The Oil and the Glory

The Weekly Wrap: Dec. 9, 2011

Exxon: How (very different) the energy picture will look in 2040: Look around, because a big part of the global economy is undergoing a tectonic shift, one that will become apparent in just a decade and a half, according to Exxon’s outlook for the year 2040. Among the transformations: Energy demand in the gluttonous U.S. ...

Mark Ralston  AFP/Getty Images
Mark Ralston AFP/Getty Images

Exxon: How (very different) the energy picture will look in 2040: Look around, because a big part of the global economy is undergoing a tectonic shift, one that will become apparent in just a decade and a half, according to Exxon’s outlook for the year 2040. Among the transformations: Energy demand in the gluttonous U.S. and China will either flatten out or decline. Consequently, global energy consumption as a whole will continue to surge through 2025, but then rise by just 9 percent in the 15-year period from 2025 through 2040, according to the oil giant. Extrapolating into geopolitics, today’s oil-producing states appear likely to face gradually declining relative influence in the second half of the century, while the stature of natural gas giants will grow.

In case the drama of that 9 percent figure isn’t immediately apparent, look at any 15-year period in the last two Exxon outlooks (the previous one covered the world through 2030): From 1990 through 2005, global energy consumption grew by 30.6 percent. From 2005 through 2020, Exxon projects consumption growing by 22 percent, and from 2010 through 2025 by 20 percent. Then the world changes — China’s population tails off and ages; folks start insisting on cleaner air around the world. A close read of the reports suggests that, even beyond the difficulty of precision a quarter-century before the fact, Exxon itself is uncertain as to what comes next.  As an illustration, the reports have energy consumption rising by just .04 percent from 2025 through 2030. Obviously the actual five-year number for that period will be considerably higher. What one infers is that, between researching and writing the 2030 and 2040 reports, Exxon lowered its forecast for the 2030s — it already is far lower than the expectations of the U.S. Energy Information Administration — and got tangled up trying to adjust its new figures backward into the 2020s.

I was also struck by the company’s take on the future of motoring. New technologies rarely take the world by storm — it was many years before cars were in every garage, cellphones in every pocket, and so on — but Exxon foresees an excruciatingly slow rollout of electric and hybrid vehicles. First the good news (for the makers of electric-driven vehicles): In its previous long-term outlook, Exxon forecast that by 2030, 25 percent of new vehicles sold around the world will be electric or hybrids. In its updated outlook, it says that so many will be sold by 2040 that they will make up 45 percent of the total fleet; the sale of purely gasoline-driven vehicles will shrink from 75 percent of the total in 2030 to just 35 percent a decade later. That’s an enormous shift, but let’s dig down into the details: It turns out that the vast majority of these advanced vehicles — or 40 percent of the cars on the road — will "use mainly gasoline plus a small amount of battery power," like today’s Toyota Prius. Just 5 percent will be plug-in hybrids or electrics, which will continue to be niche vehicles because of "cost and functionality considerations."

Go to the Jump for Exxon’s outlook, and the rest of the Wrap.

The outlook says:

By 2030, ExxonMobil expects that, on average, hybrid vehicles (like the Toyota Prius) will cost about $1,500 more than a similar-sized conventional vehicle … and an electric vehicle (like Nissan’s Leaf) will be $12,000 more. In the case of the electric vehicle, consumers would not recoup that higher purchase cost within five years unless gasoline prices were more than $10 a gallon; with gasoline at $4 a gallon, it would take more than 15 years to recoup those upfront purchase costs.

The report offers a caveat: While the company’s billions of dollars in investment is based on the outlook, giving it "a huge stake in getting it right," it leaves room for unforeseen technological breakthroughs. For example, "faster-than-expected drops in battery costs would likely make electric cars more of a factor through 2040 than we expect them to be."

Doing much hanging around with battery scientists in recent months, I have to say that I am relieved to see this caveat. Common sense tells you it is highly improbable that scientists will make almost no technological advance in battery technology in a three-decade period. That some 20 nations including the U.S., Japan, South Korea, China, Israel and Germany are engaged in a race to make advanced battery breakthroughs suggests better progress.


China discovers shale gas … In April, U.S. government geologists estimated that China has almost 50 percent more shale gas than the United States’ humongous reserves. Now, Shell and PetroChina have announced the first results of drilling in China — they have discovered shale gas in adjacent blocks in the north of Sichuan province. That is the good news. On the soberer side, it is not clear when the companies will begin actual production, because the tectonic geology is far more difficult to navigate than that in the U.S., according to PetroChina’s Zhou Jiping. Not to mention that the region is dry, raising the question of where the drillers will find the enormous quantities of water required for production, Reuters points out. Zhou said Chinese companies will not try to unlock the shale gas alone, but will rely on Big Oil companies like Shell and ExxonMobil, Bloomberg reports. Some Chinese officials focused on the good news. Among them were Sinopec Chairman Fu Chengyu, who forecast that China will surpass the U.S. in shale gas production by 2020. The volume of gas already lapping up on China’s shores from Turkmenistan, Australia and elsewhere already suggests a shakeup in the country’s coal-gas balance. But if Sinopec’s Fu is on the right track, China’s coal use could grow much slower than currently projected as more natural gas is used for power generation.


… but will it arrive soon enough to facilitate Chinese air travel? Beijing became an irate city this week as unusually heavy smog descended on the Chinese capital, distressing residents, and forcing the  cancellation of hundreds of flights unable to fly in such poor visibility. "The end of the world is imminent," read one on-line posting, reports the New York Times’ Edward Wong. This is not new — coal- and exhaust-choked air has accompanied China’s turbo-charged economic growth. Yet after much delay and prevarication, Beijing’s response has been swift: Officials said that, starting the first half of next year, they will impose European clean fuel standards, Reuters reports, known as "Euro V." This is not evidence of altruism, but of clear-thinking municipal politics. As Wong put it, "When the frustration of parents boils over, Communist Party leaders start worrying about their legitimacy in the eyes of the people." At the Council on Foreign Relations, Elizabeth Economy notes the role played by the U.S. Embassy in this populism — the Embassy’s regular tweets of Beijing’s air quality have punctured a hole in the government’s rosier picture of the pollution. "If Beijing citizens were once resigned to living in this alternative state of reality, that is no longer the case," Economy writes. "The American Embassy has changed the way the game is played."


Winter and spring in Russia: We are on metaphor alert when it comes to this year’s chain of political turbulence — observers are variously driven to credit and discount the Arab Spring whenever a crowd breaks out. So it is in petro-charged Russia, where the pro-Kremlin United Russia party suffered a drubbing in parliamentary elections. Small-to-moderate protests against alleged government cheating were broken up in Moscow and St. Petersburg, and judges imposed 15-day jail sentences on two bloggers, Alexei Navalny and Ilya Yashin, whose local celebrity has since grown. Russian officials launched into traditional xenophobia: In the eyes of Prime Minister Vladimir Putin, former Soviet governments do not simply change hands — they are driven out by western conspiracies. In the case of his current problems, Putin asserts that Russia’s political discontents are not upset of their own accord, but are responding to the bad influence of U.S. Secretary of State Hillary Clinton. (As for the Arab Spring itself, NATO has turned secular Arab governments into radical Islamic regimes, suggests Russia’s ambassador to Nato.) One expects such remarks in normal conditions in Russia, so they will certainly be a key part of Putin’s campaign platform leading up to the March 4 presidential election. Yet I am not as quick as some others to dismiss the influence of the Arab Spring. Would Russia’s middle class be tweeting furiously and on the streets without the examples of Egypt and Syria? I have my doubts.

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