The year in energy
A number of trends have shaped the global energy system over the past 12 months. The stagnation of the global economic recovery has had profound impacts across all sides of the energy triangle, with a refocusing on the ways that energy systems support national competitiveness and affect human welfare.
For economic growth and development, oil prices at a four-year low raise many uncertainties for energy systems across the world. Stagnant growth means lower demand for energy products. At the same time, global production has surged, driven by the shale revolution in the United States, and the re-emergence of some markets in the Middle East and North Africa. Lower energy prices will have uneven impacts on exporter and importer nations. Exporters reliant on high prices may find it difficult to meet their budgets. Importers may be able to harness the boost to their balance of payments and reduce fuel subsidies, which currently account for a substantial share of many governments’ budgets. Policy-makers are recognizing the need to tackle the corrosive effects of subsidies, but much more is needed to reduce the distortions that they create across energy markets.
For environmental sustainability, a few countries have made ambitious pledges, but global emissions trends continue to move in the wrong direction. Advanced economies have made promises to reduce greenhouse gas emissions,2 and some emerging economies used the United Nations (UN) Climate Summit to pledge to increase the share of renewables in their fuel mix (e.g. India, Mexico) and target emissions (e.g. Indonesia, Malaysia).3 More recently, the presidents of the United States and China agreed upon a landmark deal to further curb emissions, with the United States increasing its pledge to cut emissions by 2025, and China announcing that it will peak its emissions by or before 2030. Despite these promises, the current landscape still falls short of these targets, and emissions remain on the rise. One unexpected development may prove to have a significant impact on reducing emissions: popular concerns about air quality in major Chinese cities have prompted the government to address air pollution with an array of mitigation measures, at the core of which is a gradual diversification away from coal. While investment in clean energy has grown, much of it relies on subsidies. Their withdrawal, as was the case in Italy, Spain, Greece and the United Kingdom this year, can have a dramatically negative effect; investment has fallen by 74% in Italy and the United Kingdom as a result.4
For energy access and security, the simultaneous emergence of geopolitical tensions in several producing regions is testing assumptions about the existing energy world order. Sanctions from the United States and the European Union (EU) – banning Russian oil companies from raising investments in European markets, and Western firms from supporting exploration or production activities – have put key Russian oil and gas projects at risk. Shell suspended its work on a joint venture with Gazprom Neft in October, with ExxonMobil and Total following suit. The impact of the recent round of sanctions on the Russian Federation has undoubtedly helped accelerate the signing of a $400 billion-worth deal to supply China with 38 billion cubic metres of gas annually (representing 20% of Gazprom’s sales in Europe), in a move described as Russia’s “tilt to the East”.5 In the Middle East, during the summer ISIS seized a number of oil assets, controlling large swathes of Syrian oil fields, as well as several Iraqi pumping stations, fields and refineries, leading some to refer to ISIS as a “new petro-state”.6
Now, more than ever, “sustained political efforts will be essential to change energy trends for the better”, and policy-makers and businesses are challenged to evolve their energy systems to meet the needs of today and the future.7 In so doing, they will need to ensure continued investments, and focus on balancing the triple energy goals: the requirements for energy security and access, sustainability and economic growth.