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The surprising view from Exxon

ExxonMobil is not a name that most people would associate with energy efficiency or diversification. Yet that’s exactly the direction that the world’s largest integrated oil company sees the global energy picture heading. This month Exxon released the 2012 edition of the Outlook for Energy, its annual observation of the world’s long-term energy trends over the next three decades, and here is its verdict: “Everywhere…we see energy being used more efficiently and energy supplies continuing to diversify as new technologies and sources emerge.”

I should add a disclaimer before continuing: ExxonMobil uses the Outlook to inform its own investment decisions, but that should be no reason to dismiss it as an expensive and expansive PR exercise. In fact, as Javier Blas of the Financial Times explains, the report carries significant weight in informing the strategic decisions of energy industry executives and trading houses, and it is a good representation of how the industry envisions supply and demand trends will unfold.

According to the Outlook, global energy demand is slated to grow by about 30 percent between 2010 and 2040. But that huge growth in energy demand will be accompanied by substantial growth in energy efficiency. In these charts depicting projected energy demand, ExxonMobil researchers note that without those efficiency gains the growth in energy use would be some 90 percent higher for OECD countries and over 250 percent higher for non-OECD countries. Efficiency gains will come from new energy-saving practices and technologies in manufacturing, building construction, and appliances, leading residential and commercial energy demand to slow in all regions by 2040, and energy use per household to show steady declines. Transportation will also see significant gains in energy efficiency, bringing about a transformation in the energy footprint of personal transportation. The Outlook expects improvements in design and fuel economy to significantly reduce the carbon emissions of conventional gasoline-powered cars, while hybrids will become increasingly affordable and comprise a much greater proportion (over 40 percent) of the global light vehicle fleet by 2040.

An increasing shift to lower-carbon energy sources, primarily in electricity generation, will spur further gains in efficiency. The Outlook is bullish on renewables: it projects wind power to grow by more than tenfold over the next three decades, as well as renewable sources to supply approximately 20 percent of the electricity demands of Europe, the United States, and China by 2040. But the shift to low-carbon electricity sources will be powered primarily by natural gas, which will see its demand grow by 60 percent. Over the last decade, advancements in drilling technologies have made commercially viable vast supplies of natural gas from unconventional sources such as shale formations. The “shale gas revolution” has already made a significant impact on the balance of U.S. energy supplies, and it looks likely to spread to China as well (Europe also possesses large supplies, but has been noticeably more cautious about developing them).

The gains in energy usage from gas (and, to a lesser extent, renewables) will come primarily at the expense of coal, with favorable implications for carbon emissions. In electricity generation, natural gas emits up to 60 percent less CO2, and the latest gas-fired plants are some 20% more efficient then the most modern coal-fired ones. Though a displacement of coal by natural gas would be no small feat–cheap and widely available coal is still the primary source of electricity worldwide and is expected to remain so for at least the next decade–Exxon believes that more and more countries will come to seek cleaner alternatives over the next 30 years, providing an opening for natural gas and renewables.

There are doubtless those who will find the Outlook to be overly optimistic on the future of the world’s energy supply. It does, for example, believe that carbon emissions will level off by 2030 and takes the introduction of carbon taxes for granted in both developing and developed countries. In the wake of the  tense climate negotiations at Durban earlier this month, such developments may seem difficult to believe. Yet domestic and regional emissions and energy efficiency agreements have been growing, whether involving airline emissions in the E.U., or tougher standards on coal power plants or higher vehicle fuel-economy standards in the U.S. Even China is joining in. The rise of unconventional natural gas has also met no shortage of controversy. Yet natural gas development may soon see tighter environmental regulations, and State Department energy coordinator Carlos Pascual has floated the possibility of working with other countries to ensure that “if they are going to…develop shale gas, they can do it in an environmentally responsible way.”

It’s important to think of these disparate, regional developments as pieces of broader trends. In the energy industry, where the capital intensity of projects requires several years for development, attention to the long term is critical. And if ExxonMobil sees a long-term trend towards energy efficiency, diversification, and emissions reduction, that just might be a positive sign of a less carbon-intensive future.