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Nord Stream 2 should be juxtaposed next to the Berlin Wall — two dying breeds of oppression and a sign that a new day is coming. If the dilapidated Wall represents the fall of Communism, Nord Stream 2’s demise embodies autocracy’s death and the rise of renewable energy.
Despite the European Union’s dependence on Russian oil and gas, it has said it would speed up its transition to going green — and separate itself from the Russian economy. The continent aims to increase its share of renewable energy to 32% by 2030 while also ending its reliance on Russian fossil fuels. Indeed, its underlying premise is that Russia’s kingpin, Vladimir Putin, is an international menace not just to peace-loving countries but also to environmental security.
“Let’s dash into renewable energy at lightning speed,” said Frans Timmermans, who heads the EU Green Deal. “Renewables are a cheap, clean, and potentially endless source of energy, and instead of funding the fossil fuel industry elsewhere, they create jobs here.”
Europe’s Green New Deal aims to cut the continent’s greenhouse gases in half by 2030 and be carbon neutral by 2050 — a deal struck in 2019. Stepping on the gas will create economic turbulence, causing citizens and companies to pay more for energy in the short term. Does Europe have the gusto?
Nord Stream 2 is the $11 billion natural gas project designed to bypass Ukraine. It stretches 745 miles before filtering into Germany’s Baltic coast. Now it is dead — the first victim in Russia’s unprovoked war against Ukraine. Germany is now swearing off Russian natural gas and vowing to go all green by 2035. Meanwhile, the European continent is enhancing its investment in energy efficiency and demand management.
Russia is Europe’s largest natural gas supplier, providing a third of its gas in 2021. But the war will lead to a fall in demand of 6%, says the International Energy Agency. At the same time, the world added a record 295,000 megawatts of new renewable power capacity in 2021, overcoming supply chain challenges, construction delays, and high raw material prices. That figure will rise to 320,000 megawatts this year. For Europe, it increased its renewable energy by 30% in 2021 to 36,000 megawatts — numbers that will only escalate.
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Where is the U.S. Headed?
What are the implications for the United States? It has banned Russian oil and gas. Here, domestically produced natural gas is replacing coal and leading to substantial improvements in CO2 levels in the power sector.
President Biden wants the nation to be carbon-neutral by 2050 — a move that would require it to shift away from using fossil fuels and toward consuming more renewables. He has pledged to help communities that are getting left behind. The United States must electrify its economy — from transportation to manufacturing. That means using a lot more renewables if it wants to decarbonize.
To that end, the president has signed an executive order prohibiting oil and gas exploration on federal lands. But only about 9% of shale oil and gas development occurs on private properties. And Biden’s focus is on stopping new wells, not preventing existing wells from being tapped. Still, the oil and gas industry says that it is time to revisit this policy with record-high gas prices.
With this as context, the U.S. Department of the Interior just said that it won’t pursue planned oil and gas lease sales in Alaska and the Gulf of Mexico. While Republican lawmakers have bashed the White House, the oil companies won’t take the risks. Moreover, the legal landscape is constantly shifting. Oil and gas producers have 9,000 unused drilling permits.
“The industry is free to use these permits in a way they see fit. They just haven’t acted on those,” Interior Secretary Deb Haaland told a House committee.
Will the United States continue to gravitate toward cleaner energy, or will it double down on fossil fuels to meet increased demand from Europe and abroad? This country will produce increasing amounts of natural gas for export. However, by 2030 and beyond, global and U.S. markets will demand more green energy.
Big Oil Can Read the Signs
The U.S. Energy Information Administration says that the U.S. exports of liquefied natural gas will reach 12.2 billion cubic feet per day, surpassing Australia and Qatar to become the world’s leader. But the same agency also projects that the share of renewables used for electric generation will increase from 21% today to 42% in 2050. Renewables will outshine natural gas in this country by 2030.
“When there’s less certainty about other sources of energy, that will help renewables because they’re a cheap source of electricity,” says Joe Keefe, chief executive of Pax World Funds, in a Morningstar report. “They’ve become very competitive from a price standpoint and are good long-term investments. Germany and other European countries are incentivized even more to do something with renewables if access to Russian gas is jeopardized.”
Russia will lose market share, but fossil fuels won’t evaporate. They make up 80% of the globe’s energy usage. Nevertheless, the Russian invasion of Ukraine is a signal to Big Oil that it needs to diversify — to go long and to explore wind and solar and develop battery storage and carbon capture.
Meanwhile, Exxon Mobil Corp. has invested $10 billion in emissions reduction technologies. That includes carbon capture, battery technology, and advancing green hydrogen. And BP says it will increase its annual investments in clean energy from $500 million today to $5 billion in 10 years. Indeed, a fifth of the 1,000 oil and gas execs surveyed by DNV GL says that their companies already invest in hydrogen.
“The invasion helps renewables more than it hurts,” says Shawn Kravetz, president of Esplanade Capital, in the Morningstar report.
Russia underestimated the strength of the Ukrainian army and the will of its people. And now, it is learning a similar lesson concerning the West and its desire to go green and become carbon neutral.