This is how the global energy crisis ends

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IN THE USA, refueling your car 46 percent more expensive last year, although those outside the country can only dream of paying $4.25 a gallon of gasoline. In the UK, the average price at a gas station is closer to $9.77 per gallon. Austria and Germany are planning rational use of natural gas in conditions of high prices. And on April 1, British consumers swallowed 54% price increase heat their homes. Meanwhile, Russian President Vladimir Putin has said consumers must pay for Russian gas in rubles or face a blackout. In response to recent events, US President Joe Biden plunged into the situation in the country. strategic oil reserve, bringing it to its lowest level in almost 30 years. Despite this, a barrel of oil is still worth 60 percent more than it was a year ago. Price reduction measures did not work.

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Wherever you are and whatever you do, you have almost certainly felt the effects of the global energy crisis. And there is no end in sight. “We got into this mess long before the war in Ukraine,” says Thierry Brot, an energy professor at Sciences Po University in Paris. “But Putin also helped us get into this mess.” Bros points to Europe’s over-reliance on energy giant Gazprom, which is majority-owned by the Russian state, making it impossible to replace all Russian gas overnight. Russia is global second largest provider natural gas after the US and the third largest supplier of oil after the US and Saudi Arabia. For Adi Ismirovich, a senior fellow at the UK’s Oxford Institute for Energy Studies, this is an indication that the world has fallen into an energy crisis without preparing for a post-fossil fuel future.

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Germany, for example, is shutting down several of its nuclear power plants at a time when they are still operating and still needed in the European energy mix. Why? Blame politics. As it stands, Ismirovich believes Europe can survive without Russian oil, which accounts for about 30 percent of supplies to the European Union. But it cannot survive without Russian gas, which makes up 40 percent of EU gas. “Without oil, there will be problems, but it will survive,” he says. “But without Russian gas it would be very difficult. The lights will probably have to be turned off next winter.” That is if Russia decides to stop deliveries – and this remains a big question. But the situation is getting worse. Putin said he would demand payment for Russian gas deliveries in rubles from April 1 to avoid sanctions – a move the country, including Germany, called “blackmail”. The move has caused concern that supplies may be disrupted.

Faced with soaring prices and the fallout from Russia’s illegal war, countries are asking other fossil fuel producers to turn on the taps. OPEC, which often cited as an example of a cartelarranges and then pays bills for about 40 percent average annual global demand. The oil trade organization has been asked to increase supplies to make up for any Russian shortages or to allow countries to abandon Russia entirely. While OPEC refuses. On March 31, the company said it would increase shipments by 432,000 barrels per day, starting in May, the amount is much less than necessary, and an increase of less than 2 percent in active production. So why won’t OPEC open the taps? The reasons may be economic. Ismirovich says higher prices mean more money for OPEC countries, many of which are allies of Russia and are likely to benefit from a market crisis. (Poor relations between the US and key OPEC member Saudi Arabia after murder of journalist Jamal Khashoggi can also make it less likely that the organization will act.) “You can’t pressure cartels to supply more oil, because the cartel exists to provide higher incomes for cartel members,” Ismirovich says. “They want high prices, not low prices.”

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It is because of OPEC’s inaction that Biden used the US strategic oil reserves, releasing a million barrels of oil per day to the market. But this seemingly bold move was of little consequence. The price of oil fell when Biden announced he was taking action, but not by much – an indication that U.S. strategic oil is insignificant in a broader context. “This button is easy to press,” Ismirovich says. “It’s a fundamentally narrow market.” And this is one of our own decisions.

Political expediency and short-term thinking have kept the world on the brink of an energy crisis for years, with politicians choosing to win over voters with attractive policies rather than implementing difficult long-term plans that will change the fundamentals of the market. Global share of gas in primary energy consumption never been higher at a time when the world is supposedly greening its energy supply. Politicians are keeping fuel prices low and threatening energy companies with windfall taxes, limiting their ability to invest in alternative solutions, Ismirovich said. Countries have built the infrastructure for support cheap hydrocarbons, instead of investing in more expensive alternatives that would be beneficial in the long run. The world has plunged into the renewable energy sector, increasing the global share of renewable energy in electricity generation to 38 percent in 2021, though not fully backing it up fast enough to make up for the shortage of fossil fuels in emergencies. Then came the global energy crisis, which showed how broken things really are.

Politicians around the world are now forced to try alternative methods to stop energy demand and close the supply gap. Ismirovich says the UK government’s recent announcement of energy price cap for customers, another example of short-term thinking that exacerbates, rather than solves, the underlying market problem. The price cap limits the amount suppliers can charge households even if wholesale prices rise by more than 54 percent. Germany and Austria I plan to ration gas use at high prices. The rationing came as a result of concerns about the long-term viability of supplies from Russia: Germany meets 56 bcm of its total demand of 102.1 bcm with Russian gas, while Austria relies on Russia for 80 percent of its gas demand.

“Markets are the best solution for high prices,” Ismirovich says. “You get what we call ‘demand destruction. The state should support those unable to pay through other government leverage, Ismirovich argues, rather than incite rationing or price caps. With the destruction of demand by price, users who do not need to consume energy, for example, fertilizer firms that use gas or individuals who drive cars as an option rather than a necessity are leaving because prices become too high for them, he says. At the same time, government financial subsidies can help households who are struggling to pay their bills. The disappearance of demand leads to a temporary reduction in the amount of energy we need, which in turn gives the market breathing space to adjust in times of shortage.

And there is another factor that cannot be ignored. Now the world may have to temporarily put its green energy plans on hold after overlooking clean energy options when fossil fuels were plentiful. “Renewable energy sources can do little,” the brothers say. Low-carbon energy sources account for less than 40 percent world electricity production is a significant share, but not enough to survive on it. And the rise of renewable energy slowed down last yearcompared to the 10 year average. “What is not yet in production will not help us in the coming days,” says the Brothers. His offer? Postpone the climate crisis for the coming months and burn everything that is available now, and then return to clean technologies as soon as fossil fuel prices come down.

Ending the global energy crisis by swallowing higher prices and undoing years of progress on climate change may seem like a radical move, but we are going through some pretty tough times. “We are facing a military crisis, an economic crisis, an energy crisis and a climate crisis,” Bro says. “Let’s solve them in order, otherwise we won’t solve anything.” Currently, the urgency of the supply crisis is exceeding the speed at which we can build the cleaner and greener infrastructure needed to combat climate change.

Getting out of the current mess will also require tough honesty from politicians who will have to take unpopular measures. Governments need to be made clear that future security requires huge investments, far in excess of those already channeled into environmental alternatives, even if Russia ends its illegal war. Countries will have to “reinvest” to increase spare capacity, while individuals will need to reduce their energy consumption. Germany will have to rethink its approach to nuclear energy, and other countries will have to rethink their attitude to fossil fuels.

“I consider myself green,” says Ismirovich, “but I had arguments with super-green people who say, ‘No more oil, no more gas.’ It doesn’t work like that. We still need some oil and some gas. Forcing companies not to produce has reduced supply.” Controversial contingency taxes are also prohibited, he suggests.

Ismirovich argues that there are no quick fixes to the global energy crisis, but we can use this moment as motivation to unravel the almighty mess that brought us here. “You need these energy companies to solve your problem,” he says. “These guys need to invest over the next 10, 20 or 30 years – sometimes even longer – to get the energy we need.”


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