Bitter cold is descending on us here in Europe. The sudden arrival of cold winter
weather could spell disaster for a region already in the midst of an energy crisis.
“And we're a little bit unlucky this winter,
it could turn into a crisis. Because, and this is the real problem I find,
we are at the mercy of the weather now.” I think we are going to be walking into a
recession because there won't be enough energy to be had.”
Whatever you want to call it--a crisis, a crunch, a shortage--what’s been unfolding
across global energy markets this year is impacting all of our lives.
Energy prices have soared, with benchmark European natural gas prices jumping almost
400%. Even prices for coal--which is being shunned by many countries--have almost doubled.
That means in almost every corner of the world, the energy needed to heat our homes,
or fuel or cars, or power our businesses has become drastically more expensive.
This has been described as the first energy crisis of the green transition. And it’s
true that looming behind every aspect of this energy shortage is climate change.
But there are many different causes for this year’s energy crisis...at
least 15 according to one list an expert sent me.
We won’t get into all of them. But we will look at some of the most significant factors
behind the crunch--and what they tell us about the future of energy as the
green transition gains speed. That’s all coming up on Business Beyond.
The simplest answer for this year’s energy crisis is the pandemic.
The first months of the COVID-19 pandemic led many economies to shut down. Demand for
energy plunged as businesses closed, people stayed home, and planes were grounded around the world.
And so fossil fuel producers responded: They stopped drilling for oil,
cut back on natural gas production, and even closed coal mines.
CD: This year economies have roared back to life. The speed of that recovery caught
pretty much the entire world off guard. And we’re not just talking about energy suppliers.
You probably have heard of the global supply chain crisis,
or the semiconductor shortage? All of these have a common cause: the unexpected bounceback in demand.
“That is good news in a way, in the sense that as the economy has been picking up again,
after the COVID-19 crisis, we've seen a higher energy demand from various economic sectors.”
“It's all part of globally disrupted supply chains, from
computer chips to shipping containers to gas. Because,
yes, hopefully we'll be coming out of this COVID pandemic at some point, but the long term fallout
that we really didn't think about when we were all in lockdown, how to sort everything out again”
But the timing of this year’s energy shortage is a bit...ironic.
Because this shortage of fossil fuels to power our economies comes
as countries begin to make plans to abandon them once and for all.
"By 2070 India will achieve the target of net-zero emissions.”
"We are on course to achieve our goal, our target of 100 percent use of clean energy by 2030. "
“We are in fact closer than we have ever been before, to avoiding climate chaos”
Despite all of these big pronouncements and pledges to become greener, the pandemic has
shown us a bitter reality: the world is still very much dependent on fossil fuels.
Even here in Germany, which has a reputation as a climate leader,
we still got most of our energy from non-renewable sources in the first half of this year.
On a global scale, that energy balance skews drastically more towards fossil fuels.
“The underlying issue is demand..it
takes a long time for demand to switch away from fossil fuels. In 1981, oil,
gas and coal accounted for 84% of total energy demand. Last year that share was still 84%.
The first place where we really started to see energy shortages unfold this year was in China.
China’s economy was the first to bounce back from the pandemic thanks to demand for its goods from
abroad. Its factories went into overdrive, requiring huge amounts of fuel. For China,
that largely means coal, which still accounts for 70% of its electricity generation.
But a number of factors--from a de facto ban on Australian coal
to strict electricity pricing--meant that supply didn’t keep up.
By September, China was in the throes of an energy crisis.
The government ordered factories to close and told coal mines to increase production.
The blackouts and power cuts to key industries have had a serious impact on China’s economy.
And it’s basically led Beijing to double down on coal.
Many fear that will jeopardize China’s climate goals.
With a coal shortage at home, China turned to international natural gas markets to help
keep the lights on and factories running. The huge amount of demand
coming from China rippled across global energy markets..including to those here in Europe.
China is becoming a major force in the natural gas market as it works to wean its economy
off of even more polluting coal. Each year, millions of households swap coal power for gas.
“It's a laudable program. It's an antipollution program. So they're moving their coastal
households from burning coal to using gas and to reduce pollution. It's great and it works.
You know China's big cities ten years ago were the most polluted cities in the world,
and now they're not any more. Still bad, but they’re not the worst.”
China’s demand for natural gas--both throughout this year’s crisis and in recent--has
put the squeeze on Europe.
The European Union gets most of its natural gas from Russia,
but Norway, Algeria and Qatar are also big suppliers.
Brussels has made diversifying its supply of natural gas a priority. And it’s turned to
liquified natural gas, or LNG--which is sent via tankers like these instead of pipelines.
In 2019, so pre pandemic, LNG accounted for about 22%
of the EU’s natural gas consumption. That was a new record.
Competition between China and Europe for LNG has been building for years. But this year’s
energy shortages led to an all-out bidding war. And Europe has been losing to Asia.
“The population figures are just eye-watering. So when it gets cold there they suck up the
LNG market. And then you know Europe has a bit less. But then there's pipeline supply in Norway,
Algeria, Russia. They can supply us with gas as well, but that's where
in Europe there's another problem at the moment, actually, lots of them.”
The biggest of those problems is Russia.
Western Europe began importing natural gas from
Russia--or more accurately the Soviet Union-- in the 1960s.
There are now several pipelines that connect the Siberian gas fields of Russia’s Gazprom
to various storage sites across the EU.
The EU’s dependence on Russian gas has long worried many within the bloc.
When you build a pipeline, you build a relationship and potentially there's leverage
both ways by the supplier, by the buyer.
And so security has been a standing issue in the natural gas trade.
And those concerns have become very real this year as the EU faces a natural gas shortage.
While some countries like Belgium and France have gas storage levels around 80%,
storage tanks in other countries like Austria are sitting almost half
empty after last year’s cold winter depleted stockpiles.
Making matters worse, Russia has been slow to send additional gas to Europe
this year despite the critical shortage of stocks.
“There are credible signs that Russia itself is struggling to meet all of the gas demand.
Now first of all, they had to fill up their own inventories
ahead of the winter and in Russia, as we all know, it gets really cold.
So they can't leave their own people in the cold and sell it all, plushy western Europe.”
But some analysts believe the limited deliveries are
no coincidence and accuse Moscow of exploiting Europe’s energy weakness.
“Part of the slow down in imports of gas
from Russia--or I guess exports from Russia to us--is malicious.”
Enter Nord Stream 2, the 9.5 billion euro pipeline Russia has recently
completed constructing from the Russian port Ust-Luga to Greifswald, Germany.
It will double Russian gas supply to Germany.
But it first must be approved by German regulators...And that’s
not a given for a pipeline that has been embroiled in controversy from the start.
Critics have found a lot of reasons to hate Nord Stream 2. They fear how it will make the EU even
more dependent on Russian gas. And they worry about how it will bypass Ukraine--where much of
Russia’s gas to Europe now flows through--and that brings in billions of euros to Kyiv every year.
Some believe Russia is withholding gas exports
as a way to blackmail the EU into approving the pipeline.
Whether Russia is weaponizing it’s gas exports or not,
Nord Stream 2 IS crucial to Russia’s economic future here in Europe.
Keep in mind, about 40% of Russia’s govt revenues come from oil and gas exports every year.
“The Russians have spent a fortune under Putin in developing an entire new
natural gas province. And as a result of which the Russians are positioned for the next generation of
gas supply to Europe. Well, what happens if Europe then as part of its climate
policy cuts back on natural gas consumption? What's what becomes of that investment then?”
It’s not just Russia that is confronting a future where its biggest export is no longer needed.
So is the group of oil producers that, along with Russia, is known as OPEC+. The cartel
has resisted increasing oil production despite rising prices. Opec has blamed uncertainty about
demand and the pandemic. But some see a deeper message in its refusal to bend to the demands.
We can't have consumer governments telling producer governments that we don't need oil
and gas, which is absolutely the crux of their livelihoods. Those countries have every right
to allow prices to go up now so that they can rebuild their coffers, to rebuild their budget
deficits and just have surpluses so that when there is energy transition and their oil and gas
products effectively are out out demand, they have a buffer that can help diversify their economy.”
In other words,
fossil fuel producers may be motivated to try and make money while they still can.
For Moscow, its current gambit to secure the future of Nord Stream 2
doesn’t appear to be working.
In November, German regulators suspended the approval process for Nord Stream 2,
citing issues with the parent company’s business registration.
That doesn’t necessarily mean the end of Nord Stream
2..But it is a delay that could set the project back several months..raising
the risks of serious energy shortages here in Europe this winter.
If it gets cold for long across Northwest Europe or Northeast Asia,
there's a high risk of real power and heating outages,
just as COVID surges again, and then you'll have people sitting at home cold and sick.
Like I touched on earlier, some see Green policies at fault for this current crisis.
They say that overly ambitious targets to reduce emissions
have made fossil fuels pariahs before renewables were fully ready to take up the load.
And indeed, investment in oil and gas has more than halved from its peak in 2014.
The challenge is fossil fuel investment is falling very, very quickly.
But for the world to keep meeting rising energy demand, investment in renewables needs to go up
by four times. You're talking about like a 100 trillion dollars. That money is just not there
and it won't be there, that volume of money. So you are essentially talking about energy poverty
versus green energy and countries like China and India will simply not choose energy poverty.”
But others are more optimistic that renewables could soon replace fossil fuels.
I think that this situation exposes not so much the fact that we have tried to decarbonize, you
know, faster than, wise. This is something that sometimes you hear from the fossil fuel industry.
It's not that at all, frankly, it's rather the opposite. If we had a larger share of renewables
at this stage, then it will mean we will be less reliant on fossil fuels, less reliant on
the energy source whose price is currently very high because of increased competition.”
After all, wind and sun are essentially limitless resources - used as energy sources,
they can insulate countries from geopoliticking.
Our reliance on fossil fuels such as natural gas has shown us that it can end up in
very high prices. We need to transition away from that and into a system of
natural resources that are renewable and whose cost is virtually zero.”
Many politicians are seizing this crisis as a chance to push for more investment in renewables.
But building out that infrastructure could take years. So what about right now?
For now, governments seem to have decided: the answer is more fossil fuels.
China as we saw earlier has renewed its commitment to coal.
And here in the EU, where many countries have pledged to give up coal in the coming decade,
idled coal plants are being put back online.
In the United States, the White House has announced it will tap its strategic
reserve of oil to help bring down gasoline prices for consumers.
CD: This, many analysts point out, is not the best way to get consumers to give up oil, or gas.
“The reality is if supplies are coming down much, much faster and demand hasn't moved, high
prices is the only solution, because only then will you actually get consumers to move away.”
The fact is that if you put a price on fossil fuels, without there being
a clean alternative that consumers can shift to, and that is also affordable,
then behavior change is made more difficult and consumers are going to be left frustrated.
And that is indeed where many people are finding themselves now.
Frustrated, furious, at risk of not being able to cover their energy needs.
So what are we to take away from this?
For me in another hour, I will start the engine on my car
and I will know why I'm dependent on fossil fuels.
In the words of a famous cartoon of years ago: we have met the enemy and he is us.”
For all the excitement around the green transition, fossil fuels still power our lives.
And until that changes, fossil fuels and the countries that produce them
will continue to determine how much it costs to keep the lights on.
And that's it for this edition for Business Beyond. If you liked this video
check out our playlist. And see you next time.