April 19, 2020 04:48:19
There have been many articles written about the social changes that may occur in the aftermath of the Great Shutdown.
But one major change is already upon us, and it’s being powered by forces that began years before the coronavirus emerged.
It’s occurring inside the global energy system.
Since the 1960s, a cartel of 14 oil-producing countries, the Organisation of the Petroleum Exporting Countries (OPEC), has controlled a huge amount of the world’s oil supply.
In recent years the group has expanded, forming a super cartel with 10 non-OPEC countries, called OPEC+, to control roughly 55 per cent of the world’s supply.
Its members include Saudi Arabia, Russia, Iraq, Kuwait, the United Arab Emirates, Brunei, Congo, Nigeria, Algeria, Angola, Sudan and South Sudan, among other countries.
The representatives of OPEC+ nations meet regularly, discuss the global demand for oil, and manipulate the oil supply to nudge prices in their favour (to ‘stabilise prices’ as the euphemism goes).
Over the decades, the cartel has required a huge amount of diplomatic, bureaucratic, and economic resources.
It’s also enriched some of its members, particularly Saudi Arabia which has used its oil exports, since the mid-1970s, to fund the spread of puritanical and intolerant interpretations of Islam around the world.
But the cartel’s oil power won’t last forever.
Historians will look back on this period as an epoch in capitalism, when oil-producing nations were powerful because they were necessary to keep the whole engine running.
As The Economist wrote in 2018, in a special edition on “the new power superpowers,” the geopolitics of energy since World War II had largely been about the world’s thirst for oil.
“The efforts to secure [oil], safeguard its shipments, stop enemies from getting or keeping hold of it, and monopolise it if possible, loomed large in 20th century history,” it said.
But the global shift towards renewable energy will change all that, as countries become more energy self-sufficient.
“It seems inevitable that the geopolitics of energy will develop into a contest to see which country can produce the most energy on its own, and which has the best technology.”
Last year, the International Renewable Energy Agency, which is headquartered in Abu Dhabi in the United Arab Emirates, launched a global commission to study the geopolitics of clean energy.
The commission published a report, A New World: The Geopolitics of the Energy Transformation, which laid the matter out plainly.
It said having control over, and access to, significant energy resources and markets was an important asset because it helped states to protect interests at home and leverage economic and political influence abroad.
“States without such assets, by comparison, have less leverage and are more vulnerable,” the report said.
“The rapid growth of renewable energy is therefore likely to alter the power and influence of some states and regions relative to others, and to redraw the geopolitical map in the 21st century.”
The report also warned that countries that had traditionally enjoyed geopolitical influence because they supplied fossil fuels were likely to see a decline in their global influence unless they could reinvent their economies for a new energy era.
“A decline in fossil fuel rents has the potential to profoundly destabilise countries that have not prepared their economies sufficiently for the consequences,” it said.
“The loss of oil rents in countries with weak governance could lead to fractures in society and political instability.
“The drop in oil price in the 1980s was one of the factors that contributed to the decline and eventual fall of the Soviet Union, which in turn led to the end of the Cold War, arguably the biggest geopolitical shift since the end of the Second World War.”
Experts predict a power-shift
Now consider what we’ve witnessed in recent weeks.
Last weekend, representatives from OPEC+ nations agreed to cut oil production by 10 million barrels a day (roughly 10 per cent of global supply) after emergency talks.
It said the supply cuts were necessary because with huge swathes of the global economy closing down to stop the coronavirus spreading, oil demand has plummeted and the industry is being devastated.
Indeed, the drop-off in demand has created a significant problem of excess supply, because oil wells can’t simply be turned off and on again to meet wild swings in demand.
It often makes more economic sense to keep pumping oil from a well and sell the oil at a loss, or pay someone to take the oil off your hands.
But the fall in demand has been so significant that the global system has come under extreme pressure, with growing stocks of unwanted oil and limited storage capacity.
So OPEC+ members had to cut production by 10 million barrels a day to ease pressure on the system, and stabilise markets.
And at the start of last week investors were cheering, because it seemed like OPEC+’s decision had put a floor under oil prices.
“I think we may be at a floor,” said US Energy Secretary Dan Brouillette on Wednesday.
“I think the intent of this conversation with OPEC and the rest of the G20 countries is simply to do exactly that, to mitigate.”
However, by Friday that optimism had vanished, with oil prices falling another 20 per cent over the week despite OPEC’s agreed production cuts.
Think about how many problems in the current system will disappear once the world shifts to renewable energy with gusto, with more countries becoming more energy self-sufficient.
According to the International Renewable Energy Agency, countries that have the ability to take advantage of new renewable energy technologies can expect to enhance their global influence and reach in the future.
And it has singled out Australia as a potential new energy leader.
“Countries with high technical potential for renewable energy generation stand to gain if they are able to become significant exporters of renewable electricity or fuels,” its report said.
“Australia’s economically-demonstrated solar and wind energy resources are estimated to be 75 per cent greater than its combined coal, gas, oil and uranium resources.”
But it says one country in particular has positioned itself well to dominate strategically in the future.
“No country has put itself in a better position to become the world’s renewable energy superpower than China,” it said.
“In aggregate, it is now the world’s largest producer, exporter and installer of solar panels, wind turbines, batteries and electric vehicles, placing it at the forefront of the global energy transition.”