The Energy Flux worldview

There is no such thing as pure objectivity. Every editorial decision is influenced by the lens through which each editor views the world. Here's mine.

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There is no such thing as editorial objectivity. The mere decision to cover one story and overlook another — let alone the choice of angle and headline — is influenced by the lens through which each editor views the world. Here’s mine.

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The highest possible stakes

The legacy energy industry is keeping us all alive, while slowly killing the planet.

Abundant, clean and reliable energy is fundamental to sustaining human civilisation. Any prolonged and widespread disruption to global energy supplies has the potential to crash markets, destroy crop yields, destabilise nation states and — ultimately — imperil lives.

And yet energy supplies must be profoundly disrupted — because global heating poses the very same threat to humanity. The world is careening towards climate and ecological collapse, but we as a species are only beginning to engage meaningfully with the existential scale of the problem.

The energy transition, which must somehow resolve this paradox, is thus the defining socio-economic megatrend of the 21st century.

Contemplating this predicament, I believe in the value of being simultaneously sceptical and optimistic. With so much at stake in the transition towards sustainable sources of energy, reconciling past and ongoing failures with the wealth of opportunities lying ahead requires constant recalibration of one’s mindset and outlook.

Energy markets in flux

The global transition towards cleaner energy sources and industrial processes is happening more quickly than many people realise. Even some industry professionals are yet to fully internalise the irreversible structural changes occurring in energy markets today. The climate debate has passed a tipping point, and the pace of change is only going to accelerate from here.

The multifaceted energy transition is disrupting investment decisions, laying waste to once-lucrative business models and forcing strategic rethinks across fossil fuel value chains. This trend has been accelerated by the pandemic, but was already gaining significant traction well before Covid-19 entered the popular vernacular.

Energy incumbents have been wrong-footed because the capital costs of wind turbines, solar panels and electric vehicle batteries have cratered in recent years, defying conservative projections from authoritative forecasters of gradual, linear cost reductions — forecasts that in hindsight seem quaint.

There is hope that some next-generation clean energy technologies might follow a similar path.

For example, there is palpable (and probably misplaced) excitement around the growing momentum to scale up and roll out electrolysers for green hydrogen production, and integrate these to offshore wind farms to turn ‘excess’ power into zero-carbon fuel — despite questionable economics, enormous losses inherent in the conversion process, and widespread scepticism over the outlook for end-use hydrogen markets.

Digitalisation, automation, artificial intelligence and geopolitics are constantly disrupting how energy courses through the global economy. These forces also complicate the movement of capital, goods and services around the world, accelerating change in some sectors while impeding progress in others. For better or worse, the interplay between industry, commodity markets and exogenous socio-economic and technological factors will exert ever greater influence on the energy transition.

Supply-demand mismatch

There has been a sea-change in investment trends towards clean energy technologies, in tandem with institutionalisation of the fossil fuel divestment movement and climate risk disclosures. These forces threaten to stymie investment in oil and gas even before clean alternatives are fully ready to replace them in all end-use applications. This disconnect is stoking volatility, roiling market sentiment and complicating asset valuations.

Therein lies a fundamental mismatch at the heart of the energy transition: decarbonisation efforts are focussed firmly on the supply side, while little progress is being made to address society’s rampant demand for carbon-intensive fuels. The post-pandemic rebound in oil and gas demand, commodity prices and carbon emissions all but eviscerated hopes that the world would ‘build back better’ as countries emerged from lockdown.

So despite the rapid pace of change, the world remains firmly on an emissions trajectory that is locking in catastrophic increases in global temperatures. The fate of human civilisation as we know it rests on whether the world can transition to clean energy sources quickly enough to avert climate disaster.

Seb Kennedy | Energy Flux | 25th March 2021