Photo: Bridget Bennett/Bloomberg via Getty Images The global economic recovery is running low on fuel. Chinese factories have been flickering on and off as Beijing rations electricity. Britons have been parking in petrol lines as their nation’s pumps run dry. Americans have turned on their president as spiking gas prices eat their wage gains. And the entire northern hemisphere is sweating the cost of keeping warm this winter.
Why energy prices are high and rising. . Graphic: IEA 2019 Long-term shareholders in fossil-fuel firms pressured managers to cut back investment in favor of dividends. Many such shareholders had sustained heavy losses during the crash, and therefore refused to sanction risky new projects until they recouped their initial investments.
Graphic: IEA Adverse meteorological conditions exacerbated the mismatch between supply and demand. Last January brought extremely cold weather to much of Asia, causing a surge in the continent’s consumption of energy. Meanwhile, droughts in multiple regions reliant on hydropower, combined with below-average wind speeds in Northern Europe, yielded an unexpected reduction in the world’s renewable-energy capacity.
If U.S. shale drillers were responding to high prices by increasing production, then Russia and OPEC would have an incentive to respond to market demand; they remember what happened the last time that they allowed the price of a barrel of oil to approach triple digits, and do not want to lose market share to frackers.
This bodes poorly for the winter to come. The U.S. government expects home heating bills to rise by as much as 54 percent for Americans this winter relative to last year. And as households burn their disposable income to keep warm, they are also liable to see their electricity bills soar. Second, as Adam Tooze notes, investment in pipelines for liquified natural gas has been robust in recent years. LNG pipelines are long-term investments with significant upfront costs. They therefore are a poor financial proposition if one presumes that rapid decarbonization is nigh. Yet even Europe, where the price of carbon permits is set to steadily rise in the coming decades, is building out pipelines and LNG terminal capacities far in excess of its present needs.
So green policy has elevated global demand for natural gas. But it has relatively little to do with the present constraints on supply.
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