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THE FUTURE OF THE ENERGY SECTOR & GEOPOLITICAL IMPACTIgwe Ikechukwu : PHD Petroleum Economics Candidate, Emerald Energy Institute, University of Port Harcourt, Nigeria.
Phone +2348099589317, Email: [email protected]
Introduction
The future of the energy sector and geopolitical
impacts are unpredictable. New advancement and
discoveries are made everyday. From wind to solar to
thermal to fusion to thorium. The world is
transitioning to a low carbon energy system. Even
with energy demand on the rise, petroleum products
are showing a declining figure in the energy mix.
Based on these changing industry dynamics,
predicting the future has become difficult. This paper
applies the geostrategic lens model to analyze the
future of the energy sector and impact on geopolitics.
Overview of the future of energy sector
Changing Energy Mix
Methodology
Conclusion
References
Carlos, P. (2015): “The new geopolitics of energy”. Columbia
University in the City of New York energy policy.
columbia.edu | September 2015.
Ghanadan, R. and Koomey, J., G. (2005): “Using energy
scenarios to explore alternative energy pathways in
California”. Energy Policy, Vol. 33, No. 9, June 2005, pp
1117-1142.
Jack, S. (2014) “The Future of Energy: Shale, Bringing
Energy Back to the West”. Brent Scowcroft Centre on
International Security's Strategic Foresight Initiative.
Nikita., S, Satu., L. and Olli., S (2017). “Global energy sector
transitions will have an impact on geopolitics,) Government’s
analysis, assessment and research activities
www.tietokayttoon.fi/en
Sarah, O., L. Maren, J., and Molly. A., A (2014): “New
Energy, New Geopolitics Balancing Stability and Leverage”.
A Report of the CSIS Energy and National Security Program
and the Harold Brown Chair in Defence Policy Studies
Vincent., D and Kim., A (2009): “The Four Lenses Strategic
Framework Toward an Integrated Social Enterprise
Methodology” Virtue Ventures LLC A Building the Field
Initiative Version 1.2 - May 2009.
The analysis shows that first, in two of the perspectives,
changing market and technology plays a more central role
in the future of energy market
oWhile government action and geopolitics are driven by
the other two perspectives
oSecondly, the energy market dynamics, supply and
demand factors in the outcome perspective, each made
more vital impacts with the dominance of high and
medium ranking
owhile price volatility and investment flow shows much
of medium and low ranking.
The analysis is premise behind a four by four strategy
lenses which drive us to assess the perspective and the
outcomes that can help governments develop better
policies to achieve their goals as well as help private
actors predict future energy markets and its geopolitical
impacts
From the result, the future energy perspective that
drives change would be market led, supply and demand
driven with government/geopolitical intervention.
Price volatility would continue and presents
investment challenge.
Governments should initiate policies that will reduce
investment risks, guarantee national security,
encourage economic growth, and environmental
sustainability.
Disruption and uncertainties
Four possible perspectives on the energy future
• Shift in economic power
• Demographic change
• Climate change and resource
• scarcity
• Technology breakthroughs and innovation Leading to
efficiency, improvements and the deployment of low carbon solution
Encouraging growth in renewable energy and
energy storage
solutions.
Impacting the balance of demand between
established markets and developing
markets
Shift in energy consumption patterns with
energy consumers becoming
more discerning
Producers, Russia, Saudi and OPEC
■ Target Asian markets
■ Saudi’s market balancer role affected
■ Markets shift to the East
■ conflict or tension
■ Climate uncertainty
Réentrant, new entrants, Iran, Iraq and Mexico:
■ Raises stakes to get back on the market
■Accelerates internal pressures for reform
■ Puts pressure on (OPEC) for cohesion
■ Implications for OPEC countries vary
Consumers:
■ Consumers benefit from surplus
■ Import dependence reduces with
unconventional oil
■ Resource competition in Asia
■ Europe will face challenges
Revenue dependants:
■ Consumers benefit from surplus
■ Import dependence reduces with
unconventional oil
■ Resource competition in Asia
■ Europe will face challenges
The analysis was conducted by utilising a four by
four energy-geostrategic lenses model to assess the
future of energy sector and the geopolitical impacts.
We look at four possible perspectives and potential
outcomes which are options that influences the
energy market and are ranked low, medium and
high respectively
The responses in the different perspectives are
examined and supported by Pascual (2015)
framework, Vincent and Kim (2009) and Johnson,
Whittington and Scholes (2011) strategy lenses.
Figure 5 and 6 explains the scenario analysis and
the future energy perspectives and potential
geopolitical outcomes.
Scenario Analysis
Market Changes
• Free market forces influence market patterns significantly
• Changes in energy sector’s supply and demand dynamics,
Government Action
• Government actions trigger supply constraints
• Government action such as implementing carbon legislation or constraints over licence permit
Technology
• Technological innovation leading to efficiency and the deployment of low carbon solutions such as the electric car
• Focus on E&P and gas for transportation
Energy Geopolitics
• Geopolitics lead countries to be motivated more by self-interest than global alliances
• Political instability and conflict fuel crisis across the globe causing volatility in energy market
Supply Demand Price Volatility Investment Flow
Market
Changes
Medium- Changes
in supply dynamics
constrain supply
High- Oil demand
holds up, gas
demand grows
High-Lower price
for oil, gas price
more resilient
Medium-
Financial flow in
energy market
increases
investment in
energy sector
Governme
nt Action
High-Government
action by licences
and legislation
boost supply (e.g.
Shale, Arctic)
High-Pace of
energy demand
leads government
to manage and
balances
affordability
Low-Oil prices
leads Government
to sell off
inventories
Medium-
Governments
diversification
from oil increases
trade flows
Technolog
y
High- Maximising
supply of existing
resources and focus
on carbon
abatement
High-Energy
demand increases
proliferation of low
carbon
technologies
Medium-The
longer the
volatility of
energy price the
higher the need for
alternative energy
Medium-
Technological
innovations
increases
investment flow
to greener energy
sources
Geopolitics Medium-Supply is
constrained by
government/
geopolitical
intervention
Medium-
Geopolitical
tensions in frontier
areas reduces as
demand for oil
declines
Low-Volatility of
oil price changes
geopolitical
relationships (e.g
U.S.-Saudi
Low-
Geopolitical
disruptions
constrains trade
and investment
flows
Result
A four by four geostrategic lenses
Figure: 1
Figure:2
Figure: 3
Figure: 4
Figure: 5
Figure: 6
Energy Mix and Geopolitical Impacts