Prof. ST Hsieh
Director, US-China Energy Industry Forum
January 5, 2023
Energy security never is an either-or proposition. But politicians often tout Morality as priceless without exceptions. Till reality hits and they reverse course, and they call the new approach: Pragmatism: for example the reversing course on commitment to decarbonization.
After Russian invaded Ukraine, it is G7 and EU sanctioned off Russian energy to Europe, even though Europeans still paid much higher price for limited supply, in a way supporting Putin’s war against Ukraine. Paradoxically, Ukraine depended on Russia gas for a long time after the war broke out.
A current warm spell in Europe is only an act of God, politicians cannot take any credit. Further, this winter is young, and a cold spell cannot be ruled out. It is probably too early to worry about 2023. The war in Ukraine could expand to a global conflict too.
Further, who are “We” need to make sure that the world is a secure place in terms of energy?
- The first question is that “we” have to address is “who” caused this energy crisis in Europe?
- “We” must get rid of those who made this mess and find someone new in Europe to manage energy security in Europe.
- Then “we” as global citizens, not just Europeans, will try to manage the “world” is a secure place in terms of energy!
- It is laughable that “Europe’s governments and its industry have acted remarkably well” in managing this energy crisis. They barely dogged a lethal bullet right now, let them count the blessings in the spring of 2023!
- It is true that “this has been hugely costly.” But the final bill is not in yet, it is very difficult to apprehend eventually how much European economic competitiveness has suffered because of the war in Ukraine.
- The war in Ukraine will bankrupt Russia as well as Europe. And it should end asap.
No ‘winter of discontent’ for West. But energy realities still hit home.
Laurent Belsie Wed, January 4, 2023 at 8:26 AM PST
This was supposed to be the West’s winter of energy discontent.
After Russia invaded Ukraine, world oil prices soared and Moscow choked off almost all the natural gas that it fed to Europe. But the resulting energy crisis did not go as Russian President Vladimir Putin planned.
Far from splintering the West, the war has united it. Oil prices have retreated, a current warm spell is easing demand, and natural gas from Qatar and the United States is flooding into Europe, making this winter – while still very difficult and expensive for the continent – more manageable so far than many could have imagined when war broke out last February.
The war has also united the world around the idea that energy security is paramount. It remains integral to geopolitics and can trump climate worries. In the process, the war has revealed hard truths about the role of energy in the world economy. If 2022-23 turns out to be a winter of discontent, it may well have as much to do with facing up to those hard truths as with the energy shortages themselves.
“We need to get through 2023,” says James Henderson, a Russia expert at the Oxford Institute for Energy Studies in Britain. “We need to make sure that the world is a secure place in terms of energy. And then we need to hope that the catalyst that we’ve seen towards making plans for [a green energy] transition really starts to come through and people start to put plans into practice.”
Perhaps the bitterest truth to swallow – for climate activists and energy companies alike – is that energy security is not an either-or proposition. Analysts say it will require both the production and delivery of more and dirtier fossil fuel in the short term and a speeded-up transition to greener energy in the long term.
In May, less than three months after Russia’s invasion of Ukraine, the European Commission published its plan to wean the European Union off of Russian energy by 2027.
In the short term, it outlined investments in infrastructure to handle imports of gas and in some cases postponements in the phaseout of nuclear and coal power. Even Germany, a leader in green energy, plans to lease five floating terminals to receive imports of liquefied natural gas in the short term and to build at least one permanent land-based gas terminal.
“Europe’s governments and its industry have acted remarkably well in handling and coordinating this emergency this winter and planning for an orderly phase-out thereafter,” writes Henning Gloystein, director of energy, climate, and resources for Eurasia Group, in an email. “This has been hugely costly, but it has worked better than anyone expected it could have. It’s certainly worked in ways Moscow seemed unable to imagine.”
Investing in solar, wind, geothermal
But the same shortages that are forcing nations to continue investing in fossil fuel infrastructure are also pushing them to accelerate their transitions to green energy in the long term. The EU, which already had ambitious green energy transition goals, now plans to accomplish those goals in three years rather than 10. By 2027, the continent will generate more than half of its electricity from renewables, the IEA forecasts. By 2030, Rystad Energy estimates the EU’s capacity to generate geothermal heat for office buildings, housing, and so forth will rise 58% at a cost of $7.4 billion.
The efforts to accelerate investment in renewables go beyond Europe, encompassing other key nations from China and India to the United States, where the 2022 Inflation Reduction Act gives a big new boost to clean energy.
The investments don’t put the world – or even Europe – on track to meet Paris Agreement goals for decarbonization.
“Europe is definitely the global leader in energy transition,” says Pavel Molchanov, research analyst for Raymond James Equity Research, based in Charlotte, North Carolina. It leads in solar energy, electric vehicle adoption, even offshore wind, he adds. “Europe by the end of this decade will have maybe 10 times more offshore wind than the United States.”
Another hard truth is that in global energy markets there are no pariahs. The Ukraine war and consumer worries about supply shortages raising energy prices have made it harder for environmentalists to cast the big oil and gas companies as villains. Investment banks, which a year ago were pledging to phase out funding for fossil fuel investments around the world, have changed their tune.
“I wouldn’t quite say that the hydrocarbon industry is back, but I think there’s a level of realism, if you like, about the role of hydrocarbons and how long that role will continue,” says Dr. Henderson of the Oxford Institute for Energy Studies.
Even Russia, which earned nearly worldwide opprobrium for its Ukraine invasion, can’t become a pariah when it comes to energy. The world needs its energy too much. One sign of this realization is the West’s new exception to its ban on Russian oil: a price cap. As long as buyers spend no more than $60 to buy a barrel of Russian oil, the G7 industrial nations will allow the world’s insurance companies to insure the tanker ship – an important consideration for any oil shipper.
But at $60, the cap does little. Russia is already selling its Urals crude for less than that to clients like China and India. And it continues to turn a profit, allowing President Putin to keep funding his war effort. While some nations pushed for a much lower cap to punish Moscow, leading nations of the EU as well as the United States wanted the higher limit to balance geopolitical aims with economic realities.
“The policy has been watered down to make sure that Russia continues to sell oil on the global market,” says Mr. Molchanov of Raymond James. “Otherwise, we’re going to have energy shortages around the world, which nobody wants to see.”
The squeeze on Russia
Russia has found success exporting its oil to Asia, notably to China and India. And the Putin government has threatened to cut its oil production and to refuse to sell to any nation that abides by the cap. If oil prices rise this year, as many expect, he may well test the West’s willingness to enforce that cap. But the early signs are that Moscow is bowing to economic realities and working with oil importers abiding by the cap, says Mr. Gloystein of Eurasia Group.
A drop in Russian oil production may be inevitable as Western oil firms remove their investment and know-how from Russian energy projects and China and India don’t take up all the slack. Analysts say Moscow may be forced to cut its oil production perhaps 15% this year because of fewer customers.
Russia’s natural gas outlook looks even more dire. It’s doubtful China will ever come close to importing the amounts of Russian gas that Europe did before the Russia-Ukraine war, Mr. Gloystein says. The gas shut-off “is painful for Europe, but it’s much more painful for Russia,” he adds.
Russia’s economy is diversified enough – and its people resourceful enough – to perhaps avert outright disaster. But the chill winds of economic winter may persist far longer in Russia than in the West.
Germany misses 2022 climate target on Ukraine war fallout.
Wed, January 4, 2023 at 3:43 AM PST