The term “energy transition” reflects only a subset of the broader global economic upheavals. The transition is fundamentally economic, with direct effects on the energy mix, the food systems, and the geopolitical/military dynamics whenever geopolitical and economic balances shift. It directly affects the energy mix based on the economic conditions involving each part of the energy cost chain, from extraction or transformation to delivery to the final consumer. Upgrading the energy mix with innovative technologies and higher energy density sources is a complex and multifaceted process. It requires a delicate balance between energy independence, economic stability, and environmental sustainability, all influenced by economic conditions. Given the complexity of the variables involved, achieving this improvement will require trillions of euros, to be paid by consumers, to reach an uncertain outcome if it is only the energy density that the current renewable energy sources (RES) can provide.
For millennia, renewable energy sources such as the sun, water, wind, and wood have been economically important. Historically, the configuration of the energy mix has followed the principle of high usage of the preceding energy source to establish the next one. For instance, wood consumption supported the development of coal as a fuel and took about a century to supply 25% of the world’s energy consumption. Similarly, during the transition from coal to oil, coal consumption increased for metallurgy, oil infrastructure construction, and chemical processing of oil. It took oil around forty years to cover 25% of the world’s energy consumption. This pattern is somewhat repeated with oil versus gas and more recently with hydrocarbons supporting the intermittent contribution of photovoltaics and wind turbines to the electricity grid globally. Notably, wind and solar power have yet to achieve a 5% share in the global energy mix.
Beyond the Westphalian Framework
Since 2023, the world has been navigating the equilibrium phase of a new economic transition model. Since 2000, and especially from 2011 to 2022, the economic transition has followed a trajectory that peaked during 2019-2022. This period was marked by pandemics, wars, and reciprocal sanctions, which defined the boundaries of major economic blocs. These initial boundaries have highlighted the grievances of developing countries, the growing influence of Middle Eastern oil producers and China, and the evolution of the BRICS, which appears poised to expand its membership.
Multinational corporations and cross-border organizations are currently challenging the Westphalian order established in Europe in the 17th century after the Thirty Years’ War and extended globally after World War II. This challenge is driven by several factors: the aging populations in developed countries and China compared to the youthful populations in Africa and South Asia, the slowdown in global economic growth, the shift of industrial production to Asia, and the accelerated technological progress that fuels new activities but disrupts existing economies. Additionally, the rise of religious and nationalist movements and the idealistic orientation of many environmental movements, particularly regarding industrial pollution, highlight the inability of governments to manage or adapt to changes in an increasingly open world. As a result, we are heading towards increasing tensions among major states as they seek to expand or defend their spheres of influence.
Broad transition expectations emerged in 1971, when part of the market forecasted that oil would run out, prompting a switch towards nuclear energy. This prediction gained traction on the eve of the 1973 oil price crisis. At that time, oil was priced at no more than three dollars a barrel, and nuclear energy was anticipated to become the next dominant energy source. Oil was being extracted from average depths of three hundred meters of rock, with subsea wells drilled in no more than a few hundred meters of water. The demand for oil was growing astronomically, supported economically by coal, while the dollar’s separation from gold was not yet complete. The U.S., with its continued industrial investment and the growth of the automobile industry, needed more oil. Simultaneously, the European economy was experiencing shocks, prompting a move towards the integration of the European Community under the Werner Plan.
The withdrawal from the Bretton Woods system was crucial for Europe, as the dollar was no longer backed by gold. Under these circumstances, the 1973 oil crisis reflected the economic transition to dollar dominance, with significant implications for the energy mix of the time and military conflicts, such as the Yom Kippur Arab-Israeli War. The increase in oil prices from $3 to $12, and briefly to $15 per barrel, facilitated the financing of innovative exploration, the identification of new fields, and advanced pumping techniques at depths of 1,500 meters. This led to the progressive discovery and exploitation of subsea deposits. Another oil crisis in 1979, triggered by the Iranian Revolution, stabilized oil prices at $32 per barrel by 1981. This price stability allowed for the adoption of more efficient oil production methods, eventually leading to an oversupply. Today, the extraction of hydrocarbons occurs at water depths exceeding 3,000 meters, with an additional 2,000 meters of rock below the waterbed. Natural gas, once considered a “headache” and often flared, has become highly sought after and now plays a significant role in the international energy mix, particularly within Western societies. Contrary to widespread belief, natural gas will be economically supported by renewables in many cases for years to come. This support will help various industries to supply their services, including metallurgy, construction, transportation, transport and storage of carbon dioxide, waste management and recycling.
The Intimate Relation Between Renewables and Gas
For at least twenty years, the introduction of renewables in Europe has been driven not only by concerns over dependence on Russian gas but also by commercial and economic objectives. The primary argument for this energy transition, dominated by wind farms and photovoltaics, has been the reduction of carbon dioxide emissions. However, the current geographical dispersion of infrastructure, the proliferation of installations and the absence of large-scale storage of electricity do not guarantee a stable and economic distribution of electricity and cause additional CO2 emissions.
The slow acceptance by the European Union (EU) and its member countries of the issues related to intermittent wind turbine and photovoltaic production and the absence of domestic gas security is one main reason why the price of megawatt-hours has skyrocketed in Europe. While the pandemic and war have exacerbated costs, they are not the root cause of the electricity price spike. Without the support of natural gas, today’s non-innovative renewables cannot meet electricity needs for the next twenty to thirty years. While the EU has made noteworthy progress in promoting renewable energy, the journey has been fraught with challenges. The EU now recognizes that an ample supply of natural gas is crucial for bolstering European energy independence and ensuring the stability of renewable energy sources, as well as facilitating the transition to hydrogen. This represents a shift from the earlier goal of an idealistic and rapid decoupling from natural gas. Accordingly, the models or simulations of each country’s respective Nationally Determined Contributions to Energy and Climate objectives are progressively adapted to the actual global market conditions.
Both natural gas and oil are crucial for electricity production, among other uses, because current alternative forms of electricity generation do not yet provide the desired efficiency. This is rooted in fundamental principles of physics and chemistry. Moreover, access to hydrocarbons is influenced by the conflicting political and economic choices of suppliers and buyers, determined by geopolitical criteria. The consequences of these dynamics are particularly painful for consumers, especially in Europe. The gas access crisis of the EU was, and is, not a short-term phenomenon. Reducing dependence on Russian gas while increasing reliance on gas from the US, Qatar and Norway does not address the fundamental issue of energy independence or improvement of the EU’s domestic supply situation. It was only after Russia’s ‘Baltic’ tap was closed that EU decision-makers approved the restart of coal use, local hydrocarbon exploration, and the inclusion of nuclear energy in the European Taxonomy. The idealized rhetoric of the 2010s, which proclaimed the “death” of fossil fuels, entertained some of the public but ended with the Russian invasion and a reassessment of beliefs. Until recently, the necessity of energy security had not been clearly communicated to consumers, but gas shortage caused by sanctions on Russia has starkly revealed the dependence of today’s renewables on gas.
Geopolitical Struggles in the Gas Market
An overview of the above points highlights that the European economy will face significant challenges in the coming years, especially due to competition from energy-hungry Asia. Two years after Russia’s invasion of Ukraine, Europe is competing with China to be Gazprom’s top buyer of natural gas. In 2024, Europe and China have alternated monthly as the largest buyers of Russian gas by pipeline. Despite several rounds of international sanctions, Russia continues to supply substantial quantities of gas to selected European countries, and this volume has even increased. Meanwhile, thanks to shale gas, the US benefits from cheap energy on the western side of the Atlantic and exports to the eastern side of the Atlantic.
Although Norway provides 30% of Europe’s gas needs, for countries, such as Austria, Hungary and Slovakia, Russia remains a critical and growing source of energy. In the first half of 2024, compared to the previous year, pipeline deliveries rose more than 26% in this region. About half of the gas passes through Ukraine, with which Gazprom’s five-year transit agreement expires in December 2024. Ukraine has repeatedly stated it will not extend the deal, but European officials are in talks to keep gas flowing through the country. According to Oilprice study of July 2024, supplies from Russian pipelines through Ukraine and the Turkstream pipeline to Europe reached 14.6 billion cubic meters (Bcm) from January to June 2024. This figure, far below the annual sales of about 130 to 175 Bcm to the region before the invasion, is comparable to the 15.2 Bcm shipped to China in the first half of 2024. Russia has long aimed to expand its gas sales to China, but average prices for eastern exports are significantly lower. Russia’s gas supplies to China via the “Power of Siberia” pipeline are expected to reach full annual capacity of 38 billion cubic meters by 2025. An additional 10 billion cubic meters per year will be available through the “Far East Pipeline” starting in 2027, and a third contract with China for a gas pipeline that would pass through Mongolia is under continuous discussions.
Besides gas pipelines, liquefied natural gas (LNG) became an important player for the energy mix. Three major recent events, the COVID-19 pandemic, Russia’s invasion of Ukraine, and the expansion of the BRICS, are currently driving the increased integration of LNG into the global energy mix. Rising prices during the 2020 to 2023 period have eased large investments in liquefaction infrastructures, transportation carriers and regasification facilities, all financed in dollars. Simultaneously, transactions involving oil, gas, and derivatives are increasingly being conducted outside the dollar, with some emerging economies considering the reintroduction of gold as collateral for these transactions. In such a dynamic context, focusing solely on climate change in the short to medium term might be misleading.
An Eye to the Future of Energy
Energy is not produced by humans but harnessed and utilized by them. Oil and gas were the engine fodder of modern economies, and without machines, any country’s GDP would be significantly smaller. Society’s dependence on hydrocarbons extends beyond transportation, which consumes almost two-thirds of global production, to a wide range of oil and gas derivatives essential for agriculture, livestock, pharmaceuticals, healthcare, petrochemistry, industrial construction, crafts, and even art and education. As the global population and living standards rise, the Earth’s inhabitants will require energy equivalent to 1.7 planets the size of Earth, while the Earth’s diameter remains unchanged. Man-made carbon dioxide emissions will increase with the development of services. Countries with high industrial activity and rapid growth will continue to consume and invest in coal combustion in new plants with cheaper catalysts, extending the timeline for phasing out coal combustion until 2050 or later. Simultaneously, oil and natural gas will continue to be used as long as people can afford refined products and hydrocarbon derivatives at prices that sustain production, provided the hydrocarbon industry manages the resulting lack of economies of scale. If massive, economically viable electricity storage solutions with minimal environmental impact are developed within the next decade, the growth of today’s conventional renewable energy sources will continue. Ultimately, the future of energy will depend on the pace of development and societal acceptance of nuclear fission and, eventually, nuclear fusion.