IHS' new global energy scenario-Rivalry-envisions a world of greater competition among energy sources, including natural gas, oil, and renewables.

Interview Transcript

Energy scenario planning as a key strategic differentiator

Scenarios are a very powerful tool to help companies plan for the future, whether they're looking at developing next year's budget, developing a new strategy, refreshing a strategy, testing a new investment decision; all those decisions, scenario planning can be very helpful, because scenario planning expands analysis beyond just a singular linear future.

When we're surprised by developments about the future, it's often because of a lack of imagination, and with scenarios you look at the future through more than one lens. You develop two or three different views as to the future, very different views that test your bias, your assumptions. The scenario processes forces you to be explicit about what you are assuming about the future, and to consider alternative outcomes. And that is a tool that's been very effective over the years at testing strategy and making companies more resilient in the face of adversity, and also better able to take advantage of new opportunities that emerge.

Rivalry, autonomy, and vertigo energy scenarios

IHS has created a new generation of global energy scenarios that will be released in 2014. "Rivalry" is what we call our planning scenario - that's our reference case. And rivalry is a world of greater competition among energy sources, greater competition among renewables, natural gas, and oil, and other sources as well. This rivalry will manifest itself in a number of ways: natural gas will begin to enter the transportation market in a meaningful way; electricity will play a more significant role in transportation.

One example of this is today there are about 900 million light-duty vehicles - cars - in the world today. In 2040 there will be about double that number, about 1.8 billion. However, gasoline demand will not rise that much because many of these vehicles will be much more efficient then they are today, and many will use natural gas, and electricity will play a greater role, so that's an example of this era of energy rivalry that we've entered.

We also have two alternative scenarios. One is called "autonomy." Autonomy is a fascinating world where local energy demand is satisfied to a much greater degree from local energy supply. In other words, renewables become much more cost efficient. The storage of electricity, we see a step change in economics of the storage of electricity, we see widespread expansion of unconventional oil and gas production. So, there's a lot more energy supply in many parts of the world that today don't have much energy production. So, autonomy: a world where local energy demand is satisfied to a much greater degree by local energy supply.

The second alternative scenario is called "vertigo." Vertigo is a world of accelerated technological change. It's a world where self-driving cars become widespread. It's a world where we have computers play a much significant role in medical diagnoses, for example. It's a world of great technological change, but it's also a world where the change is so great, that it's very difficult for governments and societies to keep up with that change. And this has a big impact on energy. It creates mismatches between energy demand and energy supplies. So, vertigo: very fascinating world of great change, but also one that's very turbulent.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.