Capitalism will not solve the energy crisis

Investments in fossil fuels are declining, but progress towards renewable energy sources is weak

Energy is what political economist Simon Bromley called a “strategic commodity.” In other words, a state that controls access has power over other states. Bromley primarily thought of petroleum, but these days natural gas is very clearly a strategic commodity.

Its price has increased rapidly, more dramatically in Europe, where it has quintupled in recent months. This is why energy companies, consumers and industry are suffering in Britain.

But the problem is global. The recovery of the global economy from the recession precipitated by the pandemic caused demand to increase faster than supply.

Meanwhile, a cold winter and a disappointing summer ran out of stocks. Longer term, Asian gas demand has grown by 50% over the past decade. This is due to the Chinese government’s hesitant measures to reduce the economy’s dependence on coal. Coal-fired power plants produce 70% of China’s electricity.


Europe is particularly vulnerable due to its growing dependence on imported gas. Great Britain, whose energy reserves are dwindling, shares this dependence. But the deregulation of energy markets here has made it even more vulnerable.

The Financial Times’ Alphaville column explains that deregulation has lowered “consumer prices relative to wholesale costs by increasing competition from incumbent Big Six players up to 70 organizations.”

“Many of these new suppliers were happy to gain market share by cutting down on their competition and delivering lower-cost offerings to consumers,” he adds. “Many were also small businesses that didn’t have their own infrastructure, which gives them another big advantage. Others were less inclined to hedge their market-based exposures than more experienced traders.

Rather than building up reserves or securing supplies through long-term contracts, many energy companies have relied on the spot market for their gas. Here it is provided at the price in effect at the time of purchase.

It was the sharp rise in the spot price that brought down many UK energy companies. The European Union (EU) has also switched to buying gas on the spot market in recent years.

If Europe is weakened by the explosion in natural gas prices, Russia, its main supplier, is strengthened. Prices hovered on Wednesday last week – first up sharply, then down when President Vladimir Putin said Russia could help improve Europe’s gas supply.

Experts differ on whether Russia has the gas to spare. But if it did, it would come at a price.

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Other Russian officials have hinted their help will come quickly if EU regulators quickly approve the Nord Stream 2 plan to send Russian gas west. The new pipeline bypasses Ukraine, where Putin has been waging a low-intensity war for nearly a decade.

The United States denounced Nord Stream 2 as a surrender to Putin, although Joe Biden later dropped his opposition to keeping the EU soft.

As it is now the largest producer of natural gas in the world, the United States itself is less vulnerable to the current energy crisis. But gas prices have doubled again.

Financial Times columnist Robert Armstrong points out that capital investment in fossil fuel extraction has been declining since the mid-2010s. He writes: “Part of this is due to efforts to reduce carbon emissions. But decarbonization is only part of the story of the offer. Another part of this is that the management of energy companies is listening to shareholders, and shareholders want the capital returned to them, rather than being invested in new projects. “

Investments in fossil fuels are therefore declining, in part because investors are profiting from the shale gas revolution. Meanwhile, weak measures taken by governments to develop renewable energy sources cannot fill the resulting void. The current squeeze could roll back these efforts.

In China, for example, the government has ordered coal producers to increase production and build new mines. He authorized the importation of Australian coal, which he had previously blocked.

Fossil capitalism cannot provide safe and reliable energy, but it will not let go.

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