An energy price shock is serving as a reminder of the world’s continued dependency on fossil fuels—even amid efforts to shift to renewable sources of energy. Demand for oil, coal and natural gas has skyrocketed world-wide in recent weeks as unusual weather conditions and resurgent economies emerging from the pandemic combine to create energy shortages from China to Brazil to the U.K.
The situation has laid bare the fragility of global supplies as countries drive to pivot from fossil fuels to cleaner sources of energy, a shift many investors and governments are trying to accelerate amid concerns about climate change.
The transition figures to be challenging for years to come, energy executives and analysts say, due to a stark reality: While fossil fuel investment is falling, fossil fuels account for most energy—and green energy spending isn’t growing fast enough to fill the gap.
Supply Shift
In order to reduce the world’s net carbon emissions to zero by 2050, renewable energy sources must quickly displace oil and other fossil fuels.
Demand for power remains robust even as supply chains begin to strain. In some cases, supplies of renewable resources such as wind and hydroelectric power have fallen short of forecasts, further boosting demand for fossil fuels.
The International Energy Agency, a group that advises countries on energy policies, this month projected global oil demand will reach about 99.6 million barrels a day next year, near pre-pandemic levels. It forecasts that coal demand is set to exceed 2019 levels this year and rise somewhat until 2025, though how quickly it falls from there will depend on government actions to phase out the fuel.
“A lot less product is available to meet this now rapid growth we’re seeing,” Exxon Mobil Corp. Chief Executive Darren Woods said in virtual remarks at a conference in Russia Wednesday. “If we don’t balance the demand equation and only address the supply, it will lead to additional volatility.”
The world’s oil production is still rising, but struggling to catch up with a surge in consumption from countries recovering from the pandemic, according to the U.S. Energy Information Administration.
Oil investments dry up
Global oil and gas exploration spending, excluding shale, averaged about $100 billion a year from 2010 to 2015, but dropped to an average of around $50 billion in the years that followed after a crash in crude prices, according to Rystad Energy.