Energy’s next frontiers
How technology is radically reshaping supply,
demand and the energy of geopolitics

Deloitte Center for Energy Solutions

To understand how radically the energy industry is changing, consider this: The United States has become the number-one producer of natural gas in the world. This is due to combining horizontal drilling and hydraulic fracturing technologies, a combination that has been in widespread use for just four years—and that has allowed gas from shale formations to go from accounting for just 2% of America’s natural gas production in 2001 to over 30%1 today. As a result, natural gas prices have been falling in the U.S. for years. Given appropriate policy and smart investments, North America could eventually achieve the goal of energy independence—with enough domestic supplies to meet American needs—though crude oil
prices would still be at the mercy of world markets. The fundamental question Americans now face is: Can they capitalize on this extraordinary opportunity?

Or, think about this: In 2008, with oil at $137 a barrel, there was a frenzy of fear over peak oil supply. Yet today, when we talk about peak oil, we do so in reference 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 of domestic consumption—60%—in 2005, and have been falling ever since. Imports are now down to 46%. Soaring output from
the Bakken shale fields, coupled with increased deepwater output primarily from the Gulf of Mexico, has pushed up U.S. domestic production by 12% since 2008.2This is the
first increase in a quarter-century and has confounded predictions that domestic output was set on an inexorable downtrend.

It is a rare blessing for a country to be confronted with an abundance of energy. Pessimism has reigned for the better part of 150 years. In 1865, the British economist William Stanley Jevons published The Coal Question, a study that spread panic about the depletion of coal reserves. At the 1956 meeting of the American Petroleum Institute, M. King Hubbert, a Shell geoscientist, coined the concept of “peak oil” and, in 1974, he forecast that global oil supplies would peak in 1995. The Department of Energy’s 2005 “Hirsch Report” contemplated the imminent, “abrupt” and dangerous peaking of world oil and gas supplies.

Yet, while humanity has consumed a total of one trillion barrels of oil since the early 19 th century, today, thanks to an onslaught of technology enabled discoveries, another four trillion barrels are thought to be accessible. In consequence, reserves-to-production ratios for many major oil producers are climbing as far out as 2040, and oil and other liquid fuels will remain the world’s largest energy source, meeting one-third of demand. Meanwhile, many people now believe that both the U.S. and Europe likely experienced peak demand for gasoline in 2007

Information technology is energy technology
What is driving this energy revolution? Technology.
Cutting-edge technology—hardware and, especially, software—is unlocking geological potential in places and ways hardly imaginable even a few years ago. Energy companies now rank among the most important—and sophisticated—technology companies in the world. Information technology companies are pioneers on every front of the energy revolution, including by:

• Driving innovations in exploration
• Cutting energy consumption in buildings through software-driven construction and energy management
• Allowing utilities to more smartly source and manage their energy output
• Empowering individuals to understand how to reduce their energy use; this underscores the
‘Power of One’—how each and every one of us can become players in the energy game
• Enabling the design and testing of energy systems, from solar arrays and wind turbines to nuclear plants

The breakthroughs have been stunning, and often elegant in their simplicity. Among the least appreciated technologies are those that empower companies and individuals to understand and manage—and thus significantly reduce—their energy consumption. Last year, venture capitalists invested $275 million—up 75% from 2010—in start-ups that make software and other technologies to manage energy use. >>>

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