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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Baker Hughes’ CEO Warns Of Three Hard Truths About The Energy Transition

Fossil fuels are here to stay. This is the message one oilfield major CEO had for those watching the surge of gas prices in Europe, some with trepidation, others with fascination. They are here to stay because they help ensure a country's energy security. "We think there's three hard truths," Simonelli told CNBC in an interview this week. "Firstly, we've got to work together, accelerate the move towards decarbonization and also eliminating emissions. Secondly, hydrocarbons are here to stay … and natural gas, in fact, is a key element. And thirdly, we've got to do it together, collaborate and actually adopt the new technologies that are available."

Some would say the current energy crisis in Europe is sufficient proof that there is something not quite right with the way the EU and the UK approached the energy transition. OPEC's secretary-general Mohamed Barkindo, for instance, told CNBC there was a new premium emerging in energy markets that he called "the transition premium." What this means is, essentially, that the energy transition is making energy more expensive despite promises for affordability.

Others, however, are careful to not blame anything related to the energy transition of renewables. The International Energy Agency earlier this week mentioned "several weather-related factors" among the reasons for the gas price spike in Europe. "These include a particularly cold and long heating season in Europe last winter, and lower-than-usual availability of wind energy in recent weeks," the agency said.

However, its head Fatih Birol was quick to point out that it would be "inaccurate and misleading to lay the responsibility at the door of the clean energy transition," in what looks like a perfect example of the growing unwillingness among international organizations to challenge the image of renewables even in the face of hard evidence that in some cases they cannot live up to their promise.

Some go even further. 

A CNN article, for instance, argues that the solution to the wind drought in the UK—which contributed significantly to the country's dire energy situation—is building more wind farms, in different places, because "the wind will be blowing somewhere," according to a Manchester University professor in international politics.

Leaving aside questions around the qualifications and expertise of different commentators on the topic, it seems that challenging anything about the energy transition is highly frowned upon. Yet, in the face of an energy crisis brought about primarily by insufficient supplies of gas, it is hard not to challenge the transition or rather the way it is being done.

Related: Oil Trading Giant Trafigura Sees $100 Oil In Late 2022

Gas was initially considered a bridge fuel—the bridge being between the fossil fuel era and the post-fossil fuel, renewable energy era. However, as warnings about the changing climate became louder and governments became increasingly ambitious in their emission-cutting targets, gas began to be struck out in energy plans in both Europe and the United States. In light of the energy situation in Europe right now, this was probably a premature move. It was not the first one, and it might not be the last one. Because high gas prices are already driving up demand for coal and the EU ambition to be the greenest of the green is unraveling.

"The carbon price of using coal has driven up demand for gas. But now high gas prices are driving up demand for coal," wrote Cambridge University political economy professor Helen Thompson for the Financial Times this week. "If there were not serious intermittency problems with wind and solar and battery storage were further advanced, this would not matter. In reality, the absence of much wind in northern Europe this summer is consequential."

This intermittency is the elephant in the renewable energy room. Ignoring it for the sake of political correctness and towing the party line will have—and already has—consequences. It is because of these consequences that fossil fuels are likely to keep their place in the global energy mix for quite a while yet. It's a hard truth that needs to be digested if the energy transition is to succeed.

By Irina Slav for Oilprice.com

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  • George Doolittle on September 24 2021 said:
    "Gazprom got struck out in any plans for a Europe wide energy transition!"?

    Seems like the exact opposite is what was demanded be true...at the expense of the Netherlands and Ukraine and indeed all of Southeastern Europe plus the Nordic Nations plus Great Britain plus Spain plus Portugal plus Italy plus Belarus...I mean seriously this is obviously something stupid to even bother bringing up. Germany never gave up on coal for obvious reasons but why Putin gave up on having even the pretense of sound money sure is quite the mystery.

    Anyhow as go energy prices so will go food prices too as the value of the US Dollar continues to soar globally precisely because natural gas *IS* The Fuel as oil once was as coal was before that etc.

    Overlaying all of this is of course a sound system of public finance which the USA does still have through the Atlantic Charter and free trade and good will through to Democratic societies and peace through mutual defense.

    There is a lot that can be provided for by the United States if one precludes Wars of Aggression as acceptable in a post World War 2 World.

    Long $rrc Range Resources
    Strong buy
  • Mamdouh Salameh on September 24 2021 said:
    There is no doubt in my mind that soaring energy prices were caused by inept policies used by the European Union (EU) to accelerate global energy transition and to delay the start of operation of Nord Stream 2 gas pipeline. It is an EU problem that has spelt over to other regions of the world.

    However, renewables on their own aren’t capable of satisfying electricity demand because of their intermittent nature. Moreover, exerting excessive pressure on the global oil industry to divest of its fossil fuels can only adversely affect the production of fossil fuels without affecting the global demand for them thus creating deficits in the market and skyrocketing prices. These policies will weaken the global economy because it will have to spend a huge chunk of funds earmarked for investments on paying for soaring fuel prices.

    Furthermore, instead of creating obstacles in the face of Nord Stream 2 every step of the way, the EU should put politics aside and facilitate the start of its operations by issuing a temporary operational licence to enable it to bring badly needed extra Russian gas supplies.

    Oil and gas are here to stay well into the future. Nothing on earth can change these realities in the next 100 years.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Mamdouh Salameh on September 24 2021 said:
    I am sorry my comments shouldn't have appeared here. They were meant for another article.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Arch Region on September 24 2021 said:
    To Mr. Hughes's three so called truths I propose a more parsimonious explanation with two really hard truths:

    (1) Catastrophic global climate change is a real threat;

    (2) The energy transition is unavoidable and will render oil valueless goo to be left undisturbed, underground for eternity.

    Divesting now and transitioning in a responsible way can benefit all. Resisting obvious truths with more investment in misinformation, can only bring economic ruination. Events on the ground should not be allowed to dictate policy. We can treat fossil fuels as we do with crops that we sometimes pay farmers not to produce. We can ease the transition pain by paying the extraction fossil fuel industry to stay idle until they find ways to use their phenomenal technological expertise in alternative useful activities.

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