I travelled frequently on the London underground when I lived there in the late 1980’s. I always felt fear and panic when a train was approaching the platform. The noise, the gush of stale air, then the tannoy loudly announcing ‘Mind The Gap! Mind the Gap!’

The problem exists where a station platform is curved and so the train carriages are only close to the platform at their ends while for the central parts of the carriage a large gap occurs between the carriage and platform. The original tannoy announcement, first launched in 1968, is still used on some underground lines in London. Many stations globally now have similar messages, and in different languages, for example on the Paris Metro, Hong Kong MTR, and New York MTA. My fear on hearing ‘Mind The Gap’ transfers into the world of energy. Whenever I hear of a gap developing between the amount of investment needed to maintain energy supplies, and the actual amount of investment occurring, then my worst fears reappear.

Today the gap is extremely large. This traces back to late 2014 when oil and gas prices began sliding. Falling income made investment in new energy supply harder. Debt began to grow. With an oversupply of oil & gas, combined with cheap coal, all the talk shifted to cutting supply to prop up prices, and cutting costs. Many energy companies were locked into long term services contracts paying high rates to the oil services sector. Companies tightened their belts, shedding staff, cutting activities, travel & training, R&D, putting projects with marginal economics or lengthy development schedules on standby or simply cancelling. Consolidation followed with takeovers of weaker rivals, and mergers of necessity. It was all standard industry practice, pulling the levers that have been used multiple times for many decades. The size of the investment gap was already many 100’s billions US$ per year. Then came Covid.

The pandemic took the problem to new extremes with demand for transport fuels collapsing in a matter of weeks, as haulage, travel and holidays ground to a halt, people stayed at home and many businesses simply stopped, some permanently. With gasoline & diesel demand destruction being larger and faster than ever seen before, the reasons to invest had evaporated as prices crashed. Cuts became deeper and supply chains were broken. Energy companies pulled back from higher risk exploration, with many unlikely to ever return. The shortfall in energy investment rapidly became much bigger. Then came a climate emergency.

With global recognition of a climate emergency came pledges to use the health crisis as an opportunity to not only build back better, but also to build back greener. A series of extreme weather events – bushfires, hurricanes, drought, floods, storms – helped focus attention. But here too is a major gap. The transition from hydrocarbons to renewable and green energies is nowhere near as fast as it needs to be. Leading institutes argued that to reach Net Zero requires no new oil, gas or coal field developments; this has been quietly forgotten. None of the supermajor oil companies has stopped lobbying for oil & gas projects, stopped approving new projects, nor cut back production. No E&P company has yet offered a viable pathway for them to reach Net Zero. The same is true of the largest national oil companies. We should expect more-and-more greenwashing. Without governments insisting that oil and gas producers permanently capture and store the carbon equivalent to what they produce, and offer a carbon capture service to others, the industry realistically never transitions to Net Zero. The transition to a low-carbon energy system will no doubt accelerate in coming decades as the energy mix shifts rapidly toward electricity. However, with many governments still heavily subsidising fossil fuel extraction & products, and no global emissions trading scheme, it simply makes the transition slower. Then came Black Wednesday.

In May 2021, on Black Wednesday, some of the biggest players in the industry – ExxonMobil, Chevron, and Shell – experienced a string of defeats from shareholder and legal action that appeared to mark a turning point for fossil fuels, as companies were forced to adopt cleaner energy strategies. Many argued that a fossil-fuel based global economy was no longer viable. Over a year later, there is limited evidence of real change – there is a vast gap between ambitions and delivering the projects needed. Pressure is mounting on financial institutions to deploy capital sustainably and invest in the transition; they acknowledge they are a long way off targets. They are yet to step into a world that is no longer mostly good intentions.

One recent and very thorough analysis has identified very worrying issues; this shows that renewables experts are unlikely to know what their own countries targets and policies are! Politics, and lack of political will, are seen as the greatest impediments to creating the broad-based strategies needed across all stakeholders. With such confusion, it’s no surprise that most countries are yet to have a clear plan for green jobs. There are plenty of gaps to be filled. No surprise also that current pledges to reduce emissions are not enough to keep temperature rise (above its pre-industrial level) to a target of 1.5° C or below, and even a 2° C target is slipping away. The transition is simply too slow and patchy; the solutions exist, we just have to get on with it. What had begun as a gap, has turned into a massive hole. Although there is no exact amount, the shortfall has become trillions of US$ per year. Then came war in Europe.

The war, in terms of energy supply & demand, has highlighted the risk of over-reliance on imported hydrocarbons, fuels & fertilisers from a single source, and how quickly seemingly stable politics can implode. In less than one month, energy security has leapt to the top of many countries agendas, often causing a complete rethink in national security, energy policy and legislation. The risk of face-offs and land disputes between superpowers, or alliances of superpowers, with energy and critical minerals as central issues, has gone up significantly. The multiple sanctions and embargoes placed upon Russian energy have not only changed and stressed global supply patterns but also prices have risen sharply as many shun Russian supply altogether. Prices are typically double that of a year ago with oil now close to all-time highs. Investors in shares of large energy companies have been big beneficiaries as energy outperforms other stock-market sectors. Similarly government’s coffers have been overflowing in countries who have a high tax take on production, product sales, and energy company profits. The strongest control over prices remains OPEC+ with its production cuts and increases whilst releases of strategic petroleum reserves has little if any impact.

The energy crunch with its high fuel costs combined with supply chain issues is highly inflationary, causing a cost-of-living crisis, and pushes us all towards economic stagnation and recession. There is little incentive to spend on drilling new wells or new power installations, instead companies simply reap the benefits of today’s ultra-high prices. Windfall taxes on energy companies to offset the economic pains do eventually restrict their ability to invest not only in new projects but also maintenance of existing ones, and better technology. The lack of investment in stable and diverse sources of energy supply, and related facilities such as gas storage, compression stations and LNG import terminals is already painfully clear. Some countries are switching their energy suppliers completely and there is an urgent search for a new vision of energy independence even if that means returning to hydrocarbons. There is now no shortage of new bid rounds for offshore hydrocarbons, and also plenty for large offshore wind opportunities too. Elsewhere, onshore renewable projects often remain trapped by planning legislation and local consultations. Meanwhile there is an electricity crisis.

Surging coal and natural gas prices have pushed up power generation prices creating an affordability crisis for electricity. Many idle coal plants are being re-opened and over 30 countries have new coal plants under consideration. The developing world is where most suffering will take place. The gap between what people can afford to pay, and what they are being asked to pay, has caused new energy poverty around the world. This pattern will continue in coming months. Even so, Russian oil & gas, diesel, and also coal and electricity, still finds its way into markets – for example China, Hungary, India, Japan, Pakistan, Sri Lanka – sometimes very heavily discounted at 40-60%. Europe too continues to buy piped Russian gas because the scale of dependency on Russian energy is simply too large to change quickly. The rapid rollout of new solar, onshore & offshore wind, mini-nuclear, and the many forms of geothermal, each offer both energy security and heat or power.

I think we have now reached a point where we are all standing together on a crowded station platform; we are looking toward the tunnel; the lights of an underground train are hurtling round the curve towards us with a thunderous sound and shouting all around. We know there is a massive dark gap opening in front of us; somehow we have to find a way to not fall into that gap; we have to find a way to step over, be bold, build new cleaner projects and get to a better place.

About the author:

Chris Sladen runs an advisory service offering insights to inform, shape a decision, policy & regulation, and guide the next steps for energy ventures, acquisitions & divestments, energy transition and climate strategies. Chris has a unique global experience having worked in over 40 countries. This is underpinned by extensive knowledge of petroleum systems and where best to find oil and gas, notably in the Gulf of Mexico & nearby areas, Europe and NE & SE Asia, as well as the development of midstream, downstream & renewables investments in many emerging economies. Chris has extensive experience acquired on the Boards of companies, subsidiaries, business chambers & organisations. Chris has a career of over 40 years in the energy sector, living in Mexico (2001-2018), Russia, Vietnam, Mongolia, China & UK. His contributions to the energy and education sectors have been recognised by the UK Government with both an MBE and CBE, and also the Aztec Eagle from the Mexican Government – the first foreigner in the energy sector to achieve this award. Chris has published extensively over five decades. Chris’ articles for Energy Matters reflect his experience and enthusiasm and are not paid for in any way.

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