Commentary
Fifty years ago, the economies of the West were reeling from the effects of an oil embargo imposed by OPEC in response to the United States providing emergency military aid to Israel in the October 1973 Yom Kippur War. By January 1974, the embargo had nearly quadrupled the price of oil, driving up inflation and ending the postwar economic expansion.
The Nixon administration responded to this first energy crisis in two ways. In November 1973, President Richard Nixon
announced Project Independence: By 1980, the United States would meet its energy needs from its own energy resources. Though it took nearly four decades longer than Nixon envisaged, the United States finally became a
net energy exporter in 2019, thanks to the shale revolution. In December 1973, Secretary of State Henry Kissinger
proposed the formation of an energy buyers’ group to counterbalance the market power of the oil exporters, led by Saudi Arabia, an initiative that came to fruition with the setting up of the International Energy Agency (IEA) in November 1974.
Half a century later, something strange happened. The roles ascribed to championing producer and consumer interests suddenly reversed. At last month’s CERAWeek in Houston, Saudi Aramco CEO Amin Nasser poured cold water on the forced march of the energy transition,
telling the conference that “the hopes and ambitions of 8 billion energy consumers around the world are at stake.” The message from consumers, he said, is that they want energy that protects the planet and their pocketbooks, “with minimal disruption to supplies and their daily lives.”
In the real world, Mr. Nasser pointed out, the energy transition is visibly failing despite the expenditure of $9.5 trillion over the past two decades. So far this century, the share of hydrocarbons in the global energy mix has fallen to 80 percent from 83 percent, while wind and solar supply less than 4 percent of world energy. Despite its marginally lower relative share, the absolute demand for hydrocarbons grew by almost 100 million barrels per day of oil equivalent. “Even coal is at record highs,” Mr. Nasser unfashionably observes.
Nonetheless, oil consumption in developing countries ranges from less than one barrel to below two barrels per person per year, compared with nine barrels for the EU and 22 barrels for the United States. “The energy transition narrative will increasingly be written by the Global South,” Mr. Nasser points out. This leaves plenty of headroom for growing hydrocarbon demand. “Peak oil and gas are unlikely for some time to come, let alone [in] 2030,” Mr. Nasser concludes.
The Biden administration moved quickly to dismiss Mr. Nasser’s analysis. “Well, that is one opinion,”
commented Energy Secretary Jennifer Granholm. “There have been other studies that suggest the opposite, that oil and gas demand and fossil demand will peak by 2030.” The other studies That Ms. Granholm refers to are those by the IEA under its executive director, Fatih Birol. Most controversially, in 2021, the IEA
published ”Net Zero by 2050,” which claimed that investment in new oil and gas fields was no longer needed.
A June 2023
report by the Energy Policy Research Foundation (EPRINC) in collaboration with the RealClear Foundation shows that the IEA’s net-zero analysis is unrealistic, internally inconsistent, and often supports the case for increased hydrocarbon production. Even though renewables allegedly drive oil and gas back into the ground through market forces, the IEA’s net-zero scenario sees U.S. electricity prices rise by 50 percent on average by 2050.
As for net zero being a counterbalance to OPEC, the cartel’s share of the global oil market would rise from 37 percent to 52 percent in 2050, a level “higher than at any point in the history of oil markets.” If oil demand continues to rise, but U.S. and other non-OPEC producers cut their investment in new oil and gas fields, EPRINC reckons that OPEC’s share would rise to 82 percent. Who now is more in favor of boosting OPEC’s market share—Saudi Arabia or the IEA?
Three days after Mr. Nasser’s Houston speech, Mr. Birol wrote an
op-ed in the Financial Times replete with falsehoods and misleading claims. It’s now cheaper to build onshore wind and solar than new fossil fuel plants, Mr. Birol maintains. But any accounting of wind and solar must incorporate the costs of their intermittency and their inability to match supply with demand, meaning that each megawatt of wind and solar capacity requires a matching megawatt of coal or natural gas.
The cost of electric vehicles (EVs) is plummeting, making a U-turn away from them improbable and impractical—or so Mr. Birol would have us believe. Mr. Birol might have a word with recently
fired Hertz CEO Stephen Scherr, who joined the car rental giant only two years ago after nearly 30 years at Goldman Sachs. Mr. Scherr followed the green fashion and made a massive bet on EVs. Customers didn’t like them, they’re costly to maintain, and their value plunged when Tesla started a price war, leading Hertz to sell about one-third of its EV fleet and take a $245 million write-down. So much for Mr. Birol’s “no EV U-turn.”
Mr. Birol points to China, the world’s largest consumer of coal, as the clean energy superpower for its domination of the supply of solar panels, wind turbines, and EVs. “Regardless of where they stand on climate policy,” Mr. Birol argues, “if countries want to compete with China in the industries of the future, they need to double down on clean energy plans, not dial back on them.” This is economic nonsense, as every student of Adam Smith (specialization) and David Ricardo (comparative advantage) knows. Just because you might consume a lot of something doesn’t make you good at producing it. Ask the Germans. They were promised that their
trillion-euro Energiewende would create thousands of green jobs. The green jobs did appear—in China.
“The IEA has become, so to speak, our armed wing for implementing the Paris agreement,” French President Emmanuel Macron
declared two months ago. It is the clearest possible admission that the IEA has morphed into a green propaganda outfit and means that the IEA should not be relied upon to provide trustworthy, unbiased analysis. Self-evidently, the IEA no longer performs the function it was created for nearly 50 years ago. For that, better listen to Mr. Nasser, not Mr. Birol. That, in turn, raises the question of what to do about the IEA should former President Donald Trump win a second term. There’s a one-word answer: Withdraw.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
