Political factors have a significant impact on influencing the global energy market.
The World Energy Outlook 2018 report published by the International Energy Agency (IEA) explains that government policy is essential to shaping the future of the energy industry.
The latest report highlights that whilst energy consumption continues to shift further towards Asia, there are mixed signals regarding the overall rate and direction of the change. The oil industry, for example, is in a current state of uncertainty and particular volatility, with talks of potential gaps in supply in the early 2020s. The demand for natural gas is also continuing to increase, diminishing discussions of a potential glut as China continues to transform into a significant consumer.
The IEA believes that governments will have a significant influence in the overall direction of the future energy system. Based on existing and planned policies formed in the New Policies Scenario, energy demand is predicted to increase by over 25% to 2040, with a required investment in excess of $2 trillion every year into new energy supply.
Dr. Fatih Birol, the executive director of the IEA explains that their analysis indicates that over 70% of global energy investments will be motivated by government decisions. Creating the correct policies and supportive incentives are critical to meeting the common goals of energy security, carbon emission reductions and improving overall air quality.
The IEA analysis suggests that oil consumption will continue to grow in the coming years due to rising demands for petrochemicals, aviation and trucking activity. In order to meet these demand levels, U.S. shale production, which is already increasing at record level would have to create an additional 10 million barrels every day from now until 2025. This is the equivalent of creating another Russia into the global supply reserve within seven years.
Renewable energy has transformed into the choice technology, consisting of nearly two-thirds of worldwide capacity additions to 2040, due to reducing costs and supportive policies. These changes are rapidly transforming the global energy market, with shares in renewable generation increasing from a figure of 25% to over 40% by 2040.
The rise of renewables is creating a range of challenges that government and policymakers need to consider and factor into their decisions quickly. The IEA believes energy systems will need to ensure flexibility is a priority of future energy markets. The challenge, that is highlighted by the IEA is the increasing urgency as nations are quickly progressing their market share of solar and wind. These changes will require reforming markets, additional investment into the grid and improvements in demand-response technology.
Energy markets are experiencing a significant period of transformation with growing demands being driven by digitalisation, electric vehicles and other technological changes. The IEA analysis believes that higher electrification rates would result in peak oil demand being reached by 2030 and a reduction in local air pollutants. This would, however, have no impact on carbon emissions unless there is a rise in the share of renewables and the creation of low carbon sources of power generation.
Birol explains that they have reviewed existing and planned energy infrastructure worldwide and have discovered that this will account for around 95% of all emissions allowed within the International climate targets. This essentially means that if our world really wants to meet climate targets then there needs to be an increased preference for investment in sustainable energy technology.
Birol believes that we need to become smarter about how we currently use our energy system and focus on expanding carbon capturing technology, storage, hydrogen and enhancing energy efficiency systems. In order for these systems to improve, we will need significant political and economic efforts.