Gas prices in Europe are breaking record after record. The UK is facing supply shortages reminiscent of the late 1970s winter of discontent. Chinese factories are shutting down because of power shortages, and the outlook is grim. In fact, it may be the first crisis of many.
When gas prices in Europe started rising faster and faster last month as the continent prepared for winter and found out it was not the only one, gas suddenly became important. That's after being excluded from the list of low-carbon energy sources and after the EU's green transition chief Frans Timmermans said gas had no place in the transition. It now appears Timmermans and his fellow Brussels bureaucrats could not have been more wrong.
For years Europe has been retiring coal plants and building solar and wind farms as it strived to become the greenest continent on earth and lead the energy transition on the premise that emissions of carbon dioxide are the planet's single biggest problem because they lead to unfavorable climate changes. This has been coupled with investment declines in oil and gas production, as this only made sense. Now, the EU has got the first bill for its low-carbon feast.
"It could get very ugly unless we act quickly to try to fill every inch of storage," Marco Alvera, chief executive of Italian energy infrastructure company Snam, told Bloomberg last month. "You can survive a week without electricity, but you can't survive without gas."
This last sentence is important. The green transition plans of the EU-and all other countries with a green agenda, really-tend to assume that the only way to a cleaner energy future is through total electrification. And they are saying it will be cheap and easy, or, in the now immortalized words of UK's Prime Minister Boris Johnson quoting the opposite of Kermit the Frog, "It is easy to be green." Johnson also said it was possible for the UK to go 100-percent green (plus nuclear) by 2035.
China's ruling elite must have also thought that going green would be easy as they imposed stricter emission rules on industrial producers and utilities. And then had to issue a "Whatever it takes" order to make sure utilities would have enough fossil fuel supplies for the winter to avoid outages. The order, it appears, was too late, and factories are already shutting down as coal supply remains tight and will remain tight for the observable future.
Years of underinvestment as coal turned into humankind's greatest mistake are now bearing fruit, and this fruit is a polluting one. But it was bound to happen. Once you demonize a commodity that has played an essential role in the progress of civilization for more than a century and start pouring billions into ensuring this demonization leads to the demise of that commodity, success is only a matter of time. But in the meantime, it might be a good idea to ensure you have an alternative-and this is the really important part-that can perform on par with the demonized commodity.
The energy crunch has shown in what some would say is an unequivocal way that wind and solar power do not perform on par with coal, oil, or gas. They can't. They depend on the weather. But wind and solar were what the EU, China, and the United States rushed into to replace fossil fuels, and now we are all paying the first installment on that rushed renewables purchase.
"It is a cautionary message about how complex the energy transition is going to be," Daniel Yergin told Bloomberg this week, referring to the energy crunch. Bloomberg, by the way, has been at the forefront of the energy transition coverage, producing a lot of praise for increasingly cheap wind and solar. Apparently, however, they are still not cheap enough or rather, not reliable enough to become cheap enough. But nobody is talking about this.
"It is inaccurate and unfair to explain these high energy prices as a result of clean energy transition policies. This is wrong," said the International Energy Agency's Fatih Birol, echoing a sentiment shared by all green governments. The reason for the sentiment has never been explained, but it might come down to the fact that so much money has been spent on the energy transition already and so much more is slated to be spent, that it would be embarrassing to admit the approach to the transition was sub-optimal.
It is, in fact, entirely accurate and fair to explain the high energy prices as a result of clean energy transition policies. It was these policies that discouraged investment in new oil, gas, and coal production. It was also these policies that led to the shutdowns of coal and nuclear plants that reduced generating capacity that simply cannot be replaced by wind or solar on a MW for MW basis because wind and solar do not generate power continuously. And it is these policies, in Europe, China, North America, and elsewhere that, unless revised to reflect reality a bit better, will condemn billions of people to blackouts, energy shortages, and higher electricity bills.
By Irina Slav For Oilprice.com
More Top Reads from Oilprice.com:
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
Strong buy.
Moreover, global energy transition and net-zero emissions will never be achieved now or ever. Those who think that by ditching fossil fuels they can accelerate global energy transition are living in the realm of fantasy.
Fossil fuels are here to stay well into the future.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
The global warming alarmists have spread hysteria about climate change as well as outright fabrications about the costs and availability of wind power and solar power. The actual trends, projected forward, show that the dire predictions of the climate change forecasters will actually happen in around 1,000 years. Similarly, the enormous buiilding necessary to change over energy [paradigms and infrastructure will require one or two hundred years, not five or ten.
In the meantime, our society is absolutely dependent upon fossil fuels, and if we reduce the supply too soon, massive numbers of people will die, from either the cold or starvation (since natural gas is critical for production of fertilizer).
I would like to see more mention and initiative given to the attributes of the thorium version of nuclear It's so much more versatile than the uranium path. We invented it the Chinese have borrowed it and are using it. We Americans are so illiterate about nuclear power.
Phil
The article mostly pays attention to European (and Chinese) emphasis on renewable energy in recent years, along with noting demonization of our tried and true energy workhorse, fossil fuel.
The Oxford Institute June, 2020, energy study points to three things contributing to a low-point demand for natural gas in 2020: 1) mild weather, 2) an investment emphasis on renewable energy, and the effect on demand of COVID. The result was an estimated 8% reduction in demand for natural gas in 2020.
While it might seem to fair to explain current-day high prices on our cuddling up to renewables, is it possible that the prices are a natural market rebound similar to what we saw in 2014?
Russia has gas to sell. Russia will be very interested in blaming high prices on renewable energy. It will be very convenient if the world would forget that Russia supplies about half of Europe's natural gas and is in the very best position to meet any increases in demand . . . for a price.
We'll bounce back and forth on our views regarding deployment of renewable energy. In this article we are reacting to high prices. Next week it'll be unbreathable air or billion dollar weather events that make us question why we are burning up so much fossil fuel.
The only time oil has been stable is during virtual monopolies, such as TX railroad commission, or OPEC maintaining dominate market control.
Demand came back far more rapidly then expected from an instant demand collapse...
Nothing to do with renewables at all. Just normal price response to abnormal conditions.