Oil and gas prices are rising – a reminder of how dependent we still are on fossil fuels

We need to use less energy, writes Hamish McRae, and the fact that it has suddenly become much more expensive should encourage us to do so

A section of the BP Eastern Trough Area Project oil platform in the North Sea (Reuters)

The oil price hit a seven-year high on Monday with the benchmark Brent crude going over $87 a barrel. Following on from the surge in gas prices, it was a salutary reminder of how dependent the world is on fossil fuels. It may be moving rapidly towards a carbon-neutral economic system, but it has a long path to travel.

Everything has been disrupted by the pandemic, but according to the International Energy Agency, in 2019 oil accounted for 31 per cent of primary energy supplies, gas 23 per cent, and coal 27 per cent. That adds up to 81 per cent of the total. Back in 1971, before the first oil shock, the total was nearly 87 per cent, which gives you an idea of how little progress has been made over half a century.

The subject is so massive that it is hard to process the global significance of the current surge in oil and gas prices. Coal, too, has shot up to an all-time record. That does not hit the headlines because it is mainly used in power stations, but it is currently around $220 a ton, compared with between $50 and $130 between early 2009 and last spring. From an environmental point of view the high coal price is welcome, in that it will discourage public utilities from using it to generate electricity if they have any other options. But in the short-term it adds to inflation, as do gas and petrol prices.

So what happens next? You have to distinguish between short-term and long-term. In the next few days there will be some sort of announcement for UK households for help with gas bills. There has to be. Both major parties are in favour and the only issue is how you do it. Right across Europe governments are scrambling to develop similar schemes, with president Macron in France forcing its national power company to sell more electricity at a discount. In the US one household in five could not pay their energy bills last year. This winter the situation will be worse.

Governments have a duty to protect the weakest from the pain of excessive fuel bills. No decent country can allow its citizens to freeze to death. If that means that some people’s bills are subsidised – held below market costs – then that is what has to happen. But that has to be set alongside the twin long-term needs to encourage energy conservation and to develop alternative sources of energy. The silver lining to the cloud of surging energy prices is that they put pressure on both to happen.

Conservation has been pushed rather to the background by the pandemic. A simple example: more energy is used by having space heaters warm drinkers in pub gardens than it does to keep them warm inside the pub. However these conditions will not be with us forever and now is the time to plan better for the future. Societies make mistakes if they try to move too fast. Look at the cladding catastrophe, where a sensible idea – improving the thermal efficiency of buildings – was turned into an unspeakable disaster by poor building standards and inadequate regulation.

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As for alternative sources of energy, there is the need for similar caution. Look at Germany. It has the biggest wind-power development in Europe but nevertheless last year relied on coal for about one quarter of its electricity generation. Environmentalists are pushing back against further onshore wind projects, with the Nature and Biodiversity Conservation Union of Germany arguing that wind farms kill 100,000 birds a year.

On a long view, the shift to renewables is inevitable, and the current price pressures in the oil, gas and coal markets are a spur. But while the shift is moving much faster than was predicted even a couple of years ago, the scale of the transformation will require technologies to be developed that do not yet exist. Conservation of energy can, however, be stepped up, because it is a matter of applying more widely technologies that are already in use.

That surely is the main message we should take from this surge in fossil fuel prices. We need to use less energy. The fact that it has suddenly become much more expensive should encourage us to do so, just as the oil shocks of the 1970s encouraged people to switch to smaller and more fuel-efficient cars. The weakest must be protected, but for the rest of us this is a wake-up call to try to be more sensible in our use of energy.