Not long ago, Chevron’s exploration teams were stuck. Several years earlier they had struck oil at a place called Rosebank, 9,000 feet below the surface of the Atlantic Ocean west of Britain’s Shetland Islands. But the usual seismic surveys could not make out the location of the field clearly enough for Chevron to decide where to place wells, which can cost $100 million or more apiece.
So the teams placed 750 sensors on the sea bottom for a close-up scan, then crunched the huge reams of data with a supercomputer. “It was like putting on the right pair of glasses,” said Steve Garrett, the head of Chevron’s European technology center in Aberdeen, Scotland.
That is just one example of how the energy industry is transforming more rapidly than ever, driven by technology, changing economic conditions and shifts in political power. The changes are reordering both the ways of doing business and the global balance of power in energy.
“Expect the unexpected,” said Robert N. Stavins, the director of the environmental economics program at Harvard, noting that, among other things, “technological change will be quick, and political change is happening much faster than before.”
High oil prices, especially the spike to more than $145 a barrel five years ago, unleashed investment and led to the discovery of new supplies, while technological advances and conservation efforts are likely to ripple through the energy world for decades to come.
The Energy Puzzle
Some of the rapid changes are taking place within the existing order and others outside it, with winners and losers around the globe on many fronts. Forecasters warned for decades that fossil-fuel production was peaking and that alternate energy sources would increasingly be relied upon. But energy companies have repeatedly defied those predictions by developing new technologies — like Chevron’s deep-sea exploration techniques and the rise of fracking as a means of extracting natural gas. And world coal consumption has been growing strongly, especially in Asia, and is now roughly tied with oil as the world’s leading fuel.
No doubt, the use of wind, solar and hydroelectric power and other less-polluting renewable energy sources will continue to grow, as concerns about global warming increase. Hydroelectric dams are still the largest renewable source, though hydropower is expected to grow more slowly than wind and solar. Research into waves and tidal energy is extensive, notably at the European Marine Energy Center in the Orkney Islands north of the Scottish mainland, though output from such technology at present is not significant.
Nuclear power presents a more uneven picture. Germany is planning to shut all its nuclear power plants by 2022, in the wake of the Fukushima disaster in Japan, which also dealt a heavy blow to the Japanese nuclear industry. Britain is negotiating with a French company to build a plant in England. France is still building and exporting nuclear power stations, and China, South Korea and even the United Arab Emirates are all embracing nuclear energy.
While Germany has shown that a major industrial economy can find the political will to begin a wholesale shift away from nuclear power and carbon-based fuels, renewable energies are still plagued by high costs. Not so natural gas. Its consumption is forecast to grow faster than that of oil, and along with the availability of renewable energy, will make energy supplies more diverse and more geographically distributed, which might sooth fears of shortage and disruption. “A lot more countries have access to a decent slice of energy supply,” said David L. Goldwyn, who served as the U.S. State Department’s coordinator for international energy affairs in the first Obama administration. “That is a shift in power.”
The winners in future energy are likely to be companies and countries that are open to risk-taking, innovation and experimentation, rather than just those blessed with huge pools of oil and gas. The United States looms large, with small and midsize companies extracting huge quantities of natural gas and, more recently, what is known as tight oil from seemingly impermeable shale rock.
In fact, small and flexible may be one model for the new age. In nuclear energy, for example, engineers are working on miniaturized power plants. Gen4 Energy, based in Denver, is developing what it calls “small, transportable power sources” that might be used in remote locations, either for commercial operations like mining or to power residential communities on islands and other isolated places. Enel Green Power, a subsidiary of the Italian energy group Enel, builds wind farms on contract for private companies in developing countries, including Mexico, where it is better to have your own power source.
The behemoths of today — the Organization of the Petroleum Exporting Countries, Russia, and even some major oil companies — could be losers if they do not adapt. “People underestimated the U.S. and overestimated countries like Iraq,” said Majid Jafar, the chief executive of Crescent Petroleum, an oil company based in the United Arab Emirates with production in Iraqi Kurdistan. “It is more about the investment climate than what is in the ground.”
In the years ahead, OPEC, whose member nations have about 70 percent of the world’s proven oil reserves, may face falling market share and a loss of clout. “Over time, the OPEC countries will become more marginal players in the global market,” Mr. Goldwyn said.
Relatively recent discoveries of oil and gas fields in the South China Sea, the eastern Mediterranean and off the coasts of Africa and South America will extend the supply and spread the wealth. Certainly, compared with OPEC’s current dominant market share, the United States has no clear advantage in shale resources, which are widely distributed throughout the world. p>
Russia, for instance, has huge shale formations that dwarf those in the United States. Its government is beginning to change its tax system so as to encourage exploiting these resources. Russia needs to “loosen up” and allow a little bit of trial and error, said Christof Rühl, the chief economist of BP. At the same time, slack demand from Europe and low natural gas prices in the United States are threatening Russia’s gas revenue. This particularly hurts because Russia resembles an OPEC country, in that prices and natural resource production matter greatly to its economy.
China, the world’s largest energy consumer, is much more complicated — and hugely influential. “Anything which China needs translates into additional demand, pushing up commodities prices,” said Neil Beveridge, an analyst in Hong Kong for Sanford C. Bernstein, a research firm.
China is also the biggest carbon emitter, drawing about two-thirds of its energy from coal. This has created pressure for it to turn more to wind, solar and nuclear power. Emerging markets, particularly in Asia, are expected to account for most future energy growth.
As in many other industries, China has followed an export strategy in energy. In addition to the China General Nuclear Power Group’s discussions with Britain, China made about 70 percent of the world’s photovoltaic solar panels last year, leading to friction with the European Union, which is investigating whether China is selling at subsidized low prices in order to increase market share.
Vehicle fuel is also a mixed picture.
Vehicle fuel is also a mixed picture. While electric cars are becoming commonplace and an increasing number of buses and trucks are using natural gas, cars powered by gasoline or diesel are not going to be swept aside anytime soon. Indeed, advances in diesel technology that make it cleaner and more fuel efficient may strengthen fossil fuel’s base in the automotive industry.
Most forecasters predict that fossil fuels will dominate the energy picture for at least the next couple of decades. With prices high, the oil industry has raised investment in exploration: According to BP, proven oil reserves rose 26 percent over the last decade, and gas reserves increased 21 percent.
Prices of $100 a barrel make it worthwhile to hunt for oil in deeper waters around the world and to try to squeeze more out of old fields, where large amounts of additional oil can often be recovered with more modern technologies.
“The era of easy oil is over,” said David Highton, an analyst at the oil research firm Wood Mackenzie in Edinburgh. “But the industry will always push the boundaries of technology to develop ever more complex resources.”
The ingenuity of the industry can be seen in the United States, which until recently was thought to be facing inexorable declines of its oil and gas, and ever-increasing imports. But now the United States is producing oil at levels not seen for a generation and is on the verge of becoming a natural gas exporter. The implications of that turnaround are just beginning to be felt. The production boom is likely to help the United States retain its position as an economic superpower, and rising output should help cut the trade deficit.
John Surma, the executive chairman of the Pittsburgh-based U.S. Steel, said the energy to produce a ton of steel cost three times as much at his company’s plant in Slovakia as it did in the United States. Shale gas, he said, “is one of the best things to happen to the U.S. from a cost standpoint for quite some time.”
The United States also has an abundance of service contractors ready to drill wells and hydraulically fracture them on quick notice, and it has an extensive gas pipeline network for distribution. “One of the supreme advantages the U.S. has in shale is the infrastructure to distribute gas anywhere in the country,” said Andrew Gould, the chairman of BG Group, a large British gas producer.
Mr. Gould said Europe was burdened by a one-directional gas system designed to handle imports from Russia. As in the case of mobile phones, developing countries setting up new grids might have an advantage, he said.
In Western Europe, however, only the British government has come out strongly in favor of fracking, and environmentalists are hobbling the effort before it even starts. To the east, where the urge to break the hold of Russian gas runs stronger, Poland, Ukraine, Lithuania and others are more receptive to exploration. The shale boom in the United States could also prompt a reassessment of the renewable energy business. Partly by shifting to natural gas from coal and oil, the United States cut emissions about 12 percent between 2007 and 2012, according to the Energy Information Administration, a federal agency. Investment in wind and solar power has been falling, after reaching a global peak of about $240 billion in 2011, according to Bloomberg New Energy Finance.
“This is clearly the natural gas century,” said Edward Morse, the head of commodities research at Citigroup in New York. Mr. Morse said that having gas resources, as many countries do, “frees an economy from worrying not only about security of supply but volatility of price.”