A brief history of the role of energy in the global economy.

Position:Blog
 
FREE EXCERPT

The last 25 years

Ever since the British Industrial Revolution, energy has been a key factor of production. Recent history has proved no exception. The pattern of primary commercial energy consumption since 1965 is presented in Figure 1.

[FIGURE 1 OMITTED]

What is also clear is that, since the start of this century, energy consumption in non-OECD countries has grown strongly, while in OECD countries it peaked in 2004. This is because of the lagged relationship between prices and energy consumption following the oil shocks of the 1970s.

The effects of the oil price shocks of the 1970s were to push oil out of the static sector (power generation), where it was replaced initially by coal and gas. However, until recently, oil retained its favoured position in the transport sector, while gas remained a constrained fuel, limited by its high transportation costs.

Moreover, the use of gas in the power sector was proscribed by regulation in the US and the EU between 1975 and 1990. In emerging market economies, its domestic development by the (foreign) companies that had discovered the gas was also constrained in the face of non-convertible currencies. Thus, gas earned only revenue that the foreign company could not remit back to its shareholders

[FIGURE 4 OMITTED]

Despite the growing use of commercial energy, the world faced considerable fuel poverty. Figure 4 illustrates the size of populations without access to electricity and those without access to modern cooking fuels. It is interesting to observe that the Millennium Development Goals did not relate at all to energy. However, the Sustainable Development Goals explicitly refer to energy. This has important implications for the future of oil and gas in the development process, not least because the price of solar electricity is falling more rapidly than expected.

Oil and gas in global trade

Oil and gas are major internationally traded commodities. Figure 5 shows the proportion of traded oil consumed and the way that this trade has been increasing this century. Because of economies of scale, transporting oil and oil products is extremely easy and extremely cheap. This goes a long way to explaining why oil is an internationally traded commodity with a unified market, while gas remains traded in regional markets.

[FIGURE 5 OMITTED]

By contrast, gas suffers from what has become known as 'the tyranny of distance'. As can be seen from Figure 6, a much smaller proportion of consumption is traded...

To continue reading

FREE SIGN UP