Human civilization has reached the tipping point in an area vital for its very existence: energy resources. Undoubtedly, the main issue is not depletion thereof, but managing it in such a way that the planet’s climate deterioration is cut short. And to take the challenges even further, such a transition has to be managed in a terribly tense geopolitical context.
Natural gas plays a major part in the green transition, therefore Russia would have taken a key role as an increasingly important supplier of natural gas meant to replace the most polluting energy sources, such as coal, petroleum derivatives, but also the nuclear plants that Germany insists on shutting down.
Clearly, such a scenario is outdated, painting a constantly changing picture, giving reasons for a series of important questions. To what extent will the present world powers of the energy market maintain their status? Will new relevant countries emerge to take advantage of the newly created context?
The answer to this question comes, I think, from a highly analytical and structured piece in Foreign Affairs, titled “Green Upheaval” published last year by Jason Bordoff and Meghan L. O’Sullivan, two authors boasting not only an impressive academic background in international business and energy market, but also a track record of top positions held in the administrations of Obama and Bush, respectively.
A first comment of the authors is that, for starters, we will witness a resettlement that will produce new forms of competition and confrontation through often times counterintuitive developments. Reaching net-zero emissions in the long run will give rise to risks in the decades to follow, as clean energy geopolitics will compete with geopolitics of oil and gas. Thus, for instance, the petrostates will enjoy significant benefits of the transition before their international relevance is gradually diminished.
The article quotes a report published in 2021 by the International Energy Agency (IEA) which projects that, even if the world reached net-zero emissions by 2050, it would still be using half as much natural gas as today and one-quarter as much oil. Meaning that the Gulf states, with massive funding available, therefore independent of the creditors’ ESG policies and having the cheapest way of extracting hydrocarbons, will see their market share increase to the detriment of the competing countries, despite decreasing volumes. The natural gas market will experience a rather similar dynamic, too.
In the long run, innovation and access to cheap capital will determine who wins the clean energy revolution. Such countries will dominate the energy market in four ways.
A first way will be through the power to set clean energy standards. The state actors that will succeed in setting equipment specifications and norms of engagement will gain an important competitive edge. The examples in this respect are Australia, Chile, Japan and Saudi Arabia – early adopters of the trading in low-carbon hydrogen and ammonia. As pioneers in the field, they will be able to set standards and certification norms that will favor their technologies and equipment.
Setting standards will be key when it comes to nuclear energy, which is now called to offset the shutdown of the hydrocarbon-based power plants. The article quotes IEA estimating that nuclear energy will have to double to achieve net zero by 2050. According to 2018 data, of the 72 reactors under construction outside Russia, more than 50% were being built by Russian companies and around 20%, by Chinese ones. Fewer than 2% were being built by American companies.
The second factor that might determine the future superpowers of clean energy will be the control over the supply chain for minerals like cobalt, copper, lithium, nickel and rare earths. In this context, the article reminds that, for now, half the global supply of cobalt comes from Congo, half the supply of lithium comes from Australia and half the supply of rare earths, from China. To compare, the largest oil producers, Russia and Saudi Arabia, account for just 10% each of the world supply.
But China’s geopolitical power in the next decade will stem not only from the rare earths, but from its capacities for processing and refining these minerals. However, in the long run, this competitive edge will wane as alternative resources and capacities are identified and developed worldwide to diversify the supplier base.
The third element of energy dominance will be the ability to cheaply manufacture components for the new technologies. Currently, China produces around 2/3 of polysilicon and 90% of the semiconductor “wafers” used to make photovoltaic panels, which is ground for concern for Western countries.
The fourth way in which a country could become a power in the new energy era will be the production and export of low-carbon fuels. Fuels like hydrogen or ammonia (easier to transport for conversion back to hydrogen) will play a critical role in the transition to net zero. IEA estimates that, in a net-zero by 2050 scenario, the hydrogen and ammonia trade will increase from almost zero today to 2/3 of all energy-related transactions. Given the target to produce “green hydrogen”, the authors think that the best positioned countries are Chile and the Gulf states, as they have access to vast quantities of solar energy.
However, before getting to “green hydrogen”, according to IEA, the middle step will be the “blue hydrogen” production from natural gas by carbon capture. At this stage, the top exporters could be Qatar and the US, as they have cheap gas and carbon dioxide storage capacity. For countries that only have carbon dioxide storage capacity, the dependence on natural gas import will be similar to that of today.
Finally, the said article issues a warning. Reaching the net-zero target will put even more pressure on deglobalization and international economic fragmentation.
A decarbonized world will be far more dependent on electricity. For instance, according to Princeton University researchers, the electricity usage of the US in a decarbonized world will be two to four times as great, compared with today. Given that, unlike oil or coal, electricity is not easy to transport over very long distances, production is expected to be associated rather with national or regional markets.
Another source of pressure against globalization will come from the already evident protectionism aimed at lowering the dependence on cheap resources and technologies from other countries, for the purpose of boosting national capacities. Additionally, another type of protectionism will be that of putting pressure on states that were less motivated to switch to clean energy. Their exports might become a subject of fees and tariffs meant to equalize the price between goods manufactured using clean energy and the rest.
I would conclude by saying that the picture of the future is being constantly rearranged, therefore designing the country strategies for the new energy era will be key for a sound economic positioning of each country in the current century. The race is on.
Subscribe to receive notifications when new articles are published
