Energy Security: True and False Choices

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Russia’s unsheathing of the energy weapon against European buyers and its military action against Ukraine has roiled global energy markets and inflated energy prices across the spectrum of coal, oil, natural gas and electricity. As the price shocks bring the energy security debate front and center in many capitals around the world, the discussion of policy responses reveals more about the confirmation bias of individual policy analysts and politicians than it does about the options open to governments and individuals to address energy shortages and price spikes. The question should not be which energy source, renewables or fossil fuels, provide more security. The choices, in fact, are not binary. Rather, the wide variety of technology options and available policy tools — many of which are too technically complicated for a political sound bite — demonstrates how far the energy world has come since the 1970s. The digital era is enabling. Policymakers need to grab the opportunity.

Historically, energy security has focused on three key pathways: diversity of supply; redundancy of infrastructure; and the need for backup emergency options such as oil and gas inventories and battery storage for electricity. Europe seems to have missed the boat on all three counts in its overreliance on Russian energy in multiple forms. Deconstructing the problem of relying on oil, gas, coal and uranium from a single source supplier offers some obvious lessons. The takeaway might seem to be that utilizing skilled diplomacy to shift reliance onto another single source supplier offers the quickest and most pain-free solution, but a more systematic approach — one that focuses on reconstructing and modernizing demand and not just supply — will yield better long-term results.

Real and False Choices

The first step in road mapping the way to improved energy security is not to engage in a false narrative about how it conflicts with the energy transition. The truth is that the number of years it takes to add an LNG export or receiving terminal is pretty similar to the number of years it takes to add a deepwater offshore wind installation. Shale drilling in the US and Canada (and potentially Mexico) is probably faster than either of those two options, measured in months rather than years, but initiating new deep offshore oil and gas development takes several years longer. All of the above also require lots of steel, labor and other materials.

As the EU studies its options, it is likely concluding that the time scale for renewables is the least of its problems. Ultimately, solar energy takes weeks, not months or years to install. In 2015, when a natural gas storage facility in southern California failed, solar developers were able to add 104 megawatts of solar combined with battery storage that replaced natural gas at the margin in a matter of weeks and paved the way for more ambitious renewables targets. Australia also used a combination of renewables plus storage, including virtual power plants, to end brownouts in its more sparsely populated western region.

There is no question that hydroelectric and peaking natural gas plants have served as effective backups to variable renewable energy and will be hard to replace. But that doesn’t mean they are the only solutions. As countries move forward on the learning curve, improvements in the operation of cross-border imbalance markets, that take advantage of wheeling electricity from one location to another to manage temporary deficits, will add flexibility. Integration of storage infrastructure solutions will also support greater electrification including “prosumer” two-way management of electricity flows to and from consumers — something Shell is now pursuing in its new renewables retail electricity business in Texas. New longer-duration storage technologies are also on the horizon, including hydrogen and high energy density metal-air batteries.

Digital Demand Solutions

In contrast to those options above, software solutions on the demand side are fast, efficient, inexhaustible and seemingly underutilized. The Covid-19 pandemic highlighted, too, how quickly digital solutions could be brought to market. Telecommuting, e-commerce, logistics optimization, home software control systems and 3-D printing — all accelerated exponentially during pandemic lockdowns.

Yet policymakers seem reluctant to organize additional energy savings benefits that could derive from directing such avenues into institutionalized directives — which could be a powerful tool. The state of California has taken steps to minimize emissions from ride-sharing and e-commerce trucks, but governments have not taken a serious look at how to incentivize better use of optimization software to minimize energy use across a number of domains like buildings, goods delivery and commuting. Google’s environment team boasts that it was able to achieve a 40% reduction in energy used for cooling in data centers via artificial intelligence and machine learning alone.

Overall, efficiency is not a popular jingle, but it is an effective policy tool. The International Energy Agency estimates that energy efficiency measures could eliminate 12 billion cubic meters of European natural gas demand. Energy Intelligence puts the potential as even higher and estimates it could be as much as 25 Bcm with a massive EU-wide effort — roughly the equivalent of half the volume Europe anticipates supplying via increased LNG imports.

The shift to electric vehicles also yields efficiency benefits. While critics suggest they could stress local grids with rising demand, on an energy-use basis, electric motors in vehicles are more efficient than traditional internal combustion engines. Electric motors convert the vast majority of their electric energy (60% to 85%) into usable power (e.g. movement). An internal combustion engine is much less efficient, converting only 40% of its gasoline fuel to usable energy. When losses in the form of heat in the drivetrain are considered, gasoline vehicles only use around 20% of the energy from burning fuel to move a car.

Crypto Conundrum

Beyond traditional energy efficiency arenas like buildings and transport, one promising new area for digital policy intervention is to consider measures that regulate the continual global shifting of power load for data mining and cryptocurrencies. Increasingly, big data electricity consumers are using day-ahead prediction models to reserve and literally move their computing consumption load across the globe to tap the cheapest available electricity rates and times of use and grab cheap, curtailed renewables. Proponents argue that the practice helps smooth out the demand load, thereby facilitating efficient use of renewable energy. But it also means that electricity storage providers will have to compete with data miners as storage developers gear up to provide hydrogen or battery energy from renewables.

Some countries are already fashioning responses to the opportunities and challenges of energy use from cloud computing for data and cryptocurrency. Bitcoin mining has, for example, been estimated to use 150 terawatts of electricity a year, equivalent to the electricity demand of Argentina. China has already banned decentralized digital currency mining inside its borders to reduce its disruptive effect on its electricity grid. Other countries and local entities like US cities and states are also considering how to regulate it. Crypto mining is already said to be a factor in Texas’ challenges to manage its grid stability, and greater policy intervention is required to gain the benefits rather than the detriment of daily movements of extra load.

In sum, as bitcoin mining is teaching government officials the hard way, the potential for digital technologies to make things worse or to make them better will be a huge factor in managing the current energy situation. Policymakers would be well advised to study their potential for good. As I suggest in my book Energy’s Digital Future, “a new wave of digital energy innovation, driven by the convergence of automation, artificial intelligence, big data, and the Internet of Things, will usher in a new geopolitical order of winners and losers. Industrial capacity, rather than the current geography of oil, will take an outsized role in this new energy world.”

Traditional oil and gas reserves are distributed unevenly around the world, but technical ingenuity is not. Forty years of repeated oil price shocks have been followed by deep innovation and strong economic recovery in countries that focus on technology solutions like the US and Japan. As policymakers focus on the current crisis, they would be well advised to remember that history.

Amy Myers Jaffe is research professor and managing director at the Climate Policy Lab at Tuft University's Fletcher School, and the author of "Energy's Digital Future." The views expressed in this article are those of the author.

Low-Carbon Policy, Emerging Technologies, Electric Vehicles, Renewable Electricity
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