Image Source:International Finance Magazine
2022 Global Energy Year in Review
The ambivalence of global leaders on the topic of fossil fuels was never more glaring than in 2022. A year flavored, with the Ukraine-Russia war, perspectives have certainly shifted. From the “Stamp out Fossil Fuels” rhetoric of 2020 to the 2021 acknowledgment of its pivotal role in pandemic economic recovery. This year’s events underscored energy policy and energy security weaknesses. It also highlighted the heavy hand of geopolitics forging new alliances and trade flows. The new year beckons us. 2023 hopefully may offer us a firmer course. Matters related to self-sufficiency, resilience, and sustainability must be seriously contemplated within the confines of shifting geopolitical forces.
1. Russia’s invasion of Ukraine. A Crisis Erupts– February 2022
When Russia declared war on Ukraine, global leaders reacted through economic sanctions. This led to Europe’s energy systems facing an unprecedented crisis. EU imports 83% of its natural gas (Europa, 2022). 40% of which, was from Russia. Natural gas is important as it is used for critical activities like heating, industrial processes, and power. Post sanctions, Europe’s supply was cut by Russia by more than 80% with wholesale prices of electricity and gas surging 15-fold since early 2021 (WSJ, 2022). Liquefied natural gas (LNG) was the primary replacement option and its price more than doubled since Russia’s invasion. European gas prices soared above $332.6 per megawatt hour in late August. Before the war, the price had been as low as 30 euros (CNBC, 2022). Since then, energy trade flows have changed. Russia's gas is going to territories such as China, India, and Turkey (WEF, 2022). Europe is now getting gas from the US, Qatar, and Nigeria (Europa, 2022). European governments have started to implement a range of policy responses. These include retail price caps, regulated tariffs, and support programs for energy-intensive companies. These also include policies to encourage renewable supply and energy savings.
2. US puts into law a Climate Change Bill – October 2022
Officially embedded within the Inflations Reduction Act, the USA’ climate change bill demonstrates a firm commitment to mitigating and adapting to climate change. The Act includes tax credits, loan guarantees, and grants. It also encourages businesses to invest in green technologies and citizens to make low-carbon purchases, like electric cars. The Rhodium Group consultancy predicts it will cut USA’s net greenhouse-gas emissions by 42% in 2030 from 2005 levels. Without the Act, the reduction would be 30%. This extra reduction is about two years’ worth of British emissions (Economist, 2022). Public funding for green technologies encourages research and development that can benefit emerging territories. The IRA is predicted to reduce total global temperature rise by 0.1 degrees C (Besanko, 2022) but it still contributes to climate targets. Another climate provision applies to methane. Roughly 2,200 facilities in the U.S. that produce, process, and transport methane emit 78 million metric tons per year of greenhouse gas. Starting in 2024, they will pay an emissions fee of $900 for each ton, which will rise to $1,500 after 2025 (Besanko, 2022). It marks a new era in America’s climate policy but is significant to the world. It follows other countries like Australia which also have climate legislation demonstrating what legislative actions can be taken.
3. USA Sells Barrels from its Strategic Petroleum Reserves-October 2022
Another example of the impact of the Ukraine-Russia war, the U.S. Department of Energy (DOE) has been selling barrels from the Strategic Petroleum Reserve (SPR). The sale of crude oil was needed to reduce the market supply disruption caused by Russia’s full-scale invasion of Ukraine and to help lower energy costs. Since the year started, 180 million barrels have been sold with the US administration making $4 billion in profits (CNN,2022). This sale will complete the sale of crude oil from the SPR, which President Biden announced in the spring of 2022 and is part of an effort to ensure an adequate supply of petroleum in response to Russia’s full-scale invasion of Ukraine. The SPR was established in the 1970s to reduce the effects of unexpected oil supply reductions (EIA, 2022). The reserve was designed to hold up to 714 million barrels of crude oil across four storage sites along the Gulf of Mexico, where much of the U.S. petroleum refining capacity is located.
4. Release of Venezuelan Sanctions – November 2022
With what has been hailed as crude diplomacy, The Biden administration agreed to relieve Venezuela of sanctions. These were imposed on Venezuela during the Trump regime. Restrictions were placed on oil, banking, mining industries, and regime leaders. On November 26th, the Biden administration granted Chevron which owns dormant oil wells under a Joint Venture with state-owned oil company PDVSA limited licenses to pump and export oil to the United States. The revenue from the exports is meant to pay down billions of dollars in accumulated debt that Venezuela owes Chevron. Payments of royalties or taxes to the regime, or any dividends to PDVSA, are prohibited. It has been a long road starting with cautious overtures such as the trading of prisoners. The United States and Venezuela exchanged seven American citizens imprisoned in Venezuela for two of Nicolás Maduro’s nephews serving prison sentences in the United States for drug trafficking.
It will take decades and billions of dollars to get Venezuela back to previous production levels however increased cooperation in the energy sector and the loosening of restrictions will assist in rebuilding Venezuela and rebuilding its economic ties in Latin America. This change in policy coincides with the energy security crisis created by the Ukraine-Russia war. Venezuela holds 20% of the world’s proven oil reserves so it is believed to be an attempt to reduce the control that Russia’s oil has on world energy markets in the long term.
5. Cop 27-November 2022
For nearly three decades, the UN has been at the center of global climate summits – called COPs – which stands for ‘Conference of the Parties’. COP27 held in Egypt was the 2022 edition of United Nations Climate Change Conference where climate change remains a global priority. The main positive outcome was the agreement to start and operationalize a loss and damage fund for those nations vulnerable to climate crisis. These losses arise from droughts, floods and rising seas. The fund is intended to support financing of technology, infrastructure, relocation of populations and adaptation to drought resistant crops. This fund could cost developing countries US$160-US$340 billion annually by 2030 (UN, 2022). Talks on climate finance were also revived where it was noted that $ 4 - 6 trillion a year needs to be invested in renewable energy by 2030. The UN Secretary-General unveiled a US$ 3.1 billion plan to ensure everyone on the planet is protected by early warning systems in the next five years. UNEP additionally launched a new satellite based system that will detect methane emissions and enable the notification of governments and companies of methane leaks. Methane is a very potent greenhouse gas, responsible for 25% of global warming. Other developments at the conference included repeated declarations to phase down fossil fuels and concerns about rising emissions. Every fraction of a degree that temperature rises, extreme weather increases. However, with no action beyond commitments, climate targets are unlikely to be reached.
6. Coal proved to be down but not out- December 2022
Three years ago, the coal industry was on life support. Clean energy targets drove the phasing out of coal. The industry has now been revived with the restart of idle plants as new customers are knocking on its door. Coal is a key contributor to greenhouse gases and countries like Europe have long moved away to clean supply sources. Now they are forced to switch to coal. A reaction to the European energy crisis and expensive natural gas supply. Coal usage has now peaked at 8 billion tonnes (IEA) surpassing that of 2013.
Domestic coal production in China and India has been outpaced. Even exporters like Colombia, South Africa, and Australia have struggled to meet the demand. This has led to record prices and the world’s largest coal mining companies tripling their profits in 2022 to reach $97billion (FT). The switch to coal is being viewed as a temporary energy security solution, but there have been surprises that have challenged that assumption. The UK has just approved its first deep coal mine in 30 years. Its last well-closed in 2015 (Reuters, 2022). Acts like these challenge commitments to reform energy systems. A recess from the battle against climate change. Policymakers have to be more prepared for how their plans interact with geopolitical shocks. Hopefully, 2022 is an anomaly year.
7. Trinidad and Tobago moves towards a greener carbon future-December 2022
Trinidad and Tobago’s first large-scale solar project received the green light. The projects will produce 302,500MWh of renewable electricity a year. This is sufficient to power the equivalent of 42,500 homes and saves 165,500 tonnes of carbon dioxide emissions annually.
The Government of the Republic of Trinidad and Tobago (GoRTT) and the consortium partners, bp Alternative Energy Trinidad and Tobago (bpATT), Shell Renewables Caribbean (Shell), and Lightsource bp, completed negotiations on the development of a 148MWp solar project. BP and Shell have signed a binding heads of terms agreement with the National Energy Corporation of Trinidad and Tobago Limited for the option to take up a shareholding in the project. The project is located across two sites, Brechin Castle (122MWp), and Orange Grove (26MWp). Construction is set to commence on both sites in Q1 2023 and is expected to be operational in Q3 and Q4 2024. The project is a significant milestone for the future of Trinidad and Tobago’s energy transition. It also supports the country’s commitment to the Paris Agreement to reduce Greenhouse Gas (GHG) emissions by 15% in the Power Generation sector by 2030.
8. HSBC halts the finance of Fossil Fuels- December 2022
HSBC is Europe’s largest financial institution serving 40 million customers in over 63 countries/territories. This month, it announced that it's lending/financing policy has changed. It will stop funding fossil fuels and obligate existing energy clients, to provide decarbonization plans. For years, activists have claimed that the bank was not doing enough to match its net zero declarations. It has opted to go deeper and complete the course. There is significant underinvestment in green assets so commitments like these, matter. The Fossil Fuels Finance report 2022, funded by environmental groups found that 60 of the world’s largest banks invested $4.6 trillion in fossil fuels since the signing of the Paris Agreement in 2015. Though the action may have resulted from activist pressure, HSBC has demonstrated through climate leadership that capital deployment belongs in sustainable solutions.
9. Nuclear Fusion breakthrough – December 2022
Nuclear fusion is independent of fossil fuel usage and does not produce greenhouse gases. It produces less radioactive waste than nuclear fission which is used for electricity production. It gives the sun its energy and pairs heated atoms together forcibly to make a heavier one. After decades of experiments, scientists associated with the Lawrence Livermore National Laboratory in California announced this month that they have overcome major barriers to producing more energy than was consumed in the process. This progress is significant for the energy transition as the process has the potential to produce massive amounts of energy if scaled appropriately and made financially viable. Physicists have pursued this technology for several years and is a huge step in understanding and replicating the process that powers the sun.
10. Climate Change Intensifies
Climate change intensified with weather, water and climate-related disasters dominating headlines. Dry conditions in Alaska led to 2 million acres of forest being burned in July (WP) whilst rainy conditions in Greenland activated unprecedented melt. One-third of the Delta Junction bison of Alaska were casualties of starvation, unable to forage due to storm-induced ice barriers. Additionally, 30% of Pakistan's flooding left casualties and thousands of displaced people. Extreme temperatures accompanied droughts that affected hydropower that led to power shortages. Heat waves once isolated spanned continents with a new record of UK’s temperature peaking at 40 degrees C. Warming seas masked as opportunities increased activity in formerly unnavigable areas. These are more likely to exacerbate pollution, pressuring sensitive ecosystems. We have witnessed differing impacts across regions but the implication of unstable weather patterns remains the same. Paris Agreement, Net Zero, and ESG are now mainstream in our vernacular. The discourse must now advance and become part of public policy on adaptation, vulnerability, exposure, and resilience.
N.B. No part of this publication may be reproduced, translated, stored in a database or retrieval system.