09/30/2015 03:18 pm ET Updated Sep 30, 2016

Are We Heading Towards a Global Energy Proliferation Crisis?

In 1866, the US Revenue Commission warned that the country might soon need to rely on synthetic oil. Demand was growing and it was not clear how much more oil there was in the ground.

Fuel shortage scares have a long history, often with a good reason. Apparently Socrates was also trying to address wood fuel shortage in the 5th century BC by inventing his energy efficient "Socrates House." In 17th century, England was engulfed by a panic over shortage of wood and in the second half of 19th century the country was debating the approaching depletion of coal resources.

During the 1973 Arab oil embargo the West was petrified by the idea that the energy resources scarcity might suffocate both its economic growth and, at the height of the Cold War, its security. It triggered actions that to this day shape the energy policies across the World.

Our history is doted by the ups and downs of real or anticipated energy scarcity crises. The energy shortage tide however might be about to turn. The next energy crisis is more likely to be triggered by abundance of economically available energy resources rather than by their shortage. And the consequences for the international economy, politics and security could be huge.

Conventional and nonconventional oil production in the US is booming and according to the International Energy Agency in 2014 the country was the world's largest producer of petroleum and natural gas hydrocarbons.

In the last few years the shale gas revolution transformed the gas supply in the US. Argentina, China, South Africa, Australia and other countries are hoping to develop their own large shale gas resources.

Advance in technology, expectations for long-term high energy prices and security concerns catalysed also conventional gas exploration. Possible Arctic drilling could bring massive supply of oil and gas. And of course we have a lot of coal.

The real energy expansion however is emerging from two softer, and still ignored by many, corners - renewable energy sources and improved energy productivity.

Wind and solar energy are already proving to be cost competitive to conventional power in a number of countries. By the end of 2014 370GW wind and 177GW solar power generation capacity has been installed around the world. The rate of installation is increasing and driving further cost reduction.

According to the International Renewable Energy Association the cost of hydro, biomass, geothermal and onshore wind energy is fully competitive with conventional energy in all main regions in the world. Offshore wind in Asia and solar in the North and South America are also competitive with fossil fuel energy sources.

A recent paper by the International Monetary Fund estimates the size of global conventional energy subsidies at the staggering $4.9 trillion or 6.5 percent of global GDP. With increasing awareness of the economic, environmental and health damage of fossil fuel subsidies there is growing political pressure for their removal. Reducing carbon fuel subsidies will increase the consumer energy price and create a more level playing field for renewables. Their relative cost will drop further.

Analysts might argue how to calculate the real cost of energy. Depending on various factors they might claim that solar is a bit cheaper than gas or wind is a bit more expensive than coal. The important thing however is that the cost differences are fluctuating in one band. Cost of mature energy technologies is converging and renewables are expected to get cheaper and cheaper. The argument that renewables are expensive does not hold water anymore. And it hides significant investment risks for companies that are blindly betting on incumbent technologies.

At the same time energy productivity is growing, partly due to mature and spreading disruptive technology innovations, such as LED lights which use up to 10 times less energy than the old incandescent light bulbs, and partly because of increasingly tougher energy efficiency regulations. Removing subsidies and smart demand management will push consumption even further down.

Highly efficient and free from direct fossil fuel use electric cars will suddenly swarm the world, almost as mobile phones and digital photography did. Technology for building zero energy and positive energy houses has also matured and soon many new and retrofitted old buildings will simply not need net centralised energy supply.

The perfect storm of mature new technologies, high energy productivity and cost convergence will trigger the energy proliferation phenomenon. There will be simply a lot of energy that will supply our much better managed and reduced demand.

This might sound like an economic miracle turning suddenly the world into an energy Eldorado. Unfortunately energy proliferation could create as many problems as it could solve.

Hugely expensive energy infrastructure will not be able to pay for itself. Conflicts for access to energy will be replaced by more subtle conflicts for access to consumers. Large scale state corruption will increase its pressure on commercial logic and democratic process. Governments that are over dependent on energy export will try harder to distort economically rational policies and decisions in order to create politically engineered demand for excess of energy supply.

We are already witnessing plenty of similar examples. One of the main reasons why Russia strongly opposes the competition rules of the European Union for its gas supply is exactly that - a saturated market will drive the prices down and might squeeze away the Russian gas supply. That is why Russia wants to control the pipelines coming into Europe and to control the Southern gas route, not because of the conflict in Ukraine. Ukraine will never have a significant impact on the reliability of Russian gas supplies to the EU. Exactly the opposite - due to its existing infrastructure and vast gas storage capacity Ukraine is a valuable player in the gas supply to the European Union.

The crisis in Ukraine itself is another example. Low efficiency, dysfunctional market and colossal energy waste were politically encouraged. Energy policies did not serve the Ukrainian economy but fuelled the country's dependency on corrupt national and foreign energy suppliers and intermediaries. The result is the tragedy that is unfolding now in front of the eyes of helpless Western leaders.

We must prepare ourselves for the excessive energy supply and find ways to reverse the inertia of extracting energy and building infrastructure that might soon become obsolete.

Oil, gas and coal companies should transform themselves into energy companies with much wider technology portfolios and should prepare for a fast and acceptable for their shareholders switch to low carbon energy services. Governments that are highly dependent on oil and gas revenues must start diversifying their economies and treat such diversification as both economic and national security issue.

And we also need a bolder geopolitical management of conventional energy dependency. Fossil fuel dependency will create more security crisis and it must become an issue for debate and action by international bodies, including the UN Security Council.