Bits and Bobs of a Changing Energy Riddle

Let me start where I finished a couple of weeks ago: blockchain-based energy trading. For all those involved in the energy sector, this should be the ‘watch-expression’ in the coming year or two. Whether or not States are factoring it into their policies and law-making schedules seems irrelevant. Critical stakeholders are moving it forward. It is no longer a matter for ‘blockchain-vagrants’ alone (if it ever was, indeed). The list of critical stakeholders in the energy sector involved in this process grows by the minute: Total, BP, Shell, Eni, Statoil, Endesa, Iberdrola, Wien Energie, Enel, RWE, Centrica, Elia, Engie, Sempra Energy, SP Group, TWL, Stedin, Vattenfall, Tennet, AGL Energy, Tepco, Siemens... This is to mention only some household names, and leaving out the startups that are to be the future household names.

What does it mean then?

It very likely means, first, that the assessment has been made that blockchain-based energy trading has a more than fair shot at materializing as a future for energy trading. Power grids structuring will never be the same. Nor will power generation and energy transactions, as well as other aspects. It possibly means, second, that governments and regulators should start looking at the implications, most particularly at the law-making level. Peer-to-peer decentralized energy trading in the current legal framework is perhaps a recipe for disaster, with the chain, as always, breaking at its weakest link. Not just a matter of the financial transactions involved, this will require looking much deeper into regulatory, administrative law, data protection and security, liability and consumers issues, to name only a few issues. It also evidences, third, that natural gas is going to be around for a long time.

What does blockchain have to do with natural gas remaining as a source of energy? That is my second short note.

Blockchain is not being researched, developed and tested for electricity markets alone. The same is being done for natural gas markets. Would anyone be doing that kind of investment with a commodity that is on the verge of disappearing (as many seem to suggest). It sounds somewhat odd, to say the least.

Natural gas is probably going to be much more than a ‘transition source of energy’. Earlier this year, we heard that while CO2 emissions in the USA fell by 3%, the economy kept growing at a 1.6% pace. How? Natural gas, side-by-side with renewables, has shrugged coal aside. In the European Union, emissions also stabilized on account of a coal-to-gas switching. Natural gas based power generation will be at the heart of this century’s energy mix, notably in view of its flexibility and high cycling / peaking it offers. More reasons? The share of natural gas in China’s and India’s energy mix is in round figures one fifth of the equivalent share in respect of the global energy mix. The growth potential is blatantly there.

From natural gas comes oil, and its associated risks.

Oil also does not seem to be going anywhere for the foreseeable future. A scientific-technological quantum leap aside, there does not seem to exist any realistic scenario in which oil disappears from the global energy equation. Transport (maritime and air) is a sector that will continue to require oil. Further, even if in the developed world (notably, Europe) dramatic changes take place – e.g. electric cars, electricity storage, smart decentralized grids, blockchain energy trading, energy efficiency revolution, etc. – the rest of the world is not moving at equal speed, in a similar direction. Most development in the undeveloped world (or at least a big share thereof) is possibly going to be based on liquid hydrocarbons.

The expected growth in global oil demand for the next quarter of a century seems to be an indication of what can be realistically expected. It shows, moreover, that a key risk is rising in the horizon: oil supply shortfalls. Long term oil projects have been shelved; and remain shelved. This has perhaps gone for far too long. If such projects are not sanctioned soon, there might be bumps on the oil-price road ahead. Non-producing states beware of prices in the 5-year horizon.