Winners and Losers in a Greener World

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"Oil is renewable energy. It just takes longer to renew"

quipped 3rd generation oilman Fred Holmes of Taft, California - home of the United States' first Naval petroleum reserve. Such sentiment is somewhat uncommon in present-day America, which has led the world in clean-tech innovation despite some factions clinging to the coal and oil that powered the world through the 19th and 20th centuries, respectively. But in the time since the Trump Administration's withdrawal from the Paris Agreement in June of 2017, China has enthusiastically stepped in to take a leadership role alongside the EU in reducing CO2 emissions and developing renewable energy solutions while Russia and the Middle East think wishfully that oil will continue its reign as earth’s most important energy resource. As the geopolitics of energy undergo a transition for the first time in a century, the world is faced with the question: who will be the winners and losers from clean power?

 

Since 2008, the United States has reaped the benefits of a "Shale Revolution" as dome-like tankers depart Texas and Louisiana carrying Liquefied Natural Gas, a fuel that produces half as much CO2 as oil and one fourth as much as coal, en route to Europe and Asia. It has not only tempered predictions of American decline, especially as China's thirst for LNG grows, but has also made it easier to impose sanctions upon adversaries, including Russia during its stranglehold of Ukraine. Secretary of the Interior Ryan Zinke has helmed Trump's charge to unlock vast tracks of federal land for oil and gas drilling, stating that "our goal is an America that is the strongest energy superpower that the world has ever known" and then clarifying that energy chiefly means oil, natural gas and coal. With output still rising, by 2025 the Shale Revolution will have unlocked more oil and gas in America than any other country in history, including Saudi Arabia in its 1970s heyday. The administration plans to build on this momentum by opening up offshore reserves to drilling and easing restrictions on coal mining and natural gas production that were imposed under the Obama administration. Meanwhile, Russia recently began drilling off the northern coast of Siberia where low profit margins and arctic conditions have deterred the interest of most Western firms as well as tapping Venezuelan oil in exchange for cash. It is without question that the availability of easy money via the expanding LNG market is a great motivator for both countries but the greatest force behind the growth has been China’s growing demand for energy. Although it has made considerable strides in moderating its demand for coal and oil by deploying gas and renewable energy, China remains the world’s biggest importer of fossil fuels for now as it prepares to make even greater investments to its infrastructure.

 

Rather than capitalize on cheap oil, the European Union has been incredibly ambitious in climate leadership, going so far as to plan to reduce greenhouse gases by 80-95% from 1990 levels over the next 30 years which will require it to almost entirely decarbonize its energy system. Despite imposing sanctions on Russia in 2014 after its annexation of Crimea, the State-owned oil giant, Gazprom, has been allowed to plan a natural gas pipeline from Vyborg to Greifswald that will double the capacity of Russian gas piped to Europe by 2019. Gazprom has also constructed a pipeline to China as the People’s Republic seeks to curb its dirtiest uses of coal, such as heating urban homes. Despite lacking the tradition of clean-energy innovation that the United States and European Union have built, China has done its best to make up for it by spending more money on energy infrastructure than both of them combined in 2017 ($132bn) and pledged an additional $7.6bn to spend on research and development by 2020. According to the International Energy Agency, China could generate up to ⅓ of the world’s wind power, ¼ of its solar power and already possesses six of the top ten solar panel producers and four of the top ten wind turbine manufacturers.It sells more electric vehicles than the rest of the world combined and has the largest power-generation capacity but ultimately still has more CO2 than any other country. Still, they put more entrepreneurial zeal into clean energy and decentralizing and decarbonizing their energy supply than anyone else and are poised to take the lead from the United States and European Union in the vanguard of the energy transition as a result. China will benefit in at least a few ways from its increasing production and use of renewables, batteries and electric vehicles. Producing more of its own energy will reduce reliance on imports that are vulnerable to global instability and increase its soft power, especially with its East Asian neighbors.

 

It goes without saying that the sun is setting on oil and many are wondering what will happen to established producers in the coming years. Saudi Arabia recently hedged its bet by selling 5% of Saudi Aramco, the world’s largest oil company, to contribute to its $2trn public investment fund while joining forces with Russia to form an OPEC+ cartel that will curtail oil production by $1.8mm in barrels per day in order to keep prices high. Most, if not all, Middle Eastern nations have extraordinarily hot and sunny climates that are perfect for large solar-photovoltaic parks, which store heat in molten salt and can release it as electricity at any time, and could potentially continue to be energy powers long after the days of oil have passed. However, most of these producers just see renewable energy as a way to use less oil and gas at home so more is available for export. The United States, on the other hand, just became a net-exporter of gas for the first time in 60 years but is fortunate enough to have had progressive leadership and close relations with the European Union that will continue to promote clean energy innovation despite the Trump Administration’s lack of enthusiasm. The wild card is what will happen in the developing world - particularly China. Energy Democratization - the process by which regions become more self-sufficient as power generation become more dispersed - could lead to a reduction in poverty in rural areas if they are given greater access to mini-grids and rooftop solar panels. Shanghai-based Envision invented turbines that operate at low wind speeds and can be used almost anywhere. Their goal is to create a global “energy internet” that allows companies to manage locally operated energy assets and give more power to communities. However, while it is keen on harvesting the power of its wind and sunlight, China is still a semi-autocratic State and its progress could be reversed at the whim of Secretary Xi Jinping. Other developing areas, such as Africa, have warm climates and could potentially produce an unprecedented amount of solar power which would slowly raise its people out of poverty. Unfortunately, rampant government corruption and frequent warring can easily halt any progress made in modernizing energy infrastructure.

 

Looking back to the Industrial Revolution, energy transitions such as that to coal and then to oil have changed the world in unpredictable ways. The next one could have equally unpredictable effects and will surely alter the geopolitical landscape as we know it. Ultimately, the race to clean energy solutions need not be winner take all if the world, especially the West, Russia, China and OPEC, collaborate in order to avoid the formation of a battleground. In the event that producers continue along the same path, the winners will be those with the most readily available resources and ability to produce new technology while the losers will be those whose vested interests and perceived lack of alternatives keep them wedded to fossil fuels. Regardless, energy-secure regions will continue to have significantly more influence in global policy-making and newly decentralized economies will open up a realm of innovation never before seen as the first-world gradually distances itself from its 20th century past.