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How not to fill the energy gap

19 March 2022

9:00 AM

19 March 2022

9:00 AM

Like the Bourbons, the West appears to have learned nothing from the disastrous anti-fossil fuel energy policies that have armed Russia with the economic and diplomatic clout (and multi-billions of export dollars) needed to wage war against Ukraine. And the Free World’s leaders (all true believers in climate change and emissions targets) think they can solve the resultant current energy crisis by repeating the same mistake. Their answer is to speed up – not slow down – the transition to a clean energy future. But at what cost to the West’s relative economic health as the arc of autocracy (Russia with its satellites and China) benefit from their increasing use of the far cheaper fossil fuels that the West spurns? And who will fill the inevitable gap between renewables supply and energy demand?

Russia got strong enough to invade Ukraine, and confident that the West would not directly intervene, by filling this gap that emerged when the West prematurely cut its own fossil fuel production in search of emissions purity before the transition into (less reliable) renewables had provided anywhere near adequate replacement energy to sustain their economies. That is why the West’s significant sanctions against Russia, which are aimed at causing economic disruption, still exclude the great bulk of its fossil fuel exports on which Europe, in particular, heavily depends. Bloomberg quotes an energy expert saying, ‘Russia is too big to sanction; the global market cannot survive without Russian oil, and certainly Europe cannot survive without Russian gas.’

Nevertheless, there are moves in that direction. The US is banning, and the UK intends to ban Russian fossil fuels by the end of the year as does Australia. Even the EU is stirring, with the European Commission drawing up plans for the EU to stop importing Russian fossil fuels by 2027. But despite Commission President Ursula von der Leyen telling a press conference after this month’s meeting of EU heads of state in Versailles that, ‘By mid-May, we will come up with a proposal to phase out our dependency on Russian gas, oil and coal by 2027, backed by the necessary national and European resources’, no date was included in the leaders’ declaration due to leader disagreement as to the pace of a pivot to other sources.

As Russia, one of the world’s leading energy exporters, becomes an (almost) pariah for its UN-condemned (but not UN-confronted) invasion, with the eventual prospect of sanctions against fossil fuels certain to cause energy shortages and high prices, the West plans to compound the problem by ramping up the transition to renewables away from oil, natural gas and coal. This is a reversion to its ‘planet-saving’ decades-long attacks on fossil fuels and away from its response to the current crisis as it scrambles to restart its closed coal-fired power plants, expand its own natural gas output (fracking?) and crank up oil supplies (with the US flirting with reprobate regimes like Iran and Venezuela in the hope of gaining barrels of oil). It even involved Biden admonishing US oil and gas companies for not doing enough to increase supply, which prompted the American Petroleum Institute to note that Biden’s ‘transition away from oil’ policy (along with activist shareholders) had actively discouraged fossil fuel development.

Biden made sure that his anti-fossil fuel gospel was still intact when announcing this month’s US ban on Russian oil (which is largely cosmetic as Russia supplies only a fraction of US demand). His intention was to soften the impact on the left of his Democratic party of the total (but temporary?) policy reversal involved in his current promise ‘to make sure we can readily access the oil and gas necessary to protect American consumers and allied countries through greater U.S. domestic production’. His apologia to the zero-emissions cult was that, ‘We cannot drill our way out of dependence on a global commodity controlled in part by foreign nations and their leaders, including Putin. The only way to eliminate Putin’s and every other producing country’s ability to use oil as an economic weapon, is to reduce our dependency on oil…. This crisis reinforces our resolve to make America truly energy independent, which means reducing our dependence on fossil fuels. This is a shared goal with our European allies, that we will work together to achieve.’ The transparently phony claim that US energy independence can only be achieved by ‘reducing dependence on fossil fuels’ ignores the reality that the US economy’s massive consumption of energy is effectively met by domestically produced fossil fuels with enough left over for the US to be a large net energy exporter. It has not been hostage to fossil fuel imports ever since the fracking boom.

Nevertheless, there is no doubting Russia’s major fossil fuel world status, nor its contrary direction to the West’s fossil fuel restraint. It is the world’s third-biggest oil producer after the US and Saudi Arabia, responsible for about 12 per cent of global oil production, or between 10 and 12 million barrels per day. Almost two-thirds of Russia’s oil exports are to Europe, but China, currently taking 20 per cent, is a potentially larger customer if Europe ever does wean itself off Russian oil. In natural gas, Russian exports have surged to supply almost half the EU’s demand as European production has halved over the last decade. Russia’s Energy Strategy to 2035 (an up-yours to Glasgow) prioritises the development and diversification of energy exports involving significantly increased investment in liquefied natural gas, particularly in the Arctic region aimed at increasing LNG capacity to export beyond Europe as a competitor in Australia’s Asian LNG markets. In coal, Russia is the world’s third-biggest producer after a 40 per cent lift in output of the last decade, with major plans for further expansion. It provides about 60 per cent of Europe’s thermal coal imports and 30 per cent of its metallurgical coal. But of direct interest to Australia is the rising role of China to become Russia’s biggest coal customer and destined to increase further as Australian coal suffers from China’s trade war ‘punishment’.

It is now evident that China and Russia are cementing their economic ties and expanding their energy trade to ease their vulnerabilities to the West. Six days before the Ukraine military campaign began, Russia announced the sale of 100 million tonnes of coal to China, a contract worth more than $20 billion. While China and Russia can shelter each other from sanctions and energy market fallout in the short term, Beijing’s possible over-dependence on Russia leaves it still at risk on energy security, one of China’s biggest vulnerabilities as the nation’s economy continues to expand. But serious escalations of the Ukraine situation or the Taiwan stand-off both carry the threat of nuclear war, just as Japan’s response to President Roosevelt’s oil embargo was the bombing of Pearl Harbour. But today’s nuclear missiles are far more decisive.

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