Derek Brower, writing in the Financial Times:
Europe’s energy anxieties have been an especially big win for American fossil fuel exporters. “The key to energy security is American energy — and specifically US LNG,” Toby Rice, head of EQT, the US’s biggest gas producer, told Houston’s recent CERAWeek energy conference. Now, with Biden’s backing, another wave of LNG export capacity is under construction on the US Gulf Coast.
Under the circumstances, “anxieties” seems like a rather mild word, but:
The other reason that fossil fuel producers are gaining momentum again is that the energy transition is proving more fraught than some strategists expected.
“Some strategists” must have been out of their minds. Anyone arguing that the energy transition envisaged by climate policy’s central planners would be anything other than a vastly expensive, ill-conceived fiasco was either delusional or a propagandist.
The environmental, social, and governance [ESG] movement was supposed to accelerate the transition by making capital cheap for clean energy projects, while deterring investment in more fossil fuel production.
But, but, but, wasn’t ESG meant to be about “doing well by doing good”? To be sure, a consequence of that was meant to be the acceleration of the energy transition (away from fossil fuels), but that was not how ESG was marketed: Most of the talk was of superior (risk-adjusted) profits.
To be sure, there are clear signs that ESG has discouraged investment in more fossil-fuel investment:
Oil and gas capital spending has indeed fallen and many fund managers have left the sector for good. Wood Mackenzie reckons annual global upstream spending was $491bn last year, less than half the rate of investment from a decade ago.
But that may not be something that will make much difference to the climate, although it has proved helpful to Vladimir Putin (if not to Western consumers). And it is one reason, I suspect, why the Saudis are growing closer to China, Russia, and others in the Shanghai Cooperation Agreement.
Brower writes that the current “level of upstream spending would be adequate if the world’s fossil fuel consumption was falling at the pace some models say is necessary to meet climate goals.”
But:
The problem is that consumers are not ditching hydrocarbons as quickly as those models would like. Fossil fuel consumption is soaring. Oil demand will break records again this year.
Renewable alternatives are rising fast but still supply less than 10 per cent of global energy. Annual spending on them is running at barely a quarter the $5tn needed to displace hydrocarbons, according to the International Renewable Energy Agency.
This dearth of capital amounts to “a self-inflicted train crash in slow motion”, according to Equinor’s chief economist Eirik Wærness. It implies higher demand and higher prices for oil and gas for longer.
It may also imply that, much like ESG, renewables may not be quite such an attractive prospect as we have been promised. Not yet, at least.