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Who has the power in the geopolitics of global energy?

Chris Goggin of Rinnai looks at some of the global political developments happening as the world aims for de-carbonisation.

Chris Goggin of Rinnai

Power delivered to our homes, institutions and businesses via the gas pipeline network or electricity grid is the result of highly complex international politics, business and corporate acumen.

If a reliable source of energy does not exist Western economies go into freefall decline. After water, food and agriculture, it is the most basic and vital of commodities.

Pollution and the greenhouse gas impact means we must decarbonise or face the growing natural impact of climate change. So, what are the domestic and international geo-politics at play here? This questions instant relevance is amplified by recent events in the UK energy market.

Gas prices have recently spiked with the possibility of even higher prices being introduced. This has been attributed to a number of factors based on lower supply yielding higher price during times of high demand. A number of North Sea gas platforms are not fully operational due to maintenance work and Russia appears to be limiting its supplies to European customers. Why Russia would want this is another matter.

Alongside this is a reduction in the renewables market - slow wind speed has reduced renewable capacity and distribution. Diminished gas supplies have also resulted in spreading discord into other sectors. Two fertilizer plants have been shut down, reducing the supply of carbon dioxide, a by-product to the food industry. This in turn could produce some shortages of non-vital foods.

This article hopes to simplify the international geo-politics of the energy industry to the end user, so to provide a fuller picture of the UK’s global energy position and what future shifts may occur.

UK tabloid media’s current narrative on climate change and decarbonisation is intrinsically linked. Decarbonisation of global fuel supplies is needed to reverse environmental damage caused by centuries ofinefficient and indiscriminate fossil fuel usage. This representation is easily comprehendible to a mass audience and promotes immediate action.

Further inspection of mediathat focuses on the global energy market translates the energy industry into a different context entirely. A context that is connected to environmental concerns yet is also dominated by a soup of alternative motivating geo-political factors.

There is a long list of contributing factors affecting today’sglobal energy industry - security of supply; decarbonisation; various national interests; domestic and international policy; good and bad regional relations; political distrust; finance and monetary factors. Allof these combine to create the climate change when thinking of the global energy industry.

A succinct example of this can be seen in the 1973 oil crises. After Israel accepted US arms during the Yom Kippur war, Arab members of the Organization of Petroleum Exporting Countries (OPEC) enforced an embargo on oil to western countries with dire effects on economies.

Oil prices sprinted from $2 a barrel to $11 overnight. American consumers felt an immediate impact of the embargo with the retail price of petrol jumping 40%. Resulting damage on western economies included: uncontrolledinflation; stagnant industrial activity; widespread unemployment and petrol rationing. The Arab members of the OPEC had effectively successfully weaponized oil.

Governments are heavily incentivised not to repeat identical scenarios that illuminate national vulnerability. The idea that energy could be used as a weapon in the near future is a sensitive issue for any nation, especially on the back of a pandemic. So, coul d this happen in the not too distant future?

Current geopolitical conditions are as complex as ever, coupled with an active global energy transition. Europe maintains a solid block of connected cross-border populations, all requiringfuel. Amajorsupplier is Russia which provides around 40% of Europe’s natural gas.

Russia continues provoking unpopularity amongst western governments, to the extent multiple national security agencies have identified the Russian oil sector as an appropriate area upon whichto impose financial sanctions.

Recent developments in international energy politics provide additional layers of complexity. The construction of the Nord Stream 2 offshore gas pipeline underneath the Baltic Sea has been completed.

This Nord Stream 2 will carry natural gas to Germany, doubling its imports from Russia and crucially cutting out the existing pipeline of the Ukrainian ‘middleman’. Ukraine stands to lose £2.2 billion a year in transit fees. Gazprom, theKremlin backed Russian energy company, instead, will profit.

Under the terms of a recent deal made between the US and Germany, it has been decided that $50 million of green energy credits and a full refund of lost transit fees will be provided to the Ukraine government through to 2024 byway of compensation.

Poland and Ukraine both state that the Nord Stream 2 pipeline threatens the security of central Europe. Due to Russia’s interference in Ukraine political affairs, US disapproval of the Nord Stream 2 gas pipeline is strong and several sanctions have been placed on playing parties; some of which have been labelled ineffectual. US paranoia is focused on Russian attempts to covert energy exports into future political leverage. Inflated UK energy bills could be symptomatic of the idea that US suspicions are well placed.

The global energy market is convoluted, experiencing frequent shifts in power and political motivations. These are just some of the scenarios in the global energy and geo-political arena. Additionally, an international race has begun to produce affordable and decarbonized energy supplies and technology that prevent the release of emissions.

Bilateral communication between multiple countries must exist if decarbonisation is to be realized. To achieve global environmental results a solid communal international approach will have to exist. History and present behaviour suggests that we are far from this naive ideal.

UK end users should be aware of the logistical, financial and political manipulation that the energy market perpetuates. Access to information that provides a higher level of knowledge enables consumers to make the right choice in domestic power options.

30 September 2021


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