The tough spot between wishful thinking and reality

It’s not infrequently that I say 90% of the “news” we consume is not news but marketing content. Yet there are degrees of “promotionality” and, I expect, degrees to tolerance to such content. When it comes to tolerance in this context, I’d say the lower, the better, so here are a few examples.

How Putin’s War Marks the End of the Fossil Fuel Era is my favourite pick of the promotional litter so far this week. Authored by Kingsmill Bond, who holds the title of senior principal at the Rocky Mountain Institute, the article argues that the Ukraine war will cause peak oil demand.

Claiming that “national security and energy economics are driving permanent system change away from fossil fuels quicker than ever,” Bond goes on to say that “Solar and wind supply grew at an average rate of 20 percent per year over the decade and made up around 4.4 percent of primary energy supply in 2021. A year of even 15 percent growth would see them make up 0.66 percentage points of the growth in total energy supply.”

He then writes that “In other words, under a steady-state environment, solar and wind are meeting about two thirds of the growth in energy demand. Added output from hydro, nuclear, and biomass supply is enough to make up the rest of the demand growth. This leaves very little room for incremental demand for fossil fuels.”

Of course, any possibility that the environment may not be in a steady state is ignored in favour of — you guessed it — assumptions, such as this one: “If we assume for the sake of argument that efficiency increases by 1 percentage point and solar and wind growth increases by 5 percentage points to 20 percent, then the decline in fossil fuel demand would turn into a rout. Fossil fuel demand would fall by 25 percent this decade and then collapse in the 2030s.”

The assumption that we only need fossil fuels for the generation of electricity is also there, hence the assertion that growth in the deployment of wind, solar, hydro and biomass will replace fossil fuels.

Now, one (with some degree of knowledge about the energy industry) might laugh the article off as yet another NGO’s attempt at painting reality as its board and members want it to be. In a very literal sense, it is yet another NGO’s attempt at painting reality as its board and members want it to be. However, it is also illustrative of content generation trends that I take issue with, namely, presenting opinions, hopes, and desires as fact.

While Mr. Bond from the Rocky Mountain Institute tries to convince us that wind, solar, and hydro (and biomass but only from dead trees, right?) can kill oil and gas, the EU is trying to convince itself it can pull off the biggest shift in energy supply in history. And also that wind, solar, and hydrogen, not to be mistaken with hydro, can kill oil and gas.

Italy’s PM the other day boasted that his government had sealed a deal for a 40% increase in gas supplies from Algeria. I took it a bit personally because I thought all EU members would negotiate joint gas buying, you know, together, so everyone gets enough, but Draghi’s announcement was a good reminder that in times of trouble you’re on your own.

Anyway, after I grudgingly admitted Rome had more sense than Sofia when it comes to energy security, I saw this fascinating piece of news: Algeria struggles to meet rising demand for its gas after Russian invasion of Ukraine.

In it, the FT cited energy experts saying that for all its good will to help the EU — and itself as it has been pressed for cash for years now — Algeria does not have the production capacity to ramp up gas exports as quickly as the EU needs the additional supply.

This is what one of the experts said: “Algeria missed an opportunity to realise its full potential. This is due to years of under-investment by international oil companies because of a history of difficult fiscal terms and the overall operating environment marked by bureaucracy and slow decision-making,” the expert, political risk consultant Anthony Skinner, told the FT.

Algeria, the article noted, was the third-largest supplier of natural gas to Europe, which sounds grand until you see the numbers. Russia, at number one, supplies about 40% of the EU’s total. Norway, at number two, has a share of less than 20%. And Algeria is at number three with an 8% share of total gas imports into EU. Growing this to even Norway’s share would be a massive challenge.

This is not news, by the way. Algeria is already the second-largest gas supplier to Italy, via the Transmed pipeline. The pipeline has a capacity of 110 million cu m daily but only 60 million cu m have been flowing via the infrastructure recently. Clearly, this has not been by choice.

Besides Transmed, Algeria has two more gas pipeline connections to Europe, only one of which is in operation: the MedGaz pipeline to Spain. The Maghreb-Europe pipeline has been shut down because of political problems between Algeria and Morocco that don’t seem to be about to be solved any time soon.

Yet even MedGaz is not good for the whole of Europe because — shockingly — Spain is not exactly abundantly connected to the rest of Europe via gas pipelines. Which means these may need to be built. Which means the boosting of Algeria’s share in the EU gas import mix will have to wait. Which means the EU might fail in its plans to reduce dependence on Russian gas by two-thirds by the end of the year. Absolutely unexpectedly, of course.

My third pick of the wishful thinking litter is an older news report but an important one. I think I mocked it on Twitter but I can and will do better here. The news I’m referring to is this report by the FT again, which informed us that Fortescue and E.ON sign deal to replace Russian gas with Australian green hydrogen.

As some of you know I’m a big fan of green hydrogen but, I admit, not as big as Andrew Forrest. According to the report, the chair of Fortescue Metals Group has the ambition to produce 5 million tonnes of hydrogen annually to help Germany replace a third of its gas imports from Russia. Why ambition? Because obstacles.

Here’s the full quote because it’s precious, bolding mine: “The move to produce 5mn tonnes of hydrogen, part of a memorandum of understanding between Forrest’s Fortescue Metals and German energy group E.ON, would mean building from scratch enough renewable energy capacity to power a country roughly the size of the UK.”

The next paragraph is even better: “A solution would also have to be found to the problem of liquefying and shipping vast volumes of hydrogen from one side of the globe to another at a viable price.”

Ambition, meet reality. According to Forrest, the hydrogen-for-Germany project would cost $50 billion. Also according to him, liquid hydrogen would one day become “the largest seaborne trade in the world.”

Everyone has the right to dream, of course, both the pauper and the billionaire. Dreams and fantasies become problematic when they are presented as news — which is not what I’m saying the FT is doing.

The FT is reporting on people negotiating deals yet there’s a bunch of energy consultancies out there that base their forecasts for hydrogen or oil, or wind and solar on such information: essentially someone’s desire and some talks. Then the media take these forecasts and report on them, turning them into news, from analysts, no less. Then people like Forrest read these reports and start dreaming bigger and better, because, after all, analysts should know, and on the spiral goes. Or perhaps down.

The place between wishful thinking and reality is a tough one to be in. I know because I spend most of my time there. Sometimes I pop into wishful thinking for a break from reality but it invariably pulls me back because, well, gravity and other laws of the physical universe, such as, for example, the extreme combustibility of hydrogen. But I digress.

There is nothing wrong with wishful thinking. Neither is there anything at all wrong with dreaming. On the contrary. What there is something wrong with is trying to convince others — with whatever motives — that your wishes are in fact, well, facts. Again, I know this from personal experience.

The reason this is wrong is that it turns into ideology, then into policy and eventually leads to bad decision-making that affects millions and the effect of these wrong decisions tend to linger when it comes to energy and the environment.

In conclusion, and in confirmation of the above warning, here’s a fresh report, from today: Investors wary of Australia’s green hydrogen hype. Subheaded “Vaunted $188bn pipeline of projects is yet to translate to a single molecule being sold” the report details the misgivings of investors about this huge pipeline of projects, which appear to come down to just one thing.

This thing has nothing to do with either the economics of green hydrogen production or the challenges of transporting hydrogen across oceans. No, the big problem for investors is the lack of government support. And this is exactly what makes wishful thinking so dangerous. Because with it, it will only be a matter of time before the Australian government does grant its support for the massive green hydrogen initiative of the business world. And then it would have to help that same business world sell their super-expensive but oh-so-green H2 molecules.