Crude Awakening: The necessity of oil and gas in the green transition
When a flotilla of US tankers boosted Europe’s flagging liquified natural gas supplies (LNG) this winter, amid escalating fears of a Christmas blackout, commentary predominantly focused on the simmering geopolitical tensions between Russia and Ukraine, alongside market carnage across the UK’s domestic energy sector.
However, the general underperformance of wind power was also noteworthy.
In theory, offshore and onshore turbines should have bolstered the continent’s energy grid and sustained energy production amid rebounding post-lockdown demand.
Despite its growing role in the energy mix of developed economies, the power source failed to deliver over the summer and autumn due to low wind speeds, intensifying the strain on the UK’s National Grid, to the point the country had to turn to coal power in late September.
This is especially relevant when assessing the latest report from responsible capital advocates Share Action, published earlier this week.
It revealed 25 banks across the continent, including HSBC, Barclays and BNP Paribas, have invested $400bn financing fossil fuel companies with oil and gas exploration plans since 2016.
In the past year, 24 of 25 banks had provided $33bn to oil and gas expanders, even though the financial institutions had joined a UN-convened Net Zero Banking Alliance last year.
What it failed to grasp is this was not a contradiction, as oil and gas remain crucial to securing energy supplies through the green transition.
Security of supply: Steady energy sources are key to a renewable future
Not only is gas considerably more environmentally friendly than coal, but expanding secure domestic supplies in the North Sea would decrease the UK’s reliance on Europe and Russia for its energy needs.
It could even reduce mitigate soaring costs for consumers – who are facing eye-watering hikes in their energy bills this spring.
Steady domestic gas supplies would also mean the next time renewables underperform, Europe and the UK will not be scrambling for Russian gas, coal generators and for LNG top-ups from the US.
Andy Mayer, energy analyst at the Institute of Economic Affairs, told City A.M.: “All sane paths to net zero involve ongoing investment in fossil fuels until better alternatives are available and affordable. It is not hypocritical to finance both, but essential risk management.”
Meanwhile, underinvestment and a lack of US drilling has been a key driver in rising oil prices globally with crude supplies dragging amid President Biden’s push for net zero and a general reluctance to boost capacity.
This is both exacerbating the cost-of-living crisis, and has seen investors turning to cheaper sources such as coal.
It is also worth noting the powerful role Shell and BP can play in driving the world towards a greener future.
Both companies have significantly boosted renewable investment plans over the past few years, including in the UK.
BP reported bumper profits in its full-year results and an expansive shareholder buyback scheme, following on from Shell’s stellar figures reported in the week before.
While this reignited Labour’s calls for a windfall tax, the company is committed to net zero carbon emissions by 2050, and has pledged to double its domestic investments through to the middle of the decade.
The vast majority of this outlay will be in energy transition sources such as offshore wind and hydrogen power.
The Adam Smith Institute’s president Dr Madsen Pirie recognised gas as an “important bridge” as industries move from heavy polluters such as coal to cleaner renewables such as solar, wind and nuclear.
Speaking to Morning Wire , he argued oil and gas companies are major investors in renewables and know that the heyday of fossil fuels is drawing to a close.
Pirie explained: “Among the major players, including BP, Shell, Chevron, Total and Exxon, many have poured billions of dollars into moving towards clean energy sources. Most are committed to securing dramatic falls in the emissions their energy will produce in the next decades. By providing supporting loans, the banks are advancing, not hindering, the move to renewable and non-polluting energy.”