Europe’s Energy Crisis – Purely Political?

I have noted quite a lot of articles and comments on LinkedIn about Europe’s energy issues and most have a similar theme – it’s political!

The fact is, there is no shortage of fossil fuels and I have often argued given pricing and human ingenuity, there isn’t likely to be at any point in my lifetime (Fusaro and Vasey, 2006, for example – chapter on peak oil). The energy transition is feasible and ultimately desirable. However, the consequences of attempting to rush the reshaping of the entire energy infrastructure through politically driven edict, and despite rational industry warnings of likely disastrous consequences in moving too quickly, are clearly proving to be not desirable. So with a cold winter behind us, low storage levels of natural gas, price competition for LNG elsewhere and little wind or sun absent sufficient batteries, we unsurprisingly to anyone in the industry I should think face a possible crisis this winter which may well be also cold. A crisis that is already impacting the UK and Germany with record energy prices, bankruptcies among retailers with more to come, less choice for consumers, possible brown outs and black outs and so on that has already seen coal re-emerge as a generation fuel despite higher prices there as well.

This is a political crisis without any doubt at all. It is a needless crisis too. If you create a fear-based scenario of a climate crisis and use it to push through a complete paradigm shift in society in a short period of time, who could possible be surprised when it all goes a bit sideways? Would a couple or more years added to a properly managed transition really make so much difference?

As someone who literally is paid to watch industry trends, I have remarked on several occasions in the past year or so that the concept of security of supply as an absolute priority seems to have given way to carbon-neutral and whatever the consequences. Let us remind ourselves that there is more to come. The phasing out of combustion engines for EV’s, the phasing out of gas boilers in homes, and much much more towards the electrification of everything and all without fossil fuels – those commodities that have allowed the most significant rise in human living conditions and health likely ever seen. That the future may be carbon neutral and fossil fuel free (at least from a heating perspective) is not the issue. The issue is that this is being rushed and we are running headlong into folly.

Now, for those of us who work in commodities, higher prices and volatilities, a paradigm shift in technologies and a need to re-invest across the board isn’t a bad thing at all. There is likely a lot of money to be made. There is also a significant amount of risk to be managed – market, credit, regulatory, legal and transition related. This is likely great news for ETRM software vendors, risk consultants and the financiers. Yet, even there, not everyone will be happy as some will find the transition difficult and perhaps terminal. It means significant short-term shifts for vendors in requirements, delivery and support yet it also brings with it significant new opportunities – it is a classical dislocation event.

Finally, the decisions to phase out coal plants, create objections to new pipelines and infrastructure delivering Russian gas to Europe, inhibit further exploration and in some cases production of coal and natural gas and so, are all decisions made by politicians often with serious objection from the industry. However, when you paint an industry as the enemy, it is easy for politicians to discount expertise emerging from it that is contrary to political direction as a dirty industry dragging its heels. It is time to point to the culprits for the mess in energy markets this winter and its not the industry – its the bureaucrats and politicians. Ironically, it may well be that the next few years are extremely profitable for energy-oriented businesses who are able to manage their business and exposures well which in the long run might refuel the politicians ability to point fingers away from their incompetence to an evil industry profiting from a crisis?

 

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