• Shell discovers the equation that will revive oil and gas
  • If green energy is failing, what’ll replace it?
  • Energy policy is about trade-offs too

Last year, we used the “three-body problem” as a metaphor for the challenges and opportunities facing AI. The idea was that there are simply too many variables determining AI’s future in the world. And that makes it impossible to predict its fate.

You can read about the three-body problem and how it applies to AI here. There’s only one thing I’d add. Last week, an AI robot was accused of groping a female journalist at a tech festival in Saudi Arabia. That proves my point in the article in truly bizarre fashion. You never know what’ll happen next in such a complex context.

Another three-body problem has emerged out of Shell’s Energy Transition Strategy 2024 report. And, this time, it really has three bodies instead of just “too many to figure out”.

In fact, it’s more like a school algebra problem. Do you remember it too? If you have two unknowns in an equation, an “x” and a “y”, then there are likely to be multiple possible answers. Different combinations of x and y which still give the right result. An entire range of them, in fact. You could plot them as a line on a graph with an x and y axis. If you wanted to…

Coming back to the point, the question is which combination of x and y will actually come about. There is only one reality, in practice.

You can tell I’ve forgotten my algebra terminology. But consider an equation with three unknowns instead of just two. This would create an even wider variety of possible outcomes.

Now let’s apply this to what Shell warned about in its report…

The equation that gives oil and gas a new lease on life

Shell argued that investment in renewable energy is falling short of what is needed to reach net zero by 2050. Far short.

Because of this, investment in fossil fuels needs to increase. Unless we are to have energy shortages. That’s what the German Court of Auditors is warning will occur in Germany unless the government changes course.

And so we have our three variables. Renewables + fossil fuels = living standards.

R + F = L

The energy transition is the attempt to cut fossil fuels (F) and replace them with renewables (R).

But if renewables fall short of what’s needed to sustain living standards (L), either F must increase or L must decline. It’s mathematically true.

Shell, being the wonderfully ethical company that it is, doesn’t want your living standards to decline. And so it suggests boosting investment in fossil fuel production. More F to raise L.

I’ll give you a moment to bask in the irony here. The failure of the energy transition, which we looked into yesterday, could result in a boom for fossil fuels as a direct consequence. After all, we need our energy to come from somewhere. Unless you’re one of those activists who wants to go medieval.

Let’s see how Shell put it in its own words:

Current global investment in low- and zero-carbon energy is around $1.7 trillion a year. To reach net zero by 2050, scenarios suggest that $3-4 trillion of commercially viable investment in low-carbon energy is required each year.

We’re falling just a bit short, then. And things haven’t been going well for green energy investments more recently, as yesterday’s Fortune & Freedom discussed.

Meanwhile, we have rapidly growing energy demand. So, as Shell points out…

Significant investment will be required to keep supplying oil and gas while low-carbon alternatives are developed and made commercially available.

This continued investment is needed because demand for oil and gas is expected to drop at a slower rate than the natural decline of the world’s oil and gas fields, which is at 4% to 5% a year.

The idea that for every shortfall of investment in renewable energy there must be an increase in investment in fossil fuels is of course debatable. I mean, you could just cut living standards…

But this may prove an unpopular option, politically. That’s what the German Court of Auditors also warned about. People might not be willing to go along with the energy transition if it continues to be a debacle.

The return of the trade-off

It has been described as the most important less of economics: there are no solutions, only trade-offs. And this energy equation is a prime example of it. Because the equation must balance.


You can’t just dream up energy out of nowhere. If renewables are falling short, as Shell calculated, you face a choice. You either invest in fossil fuels or accept falling living standards.

The Germans tried to deny this economic law. And failed to understand the equation. They believed they could cut nuclear power and emissions. But it was a trade-off. They couldn’t do both.

In the end, they had to add coal into the energy mix. They chose to increase emissions by using and producing more fossil fuels, rather than face a cut to living standards. They discovered it’s a trade-off the hard way.

But that was in the short term. What about the long term? How will governments seek to solve the equation R + F = L?

Will they increase investments in renewables dramatically, permit vast increases in fossil fuel energy use, or cut living standards?

Let me know: [email protected].

There is, of course, another option. You could add a new variable to the equation. One which revolutionises our ability to have enough power without having to increase emissions dramatically, nor rely on intermittent renewables.

More on that, soon.

Until next time,

Nick Hubble
Editor, Fortune & Freedom