After the second world war America’s unmatched ability to consume oil outstripped its unmatched ability to produce it. Ensuring supplies from elsewhere became an overriding priority.
But what it might mean to be an energy superpower is changing, thanks to three linked global shifts. First, fears about fossil-fuel scarcity have given way to an acknowledgment of their abundance. Not least because of what has been achieved in America, the energy industry now knows that it will be lack of demand, not lack of supply, which will cause production of oil, coal and, later, gas to dwindle.
In the latest report from the oil company BP World Energy Outlook, has recently said it plans to go carbon neutral, argues that demand for oil may already have peaked, and could go into steep decline.
This is because of the second shift: an acknowledgment by most countries that, for the sake of the climate, reliance on fossil fuels needs to come to an end. And that leads to the third shift: electrification. Solar panels and wind turbines provide energy as electricity straight off.
Fossil fuels cause economic volatility. Oil markets are buffeted by an erratic cartel. Concentration of the world’s oil reserves makes supply vulnerable to geopolitical shocks. Little wonder that the price has swung by over 30% in a sixth-month period 62 times since 1970.
There have been oil slumps before, but this one is different. As the public, governments and investors wake up to climate change, the clean-energy industry is gaining momentum. America’s Democratic presidential contender, Joe Biden, wants to spend $2trn decarbonising America’s economy. The European Union has earmarked 30% of its $840bn covid-19 recovery plan for climate measures, and the president of the European Commission, Ursula von der Leyen, used her state-of-the-union address this week to confirm that she wants the eu to cut greenhouse-gas emissions by 55% over 1990 levels in the next decade.
Once mature, it should be more politically stable, too, because supply will be diversified, geographically and technologically. Electricity prices will be determined not by a few big actors but by competition and gradual efficiency gains.
When the globe stopped spinning in March, its thirst for oil suddenly subsided. Petrostates dependent on pricey oil for their spending now face gaping deficits. Investors have fallen out of love with oil companies.
For all Mr Trump’s grateful boosterism, the value of America’s shale sector has fallen by more than 50% since January. ExxonMobil, an oil company included in the Dow Jones Industrial Average since 1928, has been kicked off it. With a market capitalisation of $155bn it is worth considerably less than Nike, a shoemaker with a swoosh.
As a better energy system emerges, the threat of a poorly managed transition looms.
Autocratic China could temporarily gain clout over the global power system because of its dominance in making key components and developing new technologies. Today, according to BloombergNEF, Chinese firms produce 72% of the world’s solar modules, 69% of its lithium-ion batteries and 45% of its wind turbines.
They also control much of the refining of minerals critical to clean energy, such as cobalt and lithium. Instead of a petrostate, the People’s Republic may become an “electrostate”.
Europe is home to giant developers of wind and solar farms—Orsted, Enel and Iberdrola are building such projects around the world. European firms are leading the race to cut their own emissions, too.
The other big risk is the transition of petrostates, which account for 8% of world gdp and nearly 900m citizens. As oil demand dwindles, they will face a vicious fight for market share which will be won by the countries with the cheapest and cleanest crude.
Even as they grapple with the growing urgency of economic and political reform, the public resources to pay for it may dwindle. This year Saudi Arabia’s government revenue fell by 49% in the second quarter. A perilous few decades lie ahead.
Faced with these dangers, the temptation will be to ease the adjustment, by taking the transition more slowly.
If the shift towards fossil-fuel-free renewable energy accelerates (as it must), it will cause even more geopolitical turbulence.
Falling demand for fossil fuels will tilt the balance of power away from producers and towards consumers—though there will doubtless be reversals now and then along the way.
In a world which needs to generate much more fossil-free electricity, mass production of the means whereby to do so will become crucial, as will government backing and know-how in deployment.
Being a mighty pumper of oil will do a lot less for America under such conditions than once it might have done. But China, the world’s biggest fossil-fuel importer as well as its leading exponent of renewable energy at gigawatt scales, will have the wind, as it were, at its back.
A picture of the new energy system is emerging.