Contrary to what people might assume from reading this blog, I like fossil fuel. I don’t think that oil, gas, and coal companies should go out of business. And I am grateful for the fact that the generous use of fossil fuel in my lifetime has given me the chance to live in peace and prosperity in the developed nations of Germany and Japan for the last couple of decades.
I’m a friend of fossil fuel.
Actually, I like fossil fuel so much that I am opposed to burning it. That shows a lack of respect similar to burning the remains of humans. At least if you see it from the perspective of the plants that were the basis for fossil fuel in the first place.
My second global warming science fiction novel “Tasneem” explores that particular idea.
Anyway, the occasion for this post is a report on earnings of oil companies on a German website.
If you follow energy topics, you may have heard that oil prices are down. Can you guess what that means for the profits of oil companies in the second quarters of this year?
You guessed right. They are down as well. I learn from that article that oil supply is up, which is the reason that prices have gone down.
Why do oil companies insist on having a high supply, reducing their own profits in the process? Why doesn’t everyone in the industry switch back production a gear or two?
Over the coming decades, fossil fuel will be replaced by renewable energy. Even if there was no need to do this because of global warming, declining prices for solar and wind energy (and batteries) mean that fossil fuel will lose market share.
That’s a good thing, in my view. It is necessary to avoid the worst consequences of global warming.
But anyway, all things equal, fossil fuel prices will go down because of renewable winning in the marketplace, except if fossil fuel supply goes down faster than its market share.
The fossil fuel industry needs a strategy. They need to come up with a plan to reduce their supply faster than the demand for fossil fuel falls in the first place.
They may still be able to keep their high profits for the next couple of decades, which will see a phaseout of fossil fuel demand no matter what.
And they may still be able to transition to a future where no one burns fossil fuel but it remains a valuable commodity as input for the petrochemical industry.
To help them achieve that goal, politicians should make a reduction in supply of fossil fuel mandatory, just like there is a mandatory reduction of demand in Article 7 of the Energy Efficiency Directive.
They should also create an exemption from competition law allowing oil, gas, and coal companies to enter into industry-wide agreements on reducing supply.