Michael Shellenberger: ‘The main cause of energy shortages is the under-investment in oil & gas exploration driven by climate activism’
By Paul Homewood
Michael Shellenberger goes to the heart of the energy crisis:
Many are blaming the post-covid economic boom for today’s energy crisis, but the main cause of energy shortages, rising coal use, and higher emissions is the under-investment in oil & gas exploration driven by climate activism
Over the last decade, climate activists have successfully pressured governments, banks, and corporations to divest from oil and natural gas companies. At first such efforts appeared to be strictly symbolic.
But in recent years years climate activists succeeded in driving public and private investment away from oil and gas exploration and toward renewables. The result is the worst energy crisis in 50 years.
Under-investment in oil and gas exploration is not the only cause of today’s energy crisis. The economic comeback from the covid pandemic has pushed up demand. Lack of wind in Europe meant higher demand for both natural gas and coal. A drought in Brazil meant it had to import gas
But the main cause of energy shortages is the half-decade-long under-investment in oil and gas driven by climate concerns.
“ESG [environmental, social, and governance] considerations account for much of the decline in capital expenditure by international oil companies in recent years,” notes @FT today, “and the investor exodus out of oil and gas markets.”
Bloomberg agrees, noting that “the market is now fixated on climate change and the dwindling appetite to invest in fossil fuels.”
China, India, the U.S., Asia, & Europe are mining and burning more coal to make up for the lack of natural gas.
China’s government recently waived environmental safeguards on coal mining. China imposed rolling blackouts due to energy shortages while India narrowly avoided them.
Normally, the anticipation of higher oil and gas demand causes firms to increase investment in exploration. That hasn’t happened. The main reason, according to Goldman Sachs, is climate activist pressure on governments, firms, and banks to divest from oil and gas exploration.
Oil & gas exploration investment declined by half between 2011 and 2021, notes @FT
New oilfield discoveries fell to historic lows between 2016 & 2020 due not to lack of oil but lack of investment. Today firms are spending 25% less than they need to hold oil production steady.
The result of successful climate activism is, paradoxically, rising coal use and carbon emissions. That’s because because electricity produced from natural gas produces about half of the emissions of coal.
Some of us warned that activist efforts against natural gas would backfire. I have long defended fracking for making gas cheaper than coal. Reducing natural gas exploration would make gas more expensive, I argued, and delay the transition away from coal.
Some worry that cheap oil increases its use, but petroleum use is highly inelastic, since our cars and trucks rely on it. Little oil is burned for electricity production, and natural gas is required to balance at the intermittency of solar and wind.
The proof is in the data. Fossil fuels’s share of global energy production remain unchanged at 84 percent since 1980. To the extent emissions in Europe and the US declined, it was largely due to the transition from coal to natural gas.
As a result of successful activism, governments and investors have punished oil and gas companies. When an oil and gas exploration firm, EOG Resources, announced in February that it intended to expand output, its share price dropped more than any other company on the S&P 500.
Naturally, American oil and gas firms have since refused to expand production, even as prices have risen.
Social responsible investing is decades old, but ESG was embraced over the last decade by large university endowments, investment banks, & the United Nations.
Increasingly Western oil and gas companies themselves, including Shell, Total, and many others, have shifted investments to renewables. A court in The Netherlands ordered Shell to reduce its emissions, a ruling that made firms reluctant to invest in new oil and gas exploration.
It’s not like oil and gas executives didn’t know that underinvestment would lead to today’s price shocks. It’s that they were ignored. When the former CEO of Exxon, Lee Raymond, was asked what kept him up at night he said, simply, “Reserve replacement.”
Shareholders had demanded he stop investing. In 2020, under pressure from climate activists, JPMorgan Chase, America’s largest investment bank, removed Raymond from his role as the board’s lead independent director.
Part of the problem is that neither corporations nor governments are taking the right actions. Some are going in the wrong direction. The U.S. Congress appears close to approving a deal to pour $500 billion into renewables and its enabling infrastructure over the next decade.
Those taxpayer subsidies could further reduce the incentive for private firms to invest in oil and gas. Even if they don’t, the Biden administration has moved to restrict oil and gas drilling on public lands.
Meanwhile, even in the middle of the global energy crisis, the United Nations and the International Energy Agency (IEA), funded by developed nations, are putting pressure on nations to reduce oil and gas investments even more than they already have.
But high oil and gas prices will create political problems for governments as they worsen inflation. And prices are likely to remain high for years not months.
“Today, investment in fossil fuel is vilified and financing has become sparse as big western banks withdraw,” notes @FT
“Due to long lead times between investment and supplies, we are yet to see the full impact of this slowdown in spending on conventional oil and gas production. In other words, supplies will continue to lag behind demand for the next few years.”
As a result, even as the Biden administration prepares to promote its heavy investments in renewables in preparation for United Nations climate change talks in Scotland, it is also pressuring OPEC to increase oil production.
“President Biden has effectively accepted the idea that the United States will rely more on foreign oil,” notes @nytimes “His administration has been calling on OPEC to boost production to bring down prices, even as it seeks to limit the growth of oil & gas production” in US
As a result, foreign nations will benefit from rising rising prices at America’s expense. Saudi Aramco recently increased its investment in exploration and production by $8B. “We are trying to benefit from the lack of investments by major players in the market,” said its CEO.
Increasing dependence on foreign oil makes some @nytimes , which champions divestment, nervous.
A reporter there recently warned that “the United States and Europe could become more vulnerable to the political turmoil in those countries and to the whims of their rulers.”
Pundits are increasingly comparing Biden to Jimmy Carter, and the 2020s to the 1970s. Indeed, today’s energy crisis is eerily similar to what happened back then. Carter throttled oil and gas production, promoted renewables, and provoked a backlash that helped elect Ronald Reagan.
“Insufficient investment by the supermajors, which account for roughly 40 per cent of the global oil supply, began in 2014 with the spectacular collapse of oil prices, but the relatively recent rise of environmental, social and corporate governance (ESG) investing…”
and its impact on capital flows has cemented their inability to invest in new long-cycle projects. Companies feel compelled to pivot away from hydrocarbons towards renewable energy as the fear of peak demand is leading to the reality of peak supply.”
https://threadreaderapp.com/thread/1453360927894552583.html
World leaders are playing a very dangerous game indeed. It is naive in the extreme to believe that we can seamlessly transition from fossil fuels to renewable energy just like that.
As Shellenberger points out, this current crisis won’t go away overnight. On the contrary, I suspect it will get much, much worse in years to come, as supply continues to dry up at the same time that demand from Asia continues to grow.
Comments are closed.
NOT A LOT OF PEOPLE KNOW THAT 
Not to mention coal
I agree that, under a continuation of current policies, the situation will get much worse in years to come, not only because of dwindling gas supplies and increased demand in Asia, but because the world will be increasingly cooler. The cyclical switch to colder climes, exacerbated by a weaker sun, is inevitable (and may have already begun) regardless of what alarmist ouija science tells us. Without a radical reversal in Western energy policies, turbulent times lie ahead. The long range forecast for the Northern Hemisphere this winter hints that January 2022 could prove to be the first real test of our crumbling grid. Wrap up warm folks!
Even GB News is dismissing/missing the link between politics/climate and the rising price of energy. There’s nothing the government can do, it’s totally an external global market problem apparently. Yeh, imagine if we were already self-sufficient in gas, like we could have been by now – never have helped would it!
According to a R5Live gov. talking head, cutting VAT on energy bills would be poorly targeted as it would also benefit the rich – as opposed to EV and heat pump subsidies that ONLY benefit the rich I suppose.
Unreal times.
Maybe not so unreal, the Tories have always preached that you must not tax the rich……. they don’t like it …… ergo, the whole bill for the climate-madness must be paid by the poor, QED.
Just made up nonsense. How do you tax the poor? They don’t have much money. Currently the percentage of tax paid by the top 10% is the highest it has ever been. The low paid have had their personalvtax allowance doubled by the Tories. We have always had a highly progressive income tax regime. Capital gains taxes are almost exclusively paid by the rich, as is inheritance.
So what are you on about?
Phoenix, I accept that I did not clarify what are the poor; surely it is obvious that the people in poverty do not, and cannot, pay income tax (they still pay stealth taxes): it is the lower range tax payers who carry the burden of UK taxation through fuel taxes and VAT. The people who earn say 5 times national average income can afford to pay a lot more with little loss of lifestyle. I would support a progressive taxation against income but this will not happed (in the 1960s Tom Paxton wrote a song called The Daily News which explained the protection of wealth very neatly).and greatly increased death duties also….. I’m clearly not a Tory!
I think there are a range of views among GBNews presenters. I suspect that Farage gets it.
We need to get on with fracking, making the most of the North Sea (and Atlantic) and start mining coal again. That is obvious to everybody but the people in power, their advisors, the greenblob and the media.
IMO, if a non-friendly country wanted to put another country out of action and didn’t mind biding their time to make it happen all they need do is let their useful idiots bring it about. No need for war. Sadly, our country has weak leaders, not just in Government, but in all the major depts, Councils and businesses.
I think generally there is a problem with people being bombarded with stimulus from lots of sources. To make proper decisions you most often need time to think, and I don’t mean 5 minutes snatched between meetings.
It used to be that sitting by a riverbank letting thoughts travel through your brain would be very beneficial but where is that hour that we need to think clearly.
It could be that locking our decision makers away for an hour a day would give them space and time to think critically and better. Of course some would say that locking them up permanently would be a correct response to some of their decisions, and it’s a given that we have people with the correct brain power to begin with, but people need thinking time.
which is the Russian game plan. Financial support for anti fracking and anti fossil protests etc in europe and america, remove the US surplus, prevent european independence, then build a pipeline . Bingo .. Europe dependent on Russian gas with Putin’s had on the tap
Philip, you are right as far as you go but please also put a marker down for Small Modular Reactors, one in each large city.
The UK government is a world leader in demolishing power stations, what could possibly go wrong.
Renewable energy good, oil and gas bad that’s all our political masters know or wish to know. Happy in their ignorance – keep the message simple so as not to confuse the public.
This train crash has been seen a long way out. It should come as no surprise for anybody on they BB.
You dont understand. We can save the planet by not extracting our own oil and gas. All we have to do is import whatever we need. QED
The same for coal for steel making.
The same for manufacturing in general.
We should all send a copy of Professor Gwythian Prins LSE ‘the worm in the rose’ to our MP’s ASAP,
Will the greens never learn, The Law of Unintended Consequences creates perverse effects.
Diesel cars are cleaner, (not really NOx emissions Volkswagen scandal), Bio fuels are best (bio Diesel need Palm oil, forests cleared in Indonesia, Orangutans displaced, Bio ethanol needs fertilizer, Haber process CO2 producing, Fermenting CO2 producing, Distilling CO2 producing) Biomass burn trees. How stupid is that and Drax gets a mammoth subsidy. Greenpeace is anti nuclear power, the cleanest most efficient source of electricity, they are also against genetically modified golden rice preventing third world child blindness. etc etc
Palm oil and biosidiesel is the one that gets me. The Graunitariat have been vocal for years about Palm oil but only as a food ingredient, bad for the environment and it’s an evil saturated fat ( though cranks like myself want saturated fat). So they blame Palm oil habitat destruction on the food industry while ignoring the biodiesel edicts which they supported.
How about posting a series of article-length predictions that will likely occur as a result of net Zero insanity? Sceptics need to be able to cite dated articles to say ‘I told you so’.
In no particular order:
* Unreliable wind & solar
* Lack of reliable back-up
* Absurd over-reliance on undersea interconnectors from EU
* Electricity-dominated energy system exposes high risk of failure or cyber-hacking
* Lack of reliable UK energy supply, in turn
* Extremely high UK energy security risk
These have been discussed ad nauseum but rightly so. This is now a far more serious threat to the well-being of the UK than mythical ‘climate change’ 50 or 100 years from now.
A single page briefing note on each area.
“A drought in Brazil meant it had to import gas ”
I think there has been more than drought to contend with
https://electroverse.net/?s=brazil
Have you not seen all this all over the BBC ? Maybe not.
Amazing pix! I notice some were showing snow in July. Is that for real? And was it really Brazil?
You’re right – not a peep from the BBC – about the weather OR the volcano/’earthquake’.
Just how legitimate is this site?
Well the Brazilian snow reports were true enough Harry. Children (and an awful lot of grown ups) who didn’t know what snow was, certainly do now! Global warming, obviously.
Brazil’s in the Southern hemisphere, so its winter occurs through June, July, and August. So they’re more likely to get snow then.
Actually the equator passes through Brazil, so some of it is in the Northern hemisphere. However none of it is at sufficient altitude to have snow normally as at equatorial parts of the Andes or Kilimanjaro. Of course the snowfalls were in fact in the South of the country, but at latitudes where it rarely occurs normally. At around 30 South, it is equivalent to having snow in say Houston.
Electroverse is kind of reliable, their reports are nearly always accurate, however the significance they attach to weather “events” isn’t. Example recently. Reports of snow in Scotland. To read the text you would think residents of Braemar were out with snow shovels, in reality it was just a few flakes, nothing unusual for Braemar in October. But Electroverse has it as a harbinger of the Ice Age. Read Electroverse and then check the significance yourself. In particular be wary of “record” low temperatures, these are usually for that particular day at that location. Given that there are 365 days in the year and most records only date back a hundred years you’re likely to have this occur several times a year.
“Some worry that cheap oil increases its use, but petroleum use is highly inelastic, since our cars and trucks rely on it.”
Everything we do, build and use, relies on biofuels which rely themselves on regrowing sources of ethanol. Nothing can be transported without them. No EV vehicles or the batteries that go in them can even be made without biofuels. None of the Net-zero carbon capture facilities can be built with anything else. How can delegates attending the Glasgow climate summit get there? “magic carpet” technology to reach Net-zero is still hypothetical.
This should be obvious but it isn’t.
OH . . . let’s not forget . . . Bio-Fuel IS Man-Made fossil fuel !
Most are 90% fossil fuel, only 10% ethanol. And all of them require themselves to replenish the ethanol to what was added back to the atmosphere as CO2 after placed in the vehicle. It’s a really dumb scheme that takes away agricultural land for corn or sugarcane instead of land for food. But what else is there? We can’t do without them, Glasgow-bound politicians notwithstanding.
Philip, you are absolutely right as far as you go but please include more nuclear, particularly Small Modular Reactors on a scale of one in each major city.
Quite right – SMRs are the answer. Sadly we’ll never get them in Scotland as our govt. is obsessed with windfarms and won’t hear of anything nuclear. They’d rather destroy deep peat with turbines.
This is extraordinary:
The EU seeking to shut down a major part of Poland’s energy production and fining them for keeping it open. It makes you wonder what the real motivation for this is:
A doubling of the Polish army to 300,000 – is it because they fear the Russians, or Eurofor?
While SMRs seem to be a good idea, are they flexible as is claimed, i.e can they modulate output and so be dispatchable. That would be the only way we can reduce fossil fuel generation?
Rolls Royce have been involved in them for some time but are there any actually operating on a grid? If they are that quick to build where are the operating units?
I asked someone who has worked with SMRs and don’t understand the reply but hope you will!
“Submarine reactors are load following by design. Not sure whether their SMRs will be so flexible as I think it depends on high enrichment.
Quick is relative. Look at build time for EPRs.
RR only just started down SMR route. There are loads of companies at SMRs these days with widely varying designs.
The key to flexibility is managing reactor poison buildup (short lives isotopes with high neutron absorbtion cross sections). That’s what caused the Chernobyl melt down.
He suggested Google Akademik Lomonosov”
Modern PWRs can be designed to load follow. The French have made a lot of progress with this over the years – their latest plants can vary at about 5% per minute over quite a broad range.
Aiui the design of SMRs has little in common with submarine reactors which use highly enriched fuel.
Russia and China are furthest down the road. The Russians have their barge-mounted plants and the Chinese are well on with the construction of their first demo plant.
In the UK, even if the go-ahead was given tomorrow, how long will it be before there is a working prototype? There’s no fleet of reference plants so this will be an essential first step (the French PWR programme of the 70s and 80s didn’t have that problem).
My guess is 5 years at the very least. So a construction programme just might start before the end of the decade which is way too late.
Sorry to be such a doomster but let’s recognise that there is little awareness of the looming problems outside discussions like this so nothing is going to happen quickly.
Schellenberger is wrong though. Prices reflect supply/demand now, not in the future. Supply has not reduced but demand has increased and increased more rapidly than most producers anticipated. Don’t forget that petrol requires refineries and they buy forward the quantities they think they will require months in advance. Similarly with gas requirements. The rapid recovery from Covid and the poor performance of renewables has increased gas demand as well.
Longer term the lack of investment will bite hard but as even Biden knows, Saudi could increase production quite easily. Why it would help out a president intent on impoverished them is the question.
I’m not sure that you are correct about supply. There has certainly been a significant reduction caused by a backlog of maintenance as a result of the pandemic. Then there are other real reductions such as Groningen gas. I think the basic Shelkenberger thesis here is right. Supply is now constrained by inadequate investment, and it will take time to correct, even if that is permitted by the greens who seek to suppress it.
Excellent article and very true, except the writer does not appear to understand that C02 Carbon Dioxide is not at all polluting and refers so it as ‘Carbon’ – a term used by climate activists because it sounds dirty and dangerous. C02 is a 4% trace gas essential for plant growth. It in no meaningful way caused warming.
Increasing C02 has resulted in a vast increase in global green areas, so one could say that fossil fuels are in fact the greenest course of energy. Plenty of books by real scientists that explain the role of C02 – as opposed to the activists that infest the IPCC.
I hope that was a slip of the finger (or keyboard!). 4%? It’s.04%. 100 times smaller
I worked as a geologist exploring the world for new oil and gas for the last 35 years. Shellenberger has hit the nail on the head. All the monster oil and gas fields in the world with the possible exception of Qatar/Iran North/Pars gas field are in decline so future demand has to be met by many, many, ever smaller fields, yet to be discovered. Each small field still takes the same exploration effort as a giant one, so the future should be much, much more exploration. There is serious trouble ahead, once OPEC have squeezed their giant fields to their limits.