Behind the Energy Crisis: Fossil Fuel Investment Drops, and Renewables Aren’t


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.

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.

Total global oil and gas investment this year will be down about 26% from pre-pandemic levels to $356 billion, the IEA said Wednesday. That is about where it would need to remain for the next decade, before declining further, to meet the goals of the Paris agreement, according to the IEA. The international pact seeks to limit global temperature increases to no more than two degrees Celsius from preindustrial levels, and preferably 1.5 degrees.

To meet global energy demand, as well as climate aspirations, investments in clean energy would need to grow from around $1.1 trillion this year to $3.4 trillion a year until 2030, the Paris-based agency found. Investment would advance technology, transmission and storage, among other things.

“The world isn’t investing enough to meet its future energy needs, and uncertainties over policies and demand trajectories create a strong risk of a volatile period ahead for energy markets,” the IEA report said. It added that ramping up renewables would require greatly enhanced spending in other sectors, such as mining, to produce and refine the raw materials needed for wind turbines, solar arrays and utility-scale battery storage.

Romney Marsh Solar Farm in the U.K., which provides enough power for around 6,000 households.


Gareth Fuller/Zuma Press

The development of wind and solar farms and other renewable power sources has accelerated within the past two decades as the technologies have dropped in costs due to economies of scale, becoming more competitive with fossil-fuel based electricity generation. Global renewable energy capacity, excluding hydropower and pumped storage, topped 1.5 million megawatts last year, according to the International Renewable Energy Agency, up from less than 55,000 megawatts in 2000.

Greener sources have gained market share in the U.S. and Europe, aided by government subsidies and other policies aimed at reducing the use of coal, the dirtiest fossil fuel. In 2019, before the onset of the pandemic, the U.S. consumed more renewable energy than coal for the first time since 1885.

That growth is expected to continue. The world added 280,000 megawatts of renewable electricity last year, up 45% from the prior year, according to the IEA. The agency called that growth rate “the new normal” and expects similar amounts to be added this year and next year.

Still, fossil fuels make up the majority of power generation globally. Renewables accounted for 26% of global electricity generation in 2019, according to IRENA.

Heading to Glasgow

World leaders set to gather for a major climate change conference in Glasgow in two weeks are aiming to accelerate the transition to cleaner energy to reduce greenhouse gas emissions. But they are still grappling with core questions that have complicated such negotiations for decades, including whether richer countries will pay to help poorer countries make the shift.

Supply-chain issues also constrain how quickly the world can increase wind and solar power. Most solar arrays are currently produced with energy from coal-fired power plants in China, which supplies more than three fourths of the world’s polysilicon. Some Western governments and companies are attempting to shift solar manufacturing away from coal, but that threatens to drive up solar costs.

In addition to greening the power grid, many countries are advancing policies to speed a shift to electric vehicles. That is poised to reduce the amount of oil used in transportation, which currently makes up around 60% of oil demand according to the IEA. But while nearly all major auto makers including

General Motors Co.

and Volkswagen AG are betting big on EV production, and sales are gaining traction, adoption is expected to be gradual.

A Volkswagen assembly line producing the Volkswagen ID.3 electric car.


ronny hartmann/AFP/Getty Images

In Europe, which experienced a decline in power generation partly due to an unusual slowdown in offshore wind speeds, natural-gas prices have almost tripled in three months, leading some fertilizer makers to halt production because they can no longer produce it economically. In China, electricity shortfalls caused by high coal prices led local officials to curtail hours at some factories, affecting production of semiconductors and other key exports.

The U.S. has been less affected than other countries, but it too has seen higher prices, and concerns about further increases in winter are mounting. On Wednesday, the U.S. Energy Information Administration warned that the nearly half of American households that primarily warm their homes with natural gas will spend an average of 30% more on their bills compared with last year.

Prices of Brent crude, the global benchmark, topped $85 a barrel Friday, their highest level in three years. Traders are betting…


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