The energy prescriptions of The Atlantic Council: “There’s a direction relation between climate change and geopolitics”

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Typhoon Haiyan hit the Philippines in 2013 (photo Asian Development Bank)

Typhoon Haiyan hit the Philippines in 2013 (photo Asian Development Bank)

The implications of climate change targets not being met are massive migration, the potential for resource wars and “a further disintegrating of the international order”, according to Richard L. Morningstar, Founding Director and Chairman of the Global Energy Center and David Koranyi, Director of the Eurasian Energy Futures Initiative, both part of the Washington DC based think tank The Atlantic Council. Morningstar and Koranyi see a “direct relationship between climate change, geopolitics and global security”. They argue Europe should promote the role of gas and oppose Nord Stream 2. The election of Donald Trump would be “catastrophic in the climate and energy space”. The interview was first published in World Energy Focus 2016, a magazine produced by Energy Post for the World Energy Congress in Istanbul.

The geopolitical issues surrounding energy – compounded as they are by the urgent need to mitigate climate change and the “energy-water nexus” – have never been as complex and intractable as they are today. They are a major focus of the Atlantic Council – a non-governmental organisation set up during the era of US President John F. Kennedy to focus on trans-Atlantic relations, which over time has become global in reach. World Energy Focus spoke with two of the Council’s leading figures on energy.

Richard L. Morningstar, Founding Director and Chairman of the Council’s Global Energy Center, served as the US ambassador to the central Asian Republic of Azerbaijan from 2012 to 2014, and before that was the Secretary of State’s Special Envoy for Eurasian Energy. Originally an attorney, he has held a number of other senior diplomatic posts that make him an expert on energy issues in the former Soviet Union, Central Asia and the European Union.

“Some of the more optimistic forecasts show that the penetration of electric vehicles could be a lot higher by the mid 2020s or even the early 2020s than many expect

His colleague David Koranyi is Director of the Council’s Eurasian Energy Futures Initiative, a former Hungarian national security adviser and an expert on the geopolitics of energy and European and US foreign and energy policy.

What are the main geopolitical challenges facing the world today? 

David Koranyi (DK): One is climate change-induced conflicts and ensuing migration. Syria is an example often put in the context of climate change-induced droughts, spiking food prices, ensuing riots and protests, and then the civil war. In many ways, the conflict and the huge migratory pressures in Europe are the indirect result of climate change already. I expect to see this more often in the future, especially if mitigation efforts fail.

The second is the stability of energy-producing countries highly dependent on fossil fuel revenues. Some of the more optimistic forecasts show that the penetration of electric vehicles could be a lot higher by the mid 2020s or even the early 2020s than many expect. So there could be a huge difference between forecast and actual oil demand. We already see the enormous pressures on producers like Venezuela and Nigeria. What happens in the next decade if oil demand is more depressed, if low prices are the new normal for the foreseeable future? What does that do to regional and global stability?

Richard L. Morningstar (RLM): I would include Russia – because, again, what happens if Russia has to deal with $20 or $25/barrel oil prices in the future. I’m not saying that’s going to happen – but there is the potential, given what could be a revolution in transportation technology. On climate change I would add that there is a direct relationship between climate change, geopolitics and global security.

From what you’ve both said, the implications of climate change targets not being met are probably massive migration and the potential for resource wars. How concerned should people be? 

DK: A lot. To these two concerns, let me add a third. The international liberal world order established after the Second World War is already under attack from various actors and its two key anchors, the European Union and the United States, are struggling with internal pressures in the form of populism and resurgent nationalism. Donald Trump is a manifestation of that challenge from within. If international climate mitigation efforts fail, it will have a further disintegrating effect on the international order – a world where countries are more introspective, where multilateral institutions are more dysfunctional, where international co-operation on protecting the global commons is more challenging, where countries and many actors will not trust each other.

“US LNG is already forcing the Russians to completely re-think their strategy”

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Richard Morningstar

RLM: Coordination is essential, and it will be particularly important for developed countries to provide assistance to lesser developed and least developed countries to meet goals. The project that [US Energy] Secretary Moniz has started, on Mission Innovation, is also very important – where countries come together, provide significant research funds, and coordinate on projects relating to new technologies, which ultimately will have the best chance of a game-changing effect.

You’ve painted a pretty grim picture here. How much reassurance can we take from the international agreement made in Paris last December? 

DK: I am still optimistic that we can pull this off. But the time horizon is extremely short. If you look at the timescales for previous energy transitions, we have very little time. The transition will happen – but will it happen soon enough to prevent the catastrophic consequences of climate change? If you look at the timescales for previous energy transitions and the climate clock, we will have to go well beyond Paris.

Natural gas as an energy source has become controversial, with some seeing it as a key part of the solution to mitigating climate change and others dismissing it as just another fossil fuel. What’s your view? 

RLM: Gas is going to play a major role for the foreseeable future in helping to create a cleaner environment. It’s obvious that gas is cleaner than other fossil fuels. It’s going to be necessary for backup generation to renewable-based generation. I know some are concerned that a lot of infrastructure will be built for gas and that that will tie us into it. I don’t buy into that.

DK: The methane leakage issue will need to be properly addressed. There are efforts to address it here in the United States and hopefully they will continue during the next administration. There needs to be effort also from other major producers like Russia, Qatar or Nigeria – very often we don’t even have data available from those countries. Also, there needs to be a re-focus for carbon capture and sequestration (CCS) for gas, as opposed to the current focus on CCS for coal –  because that could provide a longer term future for gas in addition to it being a bridge fuel.

Do you expect the shale gas revolution to be replicated outside North America? 

RLM: It’s very unclear whether the American shale revolution can be replicated. We have in the United States what may be some very unique characteristics with respect to geography, land rights and entrepreneurial capabilities.

“It would be a very bad signal to approve Nord Stream 2 while Russia is occupying Crimea and is active in eastern Ukraine”

We had been hopeful with respect to what would happen in Europe but that has not come to pass. It’s interesting that the environmental issues that have come to the fore in Europe, particularly in Eastern Europe, have been promoted by our Russian friends who certainly have had an interest in shale not being developed. As far as other geographical areas around the world, we’ll have to see.

OPEC’s policy – led by Saudi Arabia – to fight for market share rather than defend price has seen oil prices collapse, with major impacts on producers and consumers – for example, Venezuela and Nigeria. Is OPEC still relevant in an era of supply abundance driven by the North America shale oil revolution?

DK: OPEC’s influence on global markets and pricing has diminished and will diminish further. I don’t see how internal unity will be restored within OPEC and in my mind Saudi Arabia’s decision to stick to its production levels and defend market share was as much about protecting its market share based on previous bad experiences when cuts were agreed but nobody else held to them. And, of course, about Iran returning to the market.

The US is well on its way to becoming a major LNG exporter – and, importantly, more commercially flexible LNG supply. Will this lead to Europe becoming a gas battleground as LNG competes with Russian pipeline gas exports? 

RLM: The key point is the availability of US LNG exports. Just the fact that LNG can be shipped to Europe and other parts of the world already has had a tremendous effect on competition. In Europe just the availability of LNG has resulted in Russia lowering its gas prices. There’s the famous anecdote of when the Klaipėda LNG terminal opened in Lithuania, Russia came back and re-negotiated its price. From a consumer standpoint, an availability standpoint, and diversification it’s very important.

“The Southern Corridor is important but will not have a huge effect on Europe”

DK: LNG is going to act as a price ceiling for Russian gas in Europe. It is already forcing the Russians to completely re-think their strategy – maybe moving from a price maximizing strategy more towards a volume strategy. It may also lead to changes domestically in Russia, in market liberalisation and maybe the lifting of the export monopoly for Gazprom, which eventually could lead to the demise of that company as we know it today. But there are some deficiencies in terms of infrastructure availability in Central and Eastern Europe. There’s an important task ahead for the EU to complete interconnections to make sure that these markets are accessible for LNG.

Ambassador Morningstar, you have written recently on “the pluses and minuses of Nord Stream 2” – the new pipeline that would bring gas from Russia to Europe. With gas supplies looking so abundant that we face a glut until the early 2020s, and with Europe seen as a “market of last resort” for LNG, is now a good time for such an investment? 

RLM: No, for many reasons. There is a serious question as to whether there is a commercial need for Nord Stream 2. Some of its advocates have said gas production is going to decrease in Europe, while demand is going to increase, so it’s going to be important to have that source. I would argue that there are many sources that could solve any such need.

There are other reasons why Nord Stream 2 would be a mistake. It would not help Europe in the diversification of suppliers, it would have an adverse effect on Ukraine, in possibly eliminating $2 billion a year in transit fees, and it could make gas going back to Central and Eastern Europe via reverse flow more expensive. Also, there is a geopolitical aspect to this. It would be a very bad signal to approve Nord Stream 2 while Russia is occupying Crimea and is active in eastern Ukraine. It would show weakness on the part of Europe.

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David Koranyi

What are the prospects for development of the Southern Corridor of gas supply to Europe – from Central Asia and perhaps Iran? 

RLM: Today, the Southern Corridor is important but will not have a huge effect on Europe. The present Shah Deniz project would provide 6 bcm (billion cubic metres) to Turkey and 10 bcm onto Europe. [Russia exported 160 bcm to Europe last year, including 26.6 bcm to Turkey. Editor.] As we look into the future, what might be added to the Southern Corridor? I don’t think it’s likely in the foreseeable future that Turkmen gas will be part of the Southern Corridor. There are opportunities for more production in Azerbaijan that could contribute significantly going into the middle 2020s. Hopefully at some point gas from the KRG [Kurdistan Regional Government] and the Eastern Mediterranean will become part of the Southern Corridor.

With respect to Iran, it doesn’t appear to be one of their highest priorities right now because they’re looking to their own domestic needs for gas, regional needs, and the possibility of LNG exports.

“As in so many other respects, the election of Donald Trump as US president would be catastrophic in the climate change and energy space”

As for Turkey, the one consistent aspect of the relationship between Europe and the United States and Turkey going back 20 years has been energy. It’s always been a positive aspect of that relationship, and I don’t expect that to change. Whatever the consequences of the abortive coup may be, I would suspect that Turkey will continue to make every effort to cooperate with respect to the Southern Corridor. Turkish companies are heavily involved now in both the Shah Deniz project and the Trans-Anatolian Pipeline (TANAP).

How will the outcome of the US election affect developments in the energy world? 

DK: Let me be blunt. As in so many other respects, the election of Donald Trump as US president would be catastrophic in the climate change and energy space. It would significantly jeopardise the moral leadership of the United States and its standing in the world.

If Clinton is elected, that brings up a very interesting prospect, depending on how the political setup in Congress looks. That will determine to what extent she will be able to lead on a more robust US climate policy, and whether there will be support, perhaps even on a bipartisan basis, in Congress. The latter may sound crazy and far-fetched as of now, but there are some encouraging conversations under the surface going on inside and close to the GOP about a more forward leaning approach on climate. There is increasing recognition in business circles, close to the Republicans, that the current positions will not only be vulnerable from the scientific standpoint but also politically harmful given how US public opinion is shifting on climate change.

If it’s a democratic majority in Congress or if there is some space for a bipartisan compromise, an interesting prospect would be to talk again about more robust measures, like a carbon tax for example. Right now the administration is doing what it can with suboptimal tools, given the political gridlock. If you look at the Clean Power Plan, for example, it covers only the power generation sector. The question in my mind is whether it will be possible to design and implement policy tools that are more effective in addressing US emissions, also enabling the U.S. to lead in the fight against climate change.

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