What does the current global energy crisis mean for energy investment? – Analysis

Russia’s invasion of Ukraine has brought major disruptions to the global energy system. Taking these into account, it is clear to us that any immediate shortfalls in fossil fuel production from Russia will need to be replaced by production elsewhere – even in a world working towards net zero emissions by 2050.

On the production side, the most suitable options for this are projects with short lead times and quick payback periods. This includes, for example, shale oil and gas (which can be brought to market quickly), extending production from existing fields, and making use of natural gas that is currently flared and vented.  

Some new infrastructure may also be needed to facilitate the diversification of supply away from Russia. For example, many European countries are looking to install LNG import terminals and, with careful investment planning, there are opportunities for these to facilitate future imports of hydrogen or ammonia.

However, we must not lose sight of the fact that lasting solutions to today’s crisis lie in reducing demand via the rapid deployment of renewables, energy efficiency and other low emissions technologies, as highlighted in the IEA’s recent 10-Point Plan to Reduce the European Union’s Reliance on Russian Natural Gas. This includes making the most of nuclear power in countries around the world that see a role for it in their energy mix.

Nobody should imagine that Russia’s invasion can justify a wave of new large-scale fossil fuel infrastructure in a world that wants to limit global warming to 1.5 °C. We understand why some countries and companies are looking to move ahead with the exploration and approval of large longer-term supply projects. But it typically takes many years for such projects to start producing, so they are not a good match for our immediate energy security needs. Long-lived assets also carry a dual risk of locking in fossil fuel use that would prevent the world from meeting its climate goals – or of failing to recover their upfront development costs if the world is successful in bringing down fossil demand quickly enough to reach net zero by mid-century.

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