Energy Outlook 2040

I attended Exxon Mobil’s very informative session on “The Outlook for Energy: A View to 2040” on July 15, 2015 at the Lagos Oriental Hotel. Businesses (and nations) that seek sustainable prosperity have no choice but to develop deep insights and foresights about their industries, markets and consumers and I was quite impressed by the fact that the company invests in a comprehensive annual effort to develop its views about the energy sector forty years ahead, and then shares those insights with selected stakeholders across the world.

A friend who sat with me at the presentation wondered why Exxon Mobil would make such proprietary insights public, especially as some of those in attendance could be considered competitors. My sense was, of course, that corporate strategy is unique to an organization, and the fact that a company shares industry insights demonstrates its strategic confidence and responsibility to the society. I am certain, of course, that such public insights do not have to include those elements of proprietary knowledge critical to organizational strategy.

The outlook was developed taking into account 100 countries; 15 demand sectors (thus giving deep insights to the fundamental drivers of energy demand); 20 fuel types (again enabling understanding of fundamental dynamics regarding alternative energy sources); global trade flows and factors such as technology evolution and policy. The result is a very robust view on the probable evolution of the energy sector over the short, medium and long term.

Nigeria is indeed a critical beneficiary of such insights and as I looked around the room and could not identify any persons from the federal and state governments, I hoped perhaps the company will share its insights with Abuja, privately or publicly.

The report identified five critical global “constituencies” that will drive energy sector development – OECD countries (the developed West, Japan and Singapore), China, India, identified Key Growth Economies (Brazil, South Africa, NIGERIA, Iran, Indonesia, Egypt, Malaysia, Saudi Arabia, Mexico, Turkey, Thailand) and the rest of the world. I wondered why energy-rich Russia ended up as part of the rest of the world, but then that could be explained by its relatively low growth prospects and geo-political differences with the West.

There were some obvious insights from the report – global progress drives energy demand, for instance. The more a society develops, the more it will require energy for schools, factories, utilities and services and the more a family prospers, the higher the need and demand for energy for their homes, cars and businesses. It confirms that given the relative maturity of OECD economies, the rate of growth in standards of living in non-OECD economies (China, India and the other BRICs and developing nations including Nigeria) will outstrip their OECD counterparts; the global middle class will continue to grow; growth in electricity demand will be driven by industrial growth, improved standards of living and population increase; etc.

On the other hand, there were some counter-intuitive revelations – for instance, given the alarm over climate change and CO2 emissions, one would have expected the contribution of renewable energy to global energy supply to become significantly higher by 2040, but the report suggests gas, oil, coal, and even nuclear will still trump biomass and other renewables. In spite of that fact, I would insist that solar-enabled countries like Nigeria must focus on renewable energy and perhaps develop some comparative advantage thereby over those nations already over-invested in other forms of energy.

It is not particularly surprising that developing and emerging economies will dominate growth in energy demand even though the OECD nations will still marginally account for the largest component of demand. It is, however, shocking as energy demand evolves over time such that by 2040, energy demand in China alone will almost catch up with the entire OECD! The key growth economies will rise to more than half OECD demand, along with India and the rest of the world, reflecting a global shift in the balance of economic power and standards of living. It was also quite revealing to observe gasoline declining as a source of motor vehicle fuel (light vehicles and cars) from 2030 with full hybrid vehicles growing aggressively and electric cars growing more slowly.

It is probably understandable that the Exxon Mobil presentation avoided that single question that most Nigerian policymakers and analysts would want answers to – oil prices! Indeed that was the very first question in the interactive part of the discussions that morning. I personally do not think you need any star-gazing or fortune-teller to tell us that given the changing demand and supply dynamics regarding global oil demand (in favour of supply!) through emergent US energy independence; new technologies such as fracking enabling easier access and lower production costs for shale oil and gas deposits, and more widespread oil discoveries across Africa and the world; as well as loss of OPEC market power, it is wiser for energy-dependent economies such as ours to assume that oil prices can only trend downwards in real terms over the long term. The imperative of diversifying Nigeria’s exports and government revenues away from oil dependence (which produces recurrent cycles of exchange rate and budget shocks) will magnify, not reduce, as time goes on.