“Our products make the world go round.” That’s what Chevron chief executive Mike Wirth said at the World Petroleum Congress this week in Houston. The statement echoes a sentiment expressed by other oil executives present at the event: Oil and gas are indispensable and will continue to be indispensable for the observable future and beyond.
It’s not something that a lot of people want to hear. This is certainly not what environmental organizations want to hear. This is certainly not what the Biden administration and the EU want to hear. Yet it seems to reflect a harsh reality.
Europe is grappling with record gas prices, yet its gas stocks are depleting at the fastest rate in about a decade due to a colder-than-usual start to winter for much. from the continent. In the United States, gasoline prices have become a top priority for an administration that came to power with the promise of reducing the country’s fossil fuel consumption. Whether everyone likes it or not, quitting oil and gas will not be as easy as some hopes.
“I understand that publicly admitting that oil and gas will play a critical and significant role during the transition and beyond will be difficult for some,” Aramco chief executive Amin Nasser told the World Petroleum Congress. . “But admitting this reality will be much easier than dealing with energy insecurity, rampant inflation and social unrest as prices become intolerably high and countries’ net zero liabilities begin to erode,” he said, quoted by the Financial Times.
The price of electricity is already becoming intolerably high in many parts of Europe that were until recently accustomed to affordable and secure energy. This, unless dealt with urgently, could indeed lead to social unrest – there are few things more flammable than public opinion in the dead of winter, against a backdrop of energy scarcity and risk of power outages.
“Oil and gas continue to play a pivotal role in meeting global energy needs, and we play a critical role in delivering them in low-carbon ways,” said Wirth of Chevron as quoted by The Wall Street Journal.
If news from Europe since September is any indication, Wirth is right in his prediction. However, supply may be limited due to underinvestment, which is at least in part the result of the rush to replace oil and gas with renewables.
Price shocks, energy scarcity and poverty are rife after two consecutive years of underinvestment in the oil and gas industry, according to a report by IHS Markit and the International Energy Forum. This year’s investment in the industry is estimated to be around $ 341 billion, 23% below pre-pandemic investment levels of $ 525 billion, despite growing global demand for the products. basic, the report notes.
“Investments in oil and gas will need to return to pre-Covid levels and stay there until 2030 to restore market balance,” wrote the report’s authors, with the IEF secretary general saying, quoted By Upstream Online, the “energy crisis in Europe and Asia this winter is a taste of what we can expect in the years to come”.
This would certainly not suit supporters of renewables like the head of the International Energy Agency Fatih Birol and the head of the EU’s Green Agreement, Frans Timmermans. Yet not so long ago Birol called on OPEC + to produce more oil and Russia to pump more gas to Europe, and Timmermans was forced to admit that gas had a role to play. in the energy transition.
“An underinvestment in oil and gas ahead of renewables and other low carbon technologies that are poised to evolve to meet energy demand could create recurring energy crises of the kind we’ve seen. in Asia and Europe in recent months, ”said Daniel Yergin of IHS Markit. in the comments on the report. He added that these crises could lead to negative economic consequences. These, in turn, are likely to spark the social unrest that Nasser d’Aramco told the WPC about.
The big energy problem seems to be prematurity. The build-up of renewable energy production capacity in Europe and the United States has been accompanied by a premature withdrawal of fossil fuel production capacity, leaving countries short of baseload energy when they need it. need.
It is no coincidence that some countries such as the United Kingdom and Sweden have had to restart coal-fired power stations: in the case of the United Kingdom, to close a gap between demand and supply of electricity in the context of the gas crisis, and in the case of Sweden, to export electricity to Poland. in order to help it to avoid breakdowns. What caused the shortage in Poland? Weak wind and shutdowns of some power plants.
The premature switch to wind and solar makes countries vulnerable to inclement weather and effectively increases their dependence on fossil fuels. Perhaps the current crisis will teach important lessons to those who wish to learn. Otherwise, the scenario sketched out by Nasser of Aramco and Yergin of IHS could well materialize in the not too distant future.
By Irina Slav for Oil Octobers
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