Chinese and Indian economic growth is leading to a surging demand for energy. Which energy sources can meet this demand? Since the nuclear accident in Japan, each country has adopted a different approach to nuclear energy. More time is needed before renewable energies become widely used. As in past crises, the key lies in technological innovation. It is time for developed and developing nations to work together to find solutions.
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Since around 2004, the globalization of energy demand has fundamentally changed the international environment. In the old days, the drivers of energy demand were the United States, Western Europe and Japan, but the drivers these days are the emerging markets. China and India now have a decisive impact on energy markets and on the global economy as a whole. At the same time, energy security is now a very important issue, not just for developed nations but for these newly emerging economies too. This was symbolized by Chinese Premier Wen Jiabao's warning to Iran that it should refrain from "extreme acts" such as disrupting the Strait of Hormuz.
On the eve of World War I, when he was converting the British Navy from coal to oil, Winston Churchill made the famous statement that "safety in oil lies in variety and variety alone." The words are as relevant in 2012 as they were a century ago. Churchill was talking about the need to diversify sources of oil, but the key to energy security has to be the diversification of all energy sources.
One immediate issue nowadays is the world's unprecedented dependence on electricity. We wouldn't have the Internet, iPhones or home computers without it. With regards to the fuel mix for electricity generation, on a global basis a triumvirate of coal, nuclear and natural gas will remain dominant for at least another two decades.
Of the three, natural gas' role in electricity generation will grow most rapidly. Technological innovation in the United States has resulted in the large-scale extraction of "shale gas," a natural gas found in shale formations once considered too expensive to mine. This represents a revolutionary change in the energy sector. In the United States, coal's share of electricity generation has dropped from 55 percent to 37 percent in just a few years and it is gas that's replacing it. In the near future, the United States or Western Canada will hopefully become a more significant exporter of natural gas to Japan.
NO GOING BACK FOR NUCLEAR ENERGY
After the immense tragedy at the Fukushima No. 1 nuclear power plant, nuclear power is obviously the central question for Japan now. Japan's goal of depending on nuclear for 50 percent of its energy needs is clearly finished. It seems unlikely the ratio is ever going to hit the pre-quake level of 30 percent again. So what should Japan do now? There are no simple answers, but Japan needs to consider alternatives that will help it stay competitive as an economy. Japan is part of the global economy, so it is really critical that it remains competitive.
Up until March 10, 2011, people were still talking about a "nuclear renaissance." After March 11, 2011, though, the world has started moving towards the era of the "nuclear patchwork." Germany drastically changed its nuclear energy policy almost overnight, but Britain is still pushing ahead with nuclear power, as is China, albeit with more central government control. The United States is also building a couple of new plants. So, as the word "patchwork" suggests, you now just have different countries reacting in different ways to the issue of nuclear energy.
It is striking how much the scale of wind-generated energy has expanded in recent years and how much solar costs have come down. I think these renewable energy sources will continue to grow from hereon. However, we need be to realistic about what share of our energy needs these renewables can account for. In an age of economic austerity, most governments are probably going to reduce their support for renewables.
EMERGING-ECONOMY TALENT ALSO KEY
The world economy will double in size by 2030 or 2035, and I expect energy consumption to rise by about 35 percent. The surprising thing is that the energy mix probably won't be too different from today. It takes time to develop new technologies.
However, there's no reason to think innovation is going to come to an end. There is a famous quote that "oil is found in the minds of men." The search for oil is a highly scientific activity that involves tremendous innovation, but at the end of the day it's also an activity that involves the power of the human imagination. Though the statement was made about oil, I think creativity and ingenuity have provided us with new energy options for more than two and a half centuries and will continue to do so in the future.
Shale gas now accounts for almost 40 percent of U.S. natural gas production and its development has created hundreds of thousands of new jobs. This revolution is going to occur elsewhere and will probably give other countries a cheap source of gas too. This technology has also given us a new light crude oil source known as "tight oil." As a result of this innovation, oil production in the United States is 25 percent higher than it was in 2008.
Japan is a role model for the rest of the world when it comes to energy-saving products and other ways of raising energy efficiency.
The solution to the challenges posed by globalization lie within globalization itself. In the past, energy research and development was led by only a few countries, such as the United States and Japan. Things are different now, though, with lots of smart people in other countries also involved in technological innovation. You could say we are living in an age of "globalized innovation."
(This article was compiled from an interview by Naoatsu Aoyama from Asahi Shimbun's GLOBE)
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Daniel Yergin
Daniel Yergin was born in 1947. He is chairman of IHS Cambridge Energy Research Associates and a renowned expert on energy problems. Author of the new book "The Quest: Energy, Security, and the Remaking of the Modern World." In 1992, he won the Pulitzer Prize for his book "The Prize: The Epic Quest for Oil, Money, and Power."
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