Global Energy Crisis in 2021: What Can We Learn?

global energy crisis 2021 - what can we learn v3

Unless you want to spend most of Christmas trying to explain to the kids about limited reindeer capacity or elf worker shortages, buy those high-demand toys now. They might just not make it to Black Friday given the energy crisis underway in Europe, which according to many energy analysts has the potential to make its way across the globe.

Nations today are more reliant than ever on natural gas to heat their homes, while some of the world’s most populous countries like India and China remain heavily reliant on coal-fired power generation. Right now, there just isn’t enough energy supply available to fuel the post-pandemic recovery and refill depleted reserves before winter arrives in the northern hemisphere.

Countries are attempting to outbid each other for energy supplies as exporters move to shore up their own stock. Governments are scrambling to avert shortages that will create supply constraints for everything from manufactured goods to food products.

Mix in fears of inflation with the effects of supply chain bottlenecks caused by the recent pandemic and you have a menacing cocktail of rising household bills and falling purchasing power of energy products.

Shortages of Energy & Products

global energy shortage in 2021 IEA calls on suppliers to open up taps to EU

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

Chinese factories have been forced to shutdown 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 crisis in the food processing sector.

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

U.K. Offshore Wind Power & Electricity Shortages

global energy shortage in 2021 UK government races to prevent food 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 east coast of UK

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-fired emissions. 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.

Energy Shortages in U.S. States

News coming out of the U.K. paints a dystopian image of what can go wrong when transitioning away from reliable fossil fuels towards 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

global energy shortage in 2021 lessons learned

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, as righteous a decision it may be for any nation to commit to in the fight against climate change, 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 and remain committed to the development of new cleantech and innovations that will aid in the fight against climate change. But we must also realize that an inability to meet energy demand in nations that are fully dependent on 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 cleantech, 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.

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 into 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 yet. 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

global energy crisis risk investment needed to prevent it

How can we balance concerns around energy supply and a warming climate? By providing the world with more sustainably produced 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 world-class energy exports 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 environmental outcomes with more sustainably produced natural resources.

As long as the world needs energy, Canada – with its world-class performance on Environmental, Social and Governance metrics – 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 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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