War forces higher fossil fuel production
American fossil fuel production is expected to soar in 2022 amid high oil and gas prices, a new report has warned.
The US government wants oil and gas producers to increase production of the very same fossil fuels that energy transition plans seek to eliminate.
The news of a backward step in the environmental fight from the world’s second largest energy consumer will be a huge setback for the conservation movement.
The revelation comes from a KBRA report exploring how the current price volatility in the energy industry will impact the pace of the transition from fossil fuels to more sustainable energy sources in the US.
The KBRA report states: “In our view, while this volatility should ultimately accelerate the country’s transition towards sustainable energy (partly as protection against the reliance on energy supplies from regimes with political instability), the US’s near-term transition plans will decelerate as the government seeks to keep commodity prices in check by calling for increased fossil fuel production amid higher prices.”
Even with that development, KBRA said, they remained optimistic that the significant and prevailing political, economic, and environmental pressures would continue to accelerate the global push towards sustainable energy over the medium and long term.
The report highlighted how global supply chain issues have triggered a vehicle production shortage, leading to an increase in the average sale price of both new and used vehicles.
Over the short term, the newer fuel-efficient vehicles that are needed for the transportation industry’s energy transition plan are still too expensive for many households – assuming these vehicles are even built.
Power generating utilities face rising capital expenditure costs and inflationary costs for raw materials.
Companies are now taking the extraordinary decision to slow down the rate of retiring their coal-fired plants – incorporating coal into their power generation fuel mix instead, to temporarily lower their overall power generation costs.
It said: “After starting the year under $80/barrel, Brent crude oil shot up to around $130/barrel in early March following Russia’s invasion of Ukraine in late February.
“As a response, many players in the global energy market chose to restrict their imports of Russian oil and gas, while international banks refused to finance the purchase of Russian commodities for their clients.
“Crude oil prices have since remained elevated at around $100/barrel, or approximately 30 per cent higher than in January.
“While the Russia-Ukraine war is the most recent disrupter in the crude oil market, prices have always been volatile.
“The US and its allies see their energy transition plans not only as key to addressing climate change, but also as a means of reducing their ties to sovereign petrostates like Russia, that are major players in the global oil and gas trade.
“For that reason, many believe that higher energy prices may prove to be a much needed catalyst for global decarbonisation efforts.
“In our view, however, we believe that high oil and gas prices will have the opposite effect in the short term, particularly in the US.”
The report concludes that the rise in coal-fired power production in 2021 was a reversal from a decade-long downward trend.
Electrical vehicles continue to gain market share but supply chain issues are negatively impacting production, with the knock-on effect of slowing the pace of replacing older, less fuel-efficient models on the road.
And while new renewable energy assets are needed to advance the country’s energy transition plans, the related heavy capital costs, including the needed transformation of the electrical grid, will invariably impact consumers.