Will the sky-high energy prices put a damper on energy transition?

Energy Transition: image credit -NextEra Energy


The prices of crude oil and LNG, liquified natural gas, went up again on  high and the obvious absence of the factors that usually bring them down are worrying economists over the impact on the global economy as a whole.

In the UK, for instance, it recorded the highest daily jump in price on Wednesday in 17 years. 

Record oil prices on Wednesday


With the ambitious embrace of renewables failing to bring about the much-needed consolation to the beleaguered consumers, there are ominous warnings from the giants in the energy sector that the enthusiasm for environmentally-friendly alternatives may wane unless the issue is addressed in a pragmatic manner - and soon, of course.

Michael Wirth, the CEO of Chevron, for instance, fears that the rise in energy prices at this rate will slow down the transition from fossil fuels to renewables, despite the promises made at the COP26 summit in November, last year - with plenty of  fanfare ; he went on to say that if the status quo were to remain much longer, public trust that is essential for energy transition, would erode in the end.

Mr Wirth, instead of advocating restrictions on the use of fossil fuels, is in favour of what he calls, 'incentivizing' the reduction of carbon emissions; he implies both wind and solar power are not yet ready to replace fossil fuels - a glaringly obvious observation during the current energy crisis. 

The US crude stocks, meanwhile, show a significant fall during the past week, according to the EIA, US Energy Information Administration; that means the record high prices at pumps have not deterred customers from filling up their tanks. 

US Crude Oil Stocks - EIA


In addition, the Chinese authorities are slowly easing the strict Covid-19 measures in proportion to the success of curbing the outbreaks in a few major cities such as Shanghai. 

In short, the demand appears to be robust - once again. 

Since OPEC+ keep saying that they cannot increase the output by a large amount, citing the lack of investments in the sector due to climate change ambitions, the supply is likely to be limited in the short run. 

In this context, a serious drop in the prices of crude oil highly unlikely - much to the dismay of the politicians who invoke the wrath of the public over the issue, amidst serious inflationary pressures.



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