Geopolitics of Energy – Who Has the Power?

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12 October 2021

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

 

The Decade of Action

 

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 geopolitics at play here? This question's 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 prices 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.

 

The Need to Improve Our Fuel Supply

 

This article hopes to simplify the international geopolitics 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 the environmental damage caused by centuries of inefficient and indiscriminate fossil fuel usage. This representation is easily comprehendible to a mass audience and promotes immediate action.

Further inspection of media that 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 geopolitical factors.

 

Addressing Varied Influences

 

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

 

Energy Dependence and Sharing Oil

 

A succinct example of this can be seen in the 1973 oil crisis. 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 per cent. Resulting damage on western economies included: uncontrolled inflation; stagnant industrial activity; widespread unemployment and petrol rationing. The Arabic 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, could 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 requiring fuel. A major supplier is Russia which provides around 40 per cent 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 which to impose financial sanctions.

 

The Nord Stream 2 Pipeline

 

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, the Kremlin 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 by way 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.

 

Changing the Landscape

 

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.

 

Picture: a view of the energy usage on earth from space.

Article written by Bailey Sparkes | Published 12 October 2021

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