Host: Stephen Lacey
Guest: Jason Bordoff | Director | Center on Global Energy Policy
Category: ⚡ Renewable Energy
Podcast’s Essential Bites:
[0:57] SL: “The diplomatic showdown between Europe, America and Russia is intensifying and military conflict in Ukraine could be imminent. […] [The] diplomatic dance in the lead up to the conflict [has] been tied to the geopolitics of energy. Some NATO countries, including the US are sending military equipment to Ukraine, Germany held back. It's now threatening sanctions if Russia invades, but allies have been concerned with Germany's hesitation. And that hesitation is partly due to fears over gas supply.”
[2:39] JB: “Europe depends very heavily [...] on Russia for anywhere from 1/3 to even 40% of its natural gas consumption. You can replace some of that, but it's just too much of Europe's energy supply. If you had a complete cut off in Russian gas exports to Europe. There's almost no way to make up for that. There's just not enough molecules, there's not enough natural gas around the world. So there's a dependence there.”
[3:08] SL: “For decades, Germany has invested vast amounts of money in renewable energy in the hopes of cutting dependence on imported fossil fuels. But it's more tied to Russian gas than ever, exposing it to supply disruptions and extreme price volatility. And right now […] we're seeing the new geopolitics of energy play out. The time when the clean energy transition might actually strengthen petro states like Russia, before finally changing who wields the power.”
[7:02] JB: “It's really hard to transition the energy system to net zero this quickly. And that just means […] it's going to be uncertain, it's going to be a little disruptive, and that has the potential for more, not less, volatility moving forward. When you have volatility in energy markets that's harmful economically. It hurts people […] with their heating bills. […] There's relatively little that policymakers can do about energy price volatility in the near term. And we saw that recently with high gasoline prices in the United States that prompted the Biden administration to release oil from strategic stocks. But most of what they were doing was reaching out to Riyadh, to Saudi Arabia and saying you have the ability to put more oil on the market quickly, can you please do that? Over the long term, we want to take steps like reduce oil and gas demand, increase investment in electric vehicles and fuel economy, but you can't do that in the near term. So you turn to the countries that have the capacity to quickly ramp up and down supply. Those tend to be state controlled. So that's one reason why a country like Saudi Arabia or potentially Russia has an ability to be more influential in a process of a messy transition that may see more volatility moving forward.”
[8:42] JB: “There's this near term period where oil and gas use are falling slowly, not falling quickly enough, […] but you see pulled back investment from the large international majors […] Exxon, Shell, BP. Those are the ones under the greatest scrutiny and spotlight. We should remember that when you put them all together, they’re only 15% of the world’s oil and gas supply. Most of the world's oil and gas comes from state controlled companies. So if there's a mismatch between supply and demand, you're going to see I think fewer of those social pressures, and fewer of the need for external financing and capital for large state controlled companies than you do for some of the private companies. So state controlled companies will be in a better position, then.”
[9:24] JB: “Even in a world that gets on track for net zero by 2050. Net zero doesn't mean zero. The International Energy Agency did this big landmark report on what net zero looks like by 2050. And in that world, if we get there, we're using 25% as much oil as today and about half as much natural gas as we are today. That's much less but it's not zero. So it has to come from somewhere. And I suspect the places it'll come from are the ones that can produce the oil most cheaply and most cleanly. And Gulf Arab producers like Saudi Arabia, the United Arab Emirates, they look pretty good on both of those accounts. […] If you are wondering who the last man standing might be, […] it might be countries like that.”
[11:18] JB: “I think the most significant dimension of geopolitical influence that comes from energy is not only the amount of production, but the swing supply capacity, the ability to ramp production up or lower it very quickly. The United States and Saudi Arabia produce roughly the same amount of oil every year. I think it's fair to say that Saudi Arabia has more influence in global geopolitics, because they are the only country […] that intentionally […] withholds oil from the market that they could be selling in order to be able to play a balancing role and feel that call from Washington […] [to] put more oil on the market. That's called spare capacity.”
[15:14] JB: “A clean energy world is, in many respects, going to reduce the geopolitical influence of energy, because it's inherently more local. We know that a clean energy world is going to be a much more electrified one than today, things like transportation and heat […] and […] most electricity is produced locally. […] The International Energy Agency, for that reason, projects that total global trade and energy in a net zero world is around just over 1/3, what it would be otherwise. […] In a net zero world, the things that are being traded are different, much less oil and gas, much more hydrogen. […] The same kind of risks that we worry about with fuel today might apply to low carbon fuels if they're globally traded. And then the second is critical minerals. And we do see today a rapidly growing need for lithium and for cobalt, and for rare earth elements. A small number of countries dominate not only where those are mined and produced, but where the refining process, particularly that is in China. And that is a source of influence for those countries, but probably not in the same way that I think dependence on one country like Saudi Arabia is for oil”
[18:15] JB: “The sources of conflict that we could see in a clean energy economy, […] we could see that from climate policy itself. So you see in the European Union now the interest in saying if we're going to impose a carbon price on our energy intensive industries, like aluminum, or steel, or cement, we want to make sure imports are paying that same price, and we're not competitively disadvantaged. So they want carbon border adjustments. […] You can imagine hypothetically, that Europe actually imposes carbon border adjustments on the US because we're falling short of what they're doing on climate. And then that climate tool policy tool itself becomes a source of tension.”
[21:26] JB: “To be a leader in the low carbon fuels industry, you need low cost, zero carbon electricity. And countries in North Africa, some countries in the Middle East, a country like Chile, places that have really cheap wind power, or really cheap solar power, have the ability, particularly with improvements in technologies that bring down costs and things like electrolyzers to make hydrogen. They could produce these fuels most cheaply. There are some that may be able to do it by continuing to be very low cost producers of natural gas, and then using natural gas with carbon capture to make the hydrogen. That's what a country like Qatar, which has very cheap natural gas, wants to do. The question then is what does it mean to be a globally dominant player in these fuels, because hydrogen is much harder and much more costly to move around the world than putting all oil on a tanker is. […] I think that hydrogen, if we're using it in a meaningful way, is going to be produced and consumed more locally to where it's needed. And then you might think about where the renewable resources are the best. So you could imagine countries in the Middle East or elsewhere becoming large producers of these fuels and having regional trade of it.”
[23:05] JB: “There's a multi decade process of transition, where the cheapest suppliers of hydrocarbon might actually produce a larger share of the pie, even though it's a shrinking pie, […] and they have more influence. And that influence may not wait until the pie gets really much smaller. So the end state is to depend on these fuels much less and that is going to reduce the geopolitical influence of countries like Russia. I think some countries might find other sources of geopolitical influence. […] The United States, for example, is the world's largest producer of oil and gas. It also has the capacity to really be a leader in many clean energy technologies. It has great resources for carbon capture, it easily has the resources to lead in a low carbon fuel economy like hydrogen and ammonia as well as renewables. It's going to be, I think, harder for a country like Russia to make that transition. So they may be more of a loser in a transition. And in terms of how long it will take for that power to wane, that really depends on how quickly we move away from oil and gas towards zero carbon energy and meet our net zero goals. And we want to be doing that much faster than we are today, hopefully by 2050. Again, we are nowhere close to being on track for that today.”
Rating: ⚡⚡⚡⚡⚡
🎙️ Full Episode: Apple | Spotify | Google
🕰️ 25 min | 🗓️ 02/15/2022
✅ Time saved: 22 min
Additional Links:
Article: “Green Upheaval” (Foreign Affairs, Jason Bordoff & Meghan L. O’Sullivan, 2022)
