I wasn't joking about fossil fuels not being able to compete. In fact, none other than the Iraqi finance minister is issuing the same warning to fellow OPEC members today–just as the cartel holds its latest meeting.
Writing in The Guardian, Ali Allawi and IEA coauthor Fatih Birol note that the expected plunge in oil demand by 2050 would decimate oil-producing economies like Iraq. Last year offered a grim preview–the collapse in oil prices amid Covid doubled Iraq's poverty rate. Plus, Iraq itself is suffering from extreme heat (by one estimate, its temperatures are rising 7x the global average), and the country is already seeking major reforms to reduce its reliance on carbon exports.
Given that solar power is likely to be the future, sunny spots like Iraq would seem well-positioned to capitalize on that. The worst sites in Iraq still get 60% more direct energy than the best sites in Germany, Allawi notes–and yet Germany has more than twice as much solar power as Iraq has in oil, gas, and hydropower combined. Plus, "distributed" solar built on-site, which bypasses the need for a well-functioning electric grid, could mitigate another issue that has plagued poorer nations like Iraq.
But even if OPEC's days are numbered, the group is enjoying as much influence as ever. Recall the Biden administration pleading with OPEC to produce more oil last month to alleviate the spike in oil prices to upwards of $75 a barrel in the U.S. OPEC did reach a deal to increase supply by 400,000 barrels a day in each of the next few months back in July, about a 2% increase by December. Further increases, especially with the spread of Delta slowing demand, are unlikely.
The U.S. isn't the only one dealing with high energy bills. The situation is arguably worse in Europe, where natural gas prices (which supply household and business electricity) have spiked to 5-6x what they were two years ago, to the highest levels on record.
Remember how I mentioned that carbon prices in Europe have surged to a record high? They traded above 60 euros a tonne this week for the first time. That's disincentivizing new gas production in Europe, which is also competing with Asia for liquefied natural gas supplies. The largest gas field in Europe, Norway's Gronigen, is shutting down next year–eight years earlier than planned, because of earthquake risks.
"The result," writes David Sheppard in the Financial Times today, "is something approaching a global gas crunch." And it leaves Russia alone as basically the "OPEC" of natural gas–the only country with spare capacity that could meet this demand. But Russia's Gazprom has "declined to send any additional supplies to Europe…before the controversial Nord Stream 2 pipeline is approved." So either they can't or they won't meet the need.
People are already worried about what this could mean for Europeans if temperatures plunge this winter and heating is unaffordable, or outages crop up.
Louisiana offers a scary glimpse of at this. Hurricane Ida wiped out electricity in a region that is heavily dependent on it, and less energy diversified. In our home, in New Jersey, when the electricity goes out, our nat gas-powered generator comes on. Even if we didn't have one, I could still cook with gas, and turn on the gas fireplace for heat (which is exactly what our neighbors did when Hurricane Sandy wiped out power for two weeks.) I could still drive my car with gasoline. When everything goes electric, you lose that resiliency.
Every household and business on the planet right now should be thinking hard about how they get power, and how good their backup options are. The "mushy middle" of this global energy transition could be a very uncomfortable place to be.
See you at 1 p.m!