OPINION: Jeremy Leggett
Evidence of imminent total-system change in energy markets has become clearer in recent months.
Let me take five themes in turn: climate change, carbon bubble, shale “surprise”, oil shock and solar revolution.
Global average temperatures for May and June were the hottest on record. Reports from the military in the US and UK argued that climate change is a clear and present threat to global security, while a White House report on the economics of global warming urged businesses to curb emissions now or lose many billions of dollars.
The Obama administration has alighted on climate change as a core legacy issue. In July, Washington and Beijing announced agreement on cautious mutual steps towards carbon-emissions abatement.
Seeing the writing on the wall in all this, the world’s top PR firms have ruled out working with companies that deny climate change.
The news for coal — the worst of the fossil fuels in terms of carbon emissions — worsens by the week. “Coal company pain accelerates as bankruptcy cases rise”, a Bloomberg headline read on 25 July. A week later, Chinese authorities announced that coal is to be “forbidden” in Beijing by 2020.
The global campaign for divestment from fossil fuel continued its steady drip of successes, and a new category of investor joined its ranks: the World Council of Churches, an organisation representing 500 million Christians, decided this far and no further.
As for the risk of hydrocarbon asset-stranding, Shell and ExxonMobil both published statements rejecting the arguments made by financial think-tank Carbon Tracker in its campaign to put pressure on the capital expenditure of fossil-fuel companies.
More and more financial journalists are picking up the story of how stressed the fossil-fuel industry is becoming in its capex excesses. Oil and gas company debt has soared to dangerous levels to cover shortfalls in cash. A review of 127 companies across the globe found that they had increased net debt to $106bn in the year to March. This, the UK’s Daily Telegraph observed, is “calling into question the long-term viability of large parts of the industry”.
The shale industry has been slow to export its American “success” story to other parts of the world. In particular, China is finding exploration “challenging” and has halved its shale-gas target in the past month.
Meanwhile, California has halted injection of fracking waste at some sites, fearing contamination, after research showed that oil companies are fracking into drinking water sources.
And the UK’s first drilling licence has just been rejected by a local council. After the hearing, in Horsham, West Sussex, residents were seen weeping with relief in the council room. This is rural southeast England, heartland of the Conservative vote. Nevertheless, the Conservative-led government is opening up land for fracking licences across half the nation.
Meanwhile, the scope for a “surprise” in conventional oil production becomes clearer too. “Oil explorers hit rock bottom”, a Financial Times headline read in July. Exploration and production companies have “lost their lustre”, the paper reported. “That is partly because they seem to have lost the knack of discovering oil.” And if they are not finding that much oil, how do the reserves get replaced?
Consistent with this gloomy thought, Russia announced that its oil production will drop next year. And as China’s mood sours on tar sands, investor risk soars in Canada. The tar sands are high on the shortlist of unconventional oil plays that are supposed to plug the gap.
Meanwhile, Apple told the world it is eyeing solar to power its data centres and manufacturing; the green bond market is growing at 60% a year; and Bloomberg expects renewables to win two thirds of energy investment by 2030.
And all the time the news on solar energy storage becomes more propitious. China exempted electric cars from tax last month and announced that 30% of state vehicle purchases must be electric by 2016.
The writing is becoming clear on the wall, for those with eyes to see.
Jeremy Leggett is founder and non-executive chairman of international PV company Solarcentury. His book The Energy of Nations: Risk Blindness and the Road to Renaissance is published by Routledge
All the evidence for this article can be found at www.jeremyleggett.net