Energy
security is a key focus as a component of the so-called energy trilemma. The
goal of energy security is to ensure access to affordable and abundant energy
and materials that help in producing that energy, and to minimize and eliminate
any disruptions to that access. Unfortunately, the world has several ‘bad
actors’ and others who have some history of manipulation. Countries allowing
themselves to become dependent on these actors and potential manipulators do so
at risk to themselves and their economies. Energy and mineral endowments are a
result of geography, and the current position of a country’s borders. As we try
to position our world as one that respects territorial integrity and rejects military
incursions and invasions to increase territory, we will likely be stuck with
the borders we have for some time to come. Our main hope is that regimes will
change within bad actor countries, preferably through peaceful revolutions or
democratic reforms. Some countries could fragment. Thus, it is more likely that
borders will change within troubled countries than beyond them. It is quite
clear now that most of the world will not accept Russia’s seizing of territory
through invasion and annexation. However, Russia is so entwined with the world
economy through its vast exporting capacity of oil, gas, minerals, nuclear
materials and expertise, and grain that complete sanctions cannot be enacted. The
partial sanctions have already significantly disrupted Russia's economy but also the world economy.
Another aspect
of energy security involves securing energy and mineral supplies that meet
environmental and labor standards. Greenhouse gas emissions standards are a
factor as well. Supplies with unacceptable environmental and labor standards
are currently being sold and bought in world markets. Environmental impact of Chinese
rare earth minerals mining and processing, child labor and low labor and
environmental standards in cobalt mining in the Democratic Republic of the
Congo, forced labor in Chinese solar panel manufacturing, high methane
emissions records in some countries like Russia, Turkmenistan, Libya, and
Nigeria, labor and human rights exploitation in some of the Gulf State
countries, and even health issues for coal miners around the world like black lung
disease, mine collapses, and mining safety standards should be considered when evaluating where we get
our energy supplies. In the case of coal pollution standards are a
major issue so supplies with sufficient pollution abatement should be preferred.
Oil
Russia is a major exporter. What is happening now with tanker
“ghost fleets” and profits kicking back to shippers and refiners is certainly
not ideal. It does shift profits away from Russian oil companies to Indian and
Chinese refiners and shippers as well as to shippers from the UAE and Greece.
As Russian companies own percentages of those shipping assets, they recoup some
of the profits and the Kremlin is siphoning some of those profits back into
their war machine through increased taxation.
Oil from
Venezuela is set to flow again. The sanctioned Venezuelan regime was given a partial
reprieve by the Biden administration due to high gasoline prices. The regime is
still corrupt and quite friendly with U.S. adversaries. Iranian engineers are
working to try and restart some of their neglected refineries for their
abundant heavy oil. More Venezuelan oil could help with pricing eventually but
the regime is likely to use any profits for their own benefit such as building
up their military.
Iran has long
found means to work around sanctions and still ships oil illegally that affects
markets. The Iran nuclear deal is effectively dead and they are close to
achieving nuclear weapons capabilities, which is horrible. The sinister regime
will need to be dealt with one way or another, whether through preemptive actions,
regime change, or stepped up sanctions. Diplomacy, though still pursuable, is
not really a viable option.
Saudi Arabia and
OPEC-plus, the plus being mostly Russia, has been uncooperative at times but
mostly reasonable in trying to keep prices stable. Concerns like elevating the
yuan over the dollar for oil trading are not likely to manifest. The U.S. does
need to keep its good long-term relationship with the Saudis and make sure
diplomacy addresses any disagreements that may arise.
Natural Gas
The big story
of 2022 in natural gas and energy security is of course Europe’s reliance on
Russian gas, mostly delivered through pipelines owned and operated by Russian
companies. Europe has successfully weened itself away from Russian gas although
significant flows do remain and interruption of those flows could affect
2023-2024 winter supplies and prices in Europe. With new sources and supplies
coming from increased Norwegian production, increased flows from Algeria, Azerbaijan,
Turkey, and a few other countries, and LNG from the U.S., Qatar, and a few
other Gulf States, the supply outlook has improved. A mild winter was very
helpful to Europe and very unhelpful to obvious Russian plans to squeeze Europe
into energy submission. The Russians had been manipulating flows to Europe for
a few years previous to affect pricing and flex their energy monopoly.
Thankfully, their leverage is now much reduced. Russia has quite a long history
of weaponizing energy, and we should all be thankful that their ability to
continue this obvious hegemony is disintegrating. Before Russia’s invasion they
were ready to make all kinds of deals with Europe to increase gas supplies and
even to make and deliver hydrogen to the EU. As Russia has little interest in
mitigating methane emissions and is low on the environmental integrity scale,
that would have been a hypocritical mistake by the Europeans, as I argued in my
2022 book, Natural Gas and Decarbonation. However, it is also true that
pipelined gas has much lower carbon emissions than LNG, so the EU’s carbon emissions
inevitably rise when Russian pipelined gas is replaced by LNG from any source.
Nuclear and Uranium-Enrichment
As many
European and other Western countries turned away from nuclear power the Russians
developed an expertise with building and operating reactors and enriching nuclear
fuel so that they are the world’s major provider of those services. 40% of the world's nuclear reactors rely on fuel with a higher level of uranium enrichment. Russia is the major supplier of that higher enriched fuel. They are also a major supplier of mined uranium. With nuclear
and uranium-enrichment, it is again Russia that has more leverage and control
than much of the world would like. Russia’s state-owned nuclear power company
Rosatom has been exempted from sanctions due to many countries’ dependence of
Russia for their nuclear power production. Quite a few countries are dependent
on Russian-made nuclear reactors, now and in the future. Reaching out to 2040, in
the EU the highest dependence on Russian reactors will be Hungary (78% of
electricity) and Bulgaria (37% of electricity). Beyond the EU, Armenia (111%)
and Sudan (96%) have the highest dependence. Both of these countries abstained
in the recent UN vote to condemn Russia’s invasion of Ukraine. The levels of
collaboration with Rosatom do vary by country. Some, like Spain, are only
dependent on Russian nuclear fuels while others are dependent on Rosatom for reactor
construction and operation. Rosatom has made a very good business providing
turnkey nuclear services. This information comes from a new paper in Nature
Energy by Kacper Szulecki & Indra Overland.
In the paper they develop a kind of score based on different interdependencies
with Russia on nuclear cooperation, noting both that Rosatom’s collaborations
provide soft power influence for Russia as well as welcomed assistance in
developing low carbon energy resources in an economic manner by outsourcing for
Russia’s nuclear expertise. The authors note that while Western countries are
and will continue to turn away from Russian nuclear collaboration, the question
is whether non-Western countries will do the same. Their analysis came up with
14 countries with medium or high nuclear collaboration with Russia and 7 of
those countries did not vote to condemn Russia’s invasion. The countries with
the highest levels of nuclear cooperation with Russia in order from higher to lower were deemed to be Iran,
Belarus, India, China, Egypt, Hungary, Turkey, Spain, Armenia, Bulgaria, and
Slovakia.
Rare Earth Elements
Dependence on
China is the major concern with rare earths as their monopoly on mining and
processing these minerals is quite considerable. They also have a monopoly on
making the magnets necessary for wind turbines and EVs. While other countries including
the U.S. are working to increase their REE production and processing
capabilities, China also has the advantage that their REE industry is strongly subsidized
by their government which keeps REEs cheap for all compared to other sources. Thus,
weening off of China for REE’s will be costly. The U.S. and other countries are
developing some REE mining and processing capabilities and there have been some
important new finds such as the one in Sweden recently announced. However,
those sources will take many years to come online and make a dent in China’s
monopoly. There is also the issue of environmental impact in China’s REE ops which
is significant. This has been little addressed and shrugged off by renewables
advocates.
Critical Minerals
Critical
minerals are found all over the world, but Russia and China do have big market
shares. Other situations like Congolese cobalt production that makes up a large
amount of global cobalt production are beset with human rights and labor
concerns. Again, this has been inadequately addressed by renewables advocates. Lithium,
copper, and nickel make up the bulk of critical minerals, about 80%. Cobalt,
manganese, graphite, and REE’s make up the bulk of the rest of critical minerals.
Disputes between countries and mining companies will likely intensify as extraction
intensifies. We have already seen some of that in places like copper mining in
Peru and Chile and lithium mining in Bolivia. Developing better environmental
standards for extraction will also be important. Russia is a major supplier of
nickel so the same issues with sanctions will apply as they do with other
commodities.
Lithium
Lithium has
far less exposure to energy security issues than do critical minerals in
general and energy. The major lithium producing zone is the so-called Lithium Triangle
in the Atacama Desert region which encompasses parts of Chile, Argentina, and
Bolivia in South America. This area is thought to contain half of the world’s
lithium reserves, although several major new finds have been reported in recent years
and months. Lithium, as a major critical mineral, is being pursued domestically
by countries in North America and other places to develop domestic supplies to
hedge against potential supply and price disruptions from other parts of the
world.
Solar Panel Production
We know that
forced labor against the Uyghur population is being used by China to produce solar
panels in Xinjiang province, where about 45% of the world’s polysilicon used
for solar panels is produced. Polysilicon is made from mined quartz or quartz
sand. The forced labor assertions are in addition to the internment and re-education
of the Uyghur Muslim population in Xinjiang province, an autonomous region in Northwest
China. Forced sterilization of Uyghur women has also been reported.
Nitrogen Fertilizer
The bulk of
the world’s synthetic fertilizer is made from natural gas and the nitrogen in
the air as part of the Haber-Bosch process. Russia’s clout as a fertilizer supplier
has dropped due to the sanctions. The sanctions have also strongly affected fertilizer
production in Europe and elsewhere due to the high cost od natural gas, so much
so that plants were shut down and some closed with operations moving elsewhere.
The current lower natural gas prices are a reprieve for that situation but if
they rise again the same problem will arise. That is another reason to support
adequate natural gas supply.
References:
EU reliance on Russian nuclear undermines energy
security goals. Nour Ghantous. Energy Monitor. March 2, 2023. EU
reliance on Russian nuclear undermines energy security goals (energymonitor.ai)
China uses Uyghur forced labour to make solar
panels, says report. BBC News. May 14, 2021. China uses Uyghur
forced labour to make solar panels, says report - BBC News
Russian nuclear
energy diplomacy and its implications for energy security in the context of the
war in Ukraine. Kacper
Szulecki & Indra Overland. Nature Energy. February 27, 2023. Russian
nuclear energy diplomacy and its implications for energy security in the
context of the war in Ukraine | Nature Energy
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