Balancing transition with security of energy supply

The energy industry continues to live up to being known for high levels of dynamism and transformation, as well as its adaptability and resilience.

It is doing so now against a backdrop of major Covid-related challenges and changes over the past few years, and in response to the ongoing needless Russian conflict.

Recent geopolitical events have contributed to oil and gas commodity prices reaching new levels. Everybody is experiencing the impact of this – from our heating and fuel bills to record inflation, which is also attributed to a demand rebound coming out of the Covid pandemic.

It has been openly known for many years how critically dependent much of Europe is on Russian oil and gas.

But not many people would have predicted the complex circumstances that stem from this.

Security of energy supply is a new term that many would not have used or heard of prior to the first few months of this year.

It is now a critical item on the agenda of most European countries, including the UK.

Each country has different energy sector circumstances, and in the UK we can be blessed to have an industry that is not only mature, resourcerich, relatively stable and established, but is also becoming increasingly diverse, innovative and more balanced.

It is far from perfect in the UK but we are, arguably, more fortunate than many.

Like it or not from an energy transition and net-zero perspective, it seems the reality of the energy industry will soon be that its various sectors, from hydrocarbons to renewables will require a finer balance, with a bit more give and take to solve problems today and to achieve our long-term objectives.

One thing most likely certain is the journey to energy transition may not be as clean-cut as many would have hoped for.

High hydrocarbon commodity prices have given oil and gas producers an incentive to increase their commitment to exploration, development and production.

This is in reaction to major problems today that are beyond our control.

But, for those operating in this sector, it may be the last big chance to realise their potential.

Crucially, these companies will also be contributing to a security of supply solution.

Investors and society will now be watching carefully amid expectations these companies will be reinvesting more into broader, cleaner energy technologies for the longer term.

In parallel to the hydrocarbons sector, it is pleasingly evident that renewable energy is also much higher in demand.

The unique situation today, where both energy sectors are in high demand because of world events, would have seemed unlikely at any point in the past.

The Covid pandemic has helped create a massive shift towards sustainability and greener, cleaner energy.

There is also now an opportunity for renewables to contribute towards security of energy supply, alongside and in competition with traditional hydrocarbons.

Not only is there more cleaner energy technology in use and being developed than ever before, but there is also a much larger and growing investor community in this sector. Even traditional oilfield service companies have their sights on investment and revenue streams in everything from wind to solar and geothermal energy.

Key to finding the best solutions that address security of energy supply will be the technologies that offer the greatest base load potential – and those whose costs can be brought down far enough to allow competition with traditional energy markets.

At the heart of all of this is the wider collaboration and investment we are now seeing from across all energy sectors.

In these challenging and dark times this is something to celebrate.

Alasdair Green, partner and energy team lead at Anderson Anderson & Brown, said recent events have affected the journey to energy transition.