20:06 PM | September 15, 2014 | —Daniel Yergin, Vice chairman of IHS
The 100th anniversary of IHS Chemical Week provides a platform to look backward and forward. The year of its launch was not the most auspicious, for that was the year that World War I began. The war’s tumult and tragedy have remained ever since what a historian once called the “wellsprings of our discontents.” Just look at what is happening in Iraq and Syria and between Russia and Ukraine.
And yet, the arrival of IHS Chemical Week also marked the beginning of a century of extraordinary growth and technological innovation that characterize the energy and chemical industries. Again and again, the world discovers that the energy future can confound the best predictions from the platform of the energy present. That emerged as a major theme when I was writing my new book, The Quest. Way back in 1881, Lord Kelvin—one of the greatest scientists of the 19th century—warned that the world would soon out run out of what then was the world’s most important energy resource, coal, because supplies are “becoming exhausted.” To stave off disaster, he called for a quick shift to wind power. And that was 1881.
There have been at least five major waves over IHS Chemical Week’s first century when people despaired that the world was running out of oil. Each time, however, new areas and new technologies brought forth new supplies.
The surprises continue. After all, just six years ago, the United States was gearing up to spend $100 billion/year importing liquefied natural gas (LNG) because of the increasingly high cost and apparent scarcity of domestic gas. Now, the United States is less than two years away from becoming an exporter of LNG—and a few years away from being one of the big three LNG exporters. At the same time, European chemical companies and other industries are migrating to the United States to take advantage of inexpensive natural gas. And tens of billions of new investment are going into chemical facilities in the United States to take advantage of low-priced natural gas and NGLs—making the United States a global platform for chemical exports.
Two big lessons come out of The Quest. First, surprises occur and will reoccur with energy. And, second, markets matter. So, with those caveats in mind, what might the energy world look like 20 years from now? The most likely answer, from today’s perspective, is bigger but not too different. The reasons are twofold. First, in the energy business, given the scale of existing infrastructure and the length of the investment lead times, 20 years is not very long. Second, virtually all growth in demand over the next 20 years will be the emerging market countries, and they will largely tilt toward conventional energy.
Let’s first look at a reasonable picture of the future. In the IHS Global Redesign scenario, 20 years from now, even with greater efficiency, the world will be using between 35–40% more energy. That is the result of global economic growth and rising incomes in the developing world. In 2035, for example, IHS projects that 33 million new cars will be sold in China compared with 17 million in the United States.
Today, oil, natural gas and coal provide 82% of world energy. Twenty years from now, they will be only slightly lower in terms of share—75–80%. Renewables will bound ahead in absolute terms, growing 240%, but so will conventional energy, thus retaining its preponderant position.
There will, however, be a big shift in the mix among those conventional fuels. While coal use will decline in the United States, it will increase in countries like China and India, which will be using it as an inexpensive fuel for electric generation. Natural gas will gain markets around the world.
In the 1950s, oil toppled the king, coal, to seize the number-one position. But by the 2030s, the reign of oil will be over. It will be running a neck-and-neck race with coal and natural gas. By the end of the 2030s, it is likely that natural gas will pull ahead to become the world’s number-one fuel.
Emerging market countries are moving ahead with new nuclear power plants. But in Germany, the fleet will be shut down by early in the next decade. Only some of Japan’s nuclear power plants will come back into operation, and part of the US nuclear fleet will be looking at early retirement. So nuclear will likely hold constant, at around 6% of total energy—unless new designs, such as small modular reactors, begin to enter the market.
What could change this picture? Technology is an obvious answer. Wind—which inspired Lord Kelvin in 1881—is moving from the alternative category to the conventional. Further progress on costs could accelerate adoption. Solar costs have come down dramatically in the last few years. Further declines would move it more rapidly into the marketplace. Breakthroughs on electricity storage would give a further boost to wind and solar by overcoming their present dependence on blowing wind and shining sun.
What about the electric car? China has set a goal of having 1 million electric cars on the road by 2020—a target on which it is way behind. This year’s sales are expected to total about 40,000. At this point, the United States has taken the lead from China. But, even if the cost challenges are met and electric cars take off in big volumes, the auto fleet is so large that the effect on consumption would not be really felt until the 2030s.
Policies and their interaction with events matter a lot. What kind of incentives and subsidies are required to speed a transition away from conventional fuels? Until recently, Germany saw itself as the world’s model for the rapid introduction of renewables. But now, it is becoming something of an antimodel, since the costs of the subsidies endanger a loss of global competitiveness, threatening, in the words of Germany’s economic minister, “a dramatic deindustrialization.”
But, a new push to accelerate renewables could be ignited by a combination of two different kinds of events—several years of extreme weather, which power a much stronger consensus about the imminent risks of climate change, and a severe security crisis that disrupts the flow of oil. In such circumstances, governments, pushed by alarmed publics, would rush new policies into place.
But events could work in the other way, too. During the global recession, European governments peeled back generous subsidies for renewables. Another steep economic downturn would have a similar effect—meaning a big setback for the renewables industry.
What happens after the 2030s? Recent years have has seen a great bubbling in scientific research and technological innovation around energy. The general lesson is that energy innovation takes a long time to reach the marketplace.
In this wave of innovation, there will be many disappointments. But, some of these efforts are likely to make their impact felt towards the end of the 2030s. They may be small in number but could be oversized in terms of impact—and that’s when the energy mix could start to look quite different. It’s just a little early to figure out which of those innovations it will be. But as they make their impact felt, we can be sure that IHS Chemical Week, as it moves into its second century, will be on top of them.