To hear some of the commentary, you would think that the past 12 months had brought the world’s transition away from fossil fuels juddering to a halt. With prices of natural gas and coal heading to record highs and those for crude oil not far below their 2008 peak, the world seems more hooked on carbon than ever.
Plans to shift to clean energy are “a chain of sandcastles that waves of reality have washed away,” Saudi Arabian Oil Co chief executive officer Amin Nasser said in a speech in Switzerland last week.
We have been watching “the revenge of the fossil fuels,” Sciences Po professor and expert in natural gas Thierry Bros said.
In the midst of this third energy crisis, the legacy of the first two — prompted by the 1973 Arab-Israeli war and the 1979 Iranian Revolution — has loomed large. If history repeats itself, those swaggering figures of 1980s popular culture — the Gulf oil sheikh and Texan oil baron — suggest that such emergencies always result in a victory for petroleum and its producers. The lesson of the first oil embargo, according to Marino Auffant, a Harvard historian studying the crisis, is that “the world emerged from it more dependent on Persian Gulf hydrocarbons than ever before.”
That is a compelling narrative, but it is not true. Those geopolitical upheavals certainly did not result in the end of petroleum, yet they dealt it a blow that it never really recovered from.
In the US, it took two decades for crude consumption to return to the levels of 18.5 million barrels a day it hit in 1978, on the eve of the second oil crisis. EU countries have never reverted to their demand levels of 16.9 million daily barrels in 1979, despite an economy that is more than twice as large as it was back then.
Oil in 1973 made up about half of the world’s primary energy consumption. It is now 31 percent. The shift, particularly in relation to the members of the OPEC, was brutally fast: Between 1973 and 1985, the share of the world’s energy derived from OPEC’s crude fell from 25 percent to 11 percent. It has never risen back substantially above those levels. The early 1980s in the Gulf states were characterized not by newfound wealth, but by an unprecedented wave of recessions and (relative) austerity, as the demand slump pushed the world’s oil markets into a glut.
Fearful of having their economies held hostage by a group of absolute monarchies, the big oil consumers began an energy transition away from petroleum that was largely successful.
In the UK, a nationalized coal industry on the verge of bankruptcy was revived in a “great coal rush” as new power stations were built, collieries restructured and reserves opened up. In the North Sea, offshore oil platforms sprouted to take advantage of Europe’s own crude reserves. A surge in US solid fuel demand caused a boom in the Powder River Basin, a corner of the Rocky Mountains which since the 1980s has provided more than 40 percent of US coal.
France announced plans to switch its entire generation fleet to nuclear power, and tried to sell the technology to Iran and Iraq to secure crude supplies. Across the world, nuclear generation increased fivefold between 1973 and 1983, before doubling again by 1990. In Brazil, the government introduced ethanol-based road fuel and built the Itaipu and Tucurui dams, some of the largest power stations ever constructed.
One reason that so many coal and nuclear generators in Europe and North America have shut down over the past decade is because so many of them were built in the wake of those energy crises, and have thus been coming to the end of a power plant’s standard 30 to 40 year operating life.
Even efficiency, now remembered mostly as a punchline after a 1977 speech by former US president Jimmy Carter in which he likened the energy crisis to a war and called for measures that were later seen as unreasonably austere, played its part. US energy demand in 2000 ended up about 20 percent below the lowest estimate of one 1972 long-term study by RAND Corp — and while that analysis reckoned such restraint would only be possible with a 60 percent increase in electricity prices, in fact they fell by about 10 percent over the period.
The explanation for this shift lies in one of the oldest lessons of commodity markets: substitution. Whenever a product becomes too expensive or unreliable, consumers switch to something that suits their needs better. The advantage of oil in 1972 was its low price and ready availability. By 1980, it was about eight times as costly, and far less trustworthy. For decades since, the cornerstone of the major oil exporters’ policy has been a repudiation of the events of the 1970s, to assure importers that the flow of hydrocarbons would be uninterrupted.
The events of the past year have been a dramatic un-learning of that lesson. With Russian President Vladimir Putin’s decision to wield gas as a weapon following his invasion of Ukraine, it is gas that will be the biggest loser. Consumption is projected to fall this year by about 20 billion cubic meters, the International Energy Agency (IEA) reported in July. That is the worst decline in history after the global financial crisis in 2009 and the COVID-19 pandemic in 2020.
Medium-term consumption growth, forecast at 1.6 percent in 2019 and 1.4 percent last year, could instead run at just 0.8 percent through 2025, the IEA said. “Today’s record prices and supply disruptions are damaging the reputation of natural gas as a reliable and affordable energy source,” it wrote, “casting uncertainty on its prospects.”
That is particularly the case in developing countries, which had been seen as one of the biggest sources of future gas demand. A meeting last month between Putin and Chinese President Xi Jinping (習近平) was notable for the lack of any announcement on the planned Power of Siberia 2 gas pipeline. That connection could provide an alternative export route if Russia finds itself cut off from Europe.
However, it also risks making Beijing as dependent on Moscow as Europe is right now, helping to explain China’s apparent wariness about the project. The IEA projects total global gas consumption in 2025 to be about 127 billion cubic meters below its 2020 forecast, a volume equivalent to all liquefied natural gas exported annually from the Middle East.
Oil’s prospects are not quite as bad, with the IEA’s consumption forecasts remaining stable so far this year, despite being well below their expectations as recently as 2020.
However, demand for gasoline — in rich countries the biggest end-use of crude, accounting for about a quarter of global consumption — has already peaked, and is expected to never return.
If you look at exploration for new petroleum fields as a proxy for investors’ expectations of future demand, things look grim. The acreage awarded through August fell to a 20-year low of 320,000 square kilometers, according to the consultancy firm Rystad Energy. Upstream investment in developing new fields is still about 20 percent below its pre-COVID-19 levels, with only the Middle East’s state oil companies spending more than previously.
It is tempting to view this as a simple victory for the climate and the energy transition, but in an era when geopolitics are dominating the energy conversation, it is the dirtiest fossil fuel that is bucking the trend. While coal consumption is unlikely ever to return to its 2013 peak demand levels, consumption is running ahead of previous forecasts as the high price of gas causes utilities in Asia and Europe to delay plans to switch away from solid fuel.
Decent coal reserves are found in a far more diverse array of countries than is the case for oil and gas, with China, India and Indonesia accounting for more than two-thirds of global production. With energy security at a premium, that risks delaying the necessary shutdown of the world’s coal-fired power.
Even there, the forces of substitution favor renewable energy, which is now cheaper almost everywhere. Three-quarters of India’s new power generation capacity installed last year was renewable. Through August, the equivalent figure was 93 percent. Coal-fired generation in China is expected to drop by 1 percent this year, the first decline since 2015, the IEA said.
Everywhere renewable energy, and to a lesser extent nuclear energy, is making up the majority of new demand. Power sector emissions would fall by 5 percent in the Americas and 8 percent in Europe next year as coal’s brief demand blip fades. The REPowerEU plan to reduce Europe’s dependence on Russian gas should quadruple solar capacity in the EU. In the North Sea, where oil platforms helped reverse the impact of the 1970s energy crises, European governments in May pledged to build 65 gigawatts of offshore wind by 2030 — equivalent to about 1.5 times the global offshore capacity last year.
The US Inflation Reduction Act passed in July is projected to reduce that country’s emissions by 40 percent below 2005 levels by the end of the decade. The solar panel industry is already building a supply chain that would be sufficient to put that sector on track to net zero energy emissions.
While the world was distracted by the COVID-19 pandemic, our consumption of gasoline peaked and entered terminal decline. While we have been focused on war and surging fossil-fuel prices, it is possible that emissions from the world’s electricity grids also peaked.
The past year’s attempts to improve the world’s dependence on fossil fuels have only accelerated our shift away from them. The energy transition is not dead. Instead, it has been supercharged.
David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
As Maldivian President Mohamed Muizzu’s party won by a landslide in Sunday’s parliamentary election, it is a good time to take another look at recent developments in the Maldivian foreign policy. While Muizzu has been promoting his “Maldives First” policy, the agenda seems to have lost sight of a number of factors. Contemporary Maldivian policy serves as a stark illustration of how a blend of missteps in public posturing, populist agendas and inattentive leadership can lead to diplomatic setbacks and damage a country’s long-term foreign policy priorities. Over the past few months, Maldivian foreign policy has entangled itself in playing
A group of Chinese Nationalist Party (KMT) lawmakers led by the party’s legislative caucus whip Fu Kun-chi (?) are to visit Beijing for four days this week, but some have questioned the timing and purpose of the visit, which demonstrates the KMT caucus’ increasing arrogance. Fu on Wednesday last week confirmed that following an invitation by Beijing, he would lead a group of lawmakers to China from Thursday to Sunday to discuss tourism and agricultural exports, but he refused to say whether they would meet with Chinese officials. That the visit is taking place during the legislative session and in the aftermath