A quick guide to looking smart about the world energy market

Once you start looking at the energy market in any detail, you quickly realise how bewilderingly complex it is. As consumers we tend to think of it as a cost that we pay each quarter, but energy is one of the world’s most important industries – and that figure is the result of thousands of influences. These include Middle Eastern geopolitics, the Green movement in the European Union, advanced materials research, derivatives trading in London, the Chinese middle classes and the growth of unconventional energy in places like North Dakota.

The global energy market relies on numerous networks, both physical and virtual and, in one way or another, affects nearly everyone on Earth. That scale and complexity make it very difficult to give a single concise overview of the industry. What is possible, however, is to provide several snapshots that give an idea of the market as a whole.

Who pays the most for energy?
Household gas and electricity prices in the UK are slightly below the European average. High-tax countries such as Sweden and Denmark tend to be the most expensive, and former Eastern Bloc nations like Latvia and Estonia are usually cheapest. The UK energy market is also more diverse than many people realise. There are more than 20 gas and electricity suppliers; the largest supply the majority of the market, however, the smaller suppliers are growing and have nearly reached 10%. British Gas customers' average annual dual fuel bill in the UK in 2015 was £1,147.

Network cables to the moon and back 
Over the last decade, the cables that form the backbone of the internet have been the ones that have made headlines. However, the electricity cables and gas pipes that supply our homes form a similarly vast web stitching the UK together.

The electricity network comprises just over 508,000 miles of wires and cables and the network of pipes to supply gas stretches to just over 170,000 miles. By way of comparison, the distance to the moon is 239,000 miles - so Britain’s network of wires, cables and pipes would reach the moon and back, and a little bit more.

This network carries 722 terawatts of power. How much power is that? Well, one kilowatt of energy is what you’d need to watch TV for seven hours, or to run a full dishwasher – and a terawatt is a billion times that. 

Cutting edge techniques
Although the popular image of energy exploration is a ‘wildcat’ gusher, with crude oil spouting out of the top of an old-fashioned derrick, there are now numerous ways of getting to fuel reserves that are harder to access.

Shale gas extraction is perhaps best known, and involves using hydraulic fluid under pressure to fracture rock formations which hold gas in the pores in their structure.

Another example is the tar sand deposits in Canada. These are far from the 'liquid gold' of popular imagination and resemble the bitumen you might use to seal a roof, mixed with sand. They are often physically dug out from opencast mines, although other methods such as injecting steam underground are increasingly used as they’re less environmentally damaging. These unconventional ways of recovering oil are expensive, so when market prices fall, they can quickly become uneconomic.

The rise and rise of green energy
Renewables are the fastest growing sector of the energy market. In summer 2014, according to The Guardian, Germany generated more than half its electricity demand from solar power for the first time ever. Of course, this was a single moment in time, but it shows that renewables are no longer a green pipe dream.

Perhaps surprisingly, the world’s biggest investor in renewables is China, which is also the world’s biggest polluter. In 2014 it invested $84 billion in energy sources like wind and solar - more than it invested in sources such as coal, oil and nuclear power. Globally, renewables are growing at 17% a year.

The shape of things to come
It’s tempting to see renewable energy as a direct substitute for fossil fuels - such as oil, gas and coal - which contribute to carbon emissions.  However, renewables like wind and solar only produce power when there’s wind or daylight – and the electricity they produce can’t be stored in huge quantities. That means they’ve got to be backed up with more conventional energy sources.

In the coming years, it’s expected that breakthroughs in storage technology will greatly enhance the attractiveness of renewables. Linking up previously isolated national power grids and achieving more efficient transmission methods will also help.

Growing population, growing demand
According to the International Energy Association, global energy demand will grow by one-third by 2040, with the lion’s share of this coming from economies such as India and China. The implications of this for pollution and climate change are serious. However, because countries like China are still pretty inefficient (for example, China uses twice as much oil per unit of GDP as Germany) and because the cost of renewables is falling fast, there’s considerable scope to mitigate the risks. 


Words: Rhymer Rigby
Rhymer Rigby is a journalist who writes for various publications including the Daily Telegraph and the Financial Times. He is the author of two business books.

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