The surge in global gas prices has several origins, not all of them malign.
The world is buying more gas mainly because it has been successful in recovering from the COVID-19 recession, and its main economic engines — the US, China, India and Europe — are in the midst of clawing back the growth lost last year during the lockdowns.
Different forces are at work in these global growth hubs. The US, for example, has so far avoided the extreme price rises and scarcities that have caused chaos in parts of Europe.
In China, gas shortages have caused parts of the industrial economy to slow down, exacerbated by growing financial challenges. But Chinese growth is still forecast at nearly 8 percent this year, which will not significantly lessen demand for fossil fuels, including coal.
Some have cast Russia as the villain in this global scenario, especially in Europe, but that seems wide of the mark on present evidence. One big trader at a recent gas conference in Dubai said that it was getting all it asked for from Gazprom, and was passing it on to European customers.
But we should look to the UK to see the real causes, and absurdities, of what some are calling the global energy “crisis.”
Britain has embraced the energy transition enthusiastically, constructing vast fields of solar panels and lacing the coastline with windmills. On a good day, when the sun shines and the wind blows, it can satisfy as much as 40 percent of its energy needs from these renewables.
The recent gas shortage — which has seen some essential industrial processes slowed or halted altogether — was caused partly because of a lack of sunny, windy weather in the northwest of Europe, forcing a rise in coal and oil fuel generation. That shows one of the limitations of renewables in the temperate parts of the world.
The British mayhem was also worsened by factors entirely of their own making, such as the restrictions on employing foreign workers under the Brexit rules, which have seen a shortage of truck drivers to deliver essential fuel supplies and a resulting wave of panic buying by motorists. That shows the limitations of Brexit.
But there are wider lessons to be learned from the British chaos. Industry has been affected not just because of a lack of power or a shortage of truck drivers, but also due to a lack of one essential industrial ingredient — good old-fashioned CO2.
This hydrocarbon byproduct — demonized by environmentalists the world over — is used across a variety of sectors ranging from food refrigeration to fertilizer production to meat processing. It is essential in the manufacture of ice-cream, for example, and some UK stores were reporting shortages as a result.
It is ironic that, after all this time of the environmentalists screaming about the need to get rid of CO2, it now turns out that we actually need the stuff in great quantities to keep essential parts of the economy moving. But that shows the intellectual weakness of many of their arguments.
Britain and other parts of Europe are experiencing a vivid preview of how the world might look if the radical environmentalists get their way: A world without hydrocarbons is also a world without ice-cream.
For the oil producers of the Middle East, the current surge in energy prices raises some immediate issues. Crude prices have been rising, hitting $80 recently. This makes liquid fuel more attractive and encourages gas-to-oil switching, raising global oil demand even further and causing another spike in the crude price.
It all shows what a complex and interdependent energy world we live in. Those who call for an end to fossil fuel investment should study the current energy chaos and learn the appropriate lesson: There is no simple one-stop solution to the challenging issues of energy transition and climate change.
• Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai
