Energy's Next Frontiers

Energy’s Next Frontiers How technology is radically reshaping supply, demand, and the energy of geopolitics Deloitte Center for Energy Solutions Energy’s Next Frontiers How technology is radically reshaping supply, demand, and the energy of geopolitics About the author Dr. Joseph A. Stanislaw Dr. Joseph A. Stanislaw is the founder of the advisory firm The JAStanislaw Group, LLC, special- izing in strategic thinking, sustainability, and environmentally sound investment in energy and technology. He is an independent senior advisor to Deloitte’s energy and sustainability practices. As an energy industry leader, advisor, strategist and commentator, Dr. Stanislaw advises on future trends in the global energy market. Dr. Stanislaw serves on several boards in the energy and clean technology space. He is a member of the Council on Foreign Relations. Dr. Stanislaw was one of the three founders of Cambridge Energy Research Associates in 1983 and served as managing director for all non-US activity until 1997, when he was named president and chief executive officer. He is an adjunct professor in the Nicholas School of the Environment and Earth Sciences at Duke University, where he is a Member of the Board of Advisors for the Nicholas Institute for Environmental Policy Solutions. Dr. Stanislaw was a Research Fellow of Clare Hall and lecturer in Economics at Cambridge University, where he was also a member of the Energy Research Group in the university’s Cavendish Laboratory. He was a senior economist at the Organization of Economic Cooperation and Development’s International Energy Agency in Paris. Dr. Stanislaw is co-author of The Commanding Heights: The Battle for the World Economy. Now in the second edition, the book has been translated into 13 languages and made into a six-hour documentary on PBS. He is also the author or co-author of numerous reports and published papers on the geopolitics and economics of future energy supply and demand, including Energy in Flux: The 21st Century’s Greatest Challenge, and Clean Over Green: Striking a New Energy Balance as We Build a Bridge to a Low-Carbon Future, and he is featured in the public television documentary, Oil ShockWave. Dr. Stanislaw received a BA, cum laude, from Harvard College, a PhD in Economics from the University of Edinburgh, and was awarded an MA from the University of Cambridge. He is one of only several people to have been awarded an Honorary Doctorate and Professorship from Gubkin Russian State University of Oil and Gas in Moscow. Dr. Stanislaw may be contacted at [email protected]. ii Deloitte Center for Energy Solutions Contents Through the looking glass (full steam ahead, but…) | 2 Framing the Great Game 2.0: Safety, security, and stability | 7 Demand is supply: The stealth revolution in energy efficiency technologies | 9 The supply surprise | 13 The new Great Game–A technology race | 15 A potential safety net: The Power of One | 17 Endnotes | 18 1 Energy’s Next Frontiers How technology is radically reshaping supply, demand, and the energy of geopolitics Through the looking glass (full steam ahead, but…) O understand how radically the energy It is a rare blessing for a country to be Tindustry is changing, consider this: The confronted with an abundance of energy. United States has become the No. 1 producer Pessimism has reigned for the better part of natural gas in the world. This is due to of 150 years. In 1865, the British economist combining horizontal drilling and hydraulic William Stanley Jevons published The Coal fracturing technologies, a combination that has Question, a study that spread panic about the been in widespread use for just four years— depletion of coal reserves. At the 1956 meeting and that has allowed gas from shale formations of the American Petroleum Institute, M. King to go from accounting for just 2 percent of Hubbert, a Shell geoscientist, coined the con- America’s natural gas production in 2001 to cept of “peak oil” and, in 1974, he forecast that over 30 percent1 today. As a result, natural gas global oil supplies would peak in 1995. The prices have been falling in the United States Department of Energy’s 2005 Hirsch Report for years. Given appropriate policy and smart contemplated the imminent, “abrupt,” and dan- investments, North America could eventually gerous peaking of world oil and gas supplies. achieve the goal of energy independence—with Yet, while humanity has consumed a total enough domestic supplies to meet American of one trillion barrels of oil since the early needs—though crude oil prices would still be 19th century, today, thanks to an onslaught of at the mercy of world markets. The fundamen- technology-enabled discoveries, another four tal question Americans now face is: Can they trillion barrels are thought to be accessible. In capitalize on this extraordinary opportunity? consequence, reserves-to-production ratios for Or, think about this: In 2008, with oil at many major oil producers are climbing as far $137 a barrel, there was a frenzy of fear over out as 2040, and oil and other liquid fuels will peak oil supply. Yet today, when we talk about remain the world’s largest energy source, meet- peak oil, we do so in reference to demand. ing one-third of demand. Meanwhile, many At some point within the next two decades, people now believe that both the United States global oil consumption could even crest. In the and Europe likely experienced peak demand United States, net petroleum imports reached for gasoline in 2007.3 their peak of domestic consumption—60 percent—in 2005, and have been falling ever since. Information technology Imports are now down to 46 percent. Soaring is energy technology output from the Bakken shale fields, coupled with increased deepwater output primarily What is driving this energy revolution? from the Gulf of Mexico, has pushed up US Technology. domestic production by 12 percent since 2008.2 Cutting-edge technology—hardware and, This is the first increase in a quarter-century especially, software—is unlocking geological and has confounded predictions that domestic potential in places and ways hardly imagin- output was set on an inexorable downtrend. able even a few years ago. Energy companies 2 Deloitte Center for Energy Solutions now rank among the most important—and And energy storage is perhaps the biggest sophisticated—technology companies in the game-changer: Apple, to take one example, world. Information technology companies are is said to be working on a hydrogen-based pioneers on every front of the energy revolu- laptop battery that could last for months. tion, by: Once the energy storage puzzle is cracked, renewables and alternatives should have even • Driving innovations in exploration greater currency. Or take exploration: Our ability to process • Cutting energy consumption in buildings and analyze massive amounts of three-dimen- through software-driven construction and sional data about the ocean floor has allowed energy management the energy industry to discover vast new fossil fuel deposits. Technological innovations in • Allowing utilities to more smartly source drilling then allow producers to access these and manage their energy output deposits, many of them located in remote, once-forbidding places—beneath the Arctic • Empowering individuals to understand icecap, for instance, or at extraordinary depths. how to reduce their energy use; this under- scores the “Power of One”—how each and Great Game 2.0 every one of us can become players in the energy game The economic, environmental, and geopolitical consequences of this technological trans- • Enabling the design and testing of energy formation are breathtaking. Perhaps no change systems, from solar arrays and wind tur- is more important than the introduction into bines to nuclear plants the energy game of dozens of new players. The The breakthroughs have been stunning, and energy of geopolitics will not likely ever be often elegant in their simplicity. Among the the same. least appreciated technologies are those that Today, alongside traditional powers like empower companies and individuals to under- Saudi Arabia and the United Arab Emirates, stand and manage—and thus significantly Brazil is becoming an energy superpower reduce—their energy consumption. Last year, and Canada is reinforcing its position as one, venture capitalists invested $275 million—up as is Russia. Also joining the ranks of grow- 75 percent from 2010—in start-ups that make ing energy producers are countries like the software and other technologies to manage Philippines, Argentina, Angola, and Suriname energy use.4 (all thanks to deepwater drilling), and Poland Equally impressive is the evolution of (shale gas). In Israel, massive recent gas dis- renewable and alternative energy technologies. coveries are upending the energy and political The renewable energy market is expected to calculus—a fact that would most likely have reach as high as $800 billion by 2015 and to stunned former Prime Minister Golda Meir. generate 17 percent of the world’s electricity “Let me tell you something that we Israelis by 2030. In parts of the world, the cost of solar have against Moses,” she famously joked in energy is reaching grid parity. Nuclear, despite 1956. “He took us 40 years through the desert the Fukushima disaster, is growing at a pace in order to bring us to the one spot in the not seen in decades, especially in Asia—21 Middle East that has no oil.” The Department reactors provide 31percent of South Korea’s of Energy estimates that there are 32 coun- electricity, while 26 reactors are under con- tries worldwide with meaningful reserves of struction in China.5 shale gas. 3 Energy’s Next Frontiers How technology is radically reshaping supply, demand, and the energy of geopolitics The global energy map has been redrawn Energy technology is also bringing its trans- and expanded by technology—which is the formative power to other parts of the world, real driving force in “Great Game 2.0.” principally by decoupling energy from its The geopolitical consequences are nowhere traditional sources.

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