There is an obvious connection between energy and economic growth: cheap fuel means lower production costs. As energy consumption is on an upward trajectory -with growth in the Far East and Latin America outpacing the industrialised countries in the near term - the key to prosperity is to develop cheaper and sustainable sources of fuel to replace fossil fuels and curtail the environmentally-unfriendly carbon footprint.
Energy industry executives and government energy ministers debated how to do that during the European Business Summit in Brussels recently. The bottom line: the public and private sectors need to work hand in glove, striking a balance between government support to create a level playing field and business then working to find the amount of energy required for the future without losing time or money.
“We will invest if we’ve got predictable fiscal structures in place and we believe they’re going to be in place for a very, very long time,” said Royal Dutch Shell CEO Peter Voser. Tom R. Waters, President of Exxon-Mobil Gas and Power Marketing, agreed: “We are here to invest; we need the certainty” of long-term policy commitment.
Even using all available sources of today’s energy, there are bound to be shortages, according to Gazprom’s Deputy Chairman, Alexander Medvedev. “Production demand in Europe, in a conservative forecast, will be half a trillion cubic metres by 2030; that’s 500-billion cubic metres a year. If you add together all the capacities of NorthStream, SouthStream, Nabuka, etc...there will still be a gap (between output and demand). So it’s necessary to invest now so nobody will fall into that gap.”
Investment, particularly in infrastructure, will start to close the gap between demand and supply. In the short term, given the economic crisis, that won’t come without government stimulus -- be it actual funding or serious tax breaks. “It’s a very simple question: where are those nice guys who will invest billions of dollars with a regulated return on investment?” Medvedev adds. “It’s a very challenging subject, because if there’s no stimulus for investment in infrastructure, this infrastructure will not appear.”
Infrastructure investment is key to developing renewable energy as well -- for example, using environmentally-friendly natural gas as transport fuels. “It could be done today,” says Exxon-Mobil’s Waters. “The issue there is the infrastructure: how do you change all the infrastructure that’s set up for automobiles now and move that to natural gas? The scale is humungous.”
There’s also a problem of scale with renewable energy, aside from those associated with infrastructure-conversion costs. “Our real concern with renewables is how much it takes to just penetrate one per cent of the energy markets. It’s huge,” says Waters. “It’s therefore important to keep a thoughtful, long-term view regarding how much you want to push for these things, because they do come with a cost.”
“Sustainable development will be possible only when we have a proper energy-mix and a proper investment level,” says Gazprom’s Medvedev. Until then, the head of the world’s largest gas-producer sees natural gas as “the best answer for all these energy challenges, including CO2 emissions. This does not mean we should not spend money on renewables, but we should appreciate that it’s an additional element that will not replace traditional hydro-carbons.”
Shell’s Voser believes Brazilian sugar cane could also be a viable fuel source. “Sugar cane now is using less than two per cent of the arable land in Brazil and it’s 2,000-kilometres away from the rainforest,” he admonishes environmentalists’ challenges. “There is a future for sugar cane which can be made much larger in Brazil in order to supply biofuels into Europe in a sustainable way. It’s a good testing ground. I think with all technologies and methods it’s important to start â€“ to scale up and test, because over time this will bring costs down.”
Voser cautions the timeframe he sees is longer than the five or ten years touted in the media, but that’s no reason to be deterred. “It’s a long-term journey,” he says, “but the sooner we start, the better.”