Turning up the heat on energy security

Three things to start:

Welcome back to Energy Source.

Europe is scrambling to deal with the economic fallout from this year’s energy crisis. The west’s showdown with Moscow over its invasion of Ukraine is at the centre of it. But today I report on how the extreme heatwaves and drought, fuelled by climate change, has also played a central role in exacerbating sky-high prices and shortfalls.

In Data Drill, Amanda has a breakdown of US power sector emissions by company.

Thanks for reading. –Justin

Climate change compounds energy security crisis

Russian President Vladimir Putin has played the starring role in this year’s energy crisis. His weaponisation of energy supplies has caused fears of shortages and sent prices of crude, natural gas and electricity soaring. But extreme temperatures around the world, very likely caused by climate change, have also played a crucial part in driving up demand and prices.

California’s struggles to keep the lights on this week amid a scorching September heatwave is the latest sign of how climate change is stressing the global energy system. Electricity demand hit all-time highs on Tuesday as people cranked up their air conditioning to ward off record-setting heat across the state.

The state has rapidly expanded its base of renewable power and batteries to slash emissions, but power generators were forced to pull hard on natural gas supplies to meet the soaring demand. An extended drought has cut into available hydroelectric supply, a big source of carbon-free electricity.

It is only the latest heatwave to stress the US power grid this summer. Here in Houston, we had the hottest June ever measured and it was the hottest July on record for the state of Texas. Like in California, the record heat in Texas sent power demand to new highs and pushed the grid to breaking point.

The two states avoided outages this time round. But California and Texas combined account for about a quarter of total US GDP, and this summer has shown both are likely to face years of power insecurity as rising temperatures, fuelled by climate change, and a complicated shift to green energy, press their power grids to the limits.

The soaring demand has also contributed to the increase in natural gas and coal prices, which is subsequently pushing up electricity costs.

US natural gas prices remain far below those in Europe, but the Energy Information Administration said yesterday that it is now forecasting the Henry Hub gas benchmark to average more than $9 per million British thermal units through to the end of January. That would be the highest winter natural gas prices the country has seen since 2008.

European heatwaves and drought likely would have made this year difficult and costly even without Moscow’s energy squeeze. But Putin’s actions have pushed the situation to the brink of catastrophe.

“The gas [disruption] alone would have a potent impact on power markets, but when compounded with intense summertime heat — which increases overall power demand while diminishing hydro output — this one-two punch makes for an exceptionally difficult situation,” Pavel Molchanov, an analyst at Raymond James, an investment bank, wrote in a recent note.

The global effort to maintain stable and affordable energy supplies amid this year’s disruptions has inflamed the debate over the role of fossil fuels in the world’s future energy mix. But this summer’s heatwaves and droughts are a reminder of the present danger if we fail to curb carbon emissions. (Justin Jacobs)

Data Drill

US power sector carbon emissions increased 7 per cent in 2021 — a rise largely driven by easing coronavirus pandemic restrictions and greater coal generation amid higher natural gas prices, says a new report by Ceres. The jump marks a sharp reversal from 2020, when carbon dioxide emissions dropped 10 per cent.

The Ceres report tracked emissions from the top 100 US electric power producers and found a handful of companies are responsible for the majority of sector emissions. Nineteen of the 100 largest producers are responsible for half of all carbon dioxide emissions in the power sector. Just two were responsible for a quarter of all sector sulphur dioxide emissions.

Despite the upward tick, the power sector has made large strides in reducing pollution. Ninety of the 100 largest power producers generated electricity from zero-carbon sources in 2020. From 2000 to 2021, carbon dioxide emissions are down 34 per cent and remain below their 2007 peak. Sulphur oxide and nitrogen oxide emissions declined 93 per cent and 85 per cent respectively, says Ceres. (Amanda Chu)

Power Points