Is there a silver bullet for the global energy crisis?

With the global energy crisis in full swing, many countries have been forced to amend some of their carefully orchestrated energy transition plans to strengthen the security of supply and protect consumers at the pump due to increasing price volatility. Some of the proposed solutions to get to grips with this crisis range from more oil and gas to a complete phase-out of fossil fuels in favour of ramping up renewables.

However, would a paradigm shift, which would result in a pivot to renewables solve the energy trilemma the world is facing today? Would this alleviate the crisis or deepen it? In the wake of Russia’s attack on Ukraine, countries worldwide are intensifying efforts to meet energy demand while dealing with the challenges of fuelling the future in the longer term.

Commenting on the current energy crisis, Alessandro Blasi, Special Advisor to the IEA Executive Director, remarked in a post on social media that “Russia and U.S.A. play two very important roles,” in the current energy crisis, as “a lot of the story moves around the availability of natural gas and here both countries are two big heavyweights.”

Blasi also underscored that Russia used to send about 75 per cent of its gas exports to Europe prior to the Ukraine crisis while the U.S. was enjoying “a massive domestic gas bonanza thanks to shale revolution. Since then the U.S. LNG Armada came to the rescue having increased its exports dramatically towards Europe.”

While this is undoubtedly a global energy crisis, Europe seems to have been hit the strongest by its implications. Many countries agree that the solution to this crisis entails the use of gas and oil to provide energy during the transition to a low-carbon future. However, some feel that the overzealous approach to replacing fossil fuels with green alternatives could prolong the crisis.

At the beginning of November 2022, the Heritage Foundation’s Jack Spencer indicated that Europe’s struggle was due to an overreliance on “unreliable energy sources that are not yet commercially viable.” At the time, Spencer wrote that the imposed green alternatives and restrictions placed upon oil,  gas, and coal development in the United States and Europe “exacerbate and extend energy price hikes and can create full blown energy crises.”

“The result in Europe was underinvestment in gas, oil, coal and nuclear. The money flowed instead to less reliable sources like wind and solar, which generally only operate under certain weather conditions,” highlighted Spencer.

Furthermore, Spencer’s analysis underlined that Europe was beset with energy woes due to “pushing unrealistic energy policy choices,” which have “little to do with access to affordable, reliable and clean energy.” Those who side with Spencer’s assessment claim that governments’ policies, which discourage new investment in natural gas and oil and restrict production of these energy sources have the potential to severely impact the economy and energy security.

The American Petroleum Institute’s Mark Green seems to agree with Spencer’s assessment, pointing out last week that the world needs “more natural gas and oil, not less, and America should lead in providing them, at home and around the world.” Green justifies his views by referring to an analysis, which found that natural gas and oil could spur nearly $200 billion in direct investment and generate more than 226,000 jobs by 2035.

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“This is the energy path that’s available to Washington policymakers. As for the path that leads to reduced American natural gas and oil investment and production, Americans don’t have to guess what that future looks like. Europe tells that story,” concludes Green.

Green’s views are supported by API’s 10-in-2022 plan, which set out ten actions for Washington to follow in a bid to unleash American energy and foster economic growth. Within its Climate Action Framework, API also detailed solutions to the dual challenge of meeting energy demand and reducing carbon dioxide emissions on the path to a lower-carbon future.

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This is in line with the assessment made by Amanda Eversole, API EVP & Chief Advocacy Officer, a few months ago, when she explained that established and more dependable energy sources can have an important role in supporting emerging renewable projects, thus, “natural gas and oil should be recognized as reliable and realistic partners to enable renewables’ growth – as well as the lead energy sources in places without enough wind and sunlight to generate sufficient energy to meet demand.”

On the other hand, the proponents of the green shift and advocates of the phase-out of fossil fuels argue that the quickest way to satisfy the energy trilemma and transition to clean sources of energy would be to scale up renewables. As Westwood recently pointed out, even if new oil and gas licences were awarded, it would be “way too late” to help consumers, since it took approximately five years from discovery to the first production in the last decade.

Hence, the method would not alleviate the current prices at the pump, as countries would need to import oil and gas in the meantime, which leaves them exposed to price volatility. While increasing domestic production may help safeguard against similar scenarios in the future, it would put the sustainability agendas of many countries at risk, predominantly in Europe.

Renewables still do not have the capacity to replace fossil fuels, as more investments are needed to accelerate the new technology build-out, which is required to bolster the deployment of renewable energy. However, the adoption of renewables and other clean energies such as green hydrogen is certainly gaining momentum, thanks to the EU’s efforts to double down on the transition, through its Fit for 55 and REPowerEU initiatives.

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In light of the inroads hydrogen is making, with green hydrogen at the helm, Offshore Energy in its recent In focus article looked at the recent developments within the energy industry, suggesting that governments and energy companies were not just turning to hydrogen in hopes that it would play a role in curbing GHG emissions on the road to net-zero, but these investments could have the potential to sideline gas as the key player in the energy decarbonisation game.

The calls to substitute natural gas with green hydrogen, as a solution to eliminating emissions from hard-to-abate sectors, are growing in numbers. Europe, in particular, is spearheading the hydrogen revolution. Many developments from last week serve to illustrate this point. The decision to ditch gas altogether and transport hydrogen via the H2Med subsea pipeline between Barcelona and Marseille hammers this home even further. This project is part of the Green Energy Corridor which will connect Spain, Portugal and France to the European Union’s energy network.

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Both Europe and the U.S. are stepping up their efforts to increase offshore wind and floating solar capacity, along with other renewable sources of energy. Recently, API submitted comments on the Department of Energy’s draft National Clean Hydrogen Strategy and Roadmap, thanking DOE for advancing a clean hydrogen economy while expressing concern that it failed to adequately consider all forms of hydrogen production and the near-term benefits of working with existing hydrogen users, like refineries. 

Aaron Padilla, API VP of Corporate Policy, remarked: “The oil and natural gas industry has a significant role to play and interest in the growth of a clean hydrogen economy. Enabling significant greenhouse gas (GHG) emissions reductions in the industrial, transportation and power sectors, the deployment of low-carbon hydrogen will be essential in meeting the nation’s climate goals.”

Earlier this month, the International Energy Agency (IEA) revealed that global renewable power capacity was expected to grow by 2,400 gigawatts (GW) over the 2022-2027 period, an amount equal to the entire power capacity of China, according to Renewables 2022, the latest edition of the IEA’s annual report on the sector.

The increase, which is 30 per cent higher than the growth forecast just a year ago, highlights how quickly governments have thrown additional policy weight behind renewables. In line with this, the report finds that renewables are set to account for over 90 per cent of global electricity expansion over the next five years, overtaking coal to become the largest source of global electricity by early 2025.

Within this report, the IEA points out that utility-scale solar PV and onshore wind are the cheapest options for new electricity generation in a lot of countries worldwide while global solar PV capacity is set to almost triple over the 2022-2027 period, surpassing coal and becoming the largest source of power capacity in the world.

This report also forecasts that global wind capacity will almost double, with offshore projects accounting for one-fifth of the growth, thus, wind and solar are anticipated to account for over 90 per cent of the renewable power capacity added over the next five years.

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Moreover, the IEA’s Government Energy Spending Tracker, which encompasses 1,600 government financial measures from 67 countries passed since March 2020, has shown that global government spending to support clean energy has increased by over $500 billion since March, as the global energy crisis spurs new policies aimed at cutting reliance on fossil fuels.

Taking this increase into consideration, the IEA outlined that government spending was set to mobilise substantial flows of private investment, which based on the current policy settings would raise global clean energy investment by another 50 per cent to over $2 trillion annually in 2030.

Fatih Birol, IEA Executive Director, said: “The responses from governments to the crisis are going in the right direction. The unprecedented financial support we are seeing for clean energy transitions is improving energy security and dampening the impact of high fuel prices on customers.”

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The IEA also believes that investing in clean energy is key to avoiding future crises while reducing emissions. However, scaling up a range of clean energy technologies needs to be synchronised with scaling back of fossil fuels, as cutting investment in fossil fuels ahead of scaling up investment in clean energy “pushes up prices but does not necessarily advance secure transitions.” According to the agency, high fossil fuel prices could make it 10‑25 per cent more expensive for fossil fuel importers to meet climate goals.

Meanwhile, the International Energy Agency released its latest report on Monday, 12 December 2022, titled How to Avoid Gas Shortages in the European Union in 2023. It analyses what the European Union needs to do to avoid the risk of a natural gas shortage next year. While this report highlights that 2023 may well be more challenging than 2022 for Europe’s efforts to avoid gas shortages, it also sets out the practical actions that can close that gap while avoiding excessive strains for European consumers and international markets. 

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Which road should be taken to provide relief at the pump now rather than at some point in the future? Would combining all these energy sources be the safest option to cushion the impacts of this energy crisis and handle the problems caused by inflation and high prices?

There does not seem to be a one-size-fits-all fix for the global energy crisis, just short and long-term options that could alleviate the effects to an extent. If there is no silver bullet for the current energy crisis, can any silver lining be found in the initiatives for the development of new energy sources and diversification of supply? What conclusions can be drawn from these different energy solutions and initiatives?

Does this indicate that to tackle the current energy crisis, countries need all the energy solutions they can get – including oil, gas, solar, wind, nuclear, and hydrogen – as the CEO of the UAE’s giant, ADNOC, suggested recently? Will the lessons we learn from this energy crisis help us to stave off a new one in the future? This certainly provides food for thought, but time will tell.

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