The use, cost, and supply security of fossil fuels are driving headlines across the world. The ticking clock of the climate crisis has been getting louder, accelerating the need to eliminate the use of most coal, natural gas, and oil in two or three decades. The Russian invasion of Ukraine is underlining the security and cost risks of fossil fuel dependency.
It is impossible not to recognize that the Ukrainian crisis has brought the roles of global oil and gas demand and supply into sharp focus. The disruptions immediately created dramatic energy price uncertainty. The causes are from political and commercial actions, along with the possible damage to critical infrastructure. There are no guarantees that this uncertainty will not last for months or even years, likely affecting a lot more than energy supply and cost.
The energy interplay between the climate crisis and today’s geopolitical crisis could not be clearer. If the climate targets had been delivered over the past decades, energy dependence and associated economic risks would be fundamentally different. This confluence of crises is an ideal moment for every corporation to revisit its energy and climate action plans and ask some difficult questions.
Upon analyzing past performance, the first question should be: Were the efficiencies and greenhouse gas reductions delivered in line with agreed targets? The reasons for shortfalls should be assessed and clearly understood. These reasons will be some mix of external factors, technical and economic aspects, and the company’s own management and decision-making processes.
If agreed targets were met, it might make sense to revisit how these targets were set. Were they set based on the demands of external pressures including science from climate change? If not, how does the target setting process need to change to align with both the external pressure and the company’s business realities?
Armed with a clear understanding of past performance, this is an ideal moment to refresh corporate energy and climate plans and ensure they are appropriately resourced and deployed. When reevaluating targets, a near elimination of direct and indirect greenhouse gases within the next two decades should be considered the environmental starting point.
Economically, the range of risks and uncertainty should be rigorously assessed as well as the necessary resources from the view of positive return on investment. Equally, investments should be made based on their contribution to risk mitigation in the event of various market shocks. All too often the simple investment return argument overwhelms the risk mitigation aspects, a habit that should be adjusted.
The range of risks must include rapid and unpredictable changes in prices. This should also include supply reliability risks caused by either climate or political impacts. The take-away from today’s headlines is that these supply risks can be deep and swift and are not relegated to sometime in the distant future.
Speaking of risk, the role of natural gas is likely to change dramatically and unpredictably as well. For years, the U.S. and Canada have enjoyed very low prices compared to Europe and Asia. Currently, European prices are ten times higher than in the U.S. Exactly how the market will realign is unclear, but it would be unwise for a company to assume the current pattern is set in stone.
The good news is that most companies have already done a lot of work in evaluating efficiency and emissions reductions options. Equally good news is that many of the technical options have become less expensive and more effective.
Arguably the best news from a tragic situation is the raising awareness of senior decision makers both within a company and in the wider community. In just one example, in less than two weeks, the EU has accelerated its Green Deal targets, as much to reduce its dependence on energy imports as to meet the challenge of climate change.
Companies with significant assets in Europe will likely find a receptive audience for ambitious efficiency and emission reductions plans. This elevated awareness will extend to the company’s senior management. This creates an ideal opportunity for the Energy Manager to make comprehensive and ambitious request for support and resources.
This story originally appeared in the April 2022 issue of Plant Services. Subscribe to Plant Services here.
About the Author: Peter Garforth
