Ambrose Evans-Pritchard
The bittersweet joke in energy circles is that the Nobel committee should create a new climate prize to reward Donald Trump for his outstanding services.
Nobody has done more to accelerate the world’s electrotech revolution and pull forward the irreversible collapse of the oil and gas industry – not even Greta Thunberg, Al Gore or the strategic planners of the Chinese Communist Party.
The Carlyle Group made waves last year with a report called the New Joule Order. The giant US investment firm argued that seaborne molecules were no longer safe in the Hobbesian new world of America First and maritime anarchy.
Jeff Currie, its energy guru, said the open trading system of the past 80 years had been a function of American and allied power, relying on “the US navy as its muscle”.
This gift to the world, akin to the role of Britain’s Royal Navy in the 19th century, had allowed a constant stream of tankers carrying oil, diesel, naphtha and liquefied natural gas (LNG) to criss-cross the oceans with scarcely a moment’s thought about choke-points, taking for granted the international dollar system that lubricated trade so efficiently.
Currie said the “quest for security” was becoming the dominant driver of electrotech, as countries rushed to insulate themselves from geopolitical risk. It has little to do with climate change and even less to do with the red herring of net zero.
But not even he expected the US to lose its strategic compass so comprehensively as to attack Iran without securing the Strait of Hormuz, cutting off 8 per cent of total world trade for 48 days, including supplies of fertilisers, helium needed for semiconductors and a host of critical inputs that Washington forgot to think about.
Currie says the elemental contract of the petrodollar system is, or was, that the US would keep the sea lanes open and protect oil and gas producers from all foes. In return, the petrostates would recycle their vast earnings into US Treasuries and Wall Street, letting America enjoy the exorbitant privilege of inexhaustible cheap capital.
“The grand bargain has been violated,” he said.
You might think that US oil and gas companies would be celebrating the windfall profits of Trump’s war, but the mood was closer to horror at the recent CeraWeek summit in Houston, the sanctum sanctorum of the drilling industry.
Casey Merriman, from Energy Intelligence, said the mood behind the scenes was “panic and dread” rooted in an awful premonition that the fallout of war would pose “existential risks to the future of oil and gas”.
Data from Ember show that 78 per cent of humanity lives in countries that are net importers of oil. These states have been bleeding $US1.7 trillion ($2.4 trillion) a year just to pay oil rents to petrostates or frackers in Texas, and that could double again in short order if oil futures converge upwards to reflect the $US140-$US150 levels seen in the physical markets.
The importers have put up with this glaring anomaly out of inertia and the well-organised resistance of vested interests. Not any longer.
“Depending on fossil fuels is dangerous,” said Lee Jae Myung, the South Korean president, confessing that matters were now so grave that he could not sleep.
He has called for a fundamental rethink of South Korea’s energy strategy. “This is an emergency situation and we must shift to renewable energy very quickly,” he said.
France is doubling investment in electrification and will ban boilers in new homes at the end of this year. Variants of this debate are going on all over the world.
The double crisis of Trump’s war so soon after Vladimir Putin’s war has shaken the world out of complacency. All can now see that America has become a predator state. They can also see that a drone costing $US20,000 is enough to stop a $US150 million tanker dead in the water.
Kingsmill Bond, Ember’s director of energy, said this shock had hit just as electrotech comes of age and is undercutting legacy fossil fuels on pure cost for power, heat and most land transport across most of the world’s populated regions.
“We didn’t have an alternative in past crises. Now we do. We have a suite of completely new solutions that change everything,” he said.
“Solar power coupled with storage is down to $US60 [per] MWh across the global sunbelt. It costs $US160 [per] MWh right now to cover just the cost of importing variable gas in Asia. It’s game over for LNG in Asia,” he said.
The double crisis of Trump’s war so soon after Vladimir Putin’s war has shaken the world out of complacency.
The figures for total net fossil imports as a share of primary energy are revealing, and not what you might think. To pick a few, they are: Japan (84 per cent), South Korea (80 per cent), Italy (72 per cent), Turkey and Spain (70 per cent), Germany (67 per cent), France (47 per cent), India and the UK (37 per cent) and China (24 per cent).
Britain is partially shielded by North Sea oil and gas working in tandem with fast-increasing volumes of North Sea wind power. The International Monetary Fund persists in claiming that this country is more vulnerable than peers to a fossil shock. It might usefully revisit its assumptions and stop repeating arrant nonsense.
Bond said the lesson of the two OPEC crises in the 1970s is that it took the second shock in 1979 to cause a lasting shift in policy. “Global final oil demand per capita peaked in 1979 and has never recovered,” he said.
The response after the 1970s was to switch to more fuel-efficient cars and break the link between oil and GDP growth, but it could only go so far. This time the wider fossil fuel system faces terminal run-off in the importing countries, swept away by the scramble for safer homemade supply, which now also happens to be cheaper. Obviously, oil and gas will still be needed for jet fuel (for a while) and as a feedstock for petrochemicals.
China is already a post-oil, post-gas, electrostate economy, rolling out more wind, solar and electric vehicles each year than the rest of the world combined – although it has not cracked solid-state batteries for EVs and may yet be outflanked by the West.
What began as a strategic insurance policy against a future US naval blockade of China’s seaborne energy imports has become a juggernaut by now. Sales of EVs and plug-in hybrids were half of the Chinese car market last year. They are running at 60 per cent this month.
The Chinese near-abroad is now slotting into this new joule order. EV sales are around 40 per cent in Vietnam and Singapore, 25 per cent in Thailand, 18 per cent in Indonesia, and rising.
Laurence Tubiana, chief convenor of the Paris Climate Accord, said that as recently as five years ago, African leaders would bridle at green colonialism, accusing the West of trying to deny the global south a cheap energy route out of poverty.
Today, the mood is radically different. Country after country has done its sums and concluded that it could leapfrog centralised, fossil-based grids and opt instead for solar micro-grids, slashing costs and freeing itself of fuel-import bondage. “They have no interest any longer in being trapped in the old energy system,” she said.
We have not felt the full impact of this crisis yet. Currie said it reminded him of the eerie insouciance in early days of the pandemic. First it hit China and shut the economy: the world reacted as if the virus had nothing to do with them. Then it hit South Korea, then Iran, then Italy, and still stock markets kept rising. It took six weeks before Wall Street suddenly buckled and crashed 35 per cent along with a seizure in the US Treasury market.
Trump’s war will hit home once the physical barrels stop arriving and cannot be bought for love or money, a moment scheduled for late April once the usable global buffer of 800 million barrels is exhausted.
Currie has another warning as the S&P 500 reached new highs based on nothing more than Truth Social tweets. The US oil and gas companies make up just 3 per cent of the equity capitalisation of the index; the other 97 per cent is on the wrong side of the Gulf War trade and will soon suffer the consequences of what remains the biggest energy shock of modern times.
Wars have a bad habit of spinning out of control.
The Telegraph, London
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