Russia and energy security are pressing issues in Davos

The war in Ukraine will no doubt dominate the upcoming World Economic Forum meeting in Davos, Switzerland, and energy historian Daniel Yergin is among those whose insights are likely to be sought after by the global elite of that gathering.

An experienced and respected commentator on energy markets and geopolitics, as well as an entrepreneur and business executive, Mr. Yergin is now vice president of S&P Globala financial services firm based in New York.

He is also the author of several books, including, in 2020, “The new map: energy, climate and clash of nations. “ In 1992, hey won a Pulitzer Prize for “The prize: the epic quest for oil, money and power”, His history of the oil industry.

Yergin, 75, has attended meetings of the World Economic Forum since the early 1990s and helped shape Davos’ approach to energy. He was recently interviewed by telephone in Washington, DC; these are edited excerpts from the conversation.

Why go to Davos?

It is a very effective way to connect with what is happening around the world and to get many different perspectives in a very concentrated form. I always find it helps you see the new trends that are emerging.

What will this year’s agenda be?

There will be a sense of great urgency in Davos this year, starting with the war in Ukraine and the risks of an escalation. There is a real need to develop a deeper understanding of how Russian energy sanctions will disrupt energy flows and how disruption and logistics can be managed to reduce the overall economic impact.

Energy security will certainly return to the agenda, along with the energy transition and sustainability. In the foreground and at the center in general will be the economy: how intractable inflation has been and how likely it is that there will be a greater economic slowdown and why supply chain disruptions continue to persist.

And there will be a focus on the big impact on developing countries of the double energy and food crisis. In addition to the war in Ukraine itself, I expect that we will see the initiation of a dialogue on the reconstruction of Ukraine in Davos, whenever that can begin.

What are the implications of the Russian invasion of Ukraine for energy markets?

People are looking for analogies. The last really big one was 1973 [the Arab oil embargo], which was a long time ago. We are now seeing the greatest disruption of the world’s energy markets in modern times. This is because it is not just oil. It is also natural gas. It’s coal. And, increasingly, this is happening within the wider confines of competition between the two nuclear superpowers of the world.

After the 1973 crisis it was a different world than before, and after this crisis it will be a different world than before. I think this is the epochal moment.

Why?

Despite all the difficulties, post-Cold War Russia has been integrated into the world economy far more than it was recognized. That integration is breaking down. Russia will end up being much more connected and dependent on the Chinese economy. That trend is clear.

Secondly, going into this, Russia was an energy superpower. Now it will still be a major supplier, a major producer, but its days as an energy superpower are coming to an end. And it will lose all or most of its most important market, Europe.

It appears that for some time it will be cut off from Western investment and, more importantly, from Western technology. It will lose markets and market share.

One of Putin’s many miscalculations was the assumption that, due to Europe’s dependence on Russian energy, he would protest but step aside, as he did with Crimea. [which Russia took over in 2014]. It had just the opposite effect. Europe wants to get out of this addiction as quickly as possible.

I think the breakthrough in Germany was particularly surprising. From what I understand, part of what happened was a close consultation between the German government and industry to actually understand how the ebbs and flows worked, what the alternatives are.

Will Europe be able, so to speak, to divorce Russia

There are three parts. It is all difficult, but crude oil is the one that for the most part can be progressed with less difficulty because there are stocks. The demand for oil in China is falling due to Covid. US production will increase.

Petroleum products are more difficult. Diesel is a real problem. You have to keep the trucks moving and, in Europe, part of the fleet is diesel.

Natural gas is the most challenging. People are finding extra petrol in Algeria. I think one thing to look at is Holland, which might add [a very large amount of natural gas from the Groningen field, which is being shut down because of earthquakes.] The Dutch government said only in an emergency [would it boost production]. Well, guess what, this is an emergency.

I think what makes it all the more difficult: everything is in short supply: the supply chains to build things up, to make them happen. This adds delays to everything.

Did the invasion change energy policy in the United States?

Starting in November or thereabouts, the Biden administration became much more focused on domestic oil and gas production and wanted to see it increase. There has certainly been a change, and it has been driven by pricing and outage.

I think it has really changed thinking about natural gas and LNG as well [liquefied natural gas, transported on ships]. The Biden administration has embraced LNG as a potential energy security feature. LNG has become a key part of Europe’s energy security. This would not have been articulated at all before this crisis. There is now recognition that the United States will become the largest LNG exporter in the world and their exports will be redirected to Europe.

Has the imperative to move from oil and gas to cleaner energy been rejected?

I think the crisis raises questions about the challenges of how quickly an energy transition can occur. Will it go smoothly, will it be disruptive?

It certainly gives an urgency to the energy transition in terms, in particular, of renewables in Europe and hydrogen to reduce the amount of gas in electrification. But, at the same time, I think that energy security, which was not very much on the agenda and was taken for granted, is now very much on the agenda. And governments have to worry about current supplies and the energy transition, so it’s a more complicated equation.

What does this mean for the world’s efforts to achieve net zero carbon dioxide emissions?

the International Energy Agency he said it helped commercial technologies that are needed don’t exist. The direction is clear, but it really depends on the technology and the scale is huge. The world still runs pretty much 80 percent on hydrocarbons.

Coal consumption increased last year. There are short-term gimmicks that countries will do in an emergency – this is an emergency – that they wouldn’t do in the long run. One of these is to rely more on coal for electricity generation, particularly in Europe.

Why have Saudi Arabia and the UAE been reluctant to produce more oil?

Both are spending billions of dollars to expand production capacity on the assumption that there will still be a large market for oil for some time, and especially if production declines elsewhere.

There are only 1.8 million barrels per day of spare capacity in the world. That’s a knife blade. You could bring more oil to the market, but at the same time, if you get to where there is virtually no spare capacity, the markets will get very nervous.

This is another similarity to 1973. At the edge of that global crisis, you had almost no spare capacity.

It is known that Vladimir Putin has always shown incredible knowledge; he is almost a CEO when he talks about energy markets. And it could be assumed that one of the reasons he thought this was the right time to move is that he recognized that the markets were so tight. And the Russians helped tighten the way they handled their gas shipments to Europe last year.

Does this pave the way for more nuclear power?

yes In France, when President Emmanuel Macron first entered, he wanted to go back. He is now talking about six new nuclear reactors, maybe eight more. The English document on energy security also contains nuclear power.

At our conference, I was struck by the fact that CEOs of industrial companies are almost assuming that we will have small nuclear reactors by the end of the decade. I think the German decision to shut down nuclear power after Fukushima due to the tsunami was not a wise decision.

Was Western investment in the Russian energy industry a mistake?

The US government continually encouraged energy dialogues with Russia. All of this arose from the almost unexpected collapse of the Soviet Union and the effort to integrate Russia into the global economy. Look what was the alternative: leave it in celebration? Having a country with large nuclear weapons integrated into the global economy was far better than leaving it isolated. There was a desire to have Russian energy and Central Asian energy as compensation for the risk in the Middle East.

Energy was a subset of a much larger thing. I saw that there were over 600 US companies involved in Russia. Moscow has become a world city.

In two months, Putin has destroyed all of this. I think history will judge that what he did makes no sense, that it is irrational. But it happened, and it is reality. And that is why we are in a new uncertain era. As we speak, the risks are increasing.

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