As the world crawled out of the pandemic in 2021 and 2022, businesses roared back to life. Through pent-up demand, people and companies clamoured for more of everything, especially oil and gas, and were willing to pay more.
Inflation in Consumer Price Index (CPI) reached 8.5% per year in May 2022, and is on everyone’s mind, particularly seniors whose income is limited. Energy is a significant part of CPI – without food and energy, CPI was 6.0% in May. The main sources of global energy are still fossil fuels: oil, natural gas, and coal.
Global oil has risen from zero dollars per barrel in mid-2020 to $102 per barrel now, and that has caused consternation about the prices of gasoline and diesel in the US, even though prices are still lower than most of the world.
Natural gas provides electricity, industrial fuel, home heating, and cooking fuel. Prices vary across the world, but natural gas prices are typically higher in Europe and Asia than in the US, partly because the US produces substantially more natural gas, especially since the shale revolution that began in 2003.
Russia and Ukraine
Then the war in Ukraine started in February 2022, and energy games began. Talk in the West turned to limit imports of Russia’s oil because oil and its derivatives, gasoline and diesel, were the main source of export revenue for Russia. Up to US$2/3 billion per day was paid mainly by Europe and was used to finance the Russian war, it was claimed.
Natural gas was a minor source of export revenue for Russia, but still raised talk about embargoes by the West. But then Russia stopped gas deliveries to Poland and Bulgaria, ostensibly because these countries refused to pay in roubles. What Russia realized was that stopping gas deliveries to Europe hurt Europe’s economy more than it hurt Russia’s export revenue.
As described by Bloomberg, gas supplies through Ukraine have been reduced. Further, large volumes of Russian gas are conveyed to Germany via the Nord Stream pipeline which is about to shut down for ten days of maintenance on July 11. Some observers worry that Russia may not restart the gas flow.
To complicate the picture, Russia has appeared to nationalize the Sakhalin-2 offshore oil and gas field plus LNG terminals. One interpretation is to squeeze out foreign partners, including Shell, from selling their stakes to other investors.
LNG stampede
One solution to the gas problem for Europe is to import more natural gas from Norway, Europe’s largest supplier. Norway has access to its own North Sea gas reserves and the second-largest LNG port terminals in Europe. For example, the UK imports about 50% of its gas and almost 80% of this come from Norway.
Another solution for the West is to limit pipeline imports from Russia and expand their imports of LNG (liquefied natural gas) from countries not aligned with Russia. Countries such as Qatar, Australia and the US – the top three LNG exporters.
The US wasn’t permitted to export natural gas before 2016, but the shale gas revolution changed that. Within the past six years, the US has reached the top of LNG exporting countries.
According to the Bloomberg report, 44 countries around the world are importing LNG, almost twice as many as a decade ago. Coal is declining, per the multinational agreement at COP26 in Scotland last November, and many think world oil production has already reached its peak.
But the G7 meeting just last week backed new LNG investments, mentioning Europe as a special need. Natural gas is fast becoming a global market.
New-build LNG projects
Export LNG terminals are not cheap to build – up to US$10 billion each. In North America, Cheniere Energy approved a terminal expansion in Texas. In Qatar, Exxon Mobil and Shell are involved with projects to grow LNG exports that add up to US$29 billion.
Since the war in Ukraine, about 20 import LNG terminals have been initiated. Germany has invested US$3 billion to implement four floating terminals. In China, which bought the most LNG last year, 10 new LNG terminals will come online in 2023. China’s capacity will double between 2020 and 2025.
Climate dilemma
The shortages of energy and the rise in prices of gasoline, natural gas, and electricity are forcing policymakers to re-evaluate the trade-off between fossil fuels’ heavy contribution to greenhouse gases (GHG) and the need for energy security.
The USA and dozens of other countries across the world do not have energy security. As the world transitions from fossil fuels to renewable energies, it needs to do it under the umbrella of energy security.
If the energy transition takes a little longer to guarantee energy security then so be it. The urgency of the transition is a point of contention. The book by Steven Koonin argues that global data trends of extreme weather events have not worsened over the past 50 years or so when global temperature has risen by about 0.7C (Celsius). It’s a compelling argument that leads to the question: so why should climate scientists be concerned about the urgency of the next 0.5C?
