Energy Governance Outlook: Global Scenarios and Implications

GGF 2022 Global Energy Governance Working Group

September 2013

Major technological, economic and political shifts are remaking the global energy market. Emerging economies have become top energy consumers. Technological breakthroughs have fueled the rise of new energy producers. And energy regimes such as the Organization of the Petroleum Exporting Countries (OPEC) are under increasing pressure to reform. Uncertainty remains. Turmoil in the Middle East remains a trigger of concerns over supply. Fallout from the financial crisis remains a core concern for both developed and developing countries. Carbon emissions are increasing faster than expected. Further, while clean technologies have become more affordable, structural limitations, including the continuation of financial subsidies and poor systems integration, undermine their take-up.

In the face of these challenges, the current state of global energy governance is in remission. International dialogue on energy is limited. International climate policy has lost momentum. Energy markets on the whole remain as volatile and unpredictable as ever.

Structured scenario planning has become commonplace among private and public sector organizations alike. The methodology and development of scenarios is designed to facilitate strategic long-term planning in the face of this uncertain future.

The GGF 2022 energy group has used scenario planning methodology to create two distinct scenarios for the energy world in 2022. In both scenarios, we identify unconventional fossil fuels as a primary factor that will significantly impact global energy markets and change not only the size, structure and membership of existing energy institutions, but also their relevance and influence. Though major uncertainties concerning the size of the reserves of unconventional resources and the environmental impact of the methods used to extract them still exist today, the political and economic momentum that their extraction has generated fundamentally reshapes global energy markets. As a result, their exploration, extraction and production emerge as fundamental issues in global energy governance.

Will existing power structures ignore, integrate or defend against unconventional resources? Will the new unconventional sources be made available to the global market, or will their supply remain limited to producing countries? What will be the effect on countries without domestic supplies? What room does global energy governance have to shape these new rules of the game on energy trade, and what will be the implications for the climate change framework? How should the energy governance institutions adapt to this changing environment?

We investigate these questions in two scenarios for the year 2022 – one with a fragmented world, another with an integrated world. Both scenarios share important key assumptions: the emergence of new energy consumer- and supplier-countries and the availability of unconventional fossil fuel sources.

Scenario 1

Within the “Fragmented World” scenario, countries focus on controlling energy assets rather than trading energy on a global market. Regional trading blocs emerge based on longer-term supply agreements. Resource conflicts surface over disputed resource-rich territories. While global climate change negotiations are moribund, some of the regional energy partnerships lead to substantial investments in clean technology.

Scenario 2

By contrast, in the “International Market Integration” scenario, countries demonstrate growing confidence in the global energy market. New producer countries generate a “supply cushion” that reverses long-held assumptions about strategies for securing energy supplies, gradually enticing entrants into the global energy market. In turn, new consuming countries also source from the global market. Regional investment treaties provide standardization of norms through which international investment and trading rules are improved. Closer cooperation in energy trade spills over to other energy governance areas and creates a platform for climate leadership and regional climate agreements.