Is global energy transition 'visibly failing'?

The energy transition is “visibly failing”, Saudi Aramco chief executive Amin Nasser last week told CeraWeek, the annual energy jamboree in Houston.

However, executive director of the International Energy Agency (IEA), Fatih Birol, responded in the Financial Times saying, “technologies like solar, wind and electric cars are increasingly replacing the need for fossil fuels and reining in emissions”. So who is right?

The online discussion of CeraWeek was undoubtedly dominated by natural gas, but the other three main topics of conversation were energy transition, renewables and hydrogen.

The heads of the US Senate and House of Representatives energy committees, both Republicans, weighed in, sending Dr Birol a letter accusing the IEA of having become an energy transition “cheerleader” to the detriment of its original goal of assuring energy security.

Mr Nasser predicted that a peak in oil demand was unlikely “for some time to come”, and certainly not by 2030. Vitol, one of the world’s largest oil traders, has pushed its expectation for the date of peak oil back to the early 2030s.

Somewhat contrastingly, the president of Sinopec, China’s second-largest state oil corporation, told the conference he expects oil consumption in China, behind only the US in volume, to peak in 2026 and fall slightly to 2030. He envisaged Chinese gas demand, however, rising until 2040.

Economic growth this year is below its long-term trend, yet oil demand is above-trend – possibly well above if Opec’s forecasts are correct. It will hit another all-time record this year, and even the use of coal, the dirtiest fossil fuel, is also likely to rise again after stimulus measures in China.

The US administration on Tuesday eased proposed rules driving the adoption of electric vehicles, to favour Detroit car makers with a poor record on fuel economy.

Yet Dr Birol points out that “China … installed as much solar capacity in 2023 as the entire world did in 2022” and that electric vehicles “are now at the heart of most automakers’ strategies for the future”.

How do we reconcile these conflicting perspectives?

First, it depends on our definition of “energy transition”. Is it the point when new energy technologies become generally superior in cost and performance to legacy ones? That point has arrived in several cases.

Is it the stage when the bulk of energy demand is satisfied by these new technologies? That is still far-off. Or is it when the world’s energy system as a whole is on-track to limit global warming adequately? That achievement looks increasingly out of reach.

Second, the impact of a transition is felt at the margin, but the effect on overall energy use, emissions and heating of the climate comes only in the aggregate. Mr Nasser notes that less than 4 per cent of global energy comes from wind and solar combined, and less than 3 per cent of the vehicle fleet is electric.

Yet about 87 per cent of new power generation installed last year was renewable, according to the Abu Dhabi-based International Renewable Energy Agency. Global sales of EVs rose almost 30 per cent and accounted for nearly 16 per cent of all light vehicles sold. However, a typical coal power plant could operate for 40 years or more and an average car stays on the road for more than ten years. A transition takes a long time.

Third, as American sci-fi author William Gibson said: “The future is here, it’s just not evenly distributed”. Finland’s energy is 27 per cent non-hydroelectric renewables, while next door Russia's is 0.3 per cent. Renewable deployment, and availability of electricity in general, in Africa is dismal despite the continent’s great resources and needs.

Solar power and batteries had a tremendous 2023. Offshore wind, EVs and heat pumps encountered some challenges, while carbon capture, hydrogen, nuclear power, green steel and electricity transmission remain far short of where they need to be to solve crucial parts of the climate challenge.

So the question of whether the “energy transition” is visibly failing or succeeding is meaningless. It isn’t a single thing. The energy system is indeed undergoing an enormous transformation, driven in different ways by climate concerns, energy security policies, promotion of industrialisation and technological development, and by superior economics and performance.

But demand for coal, oil and especially gas remains very strong. New technology can cut both ways: artificial intelligence is now expected to drive a surprise boom in electricity consumption. Players in traditional energy systems may have years or decades of very profitable operations ahead of them, even if their pie shrinks eventually.

They would be foolish to ignore the impact of transition. But the timing and nature of its effect will be very different depending on where and in what they operate. A legacy car maker trying to compete with Tesla or BYD, or a maker of gas boilers, is in a different situation from an owner of a gas-fired power plant who might do well for years balancing out variations in solar and wind, or an operator of a long-lived, low-cost oilfield.

Policymakers need to look beyond the self-interested claims of those both in traditional and new energy industries. The traditional energy industry concentrates too much on things as they are, not seeing how they could be, or indeed must be, for the sake of a liveable climate. New energy advocates focus too much on how they want things to be, not as the constraints of reality dictate.

Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis