The energy crisis and the Russian weaponization of gas supply to Europe have reshuffled the immediate priorities of policymakers. Governments in Europe are scrambling to ensure an adequate energy supply for the winter and fund multi-billion-dollar packages to help households and businesses cope with surging gas and electricity bills. While energy security is top of the agenda at the start of the winter heating season, policymakers and energy officials haven’t lost sight of the long-term vision to significantly expand renewable energy generation to replace part of the fossil fuel consumption and boost energy security.
Yet, the message has become somewhat more balanced this year compared to previous years: net-zero goals are great, but not letting people freeze this winter would be greater.
The Russian invasion of Ukraine and the slashed supply of Russian natural gas to Europe showed that the most secure energy would be one that is domestically sourced or bought from allies. Domestically sourced wind and solar power could eliminate some fossil fuel import needs. But this will take years. In the meantime, it will be fossil fuels that will provide the energy the world needs.
Both fossil fuels and renewables will need more investments to meet the world’s growing need for energy, industry executives and even the International Energy Agency (IEA) say.
The leading narrative in the energy sector has shifted from a sole focus on net-zero goals to transforming the energy system to such that it can provide secure, affordable, and cleaner energy.
The Energy Trilemma
That’s the energy trilemma that needs to be solved, says BP’s chief executive Bernard Looney.
“If I asked anybody in Europe two or three years ago what they wanted from energy, they would almost exclusively have said net zero,” Looney said at the ADIPEC energy conference in Abu Dhabi last week.
“If I ask them today what they want from energy, they will inevitably tell you they want an energy system that works.”
“An energy system that works is an energy system that provides the world — Europe in this example — with secure energy, affordable energy and cleaner energy,” Looney added.
The lesson for policymakers is that instead of a Paris Agreement that focuses on emissions, maybe the world needs a Paris that focuses on solving the energy trilemma, BP’s chief executive noted.
“What the world needs is a plan not just to lower emissions but a plan that addresses security and addresses affordability,” Looney said.
Underinvestment Exacerbated The Energy Crisis
In the past few years, financiers were exclusively focused on realigning lending and investment portfolios with net-zero emissions by 2050 and investors shunned fossil fuels, which led to much lower investment in oil and gas supply.
Years of underinvestment in oil and gas production is the leading cause of today’s energy crisis, and when the global economy rebounds from the current slowdown, the little spare oil production capacity that’s left will be wiped out, Saudi Aramco’s chief executive Amin Nasser said in September. Investment in oil and gas more than halved between 2014 and 2021, Nasser said, adding that “The increases this year are too little, too late, too short-term.”
“These are the real causes of this state of energy insecurity: under-investment in oil and gas; alternatives not ready; and no back-up plan,” Saudi Aramco’s CEO said back in September.
“Because when you shame oil and gas investors, dismantle oil- and coal-fired power plants, fail to diversify energy supplies (especially gas), oppose LNG receiving terminals, and reject nuclear power, your transition plan had better be right,” Nasser said.
Aramco’s top executive and other industry representatives have been warning for years that investment in conventional energy sources needs to increase and this doesn’t mean that renewables and other forms of alternative energy should be ignored.
Many investors were quick to shame spending on oil and gas in recent years, but now the new imperatives on the energy market – security and affordability – could prompt some of them to back shorter-cycle investment in new fossil fuel supply.
As things stand, the current level of oil and gas investments is not enough even to keep the current rates of production due to maturing wells, let alone increase production capacity.
“This is the moment to increase oil and gas investments, especially capacity development. And at least this crisis has finally convinced people that we need a more credible energy transition plan,” Aramco’s Nasser said.
Booming Renewable Investment Needs Further Massive Increase
Investment in renewables will also have to jump if the world has a chance to reach net-zero. Investment in renewables must more than triple to $1.3 trillion annually by 2030 if the world is to reach net-zero emissions by 2050, the IEA said last month. Electricity generation from renewables needs to see one of the largest increases in investment in the Net Zero Emissions (NZE) Scenario, rising from $390 billion in recent years to $1.3 trillion by 2030. This level of annual spending in 2030 would be equal to the highest level ever spent on fossil fuel supply, $1.3 trillion spent on fossil fuels in 2014, the IEA said.
By Tsvetana Paraskova for Oilprice.com
By Alex Kimani for Oilprice.com
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