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World energy issues: Part 1

Oilfield Technology,

Each year, the World Energy Council releases its World Energy Issue Monitor and highlights what the global energy industry needs to consider when developing and expanding. Below are brief discussions of some of those issues.

Macroeconomic risks and vulnerabilities

Uncertainty surrounding the global climate framework is top on many priority lists. Negotiations around policies and carbon tax as well as involvement in initiatives such as the Kyoto Protocol is never certain. The time frame in which decisions will be made is also uncertain as each individual nation has different criteria they wish to fill.

Large scale accidents/natural disasters such as the Macondo oil spill and Japanese tsunami have had long lasting impacts in the immediate regions and globally. A clear example is how the LNG industry has benefitted in many ways from the Fukushima nuclear disaster and the resulting shutdown of Japanese nuclear power. But, energy related incidents on such large scales and their implications can lead to serious safety policy and governance discussions, the results of which can never be predicted.

The global recession is of course another problem not far from the mind of industry figures, especially as the European refining industry is being heavily impacted by it still. Challenges brought up during the recession are also still causing problems for the energy industry as a whole and have led to capital market constraints, such as the difficulty in delivering energy infrastructure. Price volatility and uncertainty can also be labelled recession fallout. Commodities and energy alike are impacted by price volatility, investment uncertainty and risk.

The energy/water/food nexus is something that also can’t be ignored by the energy industry. Debates surrounding water contamination, ground reclamation, crop use etc, not only open the energy industry to supply risks but also impact water and food availability. Energy poverty is also a problem for the world as a whole as 1.3 billion people are still without access to electricity and are using biomass for cooking.

The skills gap is the final challenge in this area. For years the talent shortage has been noticed as fewer and fewer young people are entering the energy industry, and more and more people are retiring taking their wealth of experience with them. This is undoubtedly having an impact on energy industry development and expansion.

Energy geopolitics and regional issues

Demand is unquestionably shifting east as the US heads towards energy security and the economies of India and China continue to expand. However, with such competition for such scarce resources, market uncertainties and sustainability of needed production rates are in question. The demand/supply gap could also impact energy prices and import/export policies and routes.

Latin America has much potential. Argentina for example has huge energy resources, however, it has not always been easy to operate and invest there. It is thought that Brazil will lead be example as the nation is realising its energy potential, particularly for oil with the presalt layer, as well as the influence if could have over regional policy, growth and development.

When it comes to Europe, Russia is in a position where it needs to address its place in the market. The emergence of shale is going to force the country to readdress its standing and how it is to maintain importance in the gas sector. And if Russia do attempt to address the balance, the whole industry will have to look at what the implications will be on the global gas market as whole. As a whole, Europe and the EU lack common energy policies and this has negative impacts on the energy market for the region and often disallows regional interconnection and trade. Resolutions to these problems could greatly benefit Europe and reduce the number of issues faced by the energy market there.

The Middle East and Africa is most likely to remain a problem area due to regional conflicts and the danger of them spreading. The dramatic drop in Libyan oil production forced OPEC in particular to modify its production rates. When and if the situation in Libya stabilises and production resumes, OPEC’s levels will need to be adjusted, but how long before that happens is unknown and the uncertainty is most unsettling for the energy industry. Political fragility always has the potential to impact the security of supply around the world.

Terrorism is another geopolitical issue that an impact the energy industry as a whole. Cyber security is a very serious threat at the moment and has the potential to wipe out entire energy companies and the markets of countries.

Issues surrounding policies, business environments and the future of the energy industry will be discussed in Part 2

Written by Claira Lloyd.

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