What Policymakers Must Learn From Today’s Energy Crisis

  • In the long term, the current European energy crisis will result in a more diversified and resilient energy system, one that uses both hydrocarbons and renewable energy.
  • While Russia’s invasion of Ukraine may have sparked the current crisis, it was the energy policies of Western governments that left them so exposed.
  • Energy security has been ignored for too long, a diversified and global strategy is needed if the world is going to avoid future energy crises.
Without any doubt, a more diversified energy system will arise out of Europe’s current energy crisis. Wind and solar are likely to benefit, but also green hydrogen, green ammonia, and even nuclear. At the same time, it has become patently obvious that hydrocarbons will continue to play a key role in both energy markets and the global economic system. The Russian invasion of Ukraine is seen by many as the main reason for Europe’s energy crisis. Western sanctions on Russia, combined with the weaponization of energy supplies by Moscow, have triggered steep price increases for consumers and industry worldwide. However, even before the Ukraine crisis, natural gas and crude oil prices were breaking historical price settings, as demand and supply constraints were already in place. The strategies pursued by mainstream Western governments have been lopsided, driving support for long-term renewables while pushing for a removal of investments in upstream and downstream oil and gas projects. These policies have increased volatility in the energy system to unprecedented levels. 

The importance of energy security has been largely ignored for the last few decades. The immense availability of hydrocarbon resources on the global market, as seen during the last oil glut and oil price crash, pushed the system to the brink. There is now a need to reassess the global energy system, not only to push for a renewable, less carbon-intensive economy and society, but also for a more stable energy market. 

Energy security is really one of the most important issues for humanity. Not just the world economy but all of society depends on energy to survive. A potentially very bleak winter in Europe this year may become a stark reminder of this. 

At the same time, international organizations and major industry events, such as Gastech 2022 (Milan, Italy), are refocusing their own efforts, not only to support a transition to a less carbon-intensive future but also to help facilitate conversations around a just transition. Industry leaders and policymakers at Gastech are set to pay attention to the energy needs of emerging countries, especially on the African continent or even Latin America, which face dramatic choices in the coming years. 

The ongoing energy transition, some even call it an energy revolution, has so far only partly taken into account the role and future development of African countries in the whole conundrum. Support for African energy producers has been severely hampered by investors shying away from fossil fuel bets in the face of regulatory pressure and public scrutiny. As a result, African producers risk struggling both to gain the rewards of their own natural resources (hydrocarbon) and move to a sustainable economic growth path. Despite their own energy travails this year, Europe and the West cannot afford to neglect this vital issue.

The developed world will still need hydrocarbons as energy and products in the coming decades, while revenues gained will be vital for setting up a sustainable economy in places such as African states or Latin America. It is a win-win situation as no emerging market is willing to change its own future plans based on the strategies or investments of others. Reaping hydrocarbon revenues will make emerging markets capable of setting up their own sustainable energy systems, based on hydrogen, wind, solar, or even unknown future options. 

The need to combine the EU’s “Fit for 55” plans with Africa’s future energy potential is clear. Discussions around an integrated strategy, which works for everyone, must be accelerated and must take into account current geopolitical disruptions and their significant economic toll. A collaborative policy blueprint is needed to enable a de-carbonized, secure, and inclusive global energy system. 

In parallel, a full-sized strategy based on cooperation between the EU, USA, Asia, and Africa is needed to ensure a possible win-win situation doesn’t become a lose-lose one. Oil producers, such as Saudi Arabia and the UAE, and gas producers Qatar, Norway, Egypt, and others should play a key part in discussions. There is a need for a new global energy system that meets the needs and demands of tomorrow and is based on today’s vastly transformed energy landscape. Every energy option will need to be on the table. 

As governments face growing calls to address energy poverty at home and across the world, international dialogue and cooperation on energy supply challenges are desperately needed. Such discussions must look not just at the perceived issues in Europe or Asia, but especially at emerging markets in Africa and elsewhere. There can be some optimism, however, that 2022 might be a major breakthrough year. The upcoming COP27 (Sharm El Sheikh, Egypt) and Gastech 2022 (Milan, Italy) could be potential breakthrough gatherings for a new energy system discussion. 

Source:What Policymakers Must Learn From Today’s Energy Crisis | OilPrice.com