The West suffers from the consequences of poor energy decisions

There has been an unspoken assumption that the West knows what it is doing because it has been doing it longer than the East. Almost all developed economies are in Western Europe and North America. But recently, the table has been turned in one vital respect: energy policy. Over the last few years, the EU has doubled its ambition to become the world’s first net-zero region. It has built up enormous amounts of renewable energy, has planned huge investments in green hydrogen and has adopted policy after policy to counteract the consumption of fossil fuels.

In the United States, the big push for renewable energy started two years ago when President Joe Biden took office. The transition from a fossil fuel-based economy to a renewable energy-based economy was a key principle of his campaign, and he came to work from day one to ban the Keystone XL pipeline from Canada and shortly after temporarily ban oil and gas drilling. on federal lands.

Meanwhile, far, far to the east, OPEC + was formed to include two of the world’s largest oil producers – Russia and Saudi Arabia – as well as the Central Asian oil producers from the former Soviet Union, including Kazakhstan and Azerbaijan. The expanded cartel has not always seen eye to eye, and just before the pandemic really broke out, the Russians and Saudis engaged in a brief price war. But since then, OPEC + has functioned as a well-oiled machine.

The EU, UK and US have raced to install more wind turbines, more solar panels and more storage space, and carmakers, almost all based in either Europe or the US, are just as busy committing tens of billions of dollars to electrifying transportation. These races are based on both the Paris Agreement and the goal of reducing the rise in global average temperatures by 1.5 or 2 degrees Celsius from pre-industrial levels.

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While the West has been busy with it, OPEC +, led by Russia and Saudi Arabia, has pumped as much oil as it has seen fit at any given time. In addition, Russia has kept its metal and uranium industry going and continues to forge closer ties with the Far East with a focus on China. Saudi Arabia, meanwhile, has requirements in the mining world and has set aside tens of thousands of billions for renewable energy and smart tech investments.

What this basically means is that while the West has enthusiastically focused on the last part of the energy supply chain – the wind turbines, panels and electric cars – the East, vis-à-vis Russia and Saudi Arabia, has focused on the start and middle of the process, on the raw materials, without which no energy conversion would be possible. As they do so, they too have continued what they have been doing for decades: supply the world, including transition-happy economies, with fossil fuels.

Right now, the West is discovering how important the raw material part is for the energy industry as a whole. U.S. slate drills cannot increase production as fast as the Biden administration wants because it has been plagued by lack. The EU is struggling with a growing electricity cost burden because renewable energy has underperformed, while the EU has sought to reduce its consumption of fossil fuels. Now this consumption is increasing, but it is also much more expensive than it was due to the tight supply. Ironic, emissions is also in progress. Related: Outlook for China’s oil demand darker

The Biden administration wants to bring more Canadian oil into the United States, but the Keystone XL pipeline that could have done so has been killed of the same administration. The administration also wants more local critical mineral production, but does not appear to want the mines that would be needed to do so. What it apparently does not want is Russian oil and fuel in the midst of the Ukraine war, but it will only suspend these imports from the beginning. on April 22ndso it can fill up before that.

In Europe, politicians have been just as active in punishing Russia for Ukraine with so far five rounds of sanctions, which many have joked have hurt the EU more than they have hurt Russia. There is some truth in these jokes: EU energy prices have skyrocketed, industries warn they may have to shut down if the EU sanctions Russian gas, or if Russia decides to shut down the tap in retaliation , and people start protesting.

Yet officials in Brussels are speaker on oil and gas sanctions, and just this week they voted in favor of a ban on Russian coal imports … enters into force in August. The last part is a tabloid common sense. Russia supplies 45 percent of Europe’s thermal coal used for electricity and heat production. The EU is now struggling to find a replacement, while the world’s largest coal exporter Indonesia is raising its prices massively, and Australia, another coal giant, warns that it will not have enough for Europe.

The West begins its painful awakening to a very simple fact. This fact is that whoever controls the raw materials controls everything. And if those who control the commodities play their cards right, they are likely to remain in control while the consumers of those commodities increase their dependence on these external suppliers.

By Irina Slav for Oilprice.com

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