Energy

Ambrose Evans-Pritchard in the telegraph has an interesting take on “The International Energy Agency (IEA) said in its world outlook for 2012” see his article

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100021244/us-to-overtake-saudi-arabia-in-oil-as-chinas-water-runs-dry/

Points to consider are:

* Coal has provided half the entire growth in world energy supply over the last decade, much more than renewables.

* Total investment in oil and gas alone this year is (estimated) $619 billion. It shows the sheer scale.

* Total oil output will be less than 100 million b/d by 2035. This is not that much higher than this year at 87 million.

* The US will overtake Saudi Arabia to become the world’s top oil producer by 2017.

If his reading of this report is correct, then the world is approaching Plateau Oil production in the near future. What I did not expect was the impact water will have as a constraint on energy and power. Solar parks, coal, and nuclear power all require water for cooling. Even combined cycle power plants that burn natural gas require water. In many cases where energy is located can be far from where water is available to operate the power plant. There are many cases where aquifers are being depleted in order to supply the water needed to run the power plants.  China is working to divert rivers equal to the Tigris and Euphrates combined to supply its dry belt. Both India and China face water issues in expanding their power plant capacity. What is interesting is that liquid fuels like gasoline and oil are priced as world commodities because of the ease of transport. Natural gas is much harder to transport so prices is more local based on production and pipelines to transport it.

So what this means is that energy many be a limiting factor for growth in the developing world. Due to the reduction of nuclear plants in Europe and the reliance on green energy I expect that energy will be a limiting factor on the economies of Europe also. Given the production of shale energy in America I expect growth in energy related industries in America. The only factor will be by 2015 a lot of coal fired power plants may be forced to shut down due to new standards. It is very unlikely that nuclear or green energy will replace this loss. So the growth in America will depend on natural gas replacing the loss of these coal plants. This seems likely because natural gas is considered “cleaner” than coal.

All and all the main take from this is to not expect to see any decline in the price of petroleum products due to continued demand related to growth in the developing countries. If you are an American company and you can use natural gas you may wish to develop plans to take advantage of natural gas prices. Also, watch to see how the developing world handles its water issues as it develops the power it needs to continue to grow.

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