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7/28/2019 Us Er EnergysNextFrontiers POV May2012
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Energys next rontiersHow technology is radically reshaping supply
demand and the energy o geopolitics
Deloitte Center for Energy Solutions
By Joseph A. Stanislaw
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2
Through the looking glass (ull steam ahead, but...) 1
Framing the Great Game 2.0: Saety, security and stability 6
Demand is supply: The stealth revolution in energy efciency technologies 7
The supply surprise 10
The new Great Game A technology race 12
A potential saety net: The Power o One 14
About the author 15
Contents
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Energys next frontiers How technology is radically reshaping supply, demand and the energy o geopolitics 1
Through the looking glass(ull steam ahead, but)
To understand how radically the energy industry is
changing, consider this: The United States has become
the number-one producer o natural gas in the world.
This is due to combining horizontal drilling and hydraulic
racturing technologies, a combination that has been in
widespread use or just our yearsand that has allowed
gas rom shale ormations to go rom accounting or just
2% o Americas natural gas production in 2001 to over
30%1 today. As a result, natural gas prices have been
alling in the U.S. or years. Given appropriate policy and
smart investments, North America could eventually achievethe goal o energy independencewith enough domestic
supplies to meet American needsthough crude oil
prices would still be at the mercy o world markets. The
undamental question Americans now ace is: Can they
capitalize on this extraordinary opportunity?
Or, think about this: In 2008, with oil at $137 a barrel,
there was a renzy o ear over peak oil supply. Yet today,
when we talk about peak oil, we do so in reerence to
demand. At some point within the next two decades,
global oil consumption could even crest. In the U.S.,
net petroleum imports reached their peak o domestic
consumption60%in 2005, and have been alling eversince. Imports are now down to 46%. Soaring output rom
the Bakken shale elds, coupled with increased deepwater
output primarily rom the Gul o Mexico, has pushed up
U.S. domestic production by 12% since 2008.2 This is the
rst increase in a quarter-century and has conounded
predictions that domestic output was set on an inexorable
downtrend.
It is a rare blessing or a country to be conronted with an
abundance o energy. Pessimism has reigned or the better
part o 150 years. In 1865, the British economist William
Stanley Jevons published The Coal Question, a study that
spread panic about the depletion o coal reserves. At the
1956 meeting o the American Petroleum Institute, M.
King Hubbert, a Shell geoscientist, coined the concept o
peak oil and, in 1974, he orecast that global oil supplies
would peak in 1995. The Department o Energys 2005
Hirsch Report contemplated the imminent, abrupt and
dangerous peaking o world oil and gas supplies.
Yet, while humanity has consumed a total o one trillion
barrels o oil since the early 19th century, today, thanks
to an onslaught o technology-enabled discoveries,
anotherfourtrillion barrels are thought to be accessible.
In consequence, reserves-to-production ratios or many
major oil producers are climbing as ar out as 2040, and oil
and other liquid uels will remain the worlds largest energy
source, meeting one-third o demand. Meanwhile, many
people now believe that both the U.S. and Europe likely
experienced peak demand or gasoline in 2007.3
Information technology is energy technology
What is driving this energy revolution? Technology.
Cutting-edge technologyhardware and, especially,
sotwareis unlocking geological potential in places and
ways hardly imaginable even a ew years ago. Energy
companies now rank among the most importantand
sophisticatedtechnology companies in the world.
Inormation technology companies are pioneers on every
ront o the energy revolution, including by:
Drivinginnovationsinexploration
Cuttingenergyconsumptioninbuildingsthroughsotware-driven construction and energy management
Allowingutilitiestomoresmartlysourceandmanage
their energy output
Empoweringindividualstounderstandhowto
reduce their energy use; this underscores the
Power o Onehow each and every one o us can
become players in the energy game
Enablingthedesignandtestingofenergysystems,from
solar arrays and wind turbines to nuclear plants
The breakthroughs have been stunning, and oten
elegant in their simplicity. Among the least appreciated
technologies are those that empower companies and
individuals to understand and manageand thus
signicantly reducetheir energy consumption. Last
year, venture capitalists invested $275 millionup 75%
rom 2010in start-ups that make sotware and other
technologies to manage energy use.4
1 http://www.businessweek.
com/printer/magazine/could-
shale-gas-reignite-the-us-
economy-11032011.html2 The San Francisco Chronicle,
September 4, 2011, America's
oil boom poses threat to our
green uture.3 National Post's Financial
Post & FP Investing (Canada),
December 9, 2011, Oil No. 1
source or decades: Exxon4 Los Angeles Times, December
1, 2011 Thursday, Green
technology gains more
investors; Venture capitalists
are attracted to the sector;
third-quarter investments
grow 73%.
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2
Equally impressive is the evolution o renewable and
alternative energy technologies. The renewable energy
market is expected to reach as high as $800 billion market
by 2015 and to generate 17% o the worlds electricity
by 2030. In parts o the world, the cost o solar energy
is reaching grid parity. Nuclear, despite the Fukushima
disaster, is growing at a pace not seen in decades,
especially in Asia21 reactors provide 31% o South
Koreas electricity, while 26 reactors are under construction
in China.5
And energy storage is perhaps the biggest game-changer:
Apple, to take one example, is said to be working on a
hydrogen-based laptop battery that could last or months.
Once the energy storage puzzle is cracked, renewables and
alternatives should have even greater currency.
Or take exploration: Our ability to process and analyze
massive amounts o three-dimensional data about the
ocean foor has allowed the energy industry to discover vast
new ossil uel deposits. Technological innovations in drilling
then allow producers to access these deposits, many o
them located in remote, once-orbidding placesbeneath
the Arctic icecap, or instance, or at extraordinary depths.
Great Game 2.0
The economic, environmental, and geopolitical
consequences o this technological transormation are
breathtaking. Perhaps no change is more important than the
introduction into the energy game o dozens o new players.
The energy o geopolitics will not likely ever be the same.
Today, alongside traditional powers like Saudi Arabia and
the United Arab Emirates, Brazil is becoming an energy
superpower and Canada is reinorcing its position as one,
as is Russia. Also joining the ranks o growing energy
producers are countries like Philippines, Argentina, Angola
and Suriname (all thanks to deepwater drilling), and Poland
(shale gas). In Israel, massive recent gas discoveries are
upending the energy and political calculusa act that
would most likely have stunned ormer Prime Minister
Golda Meir. Let me tell you something that we Israelis have
against Moses, she amously joked in 1956. He took us
40 years through the desert in order to bring us to the one
spot in the Middle East that has no oil. The Department
o Energy estimates that there are 32 countries worldwide
with meaningul reserves o shale gas.
The global energy map has been redrawn and expanded
by technologywhich is the. real driving orce in GreatGame 2.0.
The geopolitical consequences are nowhere greater,
perhaps, than in the United States. For decades, the
U.S. has been the worlds oil glutton, consuming about
a quarter o global energy supplies, despite having just
ve percent o the population. Until recently, the U.S.
had grown increasingly reliant on energy imports, a
dependency that shaped its economy and its oreign policy.
Since 2008, however, U.S. domestic oil output has climbed
12 percent, largely on the back o the Bakken and other
shale discoveries, as well as on the rapid expansion o
deepwater drilling. With its production projected to climbor years to come, the U.S. should soon lose its ranking
as the worlds top oil importera dubious honor that is
expected to go to the European Union by 2015 and China
by 2020. (China already has overtaken the U.S. as the
biggest importer o oil rom the Middle East.)6
I, ve years ago, you had askedWhich country in which
region o the world can be totally energy sel-sucient?
no one would have guessed the United States. Yet now,
the revelation o North Americas massive shale gas and
oil reserves, combined with the technological innovations
that unlock their potential, are helping bring into ocus
the tantalizing prospect o energy independence or the
United States. Just a ew years ago, the ossil-uel-rich
corridor that ran rom Saudi Arabia, through the Caspian,
5 Nuclear Engineering
International, November 1,2011, CommentNuclear
in east Asiathe hotbed?6 New York Times, November
9, 2011, E.U. Poised to
Overtake U.S. as Biggest Oil
Importer.
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Energys next frontiers How technology is radically reshaping supply, demand and the energy o geopolitics 3
Figure 1.
The Saudi-Caspian-Siberia-Canada Corridor: How deeply and quickly will the 'Pot o Gold' be realized in the U.S.?
Source: The JAStainislaw Group LLC
over Siberia, and into Canada the Saud i-Caspian-Siberia-
Canada (SCSC) corridorwas seen as the worlds energy
backbone. Six years ago, the corridor stopped in Canada.
But now, that energy rainbow extends to the U.S. where,
potentially, Americans will be able to tap into the pot
o gold at the end o that rainbow. But the airytale will
only come true i the U.S. seizes the opportunity through
appropriate policy, investments in inrastructure, and
intelligent energy management.
Energy technology is also bringing its transormative powerto other parts o the world, principally by decoupling energy
rom its traditional sources. Renewable energy sources
like wind and solar exist across the globe. The incredible
diaspora o shale gas and oil resources, and the reserves
unlocked by deepwater exploration, expand the energy
map even urther. This localization o energy could be a
major orce inor instanceliting Arica out o poverty
by helping bring reliable energy supplies to remote areas. It
will help enable the continued boom in urbanization, since
energy consumption and high energy costs are one o the
brakes on economic development. And by being locally
embedded, energy technologies will help keep communities
globally connectedrather than dependent.
Since the notion o the Great Game was coined in the
19th century, it has reerred to the oten-violent scramble
among nations or control o territories harboring energy
reserves. This old-style game is still very relevant. This is
evident in the growing geopolitical tensions over access tothe Arctics mammoth energy reserves, in Chinas pursuit o
control over ossil uel deposits in Central Asia, Arica, the
Middle East, and South America, and in the strong entry o
India into the global resources game.
But today it has become equally, i not more, important
to control the technology assetsthe hardware and the
sotware. Thus, the game has changed.
20 - 100 billion barrels
100 - 200 billion barrels
200 + billion barrels
20 - 100 bboe*
100 - 200 bboe
200 + bboe
Nuclear
Uranium
Wind/Solar
Human Capital
Oil Reserves Natural Gas Reserves High Coal Reserves
*Billion barrels of oil equivalent Historical data - Oil and Gas Journal, and BP Statistical Review
Uncertain?
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4
As used in this document,
Deloitte means Deloitte LLP.
Please see www.deloitte.com/us/
about or a detailed description
o the legal structure o Deloitte
LLP and its subsidiaries. Certain
services may not be available to
attest clients under the rules and
regulations o public accounting.
Energy Inc. and the Power of One
The new technologies have not only empowered dozens
o countries, but they also have made corporations and
individuals participants in the energy game.
Google is perhaps the highest-prole example o this: Its
data centers continuously drew almost 260 million watts
about a quarter o the output o an average nuclear
power plantto run Google searches, YouTube views,
Gmail messaging, and d isplay ads. Yet, it has pioneered
technologies that allow its data centers to use only 50%o the energy that most other data centers consume. To
help meet its energy needs, meanwhile, Google has built
a $915 million portolio o clean energy investments on a
simple investment philosophy.7
That is, the uture will be powered by multiple clean energy
technologies, and the key is to nd the ones that will ignite
a revolution and scale to meet the worlds energy needs.
Already, Google has a zero carbon ootprintand its goal is
to go negative.
Meanwhile, smart meters, the internet, and advanced
sotware are allowing individuals to ne-tune their energyconsumption. This underscores the Power o Onethe
ability o every person to proactively manage their energy
consumption and their carbon ootprint. This generational
change is a unction o heightened awareness o the
impact o energy consumption on household expenses, on
oreign policy, and on the environment. The consumption
o energy is no longer just an economic actthis is
becoming a conscious act and an act o conscience. This
will likely intensiy in the coming years.
For both companies and individuals, technology has
unleashed the potential creation o a virtuous energy cycle:
By understanding and managing energy use, individuals
save money, companies increase prots, and both lessen
the environmental impact. Everyone wins.
A recent report by Deloittethe reSources 2012 Study
ound consumer resourceulness has become entrenched
among American consumers. Eighty-three percent o
consumers took steps to reduce their electric bills over the
past year, up rom 68% in the 2011 reSources Study. And,
consumers are demanding that companies oer more
environmentally considerate solutions. U.S. businesses, on
average, are targeting reductions in energy consumption
o 23-24% over a 3-4 year period across electricity, natural
gas, and transportation feet. This years survey indicates
that companies are increasingly recognizing energy
management as a necessary strategic discipline and a key
to competitiveness. The 2011 and 2012 studies suggest
there are three categories where businesses will all as it
relates to their energy management practicesPioneers,
Engagers and Reactors.
7 New York Times, September 8,
2011 Google Details, and
Deends, Its Use o Electricity.
Figure 2.
Organizations are increasingly sophisticated at
managing energy at multiple levels within their
enterprise and across the supply chain.
Pioneers, Engagers or Reactors are descriptors or the spectrum
o businesses engaged in some level o energy management.
The Deloitte reSources 2012 study identied three distinct types
o companies engaged in some level o energy management:
Pioneers: 26% o respondents embracing the challenges o
energy management; developed and implementing strategy
Engagers: 52% o respondents believe must change or
lose to the competition. New to the challenge, reported
diculty in developing and executing programs eectively.
Reactors: 22% o respondents no comprehensive strategy;
isolated, tactical, project initiatives
26%22%
52%
Pioneers Engagers Reactors
Source: Deloitte Center or Energy Solutions
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Energys next frontiers How technology is radically reshaping supply, demand and the energy o geopolitics 5
Danger aheadA license to operate?
The breakneck pace o the energy technology revolution
likely masked inherent risks, howeverespecially in terms
o the environment and the public reaction.
The expansion o hydraulic racturing and the
accelerated production o the Canadian oil sands,
coincided with the global economic crisis that began
in 2008. This initially blunted reaction to the potential
dangers o new energy technologies, since the general
public was absorbed by its core economic concerns andthus inclined to think more about the savings that came
rom less-expensive energy than about environmental
concerns. In parallel, the campaign or a global climate
treaty eectively collapsed ater Copenhagen in 2009,
upending the momentum to curb carbon emissions.
In other words, in the competition between desire (or
cheaper energy) and ear (o the eco-consequences o
ossil uels), desire was at the oreront.
But environmental concerns are again ront-and-center.
The past three years have seen a series o energy-linked
environmental challenges that have reawakened public
concerns: The Gul o Mexico oil spill, the Fukushimanuclear incident, the controversy o hydraulic racturing,
and more.
Another example is the 1,700-mile Keystone XL pipeline
(which would transport 700,000 barrels per day o
Canadian oil sands crude to U.S. Gul coast reneries)
which has stirred a storm o controversy in Washington
ater concerns were raised about carbon emiss ions rom
oil sands production. The grassroots movement against
hydraulic racturing, meanwhile, has gained steam due
to concerns about the potential contamination o ground
water, risks to air quality, and the possible migration o
gases and hydraulic racturing chemicals to the surace. In
January 2012, over 40,000 New Yorkers weighed in during
the public comment period on the States deliberations to
allow hydraulic racturing.
The concerns o the ecological crowd are receiving
attention, with some reports showing that groundwater
tends to contain higher concentrations o methane near
hydraulic racturing wells. Also, hydraulic racturing has
been linked to earthquakesnot yet proven but sowing
distrust. In November 2011, an earthquake measuring
5.6 rattled Oklahoma and was elt as ar away as Illinois.
Until two years ago, Oklahoma typically had about 50
earthquakes a year, but in 2010, 1,047 quakes shook the
state. Both the U.S. Army and the U.S. Geological Survey
have concluded that the practice o injecting water intodeep rock ormations causes earthquakes. The unsettled
nature o these concerns means that companies still have
not secured a ree-and-clear license to operate rom
the public.
These are the early days o the high-tech energy era. Our
knowledge o the potential and the consequences o new
technologies is in its inancy. The ull cast o players in
Great Game 2.0states, technology companies, energy
producersis only now emerging onto the stage. How
all o these orces interact and play out in the coming
years could well determine not just where we get our
energy rom and how much it costs, but also the shape odomestic and global development. The Great Game 2.0
may well decide which countries and companies emerge as
enduring powers in the 21st centurywhich ones, in other
words, will reach the pot o gold at the end o the energy
rainbow.
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6
Framing the Great Game 2.0:Saety, security and stability
The past ew years have seen several crises that absorbed
analysts and seemed to augur signicant changes in
the energy industrynatural disasters like the Japanese
earthquakes that shook up the nuclear calculus, political
upheavals in North Arica and the Middle East that looked
ominous or oil (think Iran and Libya), and man-made
environmental accidents like the Gul o Mexico oil spill.
All were grave in their own way. But none ultimately have
been o truly signicant consequence or global energy
supplies.
The reason or this is that deeper, more proound, longer-
term trends are powering the energy equation. By ar,
the most signicant one is this: Energy is a central orce
in global economics and politics. It is at the heart o the
major global issueseconomics, poverty reduction, climate
change, clean water, and so many more. As a result,
governments are pursuing an energy triptychsecurity,
saety, and stability. This pursuit is at the heart o the Great
Game 2.0.
In the Great Game 2.0, security o supply trumps.
Unpack security o supply and you discover several
essential components beyond the physical access toresources, including the technology needed to tap those
resources, the human talent to invent and manage that
technology, and the ability to securely transport energy
through vulnerable channels, rom the Strait o Hormuz and
the Gul o Malaca. Absent security o supply, national
sovereignty is potentially at risk.
The other two s words in the energy triptych are saety
and stability. Real security o supply will demand that energy
can be accessed with minimal environmental impact and risk
to human saety. And it also will depend on the long-term
stability o a countrys legal and regulatory ramework,
which allows companies and consumers to invest or the
long haul.
The scale o investments being made in new energy
technologies is unprecedentedand nowhere more so
than in China. Beijing is investing $1.7 trillion in strategic
sectors, a major portion o it targeted to clean energy
and clean energy technology. Specically, Beijing says the
packageequivalent to Italys GDP and our times Chinas
2008 scal stimuluswill ocus on alternative energy,
biotechnology, new-generation inormation technology,
high-end equipment manuacturing, advanced materials,
alternative-uel cars and energy-saving and environmentally
riendly technologies.8
China has become procient in thedesign o nuclear reactors, solar, wind, and other energy
technologies. While the Chinese are ramping up their own
R&D, they have been especially skilled at adopting and
adapting technologies and reengineering them to lower
their costs.
The countries that leap ahead in this energy technology
game should be better positioned to protect their
sovereignty and to benet rom sustainable development.
But they also will be able to multiply their gains by being
the beneciaries o a virtuous cycle o innovation in
much the same way that the initial discovery o ossil uels
and, a century later, the technology behind the internetredened the economic landscape.
Take wind and solar energy, or example: As these sources
approach grid parity, they have helped accelerate the
pursuit o energy storage. And energy storage is likely a
game-changer in every realm, rom extending the battery
lie on mobile phones and laptops, to powering cars, to
decentralizing energy production.8 Telegraph.co.uk, November 21,2011, China unveils 1 trillion
green technology programme;
China is to spend more than 1
trillion over the next ve years
on green energy, transport and
advanced manuacturing, U.S.ocials have revealed.
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Energys next frontiers How technology is radically reshaping supply, demand and the energy o geopolitics 7
Demand is supply:The stealth revolution in energyefciency technologies
Companies have business strategies, risk strategies,
strategies or growing markets, and or managing human
resources, and so orth. But most companies do not yet
have an energy strategylet alone broader sustainability
strategies to manage the use o water, land, and other
resources. This is especially striking becausethanks to the
advent o technology that revolutionizes how we manage
energy consumptionevery company is an energy
company.
The headlines at the intersection o energy and technologyhave been dominated by solar, wind, biogas, tidal energy,
and other renewable sources or most o the past decade.
But two other, less-remarked-upon advancements probably
matter more. One is taking place in the management o
energy use, where improvements in eciency could have a
greater impact on the global energy picture than any other
development. And the other is in the oil and gas industries,
where new technology has brought massive new reserves
into play.
The marriage o technology and energy is perhaps
nowhere more important than in upgrading electricity
inrastructureand in particular the long-awaited smartgrid. The gains in eciency will likely be astounding once
the grid is built out.
A picture o whats possible is unolding in South Korea,
where a prototype grid is being developed in tandem with
intelligently designed buildings. Smart buildings connect
and communicate with the utility company via the smart
grid, allowing customers to check the energy use o every
socket and track electricity prices minute by minute. This
allows them to automatically schedule the use o power-
hungry appliances like dishwashers when electricity is
cheapest. In act, by modulating use, customers are not only
able to consume cheaper, o-peak power, but they can sell
power back to the utility that otherwise would have been
lostthe meters in the prototype system run backwards.
Customers with energy-producing technologies like rootop
solar arrays or wind turbines also can sell their excess energy
back to the power company.
Enablers Investors Technology Manufacturing
Users
(Demand) Residential Commercial Industrial Transportation
Policy Regulatory Environmental Tax
Stimulus
Providers
(Supply) Traditional Environmental Tax Stimulus
Energy
Management
Man
aging
Risk
Red
uucin
gC
osts
Minim
izin
gCa
rbon
Foot
prin
tIncreasin
gRevenu
es
Consumptio
n
Manage
mentSupplyOp
tions
DistributionEfficiency
Infra
structure
Implica
tions
Figure 3.
Energy is an asset that should be strategically managed to create economic value
or business enterprises
Source: Deloitte Consulting LLP
Meanwhile, the smart grid allows South Korean utilities
to chart energy use by house, by neighborhood, by time
o day, by seasonand thus to better plan how they
will supply energy in the uture. In leaping ahead with its
prototype grid, South Korea is aiming at its own virtuous
cycle o innovation, one that not only will allow it to
combine smart technology and green energy into one
ecosystem, but also one that will allow it to spawn new
companies that export the system worldwide.
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8
Figure 4.
Real analytics or energy: The path to Big Data
9 New York Times, December 6,
2011, A Mismatch Between
Grid Regulation and ModernNeeds
Innovations can be elegantly simple as well: Opower gives
electric and gas companies tools to communicate with
customers, like text-messaging them mid-month i their
electric bill is running particularly high.
The budding demand management industry is already
making major inroads in the corporate world. Innovators like
EnerNoc, using state-o-the-art sotware, help companies
manage energy use and automatically reduce consumption
during peak periods, selling the saved electricity back to
utilities at a prot and orestalling the need or the utilitiesto purchase high-priced energy on the spot market. FirstFuel
Sotware, meanwhile, analyzes a buildings electric use to
produce an energy-saving planand it does so remotely,
without a need or engineers to ever visit the building.
Almost all these energy management technologies are
enabled by the availability o data. Capturing this data
creates entire rontiers in energy managementmuch
as Amazon recongured the supply chain and business
model o consumer retail. Except, unlike Amazon, whose
business model turned many brick-and-mortar players into
dinosaurs, there are not necessarily losers in the energy
management revolutionthe producers, intermediaries,and consumers can all win.
How important are such innovations? Consider this: Peak
electricity demand is rising aster than overall demand, so
more and more power plants must be built to run or just
a ew hours a day. One recent study ound that 21 percent
o power plants run, on average, or less than an annual
average o three hours per dayjust to meet that peak
demand.9
Companies generally spend a signicant portion o their
operating costs on energy, yet they generally have a poor
understanding o their energy consumption and how to
better manage it. From better management o buildings
and vehicle feets, to smarter use o technology, to tighter
oversight o their entire supply chain, organizations can
mobilize countless tools to transorm how they use energy
and other resources. The benets o active energy and
Source: Deloitte Consulting LLP
Predictive
monitoring
Fast Analysis of Big Data
Historical Reports
PrescriptiveAnalytics
Foundational Elements
sustainability management are not only nancialthough
the bottom-line eect is the one most likely to motivate
managementthey also oster an ethos o sustainability
throughout an organization, attract consumers who are
now savvy about how green the products and services
are that they consume, and serve to shield a company
rom being bueted by energy price volatility.
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Energys next frontiers How technology is radically reshaping supply, demand and the energy o geopolitics 9
An eciency sea change is taking place oshore as
wellin the world o shipping. Technology is allowing
designers to reinvent how ships are made and how they
move, revolutionizing the industry. The B9 Energy Group
in the United Kingdom is retrotting Rolls Royce engines
to run on natural gas, thereby reducing uel consumption.
But B9s real innovation is in the giant high-tech sails that
provide most o a ships propulsion. These will be able to
unurl or old up at the push o a button, avoiding the
need or the large crews that manned the rigging o large
sailing ships in years gone by. Even more impressive: the
DK Group in the Netherlands has tested what it calls an air
cavity system that enables a ship to glide at low riction
through the water by injecting air around the submerged
part o the ship's hull, creating a carpet o bubbles under
the vessel.
These innovations in shipping crystallize the notion
o locally embedded technologies that are globally
connecteda hallmark o the new technology-driven
energy era.
Figure 5.
Without a coordinated view o cost, consumption, operational and acility data
there can be no enterprise energy management strategy.
Operations
Energy
Strategy
Operations
Finance
Finance
Real Estate/
Facilities
Management
Real Estate/Facilities
Management
Utility bills (spend)
Capital budgetsand expenditures
Capital project
Meter and sub-meterdata (consumption)
Energy price
Process andproduction data
Facility information:size, location, etc.
Standard View of Energy Strategic View of Energy
portfolio
Source: Deloitte Consulting LLP
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10
The supply surprise
The supply-side revolution in energy technology is equally
impressive. Thanks to advances made possible principally
by advanced sotware, the International Energy Agency
(IEA) estimates that unconventional resources like shale
gas now account or about hal o the worlds natural
gas resources, while unconventional oil production will
reach 10 million barrels a day by 2035. Conservative
estimates put the worlds oil reserves at our times the
total consumed throughout history, while more optimistic
orecasters place the multiple at ten or even 12. The IEA
estimates that $20 trillion will be spent on unconventionalsources o gas and oil between now and 2035.10
Wildcatters near Santa Barbara, Caliornia, rst ound
brown shalean oil-rich, porous, lightweight rockin
the Orcutt oil elds in 1901. But or the next century,
the various owners o Orcutt drilled 2,000 vertical wells,
bypassing the shale in order to get at the liquid oil
beneath. By 2004, the eld was thought to be in terminal
decline and was sold to Breitburn Energy Partners.
Breitburn quickly determined that the brown shale, just
900 eet deep, was a vast potential resource. Applying
the latest technology, Breitburn was able to nearly double
Orcutts output to 90,000 barrels a month.
What made this possible? Today, the modern day version
o wildcatters are energy technology entrepreneurs
geoscientists and sotware engineers who drill wells on
computer screens beore drilling in the eld. They create
three-dimensional images o the undergrounda kind o
MRI o the earththat reveal hidden oil deposits. Oset
angle drilling then allows drillers to penetrate previously
inaccessible deposits, directionally guiding drill bits at
angles between 45 degrees and 80 degrees into spaces
between old vertical wells where crude still remains in
shale reservoirs.
Fracturing technology developed over decades, but
when combined with horizontal drilling, it has come to
dominate in just our years. Nearly every day, potential
shale oil and gas reserves are discovered in such unlikely
places as Pennsylvania (which now produces more natural
gas than Texas), Poland, Israel, and Ohionames not
normally associated with the oil eld. And many o these
are not small elds, but what are known in the industry as
elephants holding one billion barrels or more. So much
oil is coming out o the Bakken ormation in Montana/
North Dakotadiscovered in 1951, but unlocked bythe new rock racturing and horizontal drilling technology
only in 2008that it has outstripped the existing pipeline
capacity to move it to reneries. Railroads such as BNSF
and Canadian National have been pressed into service to
move some o the crude. At latest count, Bakken is said to
hold 18 billion barrels o recoverable oil.
Just a ew years ago the expectation was that the U.S.
would be importing large volumes o natural gas and
becoming heavily dependent on world marketsand
spending upward o $100 billion a year or those imports.
Now people talk about a hundred-year supply o domestic
natural gas. The new hydraulic racturing technologies arealso producing legions o jobs.
And in many ways, this is just the beginning o the
unconventional revolution. Companies are continuing to
pioneer innovative exploration methods. In Long Beach,
Caliornia, Signal Hill Petroleum has buried 6,000 small
yellow canisters containing sophisticated equipment so
sensitive it can record the vibrations o a person walking
past.11 The devices work in tandem with a feet o
hydraulic vibroseis" trucks. By producing vibrations, the
trucks create images o ormations as ar as three miles
underground. Meanwhile, new technology based on radar
and sonar techniques will drastically reduce the cost o
hydraulic racturing and increase its eciency.
10International Herald Tribune,
November 15, 201, The
pitalls on the road to tapping
new energy; Unconventional
sources like oil sands oer
hope, but may pollute more.11
Los Angeles Times, October29, 2011, Producers Tap Into
Oil Boom.
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Energys next frontiers How technology is radically reshaping supply, demand and the energy o geopolitics 11
Shale gas has been dominating headlines, but its
ossil twin, shale (or tight) oil is also experiencing a
technological revolutionhelping raise U.S. crude oil
output by 18 percent since 2008. For years, tight oil
which is extracted rom dense rockhad been a very
marginal business. In 2000, production was only about
200,000 barrels per day, 3 percent o total output. Today it
is about a million barrels per day. The dramatic increase in
tight oil has been made possible by the same technologies,
hydraulic racturing and horizontal drilling, that enabled
the explosive growth in shale gas production.12
Thanks tonew technology, the U.S. has become less dependent on
petroleum imports rom unstable countries.
The revolution is not only taking place on land, but is
occurring oshore as well. Deepwater exploration has
been revolutionized by the ability o powerul computers
to crunch seismic data 15,000 eet below the sea foor.
The result has been a boom in deepwater drilling: In 2000,
there were just 20 deepwater drilling vessels. Today, there
are over 200, and deepwater wells are supplying eight
percent o the worlds oila gure expected to double
by 2020.13 Here, too, technology leaps are taking place in
the eld: The invention o super strong alloys, or instance,allow drill bits to go into hot, high-pressure elds deep
in the earths crust. Shell, meanwhile, is deploying the
worlds largest vessela 500-meter, all-in-one behemoth
that explores, extracts, liquees, and compresses rom
small gas elds.14
12Wall Street Journal, December
12, 2011, America's New
Energy Security13 New York Times, October 25,
2011, New Technologies
Redraw the Worlds Energy
Picture14 Shell Decides to Move
Forward with Groundbreaking
Floating LNG, Press Release,
2/9/11; Shell Approves
Worlds First Floating LNG
Project, Wall Street Journal,
5/20/11
Just a ew years ago the expectation was that the U.S.would be importing large volumes o natural gas and
becoming heavily dependent on world markets. Nowpeople talk about a hundred-year supply o domesticnatural gas.
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12
The new Great GameA technology race
The global energy technology race has proound
implications or the economy, workers, the environment,
and national security. History oten turns as a result o
energy innovationsbeginning, o course, with re. Each
time a major new energy technology has emergedbe
it steam, electricity, or oilthe balance o power among
nations has shited, while entire new industries have been
spawned. The technology-driven revolution in eciency
management, unconventional ossil uels, and clean energy
could rearrange the chessboard again.
For both nations and companies, secure, stable energy
supplies will become ever more important as new sources
o instability are introduced into the equation. Evidence o
these are legion: rom the budding trade war between
the U.S. and China over solar energy, to attacks on energy
grids that have raised the specter o a cyber Pearl Harbor,
to the brake on energy development that could be placed by
environmental concerns.
But instability has always been a actor in the energy game.
Whats new is that technology is making greater energy
resources available to a greater number o actors than ever
beore. This holds the promise o generating much greater
energy security or countries, companies, and individuals.
But which countries and companies will emerge as kings
and queens, and which as pawns, is still unclear. In a recent
survey by Deloittethe reSources 2012 Studymore than
one-third (35%) o companies generate some portion o
their electricity on-site rom renewables, co-generation or
other methods, with another 17% planning to do so.
Energy security, stability, and saety would be rich enough
prizes. But the job creation potential o the energy
technology revolution presents a reward o enormous
value to our societies. Until now, this paradigm shit has
beneted China above all, thanks to its low-cost jobs
and its skill in appropriating and scaling up technology
developed by others.
Technology is making greater energy resources availableto a greater number o actors than ever beore. This holdsthe promise o generating much greater energy securityor countries, companies, and individuals.
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Energys next frontiers How technology is radically reshaping supply, demand and the energy o geopolitics 13
Nonetheless, it is not too early to discern what might
separate the winners rom the losers in the Great Game 2.0.
For governments, the keys to success will be:
Developing a visionary and stable national policy
ramework: What matters above all is a robust,
long-term energy vision. Stable, orward-looking
legislative rameworks are critical in this regard. Absent
a ederal energy rameworka national energy policy
companies cannot realize the investment potential o the
uture. Certainty matters. For example, Chinas dominanceo the solar and wind industries was built in just ve
years on central government mandates. China is not
only increasing its cleantech capacity but is also building
powerul industries to export renewable and alternative
energy components around the world.
Building national inrastructure: In additional to
legislative rameworks, governments should also lead
in enabling the creation o state-o-the-art energy
inrastructure. Case in point: In the U.S., 30 states have
developed renewable energy mandates, with targets o
between 15-25 percent by 2020. But it is very dicult to
upgrade the electric grid. The grid, which was built on aregulatory structure that dates to the 1930s, has emerged
as an ill-matched patchwork dened by decisions made
at the state level. For the U.S. to tap the potential o
wind and solar resources that may be several states away
rom the big load centers, this must change. Presently, no
single agency, no single entity, is charged with looking at
the broad national energy interest.
Making deep, long-term commitments to R&D:
High-octane research budgets are needed; the private
sector alone cannot sustain investment and propel
breakthroughs in the midst o volatile energy markets and
pressure to create prots. Take the shale gas revolution,
which was made possible by the ederal government.
Between 1978-2007, the Department o Energy (DOE)
spent $24 billion on ossil energy research. In doing so,
it helped pioneer massive hydraulic racturing in 1976
with its Eastern Gas Shales Project. Horizontal drilling and
well installation also was enabled by air-based drilling
and drill bits developed by the DOE. And 3-D imaging
also was a DOE innovation. All these projects were
widely condemned as ailures in the 1980s and 1990s
when natural gas was cheap. But today they appear
prescientand have positioned the U.S. to have at least a
shot at becoming energy independent. In act, the ederal
government has been determinative in almost every
energy transormation over the past century.
Reeree the level playing feld: A legislative ramework
creates a level playing eld, and deep commitments to
R&D broaden the horizon o that eld. With the rules in
place and the innovation pump primed, the governments
next job is to get out o the way and let the players in
the energy game determine which technologies win and
which lose. (O course, the government will provide the
reerees in this battle, too.)
Enorce transparency and accountability to turn
the public into an ally: The controversies over the
environmental impact o hydraulic racturing are due,
in part, to misperceptions. This is understandable giventhat the technologies are new and it will take time or
the public and environmentalists to ully understand
their impactand in the interim, advocates are likely
to dwell on the most dire evidence to advance their
case. But governments can accelerate the process o
public education by compelling companies to disclose
ull data on the eects o drilling on water supplies,
geological stability, and the environment more generally.
Since the technologies are still in their early days, their
environmental impact will be substantially mitigated
over timeas has already been the case with hydraulic
racturing in its rst our years o widespread use. It is
likely that publics, once able to accurately weigh the costs
and benets o hydraulic racturing, will become more
supportive o it. Facts can and should prevail over ear.
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14
A potential safety net: The Power of One
The most extraordinary aspect o the technology-driven
energy revolution, however, is that even i governments
ail to act eectively, corporations and individuals have still
been empowered to make a radical dierence in their own
consumptionand thus to materially infuence the broader
energy game. The Power o One has come into its own.
The new energy-related sotware and hardware on
the market and in developmentsmart meters, smart
appliances, demand management programs, and soorthliberate individual actors rom being at the mercy
o broader orces. Every company needs an energy and
sustainability strategy to dene how it manages resources.
The absence o such a strategy may well limit protability
potential and jeopardize the long-term health o the
business. By contrast, sustainable companies can be a
boon or investors. In the two years rom 2009 through
2011, the top 100 companies in Newsweek's 2009 Green
Rankings outperormed the S&P 500 by 4.8 percent
returning 15.2 percent versus 10.4 percent or the S&P.15
The use o energy can now become a conscious actand
an act o conscience. Its not about being virtuous, its
about being protableand, at little to no cost, virtue is
achieved. Governments should do everything possible to
abet this virtuous cycleand, i nothing else, they should
make certain not to hinder it.
The Great Game o the 21st Century is the technology
continuum driving along the development curve rom
1.0 to 2.0 to 3.0with each version coming aster than
the one beore. The uture is one o continuous researchand development, inormed investment job creation,
and greater energy securitywithout sacricing the
environment.
The emerging energy world boasts a new geography, new
technology enablers or both supply and demand, and a
new road mapa map which can lead to the pot o gold
at the end o the energy rainbow.
A potential saety net: The Power o One
15Newsweek, September 20, 2009, "The Greenest Big Companies in America," http://greenrankings2009.newsweek.com/
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Energys next frontiers How technology is radically reshaping supply, demand and the energy o geopolitics 15
About the author
Dr. Joseph A. Stanislaw
Independent Senior Advisor
Energy & SustainabilityDeloitte LLP
+1 703 251 1726
Dr. Joseph A. Stanislaw is ounder o the advisory rm The JAStanislaw Group, LLC,
specializing in strategic thinking, sustainability, and environmentally sound investment
in energy and technology. He is an independent senior advisor to Deloittes energy and
sustainability practices. As an energy industry leader, advisor, strategist and commentator,
Dr. Stanislaw advises on uture trends in the global energy market. Dr. Stanislaw serves on
several boards in the energy and clean technology space. He is a member o the Council on
Foreign Relations.
Dr. Stanislaw was one o three ounders o Cambridge Energy Research Associates in 1983
and served as managing director or all non-U.S. activity until 1997, when he was named
president and chie executive ocer. He is an adjunct proessor in the Nicholas School othe Environment and Earth Sciences at Duke University, where he is a Member o the Board
o Advisors or the Nicholas Institute or Environmental Policy Solutions. Dr. Stanislaw was a
Research Fellow o Clare Hall and lecturer in Economics at Cambridge University, where he
was also a member o the Energy Research Group in the Universitys Cavendish Laboratory.
He was a senior economist at the Organization o Economic Cooperation and Developments
International Energy Agency in Paris.
Dr. Stanislaw is co-author o The Commanding Heights: The Battle for the World Economy.
Now in the second edition, the book has been translated into 13 languages and made into
a six-hour documentary on PBS. He is also the author or co-author o numerous reports and
published papers on the geopolitics and economics o uture energy supply and demand,
including Energy in Flux: The 21st Centurys Greatest Challenge, and Clean Over Green: Striking
a New Energy Balance as We Build a Bridge to a Low-Carbon Future, and he is eatured in thepublic television documentary, Oil ShockWave.
Dr. Stanislaw received a B.A., cum laude, rom Harvard College, a Ph.D. in Economics rom the
University o Edinburgh, and was awarded an M.A. rom the University o Cambridge. He is
one o only several people to have been awarded an Honorary Doctorate and Proessorship
rom Gubkin Russian State University o Oil and Gas in Moscow.
Dr. Stanislaw may be contacted at [email protected].
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16
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For more inormation, please contact [email protected]
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For more inormation, please contact [email protected]
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