Two years ago, when Covid-19 was announced to be a global pandemic, the lives of people around the world changed. Since close contact was prohibited, offices shut down. Travel was severely restricted. Due to this, major consumers like the automobile, aviation and manufacturing came to a standstill. Energy production and extraction was cut back due to an estimated fall in demand. And to an extent, it was true. Demand did slow down for a little over a year.
Mid- 2021 saw a sudden re-emergence of economies and demands. This drastic shift in demand, created a gap between demand and supply. For the first time in a very long time, the world noticed a supply chain crisis. An example of the same was observed when the semiconductor crisis broke out.
Despite the net-zero carbon targets set by nations around the world, the pandemic showed us how far dependent we are on fossil fuels.
Pandemic and Inflation
We have noticed the inflation, ever since economies began recovering in 2021.
Read the full article on Inflation and its effects here.
And due to the sudden increase in consumer demand, came a surge in fossil fuel prices. The prices that slightly fell during the pandemic, partly due to the estimated decline in demand, shot up considerably when the global economy began bouncing back.
Global supply chain has been so reliant on the use of fossil fuels, that it is the prices of these commodities that affect the market selling price of most consumer products.
Effect of Conflict
With an ongoing conflict between Russia and Ukraine impacting the prices of oil, there is no shortage of evidence that a war (or even aa threat of war) can have on the prices of fossil fuel-based energy. Major countries in the European continent face blockages to supply, since Russia is their largest provider of oil and natural gas.
Read about the roots of conflict between Russia and Ukraine here.
Another reason for conflict between consumer and producer countries, is the former telling the latter that they do not need as much fossil fuel-based energy, simply because they are transitioning to ‘greener’ forms of energy. The producer countries, whose major chunk of economy is driven by the sale of energy, when faced with a demand crunch, is forced to pump the prices up, to extract as much monetary value for the reserves they hold, while trying to sell most their current stock.
But since this industry is very closely knit, the prices rise across the entire sector. Given how dependent on fossil energy our modes of transportation are, there is not second guessing this results in the end consumer paying substantially higher for a product that cost lower.
This begs the question: “What is the true price of a greener future?”
Need for transition to cleaner energy
The need to transition from fossil fuels to greener sources of energy, is necessary, now more than ever. It being a time consuming process, governments across the world have chosen to squeeze out as much fossil fuel as possible, to try and generate revenue to help sustain the lengthy timeline of forming a green world.
But this isn’t a good way to get consumers to shift from fossil fuels. Providing them with an alternative, which is considerably affordable, would be a smart move.
In a race between fossil-fuel producers and the green energy consumers, it is imperative for countries to segregate demands for both in a manner that allows a healthy transition of each core dependency from fossil-fuels to more sustainable renewable sources.
Energy as a Business
Companies in the energy business are quite bound to feel the pressure doubly. On one hand they must extract as much value from the existing sources of energy, while developing a setup to switch to providing alternate sources catering to the future.
Here is what energy companies can do to make the transition:
- Invest in alternate sources of energy (renewable and sustainable)
- Set up an infrastructure (long term goals)
- Generate revenue from the sale of existing supply of fossil fuel-based energy
- Introduce alternatives to existing consumers (the transition); ensure the alternatives are more affordable in comparison to the non-renewables, making it appealing.
- Cost-push or Built-in inflation to drive the prices of fossil fuels up, making them less appealing, while squeezing out the last drops of revenue from sectors still heavily dependent on them
- Lower the prices of alternative sources of energy, increasing their appeal
- Adapt to the consumer switch (marketing strategies to promote awareness)
- Expand the new line of business
Many countries around the world have set targets to achieve net-zero carbon emissions. While some may do it sooner than others, change is inevitable.
Adapting to change will require monitoring consumption, infrastructure, distribution techniques, and wastage of energy. Though it may be easier said than done, the energy crisis has shown us the urgency in the need to switch to alternative renewable sources of energy. There are still various unexplored sources of renewable energy that could make a large impact on the way we use energy.
How can the transition be made smoother? Let us know your thoughts, in the comments below.