It’s that time of the year again when world leaders, CEOs, thought leaders, power brokers and dignitaries from business and politics alike descend on the small Swiss ski resort of Davos for the World Economic Forum Annual Meeting 2015. This year’s gathering is scheduled for January 21-24 and Davos is sure to be bursting at the seams. This year in particular, special attention is being given to multiple global flashpoints.
The 2015 theme is “The New Global Context”, which seems to suggest that we stand again at the crossroads of a meaningful geopolitical upheaval perhaps similar to 1989 when the geopolitical game was renewed with the fall of the Berlin Wall and the eventual demise of the Soviet Union. The World Economic Forum points out: “Complexity, fragility and uncertainty are potentially ending an era of economic integration and international partnership that began in 1989. What is clear is that we are confronted by profound political, economic, social and, above all, technological transformations. They are altering long-standing assumptions about our prospects, resulting in an entirely “new global context” for decision-making.”
Sebastian Buckup of the World Economic Forum explains that those shifts will be explored through four thematic tracks: Growth and Stability; Crisis and Cooperation; Society and Security; Innovation and Industry. What seems to be cutting across all the above thematic tracks is ‘energy geopolitics’. Energy is the elixir for future economic growth.
Almost all commodity prices are in a downward spiral and crude oil prices are dipping lower on a daily basis. While the precipitous crude oil price decline appears to be the result of a global supply glut – due largely to the US shale boom – and limp global demand associated with economic weakness, other commodity prices also seem to be impacted by the ‘faltering demand’ story at play. Note, faltering global demand is a consequence of weakening underlying economic conditions around the world. With a time lag of up to six months these conditions will eventually show up in economic indicators and analysts will change their tune. So, there is no better time than now at Davos to discuss sustainable global growth within a changing global energy landscape.
The oil market will find its balance eventually. Moreover, the current price of oil does not call into question long-term trends with respect to urbanization and demographics – especially occurring in the world’s emerging economies. Countries should use this temporary reprieve to “[architect] competitive energy systems” now and be in a better position to deal with commodity prices when reflecting those irrevocable and energy-intensive trends.
The oil industry and oil producing countries are well aware of this and depending on their balance sheets can wait the oil price slump out. Oil requires long-term strategic planning and investment irrespective of any current short-term gyration of price. Note, the energy sector plays a fundamental role in any country’s wider economy and is crucial for its prosperity.
In the recently released “Global Energy Architecture Performance Index Report 2015”, developed by the World Economic Forum in collaboration with Accenture, the ‘Energy Architecture Performance Index’ (EAPI) aims to provide energy policy makers with additional data to “benchmark the current performance of national energy systems, and inform decision-making in the context of the changes under way in the global energy landscape.”
Energy Architecture Performance Index (EAPI) – Specific Energy System Performance Indicators
Source: World Economic Forum
Tellingly, the report’s specific thematic focus is on energy reform in major emerging economies from which the “majority share of future energy consumption” is projected to originate. The report underscores again why the changing energy landscape is an indispensable factor in any long-term energy policy planning for energy exporters and importers alike: “With the US heading for energy independence and the oil price dropping dramatically from highs a few years ago, the fortunes are turning from energy producers to consumers and the geo-economic balance of power is shifting.” In general, for individual countries that means:
“Above all, [energy] reforms should aim to increase energy systems’ capacity for resilience; carrying on with business as usual will leave governments with insufficient capacity to withstand stress and will force them instead to react to changes, leaving them with little “room for manoeuvre”. There is no universally applicable formula for energy reform. Each country must develop and implement policies that address its own unique circumstances. Successful energy reform cannot be defined against some ideal outcome, and there is no one-size-fits-all approach. (…) Successful reform is as much about implementation as it is about the nature of the reform itself.”
Comparison of Major Economies across Selected Indicators
Source: World Economic Forum
Read the entire report with key findings and interesting case studies here.
