Without a clear plan for the transition to renewables, the energy crisis will become the norm – Financial Times

    09 Dec 2021

    Everyone wants to save the planet from climate change, but no one wants to increase energy prices. The energy transition, which many countries have announced, is too slow. This is the most significant long-term infrastructure project in the history of humanity, so governments should plan it in moderation and detail, Financial Times reports.

    According to the International Energy Agency, fossil fuels still dominate the global energy balance by 81%.

    But worried investors are stopping funding for the fossil fuel sector without adequate investment in “transitional” sources, nuclear and renewable energy.

    As oil prices continue to rise, the annual investment of oil producers on the exchange is projected to decline sharply.

    By 2025, investment is expected to fall on average by one-fifth annually compared to the previous decade.

    Analysts said that capital expenditures for fossil fuel extraction in relation to the gross domestic product will more than halve this year.

    This may explain why oil companies do not feel “strong and stable” in the energy market even after the recent rally in share prices.

    The US and EU plan to spend over $ 1 trillion on green energy initiatives.

    But the latest US proposal calls for less than half of that amount directly for energy supplies. The bulk will be in tax credits for renewable energy sources.

    Lacking a plan to increase the basic energy supply, politicians only accumulate problems for themselves and their successors.

    Energy prices rose in part due to low fossil fuel reserves. World reserves of oil and all products derived from it fell.

    Governments have cut investment in all fossil fuels. This has hampered the development of natural gas, a viable transitional fuel, if “safely handled”.

    Nuclear energy is politically toxic, but it cannot be avoided to provide a rescue from the energy crisis before the world has moved to renewables.

    Energy storage is another important piece of the energy security puzzle that has been overlooked.

    Private equity allocates itself efficiently in well-defined markets. He cannot bear the hard work required of him when the task before him is so vague.

    The tougher climate targets for the energy transition that world leaders set at the COP26 climate change conference will not be enough. Governments must annually set and revise timelines for the transition to renewable sources. Without this, it can be expected that interruptions in energy supply and price increases will constantly recur, the publication summarizes.

    The transition to carbon-free energy is the uncontested future of the world economy. An inevitable step on this path is the gradual cessation of coal combustion at thermal power plants. The European Union, which is the world leader in this transition, has set a course for the complete closure of coal-fired power plants by 2050. More than 40 countries of the world at the COP26 climate summit in Glasgow pledged to gradually phase out the use of coal in the energy sector.

    Upstream capex relative to gross domestic product will more than halve this year from about 1.1 per cent in 2014, says Rystad Energy. That might explain why even after recent share price rallies, Shell and BP look undervalued, according to cash flow modelling by Lex.

    The US and the EU plan to spend more than $1tn between them on green energy initiatives. But the latest US proposal allocates less than half of that directly to energy provision. Most of the balance would be in tax credits for renewables.

    Without a plan to grow baseline energy supply, politicians are only storing up woes for themselves and successors. Energy prices have surged partly owing to low inventories of hydrocarbons. Global stocks of crude and all its product derivatives have dropped to 2018 levels.

    Governments have depressed investment in all fossil fuels. This has discouraged development of natural gas, a viable transitional fuel if handled safely. Nuclear is politically toxic, but unavoidable for keeping lights on when renewable supply is low. Storage is another missing piece in the energy security jigsaw.

    Private capital alloctes itself efficiently in markets that are well-defined. It cannot bear the heavy lifting required of it when the task ahead is so vague. Tighter net zero targets at COP26 will not be enough. Governments must set year-by-year timelines for transition. Without these, expect supply disruption and price rises to recur.

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    In case of the death of humankind, Australian NGOs will install a “black box” of the Earth. Take a look at this project here.

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