The energy transition will be volatile

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Welcome to another Energy Source.

If you’re reading this in Chicago, don that mask: Canadian smoke is back.

So am I — but only for one last newsletter. After three and a half years as the FT’s US energy editor, I’m changing jobs to become the US political news editor, in charge of our election coverage and much else. Myles and Amanda will be steering Energy Source on this side of the Atlantic on Thursdays, with a weekly dispatch from our London-based colleagues hitting your inbox on Tuesdays. My valedictory note is below: a few reflections after years covering the sector. Data Drill is on Texas’s soaring electricity demand.

To my American friends, Happy fourth in advance. To everyone, thank you for reading and for your comments over the years. Please stay in touch: [email protected] — Derek

An energy editor’s farewell reflections

I’ve had a lot of fun covering energy. The beat has taken me from Borneo to Buenos Aires, and pretty much everywhere in between. I reported from several conflict zones — and a lot of boardrooms too. Energy wasn’t natural to me: I almost flunked chemistry as a kid and spent my 20s studying Russia and its literature. So I tended to focus on energy politics. And then came years covering Gazprom, Opec and, more recently, the US energy patch during a period of turmoil. Here are some observations.

Energy professionals are more interesting than others

Mercenaries and inner-city schoolteachers run them close. But there isn’t another sector that combines worldly experience, mechanical knowhow, practical economics and politics. My colleagues covering banks speak to people wearing suits. I got to interview rig-hands in Siberia, warlords, climate activists, solarpanel installers in Texas, ‘wildcatting’ billionaires, and Baghdadi politicians. Objectively, these are more interesting people.

And what a story. Considering just the past few years, in which the energy world has lurched from the epic crash of 2020 — oil below zero! shale bankruptcies! — to the post-Ukraine invasion price spike, Gazprom’s gas war on Europe, and the Nord Stream explosions. And now comes the colossal US Inflation Reduction Act, by far the west’s most significant piece of climate and energy legislation ever, and the onset of a new clean energy arms race. Phew!

Capitalism won’t deliver the energy transition fast enough . . . 

There’s too much to do, and given the urgency and the need to get the solution right, this isn’t a task for your favourite ESG-focused portfolio manager or the tech bros. The sheer scale of the physical infrastructure that must be revamped, demolished or replaced is almost beyond comprehension. Governments, not BlackRock, will have to lead this new Marshall Plan. And keep doing it. The western nations that did so much of the damage will have to finance the transition in the developing world — it is astonishing that this idea is still debated. Massive deficit spending will be necessary, not a new ETF. For all the cleantech advances and renewable deployment in recent decades, fossil fuels’ share of total global energy use was 86 per cent in 2000 and 82 per cent last year.

. . . and nor will Big Oil

Remington was good at typewriters, but not the personal computer. Why expect ExxonMobil or Saudi Aramco to lead — or even survive — a shift from their core business of digging up fossil fuels and selling them? And do you really want them to? In the US, the Joe Biden administration has implored drillers to pump more oil, not less; liquefy more shale gas for export, not less. Shell’s and BP’s share prices have risen since they said they would slow down their retreat from oil.

If we want oil companies to stop selling fossil fuels we should consume less of them and we should vote for governments that make them more expensive, not less. Yes, our physical infrastructure has been built over decades around petroleum use. Yes, oil companies have lobbied forever to preserve this arrangement and slow down alternatives. But no one is compelling those of us in the rich world to fly so much, drive Escalades, devour so much meat, or buy so much stuff.

Oil demand will hit a new record high this year, with almost half of it still burnt in the rich 38 countries of the OECD. Don’t fly across Europe for your skiing holiday or business meeting and then complain that the poor world isn’t doing enough on climate and that BP is still making jet fuel.

Is Russia’s war good for the energy transition?

Optimists think Russia’s weaponisation of gas supplies and brutal violence in Ukraine will speed up the transition from fossil fuels that sustain Vladimir Putin’s regime. Maybe. The IRA and REPowerEU suggest so. Europe certainly isn’t going to be rushing to buy more hydrocarbons from Russia.

But India and China have used western sanctions on Russia as an opportunity to deepen their dependence on its (cheaper) crude. Germany has become a newly minted LNG buyer in less than a year, while Europe’s rush to hoover up cargoes has priced out countries such as Pakistan, forcing them back to coal. The White House was so scared about rising gasoline prices after the invasion that it drained its emergency oil reserves and begged Texas frackers and Saudi Arabia to boost supplies. The G7’s entire goal in the price cap was to keep Russian oil flowing, not stop it. A lesson of the war: western leaders talk a lot, but stomaching fossil fuel supply disruptions is hard.

The next few years will be messy

Either we ignore the consensus of the world’s best scientists and accept an ever-deteriorating climate, or we upend a multitrillion-dollar fossil fuel-based energy system created over decades. For obvious reasons it would be better to decarbonise and clean the energy system, avoiding the trauma of a ever-heating world, while trying to manage the political fallout. But powerful petrostates such as Saudi Arabia and the UAE — in charge of this year’s COP climate conference — won’t go quietly. The transition could put weak petrostates like Iraq in peril. Big Oil lobbyists will fight tooth and nail to stop change and influence elections. Saying the geopolitics of the energy transition will be volatile seems like an understatement. (Derek Brower)

Data Drill

Triple-digit Fahrenheit temperatures in Texas are driving power demand to record levels. Electricity use reached 80.8GW on Tuesday, an all-time record high, according to the real-time dashboard of the Electric Reliability Council of Texas, the state’s private utility operator. Power use also surpassed 80GW yesterday evening.

This week marks the third week of scorching temperatures in the oil-rich state. The heatwave is expected to persist into the holiday weekend while expanding eastward. More than 100mn people across the southern US, nearly a third of the total population, were under heat advisories yesterday, according to the National Weather Service.

The US broke 10 all-time heat records in the month of June, all of which took place in Texas, according to the National Centers for Environmental Information. The Texas region recorded an average of 837 per 100,000 emergency department visits associated with heat-related illness from June 18-24, up from 639 per 100,000 visits last year, according to the Centers for Disease Control and Prevention.

Electricity use in Texas broke 11 records last year, with demand surpassing 80GW for the first time ever. (Amanda Chu)

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Power Points

Energy Source is written and edited by Derek Brower, Myles McCormick, Amanda Chu and Emily Goldberg. Reach us at [email protected] and follow us on Twitter at @FTEnergy. Catch up on past editions of the newsletter here.