Global Energy Crisis in 2021: What Can We Learn?

Shortages of Energy & Products

The drastic effects of energy shortages in global economies become apparent by reading any energy-related Twitter feed.

Chinese factories have been forced to shut down entirely due to Beijing’s push to decarbonize the economy after a summer of extreme weather and coal shortages.

Smartphones, computers and other made-in-China goods will likely be scarce this winter season, and there’s no telling for how long.

In the U.K., high energy prices have forced major industries to close while the government races to avert shortages of meat, poultry, and packaged foods, a domino effect of the crisis in the food processing sector.

Dire shortages of petrol and diesel have forced about a third of U.K. gas stations to shut down, creating disorder across the nation.

U.K. Offshore Wind Power & Electricity Shortages

After chilly winters in 2020-21 forced the U.K. and other parts of Europe to draw on energy reserves, the world began emerging from the pandemic. Awakening from their slumber, Europe and Asia began competing for limited gas supplies from Norway, Russia, and the U.S., all of whom were restocking their own reserves.

With gas costs eating heavily into profits, businesses across several industries that could not afford the rising prices began shutting down.

In the past, the U.K. relied heavily on its own natural gas reserves in the North Sea to provide energy at a moment’s notice. But as production slowed, it looked to renewable power generation to maintain its energy independence.

Offshore Windfarm on U.K.'s East Coast

This boom in renewables – mostly from offshore turbines in the North Sea – helped the country make fast progress in cutting coal power. However, in the process, it became much more reliant on foreign gas suppliers when its own power sources fell short.

This past summer the island nation did just that, as it looked to international gas markets when North Sea winds slowed and wind power’s share of the U.K.’s energy supply dropped from 25 per cent down to just 7 per cent.

While some think this period of high prices will pass and things will eventually return to normal, others believe that this developing global energy crunch is not a one-time show.

The oil industry is “massively underinvesting” in supply to meet growing demand, which is set to return to pre-COVID levels as soon as the end of 2021 or early 2022. https://t.co/jVVwwJv4gg

— Canada Action (@CanadaAction) September 28, 2021

Energy Shortages in U.S. States

News coming out of the U.K. paints a dystopian image of what can go wrong when relying on too much intermittent renewable energy.

This problem is not just isolated to Europe or Asia, but also has happened in Texas, for example, where a severe snowstorm battered poorly insulated natural gas infrastructure and froze wind turbines this past winter. Blackouts across the state ensued, and emergency action was taken to return electricity to millions of Texan homes and businesses.

California was another jurisdiction that recently experienced mass power blackouts due to extreme weather and the higher electricity demand that followed. Despite having a rapidly growing fleet of renewable generation, the Golden State has been forced to lean heavily on fossil fuels over the past several months to keep the lights on.

Getting the Energy Transition Right

The stories above all serve as a reminder of the risks associated with transitioning towards renewables too quickly in a world that has relied almost entirely on fossil fuel energy for generations. The transition must also be based in reality and not threaten to upend entire global economies in the process.

Yes, we need to make the transition towards more wind, solar, hydro, but we must also realize that an inability to meet demand in nations that are fully dependent on fossil fuel energy systems for everything from food processing to healthcare services can have serious consequences.

Like in California, transitioning away from coal, oil and natural gas will require nations to invest in increased backup power capacity able to come online during the peaks and troughs of intermittent renewable energy.

The energy density of fossil fuels is extremely hard to replace with modern-day technologies, which is especially important when talking about the high energy intensities required to make various industrial processes, aviation, maritime shipping and long-haul trucking possible. These are sectors which, according to the IEA, will account for the lion's share of future energy demand.

The IEA's latest World Energy Outlook predicts that it will be years yet before the technology is developed to transition these sectors away from oil and natural gas towards renewables. And even then there will still be a material component of fossil fuels required for these industries to exist.

Global energy shortage looms as investment in fossil fuels slides https://t.co/PYTsprkZYt

— Canada Action (@CanadaAction) September 28, 2021

Under Investment in Oil & Gas

Foreshadowed by the current situation in Europe is another energy crisis but on a much more drastic scale.

Nikkei is the latest global energy watchdog to write about how under-investment in the oil and gas sector is setting the world up for a major energy crisis within the next several years.

Analysis by the International Energy Forum and Boston Consulting Group also shows that capital investment into the global oil and gas sector will have to rise 25 per cent annually over the next three years to prevent a crisis. Even greater sums of investment will be needed by 2030 to ensure sufficient supply exists to meet global demand.

Deloitte is yet another major consulting firm that estimates $525 billion of investment is needed into the oil and gas industry annually just to replace annual consumption and offset natural field declines.

We must be willing to prevent future energy supply crises by recognizing that global demand for oil and gas is poised to continue growing for several years. We must ensure we have enough exploration and investment to keep up with rising demand to avoid the serious and potentially far-reaching consequences associated with such events.

The World Needs More Canadian Energy

What if Canada had ample liquefied natural gas (LNG) supply available to send to the U.K. and other parts of the world experiencing gas shortages? It’s a valid question given the fact that dozens of LNG projects have been cancelled in Canada over the past several years with a cumulative total capacity of billions of cubic feet per day.

Would the U.K. be better off with more Canadian resources? It’s highly likely, given the fact that natural gas-starved Europe can’t look west as the U.S. faces its own energy crunch.

Canada has an incredible opportunity to continue selling more energy to global consumers. Whether that be crude oil, natural gas, uranium, or perhaps hydrogen in the coming years, as energy leaders we have an inherent duty to step up and provide a world that’s increasingly focused on adequate supply chains.

As long as the world needs energy, Canada should be a global supplier of choice.

Let’s just hope that the developing global energy crisis in the U.K. and elsewhere resolves itself sooner rather than later. After second thought, explaining to our kids why there were no toys under the Christmas tree might not make for a very exciting holiday season for anyone.

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