19 – How the energy industry works 2.1 — Oil supply and markets: peak oil tend to encourage increases in exploration, improving future supply prospects. Ultimately, however, things tend to balance out, with prolonged high prices triggering demand responses — encouraging consumers to switch to alternative fuels, become more efficient or consume less. This brings prices down again. There may be changes in geopolitics too — perhaps for the better. As a result, analysts say it is perfectly possible to see prices somewhere around $40 a barrel in the next few years, as opposed to the $60 level they are hovering around at the moment. But for that to happen spare capacity must increase and that requires investment. Sustaining oil and gas supplies is the only way to underpin the growth of the world economy, to lift emerging economies out of poverty and boost prosperity — other forms of energy are simply not yet an economic possibility on the same scale. The International Energy Agency, a multi-government think tank, expects world energy demand to increase by over 50% between now and 2030, calling for investment of $17 trillion. World oil demand, now around 85m barrels a day, could be over 120m barrels a day in 2030. Intensive job creation One way or another, the necessary investments must be made to bring this energy to consumers in a socially responsible and environmentally sensitive way. That means an intensive rate of job creation, high demand for people with the right skills and an emphasis on technological excellence. TN Most analysts predict that, while the oil-rich nations of Opec will gain increasing control over markets, the peak in world supply will not happen for 10 years at least and probably more like 15 Chart 2: Oil and gas will still be the dominant energy sources at the end of the next decade 300 250 200 150 100 50 0 Million barrels a day of oil equivalent 1980 1990 2000 2010 2020 Source — ExxonMobil Other Coal Gas Oil The world consumes about 85 million barrels of oil a day. In 2030, it could be 120 million. To get there, huge investments are needed. Photo © BP plc

20 – www.energy-future.com 2.2 — Oil supply and markets: global warming Do the right thing Complex though the science may be, at the heart of the global-warming debate lies a simple choice: suffer a small amount of economic pain now or risk suffering far more later. Energy firms have a big role to play in tackling climate change There are a few global-warming deniers still out there, but they form an increasingly marginal — and eccentric — minority. Scientific opinion overwhelmingly supports the idea that rising concentrations of greenhouse gases (GHGs) in the atmosphere — mainly carbon dioxide (CO2) emissions from fossil fuels — is leading to a dangerous warming in the Earth’s temperature and that the warming is happening largely as a result of human activity. And that includes the United Nations and the national academies of all the Group of Eight countries. First the bad news … The gloomiest projections are about as apocalyptic as it gets: flood risk because of melting glaciers, widespread population displacement, water shortages, reduced crop yields, a rise in disease and widespread death from malnutrition and heat stress (see box). The developing world would be hit hardest, but every country would feel the effects. A high-profile, widely respected report on climate change late last year commissioned by the UK government — which has signed up former US vice-president Al Gore to advise on the environment — predicted that a staggering 20% of the world economy could be destroyed by the middle of the century if no action is taken to mitigate climate change. And the Stern review — so named because it was compiled by Nicholas Stern, the government’s chief adviser on the economics of climate change — warns of irreversible social and economic disruption on a scale similar to the great wars and the economic depression of the first half of the 20th century. … now the good The good news, however, is that the same report said there is still time to bring carbon emissions — and therefore global temperatures — under control. It projected that putting the right measures in place would cost 1% of gross domestic product (GDP), the most comprehensive single measure of aggregate economic output. To some, sacrificing 1% of GDP sounds painful. But spending 1% to save 20% is, in the words of Truman Semans, of the notfor- profit Pew Center on Global Climate Change, a “no-brainer”. What might happen to temperatures if we do nothing? The concentration of greenhouse gases (GHGs) in the atmosphere is equivalent to around 430 parts per million (ppm) of CO2. Before the Industrial Revolution, it was just 280 ppm. If business continues as usual, the world could reach 550ppm of CO2 equivalent as early as 2035. At this level, according to the recent Stern review (see main story), a global average temperature rise exceeding 2°C is almost certain. An influential United Nations report this year came to similarly worrying conclusions. But it could get worse. The stock of GHGs could more than treble by the end of the century, giving at least a 50% risk that average global temperatures will rise by more than 5°C over the next few decades. To put that in perspective, we are now only around 5°C warmer than in the last ice age. ..