Why long-term thinking is crucial to ensure energy security

In some quarters, a narrative has emerged that blames Europe’s energy troubles on the over-enthusiastic promotion of “net zero” carbon and the rush to renewables. This criticism is politically motivated and false. Yet the opposite idea, demonising oil and gas production, is also folly. The form of energy supply has become a totem: fossil fuel advocates and climate deniers want to see coal mines and drilling rigs. Green politicians abhor these and argue for solar panels and wind turbines. Politicians, campaigners and opinion columnists are unable to formulate a policy that is coherent, considers energy demand as even more important than supply , and takes care of both the short and the long term. Britain’s new yet antiquated energy minister, Jacob Rees-Mogg, has promised to extract “every last cubic inch of gas from the North Sea”. In 2013, he attacked the preference for wind and nuclear power as “much more expensive than coal or gas”. Recent offshore wind projects have been awarded for less than £40 ($46.27) per megawatt-hour, while British wholesale electricity, reflecting the cost of generation from gas, now costs 10 times as much. What would Europe’s situation be if it had not embraced renewable energy ? After 2011, solar and wind investment was foolishly allowed to flatline once the post-financial crisis stimuli expired and austerity took over. Nevertheless, as costs fell, renewable energy capacity still grew strongly. On the eve of the financial crisis in 2008, non-hydropower renewables — mostly biomass, solar and wind — made up 8 per cent of electricity in the EU, including the UK. By 2014, it stood at 18 per cent, and by last year, it reached 29 per cent. Nuclear generation , unfortunately, dropped in this period, mainly due to the phasing out of German plants and the closure of ageing facilities in the UK and elsewhere. But the rise in renewable output was almost four times the drop in nuclear. With gas now costing the equivalent of $300 per barrel of oil, Europe would be desperate indeed without its renewables. Primarily, Russian gas would have filled the gap, meeting even more of the continent’s consumption than the one-third of last year — and tightening the Kremlin’s stranglehold. Environmental groups get it wrong the other way round. I warned in 2012 that Europe’s failure to diversify its gas supplies and to develop domestic resources would leave it “freezing in the dark”. While the US raced ahead, France banned hydraulic fracturing for shale production in 2011, Bulgaria in 2012, Germany — which had used the technique safely and without public outcry for decades — in 2016. In 2020, French utility Engie pulled out of a deal to import American liquefied natural gas because of its government’s concerns over the environmental footprint. Now Paris, Rome and Berlin look to Texas as a saviour. If Europe was going to wind down its own gas production while not importing LNG, then surely it would focus on reducing gas demand to avoid over-dependence on Russia ? Solar and wind provide electricity, but only 30 per cent of European gas consumption is for power. Another 30 per cent goes to industry and 40 per cent to homes and businesses, mostly for heating. But the boosters of renewables had no credible proposals to meet the fuel and feedstock needs of steel plants and chemical works. Better insulation and electric heat pumps are the answer for warm homes, but their deployment has been far too slow. Green campaigners still have not learnt the lesson that gas is needed in the medium-term. Carbon Tracker, a think tank, has sought to discourage investment in hydrocarbon output by popularising the notion of a “carbon bubble”. This month, it attacked the plans of new UK Prime Minister Liz Truss for more North Sea drilling as “expanding reliance on fossil fuels for the UK’s energy demands”. But how much oil and gas is produced domestically is a completely different question from how much has to be consumed. The organisation points to the International Energy Agency’s report that no new oil and gas fields would be needed to meet “net-zero” carbon goals — apparently oblivious that Russia’s giant supply has just been removed from the equation. They argue that new production would not bring down prices for European consumers. However, the marginal supply curve is very steep right now — in other words, since existing production is at maximum capacity, acquiring an extra molecule of gas or electron means bidding it away from someone else who is desperate for it and willing to pay highly. In this situation, even modest amounts of extra supply can bring down prices significantly. The wild gyrations of European gas and electricity prices on minor news items illustrate this. In any case, there is a big difference between writing cheques for oil and gas to Vladimir Putin, or to Western oil companies, owned by European pension funds, and paying more than half their profits as tax to European governments — who can then use those revenues to build renewables, boost energy efficiency, or shield vulnerable energy consumers from unaffordable bills. Green advocates point to long timelines for new oilfields and nuclear power stations. Former British deputy prime minister Nick Clegg opposed building new nuclear reactors in 2010, as they would only come on stream “by 2021 or 2022”. Mr Clegg has long since decamped to the US, but Britons left behind in an impending cold and expensive winter would be delighted today to have this nuclear electricity that short term thinking denied them. How different from former US president John F Kennedy, who told the story of a gardener who objected to planting a tree that would not reach maturity for 100 years. He was told: “In that case, there is no time to lose; plant it this afternoon.” Robin M Mills is chief executive of Qamar Energy and author of 'The Myth of the Oil Crisis'

Why long-term thinking is crucial to ensure energy security

While renewables are key to the future, demonising oil and gas is folly