Irish fears about energy prices and supply receding
For more than a decade, Africa has been booming. India’s economy has been surging ahead for two decades. China has enjoyed three decades of breakneck expansion.
Half of the planet’s population lives in Africa, India and China, while the overwhelming proportion of those subsisting on one euro a day live on that continent and in those two countries. That they are registering some of strongest rates of economic growth mean huge progress in lifting the world’s “bottom billion” out of extreme poverty. This has been humanity’s greatest achievement in recent times.
For our part of the world this achievement has the additional upside of creating new markets – it is hard to find a thinking politician anywhere in the rich world these days who doesn’t lace speeches with talk of new trading opportunities in the fast-growing emerging economies.
If there is a downside of rapid growth in the developing world it is increased pressure on the planet’s resources.
Big increases in demand from developing countries have been the most important factor in pushing up commodity prices over the past decade. Many fear that prices could climb much higher in the future, and that conflicts could break out as countries scramble to secure supplies of the most vital resources – food and energy.
What does all this mean for Ireland?
As a net exporter of food this country has few concerns about security of supply issues, and Irish producers stand to benefit from higher world prices. Consumers will, of course, suffer if prices rises, but given that food accounts for a small percentage of household budgets spikes in prices have much more limited effects for consumers here than they do in the developing world, where a much larger proportion of incomes goes on nutrition.
If Ireland is largely insulated from the effects of negative developments in world food markets thanks to self-sufficiency, the same cannot be said for energy.
Nine-tenths of all energy consumed in the State comes from abroad. That compares with an average import dependency ratio of just over half across the EU.
Even with a big boost in the contribution of renewables and the (much shorter-term) contribution of Corrib gas, Ireland’s energy mix will be dominated by imported hydrocarbons for the foreseeable future.
In recent decades import-dependency posed very limited risk because oil and gas supplies came mostly from North Sea sources. Unlike countries in the Middle East, where wars and revolutions regularly disrupt supplies, and Russia, which has chosen to cut off supplies for political reasons (as happened in 2009), Britain and Norway are dependable partners. The risks of supply disruption have, therefore, been very low.
But with North Sea oil and gas running out fast, Ireland faces the challenge of finding new sources of energy at a time when fast-growing developing economies are trying to do the same.
Until recently this looked like a very serious challenge. It now looks less challenging almost by the month.
“The global energy map is changing in dramatic fashion,” says the International Energy Agency (IEA) in its annual World Energy Outlook report published this week. It finds that fears of “peak oil” are unfounded – supply will rise broadly in line with demand out to 2035. As a result, oil and gas prices change little in real terms over the period under the three different scenarios it models.
From an Irish perspective, there is plenty more reassuring reading in the report. “North America is at the forefront of a sweeping transformation in oil and gas production . . . extraordinary growth in oil and natural gas output in the United States a sea-change in global energy flows”.
With the US and Canada exporting both oil and gas by the end of the decade, according to the IEA, an opportunity is opening up to replace a considerable proportion of North Sea supplies with North American oil and gas. It is an opportunity that should be grasped.
If fears about energy prices and security of supply are receding, the outlook for the third element in the energy equation – environmental sustainability – is worrying. IEA projections are for the planet to have warmed by 3.6 degrees by 2035. That is well above the 2 degrees ceiling agreed in the Kyoto protocol on climate change, signed 15 years ago next month.
There is now a considerably greater risk that the seas will rise in our lifetimes than that the lights will go out.