Full Spectrum: Energy Analysis and Commentary with Jesse Jenkins

Editor's Note: This article marks the launch of "Full Spectrum," a new column featuring the exclusive energy analysis and commentary of TheEnergyCollective.com's Jesse Jenkins. "Full Spectrum" will shed light on the key debates, hot new technologies, and important policy developments across the energy spectrum. Stay tuned...

Daniel Yergin at MIT Energy ConferencePulitzer prize-winning author and energy analyst Daniel Yergin kicked off the 2014 MIT Energy Conference Friday by looking back at big changes in the energy landscape since the conference launched in 2006—and ahead at three visions for the future of energy.

Dr. Yergin, Vice President of IHS and author of two bestselling books on the history of energy, The Prize: The Epic Quest for Oil, Money, and Power and The Quest: Energy, Security, and the Remaking of the Modern World, said much has changed over the last decade in the energy world.

From "Peak Oil" to Energy Abundance?

"It was the year of Peak Oil," Yergin said, looking back at 2005, when the MIT Energy Initiative was launched and the first MIT Energy Conference conceived. 

America and the world were concerned about rising global oil demand and stagnating production, with a growing consensus that global oil output was heading for a steady decline.

China had just joined the World Trade Organization in 2001 and was growing at a rate of 9 to 10 percent per year.

America and Europe had yet to enter the economic crises that disrupted their growth from 2008-2010.

Oil prices were rising fast, spiking above $60 per barrel for the first time (in nominal terms) in 2005 and on their way to north of $120 per barrel in 2008.

U.S. gasoline prices also shot up by more than a dollar per gallon to more than $3.00 as Hurricane Rita damaged Gulf Coast oil refineries and revealed the fragile margins between supply and demand.

US imported crude oil prices, 2000-2014

Figure: U.S. Imported Crude Oil Prices, 2000-2014. Source: US Energy Information Administration

In marked contrast, the debate in 2014 is about whether or not the United States should begin exports of newly abundant domestic natural gas and oil.

Unconventional oil and gas production based on hydraulic fracturing has upended discussions of peak oil and changed the energy landscape, Yergin said. 

"Since 2005, U.S. oil production is up 3 million barrels per day. To put that in perspective," Yergin told the audience at MIT, "that's more than the output of 9 of 12 OPEC nations." 

U.S. Field Production of Crude Oil, 2000-2012
Figure: U.S. Field Production of Crude Oil, 2000-2012. Source: US Energy Information Administration

The shale gas "revolution" has given North America new supplies of low-cost natural gas, which is shifting the balance of manufacturing competitiveness in America's favor, Yergin noted.

While cheaper natural gas is giving a boost to U.S. manufacturers, Yergin says European countries are increasingly worried about a new wave of "de-industrialization" due to globally uncompetitive energy prices.

Meanwhile, liquefied natural gas terminals originally intended to import gas in 2005 are now planning to be export terminals, with half a dozen projects winning approval from the Department of Energy as of February.

Rise of Renewables and the Globalization of Energy Demand

If unconventional oil and gas are one big game changer in the energy landscape over the last decade, the other is the rise of non-hydro renewable energy sources like wind and solar energy.

In the year 2000, only about $5 billion was invested in renewable electricity technologies, Yergin said. By 2012, renewable energy investments surpassed $240 billion. Wind and solar are now mature and fast-growing industries.

By 2012, global wind energy capacity stood at 283 gigawatts, a more than 16-fold increase from 2000, while solar had grown more than 70-fold to over 100 gigawatts globally.

Global wind energy capacity 1996–2012

Figure: Global Wind Energy Capacity, 1996-2012. Source: REN21 "Renewables 2013 Global Status Report"

Global solar PV capacity 1995–2012

Figure: Global Solar PV Capacity, 1995-2012. Source: REN21 "Renewables 2013 Global Status Report"

Still, energy transitions take time, and Yergin's IHS team projects that even at a robust 7 percent annual compound growth rate, renewable electricity sources (excluding hydroelectric power) will grow to only 15 percent of the global electricity share in 2035.

Part of the challenge is that global electricity demand is rising faster than renewable electricity output, as energy demand becomes more global.

While energy demand is fairly flat in developed economies, like the United States and European Union, energy needs are rising fast in the world's emerging economies.

Emerging economies will account for more than 90 percent of global energy demand growth over the next two decades. By 2035, today's developed nations will account for less than half of global energy use, according to the International Energy Agency.

Global Energy Demand Projections 2035

Figure: Projected Primary Energy Demand Growth in Key Regions. Source: International Energy Agency "World Energy Outlook 2013" 

That means that despite growing production, global oil prices have persisted at about $100 per barrel, and we look back today at all that consternation over $60 per barrel oil and $3 per gallon gas in 2005 with fondness.

Rising demand in the emerging economies has another impact. While wind and solar growth was concentrated in OECD nations over the last decade, going forward, Yergin sees renewable energy finding a larger foothold in these emerging economies as well.

Just look at China, where the nation's over-reliance on coal and the resulting air pollution problems choking major cities like Beijing and Shanghai is motivating major investment in cleaner energy sources.

While China is still the world leader in coal consumption, they have simultaneously become the world's largest market for wind, solar, and nuclear energy as well

Other emerging economies from India and Africa to South America are also beginning to adopt renewable energy, and Yergin sees these trends accelerating going forward.

Renewable Energy Capacity Growth By Region

Figure: Projected Annual Renewable Energy Capacity Growth by Region, 2012-2018. Source: International Energy Agency "Medium-Term Renewable Energy Market Report 2013"

Three Visions for the Future of Energy

Yergin closed his remarks at the MIT Energy Conference by describing three scenarios for the future of the global energy landscape. These three visions, created by IHS, sketch markedly different paths for the evolution of the energy sector over the next two decades.

The first vision, which Yergin called "Global Redesign," sees the continuation of the unconventional oil and gas and renewable energy trends described above. This becomes an "all of the above" energy future, where the unconventional oil and gas booms go global, as do renewable electricity and biofuels. Electric vehicles remain fairly niche in this world, and coal's share of the global energy mix declines modestly.

The "Meta" scenario envisions a series of climate change-related disasters—major droughts, floods, or hurricanes—and rising oil prices motivate a more rapid increase in the global use of renewables and new nuclear reactors, including small modular reactors, as well as a push to electrify transportation with plug-in electric vehicles.

Finally, a future of global economic insecurity leads to the "Vortex" scenario, where energy security and affordability become the chief priority, leading to a greater reliance on coal and stagnation of renewable energy growth.

In the end, "you vote for the energy future you want to see with your work, your passions, and your career," says Dr. Yergin.

Which energy future are you working to make a reality?