Accelerated clean energy can displace all Hormuz flows in next few years: report

The Energy Transitions Commission (ETC) has warned in a new report that crisis-driven responses that reinforce fossil fuel dependence “risk locking economies into higher costs and long-term vulnerability.”

“Fossil fuel systems transmit shocks; clean energy systems absorb them. Fossil systems depend on continuous commodity flows through concentrated chokepoints and transmit disruptions instantly through global prices. In contrast, 70–90% of clean energy costs are upfront capital,” said the commission, whose members include executives from HSBC, Shell and ArcelorMittal.

Once built, solar, wind, batteries and grids deliver energy “for years, regardless of market disruption,” stressed the report, which is entitled ‘Lessons on Energy Security after the Hormuz Crisis.’

“Accelerating clean energy deployment can displace the equivalent of all Hormuz flows over the next few years and is the most durable route to economic resilience and energy security,” the report added.

The closure of Hormuz disrupted 18.4 million barrels per day of oil — the largest supply shock on record, exceeding the 1973 Arab oil embargo — as well as 20% of global LNG trade.

Around 84% of crude oil and more than 80% of the LNG that passes through Hormuz is destined for Asian markets, the report added, noting that Asian benchmark oil prices rose from around $70/bbl to $90-120/bbl in March, while LNG prices rose from around $10-12/MMBtu before the crisis to above $25/MMBtu in the same period.

The benchmark Japan-Korea Marker for spot prices in Northeast Asia skyrocketed by 94% during March alone, Gas Outlook reported.

Qatar, once considered a highly reliable supplier of LNG, declared force majeure in early March on LNG deliveries after its enormous Ras Laffan LNG site suffered damage from an Iranian rocket attack.

The Middle Eastern nation’s LNG exports were completely shut down for approximately 60 days. Full restoration of the Ras Laffan facility is expected to take between three to five years.

The disruption is costing Europe almost €500 million per day, the report authors warned, with higher oil and gas prices feeding directly into transport, food, household energy and industrial costs.

In addition, if sustained, elevated fossil fuel prices could add between $1 trillion and $2 trillion in annual gross oil and gas expenditure, compared to the between $2 trillion and $3.5 trillion needed to build a net zero and more resilient energy system all the way through to 2050, the report noted.

New fossil infrastructure, on the other hand, would lock in the next market shock, the research argues, adding that new oil and gas fields typically take 5–10 years to reach production while rooftop solar and heat pumps can be scaled within a matter of months.

“The current crisis shows that fossil fuel dependence is not only a climate risk but also an economic and strategic vulnerability,” said Adair Turner, co-chair of the ETC.

“Clean energy systems are more distributed, more efficient and less exposed to the price shocks created by continuous dependence on traded fuels,” he added.

Countries can reduce exposure to fossil fuel volatility while strengthening energy security and affordability by accelerating renewable electricity deployment, electrifying road transport, heating and cooking, and scaling green fuels and fertilisers, the ETC advised.

“For decades we have built an energy system that is wasteful, insecure, and volatile. Three quarters of the world’s population depend on fuels they do not control, priced in markets they do not influence, vulnerable to shocks they cannot prevent,” said Jules Kortenhorst, co-chair of the ETC.

“The defining question now is whether governments act to build a more resilient system or to sustain one which is already vulnerable to disruption,” he concluded.