The world may yet escape a severe energy recession. Yet, at a minimum, the cost will be higher inflation and slower growth. And more such squeezes may be on the way
The panic is a reminder that modern life needs abundant energy: without it, bills become unaffordable, homes freeze and businesses stall. The panic has also exposed deeper problems as the world shifts to a cleaner energy system, including inadequate investment in renewables and some transition fossil fuels, rising geopolitical risks and flimsy safety buffers in power markets. Without rapid reforms there will be more energy crises and, perhaps, a popular revolt against climate policies.
Tight markets are vulnerable to shocks and the intermittent nature of some renewable power. The list of disruptions includes routine maintenance, accidents, too little wind in Europe, droughts that have cut Latin American hydropower output, and Asian floods that have impeded coal deliveries. The world may yet escape a severe energy recession: the glitches may be resolved and Russia andmay grudgingly boost oil and gas production.
Gas is the pressure point. Many countries, particularly in Asia, need it to be a bridge fuel in the 2020s and 2030s, shifting to it temporarily as they ditch coal but before renewables have ramped up. As well as using pipelines, most import liquefied natural gas . Too few projects are coming on stream.
The danger is that the shock slows the pace of change. This week Li Keqiang, China’s premier, said the energy transition must be “sound and well-paced”, code for using coal for longer. Public opinion in the West, including America, supports clean energy, but could shift as high prices bite.
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