Energy security in an insecure world | Business Beyond

Energy security in an insecure world | Business Beyond

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It’s literally the fuel of the global economy. Energy comes in many forms and has countless uses.   Making sure a country has enough of it is  a critical priority for any government. 2022 has been a year of crisis in the global  energy sector. The after-effects of the pandemic   were compounded by Russia’s war in Ukraine.  Markets were upended, prices have skyrocketed  

and old assumptions have been shattered. These are really major developments that   would define 2022 as an important era or  landmark in the history of energy markets. As the world reels from price and supply shocks,  energy security has become a major concern. 

I would say whether it's  Pakistan, Bangladesh, Sri Lanka,   all of these countries are in dire  straits because of the energy.  And as Europe has rushed to secure its own  supplies, others have been left in the cold.  They're facing real challenges and questions over  how much they pay, how much they can afford to   pay, and how that affects the domestic supply  and the lives of people in those countries. 

In this video, we’ll ask if energy security could  become a casualty of rising geopolitical tension.  I really see energy as one of the few remaining  bridges between the United States and China  If the chaos of recent times has disrupted the  world’s transition towards renewable energy.  There is no doubt that we are going towards a  new energy system. No one can stop this process.  Or if the world can emerge from this moment  with a more secure, resilient energy system.  There has been a bigger focus on the nexus  of energy security and climate because you   cannot be energy secure without addressing  climate change, without decarbonizing  That’s all coming up on Business Beyond.  2022 is still not over, yet it’s already  clear this has been the year when global   energy markets reached breaking point. It has just exacerbated what was already  

becoming pretty critical in the energy markets  because of Covid 19 Pandemic, where you saw   consumption and demand for energy plummeting to  very, very low levels because of the lockdowns  And then, just as the effects of the pandemic  began to abate, Russia invaded Ukraine.   Overnight, the world had changed. For energy  markets, that change appears to be permanent.  There is no going back to huge reliance on  Russian energy sources. There is no going back to   pre-February 24th. So we're talking about, in one  sense, in the way some of how some of the global   routes have shifted. Yes, it's absolutely  a turning point, in a sense of how we're  

understanding geopolitics and energy and kind  of seeing those two just completely intertwined.  Russia has really made very clear that it is  not willing to respect basic international   norms of respect for borders and that it is  willing to use energy as a weapon against   its primary customers and its closest neighbours  and that there's really no going back from this.  And so the big change then to the market  is with Europe renouncing Russian oil   and decreasing Russian gas and soon renouncing  Russian products. That has led to a major  

restructuring of both global oil and gas markets. At the end of 2021, Russia was the EU's main   supplier of energy. It accounted for one third  of the EU's oil imports and just under half of   all the natural gas that came into the bloc. The war led the EU to dramatically cut back   the amount it imports. It now plans to  be independent of Russian energy by 2030.  Cutting out Russian oil and gas has contributed  significantly to the upward spiral of energy   prices over the last couple of years. According to the IMF’s fuel price   index – which measures global prices for  crude oil, natural gas and coal – prices   globally have increased SIXFOLD since April 2020. Russia’s invasion has pushed prices ever higher. 

The International Energy Agency has  said that the world is now facing   its first truly global energy crisis as  a result of the overlapping problems.  In a recent report it said: "With unrelenting geopolitical   and economic concerns, energy markets remain  extremely vulnerable, and the crisis is a reminder   of the fragility and unsustainability  of the current global energy system.”  The heaviest burden is falling  on poorer households where a   larger share of income is spent on energy The crisis has forced Europe to confront something   many believe it had neglected for decades – its  long term energy security. But what exactly do   we mean when we talk about energy security? For me energy security is the ability of   a country to access affordable, reliable,  sustainable sources of energy free from coercion.   So that's the definition for it. So in that sense  the United States is able to access that supply,  

though it may be expensive at times without  coercion. Europe by contrast is not able to   access physical supply without coercion  right now from Russia and therefore it's   energy insecure. And some countries in Africa  are just unable to access energy supply period.   And so they are energy insecure for that reason. It has evolved over the last several decades. I   think when we start with the  basics, energy that is affordable,   that's reliable, that's accessible, equitable” Access to reliable, affordable energy is of   critical importance to practically every  commercial activity on the planet. It is   also vital for the provision of some of humanity’s  most basic needs such as food, water and heating. 

The world gets its energy from many sources.  But one branch remains dominant: fossil fuels.   The main fossil fuels are coal, oil and gas. The remaining share is taken up by nuclear   energy and renewable energy, including solar,  wind and hydropower. But fossil fuels still   accounted for more than 83% of the world’s  primary energy consumption at the end of 2021.  Some countries have much easier  access to energy than others –   often the geological luck of the draw. For consuming countries like India,  

Germany, we do not have enough, well, I would  say fossil fuels, because 80% of the world is   really dependent still on fossil fuels. So it  is the availability of supplies at affordable   prices. And when I say affordable prices, for  countries like India, affordable is really the   most important thing. But for producing countries,  of course, it is having sustainable markets.  But the climate crisis has changed  perceptions of what energy security means.   Many experts argue that only a renewable energy  based system can be regarded as truly secure.  It's accessibility, it's abundance. And it's  also, of course, right now making sure that  

energy is low carbon and that we're on the path  to net zero as we think holistically about what   an energy secure future means. Now, I want to  be clear that it doesn't mean no oil, no gas,   but it means that eventually we want that  to be a net zero equation. And it could   look that way in a lot of different ways,  but that's what being energy secure means. 

That brings us to two big questions. Can  the world transition successfully to a   renewables based system and if so, what  will that mean for fossil fuel providers?  As we’ve seen, fossil fuels still  dominate the global energy mix.   And their cause was boosted in the immediate  aftermath of Russia’s invasion, with several   countries turning back to heavily polluting  fuels such as coal in order to meet energy needs.  But according to Francesco La Camera, those are  short-term emergency measures in response to a   crisis which will ultimately accelerate  the transition to green energy. 

We have seen that countries are raising the  ambition. Look at the Inflation Reduction Act   in the United States, the most important legal act  in the country in favor of renewables, in favor   of hydrogen ever made. And look at the European  Union – FLASH - you have seen the same in India,   you are seeing the same in South Korea and Japan,  also in China with the five years plan. So in our   point of view, the crisis will bring in the  midterm and acceleration of the transition.  The Inflation Reduction Act and  the Infrastructure Bill – two   major pieces of legislation passed this  year by the Biden Administration in the   US – have dramatically incentivised  investment in renewable energy.  These two bills have really transformed the fiscal  framework for clean energy in the United States.  

And in talking to investment bankers, the United  States has now jumped to the head of the class   in terms of attractive investment destinations  because we have a ten year at least guaranteed tax   framework which makes investment in renewables a  business rather than just a project. So you're not   just dependent on a one time expense or investment  from government. And so this will affect   everything from solar and wind to electric  vehicles, to hydrogen, to carbon capture   and storage, battery technology, both  battery manufacture and processing and   development of critical minerals. So  it's really a radical transformation  The transformation is not being lost on  the world’s biggest fossil fuel producers.   The CEO of Saudi Aramco – Saudi Arabia’s  state-owned oil enterprise – recently said:  We need to realise that today alternatives  are not ready to shoulder a heavy load of the   growing energy demand and therefore we need to  work in parallel until alternatives are ready.  It’s a view shared by some experts, who say  that encouraging an end to all investment   in fossil fuel production too quickly  will lead to more energy insecurity. 

When you make these kinds of statements and  you are discouraging investors from expanding   oil and gas production, expanding  infrastructure for natural gas,   diversifying your source of energy and you wait  for renewable energy to save the world. The crisis   has clearly shown that they cannot on their own. We need every single fuel that is out there   produced and consumed in a more sustainable  way. This is a kind of realistic path to   achieving both energy security and climate  security. Until renewable energy can handle   by itself the global energy needs. Then you can  say goodbye to fossil fuel, but not before that.  Until that time comes, the influence of the   world’s major fossil fuel producers on  global energy security is not in doubt. 

The recent decision by OPEC PLUS – that’s the  Organization of Petroleum Exporting Countries   acting alongside Russia – to cut oil production  in order to keep prices high, is a good example.  Yes, they do have lots of weaknesses, but  I think they still play a quite influential   role in oil markets. And put simply, if  OPEC Plus was not in the picture today,   oil prices would have been much lower than  what we are facing. It's just a plain fact.  The Biden Administration had lobbied for  Saudi Arabia not to cut production, mainly   because the US President wanted to keep fuel  prices down ahead of US elections in November.  Biden having to court the Saudi leadership,   after heavily criticising them over human  rights issues before coming to office, was   an illustration of how energy security needs can  end up trumping almost everything in geopolitics. 

One of the biggest concerns around the global  energy crisis is the manner in which it is   hitting the poorest countries hardest. A clear  example can be seen in the global LNG market.  LNG stands for Liquefied Natural Gas. It’s natural  gas that has been cooled down to liquid form,   making it far easier to transport than  in its gaseous form, for example by ship.   The volume of gas in its liquid state is  600 TIMES smaller than in its gaseous state. 

So when the war in Ukraine meant  the EU needed new gas supplies,   LNG came into the picture. European demand  for LNG has surged in 2022 and it’s been met.  But there is a fixed supply of LNG in the  world. That means that several countries in   Asia – such as Bangladesh and Pakistan  - have been priced out of the market.  

They have been able to acquire  far less this year as a result.  The fact that Europe is pulling in all this  LNG and it's pushing prices up means that for   some countries in Pakistan and Bangladesh,  it has a clear impact on their ability to   buy spot cargoes. And that can have a direct  impact on power generation or blackouts in   parts of the countries and also for them to  go back to dirty or fuels such as oil fire   generation or coal fire generation. So the  implications for the environment as well.  It’s a reflection of how energy insecure  many countries are across the global south.  Bangladesh has seen blackouts, they have massive  problems and they are so dependent on electricity   because of the industry, especially the garment  industry. Pakistan is the same. They have   blackouts and then they have the floods, natural  disasters, the economy is already in a mess  Shebonti Ray Dadwal is an energy security  expert based in New Delhi, India.  

She says it is critical that countries have a  diversity of energy sources to avert catastrophe   when one primary source fails. So you have to make sure that   you're going to be well covered. Your  energy bases are going to be covered.   So they are going to be we can't stop  another country from pulling in all the   energy because they need it. Yet some believe that as the   world’s energy mix evolves, the risk of greater  energy insecurity in developing countries will   increase if action is not taken, due to the  high cost of investing in renewable energy. 

I think it is a serious risk that the industrial  west or the OECD nations will have security and   that the Global South will be insecure. And  so that's why I think it's incumbent on,   I would say, the OECD nations because of  the dominant shareholding of the World Bank   and the American Development Bank and all the  other development banks and in the IMF to make   the energy transition more affordable. While the energy security stakes are   perhaps highest for the world’s developing  nations, the world’s most powerful nations   are also deeply invested in securing  their energy needs for the future. 

One of the most significant developments in  global energy security of recent decades was   the US shale gas drilling revolution. Through technologies such as fracking,   the US transformed its gas and oil  production over the past two decades and is   now one of the biggest producers in the world. Since Richard Nixon, virtually every president   has campaigned on bringing the United States  energy independence through one way or another,   which we thought was pretty much impossible  until the shale revolution when we didn't become   independent, but we became self-sufficient. Energy consultant David Goldwyn served as   the US State Department’s special envoy for  international energy affairs from 2009 to 2011.  The United States is energy secure  because we have ample resources of oil,   of gas, of coal. We have a significant  nuclear fleet, and now we have a growing,  

not only clean energy industry, but we have large  sources of hydropower, which we've had for some   time and now solar and wind. So physical lack of  supply is not really a risk for the United States  One of the major geopolitical challenges of the  coming years is the rivalry between the United   States and China and the question of which  one will be the pre-eminent superpower of   the 21st century. But what role might energy  play in their nascent battle for supremacy?  for China to become the second  largest power in the world, to rival,   you know, come almost up to the United States,  their economic growth has really put China   where it is today. So, again, the energy becomes  very important to sustain those growth levels,   as well as to really fuel their Humongous, army,  Navy, Air Force, they need all that energy.  So I would say that and the linkage with  China and the world energy market is that   when Chinese consumption drops, you start  seeing there's a lot of more supply and   the producers start getting worried  that prices are going to come down. 

One area which China has been historically  concerned about is the Strait of Malacca,   between Malaysia and Indonesia. In 2021,  70% of its petroleum and 60% of its total   trade passed through those waters – which are  under the tactical control of the US navy.  I think China is very worried that if, say,  a problem happens in the Pacific Ocean,   Taiwan issue comes up, then there might be a  blockade of their energy supplies, which is   why Russia becomes very important for them. The  Central Asian countries become very important   to them because they avoid the feelings and they  have these pipe lines now coming into the country,   so their energy is assured, at least a part of it. But there is also a hope that China and the USA’s  

collective need for a successful green energy  transition will ensure high levels of cooperation,   even as relations flounder in other areas. It is very much in the United States interest   for China to continue to invest in clean energy  technology, to reduce its missions and for it   to be self-sufficient. In fact, when I was in  the State Department, I had a global shale gas   initiative. And it really started with helping  China understand its own shale gas reserves   and its ability to produce them. Because  the more self-sufficient China was in gas,   the less it might need Iranian gas or the less  coal it would have on global markets. And the  

same is true of virtually every clean energy. That brings us back to the biggest question   facing the planet on the issue of energy security:  the green transition. Many of the experts we spoke   to believe that the energy transition is  now the key to long-term energy security.  We will have a new energy system that will be  based on renewables and complemented by green   hydrogen and sustainable biomass. There  is no doubt no one can stop this process.   What is at stake today is this process will be  in time to avoid the impact of climate change.   So the question is not the direction  of travel, the question is the scale   and the speed of this transition. But others caution that retaining a  

diversity of energy sources is as important  to energy security as the green transition.  It doesn't matter where you are around the  world. If your supplies are not diversified,   if you rely on very few suppliers or one supply  for your major supplies, then I don't think you   can claim to have energy security.  And affordability is another issue,   but affordability is resolved partly by  having more supplies coming to the market.  Yet the cost of providing those new  supplies in the renewable sector is   huge. That’s why co-operation between developed  and developing nations is crucial if some are  

not to be left behind by the pace of change. I think if we don't do that, you will have a   polarized world in terms of energy security.  And if you have an insecure Global South,   you're going to have a volatile Global South.  And that's going to be bad for democracy,   it's going to be bad for growth, it's going to  be bad for stability. We can't hide from it. And   so today, when you look at problems, people say  we've got to solve our own problems first. The   challenge is when we solve our own problems.  Don't forget that we need to invest in energy  

security for the rest of the world as well. War. Battles for geopolitical supremacy.   The climate crisis. A confluence of events  have created a daunting global challenge.   Meeting it is a shared imperative.  That’s all from this edition of Business  Beyond. If you want to see more from us,   check out our playlist. A good place  to start would be our recent video on  

global debt. Thanks for watching  and until next time, take care.

2022-11-10 08:13

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