The geopolitics of energy innovation
This change will be determined by the rapid and disruptive deployment of renewable energies and low-carbon technologies on a global scale. The acceleration is underscored by ambitious strategies introduced by major international players

Technological innovation in the energy industry is distorting the traditional approach of governments, industry and citizens to energy issues. In the hydrocarbons sector, for example, the unconventional revolution in progress in the United States, the expansion of the LNG market and the progressive globalization and commoditization of natural gas have profound implications for traditional producers–—OPEC, first and foremost—and for their relations with consumer countries. However, the bulk of this change is yet to come, and this change will be determined by the rapid and disruptive deployment of renewable energies and low-carbon technologies on a global scale. The acceleration in the fight against climate change detailed in the Paris Agreement is underscored by ambitious strategies and technological innovation processes introduced by major international players (both public and private), innovation capable of distorting the way in which energy is produced, managed and consumed on both the global and local level.

The United States and the unconventional revolution

Within a year and a half, the price of crude oil fell from $114 per barrel in June 2014 to $27 per barrel in February 2016. This drop can be mainly attributed to the decision of the Saudi royal family to challenge U.S. shale producers, who, thanks to the introduction and progressive improvement of technologies such as hydraulic fracking and horizontal drilling, managed to bring U.S. production to over 9 million barrels per day in 2015, almost double that of 2010. Equally in the natural gas sector, the boom in U.S. production, accompanied by the expansion of global liquefaction capacity and the reduction in LNG transport costs, has had a strong impact on regional and global market dynamics. They have contributed to a fall in gas prices, an increasing convergence of costs on the Asian market and in the main European hubs, and a destabilizing impact on the strategies of weaker players and less competitive projects.

China leads the boom in renewables

Despite the collapse in crude oil prices, 2015 was a record year for the development of renewable energies. Global investments in the industry reached $286 billion, with a growth of 5% in 2014 and six times that since 2004. Moreover, for the first time ever, renewables contributed over half the new installed electricity generation capacity worldwide (53%), for a total of 118 GW compared to 94 GW the previous year. The emerging economies are the focus of this phenomenal growth, with total investments amounting to $156 billion (+19% compared with 2014), against the $130 billion invested by industrialized countries (-8% compared with the previous year). China alone contributes over one third ($103 billion, 36%) of the global investments, posting a national annual increase of +17%, ahead of India, Brazil, South Africa and Chile, whose combined investments reached almost $30 billion. Because of the collapse in oil and gas prices, even the main hydrocarbon producers in the Middle East have launched significant reforms in their energy industries. In absolute terms, the figures are low compared with those of the major emerging economies such as China and India  However, in the Middle East/Africa, annual investment growth in renewables has increased 58%, the highest global figure. Particularly active are the governments of the Gulf Cooperation Council (GCC) which, distancing themselves from the current economic model based on oil revenues, are promoting ambitious policies both to reduce energy subsidies and to encourage the penetration of renewables such as solar and wind.

Global upheavals

These trends will have significant implications, both internationally and locally. In the hydrocarbons sector, change is related to the redefinition of market fundamentals, the American liberation from Persian Gulf oil, the state of confusion within OPEC, Russia’s financial difficulties, and growing European energy security thanks to low gas prices and the expansion of the LNG market. Even more significant may be the spread of low-carbon technologies at an intra-state level, especially in the oil producing countries of the Middle East and North Africa and the developing countries of Sub-Saharan Africa. Technological progress in the energy industry will not only be a key driving force to promote fair and sustainable economic development in large areas of the globe, but it also has the potential to irreversibly alter power relations and socio-political dynamics. The massive penetration of technologies for the production, distribution and decentralized consumption of energy can make obsolete the top-down model based on energy supplies ensured by a public authority free from interference by the population. The democratizing effect of the spread of new technologies in the energy industry and the growing activism of private players in an industry that, in the past, was strongly harnessed by public control mechanisms may lead to extraordinary upheavals in the economic, political and social arena, upheavals not foreseen even by the parties involved.