Free FatCat Newsletter
Learn how to manage your money betterSubscribe Now
What will it take for us to realise that the doom-mongers are wrong, and that we live in an era of energy abundance?
By John Browne and Jean-Marc Ollagnier
‘When my information changes, I alter my conclusions,’ said the economist John Maynard Keynes. If only we were all as sensible as Keynes.
Instead, humans are dangerously slow to react to new information. Despite a century of accumulated evidence for anthropological climate change, we remain depressingly far away from global coordinated action to tackle the problem. It took the danger of a ‘Grexit’ for policymakers to inject some certainty into the Eurozone.
What will it take for us to realise that the doom-mongers and peak-oil theorists are wrong, and that we live in an era of energy abundance?
We are not lacking in evidence. Over the past 20 years, global oil consumption has increased by thirty per cent, but proven reserves have increased at twice that rate. The IEA has said that there are many sources of uncertainty surrounding future oil supplies, but the size of the resource base is not one of them. Today’s proven oil reserves are sufficient to provide for over fifty years of demand at current rates. If estimates of undiscovered resources and future improvements in technology are included, this rises to almost two hundred years.
Natural gas tells a similar story. Proven reserves are sufficient to supply 65 years of current demand, but the reality is likely to be nearer 230 years. Coal, the dirtiest of fossil fuels, is just as ubiquitous. Even in the renewable energy sector, there has been an almost eight-fold increase in installed capacity over the past decade.
After decades of Malthusian doom-mongering, how have we found ourselves in a position of such abundance? We have technological progress to thank. Advances in horizontal drilling and hydraulic fracturing (‘fracking’) have unlocked vast natural gas reserves in the USA, and have the potential to do the same across Europe and Asia. The same technology has also been applied to the extraction of oil, and is redrawing the map of global oil production: the US may now overtake Saudi Arabia as the world’s biggest oil producer by the mid-2020s.
Investment in renewable energy is proceeding at a staggering pace thanks to a combination of falling costs and generous subsidies. The price of solar cells fell by 20 per cent in 2012 alone, whilst the cost of a wind turbine fell by almost 10 per cent, continuing the trend of the past decade. When falling costs are combined with readily available government subsidies, the result is something we might never have thought possible. On particularly sunny or windy days, leaders in renewable energy like Germany now produce more electricity than their grids can handle, and analysis by Accenture shows that spare capacity across Europe has been rising steadily to around 20% of peak demand.
While 1.3 billion people still lack access to electricity, such abundance presents enormous opportunities. But it must not be allowed to usher in an era of complacency, and there are three major challenges which the industry and policymakers must confront. The first is how to adapt to an energy landscape which is being turned on its head. A glut of renewable energy from wind and solar means abundance by day and shortage by night. We are used to dealing with the opposite. This reversal means that subsidies will need to be redeployed away from renewables and towards the provision of capacity markets to ensure that gaps in supply can be filled.
The second challenge is how to win the argument for a low-carbon future. This remains an environmental necessity, but in a world of fossil fuel abundance, it may no longer make economic sense. The link between abundance and falling prices is neither immediate nor direct, but we need only to look to the US to see what abundance can do in the right conditions. Record low prices in American natural gas markets have brought the high cost of many renewable technologies and the ever-rising cost of nuclear energy into sharp relief.
Cheap fossil fuels still come with an environmental cost though, so a radical reframing of the resource question is needed. We should no longer be asking how to reduce fossil fuel consumption to avoid the apparently high and volatile prices of a future defined by scarcity. In light of the choices now available, we need instead to decide in what order and with what speed we want to consume our abundant energy resources in order to preserve the environment for future generations.
The final challenge is how do we develop and employ our resources in line with the wishes of local communities? Energy policy used to be judged by its ability to deliver secure, affordable and environmentally sound energy. Now, this must also be done in a way that is acceptable to the public. Accessing untapped oil and gas reserves in shale rock, the Arctic and ultra-deep waters will require firms to operate at the cutting edge of exploration technology. This can be performed safely and without endangering the environment, but operators will have to work hard to convince local communities. The same is true of renewable energy. Onshore wind, marine and biomass installations have all attracted vehement local opposition. We cannot take public acceptance of these energy sources for granted.
We live in an era of energy abundance. Polemics about resource scarcity or peak oil are wrong, and divert attention away from the real questions. The sooner we realise this, the sooner we can focus our efforts on adapting to a new reality.
Lord John Browne is the former chief executive of BP and since 2007 has been a partner at Riverstone Holdings. His memoir, “Beyond Business” was published in 2010.
Jean-Marc Ollagnier is group chief executive of Accenture’s Resources operating group, which serves clients in the chemicals, energy, natural resources and utilities industries.
 BP Statistical Review data
 BNEF figures (wind page 16, solar is from BNEF price index for multicrystalline silicon modules