Energy markets are always faced with uncertainty. This is not something new to the environment. And they have learned to cope with the existing uncertainty. Yet the current level of uncertainty could be hazardous for the development of the sector, said Fatih while setting the tone of the conference on Tuesday morning here.
He cited the current state of economy as a major contributor to this uncertainty. No one really knows what shape the global economy, and hence the global energy consumption, would take in the coming months and years. There are conflicting positions, with some arguing that a double dip recession is just round the corner, while others stressing that a boom is about to embrace the world. And all this would have a lot of impact on what would be the level of energy required to meet the demand and most investment decisions depend on this assessment.
Birol also stressed that the gas glut would continue for a longer period of time than earlier anticipated and this would impact the global energy balance for some time to come, as cheap gas would put pressure on competing fuel.
Varying climate change policies also continue to add to the uncertainty. Industry is not sure of the stance respective governments would take on such issues and this hampers investment sentiments, he asserted.
One of the interesting parts of his presentation was that oil demand is not necessarily sensitive to market prices — now. And he had a reason for that. Despite everything, most of the oil that is being consumed today goes into transportation sector. And he suggested that despite all the talks of hybrid cars, the demand for oil in the transportation sector is growing — irrespective of the oil market prices.
Further since demand growth now is coming mostly from the developing and the emerging economies, the high levels of subsidies in those markets make them quite insensitive to international market prices, Birol argued.
China's decisions, especially on using the energy mix, while promoting and emphasizing on enhanced domestic coal consumption for electricity generation, would also affect the global energy demand and supply balance, adding to the uncertainty in energy markets. Public policies of major nations are also influencing the level of uncertainty.
Late on Monday, the London-based World Energy Council, the host of this event, unveiled the ‘2010 Assessment of energy and climate policies.' The review of country policy frameworks and their implementation done over the past 12 months has revealed a wide range of approaches among the countries.
In terms of fossil fuel-based energy security policies, China, Japan, and Russia are reported by the WEC to have effective, yet different, approaches to developing resource-oriented partnerships with other countries, based on strategic alliances, technological expertise and financial strength. US technology investments have resulted in rapid advances in opening up new domestic natural gas resources through the hydraulic fracturing of deep shale, and the ability to take advantage of that expertise overseas.
In terms of alternative energy supply, several regimes were reported to have stood out. Using different policy approaches, Germany and the US state of Texas have made strong progress in the deployment of renewable energy within their transmission infrastructure. Brazil and Ghana have been particularly successful in using off-grid renewable energy to increase access to electricity for rural populations. France's carefully planned approach to renewing and enhancing its nuclear capacity is a model for an established nuclear nation.
In terms of energy efficiency and demand-side management, Japan's programs, directed largely at industry, have achieved significant reductions in consumption, while innovative schemes in Brazil have encouraged domestic manufacturers to develop low energy consumption appliances, the report pointed out.
Denmark provides a benchmark for building design standards, and California (US) and Ontario (Canada) are front-runners in the development of smart grids.
The report emphasizes that strong measures are needed to mitigate the impacts of climate change. Much energy infrastructure in OECD countries needs to be renewed, while many non-OECD countries are still seeking to extend access to energy across their populations.
The recent economic downturn and the failure to reach a binding international consensus on reducing greenhouse gas emissions have impeded policy solutions to these issues, the report admitted. Although the global financial crisis caused a dip in global energy consumption and a temporary stabilization of emissions, it also reduced the availability of investment capital and increased uncertainty about infrastructure project economics.
At this critical juncture in global policymaking, when hard choices have to be made and multiple benefits secured, there is great value in international dialogue around the pursuit of sustainable energy solutions, the report concluded.
