Why long-term thinking is crucial to ensure energy security
In some quarters, a narrative has emerged that blames Europe’s energy problems on the overenthusiastic promotion of ‘net zero’ carbon and the rush for renewable energy. This criticism is politically motivated and false. Yet the opposite idea, demonizing oil and gas production, is also madness.
The form of energy supply has become a totem: Fossil fuel advocates and climate deniers want to see coal mines and drilling rigs. Green politicians hate them and advocate for solar panels and wind turbines. Politicians, activists and opinion columnists are unable to formulate a coherent policy, which considers the demand for energy as even more important than the supply and which deals with both the short and the long term.
Britain’s new energy minister, Jacob Rees-Mogg, has promised to extract “every last cubic centimeter of gas from the North Sea”. In 2013, he attacked the preference for wind and nuclear as “much more expensive than coal or gas”. Recent offshore wind projects have been awarded for less than £40 ($46.27) per megawatt-hour, while UK wholesale power, reflecting the cost of generation from gas, now costs 10 times as much.
What would Europe be like if it hadn’t embraced renewables? After 2011, solar and wind investments were foolishly allowed to stagnate once the post-financial crisis stimuli expired and austerity took hold. Nevertheless, as costs fell, renewable energy capacity continued to grow strongly.
On the eve of the 2008 financial crisis, non-hydro renewables – mainly biomass, solar and wind – accounted for 8% of electricity in the EU, including the UK. In 2014 it was 18% and last year it reached 29%.
Unfortunately, nuclear generation fell during this period, mainly due to the gradual closure of German power plants and the closure of aging facilities in the UK and elsewhere. But the increase in renewable generation was almost four times greater than the decline in nuclear.
With gas now costing the equivalent of $300 a barrel of oil, Europe would be truly desperate without its renewables. Primarily, Russian gas would have filled the void, satisfying even more of the continent’s consumption than a third of last year – and tightening the Kremlin’s grip.
Environmental groups are wrong the other way around. I warned in 2012 that Europe’s failure to diversify its gas supplies and develop its domestic resources would leave it “frozen in the dark”.
While the United States took the lead, France banned hydraulic fracturing for shale production in 2011, Bulgaria in 2012, Germany – which had used the technique safely and without public outcry for decades – in 2016. In 2020, French utility Engie pulled out of a deal to import US liquefied natural gas due to its government’s concerns about the environmental footprint. Now Paris, Rome and Berlin are looking to Texas as a saviour.
If Europe were to reduce its own gas production without importing LNG, then surely it would focus on reducing gas demand to avoid overreliance on Russia? Solar and wind energy provide electricity, but only 30% of European gas consumption is for electricity. Another 30% goes to industry and 40% to homes and businesses, mainly for heating.
But promoters of renewable energy had no credible proposal to meet the fuel and raw material needs of steel mills and chemical plants. Better insulation and electric heat pumps are the answer to warming homes, but their deployment has been far too slow.
Green activists still haven’t learned the lesson that gas is needed in the medium term. Carbon Tracker, a think tank, has sought to discourage investment in hydrocarbon production by popularizing the notion of a ‘carbon bubble’. This month he attacked new British Prime Minister Liz Truss’s plans for more drilling in the North Sea as “a growing reliance on fossil fuels for UK energy needs”.
But how much oil and gas is produced in the country is a completely different matter than how much needs to be consumed. The organization points to the International Energy Agency’s report that no new oil and gas fields would be needed to meet ‘net zero’ carbon targets – seemingly unaware that Russia’s giant supply comes to be removed from the equation.
They argue that the new production would not lower prices for European consumers. However, the marginal supply curve is very steep at the moment – in other words, since existing production is at maximum capacity, acquiring an extra molecule of gas or electron means bidding it to someone else. another who desperately needs it and is willing to pay dearly. In this situation, even modest amounts of additional supply can lower prices significantly. The wild fluctuations in gas and electricity prices in Europe on minor news items are an illustration of this.
In any case, there is a big difference between writing checks for oil and gas to Vladimir Putin or Western oil companies, owned by European pension funds, and paying more than half of their profits in the form of taxes to European governments – who can then use these revenues to build renewables, increase energy efficiency or protect vulnerable energy consumers from unaffordable bills.
Greens advocates point to long lead times for new oil fields and nuclear power plants. Former UK Deputy Prime Minister Nick Clegg opposed building new nuclear reactors in 2010 because they would only be commissioned “by 2021 or 2022”.
Mr Clegg has long since decamped to the United States, but Britons left behind in an impending cold and costly winter would be delighted today to have that nuclear power that short-term thinking denied them. How different from former US President John F Kennedy, who told the story of a gardener who objected to the planting of a tree that would not reach maturity for 100 years. He was told: “In that case, there is no time to lose; plant it this afternoon.
Robin M Mills is Managing Director of Qamar Energy and author of ‘The Myth of the Oil Crisis’
Updated: September 19, 2022, 4:30 a.m.