A disorderly energy transition

Financial Post: Peter Tertzakian: We are witnessing the perils of a disorderly energy transition


Eugene Van Den Berg, Oct, 2021

From the article above the Financial Post writes:

“Climate crisis plus energy crisis does not equal a good path to net-zero emissions. Policy wonks at the upcoming COP26 conference in Glasgow later this month will have a tough time with this calculus. It’s been a while since the phrase energy crisis has been thrown around. When I hear it, I have déjà vu to the 1970s. We are witnessing the perils of a disorderly transition, the consequence of mismanaged efforts at decarbonizing the world’s energy systems.

And as with the financial crisis of 2008, which spread around the globe because of systemic risk and contagion, the current energy crisis is spreading from Europe to China to Brazil and soon it will start hurting here at home, North America notwithstanding all the Natural Gas and Oil reserves. the last 7-years in Canada are painted with canceled projects all in the support of the climate agenda. Even though Canada has the world’s 3rd largest oil reserves, it means “squad” because the means to carry it to market for Canada and the world to benefit from has been amputated amid the canceled projects. Even if projects are started now it’s too late and will not be completed in time to fend off any energy crisis. It’s ironic, given that the low Green House Gas (GHG) emissions are being recorded by Canada at ~1.6% of the global total. Another astonishing fact is the quick argument that Canada has a very high emission per capita. I’ll write about that in a separate post safe to say that when we talk an=bout “per capita” both sides of the “per capital” coin are important to grasp. Canada is also painted as having a very high emissions intensity per barrel of oil produced. Nothing is further from the truth as Canada’s record compares favorably to the rest of the world. More about that in another post.

Peter Tertzakian, uses a great analogy, in the above article: ” In business, the word ‘transition’ embodies the premise that people replace old products and processes with new. Sales of the latter grow and the former wane. For example, paper map sales go down when GPS unit sales go up. I didn’t stop buying maps, nor took them out of my glove box, until I was convinced GPS was leading me to the right destination and that there was ubiquitous signal coverage wherever I went. Maps may be a trite analogy to oil, but here is the point: Preserving redundancy through a transition offers continuity of a function, security, and a sense of comfort.

Another way to look at it can be found in history in the late 1800s to early 1950s. The transition from horse and carriage to Internal Combustion Engine (ICE, or car).

When mankind transitioned from horse-to-car it spanned approx. 50-years. The difference then was, making the transition from one reliable source of transport to another cost-effective source of energy to drive transportation. Businesses like blacksmiths went bust only to be replaced by tire shops and dealer repair shops. The transition took place to an energy source in the abundance of supply, reliable, easy to obtain, and cost-effective. No doubt that fossil fuel drove the enhancement of the quality of life for all on planet earth. Fossil fuels play a key role in poverty eradication too evident when comparing the correlation trend between energy consumption, population growth, and poverty eradication.

The transition from fossil fuels to Renewable Energy, and specifically wind- and solar power, aims to capture and tap 100% into the unlimited supply of the sun’s energy and the wind’s power. That’s great, free energy resources, who can say no to that. However, the reality is that although win and sun energy exist in an abundance of supply, the methods in capturing and storing it are the challenges that are tripping up making inroads into this behemoth megalodon transition goal. Wind and sun as of now, contribute approx. 17% and 25% of installed capacity. One can ask a valid question about this. If the climate change agenda has been in effect for ~30-years, why is the effectiveness of its contribution to energy consumption low and seems to remain low? What is preventing these forms of energy to capture compounded market share (of utilization NOT generating capacity)?

The world will still be dependant on fossil fuels for the foreseeable future.

As developed nations race towards ESG utopia ideology and cancel old faithful fossil fuels, other countries like Saudi Arabia and Iran welcome the giving of free gifts in terms of global oil market share. The developed world daily is donating market share to these countries on a silver platter. Imagine the cost for course reversal one day at which point it will be too late and we are likely going to repeat 1973 many times over before we land in ESG utopia. For them, it’s “partying like it’s 1999”, never to be repeated again. This, that right there, plays into concerns of future energy security. I get a feeling and a vision of a “MadMax” landscape where the less ethical controls all the oil when we are long still not quite done with oil and gas. We are following ourselves to ignore “duality” as the basis of transition.

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Eugene Van Den Berg

Eugene is an accomplished Analyst, Accountant, Controller, CFO, and Corporate Finance expert with many years of diverse finance and accounting experience across different industries. He is a knowledge- and information worker with a passion to solve complex financial management problems and processes. Eugene is passionate about finance and economics and enjoys blogging about interesting economic aspects of current times