Will the oil age really end? Report Ft
The Financial Times in-depth analysis with facts, comments and scenarios on oil
Oil has fueled the 20th century: its cars, its wars, its economy and its geopolitics. Now the world is in the midst of an energy shock that is accelerating the transition to a new order – writes The Economist . As covid-19 hit the global economy earlier this year, demand for oil dropped by more than a fifth and prices plummeted. There has been a nervous recovery since then, but a return to the old world is unlikely. Fossil fuel producers are forced to address their vulnerabilities. ExxonMobil was expelled from the Dow Jones Industrial Average, having been a member since 1928. Petro-states such as Saudi Arabia need an oil price of $ 70-80 a barrel to make ends meet. Today he's scraping at just $ 40.
There have been oil crashes in the past, but this is different. As the public, governments and investors wake up from climate change, the clean energy industry is gaining ground. Capital markets have shifted: clean energy stocks are up 45% this year. With interest rates close to zero, politicians support plans for green infrastructure. US Democratic presidential candidate Joe Biden wants to spend $ 2 trillion to decarbonise the US economy. The European Union has earmarked 30% of its $ 880 billion recovery plan for climate measures, and European Commission President Ursula von der Leyen used her state of the art speech this week to confirm who wants the European Union to reduce greenhouse gas emissions by 55% compared to 1990 levels over the next decade.
The 21st century energy system promises to be better than the oil age, better for human health, more politically stable and less economically volatile. Change carries great risks. If disordered, it could increase the political and economic instability of the petro-states and focus control of the green supply chain in China. Even more dangerous, it could happen too slowly.
Today, fossil fuels are the ultimate source of 85% of energy. Energy is responsible for two thirds of greenhouse gas emissions; fossil fuel pollution kills over 4 million people a year, especially in the megacities of emerging countries. Oil has also created political instability. For decades, petro-states like Venezuela and Saudi Arabia, with little incentive to develop their economies, have been mired in the politics of almsgiving and patronage. In an effort to ensure security of supply, the great world powers have competed to influence these states, including in the Middle East, where America has about 60,000 troops. Fossil fuels are also a cause of economic volatility. The concentration of world oil reserves makes supply vulnerable to geopolitical shocks. No wonder the price has fluctuated more than 30% in a six month period 62 times since 1970.
A picture of the new energy system is emerging. With bold action, renewable electricity such as solar and wind power could go from the current 5% of supply to 25% in 2035, and nearly 50% by 2050. The use of oil and coal will decline , even though cleaner natural gas will remain central. This architecture will ultimately bring enormous benefits. Most importantly, energy decarbonisation will avoid the chaos of uncontrolled climate change, including devastating droughts, famines, floods and mass dislocations. Once mature, it should also be more stable politically, because supply will be diversified, geographically and technologically. Petro-states will have to try to reform, and as their governments begin to depend on the taxation of their citizens, some will become more representative. Consuming countries, which once sought energy security by meddling in the politics of oil producers, will instead seek to regulate their energy industry sensibly. The 21st century system should also be less economically volatile. Electricity prices will be determined not by a few big players, but by competition and the gradual increase in efficiency.
However, even as a better energy system emerges, the threat of a poorly managed transition looms. Two risks stand out. Autocratic China may temporarily gain weight on the global energy system due to its dominance in manufacturing key components and developing new technologies. Today, Chinese companies produce 72% of the world's solar modules, 69% of its lithium-ion batteries and 45% of its wind turbines. They also control much of the refining of minerals essential for clean energy, such as cobalt and lithium. Instead of a petro-state, the People's Republic can become an "electro-state". In the past six months, it has announced investments in infrastructure and the transmission of electric cars, tested a nuclear power plant in Pakistan and considered accumulation of cobalt.
China's leverage depends on the speed at which other economies move. Europe is home to giant wind and solar park developers – Orted, Enel and Iberdrola are building such projects around the world. European companies are also leading the race to reduce their emissions. America's trajectory was influenced by the rise of oil and shale gas, which made it the world's largest oil producer, and Republican resistance to decarbonisation measures. If America were to act on climate change – with, say, a carbon tax and new infrastructure – its capital markets, national energy labs and universities would make it a formidable green power.
The other big risk is the transition of the petro-states, which represent 8% of world GDP and nearly 900 million citizens. As the demand for oil decreases, they will face a fierce struggle for market shares to be won by the countries with the cheapest and "cleanest" crude. Even as they face the growing urgency of economic and political reform, the public resources to pay for it may dwindle. This year, the revenue of the Saudi Arabian government fell by 49% in the second quarter. A few decades of danger lie ahead.
In the face of these dangers, the temptation will be to facilitate adjustment by making the transition more slowly. However, this would lead to a different, even more destabilizing, set of climate consequences: For example, annual investment in wind and solar capacity must be around $ 750 billion, three times more than recent levels. And if the shift to fossil-free renewables accelerates, as it should, it will cause even more geopolitical turmoil. The transition to a new energy order is vital, but it will be messy.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/finira-davvero-lera-del-petrolio-report-ft/ on Tue, 22 Sep 2020 07:30:11 +0000.