Key trends in the energy industry

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Global trends in energy, McKinsey Quarterly2007 Number 1, Ivo J. H. Bozon, Warren J. Campbell, and Mats Lindstrand

Extract:

• The world’s providers of energy and energy-intensive commodities face a decade of unprecedented change and uncertainty as a combination of six macroeconomic, social, and business trends reshapes the competitive landscape.
• Shifting centers of economic activity: The world is undergoing a massive realignment of economic activity, whose outlines are clearly visible in the changes occurring in the energy and materials sectors. Growth in demand for energy and basic materials (such as steel and copper) is moving from developed countries to developing ones, predominantly in Asia.
• Rising demand, rising environmental concerns: As economic growth accelerates, particularly in developing economies, the world is consuming natural resources at an unprecedented rate. In China, for example, oil consumption nearly doubled from 1995 to 2004, and demand for aluminum, nickel, and steel more than tripled. China, for instance, is expected to add another 500 gigawatts of generating capacity by 2020, on top of the 400 gigawatts added over the past two decades. What’s more, local resource owners (such as those in the Middle East and Russia) with cheaply extracted reserves are increasingly exerting control to seek a greater share of the profits. The security of energy supplies is a matter of growing concern—particularly in countries and regions (such as China, Europe, and the United States) that consume more energy than they produce;
• A changing consumer landscape: Economic growth in the developing world will usher nearly a billion new consumers into the global market-place over the next decade, as household incomes reach the level (around $5,000) associated with discretionary spending.
• The battlefield for talent: In the coming decade, a global strategy for talent will be as important to many companies as a global strategy for sourcing or manufacturing is today. Two themes stand out. First, the growth of knowledge-intensive industries underscores the importance and scarcity of well-trained employees. Second, the integration of global labor markets is opening up vast new sources of talent. Indeed, more than twice as many university-educated young professionals—33 million—are available in developing countries as in developed ones.
• Emerging industry structures: In response to changing market regulation and the advent of new technologies, new industry structures are emerging in the energy and materials sectors.
• Business in the spotlight: During the next decade, businesses everywhere will face increased societal scrutiny as they expand their size and reach and as the economy’s demands on the environment intensify.