Increase in Demand for Energy

According to research done by Chevron, global energy consumption is expected to increase by 36% by 2035. They attribute this growth to the general population increase as well as increased energy consumption. The majority of this growth is expected to take place in countries with emerging economies such as China and India. The demand for energy in China alone is expected to increase by a staggering 75%.

In essence, Chevron is expecting the demand curve to shift to the right as consumption increases. With supply remaining the same this will drive energy prices up. Chevron also has a plan to shift the supply curve to the right in order to keep up with demand. They are "finding and developing conventional and new sources of oil and gas, using energy more efficiently, and investing in renewables and the next generation of energy sources." As they shift the supply curve to the right this will keep prices lower and provide more economic profit for Chevron.



Alexa said...

I agree with Zach that the supply curve will move to the right as new technology becomes introduced. I do not believe that Chevron will automatically see higher profits in the long run. Chevron will see a profits continue in the short run but the long run it is harder to predict profitability. As consumers have time to adjust to different levels of consumption or substitutes. Substitutes that may not even exist yet. Even through Chevron is investing in new technologies of extraction of oil and different ways to collect energy, wind or solar, they may still choose the wrong one or simply their timing may be off. I keep of thinking of Kodak, the king of film in the 1980's. Film was necessary for taking and printing of photos years ago. They delayed the jump into digital technology, and the company almost didn't survive.

Alexa said...
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Dave Tufte said...

Zach gets 100/100. Alexa gets 38/50, for a couple of grammar mistakes and 2 sentence fragments.

What I like about this post is the lack of panic in the tone. There are a lot of people out there who suggest that we are approaching some sort of energy apocalypse. Hardly.

Consider the source article: energy is predicted to rise by a company that can make money supplying it. You wouldn't think they'd make a low ball prediction. And yet there prediction is for 36% growth over the next 23 years. That is an absurdly low rate of growth that is unlikely to be matched in other major industries. So, not panicking seems like the right choice.

I think Zach made a good first attempt at this, and that Alexa rebutted his points well. Chevron has to have a plan to try and capture profits from that growth, but assessing the likelihood of that right now is very difficult.

Michael said...

I agree with most of what Zach says in his post. I also believe that both the supply and demand curve will shift to the right as the world's population increases. I do however disagree with Zach's assumption that as supply increases, prices will fall. This is just not true. We are finding more oil than at any other time in history, and yet prices continue to rise. So what is the real reason prices are not coming down as quickly as they should? In my opinion, gas prices are like a ratchet. They increase quickly, but never really come back down to an appropriate level.

Dave Tufte said...

Michael: 50/50.

This isn't a criticism of Michael specifically ... just a suggestion for everyone good enough to get an MBA ... asserting that demand and supply will both be moving to the right because of population increases ought to be the baseline for every argument you make, not an afterthought. The big question is which is going to shift more/faster.

So, then "... Zach's assumption that as supply increases, prices will fall. This is just not true." is in fact, quite possibly true. What Michael is implying, but not saying clearly, is that demand is shifting out more than supply, forcing prices up.

The assertion that "... prices continue to rise [for oil] ... " isn't quite true either. They've generally risen over the last 10 years, but are quite volatile.

This is actually an important example of something you all heard mentioned in principles, but may have forgotten: higher prices signal the need for more innovation, which in turn may keep prices from going higher. We're discovering more oil than ever before because prices are high. But, those "discoveries" aren't economical to exploit until the price hits about $80 per barrel. Prices have been stable around that range for most of the last decade.