Page 15 - ISQ July 2022

INVESTMENT STRATEGY QUARTERLY

Europe's Electricity Mix

% of total, 2020
As Europe transitions away from coal and natural gas, hydro-generated electricity
appears to be gaining the most market share – along with other renewable sources.

Coal
12% Natural
Other Gas
4% 22%

Non-Hydro
Renewables
27%

Nuclear
Power Source: BP Statistical

Conventional 24% Review (2020 data)
Hydro
11%

also reflects the fact that some top-tier marine shipping and from Russia. With electric buses and trucks added in, the dis-
energy companies are reluctant, for reputational reasons, to do placement could be 2.5 million barrels per day. To support this
business with Russia, even if there are no legal barriers to doing massive acceleration in EV sales, the EU targets an equally ambi-
so. The current discount is around $35 per barrel, whereas it had tious buildout of EV charging infrastructure: a ten-times increase
been only $2 per barrel before the war. Russia can still export as by 2030 from the year-end 2021 level of 370,000 publicly acces-
much oil as it is physically able, but it is less profitable, and thus sible chargers. In this context, let’s keep in mind that only
there is less cash flow for the Kremlin. one-third of Europe’s population lives in detached single-family
homes (versus two-thirds in the US), and for everyone else,
Is it ‘better’ for Europe to be dependent on oil imports from the
Middle East than Russia? In the sense that Middle Eastern coun- public charging is essential.
tries are not currently embroiled in a major war and seem less
inclined to use energy in the future as a means of geopolitical NATURAL GAS COMPLEXITIES
leverage, the short answer is yes, but it is a debatable point. In Turning to natural gas, the transition from Russian supply will be
the long run, the only solution for Europe to reduce its oil even more time consuming and logistically complex. Natural gas
imports is to use less oil, period. Europe cannot drill its way to in its normal (gaseous) state cannot be transported via tanker. To
energy independence, because it lacks the hydrocarbon do that, it must be cooled to an ultra-low temperature and thus
resources. Consuming less oil requires moving to electric turned into a liquid called liquefied natural gas (LNG). After
mobility. Europe already has the world’s highest level of electric transoceanic delivery, the LNG must be regasified before being
vehicle (EV) market share: 19% of 2021 light-duty auto sales, used for ordinary purposes: electric power generation, home
four times the US figure. However, the replacement cycle means heating, and various industrial processes. The LNG supply chain
that EVs still comprise less than 5% of Europe’s cars on the road. requires capital-intensive infrastructure and does not come
If we suppose that one-third of cars will be electric by 2030, that cheap. As a result of the war, European natural gas prices are the
would have the effect of displacing around 2 million barrels per highest in history – ranging in recent months between $20 and
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day of oil demand, or half of what is currently being sourced $30 per Mcf , three to four times the level of the US – and that is
MCf is a conventional natural gas measurement that is used primarily in the United States, where the imperial measuring system is standard.
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