Over the barrel: Preparing for the complex, new energy maps
December 7, 2020 6:16 AM
The ‘new maps’ are not simple. They do not provide a clear direction. They suggest, instead, the energy transition will unfold in different ways in different countries and over different time periods
This is because they will be influenced not just by economics and technology, but also by politics and public activism.
By Vikram S Mehta
This article is not a book review. It is, however, inspired by one—Daniel Yergin’s excellent, latest publication ‘The New Map: Energy, Climate and the Clash of Nations’. Dan is the best known and most respected chronicler of energy history and politics today. His earlier books have all been bestsellers. One of these, ‘The Prize: The Epic Quest for Oil, Money and Power’, received the Pulitzer Prize. The reason I decided to draw on ‘The New Map’ is because it throws up an important question for our decision-makers. How should a large, import-dependent, fossil-fuel-based developing economy with a rising demand for energy and an unhealthily strong linkage between this demand and environmental pollution navigate the reordered cartography of geopolitics and energy?
Dan has envious talents. He writes fluidly in a style that brings to life the arcane dynamics of the energy business. He is deeply knowledgeable and analytically prescient. The ‘New Map’ is an excellent read because through multiple interconnected storylines, it pulls together the transformative occurrences that have shaped the energy world in recent years into a cogent framework from which the reader can discern the future pathways of the next energy transition.
Six broad themes define the ‘New Map’. The first is the US shale revolution, which transformed the US from a major importer of oil and gas to a significant exporter; the second is the leveraging by Russia of its gas exports to compel, on the one hand, former members of the Soviet Union to stay within its sphere of influence and, on the other, to embrace China into an energy partnership (Russia needs markets; China needs energy); the third is China’s assertion of its rights over the South China Sea—a critical maritime route for its energy imports—and the Belt and Road Initiative to place the ‘Middle Kingdom in the middle of the reordered global economy’; the fourth is the sectarian strife (Sunni/Shia) in the Middle East, which, compounded by volatile and falling oil prices, has brought the region to the edge; the fifth is the Paris Climate Summit and its impact on public sentiment, investment decisions, corporate governance and regulatory norms; and the last is the consequential impact of the manifold and impressive advancement of clean energy technologies.
The ‘new maps’ are not simple. They do not provide a clear direction. They suggest, instead, the energy transition will unfold in different ways in different countries and over different time periods. This is because they will be influenced not just by economics and technology, but also by politics and public activism.
The ‘new maps’ raise several questions for India. How might they impact its objective to provide reliable, affordable, clean and universal access to energy? Who will bear the cost of the transition? In particular, the cost of retrofitting the industrial infrastructure and of upgrading the grid to manage the intermittent flow of solar and wind energy? How can it prevent the ‘perfect storm’ of high unemployment (viz. laid-off coal workers), stranded assets (thermal power plants), slowed economic growth and environmental degradation? How realistic is a green transition for an economy almost totally dependent on fossil fuels?
The ‘new maps’ do not provide answers to such India-specific questions. They do, however, provide a framework for deliberating policy options. Specifically, they throw up three policy initiatives set along the twin axis of fossil fuel and renewables.
On the fossil fuel axis, the ‘new maps’ suggest the government leverage its buyer (monopsonistic) strength to secure ‘most favoured’ terms of trade for crude supplies. In this regard, they bring out one development that plays to India’s advantage. The onset of ‘peak oil demand’ (i.e. demand will plateau before supply depletes). The earlier concern was ‘peak oil supply’ (i.e. supplies are finite and the market will face a shortfall). There is no consensus, however, on the timing of peak demand. BP believes, for instance, it has already peaked; the International Energy Agency (IEA) projects it will peak by 2028; IHS Markit’s ‘rivalry’ scenario puts the date around the mid-2030s. Saudi Arabia, on the other hand, and not surprisingly, holds that oil has a longer runaway and demand will not peak until at least 2050. There is, however, broad-based agreement that the oil market does face a structural supply overhang. All accept that Sheikh Yamani, the former minister of petroleum for Saudi Arabia, was prescient and on track when, in 2000, he (reportedly) said that “thirty years from now, there will be huge amounts of oil and no buyer. The Stone Age came to an end not because we ran out of stones. The oil age will not end because of lack of oil.” (I write ‘reportedly’ because the quote has been attributed to others.)
On the renewable axis, the ‘new maps’ would suggest two policy initiatives.
One, India must develop its own world scale, competitive, manufacturing systems for passenger vehicles and battery storage. This is because, otherwise, it will find itself on the horns of a dilemma. It will not be able to provide affordable solar units unless it accepts the further deepening of dependence on Chinese imports. Currently, China manufactures 75% of the world’s lithium batteries: 70% of solar cells, 95% of solar wafers, and it controls 60% of the production of the intermediate input polysilica. It is also looking to secure a chokehold over several strategic minerals (such as cobalt and nickel).
Two, India must prepare a clean energy technology strategy. Technology is the answer to the energy transition. It is what will bring the system to the tipping point of radical change. China recognises this fact. They have accordingly placed clean energy R&D at the forefront of their ‘Plan 2025’. The India strategy should identify relevant ‘breakthrough technologies’, establish the funding mechanisms and create the ecosystem for partnerships (domestic and international). Specifically, as regards the latter, clean energy technology offers an early and mutually-beneficial platform for collaboration between India and the Joe Biden administration.
The author is chairman, Centre for Social and Economic Progress