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Title [Petroleum Economist] Planning for the future 2016.10.21

FROM: Petroleum Economist

[Petroleum Economist - October. 18, 2016]



Planning for the future





After a three-year term as the World Energy Council’s co-Chair, Younghoon David Kim is to take over as Chair until 2019. We caught up with him to get his thoughts on the Council, and where energy markets are changing.


What do you see as the most pressing challenges confronting the global energy sector?


There is little doubt that the energy sector will change over the coming years because of several disruptive global trends, ranging from climate change to automation and digitisation associated with the Fourth Industrial Revolution, which is also affecting other industries and transforming the global economic landscape. We are seeing a steady paradigm shift from a carbon-based economy based on combustion to one based on new sources of energy and new modes of power generation.


Fossil fuels will continue to play an important role. There are estimates that fossil fuels will still generate 75% of global power needs in 2050 because we cannot meet energy demand without them. But we also need to prepare for the future. That means not only developing clean and more efficient ways to produce and use fossil fuels, but also discover and nurture alternative energy sources. The coming decades will define the winners and losers of this energy transition. In the long term, I believe we are embarking on a significant energy revolution that could equal and even surpass the industrial revolution in transforming the world.


Within this shifting picture, how important is natural gas as the hallowed "bridge fuel"?


I agree that natural gas serves as a "bridging" energy source to a more sustainable economy since it is the cleanest form of fossil fuel. In fact, natural gas is the only fossil fuel whose share of primary energy consumption is expected to grow. It is already the second largest energy source for power generation, accounting for 22% of generated power globally. The use of natural gas to fuel transport from trucks to ships, its role in helping make the switch from coal, and its combination with carbon capture and storage systems makes it an ideal, long-term, cheap and reliable low-carbon energy source.


Where does the so-called Energy Trilemma (energy security, social equity and environmental concerns) figure in the WEC's thinking?


The World Energy Council has long discussed the concept of the energy trilemma -the best way to balance the sometimes conflicting goals of achieving energy security, delivering affordable energy and reducing carbon emissions. Bringing these contrasting trends into harmony is always difficult, but these challenges have taken on urgency because of climate change. As a result, the global energy sector must tackle many issues in the coming years, including changing the energy supply mix, increasing energy access and affordability, and improving energy efficiency. All of this will contribute to a paradigm shift in the global energy sector.


But the energy trilemma can no longer be seen in isolation. It also forms part of a bigger trilemma: the need to balance food, energy and water resources, what the UN has called the FEW nexus to highlight the interdependence of these main building blocks of society. By 2050, global demand for energy will double, while demand for food and water will grow by half. But the UN predicts there could be a 40% shortfall in water in the next decade due to severe droughts caused by climate change. That means less water available to produce food and energy.


So the energy transition also involves sustaining the food-energy-water nexus. Decisions on energy supplies must now be related to achieving water and food security as well, particularly in the developing world. So a main goal of the global energy sector should be to promote energy systems designed to harmonise with food and water sustainability goals, while strengthening economies to resist any threatened breakdown in the FEW nexus that could be caused by drastic climate change.


What about the social dimension? Do you consider the provision of affordable energy to the world's population as important as ensuring that energy is carbon neutral?


Of course, both have equal importance and that is why the solution is to identify the right energy technologies, not only in terms of the energy trilemma, but which also complement food and water security goals.


The focus should be on adopting the right technology for the right place at the right price. The guiding principle should be to promote resilient energy technologies to meet local conditions. I believe that the share of renewables as an energy source will continue to grow. Wind and solar power are no longer new tech. Solar panels are mass produced in China and the cost of a megawatt of wind power or solar power is now almost competitive with that produced by fossil fuels in some cases.


Low-tech and cost-effective energy solutions can be particularly effective in developing economies and can be as simple as providing clean cooking stoves fueled by eco-friendly briquettes. Greater attention should be paid to reducing electricity generation based on big projects, such as large power plants or giant hydroelectric dams, and delivered instead by small-scale alternatives such as micro-hydro projects or off-grid power solutions such as small gas-fired generators and solar panels, which are proven technologies that work in this environment.


The combination of low-cost renewable energy technology with highly efficient appliances and robust battery technology means that grid expansion may no longer be necessary in remote rural areas. This development would also do much to complement food and water security goals to meet local conditions. But we also need to develop grid-scale energy storage systems that can once and for all overcome the conundrum of the intermittency of wind and solar power.


You have played a key role in shaping Asia as the world's fastest-growing energy market. What lessons from this can be applied to other global regions?


Asia represents an interesting case study of whether we can achieve our goals. Asia holds the global balance of power when it comes to energy and climate change. Strong economic growth in China and India has meant they have tripled CO2 emissions since 1990, although per capita emissions are still much lower than in developed countries. China alone uses twice the amount of energy of Europe, so the potential for greater environmental damage remains. China and India, which together account for 40% of the world's population, will define the new demand centers and they must play a more responsible role in global energy governance.


In terms of fossil fuels, the energy market has changed from being a seller's market to a buyer's market. Previously, Western majors and Middle East producers had the initiative in the market, but today Asia has the power in terms of being a major energy consumer.


For Asia, the disruption in energy models actually presents a golden opportunity to avoid some of the environmental problems encountered in developed countries.


New technology solutions are being rapidly embraced from solar panels and electric batteries to energy storage systems and carbon capture systems. China is emerging as the world's biggest market for electric vehicles as well as the largest producer of solar panels. China, South Korea and Japan have become the leaders in electric batteries and the development of energy storage systems.


Since Asia is actively embracing energy storage, electric vehicles and wind and so-lar power, it is becoming a major competitor in the global alternative energy market.


What is the role of technical innovation in the energy industry? Is the sector doing enough to incentivise innovation or could more be done?


My short answer is that companies must innovate or eventually perish and that should be incentive enough for them to continuously innovate. Energy companies need to reinvent themselves. We are at the threshold of a whole new industrial era being driven by the technological advances for smart cities, connected homes or big data. We are also seeing remarkable progress in the material sciences, artificial intelligence and genetic engineering to name just a few.


All of these developments, in one way or another, will have an impact on energy production and consumption in the future. We are already seeing companies outside the energy sector, such as Tesla, Uber and even Google doing things that are impacting our industry.


Even though there are many competing energy scenarios for the future, a general consensus is emerging that demands an unrelenting search for a new generation of sustainable technology to tackle climate change and other urgent global challenges.


Energy companies must move beyond the era of fossil fuels to keep up with disruptive changes, while offering the hope of increased energy efficiency and reducing the carbon footprint. We are seeing utilities, for example, adapt to new energy models. Southern California Edison has set up an Advanced Technology lab that is focused on energy storage, automation and digital communications to improve the efficiency and reliability of electricity grids powered by a growing share of renewable energy sources.


But beyond that, we should also consider frontier energy technologies, which may be the most exciting area of exploration.


If you asked an educated European in the 17th century what electricity was, few would have any idea since the concept was virtually unknown. It was not until the beginning of the 19th century after a series of electricity-related discoveries that we begin seeing primitive devices employing and transmitting electricity. And it was only in 1830s when electricity because viable for use in technology after Michael Faraday, one of my personal heroes, created the electric dynamo that solved the problem of generating electric currents in a continuous and practical way.


I believe there are other energy technologies out there that few can anticipate, just as few anticipated the existence of electricity four hundred years ago. These technologies range from high-altitude wind power, grid-connected tidal power machinery and power produced from nuclear waste to nanotechnology and even microbial energy research that aims to harness the cell as an energy source. We could one day see a paradigm shift from the exploitation of dead microbes, which are basic material for fossil fuels, to using living microorganisms to generate energy. These concepts may seem far-fetched, but remember that few knew about electricity before Faraday came along.


You have been involved the WEC for some years. What is your vision for the Council as you take over its chair?


One primary role as WEC chair is to ask questions and provoke a debate about where the global energy industry is heading. More specifically, I think that the WEC should play a critical role in helping develop the next generation of energy leaders. This means that we need to generate among the young generation a passion and devotion for innovation in the energy sector. Electricity was one of the greatest inventions that transformed the world between 1870 and 1940-probably the most economically revolutionary period in human history-and many of its pioneers were self-taught men like Faraday, Nicolas Tesla and Thomas Edison. We need to follow their example to unleash breakthroughs by harnessing the raw talent across all sectors of society.


Let me use the example of Michael Faraday, who helped spark the electricity revolution in the 19th century. He came from a very poor family and had almost no formal education. But he was discovered and mentored by the Royal Institution of Great Britain and went to produce a long list of achievements, such as the electric motor and electric generator.


The energy industry needs to help increase the pace of innovation, to identify and finance promising investors and commercialise disruptive technologies. We need to seek out and support the future Michael Faradays in our midst.


I believe that the World Energy Council can play a role in forging connections between innovators and investors in the energy sector as well as achieving innovative collaboration among the food, energy and water sectors. This is why WEC's Future Energy Leaders program as well as the World Energy Academies sponsored by some of our national member committees are so important in nurturing talent.


So I hope that the WEC can find a role to play in bringing them together with forward-looking financiers to help achieve technological breakthroughs, those with the brightest minds and deepest pockets.


The World Energy Council is uniquely placed in this regard. We are an international non-governmental organisation that enjoys the support of the private sector, bridging the divide between the thinkers and the doers. Close cooperation between inventors and investors will spark collaborative innovation and accelerate the global energy transition toward climate change-resilient energy systems.


What do you hope to achieve at the WEC Congress in Istanbul?


I hope to use the opportunity to urge my colleagues to reach out to the technology and financial communities as well as the food and water sectors so we can tackle together the looming challenges in terms of energy and climate change. I look forward to the support of the incoming co-Chair Jean-Marie Dauger and Secretary-General Christoph Frei in this regard. I think that the WEC can play a vital role in this process by creating a vision and a roadmap to advance the global energy sector and I want to emphasise the importance of this to the delegates.


Produced in association with WEC





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