Oil, Coal, Natural Gas, Nuclear, Wind, Solar Energy? The world’s energy appetite will at least double by the end of this century (some claim it will triple). If we attempt to meet this burgeoning global demand exclusively with fossil fuels, the environmental consequences are difficult to predict. We are products of a world where energy was long assumed to be cheap, unlimited and readily available. Today, all three assumptions are in question.

In a few short years, the problem of energy has emerged as one of the defining—and most difficult—challenges of the 21st century.

Economic activity is clearly the single most important driver of the energy demand of a country. This demand does change as countries gradually shift from more energy-intense manufacturing industries to service activities or when technological advances make energy use more efficient – but these processes take time and with oil reaching all time highs the effects are already being felt.

Oil; Countries with a high dependency on oil are already suffering higher relative inflation against their peers which will subsequently damage their exports. Spain, Greece or Belgium are already suffering from inflation above the average Euro zone inflation of 3.3%, already way above the 2% untries nuclear and alternatives seem to be the most viable energy sources in the not so distant targeted by the ECB. What alternatives do we have in Europe other than oil?

Coal, the main source of energy in both China and India, is cheaper to extract compared to oil and gas but is highly polluting. Although, vast reserves are still available, rail and harbour bottlenecks, as well as a sharp increase in demand is making supply fall behind.

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The price of coal from South Africa, the main exporter to European utility companies, has increased by 20% so far this year. Besides, in the short term, South Africa may limit exports to avoid power supply crises like they suffered in late January when some mining houses were ordered to stop mining to avoid blackouts. These would have large implications as it is one of the main producers together with Australia and Indonesia.

For the longer term, enforcing the Kyoto agreement should end up curbing demand of coal, at least, on the treaty signing countries like Germany, where more than 20% of energy demand is still coming from coal.

Natural Gas produces the least carbon dioxide of the fossil fuels, which makes it very attractive for the production of electricity by power companies in Europe. Its demand has grown steadily outside its traditional use for heating and it is already a major source of energyfor the UK, Italy and Germany. Most of the gas coming into Europe flows from Russia (providing Germany), Norway (the UK’s main provider) and Algeria which through its two main pipes, supplies the Iberian Peninsula and Italy, too. However, diameter, operating pressure, length of the current pipes, as well as the limited number of storage facilities available limit supply – which has not been able to keep up with demand. The price of natural gas coming in to the UK has gone up by 130% in the last 12 months.

Nuclear seems to be the medium term solution which some European countries like the UK or Italy are willing to pursue. Italy has recently announced it will go back to nuclear energy after 20 years as it will allow them “the production of clean energy, at low cost, on a large scale and without damaging the environment”. However, nuclear energy still generates safety concerns and challenging problems related to the disposal of its radioactive waste.

Countries like France, Sweden, and some of the former Soviet Union allies already rely heavily on nuclear energy. Within renewable energies Hydropower is by far the largest source of energy. It generates no carbon dioxide and produces electricity less expensively than energy coming from both fossil fuel and nuclear. However, supply depends on water reserves and the topography and weather of countries and while it is a major source in Austria and Norway it is less of an option for countries like the UK.



Other alternative sources like Wind or Solar Energy – although growing very rapidly in countries like Germany and Spain – are still heavily dependent on state subsidies and the deployment of improved technologies. In the medium term, these alternative sources are, however, set to play an important role with the European Commission targeting 20% of energy coming from wind, wave and solar sources by 2020.

Overall, cheaper access to energy will be a large competitive advantage for some European countries. Countries like France, Norway and even the UK stand out to be in a much better position than Spain, Italy or Ireland, which are yet not on track to fulfill their part of the Kyoto agreement. This rules out coal as an alternative for these countries which will likely increase their dependency on gas in the short term, but there are some risks as Algeria is the main provider for both Italy and Spain.

For these countries nuclear and alternatives seem to be the most viable energy sources in the not so distant future.