The emergence of shale gas, ever more energy-efficient transport solutions, and a better energy infrastructure means energy prices will be heading south.
Since the world’s energy price peak around mid-2008, energy prices have been stagnant but with a trend heading downwards. Shale gas is one of the drivers; Global shale gas reserves are estimated to be ~6,600 trillion cubic feet, roughly the same amount as the world’s proven gas reserves. Shale gas can and is displacing other energy sources across the board. Compressed or liquefied gas can power buses, trucks and delivery vans. Two out of every five new garbage trucks in America run on natural gas.
Oil prices also look set to decline. Peak oil seems to move further into the future as extraction technology has improved, allowing firms to exploit previously inaccessible resources. It seems likelier that a peak in oil demand is nearer. Cars are getting 3-4% more efficient a year, with trucks improving at around 1-2%. Citibank Research estimates that demand for oil will level out after 2017, which we agree upon. Oil still makes up a third of the world’s energy consumption but its market share has been shrinking for well over a decade.
As energy demand in the developed world falls, so will prices. Last year energy consumption in OECD countries fell by 1.2%, led by a decline of 2.8% in the US (the world’s largest decline in volumetric terms). The number is increasing in non-OECD countries, but here the connection between growth and energy consumption is not what it used to be. China will introduce stringent consumptions standards for cars of 5 l. per 100 km for 2015. The developing country will not go through the same energy consumption cycle increase as the developed countries did.
The EU will invest over 200 billion EUR up until 2020 to improve efficiency in the European energy market, especially in gas and electricity corridors between north and south and east and west. These will lead to more direct competition between energy sources with a likely downward pressure on prices as a consequence.
Since the time of Malthus and before there have been doomsayers predicting an end to available resources and growth, and the energy market is no exception. As so many times before in history, human innovation and advancing technologies are paving the way for more affordable energy for consumers.
