likely impact of reducing demand by 20% from 2025 to 2040.
On a different note the US oil shale revolution has had a real impact!
Then (2005), the US was importing 60% of its oil needs, it's had a real strike of luck with Shale and now it seems the same is to be true of oil?
US crude production grew 14.6% in 2012- 2013 is showing production above 7M Barrels per day (a 20 year high)...
The International Energy Agency predicts US imports will drop to about 4 million barrels per day in a decade from the current average of 10M barrels per day. It gives 2 reason; 1 being the increased production in the US, the second being higher fuel-efficiency standards for vehicles.
The next prediction the IEA makes is quite staggering. The US will overtake Saudi Arabia and become the world's largest fuel producer.
Good news for the US, well yes & no.
Whilst they've seen their domestic gas price fall, this could be expected as it's not readily exported so the price is controlled by the balance of domestic supply and demand.
Oil on the other hand is very much a global market.
So despite the US supply looking healthy relative to it's demand it will be the global position that determines where the price goes.
Of course, the US producers of oil benefit from the price going up so every cloud..
It's worth considering if the gas market will become more global (LNG??)?
US natural gas prices were 7 times higher in 2008 than 2012. So flooding your domestic market with additional supply (shale) can pull the price, similarly it can all go the other way...
After the Fukushima nuclear disaster (2011) Japan had to re-visit it's energy mix. Prior to the disaster nuclear reactors met 30% of electricity needs. Following the disaster it had to take all 54 reactors off line and turned to natural gas to fill the gap. It's no surprise it's had the reverse effect to the US story.
In Europe because a number of the gas contracts are still indexed against the price of oil the natural gas price has broadly followed the oil price.
So with different markets with different prices of gas a global market to trade is being encouraged...roll on more delivery's of LNG and a gradual globalisation of the gas price..
So demand for power is going to increase and markets are going to continue to act globally. So what about the entry of renewables? What part do they have to play?
Well it's certainly fact that they are having an impact despite mixed support and some negative publicity. One of the issues with more renewable energy being added to the mix is their volatility in supply....when it doesn't rain, or the wind doesn't blow, or the sun doesn't shine this part of the grid is null and void.
So there is always a danger when filling the energy gap with renewables unless storage mechanisms can be developed into the grid.
Essentially, this snap shot tells you that as the energy markets evolve and the UK continues to decarbonise it's energy production there will be a number of new players in determining the energy price.
It will be crucial to have a clear risk policy for purchasing energy and those businesses who govern their own futures will be those who continue to remove inefficiencies and begin to influence their own mix of energy consumption.