The age of fossil-fuel abundance is dead | The Economist - 0 views
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FOR MUCH of the past half-decade, the operative word in the energy sector was “abundance”. An industry that had long sought to ration the production of fossil fuels to keep prices high suddenly found itself swamped with oversupply, as America’s shale boom lowered the price of oil around the world and clean-energy sources, such as wind and solar, competed with other fuels used for power generation, such as coal and natural gas.
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In recent weeks, however, it is a shortage of energy, rather than an abundance of it, that has caught the world’s attention.
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Britain’s miffed motorists are suffering from a shortage of lorry drivers to deliver petrol. Power cuts in parts of China partly stem from the country’s attempts to curb emissions. Dwindling coal stocks at power stations in India are linked to a surge in the price of imports of the commodity.
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a slump in investment in oil wells, natural-gas hubs and coal mines. This is partly a hangover from the period of abundance, with years of overinvestment giving rise to more capital discipline.
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A rule of thumb is that oil companies are supposed to allocate about four-fifths of their capital expenditure each year just to stopping their level of reserves from being depleted. Yet annual industry capex has fallen from $750bn in 2014 (when oil prices exceeded $100 a barrel) to an estimated $350bn this year
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Oil crossed $81 a barrel after the Organisation of the Petroleum Exporting Countries (OPEC), and allies such as Russia who are part of the OPEC+ alliance, resisted calls to increase output at a meeting on October 4th.
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over the same period, the number of years’ worth of current production held in reserves in some of the world’s biggest projects has fallen from 50 to about 25
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The industry would usually respond to robust demand and higher prices by investing to drill more oil. But that is harder in an era of decarbonisation.
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big private-sector oil companies, such as ExxonMobil and Royal Dutch Shell, are being pressed by investors to treat oil and gas investments like week-old fish
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shareholders reckon that demand for oil will eventually peak, making long-term projects uneconomic, or because they prefer to hold stakes in companies that support the transition to clean energy
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Another factor inhibiting oil investment is the behaviour of OPEC+ countries. The half-decade of relatively low prices during the “age of abundance”, which reached its nadir with a price collapse at the start of the pandemic, g
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utted state coffers. That cut funding for investment. As prices recover, governments’ priority is not to ex
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Investment in thermal coal is weakest of all. Even in China and India, which have big pipelines of new coal-fired power plants, the mood has swung against the dirtiest fossil fuel.
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All this places fossil-fuel producers in something of a bind. A slump in investment could enable some oil, gas and coal investors to make out like bandits. But the longer prices stay high, the more likely it becomes that the transition to clean energy ultimately buries the fossil-fuel industry. Consumers, in the meantime, must brace for more shortages.