Wharton: The Upside of Global Energy Scarcity

International oil companies and others in the developed world will continue to have the edge in technology, skill sets and experience even as developing countries find it increasingly easier to access capital and buy technology. "International oil companies do have a value proposition," says Balagopal. "However, they have to work to communicate that and be accepted and known in a manner that gives them rent." He says those value propositions are about experience, technology and the ability to invest and co-invest with a resource-owning country. "It is no longer the case where it was much more of a passive negotiating partner at the other end," he says. "It's a much more vigorous owner you are dealing with."

Deepwater exploration is one such area, says Henisz. "If you believe that a growing percentage of the reserves to be discovered are going to be 3,000, 5,000 or 10,000 feet underwater, you start seeing quite rapidly an advantage for some of the majors." Peters says while that is true, the state-owned China National Offshore Oil Corporation "is pretty strong" in deepwater drilling technology and Petronas of Malaysia "is becoming a fairly sophisticated NOC."

Grappling with Greenhouse Gas Emissions

Developing countries will account for nearly three-quarters of the increase in global energy use over the next two decades, and the share of coal in that mix will increase significantly, the IEA predicts. "Higher oil and gas prices are making coal more competitive," the IEA says in its energy outlook report, adding that India and China, which already account for 45% of the world's coal use, will account for more than 80% of the increase in its use between now and 2030.

That scenario forces policymakers across the world to address issues that have frustrated agreement on containing carbon dioxide emissions. The United States wants to have "precommitments" from India and China on their emissions targets before it makes its own commitments. That is the key obstacle, says Kleindorfer. He points out that India and China feel that the United States has had its share of consuming fossil fuels and that now it's their turn.

"India and China are saying that they are not interested in something that doesn't recognize their right to grow to achieve a standard of living that is in some ways approximate to that of the U.S.," Kleindorfer says. The United States must "reestablish itself as a player rather than its current position of more of a barrier to the implementation of agreements such as the Kyoto protocol." He suggests it take cues from the EU's "20/20/20 by 2020" policy. In any event, he expects traction on that front only after the U.S. presidential election in November. Choosing the right strategies may be difficult with so many moving pieces in the emerging energy scenario, but Henisz cites Royal Dutch Shell (RDS.A) as an example of a decisive corporation. In a January letter to all employees, CEO Jeroen van der Veer said, "By 2100, the world's energy system will be radically different from today's." He forecast that solar, wind, hydroelectricity, biofuels and nuclear energy will make up a large share of the energy mix.

Van der Veer laid out two scenarios to reach that state, one called "Scrambles," the other called "Blueprints." The "Scrambles" approach, "like an off-road rally through a mountainous desert, promises excitement and fierce competition. However, the unintended consequence of 'more haste' will often be 'less speed,' and many will crash along the way." He says the alternative "Blueprints" scenario "resembles a cautious ride with some false starts on a road that is still under construction."

Shell "traditionally uses its scenarios to prepare for the future without expressing a preference for one over another," Van der Veer stated as he laid out his choice. "But faced with the need to manage climate risk for our investors and our descendants, we believe the Blueprints outcomes provide the best balance between economy, energy and environment." Says Henisz of that resolve: "They have come to a fork in the road in the global energy sector and they have said they have a stake in the outcome. They are going to lobby and work hard and undertake whatever they can do to push the needle in one direction."

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