[NGW Magazine] Editorial: The Heart of the Matter

There have been many detailed, analytical scenarios and forecasts from the industry – producers and consultants – over the last few years about future world energy supply and demand. Backed up by substantially more than back of the envelope calculations but seldom justified, these can be used to justify or explain investment decisions and allow companies to map the road ahead.

One example is forecasts about LNG demand: far from persisting until the early 2020s, the so-called global oversupply has been mopped up by an environmentally friendly China for the last year or more, leaving Europe to rely on Russian gas as the LNG price is close to its Brent equivalent.

Other markets ripe for forecasting are electric vehicles and liquefied natural gas as transport fuel. Companies can use the percentage growth figures to explain to analysts why they are expanding or reducing investment in certain kinds of refineries or in some types of crude production or retrofitting vessels to run on LNG instead of marine gasoil. These forecasts are modified annually as trends are spotted and values extrapolated. Then there are energy scenarios, which now reflect the pressure of producers to move from oil and into renewables and gas, as foreshadowed by the Paris Agreement.

Leaving to one side the far graver and actual dangers of particulate emissions, the publishers have all been too polite to say in so many words that limiting carbon emissions by the amount required is impossible based on today’s world and technology. Carbon capture and storage is a vital ingredient, for example. And the world’s fast-growing population – perhaps equivalent to another China and India by 2050 – and burgeoning middle classes will want to enjoy leisure activities that will need even more kilowatt-hours to sustain them. How is this to be squared with the orderly retreat from emissions?

Equinor – the Norwegian producer formerly known as Statoil –has been forthright in its description of the shortfall between reality and the aspiration, by identifying concrete examples that will most likely defeat the optimism and determination of liberals or idealists. In its eighth annual Energy Perspectives published June 7, Equinor continues with its three scenarios: Reform, Renewal and Rivalry. Indulging in some refreshing futurology, it finds that for all the pieties about co-operation and commitments to work together for a better, cleaner, more electrified world, actions still speak louder than words, and it sees Rivalry is winning out: realpolitik meets idealism.

In this world, global economic growth is hit by a volatile geopolitical environment affecting trade, investment and demand. Despite significantly lower economic growth relative to Reform, energy demand rises as there is less investment in energy efficiency, less environmental regulation, and slower phase-out of fuel subsidies. Low cost and secure energy supplies are more important than clean or low-carbon counterparts and so coal is the biggest winner. Gas is inherently risky, as it must move by pipeline or tanker.

Rather than hide behind abstract phrases, it focuses the readers’ attention by describing the problems in specific terms. China’s rise mirrors the US decline as a global superpower; while the European Union is weakened by illiberalism in some states and the continuous north-south divide. It is therefore unable to assert itself globally, Equinor says. Meanwhile Russia remains an important international player and therefore a constant thorn in the side of the West.

And the retreat of the US creates a vacuum that will be filled by regional actors, much to the detriment of the rules-based global order. All this is a far cry from the aspirational Renewal, where the whole world acts out of enlightened self-interest and carbon emissions fall to the level that has been thought necessary, although the underlying calculations behind the headline “wellbelow-2°C” might be falsified at a later date.

At best it is going to be extremely difficult to come close to the goal, because events are unpredictable and governments have to think of what plays best to their electorate. The  eal world bears this out, as a glance at the news shows. Not having the authority to impose taxes on the European Union’s population, the commissioners in Brussels have come up with another solution to the low carbon price: cut the number of allowances and so drive it up. But they have until recently consistently found their proposals baulked at by member states where coal mining is a way of life and supporting it brings votes.

Or on a larger scale, the US has withdrawn from two agreements: the Paris Agreement, which has left a leadership vacuum; and the deal to end sanctions on Iran. Both these decisions have undone the work of the previous administration and were also commitments that Donald Trump made in his election manifesto. The US also wants to tighten sanctions on the  Kremlin, which would deliver an unexpected blow to energy companies in Europe that rely on Russian gas for a large portion of their demand needs. If there is a chance of meeting the climate goals, the solution lies in the hands of innovators and technocrats, not governments.

NGW