EU on a learning curve

"Oil is important. Not enough diesel could lead to strikes. We don't want our trucks queuing for diesel."

You might think the above quote came from some concerned businessman in the transport industry or an oil executive. Amazingly, it comes from an EU official. An official who took part in a recent emergency meeting in Brussels to discuss security of oil and fuel supply.

Just when you thought you’ve seen it all. And, full disclosure, I wrongly attributed the remark to Energy Commissioner Kadri Simson. I must have read the report with eyes full of hope.

Anyway, even an anonymous EU official saying that oil is important is a major breakthrough these days. Someone I know who’s familiar with the, erm, climate in Brussels compared it to a mediaeval royal court, so this statement is nothing short of blasphemy. Or an extreme weather event.

Per the news report on that emergency meeting, the EU seems to have become concerned about the sufficiency of oil and fuel supply, especially diesel. Amusingly, there is 90 days worth of crude in stock in the EU, per IEA regulations, but there’s not enough diesel. Even more amusingly, the EU can’t make it locally because there are not enough refineries.

The reason there are not enough refineries — and more are scheduled to close — is basically the expectation the EU wouldn’t need so much fuel and petrochemicals once the transition really gets going, which, of course, is about to happen any day now. Or maybe not, as Brussels is currently discovering. The EU has stepped on a learning curve. It’s going to be a steep one.

The World Bank just came out with a report that forecast lower oil prices for 2024. Unless the Middle East war spreads, that is. If this happens, prices are going to go much higher. And guess who’s the EU’s biggest oil supplier besides the U.S.? Well, that would be Saudi Arabia. Cue an emergency meeting.

Apparently, it takes the threat of a massive supply crunch to remind the EU that “oil is important”. The next step on the learning curve: oil is important not just for the diesel trucks that carry goods around. It’s just as important for the energy transition. It’s really funny.

The UAE presidency of COP28 and IRENA this week claimed the world needs to triple wind and solar installations by 2030 if it is to have a chance to hit those Paris Agreement targets that have become the modern version of the Ten Commandments.

If we don’t triple wind and solar installations, extreme weather and devastation would follow, apparently, starting promptly in 2030. Of course, the buildout in wind and solar must be accompanied by a phaseout of oil, gas, and coal but we all knew that already.

But here’s the thing. Phasing out oil, gas, and coal will make it harder to build out all that wind and solar. I guess the EU and its transition friends will realise this at some point but I’m willing to do my humble bit to help them along with that realisation. The sooner it happens, the better.

There’s a widely shared belief, both among transition advocates and sceptics, that higher oil, coal, and gas prices are a great thing for the transition because they make wind and solar look cheaper by comparison.

There is a lot of truth in that if we’re comparing wind and solar generation with gas and coal generation in an isolated context. But if we expand that context to add the production costs of the components that go into wind and solar things begin to look rather differently.

There is a lot of petroleum products that go into wind and solar components. There’s also a lot of energy that goes into manufacturing them. Most of that energy does not itself come from wind and solar. It comes from coal and gas. Higher hydrocarbon prices, then, inevitably lead to higher wind and solar costs. Do you think that’s simple enough for a Brussels official to grasp? I do hope it is.

The wind and solar industries are already struggling to stay afloat and I hear some governments are showing signs of caving to their demands for higher prices for their electricity. The myth of cheap renewables is being busted by its own authors, although, in fairness, some wind and solar developers tend to be honest about the limitations of their respective technologies.

Not just that but demand seems to be falling behind with supply, especially in solar. Nobody thought that natural, organic demand for new forms of energy production matters, did they? Well, now they’ll have to. Oh, and they’ll also have to face up to the fact that “projected demand” is not the same as actual demand.

It may well be just the beginning. In fact, in case oil and gas prices do spike because of what’s happening in the Middle East, it’s not too far-fetched to predict that the transition will slow further down, horrible as this idea may be. Hopefully, the EU will move up on its learning curve, albeit with scratched knees — it really is a steep one.

The big transition tragedy, however, is that the transition will slow down even if oil and gas prices stay where they are or fall. No, that won’t just be because fuels will become more affordable and energy pressure on all sorts of prices would ease. It would be because, if you pardon me for once again stating the obvious, evidence is mounting that the alternatives to oil and gas simply don’t cut it.

The troubles of the wind and solar industries are happening despite massive financial and regulatory support from governments. The same goes for the troubles of EV makers.

Meanwhile, oil and gas demand remains robust and growing despite intense pressure on that industry from those same governments. Just how more obvious does reality need to get, to become visible for those living in the transition bubble? The answer, I suspect, is “a lot more”.

It will all become a lot more obvious before too long. There is simply no other way things can possibly go. Subsidies will continue flowing into wind and solar, developers will intensify their calls for higher electricity prices, and this will prompt more people to start asking questions about their electricity bills and the promises that were made. And they will be wanting answers.

Since these would be very awkward answers, it is quite possible that we will see an about-turn on many green policies, beginning with the EU-wide ICE car ban planned for 2035. If EV sales are slowing down now, what exactly do policymakers imagine they would look like in five or ten years?

The ban was supposed to be a way of forcing people to buy EVs but they forgot that it’s not enough to ban the alternative to the product you want to push. You also need to make that product attractive through either price, performance, or both. Right now, EVs are failing on both.

Also along that learning curve is the flourishing nimbyism growing across Europe. And that nimbyism might become a punch to the face of transition hopes and dreams. You can certainly pass laws that basically prohibit people from protesting new wind and solar farms but will they be grateful for that at the next elections? Hardly. Add some bruises to those scratched knees and a broken political rib or two.

Sadly, none of this will actually lead to any learning. They’ll just blame it all on climate change.