The Global Collapse of Oil Shows the EU and Cyprus that Fossil Fuels are a Dead End
Among the daily terrifying news about coronavirus’ spread throughout the world, you may have missed something inconceivable happen to humanity’s favorite energy source. The price for a barrel of oil went negative, which means that oil producers will pay for someone to take their oil off their hands and store it. This is a result of the historic change in how humanity has lived in the past two months, putting transportation and oil consumption on pause as we shelter in our homes for the good of public health.
Fossil fuel divestment activists have long endorsed the theory of sunk cost, essentially that the way that humanity will have to change our pattern of behavior due to the crisis of climate change means 80% of fossil fuel reserves need to be left in the ground. Years of ignoring these warnings has left fossil fuel companies vastly overvalued. If humanity is to limit the warming of the planet to 1.5˚C, as the world agreed in Paris in 2016, then we will need to reduce greenhouse gas emission by approximately 7 percent per year. Coronavirus has given us a dress rehearsal of this theory in practice. Due to the rapid disruption in our lives due to the virus, projected global greenhouse gas emissions are down in 2020 by … 6 percent. As we have shifted our lives to contain the current crisis, let us cast an eye to the future and discuss what the collapse of oil prices should tell us about the efficacy of fossil fuels in a modern economy, one that is hopefully interested in preserving humanity.
For the last 10 years in Cyprus, we have heard much about the promise of Liquefied Natural Gas (LNG) as a solution to a myriad of problems: it will bring peace to our long divided island, bolster our economy and bridge our transition toward a clean economy. Putting aside that LNG has exacerbated geopolitical tensions with Turkey and that claims about natural gas’ effectiveness as a “bridge fuel” are based on overly optimistic economic predictions and misleading marketing. Instead, let us only focus for the moment on the economic aspect, the idea that Cyprus needs to exploit this fossil fuel resource in order to bolster the economy.
The Aphrodite gas deposit is indeed a massive resource. The total valuation of natural gas in the deposit is approximately $9 billion. Of this, approximately $2–3 billion will need to be invested to build the infrastructure needed to acquire, liquify and export this gas. The $9 billion valuation is based on the current boom of natural gas demand in the world, priced such in part thanks to the recognition that coal, and, to some extent oil, are on their way out. From a cost-benefit analysis, Cyprus will sink an estimated $3 billion into infrastructure to get $9 billion worth of gas. This means there’s a $6 billion profit, right? In an unchanging world, where energy prices are static and demand remains stable, that is indeed what would happen. However, if we have learned anything in the past two months, it is that the world is not unchanging and that we must prepare ourselves for future crises.
With climate change already starting to affect our daily lives, we must assume that massive changes to our lifestyles are not only necessary, but imminent, if we are to avoid their worst effects. In an influential essay titled “Global Warming’s Terrifying New Math,” American author Bill McKibben wrote that approximately 80 percent of fossil fuel reserves must remain in the ground in order to meet the target of 2˚C warming that the world has set for itself in multiple climate agreements (to meet the Paris Agreement goal of 1.5 ˚C, he writes that all new fossil fuel exploitation projects must stop immediately.)
What does this mean for natural gas projects like the Aphrodite gas field? It means that despite its $9 billion valuation, responsibly exploiting this gas means that only approximately $2 billion of its value should be exported for use. The rest should stay in the ground. But wait, given that Cyprus needs to invest $2 to $3 billion to even begin this exploitation, why would we leave the rest in the ground?
It is an all or nothing scenario, that is true. Given the massive profit potential, why companies stop drilling at a loss to themselves? Even at great cost to the planet, will CEO’s of multibillion-dollar corporations take humanity’s best interest into account? With the grand promises made about the transformative potential of gas exploration, will we really make the decision to come up with nothing?
As the recent collapse of oil prices in reaction to the current crisis shows, that decision is already being made for us, either by the forces of Mother Nature or the curves of the free market. Oil is the latest example of a formerly “safe” investment falling apart as the world shifts around the coronavirus crisis. Coal is another example: the industry is facing $221 billion in losses by 2050, and in the coal giant United States, publicly traded coal companies have lost 99% of their value. Given that the two largest fossil fuel sources are hemorrhaging money, why is there such a strong desire to invest our future in natural gas?
There is another future we can invest in, rather than digging ourselves into a financial and ecological hole. Cyprus is one of the sunniest countries in the European Union and possesses ample potential as a clean energy hub in the Eastern Mediterranean. This is the time to invest in the energy and economic future of our island and the European Union, as fossil fuels show they are a dead end and tourism remains under threat due to coronavirus.
There is a roadmap for how Cyprus can pivot from a pointless endeavor in natural gas towards a fruitful investment in renewable energy. The Yasuní ITT Initiative in Ecuador was a unique proposal to forgo oil drilling in the Yasuní National Park, in exchange for the international community pledging half of the oil field’s value in investing in a just and sustainable transition to Ecuador’s economy. Unfortunately, the international community failed Ecuador, only pledging approximately $200 million in funding, but the idea could be adapted to fit Cyprus. Unlike Ecuador, Cyprus is a tiny nation, weighing in at 30.5 times smaller by area with less than 6 percent of its population. Unlike Ecuador, Cyprus already has the financial capital and willingness to invest in massive energy projects — the $2 to $3 billion it has promised for natural gas infrastructure. Unlike Ecuador, Cyprus is part of a large, powerful and wealthy federation of states that has shown willingness to invest in massive capital projects, as well as shown a desire to be a leader in solving the climate crisis.
What better way to demonstrate that desire than to invest in a European Union nation to become a model for renewable energy generation? In exchange for this boon for Europe, the Eastern Mediterranean and the world at large, Cyprus will declare the Aphrodite gas field as off limits for drilling by any country or company. This project could even borrow the beautiful name given to the gas field: The Aphrodite Initiative.
The benefits of such an approach are clear. Rather than building infrastructure to provide large fossil fuel companies profit in exchange for the destruction our sea and atmosphere, the Aphrodite Initiative could instead invest money into creating a network of Cypriot businesses and jobs; from solar and wind farms, to installation companies, to energy managers. Cyprus could export extra renewable energy to our neighbors, especially with the already planned for construction of the EuroAsia connector between Greece, Cyprus and Israel. Energy costs, which currently are among the highest in Europe, would be driven down by the production of our own energy, and the reduction of fines on the Electrical Authority of Cyprus, which otherwise will continue to accrue due to missing emission reduction targets. Cyprus would gain world renown for such a forward-thinking approach, and it would not be too much of a stretch to suggest tourism would benefit as a result.
For too long, Cyprus has been promised natural gas as a solution to all of our problems: economic, social and environmental. The recent clashes with Turkey over the ownership of the Aphrodite gas field prove that natural gas will not bring peace to Cyprus. The deleterious effects of methane produced by burning natural gas and the debatable nature of natural gas as a bridge fuel are indicative of major environmental concerns. And the collapse of oil prices as a result of the response to coronavirus show that fossil fuels are far from a safe bet economically. Instead of sinking our money into an industry that has no future, let us transform Cyprus into a model for what a productive and sustainable future can look like.
Nikolas Michael is a Fulbright recipient researching the effects of climate change on Cyprus, both physically and politically.