ANDREW BRADSHAW: Energy crisis creates big questions for future provision with 'a different world' since COP26 climate change conference
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By Andrew Bradshaw, head of energy insight, Fifth Ring
Remember the old adage “a week is a long time in politics”? In the frantically changing pace of today’s geopolitical world even a single day can seem like an age.
It’s just four months since Glasgow hosted the COP26 UN climate change conference, where UK and Scottish commitments to reaching net zero carbon emissions by 2050 (2045 in Scotland), were reaffirmed.
Today, it feels like we live in a different world from then.
With oil and gas prices fluctuating almost by the hour, having significantly burst through the $100 per barrel ceiling, rocketing energy prices are causing real concerns for many consumers about fuel poverty.
Well-publicised problems about global energy supply shortages that were stacking up before Russia’s invasion of Ukraine ran out of control as soon as the war began.
To gauge how far the oil price has moved, in April 2020 Brent crude was trading at just $19 a barrel.
At the beginning of March, the European natural gas benchmark TTF rose to €200 per MWh – the equivalent of $360 per barrel of oil.
While in the short term, you might expect an excessive oil price might to be welcomed by the industry, particularly after two challenging years for revenue growth caused by pandemic, in the long term it threatens high market volatility. As we know from the many past cycles in oil and gas, after every boom there is inevitably a bust and we’ve been on that rollercoaster ride too many times.
Getting back to a steady and sustained price of around the $80 mark for Brent crude would be a more manageable place for everyone.
The current situation raises a key question about the direction we want the global energy industry to take. Do high prices mean we should increase the security of our own supplies of fossil fuels, or should they be the impetus we need to accelerate the transition towards renewable sources?
The answer can be yes to both.
With debates about our energy supply so high on the news agenda, our reliance on fossil fuels for the foreseeable future has come into sharp focus. Demands for oil, gas and coal have all risen in recent months to meet the overwhelming energy needs caused by the global economic upturn. Then the war in Ukraine started and we suddenly needed more.
The situation was so bad that it prompted Elon Musk, the CEO of electric vehicle company Tesla Motors, to tweet: “Hate to say it, but we need to increase oil and gas output immediately.”
If only it were that simple.
The US shale industry, which was willing and eager to fill the supply gaps in the recent past, has been much slower off the mark this time round. This is due a prioritisation on renewable energy growth in the White House, which has been a key factor in changing investor appetite for oil and gas.
Another point to consider, aside from the environmental angle, is that many investors previously lost out after pumping money into a surge of shale start ups that flooded the market. With the time it takes to get the industry up and running again it could be towards the end of this year before US shale is fully ready to support global needs.
OPEC+, the Organization of Petroleum Exporting Countries plus others including Russia, agreed at a meeting at the beginning of March (co-chaired by the Russian deputy prime minister) to stick to its planned limited drip feed increase of oil into the market at 400,000 barrels a day. The organisation believes there is no long-term shortage of supplies and put the price rises down to short-term “geopolitical tensions”.
Meanwhile, the production of oil and gas in mature basins such as the UK Continental Shelf (UKCS) is declining.
Research from offshore energy body OEUK suggests gas production from the UKCS will fall 75 per cent by 2030 unless new fields are opened, leaving the UK increasingly vulnerable to global events that cause price volatility.
The UK consumes 74 billion cubic metres of gas a year. About half of that is imported mainly from Norway. Russia supplied about three per cent of our gas in 2020 and the rest was liquefied natural gas (LNG) from global markets.
However, OEUK estimates there are fields in UK waters that contain the oil and gas equivalent of up to 20 billion barrels of oil – enough to sustain production for up to 20 years.
A renewed appreciation of our current reliance on fossil fuels recently prompted UK Energy Minister Greg Hands to call for continued investment in the North Sea, declaring that it had a “good, solid future”.
For companies supporting the oil and gas industry, this will be welcome news. However, the industry also has a vital role to play now in ensuring its processes are undertaken as sustainably as possible.
In terms of energy supply, recent events remind us that being hostage to global events over which we have no control places us in an extremely vulnerable position. In the short term, our reliance on oil and gas is so great that we need more now to fill the energy gap.
However, the current crisis should spur our political leaders on to do more to accelerate a safe, well planned and widespread energy transition so that in the longer term we are better able to withstand the impact of geopolitical forces.
- Andrew Bradshaw is head of energy insight at global corporate communications company Fifth Ring and is based at the company’s Inverness office. He is internationally recognised as one of the leading experts in energy public relations.