Lower investment in fossil fuels could prompt future energy crisis

The green buzz has got significant attention as an effect of the pandemic. Leading economies of the world are on the verge to minimise the utilisation of fossil fuels as much as possible, providing room for alternate and green energy sources.

For instance, oil and gas majors of Europe have doubled their planned spending on low-carbon energy, i.e., from 10% of Capex in 2019 to 25% of the total spending per current expenditure plan. Two years back, major energy players of the region were targeting an average of US$2 billion per year investment of alternatives, while in 2021, these figures rose to US$4 billion or 25% of Capex in total.

However, the world is still uncertain about green energy being sufficient to fulfil burgeoning energy demands, sidelining fossil fuels.  

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Reduced investment in fossils. Is it safe?

Prince Abdulaziz bin Salman al-Saud warned that worldwide oil production is anticipated to fall by 30Mbpd by the end of the decade. While speaking at a budget conference in Riyadh in December 2021, he added that if there weren’t more investments made in the sector to enhance production capacity or to maintain it, the world might face an acute energy crisis in the future.

In addition to this, the prince also warned that if proper investments were not made, spare production capacity might disappear.

Source: © Kiselaw | Megapixl.com

Consumers in Europe and Asia have already witnessed a shortage of coal, natural gas, and power in 2021 due to a decline in production. The current crisis between Russia and the West over Ukraine’s invasion has further deepened supply concerns. The prices of almost all commodities, including crude oil, natural gas, metals and agricultural products are hovering near multi-year highs currently.

Russia is the world’s third-largest oil producer and exporter of oil. Possible US sanctions on Russia’s oil exports could further intensify the ongoing supply crisis across the globe and eventually push oil prices to the next level.

Oil producers have been emphasising the significance of hydrocarbons for energy security while making a smooth transition to renewables. The world must understand the fact that an abrupt end to the utilisation of fossil fuels to promote renewables may intensify the energy crisis.

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Slower growth in the sector

The world predominantly depends on leading oil-producing countries to fulfil its energy requirements. However, geopolitical turmoil situations such as the Russia-Ukraine conflict or global emergencies like the COVID-19 pandemic could severely affect energy supplies.

Higher exposure to renewables, coupled with more development in the conventional fuel sector may help the world meet burgeoning energy demands. Saudi Arabia, the biggest oil exporter in the world, is investing significantly to enhance its own production. Other countries in the Middle East, including Iraq, Kuwait, the UAE, are also investing decently to increase their production capacity.

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Moreover, Russia also has big plans for Arctic wilderness. Various other big projects are under the development phase in Kazakhstan, Brazil, and Azerbaijan, which are expected to boost the supply significantly by the end of this decade. But with combined production from all the fields in production dropping at a rate of 4-8%, there is a need for more investment in the industry to balance energy demands.

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Bottom Line

The world wants to make a swift transition towards a low-carbon energy system to combat rising greenhouse emission levels. As a result of this, overall investments in the development of fossil fuels have been squeezed, prompting a potential energy crisis in the near term.