Episode 13

How can we maintain energy security during the transition?

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Key Points

  • At a time of great urgency, the question of a just energy transition while maintaining energy security dominated the Forum.
  • Whether fossil fuel production could be expanded was as much up for debate as whether it should.
  • Fuels from nuclear to hydrogen were debated by the experts as potential energy supplies.
  • While net-zero targets remain, governments are taking a fresh look at the role of fossil fuels in the near term.

Required Conflicts Disclosures

This year’s Global Energy Forum (GEF) took place at a moment of great urgency in energy markets, in the energy transition and in the climate crisis. In the wake of Russian aggression in Ukraine and soaring energy prices, there are new lessons to learn about how to accomplish a just and effective energy transition, while maintaining global energy security. Atlantic Council President and CEO Frederick Kempe pointed out in his opening remarks that energy is central to global drama today.

“In January, none of us could have imagined how significantly the world would change in just the first weeks of 2022. We have lurched from pandemic to global inflation to supply chain difficulties to some of the most volatile energy markets we’ve experienced in some years, all now falling into the jaws of Putin’s unprovoked, unjustified, and criminal war in Ukraine, the worst European conflict since World War II,” he said.

“We open this year’s Atlantic Council Global Energy Forum at a moment when our energy system is confronting concurrent geopolitical, energy security, and climate crises. I can’t imagine a better time for us to gather and put our best minds together so that we can better navigate this period of uncertainty. We must avoid letting this crisis force us to choose between energy security and climate action.”

The continued role of fossil fuels

Governments and corporates have committed to strong climate action, often pledging to meet net-zero by 2050, yet the reality of the transition means that oil and gas still have a role to play. The supply crisis and price spikes have shown the dangers of shifting investments away from these fuels while still lacking the uptake of cleaner alternatives.

However, now that Russia, a major supplier and member of OPEC+, is under economic sanctions and following underinvestment in 2020 and 2021, it’s much more difficult to turn on the taps. As expected by RBC Capital Markets and other market observers, OPEC+ only went for a modest oil production boost at its most recent meeting on March 31st, just after the GEF conference. OPEC’s members have been reluctant to strongly condemn Russia’s actions and relations with the US are dependent on aid in securing Saudi energy infrastructure, nuclear negotiations with Iran and other issues.

“There is also concern about depleting all remaining OPEC spare capacity at this stage when there is a lack of clarity about the ultimate magnitude of the Russian export losses,” RBC Capital Markets’ commodity team has said.

Helima Croft, RBC Capital Markets’ Head of Global Commodity Strategy and MENA Research, interviewed Amos J. Hochstein, US presidential coordinator for Build Back Better World, at GEF. He indicated that the buyer’s strike had already removed around 2 mb/d of Russian exports. These losses will probably be enduring as Russia will likely remain the most sanctioned country on earth for the foreseeable future (barring a change at the top in Moscow). Moreover, these export losses will only climb if Russia resorts to more dire tactics, such as chemical weapons, to break the stalemate and western nations are compelled to expand energy sanctions.

Europe’s dilemma

These energy shortfalls must be met, and nowhere is that more keenly felt right now than in Europe. Hochstein also said that the US must supply Europe with additional gas supplies immediately and in the future, as well as speed up the transition to reduce dependency on natural-gas supplies in the long term.

“We need to make sure that our system and our economy is well-supplied to sustain growth and avoid inflationary action,” he said, adding that US oil production could rise by a million barrels per day this year and referring to significant oil and gas permitting, particularly in LNG infrastructure. This infrastructure is also supported by European appetite for more long-term contracts.

While commitment remains to transition away from fossil fuels in the long term, the dilemma is in the short term. Alexander Nikolov, Bulgaria’s energy minister, blamed a laser focus on “green” energy solutions in Europe for the current crisis. In a panel on why natural gas needed to be part of the transition, RBC Capital Markets’ Helima Croft pointed out that the world cannot expect the energy transition to be cost-effective or “geopolitically benign,” and that lessons learned from the current crisis had to be applied in order to ensure as minimally volatile a transition as possible.

The potential ways forward

However, a just, green transition remained a focus of the conference. Hydrogen was the subject of one expert panel, as a key fuel that has generated much interest.

David Livingston, senior advisor to US Special Presidential Envoy for Climate John Kerry, argued that it’s the role of government to “cut the Gordian knot” by creating demand for low-carbon hydrogen, and also preparing the regulatory framework to support stable markets for hydrogen. Other panelists pointed to the importance of standardization throughout the hydrogen industry, verifiable metrics, and carbon accounting processes. They also focused on the need to reduce costs for low-carbon hydrogen while also setting the foundations for future hydrogen trading networks.

Nuclear power was the subject of another session as a fuel that could help the decarbonization transformation. Panelists emphasized that once again, regulatory and policy support were crucial. Rumina Velshi, president and chief executive officer of the Canadian Nuclear Safety Commission, said that an effective regulatory framework would promote certainty and predictability while also minimizing risks.

Hopes of a swift energy transition have been dampened by fast-rising demand and war in Europe, but it’s never been clearer that this is a transition, not an abrupt stop. For many participants, this year marks the time to assert the continued role of fossil fuels in the near term, while turning to a mixture of fuels for the future. It’s also a time to consider that the fact that there is no one answer to the question of how we produce energy may be a good thing, as energy security depends on diversification.

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