A review of Taiwan’s energy security challenges is urgently needed to assess its specific vulnerabilities and strengths in the face of attempted coercion by the PRC. Beijing appears increasingly capable of launching a quarantine, blockade, siege, or even invasion of the island.

It’s worth defining these terms. In a PRC quarantine of Taiwan, Beijing would employ the People’s Liberation Army Navy, or PLAN, to interdict all shipping under the guise of inspecting for military kit but allow food and some supplies to pass through. It is possible the PRC believes this insidious tactic is its most attractive option in a Taiwan scenario, due to the limited costs and commitments it would require; the ambiguities it would impose on Western policymakers; and the potential that world public opinion, at least in parts of the developing world, would side with Beijing over the West as economic costs mounted.

Other options appear less probable, but much more coercive and potentially violent. In a blockade scenario, the PLAN would prevent all shipments from entering Taiwan, aiming to coerce the island into surrendering. A siege is a subset of both a blockade and invasion. In this scenario, Beijing would degrade the island’s defensive capability for months before launching an invasion. In the invasion scenario, Beijing would attempt a snap assault, hoping to leverage the element of surprise and secure Taiwan with minimal resistance. A snap invasion is extremely unlikely, however. The weeks that Russia built up its forces on its border with Ukraine before its full-scale invasion—in full view of the world—suggest that the PRC will almost certainly be unable to conceal mobilization for an extremely complicated, massive amphibious assault.

The risks of each scenario are real. The PLAN conducted blockade and quarantine trial runs as recently as April, suggesting Beijing is considering disrupting Taipei’s trade, including its maritime energy imports. Military deterrence is the ultimate guarantor of Taiwan’s freedom, but there are additional nonmilitary steps Taiwan can take with the United States and its allies to ensure its energy needs are met in the event of a crisis.

Taiwan’s Middle Eastern oil imports can be replaced, if necessary

The first issue is whether Taiwan can sustain a reliable supply of energy, which means tracing the energy back to its source. The island is highly dependent on maritime crude oil imports. They accounted for 44 percent of Taiwan’s total energy needs in 2022, and most of this oil comes from the Middle East. Last year, it sourced about 72 percent of its crude oil supply from Saudi Arabia (33 percent), Kuwait (21 percent), the United Arab Emirates (9 percent), Oman (7 percent), and Iraq (2 percent).

The PRC’s economic footprint is expanding in the Middle East and exceeds the Taiwanese or even US presence. Beijing’s crude and condensate oil imports have more than quadrupled since 2006 and stood at over 508 million tons in 2022. China, the world’s largest oil importer, is vital for Middle Eastern economies. In 2022, exports to China accounted for 8 percent of Saudi Arabia’s gross domestic product, 15 percent of Kuwait’s, 9 percent of the United Arab Emirates’, and a shocking 33 percent of Oman’s. Gulf Cooperation Council countries exported nearly 8.5 times more crude oil to China than to the United States in 2022; China’s oil imports are projected to rise further even as US imports plateau or recede. Taiwan imported 41 million tons of crude oil and condensates in 2022, just 8 percent of the PRC’s total.

The PRC’s increasing influence in the Middle East is undeniable, but the risks vis-à-vis Taiwan are manageable. Even in a worst-case scenario—Gulf producers abandoning Taiwan under PRC pressure—the island could find alternative suppliers, though not easily. While oil is a globally traded and largely fungible commodity, refineries require different grades of crude oil, as barrels have distinct sulfur content and densities. If the PRC ever successfully pressured Gulf exporters to halt shipments to Taiwan, the United States and Canada could export a mix of heavy and sulfuric grades—notably Western Canada Select—to supply the island’s refineries. If they have not already, US and Canadian energy officials should hold quiet conversations with their counterparts in Taiwan, South Korea, and Japan about how North American crude oil and oil products could manage disruptions in the event of a blockade.

What about coal, LNG, and nuclear energy?

Taiwan also imports coal and liquefied natural gas (LNG). Of the island’s total energy needs in 2022, coal and coal products imports stood at nearly 30 percent, and LNG imports reached 19 percent. Australia accounted for more than half of Taiwan’s total 2022 coal imports; produces more than enough metallurgical and thermal coal to supply the island; and is not vulnerable to Chinese pressure, particularly since Beijing recently imposed an unofficial, two-year ban on Australian coal imports that was walked back only in February. Taiwan’s LNG outlook is also favorable. The island can count on future LNG imports from the United States, Australia, and Canada, while an active LNG fleet is highly dispersed across European and Asian democracies. Taiwan’s coal and LNG import outlook is relatively positive, outside of a physical blockade.

Nuclear energy plays a largely positive role in Taiwan’s energy security. Nuclear imports—that is, imports of nuclear fuel for use in domestic reactors—stood at 5 percent of Taiwan’s total energy needs in 2022. Once nuclear fuel is shipped to Taiwan, the island’s nuclear power plants can continuously produce zero-emission power for approximately eighteen to twenty-four months. Still, there are reasons why Taiwan’s energy planners consider nuclear energy to be an energy import. Russia is deeply embedded in nuclear energy supply chains, while nuclear exports from Kazakhstan could easily be interdicted by the PRC. Kazakhstan accounted for 43 percent of the world’s uranium production from mining in 2022 and Beijing and Moscow, working together, might work to blockade Kazakhstani energy exports.

Taiwan is currently phasing out its nuclear energy use, as the Democratic Progressive Party and the bulk of the island’s voters are opposed to the technology. Nuclear energy is clean and reliable, and it plays a positive role in the island’s energy security. Still, Taiwan’s concerns about its supply chain—especially in the event of a long-duration quarantine or blockade—are not unfounded.

Beware of the PRC’s maritime blockade capabilities

Taiwan’s dependency on seaborne energy imports heightens the risks of maritime disruption. The PRC navy appears increasingly capable of imposing a physical blockade or quarantine of Taiwan. The PLAN had 351 warfighting-capable ships in 2022 and now outnumbers the entire US Navy by more than fifty ships. Moreover, due to the US Navy’s dispersed global responsibilities, the PLAN enjoys an even larger numerical advantage in the Indo-Pacific theater. The PRC also continues to improve its fleet both qualitatively and quantitatively. The latest US Department of Defense China Military Power Report projects that the PLAN’s battle force will grow to four hundred ships by 2025 and 440 ships by 2030. The US Office of Naval Intelligence predicts that PRC blockade-relevant maritime platforms could exceed eight hundred ships by 2030, after units from the Chinese Coast Guard and maritime militia are included.

The PRC does not just enjoy numerical superiority; it also has a home field advantage. Although some ships and subs are permanently forward deployed in Japan and Guam, the United States and allied navies would have to transit hundreds or even thousands of miles to reach the Taiwan theater. Meanwhile, the PRC’s anti-ship missile range extends several thousand kilometers off its coastline, implying that US and coalition ships would be forced to break a blockade while sailing within the PRC’s anti-access/area denial envelope. Finally, since Taiwan’s large ports are on the western side of the island, US and coalition ships would have to sail directly opposite the PRC coastline.

Coalition policymakers and naval strategists need to consider how a potential PRC maritime blockade can be defeated along every level of the escalation ladder. Some steps include enhancing the credibility of the United States’ and the coalition’s conventional military deterrent; holding key PRC economic, energy, and financial nodes liable to severe sanctions in the event of a prolonged blockade; addressing gaps in overcoming a long-duration blockade; expanding the merchant marine and convoy escort fleet; ensuring ships from allied and partner civilian fleets can “re-flag” as US vessels; and back-stopping shipping insurance markets, as insurance risk premiums would surely spike in the event of a confrontation over Taiwan. Fortunately, US allies comprise six of the top ten owners of the world’s civilian fleet, as measured in deadweight tons carrying capacity.

Indigenous clean energy generation: opportunities and constraints

Taiwan can further reduce its energy security vulnerabilities by developing its indigenous renewable energy resources. While solar and wind cannot solve all of Taiwan’s energy challenges, the PRC will find it relatively difficult to disrupt production of local renewables, especially distributed solar.

Distributed solar can be installed on any rooftop and is extremely difficult to disrupt via cyber or kinetic means if microgrids are employed. However, it suffers from low utilization rates and unfavorable bespoke installation costs. Utility-scale solar is more efficient and less expensive but may be more susceptible to cyberattacks, due to its concentration of panels. More broadly, Taiwan’s solar potential is also constrained by frequent cloudy skies and land scarcity.

Onshore wind potential is greatest on the western side of the island but land use tradeoffs constrain development—especially since Taiwan imports about 65 percent of its food. Still, onshore wind should be a higher priority than food production, as the Berlin airlift demonstrated that airborne food supply chains can break non-kinetic blockades. Additionally, since prepackaged Meals Ready-to-Eat have a shelf life of eighteen months even at ninety degrees Fahrenheit, there are relatively few risks of the PRC “starving out the island.” 

Offshore wind is a promising technology for Taiwan. A nine hundred-megawatt wind farm off Taiwan’s west coast first produced electricity in early 2022; once fully complete, the installation could power approximately one million homes. Taiwan aims to install 5,700 megawatts of offshore wind capacity by 2025, which would substantially improve its energy security. Still, the Taiwanese military is concerned about offshore wind farms’ radar profile and the vulnerability of turbines and transmission cables to attack. Offshore wind has great potential, but Taiwan needs to balance its military and energy security needs carefully. 

There are relatively few risks of Taiwan falling prey to sole-supplier dependency in either solar or wind, despite the PRC’s leading role in both technologies. There is limited international trade in wind turbines due to unfavorable weight-to-value ratios. Taiwan’s offshore wind projects have very strict local content requirements, and the island is establishing more wind turbine facilities. The PRC currently dominates solar market supply chains, producing 75 percent of all finished panels, but the United States and its allies and partners are increasing their own manufacturing capacity. Taiwan will be able to procure wind and solar components from non-PRC sources. 

Taiwan’s most effective energy security tool may be to raise electricity tariffs, which would help rationalize demand and incentivize domestic clean energy generation. Raising electricity prices would encourage conservation efforts and make new renewables projects more economically viable, reducing Taiwan’s energy import needs.

Defending Taiwan from a military or energy shock

Taiwan’s energy security challenges are serious, but its chief problems are fundamentally military and naval. If the United States and its allies and partners cannot deter a PRC military invasion or naval blockade of Taiwan, disaster will likely result. US, Taiwanese, and other coalition forces must maintain credible conventional and strategic military deterrents against the PRC. 

The West must walk a diplomatic tightrope to maintain its policy of dual deterrence. While Beijing’s increasingly provocative behavior vis-à-vis Taiwan is worrisome and warrants firm responses, the United States and its allies should also continue to discourage Taipei from undertaking any irresponsible moves toward independence. The West should continue to communicate to Beijing its vital interests in Taiwan while signaling its intent to avoid any unnecessary confrontation or conflict.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center, where he leads its Chinese energy security and offshore wind programs; he also edits the China-Russia Report. This article represents his own personal opinion.

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How are these growing economic ties impacting Moscow’s ability to withstand G7 sanctions and maintain its invasion of Ukraine—and where do Beijing’s interests diverge from Moscow’s? 

Below we outline six trends that have defined the two countries’ relations since the invasion of Ukraine. Russia’s access to the yuan has bolstered its wartime economy. However, when it comes to trade and financial support, Beijing has been less accommodating. 

Chinese yuan is Russia’s friendliest currency.

China is mitigating the impact of sanctions on Russia by providing Moscow an alternative currency for transactions. Chinese yuan supplanted the dollar as Russia’s most traded currency in early 2023. The switch came after the United States imposed sanctions on a few banks in Russia that were still allowed to make cross-border transactions in dollars. As the Group of Seven (G7) sanctions constrain Russian financial institutions’ ability to transact in the world’s leading reserve currencies, like dollars, euros, and yen, the yuan is arguably the only relatively stable, widely traded currency issued by a non-sanctioning authority that enables Russia to make international transactions.

Central bank currency swap lines play a major role in increasing the circulation of the yuan in the Russian economy. Although China’s capital controls make it difficult for foreigners to obtain yuan, Beijing has supported Russia’s growing yuan marketplace by backing currency swap facilities. Through these swaps, Russia and China’s central banks exchange rubles for yuan. Major Russian commercial banks then tap into their central bank’s accounts to introduce the yuan into the Russian economy. Furthermore, as China’s banks have accumulated Russian assets, they have also likely increased the amount of yuan in local circulation.

Russia’s linkages to the Chinese financial system also allow it to mobilize its currency reserves. G7 countries froze most Russian reserves held by sanctioning jurisdictions. However, Russia has been able to access its central bank reserves held in China (nearly 18 percent before the conflict), which are largely denominated in yuan. As a result, Russia has been able to use yuan-denominated reserves to conduct foreign exchange transactions to manage the value of the ruble. Moreover, Russia increased the permitted share of yuan in its National Welfare Fund up to 60 percent last year and plans on selling more yuan from the wealth fund to make up for the lost energy revenues and cover budget deficit. 

Vital trade links

Russia has compensated for lost market share in the West by exporting more energy to China. Beijing has increased spending on Russian energy from $57 billion in the year prior to the invasion to $88 billion in the year after and allowed Moscow to make up for the lost revenues in the EU market. Russian crude oil exports to China could increase even further in 2023, as China’s state-run refiners have been increasing purchases of Russian oil, and Beijing has signaled that it may allow a further ramp-up. However, China maintains informal quotas on crude oil imports to limit exposure to any individual energy exporter. These sit at 15 percent of overall imports or around two million barrels a day per country. Another component of China’s energy imports from Russia is natural gas. Natural gas is more dependent on existing infrastructure and is thus harder to rapidly increase in imports. Russia is expected to deliver 22 billion cubic meters of natural gas to China through the Power of Siberia pipeline in 2023, eventually increasing to full capacity of 38 billion cubic meters in 2027. However, even though Russia has pushed for the construction of the Power of Siberia 2 pipeline, Beijing has shown hesitation and has, in fact, negotiated a new pipeline through Central Asia. Whether Russia keeps exporting more oil or natural gas to China will depend on Beijing’s decisions on quotas or new pipelines, making Russia asymmetrically dependent on its economic partnership with China.

Russia has imported electronic equipment from China to offset the effects of export controls but is struggling with obtaining advanced technology—even from Beijing. Integrated circuit imports from China have increased from $67 billion in 2021 to $170 billion in 2022, but most electronics exports from China to Russia are made up of basic computers and transport equipment. Notably, Beijing has banned the export of advanced Loongson microprocessors. The West’s imposition of export controls on advanced semiconductors against China in October 2022 signals that Beijing will become even more protective of advanced technology and less likely to transfer them to Russia. 

China is not the only country whose trade with Russia has increased. Although Beijing has provided a lifeline to the Russian economy, countries such as India and Turkey have also expanded trade with Russia. In fact, India has become the second largest destination of Russian crude oil exports after China. Meanwhile, Central Asian and Caucasus countries’ exports of electronic equipment to Russia ballooned in 2022 and Serbia, Turkey, and Kazakhstan have provided semiconductors to Russia throughout the last year. China might be the largest economy supporting Russia but other countries’ trade relations with Russia should be as closely monitored as Beijing’s. 

Limits in the ‘no-limits’ partnership

China has generally avoided steps that could trigger secondary sanctions or that greatly increase its own strategic dependence or risk exposure to Russia. For example, Chinese banks have not become creditors to the Russian government. Likewise, China has hedged against dependence on Russian energy imports and has restricted the flow of advanced technology to Russia. The notion of a “no limits” partnership remains rhetorical for now.

Maia Nikoladze is the assistant director at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @Mai_Nikoladze.

Phillip Meng is a young global professional at the Atlantic Council’s GeoEconomics Center.

Jessie Yin is a young global professional at the Atlantic Council’s GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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In the early 1990s, I encountered Putin several times at international meetings in St. Petersburg, but I never really met him. I talked to the city’s friendly mayor, Anatoly Sobchak, and his first deputy Alexei Kudrin, but Putin, whose background in the KGB was well known, hid on the sidelines and did not really talk to anybody. He was perceived as a secretive nuisance.

Based on this early impression of Putin, I have always been surprised by his remarkable rise to the pinnacle of Russian politics. My view is that he was simply lucky and owed his many promotions to a handful of people close to Russia’s first post-Soviet president, Boris Yeltsin. Putin’s main benefactors were Yeltsin’s daughter Tatyana and last two chiefs of staff, Valentin Yumashev and Alexander Voloshin, along with oligarchs Boris Berezovsky and Roman Abramovich, who trusted his loyalty while Yeltsin was too sick to rule in 1998-99.

Putin arrived at a table of increasing abundance laid by Yeltsin and his reformers; he was further helped by an extended period of rising global oil prices. He has had a surprisingly long run, but nobody can expect to be lucky forever. For more than two decades, Putin thrived on personal loyalty and relied on his slow, deliberate approach to decision-making. However, as the invasion of Ukraine continues to unravel, his many flaws and weaknesses are now coming to the fore.

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Despite being in power for more than two decades, Putin has never broadened his expert base. Instead, he has stuck to his former KGB colleagues and old St. Petersburg technocrats along with a small number of economists and lawyers. How can anybody seriously listen to Nikolai Patrushev or Yuri and Mikhail Kovalchuk? They are considered among Putin’s closest advisers but they are full of old-style Soviet conspiracy theories.

Putin himself has consistently refused to rely on any sources of information other than his own intelligence agencies. In his big media events, he has repeatedly shown that he believes in all manner of conspiracy theories. In other words, he has consciously chosen to remain poorly informed.

He has never been a fast decision maker or crisis manager and has always taken his time. For much of his reign this has not been a major issue, but that is no longer true in the current wartime environment. Putin’s obvious lack of skill as a crisis manager is presumably one of the reasons why so many important decisions related to the war in Ukraine are late and inconsistent.

Putin is also a micromanager who is reluctant to delegate and prone to over-centralizing. He has persistently gone far too deep into details. Much of the failure of the war in Ukraine seems to have been caused by Putin insisting on deciding too much himself, just like Hitler during World War II. Military decisions require detailed knowledge which Putin simply does not possess. He is also physically far from the battlefield due to his lack of personal courage.

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Since 2000, Putin has systematically destroyed Russia’s state institutions and imposed extreme repression. One consequence is that his regime has very little capacity to generate, receive, or utilize negative feedback. Everybody around him has learned that he only wants to hear good news. As a result, neither he nor his administration learn much from their mistakes.

Many biographers of Putin have been reluctant to discuss allegations that he has been deeply involved in organized crime and kleptocracy for much of his political career. Nevertheless, awareness of this kleptocracy is vital for anyone seeking to understand today’s Russia. Far-reaching criminal influence has made the Russian state rot from within. It can neither manage processes nor produce things effectively.

A peculiarity of the Putin regime is that the ruler actually offers two-way loyalty, unlike Stalin. Putin recognizes only one crime, disloyalty. If one of his underlings happens to steal a billion or two, it is not typically seen as a problem. Nor does Putin fire anybody because of incompetence. Instead, incompetent senior officials are forgiven for their frequent blunders as long as they remain personally loyal to Putin.

The invasion of Ukraine has exposed widespread corruption and incompetence throughout the Russian military and defense sector, but Putin’s old friends and allies remain in their posts. Rather than dismissing the many incompetent Russian generals, Putin prefers to circulate them. The most outstanding failures, Defense Minister Sergei Shoigu and Chief of the General Staff Valery Gerasimov, have not lost their jobs despite their obvious and costly mistakes.

With the invasion of Ukraine now in its sixteenth month, Putin’s limitations as a leader have left Russia heading for an historic defeat. During the early years of his reign, he benefited from the hard work done before him by 1990s reformers and enjoyed favorable international conditions, but his many sins and shortcomings are now clearly catching up with him.

Anders Åslund is a senior fellow at the Stockholm Free World Forum and author of “Russia’s Crony Capitalism: The Path from Market Economy to Kleptocracy.”

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Speculation is mounting that Ukraine’s hotly anticipated summer counteroffensive may be underway but initial stages are likely to feature probes and diversionary attacks rather than a big push, writes Peter Dickinson.

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The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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Just two weeks before Putin launched the full-scale invasion of Ukraine in February 2022, he extracted a commitment from Xi Jinping of “friendship without limits” at their meeting during the Beijing Olympics. However, some significant limits have since became evident. China has apparently refused to deliver arms and sanctioned technology to Russia. China has also abstained on half a dozen United Nations General Assembly resolutions condemning Russia’s war of aggression against Ukraine.

In February 2023, China presented its own twelve-point peace plan to end the war in Ukraine. Supporters of Ukraine have complained that this plan does not condemn Russia or call for a Russian withdrawal from Ukraine, but in fact the first point of China’s plan reads: “Respecting the sovereignty of all countries. Universally recognized international law, including the purposes and principles of the United Nations Charter, must be strictly observed. The sovereignty, independence, and territorial integrity of all countries must be effectively upheld.” Implicitly, China suggests that Russia has to withdraw its troops from Ukraine.

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Both Xi and Putin have limited public appearances and abstained from traveling because of their fears of Covid-19, and Putin has become ever more isolated because of his war of aggression against Ukraine. Therefore, it was perceived as a great event when Xi Jinping went on an official three-day visit to Russia in March 2023. It was Xi’s first international meeting since his re-election as president during the 2023 National People’s Congress, and it offered Putin a rare break in his international isolation.

While we don’t know what the two leaders said in their long private meetings, nothing seems to have gone right for Putin. His big official project was a large second “Power of Siberia” gas pipeline from western Siberia to China, but Xi clearly said no, limiting Russia’s possibilities to export gas to China for the foreseeable future. Nor does Xi appear to have approved of arms or sensitive technology sales to Russia. Curiously, Xi had a separate meeting with Russian Prime Minister Mikhail Mishustin, contrary to strict Chinese protocol.

As a follow up, Chinese Prime Minister Li Qiang invited Mishustin, his Russian counterpart, to Beijing for an official visit in late May. Mishustin is the highest-ranking Russian official to visit China since the start of the Ukraine invasion in February 2022. On the second day of his visit, Xi Jinping received Mishustin at the Great Hall of the People, once again completely beyond the ordinary bounds of Chinese and Russian protocol.

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If there is a greater stickler of protocol than the Chinese leaders, it is probably Putin. In spite of all the greetings to and from Putin that Xi and Mishustin exchanged, the obvious question arises: Why was Mishustin invited and not Putin? This cannot have gone down well with the Russian leader.

Putin appears to have given his response. Mishustin is one of thirteen permanent members of the Security Council, Russia’s highest policy-making body which meets about every tenth day, always chaired by Putin. Usually all but one or two of the permanent members are present. Mishustin attended on May 15, the last meeting before his trip to China, but he was missing both on May 26 and June 2 after his return from his triumphant visit. Reasons for absence from a Security Council meeting are never officially given.

This old-style Kremlinology is perhaps the best evidence we have that China may be looking beyond Putin and seeking to cultivate alternative relationships in Russia. Such objective observations are better than dubious rumors and can potentially tell us a lot. First of all, it seems clear that China’s “friendship without limits” with Russia actually has many limits, as indicated above. China is presumably more afraid of US and EU secondary sanctions than interested in supporting Russia in its war against Ukraine.

Second, China does claim that universally recognized international law, including the purposes and principles of the United Nations Charter, must be strictly observed, which means that it opposes Russia’s invasion in principle. Third, the Chinese have indicated distrust in Putin and they may be looking to Mishustin as a credible alternative. Whether this is realistic is not all that relevant.

Fourth, by apparently excluding Mishustin from his two most recent Security Council meetings, Putin has indicated that he has paid attention and dislikes these recent developments. The standard procedure would have seen Putin calling Mishustin to the Security Council to report what he had learned in China.

Mishustin has carefully avoided saying anything in public about the war in Ukraine or his visit to China. His father is considered to have served in the KGB, and he has been both the head of the Russian tax service and a wealthy investment banker. Mishustin is often overlooked in analysis of power dynamics in today’s Russia, but his relationships with both Putin and China should be watched carefully.

Anders Åslund and Andrius Kubilius have just published the book “Reconstruction, Reform, and EU Accession for Ukraine.”

Further reading

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Vladimir Putin’s invasion of Ukraine has not gone according to plan but he still hopes to win a long war of attrition. However, Russia’s reliance on human wave tactics risks undermining morale within his invading army, writes Olivia Yanchik.

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The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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While natural gas is demonstrably effective at reducing local emissions, more work is needed to reduce its global climatological impacts. Developed world natural gas exporters, including the United States, Qatar, Australia, and Canada, meanwhile, have a responsibility to constrain global greenhouse gas (GHG) emissions by limiting methane flaring and venting, and by capturing carbon in underground storage. Similarly, natural gas consumers, meanwhile, should consider not only the health benefits of reduced local air pollution, but also the climatological impacts of production abroad. Ahead of COP28 discussions this year, the United States, China, and other countries should encourage responsible natural gas production as a solution for reducing global emissions and urban air pollution.

Beijing’s improved air quality

Beijing’s local air quality has improved nearly continuously since 2013 as particulate matter (PM) 2.5 levels decreased. The US Environmental Protection Agency defines PM 2.5 as “fine inhalable particles, with diameters that are generally 2.5 micrometers and smaller.” These particles can cause serious health problems after inhalation. PM 2.5 may be particularly harmful for children, and early-life exposure is associated with an increased risk of childhood asthma.

Publicly available measurements of particulate matter concentration from the US embassy in Beijing show that the city’s average annual air quality index (AQI) fell sharply from 2013 to 2019, the last pre-COVID year in Beijing. Higher AQI values correspond to greater air pollution.

Several factors have contributed to improving air quality scores. Lauri Myllyvirta of the Centre for Research on Energy and Clean Air identifies key drivers: implementing strong emissions standards and using of emissions-control technologies for power plants and high-emissions industries; eliminating coal-based heating and cooking in homes; and slowing growth in coal consumption.

An embrace of natural gas also undoubtedly played a major role in enabling Beijing to reduce local coal production while maintaining energy access. The city has shuttered over 2 gigawatts (GW) of local coal plant capacity, beginning in 2014, while opening nearly 6 GWs of cleaner natural gas capacity.

As local demand for natural gas rose, Beijing sourced more supplies from abroad. Pipeline natural gas imports along the Central Asia-to-China Pipeline (CACP) were particularly important. According to the Chinese National Petroleum Company, natural gas service enabled the shutdown of four thermal coal plants in 2015. The CACP’s Line C, which entered service in 2014 and has a capacity of 25 billion cubic meters (bcm) per year, undoubtedly played a role. The CACP’s A and B lines came online in 2009 and 2010, respectively, and have a combined capacity of 30 bcm per year.

Liquefied natural gas (LNG) imports also played an important role in Beijing’s clean air transformation. From 2013–2018, China opened five LNG import terminals near Beijing, with capacity  just under 40 bcm. In addition, the increased adoption of natural gas in the adjacent Tianjin municipality and Hebei and Liaoning provinces have also helped reduce coal pollution in the greater Beijing area.   It’s clear that natural gas imports, especially LNG, have played an enormously important role in reducing Chinese urban pollution. China’s total natural gas imports more than quadrupled from 2011 to 2021, while its LNG imports rose from just under 17 bcm to 110 bcm in this period.

Yet China’s victory over urban air pollution has been costly. The central government has often simply transferred coal generation from its biggest cities to less-populated locations. Therefore, while urban air pollution has declined dramatically since 2010, China’s emissions from steam coal used to make electricity have risen by 28 percent. China’s strategy has been to use natural gas selectively, reducing air pollution in politically important urban areas while  increasing emissions in other parts of the country.

China also negated the environmental benefits of coal-to-gas switching by turning to Turkmenistan, almost certainly the world’s most methane-intensive producer. While coal produces far more carbon emissions than natural gas, methane emissions from natural gas production undercut that advantage. Methane has a shorter lifetime in the atmosphere than carbon dioxide, but is more efficient at trapping radiation. China sources most of its Central Asian natural gas imports from Turkmenistan, which has a methane intensity of production of 1.37 kilograms of methane per gigajoule–a level more than six times higher than in the United States even before the IRA incentivized producers to slash methane output.

Worryingly, Turkmenistan has not agreed to any concrete steps to reduce methane emissions, despite growing evidence it will secure another pipeline deal with China. If a new, 30 bcm-per-year Turkmenistan-to-China pipeline comes online and Turkmenistan’s current methane emission rate remains constant, the pipeline’s raw methane content could exceed the methane emissions of the entire US LNG complex, which boasts an export capacity of around 150 bcm a year. If Turkmenistan’s methane emissions are not abated, China’s procurement of Central Asian gas may reduce local air pollution in its cities, but will ultimately raise global emissions and associated costs.

Natural gas should be a tool for both urban air quality and climate

While the overall impact of natural gas on the climate is currently somewhat ambiguous, due to the role of methane, there need not be a tension between urban air quality and decarbonization. While there is strong evidence that replacing coal with natural gas can help reduce urban air pollution in China, India, and other economies across the Indo-Pacific, natural gas’ climate impacts can be significantly mitigated.

LNG producers from the United States and elsewhere must reduce methane emissions by limiting flaring and venting, which contribute to GHG emissions. US natural gas producers are already cutting methane emissions ahead of implementation of a methane fee under the Inflation Reduction Act. More effort is needed to reduce US natural gas GHG emissions, including by storing carbon, but the world’s largest natural gas producer and LNG exporter is on the right path.

Natural gas production does incur carbon and methane emissions—but it’s also a tool for reducing air pollution and asthma rates in urban population centers in developing countries. Moreover, if methane can be abated, natural gas can reduce global emissions when replacing coal.

The US and other natural gas producers must therefore accelerate methane and carbon emissions reductions. Meanwhile, natural gas importers, including China, must also pressure producers to limit methane and carbon emissions. Washington and Brussels are working to ensure that responsible natural gas production and LNG exports serve as a climate bridge fuel and a tool for urban emissions reduction, but they will need cooperation from Beijing and other important natural gas stakeholders.

Joseph Webster is a senior fellow at the Atlantic Council and editor of the China-Russia Report. This article represents his own personal opinion.

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Several countries have increased their trade with Russia since early 2022, including non-aligned countries and even some European Union (EU) members. Such surges in trade, however, are not necessarily an indicator of support for Putin’s war. Instead, it is more likely they are predominantly the result of companies—and countries—pursuing legal opportunities for cheaper exports and new gaps in the Russian market.

As you can see from the chart above, China is one of several countries stepping up trade with Russia. Additionally, Russia is not the only country experiencing a rise in trade with China. In 2022, most of Beijing’s top twenty trading partners saw growth of 10 percent or more in their imports from China. Australian and Indian imports of Chinese goods, for example, jumped by around 20 percent in 2022.

It is important to understand what is driving China’s trade with Russia. It is not only about Ukraine. Starting in 2013, Russia initiated a “Pivot to the East,” to China first and foremost. This has paid off for Moscow. Over the previous five years (excluding pandemic-wracked 2020) trade grew by an average of around 23 percent annually. 

While the recent year-over-year trade increase of 27 percent was well above this trend-line growth, other factors make the data seem even more dramatic than it in fact is. In 2022, for example, the yuan depreciated against both the dollar and the ruble, increasing the competitiveness of Chinese exports to Russia.

In absolute terms, Chinese trade dwarfs all of Russia’s other major trading partners. With $188 billion worth of goods exchanged, China was Russia’s top trading partner. However, China’s economy is more than twenty times larger than Russia’s next largest trading partner, Turkey. Accounting for overall economic size, China’s trade with Russia is much less exceptional and is overshadowed by that of many US allies and partners, as the chart below shows. Looking at it from China’s perspective, its trade with Russia is on par with its trade with Malaysia and well below its trade with Vietnam, two economies that are one-fifth the size of Russia’s.

Russia’s trade with US allies and partners

Two countries that have substantially increased their trade with Russia are NATO member Turkey, which has seen trade with Russia surge 93 percent, and US partner India, whose trade has ballooned by nearly 250 percent since 2021. Both nations provide critical lifelines to key aspects of Russia’s economy: India has surpassed the EU to become Russia’s second largest destination for oil exports after China, and Turkey is now a significant supplier of electric machinery and parts, including integrated circuits and semiconductors.

Although Turkish exports of electronic machinery, including critical integrated circuits, fell in the immediate aftermath of Russia’s full-scale invasion, they have since recovered and grown well beyond the pre-invasion average. From March 2022 to March 2023, Turkish electronic exports to Russia jumped by about 85 percent. For comparison, Chinese exports to Russia remained basically flat, only growing half a percent over the same period.

Integrated circuits and electronic machinery are not the only strategic good Turkey continues to supply to the Russian economy. Turkish companies export millions of dollars worth of chemicals, plastics, rubber items, and vehicles, all of which help Russia’s manufacturing sector. To Ankara’s credit, following pressure from the Group of Seven (G7), Turkey has agreed to halt its transit of sanctioned goods to Russia. However, its trade with Russia remains a vital economic lifeline for its businesses as the country recovers and reconstructs from a devastating earthquake earlier this year.

Russia’s economy has avoided catastrophe thanks in large part to revenue from the export of mineral fuels, most notably crude oil. The fastest growing new buyer of Russian oil, however, is not China. It’s India. Since Russia’s invasion the value of Indian imports has grown nearly tenfold from around $4.7 billion in the year prior to Russia’s invasion to around $41 billion in the year following. While Chinese imports have also grown by around 55 percent, this is largely in line with the trend-line growth that predated the conflict. 

However, Indian (and Chinese) import growth is a feature, not a bug of G7 actions against Russia’s oil exports. The United States and its allies were deliberate in imposing their own import ban of Russian oil but avoiding an embargo on general Russian oil exports. An embargo against the world’s third largest oil producer would cause crude prices to skyrocket and would incite backlash against G7 actions from non-aligned countries. To reduce the Kremlin’s revenues, the United States has instead sought to cap the price Russia can charge for its oil exports. So far, both China and India have complied when using the Western infrastructure covered by the price cap. Even when using alternative means of shipment and insurance, they are able to convince Russia to sell them oil at ten-to-twelve dollars per barrel below similar grades from other suppliers.

A one-way street 

There are actually signs that China is exercising some restraint in its economic engagement with Russia, only acting when Beijing has an overwhelming self-interest. Following the February 2022 invasion, Chinese banks halted financing for the purchase of Russian commodities, and there have been no signs that it has resumed. More broadly, throughout 2022 China avoided financing any major new investments in Russia. China has also yet to instruct its state-owned enterprises (SOEs) to enter the Russian market. In fact Beijing has gone so far as to tell its SOEs, such as state-run Sinopec Group, to halt preexisting investment plans for fear of running afoul of G7 sanctions. 

Chinese leader Xi Jinping has also slowed the construction of new infrastructure projects that would further link the two economies, despite Russian enthusiasm for them. During Xi’s March 2023 visit to Moscow, Putin heavily pushed for the agreement of a new gas pipeline connecting Russia to China called Power of Siberia 2. Xi, however, did not oblige and Beijing’s silence on the issue suggests that China hopes to exploit Russia’s inability to export gas to the West to secure the best possible price. 

What support China is providing often falls far short of Russian wartime needs. Chinese businesses have largely only sent basic mobile phones, transport equipment, and computers to Moscow, not the more advanced technology Russia lacks. Last December, Beijing reportedly banned the export of its Loongson chips, one of the higher-performance microprocessors China produces, due to their strategic importance and military sensitivity. This left Russia without a Chinese alternative to advanced Western integrated circuits. 

While there have been examples of Chinese and other foreign companies circumventing G7 sanctions and export controls, they comprise only a fraction of the overall commerce exchanged between China and Russia. In general, China appears to comply with Western sanctions and export controls for fear of subjecting itself to US sanctions or secondary sanctions. For example, major Chinese state-owned enterprises have avoided purchasing the Russian assets of Western companies, such as BP and Shell, over fears of the possibility of Western action. 

None of this is to say China does not favor a Russian victory in Ukraine. A defeated Russia is not in China’s interest, and China continues to lend Russia a massive diplomatic hand at the United Nations, in the Group of Twenty (G20), and with non-aligned countries around the world. China has sold millions of dollars worth of drones and drone parts to Russia in 2022. It is also likely rerouting some shipments to Russia through Central Asia. However, its trading relationship with Russia is not by itself an indication of a concerted effort by the Chinese Communist Party to intervene in the Ukraine conflict on Putin’s behalf. The China-Russia trade uptick seems more in line with one driven by companies acting on behalf of their own interests—just as with recent surges in trade between Russia and US partners and allies such as India and Turkey.

Until China, or any other country, crosses the legally significant line the United States and its partners have drawn around lethal aid, or until there is clear evidence of state support to circumvent G7 sanctions or export controls, any attempt to restrict other legitimate commerce will be ineffective and could risk further alienating non-aligned and fence-sitter nations. If Washington chooses to narrowly focus on China’s trading patterns, it may miss opportunities to convince US allies and partners to reduce their support for Russia’s economy.

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

Niels Graham is an assistant director for the Atlantic Council GeoEconomics Center where he supports the center’s work on China’s economics and trade.

The post China is trading more with Russia—but so are many US allies and partners appeared first on Atlantic Council.

Event transcript

Uncorrected transcript: Check against delivery

Speaker

Grant Shapps
UK Secretary of State for Energy Security and Net Zero

Moderator

Richard Morningstar
Founding Chairman, Global Energy Center, Atlantic Council

RICHARD MORNINGSTAR: Good afternoon, everybody, and good evening for those of our friends in Europe who are—who are joining us today. I’m Dick Morningstar. I’m the founding chairman of the Atlantic Council’s Global Energy Center and, among other things, a former US ambassador to the European Union.

And it’s my honor to lead this discussion today on the United Kingdom’s energy priorities with Secretary and Member of Parliament Grant Shapps, who is the secretary of state for the Department of Energy Security and Net Zero.

And I guess to state the obvious, with Russia’s war in Ukraine and the ensuing energy crisis, that’s highlighted the risks of energy underinvestment and dependence on malign actors, and has demonstrated the need for a cohesive and a strategic approach to energy security and decarbonization. And I want to emphasize that the green transition and decarbonization relates directly to energy security because, among other things, it will reduce dependence on single actors like Russia.

And as part of the response to these challenges, the UK government has recently launched its Powering Up Britain plan, which outlines how the government will enhance energy security and deliver on its net-zero commitments. And it’s fascinating that the secretary’s title is secretary for the Department of Energy Security and Net Zero, which tells you how important Britain sees the net-zero commitments. But this comprehensive strategy aims to advance energy independence and economic security through a series of multi-pound investments to expand clean energy and to take critical steps to achieve the UK’s goal of zero emissions by 2050.

Today we’re lucky to have Secretary Shapps with us, who will speak on the priorities for implementing this initiative and the department’s plans, and we’ll get into a whole bunch of—a whole bunch of related issues.

Let me remind you we have both an in-person audience and a virtual audience. This is a public session and it’s on the record and that, unfortunately, we can only handle questions from the in-person audience. And so if you have questions there’s a microphone over to the right where you’ll be able to line up or get up and ask the question.

So let’s start. So with that, maybe first, Mr. Secretary, you could tell us about your trip. I realize you had an unfortunate delay at Heathrow Airport which lasted overnight. But he’s in great—you’re in great shape for the session this afternoon.

But what are you going to be doing here in Washington and how important do you think the US-British relationship is—the US-UK relationship—with respect to the topics we were talking about, energy security, the green transition? How can we all work together on this?

GRANT SHAPPS: Yeah. Well, Ambassador, first of all, it’s great to be here. It’s fantastic to be at Atlantic Council and brilliant to be discussing this issue, which is so high up both of our populations’ agendas and, in fact, many people throughout the world, obviously, as a consequence of what happened in Ukraine.

But, actually, on the way here we passed the old post office pavilion and that fantastic statue of Benjamin Franklin is just out to the front and to the right of it, and I was reminded that he was, of course, American British. He had an American mother and a British father.

RICHARD MORNINGSTAR: And lived in Paris.

GRANT SHAPPS: And lived in Paris, yes, amongst other places.

RICHARD MORNINGSTAR: Right. Yeah.

GRANT SHAPPS: And, obviously, was absolutely critical to—you know, one of the founding figures—central founding figures of the United States. But it did remind me of, you know, that sort of very, very close relationship and everyone will, at least somewhere in their minds, remember that he had that famous experiment. He was an energy pioneer because he put a kite up in 1752 and demonstrated lightning was electricity, which was news to many because it was unproven at the time.

But in 1757 he moved to the UK. He moved to London. I don’t know where Paris was in all of that but at some point he lived in London. The bit of this that struck me, he lived on a street called Craven Street, and Craven Street is right by where this new department for energy security and net zero has its new home and we’re about to move in there in the old war office right on Whitehall there.

So, I mean, you just kind of, you know, perhaps by a quirk of nature get the sense of, you know, our obvious history is stretching back but on the energy side of things throughout history pioneering so many of the big energy breakthroughs including nuclear power on the defense side, obviously, the Manhattan Project on the civil side, the UK created the first—the world’s first nuclear civil power station at Calder Hall in Cumbria.

It was producing a massive forty megawatts, actually, on the side because what it was really doing was producing plutonium at the time for our military nuclear program. But our histories are tied and our approaches to what’s happened with Putin, what’s happened in Ukraine, are tied—closely tied together as well.

And, you know, if you look at by a long way, by a long stretch, the United States has put the resource into, you know, helping to fight Putin’s evil war but the number-two country is the UK and, again, you know, we just share that natural instinct to always be the countries to be in defense of those freedoms and liberties.

But energy has become a sort of blackmail. Putin has used energy as a weapon of war to blackmail the West in the hope that we would all crumble. We haven’t. We have managed to see our way through the first very difficult winter, you know, various different ways. I mean, Germany had a pipeline, and a second one on its way, to have 47 percent of their gas was from Putin. The UK was much more fortunate. We didn’t have a gas pipeline. We only bought 4 percent of our gas. So it wasn’t such a big wrench. But nonetheless, we still suffered in our energy prices.

And so we know that our response for this year and going forward has to be the thing that you just mentioned, which is we can have renewable energy which splits us off from the gas reliance, from the hydrocarbons, and nuclear in a renaissance that is going to make us energy-independent. It’s popular at home. I know it’s popular here. It deals with a big concern, which is the cost of living for our citizens in both countries and once again, I mean, just sort of back to the start with Benjamin Franklin, you know, the two countries working closely together. I’ve come here directly from a meeting with your energy secretary, Jennifer Granholm, discussing precisely these issues and how we can work in much closer cooperation. And that’s our third meeting in three months to move this agenda forward. So there’s a lot of serious work going on.

But I think that’s the challenge that lays ahead of us—cheap, reliable energy that no despotic leader can prevent us from accessing in the future.

RICHARD MORNINGSTAR: So, you know, energy certainly is and should be part of the special relationship between the UK and the US. What are some—where can that cooperation take place? How can one and one make three?

GRANT SHAPPS: So I would say, first of all, the UK has had, in the last ten to fifteen years, a big move into renewables. So if you take offshore wind, for example, in the North Sea we have the world’s biggest wind farm. But as you—also in the North Sea we have the world’s second-biggest, the third-biggest. The fourth-biggest is being constructed, and that will then become the largest again. And we’ve got the world’s first floating and the largest floating wind farms. As well, we’ve installed a lot of solar. Surprisingly—here’s a stat that will amaze people. It amazes me even as I repeat it for the hundredth time. The UK produces as much solar power as France, despite France being twice the geographical mass, and also the weather in the UK not being quite as sunny as in France.

So, you know, we’ve managed to do a lot on renewables. We still need to go further. I think, in answer to your question, you have now mechanisms in place to do that transition to renewables with several different acts from Congress, including the Inflation Reduction Act. And so there’s a great—we’re seeing a great requirement for the skills and the knowledge and the technologies that have been built up over the last decade and a half, and we’re keen to work together on that.

And that’s just one example. Nuclear power, civil nuclear power, very obvious areas of deep cooperation, some of which already exist. There’s much, much more to do with natural obvious partners, for all the reasons we discussed.

RICHARD MORNINGSTAR: Do your conversations include cooperating on critical materials? I mean, one of the great concerns has been we don’t want a dependence on Russia to be—you know, we’ll get over the dependence on Russia, but then what about China? And is that an area of potential cooperation?

GRANT SHAPPS: Yeah, absolutely. Critical minerals are at the heart of actually every form of renewable power and also nuclear power. So, I mean, they are—without sourcing out the supply chain to critical minerals, we can’t make this transition. So it’s not—you know, working with the US, but also other countries; Canada is a good example with lots of minerals, but many others as well, to make sure that we are not—again, change of policy, different world. Who knows what will happen next, as the last few years have demonstrated? We must not be reliant on unreliable partners again.

And, you know, I go back to the very obvious and most extreme example with our German friends finding themselves so reliant on Putin, who’s turned out to be the least reliable interlocutor, whilst actually this last month closing down their nuclear power. They closed down their last reactor last month. And so, of course, critical minerals are at the heart of making sure that, you know, countries who share our values are able to secure the power that they need. So there’s some ideas that we’ve been discussing just in the last hour of my meeting here in Washington about how we further bring the world together to discuss this. Of course, we’ve been doing it at the G7 Energy Conference in Japan, in Sapporo, and elsewhere. But actually, that was one of the subjects which—watch this space. There’s going to be more on this very soon.

RICHARD MORNINGSTAR: You know, we talked a little bit even before we came in that there are somewhat different approaches in the US and the UK. You know, we have our IRA, which created a lot of angst, which I think is dissolving some on the continent. What’s Britain’s view towards the IRA and the various approaches?

GRANT SHAPPS: Well, the first thing to say is we’re very careful to call it “eye-rah.” We’ve renamed it, in the UK, for reasons of history that some will recognize.

RICHARD MORNINGSTAR: I guess so.

GRANT SHAPPS: So the Inflation Reduction Act. But I think—I think the fundamental issue is this: In the UK we have a political consensus around the need to secure national energy security. And that one of the ways to do that is you actually very accurate, I thought, summed up in your introduction, is to move to renewables so that we’re not reliant on hydrocarbons that all too often—not always. You know, we have not seen all the gas. You have a lot of LNG, and other places are good partners. But actually, all too often we end up too reliant on a single form of energy, and then the world changes geopolitically, and we end up in difficulty.

So in the UK, we have a political consensus that actually several years ago, and actually under this Conservative government which will sound odd to an American ear, we passed legislation that said we had to get to net zero by 2050. So that was a cross-parliament agreement. Just a small twist to that is they also legislated essentially that the energy secretary could go to jail if we don’t do it. So when I say I’m working on this night and day, I mean night in particular because that’s when you start to worry about this stuff. For truth, it would have to be for a contempt of court. It would have to be because I wasn’t seriously addressing the issues. But, nonetheless, we have that political consensus.

In the US, clearly it creates a big dividing line. And because it creates a big dividing line it seems to me—I mean, correct me if I’m wrong because I’m just saying this from observing the US political scene—Congress actually in the end sort of got to the same place. But not by using mandates and laws and—but instead by using tax breaks and, you know, on the other side of that, obviously having to raise the tax in the first place or add it to debt. But that’s the consensus that has come about and created not just the IRA but also some of the other large acts which have now passed.

Frankly, I think, on balance, the world needs to get to this position of energy security. So, you know, whatever wills—means to the ends, I think is right. There are one or two rough edges that we’ve been talking about, including critical minerals, which we’re working through. But I think the world will be a better place for the biggest economy in the world actually being, you know, in the driving seat as far as switching to renewables and more nuclear, which I think is a very big part in this story.

RICHARD MORNINGSTAR: Are you concerned about issues that—again, I think they’re beginning to dissolve some—but competition issues related to IRA or other, you know, issues that might put Britain or other countries at a disadvantage, or?

GRANT SHAPPS: Yeah. So there are a couple of parts of guidance which have now been issued, which have helped sort of take off some of these rough edges, as you know. And we’re just working with the administrations in London and in Washington to deal with the final parts of that jigsaw. But, as I mentioned in the kind of intro, the opportunity is not just at a global to have the world’s biggest economy actually moving towards this energy transition in a big way, but then also from an entirely national point of view to have so many businesses and organizations asking for assistance, help, experience by British expertise. And I think British companies coming here are doing it.

I mean, a lot of—a lot of time I spend talking to companies who are, you know, for example, going to the West Coast—which is where I’m going tomorrow, to California—because, you know, we’ve got, you know, gigawatts of offshore wind now and we want to get to fifty gigawatts in the next six-and-a-half years off our coasts. You know, California wants to—I think I saw their figure was forty gigawatts or forty-five, something like that. They need the expertise. So it’s a massive opportunity to work together and, you know, to provide goods and services to each other as well.

RICHARD MORNINGSTAR: Let’s talk a little bit about the EU. We’ve talked about the US-UK energy relationship and areas of cooperation and so forth. Post-Brexit relations with the EU, how closely do you work with Brussels on energy issues?

GRANT SHAPPS: Yeah. Well, let me be completely candid with you. They weren’t happy that we left the club. We wanted our independence. I didn’t actually happen to vote for Brexit personally, but I am a democrat and I believe in democratic outcomes. The country voted to leave. And actually, I was always torn on it because, you know—you know, to an American audience, I ask you: Would you—would you give up control over your borders, many of your laws, you know, finances? Although we weren’t in the euro itself. Answer, definitely no. You know, and actually, why would Britain do something like that as well? Which is gradually what the EU was becoming, ever more so.

So, yes, it’s been—I think it’s fair and candid to say it’s been a little bit tricky for a while. However, very, very pleased to report since Rishi Sunak became prime minister and he helped to settle the Northern Ireland protocol issue through this thing called the Windsor Framework, it’s been transformative. So just last month I was out in Belgium, for example, at a leaders summit on energy, to which Britain wasn’t actually invited last year. Actually, a number of other countries weren’t as well, so it wasn’t just us. But now we are very much more working together. I have constant contact with my French, you know, counterpart, my Belgian counterpart, my, you know, Netherlands, German, et cetera. So we are now working very, very closely.

The other thing which has changed is not just the Windsor Framework. This winter, when Putin was holding Europe in particular hostage to energy blackmail, Europe as in the EU, continental Europe, discovered that Britain, as ever, was the absolutely indispensable, reliable partner. France happened to have a lot of their nuclear power down over the summer, some scheduled, some not. They power most of their electricity from nuclear. Their fleet was down. We were exporting renewable energy to France through the interconnectors. And they saw that, you know, we left the EU but we didn’t leave Europe, and we’re still there as partners. And did so, actually, with the war in Ukraine, where, as I mentioned before, our response has, I think, been foremost in the European countries.

So, you know, very much better is the simple answer.

RICHARD MORNINGSTAR: Speaking of Ukraine—and I don’t know whether this is within your—you know, your area, but on sanctions questions, energy sanctions questions, are there any differences in approach between, you know—there’s sort of a consistent G7 approach, but looking behind—you know, behind the scenes, are the views towards sanctions pretty much consistent with the US, Britain, with the—Brussels and the member states, key member states?

GRANT SHAPPS: Yeah. I think—I think, actually, broadly speaking it’s been one of the surprising—I think people may have doubted before February 24 last year whether the West would come together and properly react to what Putin’s done. But I think beyond any shadow of a doubt, that’s what’s happened.

And I mean, in terms of the UK’s position, at the time I happened to be transport secretary. And you know, I made sure that we were the first to ban Russian aircraft in our skies, the first to ban Russian ships from our ports—and not just Russian ships, but ships that were being leased or had some funding behind them or were flagged or, you know, whatever else. And again, actually, one of the things about being able to make those policies independently is that we can be more fleet of foot, we can move faster. And we tried to do that through transport, but also through energy policies where I’d say we weren’t actually buying very much Russian hydrocarbon but we immediately suspended the sale—announced the suspension of the purchase, rather.

But I—you know, actually, frankly, the EU got there, slightly slower timescale but not critically. The US got there. I remember the transportation secretary, Pete Buttigieg, calling me and saying it’s going to be in the—I think it was in the State of the Union, actually, as I recall—it’s going to be in tonight’s State of the Union. I’ve been pushing to make sure that, you know, the same things that we had already done on transport were matched.

So, you know, I think actually the West has impressively moved in lockstep and that’s exactly as it should be.

RICHARD MORNINGSTAR: Well, you know, sanctions are never a zero-sum game. How do you think they’re working? Are you happy with how the energy sanctions are working with the price caps and other sanctions?

GRANT SHAPPS: Yeah. So I think you’re absolutely right. I think sanctions are rather like this. If you put a sanction here then, you know, the thing, whatever it is—it could be energy but it could be anything else—finds its way around that, you know, and if you just give it enough time a new avenue, a new pathway—it’s like business. It’s very—you know, it’s very enterprising and it will find its way around that sanction and I think we see evidence of that in the way that the Russian economy has responded over a period of time. I think we have to be honest about the limitations of that.

Having said that, when the world acts in unison I think it still matters. It matters hugely because—not just in the case of Putin, Russia, and Ukraine but also what other countries might think if we don’t respond convincingly and together.

So I have no doubt that oil still finds—somehow finds a way around. I know that there were many arguments in favor and against a cap and floor prices and all these other—these other things. The important thing, I think, is not the exact measure. I think the important thing is the cooperation in those measures and I think we’ve seen terrific cooperation.

RICHARD MORNINGSTAR: Right. And it’s, certainly, been better than not having them.

GRANT SHAPPS: Definitely. Oh, yeah.

RICHARD MORNINGSTAR: So, again, thinking about Ukraine, it’s been a pretty good—I think we all would agree, better than expected winter, part of it being luck, part of it being good policy. Concerns about next winter—how concerned are you?

GRANT SHAPPS: Well, as I say, I spend my day and nights thinking about these issues. But we got through the first winter and that will have been the hardest one because we had to divert or find replacement for all of that Russian hydrocarbon.

So logic tells you that winter 2023-24 should be better but we should not rest on our laurels and that is one of the reasons why, you know, I think, pay tribute to the United States the way that the US has responded with LNG, the way that we already had LNG ports and so we brought it into the UK and then exported to Europe, the way that Germany now has built new capacity to bring LNG and other countries now—the United Arab Emirates, for example, will be coming on stream, if not this year next year. So the world has found its way around these things.

What I think now is really important—and I’m going to be saying and doing more on it, and this is what I’ve been speaking with my American opposite number with today—is thinking about the more medium term. So in the UK, as in the US, we’ve allowed nuclear civil power to reduce as a proportion of our power partly because we both have oil and gas. It became unfashionable. There were lots of protests about it.

But, actually, we are reversing that policy. We want a quarter of our energy to be nuclear civil and we want to exploit not just the gigawatt size of it but also the small modular reactors, and, you know, there are many different designs from Rolls Royce to Westinghouse and others and we think the time has come for those things.

I’ve just set up something called Great British Nuclear to take this forward. I’ve appointed a minister in the British government in my department who for the first time ever is responsible as the minister for nuclear. We’ve never had somebody with that title and wakes up every day and that’s what he focuses on.

So I think, again, with caution, if last winter was OK then this winter will be but nothing is set in stone. We could have terrible weather or something else. We need to keep making sure that we make sure the markets work properly. The price of, you know, gas has fallen dramatically at the moment. Again, we have to keep an eye on these things. But the medium term is where my focus is shifting to because we need to get the energy mix right and secure in the long term.

RICHARD MORNINGSTAR: On nuclear, are you sensing a shift of opinion on nuclear? I mean, Britain and other places as well, the US and Europe, or at least certainly parts of Europe, other parts of the world. Do you believe that in 2050, when you need to be at net zero—unless you’ve gone to jail in the meantime—do you think that nuclear is going to be a major part of the clean-energy world?

GRANT SHAPPS: I do. And I think, to answer the first part of your question, yes, attitudes have changed tremendously. You know, for example, of all the nuclear reactors—we’re producing about 16 percent of our electricity through nuclear right now in the UK. It’s fairly similar to the US. Of all the reactors that are still operational right now in the UK, every single one of them was commissioned under a conservative government, under the Tory Party, my party.

Now, I’m not making that as a political point. I’m making it because it demonstrates the fact that this was a deeply politically divisive issue in the past. It isn’t now, and partly because of the war in Ukraine and the need for energy security, but also partly because of climate-change issues and the rest.

We have reattributed the taxonomy to say that nuclear power is clean power in order to get the finance into that area as well. So I think, yeah, I think there is a general acceptance. I think with things like—with technologies like small modular reactors, more countries who weren’t using nuclear civilly, for civil power before, I think are likely to in the future. And it’s becoming much more practical than it was in the early days because the technology has moved in in seventy years.

RICHARD MORNINGSTAR: Two more quick questions on nuclear come to mind. Is there cooperation today between either UK and US companies or UK and US laboratories on small modular reactors? And then I guess a somewhat unrelated question: Is the argument that nuclear development in the West is critical from a national-security standpoint, relating to things like nonproliferation, concern about how nuclear power may be used by, you know, Russia, China, maybe other countries, is that a salient argument? And also then the cooperation with the US

GRANT SHAPPS: Yes. Yeah. Well, on the cooperation front, yes. I’ll tell you openly, it’s one of the subjects we’ve been discussing today. Actually, I think there’s a really interesting part of this which harks back to one of your previous questions on the supply-chain side of things. We talked about supply chains of, you know, hydrocarbons. But actually there’s also a supply chain in uranium enrichment and so on and so forth. So there’s lots of work to go on there.

Both the UK and the US have pretty unique skills and knowledge in these areas. And very few countries in the world are in a position to carry out the enrichment and some of the processes that come after enrichment. We’re both signed up to nonproliferation. So it’s very important. The way this is done is internationally responsible. And again, I think it’s one of the very good reasons why the UK and the US should and are starting to work very closely together on nuclear.

And, you know, uranium has to be enriched to a very different level for nuclear and some of the SMRs, and then advanced modular reactor, AMR, technologies in particular to—if you want to turn it into a weapon at 80 or 90, 95 percent enriched, so that we’re talking about two very different things.

And I think some of these new technologies are incredibly exciting. I was with a British firm who are working on a Magnox system, which is technology which has been around for a while. But the advantage of Magnox is if you had a leak, it comes into the air and it freezes immediately if it’s anything less than 550 degrees C.

So there’s lots of very interesting work going on, lots of great science going on. And, of course, even way beyond that, I just—quick—we’ve talked about fission. If you just talk about fusion, I went with the prime minister when I launched the document you mentioned, Powering Up Britain, to Oxford, where we have a research center in Culham, and we stood next to the hottest place in, certainly, the solar system, ten times hotter than the Sun at Tokamak there. So, you know, it’s always twenty years away to get to fusion…

RICHARD MORNINGSTAR: You know, and I want to get to audience questions. If anybody has a question, please come up—come up to the microphone over there. I mean, I’ve got enough questions to last for the next hour and a half, but we’d like to—we’d like to get some questions.

While you’re going up, you know, it sounds like, you know, that you take—I think what we do—an all-of-the-above approach towards and maybe agnostic on technologies as to—as to how we’re going to achieve net zero. Do you have priorities? I mean, as you’re thinking about what you have to do, do you have a list of priorities like—and I’m not saying it’s this—but, like, nuclear first, or hydrogen second, and something else third? Or is it sort of like we’re going to look at all of these things and see how they develop?

GRANT SHAPPS: I do. But the overriding principle is we must never be in—we must never be driven by a single technology, right? If it’s oil and gas—and we went a long way to oil and gas, not least because we were producing a lot of it in the North Sea—then, as that starts to run down, we’re starting to import it, and then you start to get reliant. Or in France, nuclear. They have a terrific nuclear industry. They’re building two of our nuclear power stations at Hinkley Point and at Sizewell, and they’re running the rest. But actually, you know, as they would say, this summer a lot of them are down for scheduled and, unfortunately, some unscheduled maintenance, and suddenly they’re short in power. And so on and so forth: the wind doesn’t always blow, the sun doesn’t always shine. So we have the—you know, we produced last year—57 percent of our electricity in the last twelve months has come from renewables and nuclear together. That’s great. But if the sun’s not shining and the wind’s not blowing, you need to rely more on that nuclear, and so on and so forth. So—

RICHARD MORNINGSTAR: I though the sun always shined on the—

GRANT SHAPPS: Of course. I know, I know, I know. But amazingly, there are occasions. So I think, first of all, energy mix.

Secondly, you ask: To what extent are we directing that? Well, we have set out in a lot of detail how much of our energy we want to get from these different forms. So offshore wind, fifty gigawatts by 2030, in six-and-a-half years’ time. You know, we’re saying we want on hydrogen ten gigawatts, half—at least half of which has to be green rather than blue. We set out on nuclear twenty-four gigawatts into the future to get to a quarter of our power. So, yeah, we’re doing that.

And probably the most exciting thing—I just want to say this before we take the questions—carbon capture, utilization, and storage, CCUS—four initials that I bet actually if I polled at home in Britain most people won’t have heard of—could be a trillion-pound/trillion-dollar industry. And I’m very excited about that, not least because geographically or geology—from a geological point of view the North Sea, in fact in many cases where we took the oil and gas out of, has a lot of storage potential.

RICHARD MORNINGSTAR: That’s great.

Well, let’s get a question from the audience. If you could identify yourself and ask the question.

Q: Thank you. Mr. Secretary, I’m George Pickart with the General Electric Company. We’re very pleased to be deeply embedded in UK’s electricity sector, working across all of the technologies that you’ve mentioned whether it’s onshore or offshore wind, or nuclear SMR, grid equipment, technology, et cetera.

You couldn’t have teed up my question any better. You know, we’ve been spending a lot of time and investing a lot of money in how you decarbonize gas because we don’t see a future of the electricity system without that large rotating equipment on the grid. So the issue is, how do you produce that with fewer carbon emissions? And so we’re pursuing both expanding our hydrogen capability and also working with a number of different collaborators on carbon capture and storage.

And I wanted to commend you and your government for the strategy that you’ve put in place on carbon capture. We’re quite interested, as you probably know, in collaborating on the Net Zero Teesside project, and you’ve put together a very good vision, a strategy, the financial mechanisms, the funding. I think what’s missing, really, is sort of the timebound element of it. I just wondered if maybe you could tell us, do you expect a decision on these projects to go forward within the next year? And can we look forward to that?

GRANT SHAPPS: Yeah. So, well, I should explain. Thank you for the question. And thank you for what GE does, as well, because it’s a great partnership. It’s a very good example.

The strange thing is I spend my time going around the world to countries saying how have you done it, and that’s actually largely with the help of your businesses who have come in and invested in these renewables and much else. And that is a great—I mean, you know, we’re capitalists. We believe this is the way to bring the best technologies together, and then often re-export them as well. So, you know, thanks for that.

Secondly, on CCUS, in that Powering Up Britain document we announced a twenty-billion-pound initial program. This is track one of our CCUS clusters. And, as you mentioned, Teesside, which is in the northeast, and the northwest are the two kind of areas where this has developed. And then we’re going to have expansions to those, and there’s clusters in Scotland and also in Humber, also on the east coast. Track one expansion will be this year, and then we’re actually going to have track two as well. So that is—you know, the 20 billion is the first part of it over 20 years.

So we’re—and the reason, I should just explain, actually, Ambassador, to our audience. The reason that I’m saying all this, and so excited about it, and why the question is so relevant is that we know that by 2050 we will still need oil and gas. This isn’t just me saying this. This is because the IPCC, the—you know, the global sort of experts say that there will still be oil and gas being required. In which case, you got to deal with the CO2. We have enough space in the North Sea for seventy-eight billion tons of CO2. Now, what is seventy-eight billion tons? It’s fifteen billion elephants, well-fed ones. It’s two-hundred million St. Paul’s Cathedrals, for the British audience here online. It’s a lot of space. It would take probably one-hundred-years’ worth of British CO2 and one hundred years of all of European CO2, which we can bury under the North Sea.

So this is very much in line with the overall mission of both energy security and net zero. And, you know, projects which look to help with that are already getting our backing. So, I mean, I’m not quite sure on the project that GE’s particularly interested, but it may be that it’s, you know, track-one expansion or track-two path right now, I guess.

Q: Thank you.

GRANT SHAPPS: Thanks.

RICHARD MORNINGSTAR: Thank you.

I think we have two more questions that I see right now. And we’re running—we have about four or five minutes left. And I also think it’s important before we finish, I don’t know if 3:45 is an absolute cut off, but Ukraine reconstruction. And there’s a conference on the 21st to 25th, and your views on that. Maybe we take these two questions—why don’t we take the two questions and then answer them together, and then if you have any comments on Ukraine, and then we’ll call it day.

Q: Yeah, thank you very much, Mr. Secretary. My name Kevin Gundersen. I’m with Huntsman Corporation. And we are the world’s leading spray foam insulation company.

And in your remarks, you discussed many options for energy security. But your government has done the one thing that no other government has done, which is make insulation the centerpiece of its energy policy. When you talk about medium- and long-term solutions, we feel very strongly and are very supportive of what you are doing, that insulation is a short- and medium-term solution to the energy crisis. It’s a relatively old technology and people don’t really think about it, but it does work in lowering greenhouse gas emissions and lowering utility bills.

The British government has had various iterations in the past of insulation schemes. And given the amount of funding and the support this time around, what are you and the government doing to make sure that the execution of this program works this time around, given the importance of the issue at the moment?

RICHARD MORNINGSTAR: Thank you. Let’s have Lee’s question, and then maybe you can respond to that, and maybe say a little something on Ukraine.

Q: Thank you, Ambassador. Thank you so much, Mr. Secretary. My name is Lee Beck. I’m with the Clean Air Task Force. We’re a global climate organization.

Thank you so much for your fantastic remarks about technology optionality and next-generation technologies, carbon capture, nuclear, fusion. It’s really, really fantastic. And you said something really important, that oil and gas will likely be around still by 2050. COP26 saw the launch of the Global Methane Pledge. COP28 will be where we’re going to be really talking about the decarbonization and reducing emissions from the fossil fuel sector. What are—what is your vision for methane mitigation, one of the fastest ways to act on climate in the near term?

RICHARD MORNINGSTAR: Great, so I’d say let us—yeah, why don’t you just take those two and then if you could say a little bit about Ukraine.

GRANT SHAPPS: Sure. So, first of all, I love your point about insulation. I mean, the best energy is the energy you don’t have to use in the first place. And it’s kind of—the high energy bills that people are being paying has suddenly both changed the maths—or, math, as you would say—and it has also changed the—you know, made people have another fresh look at, even though the technology, as you rightly say, has by and large been around. But so I think it’s enormously important.

We’re always being pushed to go further, but it’s worth saying that when we came to power, this conservative administration, which is in 2010, only about 14—one-four—percent of homes were adequately insulated, A to C on an energy rating. It’s now just approaching half of homes. So we’ve done half the job. Right now, in terms of size and scale, we have twelve billion pounds in the current periods going into this, I think up till 2028. And we’re working on new ways to target that. So we’re about to launch something called the Great British Insulation Drive, which you’ll be hearing more of very soon.

But, yeah, massively important, obviously, when new homes go up they’re much better insulated. We have a lot of Victorian housing stock. And they were very good builders, the Victorians, but not very good at building well-insulated, warm buildings, necessarily. So, yeah, more to happen on that front.

I’m just furiously looking at my notes actually on methane, because I noticed a stat when I was having to think about this earlier, which I was blown away by, which was something like a 60 percent reduction in our methane. But I’m afraid I cannot spot the exact number right now. But that pledge from COP26—our 60 percent reduction is not from COP26, it’s from earlier than that—but that pledge is incredibly important. And we mustn’t lose sight of the fact that we will go without CO2, but there are many other forms of greenhouse gases, and there are a lot of different responses that we need to take.

The brilliant thing about all this stuff is, you know, again, Ukraine and the high prices has made us look differently at it. Energy security—national energy security—you know, in my case, I say it’s powering Britain from Britain, I always say. You know, it’s just the flipside of the coin of net zero. That’s why we named the department Energy Security and Net Zero. They’re actually the same thing. You know, to get there, to be really secure, you know, we need to go through that whole transition. So and that’s our stated direction.

And you very kindly asked about the Ukraine reconstruction conference. It’s in London this summer. I actually took over the presidency on behalf of the UK from the Swiss, who ran the conference last year. There’s a huge amount of activity going into that. I’m speaking to my Ukrainian counterparts. I know the whole world—the whole civilized world will be there to help and support Ukraine, which we must do because, in my view, Ukraine could be lost in two different ways. We could lose it because we don’t stick together, we don’t have these different sanctions, we don’t respond to the energy crisis. But we could equally lose it by allowing Ukraine to be destroyed, even if they win. And that would be completely and utterly unacceptable.

RICHARD MORNINGSTAR: And, just very briefly, because we have run out of time, how would you—how would you begin to approach Ukraine energy reconstruction? And, you know, with the potential of ultimately Ukraine becoming a real energy powerhouse in Europe?

GRANT SHAPPS: Yeah. Well, I think—I’ve been speaking—on a personal basis, I’ve been speaking to my opposite numbers. Initially Oleksandr Kubrakov, who was minister for reconstruction and infrastructure and transport, at the time, now deputy prime minister. And also my opposite—direct opposite number, and actually I’m speaking to them—the first thing I do when I get home is speaking to them again in advance of this conference as well. And Ukraine has huge potential assets. I mean, in the same way as they’re the breadbasket of the world, or certainly of Europe and perhaps Africa, they also have the potential to be both in renewable energy but also in modernized nuclear civil energy as well.

So, you know, we’re very keen to make sure for their sake, but also, I think, for the world’s sake, that they are assisted in being brought back to what they’ll need to be to rebuild that industry and rebuild the country’s economy as well. It’s very close work. I’ve been personally very committed to all this. I’ve had Ukrainians living in my house for the last year, a family of three, and their dog as well, Mad Max. So every time I’ve gone home, I’ve been reminded of how evil that war has been. And Britain, and I know America, are committed to Ukraine’s future.

RICHARD MORNINGSTAR: And I can assure you, everybody here, I think, is likewise committed.

You know, unfortunately, we have come to a close. I’ve been getting sort of dirty looks from our events staff because I think we’ve gone over time. But—and we could have—I think we could have gone for another hour or two. But it’s been great. And I really want to thank Secretary Shapps for joining us and offering his insights on Britain’s path forward on energy and climate—not just Britain; you know, looking at it from a more global standpoint. And I hope you’ll be visiting us many times and maybe come back to our Global Energy Forum.

But I also would like to thank all of you who joined us in studio, as well as those around the world who are watching this virtually. And I would remind everybody that there is a recording of this conversation that’s available or will be available on YouTube, Twitter, Facebook, and the Atlantic Council webpage.

I’d also like to thank those here who made the event possible: Olga Khakova, who’s the deputy director at the Energy Center responsible for European energy security; Katie Kenney; Paddy Ryan; Frank Willey; Max Zandi; and our events—wonderful events staff.

So please join us for future events, Atlantic Council events. We will be having our eighth annual—I’ve been here eight years, so I guess I started it the first year—eighth annual Central and Eastern European Energy Conference—Energy Security Conference. That takes place on June 15 in person and online, and there will be more information on that on the webpage. And just, you know, keep watching our webpage for events.

So, again, this was on the record, and take care. See you next time.

GRANT SHAPPS: Thank you very much.

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The first major milestone in Ukraine’s disillusionment with Germany was the 2008 NATO summit in Bucharest, when German Chancellor Angela Merkel was instrumental in vetoing a membership action plan for Ukraine. At the time, this was justified by the need to avoid provoking Russia. The mood of disappointment in Kyiv grew with Berlin’s subsequent support for the Nord Stream II gas pipeline, which appeared designed to bypass Ukraine and promised to leave the country exposed to the threat of increased Russian aggression. Germany defended this decision on purely economic grounds, but many Ukrainians argued that the economic benefits did not justify the geopolitical risks.

Germany’s involvement in the Minsk peace process from September 2014 further strengthened perceptions in Kyiv that Berlin’s priority was to avoid any decisive split with Moscow, with limited support for Ukraine often balanced by efforts to accommodate the Kremlin. For many Ukrainians, Germany’s position highlighted the inadequacy of the wider European response to Russian aggression. It was yet another example of the West’s reluctance to do anything that might be considered provocative by the Kremlin.

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With the benefit of hindsight, it is now painfully clear that policies designed to avoid provoking Putin are likely to do exactly that. The refusal to grant Ukraine a pathway to NATO in 2008 confirmed the country’s vulnerability, while Germany’s continued commitment to Nord Stream II following Russia’s 2014 invasion of Crimea and eastern Ukraine reinforced the Kremlin’s conviction that hunger for profits outweighed any commitments to European values in Berlin. These developments helped set the stage for the full-scale invasion of Ukraine in February 2022.

Ukrainian frustration toward Germany has remained tangible since the start of Russia’s full-scale invasion, but has been tempered by Germany’s increasing willingness to cut ties with Russia and provide Kyiv with vital military aid. Berlin has faced significant criticism over the speed of weapons deliveries to Ukraine, but has emerged over the past fourteen months as a key partner. The early 2023 decision to provide Leopard tanks was a watershed moment in this process that reflected Chancellor Olaf Scholz’s talk of an historic “turning point” in relations with Russia almost one year earlier in the first days of the invasion.

In additional to military aid, Ukraine counts on German support in other areas. Post-war reconstruction is seen as a more straightforward issue for German involvement, with the Ukrainian authorities already expressing their gratitude for Germany’s readiness to contribute. However, any reconstruction requires a sustainable peace. This is simply not realistic until Ukraine defeats Russia militarily, which will not be possible without the expanded delivery of weapons from key Western partners such as Germany.

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Kyiv officials would also like to see Berlin adopt a more supportive stance on the issue of future Ukrainian EU membership. Germany has previously played this role for other countries seeking to join the European Union, but is still regarded by many in Ukraine as being somewhat skeptical of the country’s EU ambitions and was among the last to back EU candidate nation status for Ukraine in summer 2022. This is unfortunate. After all, Ukraine’s EU membership bid has major geopolitical and security implications for the entire continent.

As part of the EU, Ukraine would no longer be viewed as a potential component part of a revived Russian Empire. Progress toward Ukrainian EU membership would also fit well with Germany’s stated objective of a post-war Ukraine with less corruption, greater rule of law, transparent business climate, and resilient institutions. I am therefore convinced that Germany will match recent statements in favor of Ukraine’s EU accession with practical support.

In addition, there are hopes in Kyiv that German attitudes toward Ukrainian NATO membership will also change. On the positive side, Chancellor Scholz and other German leaders now appear to recognize that Ukraine’s NATO aspirations were not the cause of the current Russian invasion. The challenge is to convince them that the threat of further Russian aggression will continue unless Ukraine receives security guarantees equivalent to NATO membership, regardless of whether Putin himself remains in the Kremlin.

Any lasting peace settlement must also include justice for the Ukrainian victims of Russian war crimes. Kyiv expects Germany to back the push for accountability. Key issues include the establishment of a special international tribunal and the use of seized Russian assets to help finance the reconstruction of Ukraine. It seems highly unfair for the international community to pay for damage caused by Russia. Instead, Russia should fund efforts to rebuild Ukraine.

Rebuilding Ukraine will be an historic undertaking. German companies can be expected to play a major role in what promises to be the largest European construction initiative since the years following World War II. Reconstruction will enable millions of Ukrainian refugees to return home, while creating opportunities for thousands of German businesses.

Despite the disappointments and frustrations of the past fifteen years, Germany remains a key partner for Ukraine with a critical role to play in the twin tasks of winning the war and achieving a sustainable peace. The immediate priority remains weapons; Ukraine desperately needs everything from anti-aircraft systems to tanks and ammunition in order to defeat Putin’s invasion. Looking ahead, Berlin’s backing will be vital as Ukraine seeks to rebuild, integrate further into the EU, and attain the kind of comprehensive security guarantees through NATO membership that can prevent any repeats of Russia’s current invasion.

Alyona Getmanchuk is director of New Europe Center think tank and a nonresident senior fellow at the Atlantic Council’s Eurasia Center. An expanded German-language version of this article was originally published by Aus Politik und Zeitgeschichte (APuZ).

Further reading

UkraineAlert Apr 8, 2023

Human wave tactics are demoralizing the Russian army in Ukraine

By Olivia Yanchik

Vladimir Putin’s invasion of Ukraine has not gone according to plan but he still hopes to win a long war of attrition. However, Russia’s reliance on human wave tactics risks undermining morale within his invading army, writes Olivia Yanchik.

Conflict Defense Policy

UkraineAlert Apr 6, 2023

NATO poses a threat to Russian imperialism not Russian security

By Peter Dickinson

Russia’s passive acceptance of neighboring Finland’s NATO membership raises serious questions over the Kremlin’s efforts to portray the invasion of Ukraine as a response to NATO expansion, writes Peter Dickinson.

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Ukrainians are inspired by Finland’s heroic past and NATO present

By Andriy Yermak

Ukrainians are inspired by Finland’s record of resisting Russian imperial aggression and encouraged by the country’s recent accession to NATO, writes the head of Ukraine’s Office of the President, Andriy Yermak.

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The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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Oleksiy Chernyshov, who serves as CEO of Ukraine’s state-owned energy giant Naftogaz, believes Ukrainian victory in the current war with Russia could help ensure Europe’s future energy security. “In terms of overall reserves, Ukraine is second or third in size among European countries after Norway and the United Kingdom,” he says. This estimate does not include undersea gas potential in the Black Sea off Crimea, where preliminary drilling some years ago by Western multinationals indicated “enormous” deposits.

Ukraine has continued to expand production since the onset of Russia’s full-scale invasion in February 2022, with the country set to become self-sufficient in natural gas this year. Looking ahead, Chernyshov believes Ukraine’s domestic gas production can be further increased to replace Russian gas exports to Europe. “Theoretically, we can double or triple the production of natural gas even without Crimea, but we need big investment to do so. We need partners to increase the speed.”

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There was good news for Naftogaz in mid-April when The Hague Arbitration Tribunal ruled that Russia must pay the company $5 billion in compensation for some of the energy assets it unlawfully expropriated following the Russian military occupation of Crimea in 2014. Chernyshov describes the ruling as a “key victory” and says refusal to pay will result in court actions to seize Russian assets around the world. Billions more in claims are pending concerning Crimea’s offshore gas potential as well as Russian seizures of energy assets in other regions of Ukraine.

Today’s war in Ukraine is not just a fight against the resurgent authoritarian imperialism of Putin’s Russia. Due to the country’s vast gas, hydrogen, renewable, and nuclear power potential, Chernyshov argues that liberating Ukraine will also help guarantee energy security for the whole of Europe.

At present, about 80% of Ukraine’s natural gas production is located at sites in the Poltava and Kharkiv regions in the northeast of the country, which are under Ukrainian government control. The remainder is produced in western Ukraine close to Lviv. Military realities create significant risks, with some production sites less than 50 kilometers from the fighting. Total Ukrainian gas production is currently estimated at 18.5 billion cubic meters per year, with 13.5 billion produced by Naftogaz and 5 billion by other producers. Chernyzhov notes that this is more than any other country in Europe except Norway, which produces 100 billion cubic meters annually.

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Despite the ongoing war between the two countries, Russian gas continues to flow through Ukraine’s transit pipeline network to EU markets. However, with European customers increasingly looking elsewhere for their energy supplies, annual volumes have fallen to around 14.5 billion cubic meters.

Another major Ukrainian energy asset is the country’s natural gas storage capacity, consisting of underground facilities that were first developed during the Soviet era. “This is the biggest storage in Europe, is safe from attack, and could be used to store supplies from all over the world for use in European countries. Ukraine could be Europe’s energy bank,” says Chernyshov. “This would help provide energy security to landlocked countries like Austria, Slovakia, the Czech Republic, and others that have no sea access.”

Ukraine has asked the European Union to provide war risk insurance for this storage capacity in order to increase its use to pre-war levels. “Our storage is certified and in full compliance with the most recent European regulations,” notes the Naftogaz CEO. “The only thing missing is additional guarantees for commercial companies so that thousands will come back and utilize this capacity. This will allow Europeans to bank energy and save money.”

In addition to the country’s sizable untapped gas reserves, Ukraine’s other key energy advantage is likely to be hydrogen production, predicts Chernyshov. “This requires electricity and clean water, which Ukraine has in abundance. Ukraine is and will be a serious net exporter of electricity, but you cannot store it unless you convert it into hydrogen. And Ukraine has huge pipelines to Europe which can transfer hydrogen or anything in gas form. Hydrogen production is not cheap, but many countries want to get involved after our victory.”

Ukraine’s large land base and favorable climate also provide extensive opportunities for major wind and solar power projects. Chernyshov says the country’s enormous energy potential underlines Ukraine’s importance as a strategic partner for the EU. “Everyone must stop treating Ukraine as country that will require constant assistance in the energy sector. In fact, we are positioned to become an energy hub for Europe.”

Diane Francis is a nonresident senior fellow at the Atlantic Council’s Eurasia Center, editor-at-large with the National Post in Canada, author of ten books, and author of a newsletter on America.

Further reading

UkraineAlert Apr 8, 2023

Human wave tactics are demoralizing the Russian army in Ukraine

By Olivia Yanchik

Vladimir Putin’s invasion of Ukraine has not gone according to plan but he still hopes to win a long war of attrition. However, Russia’s reliance on human wave tactics risks undermining morale within his invading army, writes Olivia Yanchik.

Conflict Defense Policy

UkraineAlert Apr 13, 2023

Putin cancels Victory Day parades as Ukraine invasion continues to unravel

By Peter Dickinson

The cancellation of Victory Day parades in multiple Russian regional capitals is a blow to Putin’s personal prestige that exposes the grim reality behind Moscow’s upbeat propaganda portrayals of the faltering Ukraine invasion, writes Peter Dickinson.

Conflict Disinformation

UkraineAlert Apr 12, 2023

Poland and Ukraine: The emerging alliance that could reshape Europe

By Taras Kuzio

Poland’s leading role in the European response to Russia’s Ukraine invasion is fueling talk of a eastward shift in Europe’s geopolitical center of gravity with the Polish-Ukrainian alliance set to become increasingly influential.

Conflict Defense Industry

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

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Russia’s economic woes are a result of the faltering Ukraine invasion, which is now in its second year with no end in sight. Western countries have responded to the war by imposing unprecedented sanctions on Moscow while also seeking to dramatically reduce their dependence on Russian energy.

The Kremlin now finds itself caught in an east-west vice, with the democratic world steadily cutting Russia off economically while China and India take advantage of Moscow’s weakened position to import Russian fossil fuels at deeply discounted prices. With access to Western technologies blocked and European customers turning away, Russia looks to be heading toward a future as a resource colony supplying energy and commodities to Asia’s biggest economies.

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Putin’s public acknowledgement of possible looming economic problems suggests the situation may already be far worse than previously thought. Just a few weeks ago on March 14, he was dismissing the impact of Western sanctions and boasting that Russia’s “economic sovereignty” was stronger than ever. Putin’s rosy assessment has been echoed by many international observers in recent months, but critics claim this is due to dubious data that creates an overly optimistic impression of Russia’s true economic health.

“The Russian economy is in a tailspin,” commented Yale University School of Management Professor Jeffrey Sonnenfeld in a recent interview with Germany’s DW. Sonnerfeld claimed that Russia has stopped submitting the required economic information to international financial organizations and accused the Kremlin of “pumping out false data,” which is then recycled by the media. “What we do know is that every key industrial sector in Russia is down,” he noted, before dismissing Russia’s employment figures and the country’s ruble currency exchange rate as “invented numbers.”

Meanwhile, economist Janis Kluge of the German Institute for International and Security Affairs (SWP) calculates that Western sanctions alone have “basically shrunk Russia’s economy by 10 percent,” a larger impact than the 2008 financial crisis. “The way I think about sanctions is that we are shaking the tree on which the regime sits,” said Kluge. “We can’t really tell what’s going to come out of it, what’s going to happen. We are not shaking it enough for it to fall down. But we’re creating problems for them. It consumes a lot of political energy in Moscow. And it makes it clear to everyone, to all insiders, that it was a huge mistake to start this invasion.”

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The key engine of the Russian economy has long been energy exports. Many economists now believe the impact of price caps imposed by the G7 group of nations on Russian energy exports has been underestimated. These caps replaced earlier energy sanctions that proved counter-productive because they caused oil prices to jump and delivered windfall profits to Russia in 2022. In contrast, there are indications that price caps, coupled with Europe’s switch from Russia to other energy suppliers, spell disaster for the Kremlin.

In February 2023, Russia’s oil export revenues fell to the lowest level in more than a year as buyers mostly complied with price caps and sanctions, according to the International Energy Agency (IEA), reported Bloomberg. Monthly revenues were reportedly down more than 40% year-on-year, despite Russia’s relative success in sustaining volumes. This is good news for China and India, with both countries seeking to take advantage of Russia’s drastically reduced bargaining power.

China and India are the key drivers behind rising demand for Russian energy exports that is helping to prop up the country’s besieged economy despite Western-led sanctions, Al Jazeera reported in February. The two Asian economic powerhouses became the biggest buyers of Russian crude oil last year as Western countries restricted imports and imposed sanctions.

While Indian and Chinese energy purchases are welcome news for the Kremlin, it takes capital to keep a commodity-based economy going. This is reportedly becoming a major issue. In March, Russian billionaire Oleg Deripaska warned that Russia is now in danger of running out of cash. “There will be no money next year, we need foreign investors,” the businessman told an economic conference.

More can be done to impose further costs on Russia for the ongoing invasion of Ukraine. In a recent report, the Kyiv School of Economics recommended reducing the current oil price cap to $50 or lower. Russia’s revenues from exporting hydrocarbons are already set to halve this year to about $180 billion, according to Jacob Nell, one of the authors of the KSE report. “Squeezing oil and gas revenues will put Russia on the back foot and shorten the war,” the report concluded.

German economist Kluge believes the impact of sanctions on the Russian economy will be long term, and points to the loss of access to Western technologies such as computer chips as particularly damaging for the country’s future prospects. “The business case for producing something sophisticated in Russia is gone, and it’s not coming back,” she noted.

The Russian economy is not yet in full crisis mode and still has significant resources in reserve to call upon. However, with most avenues for Western partnership now indefinitely closed and dependency on China growing rapidly, Putin’s talk of “economic sovereignty” is starting to sound very hollow.

Diane Francis is a nonresident senior fellow at the Atlantic Council’s Eurasia Center, editor-at-large with the National Post in Canada, author of ten books, and author of a newsletter on America.

Further reading

UkraineAlert Feb 20, 2023

‘You cannot outlast us’: Biden’s Kyiv visit sends strong message to Moscow

By Peter Dickinson

US President Joe Biden’s bold surprise visit to wartime Kyiv sent a strong message to Moscow that time is not on Putin’s side and Russia should not pin its hopes on a weakening of Western resolve to stand with Ukraine.

Conflict Freedom and Prosperity

UkraineAlert Mar 19, 2023

Putin the Pariah: War crimes arrest warrant deepens Russia’s isolation

By Anders Åslund

The ICC decision to indict Putin for war crimes is a highly consequential step that will deepen Russia’s international isolation while weakening Putin’s personal position both at home and abroad, writes Anders Åslund.

Conflict Human Rights

UkraineAlert Mar 8, 2023

Ukrainians will never surrender. How long can they count on the West?

By Serhiy Prytula

Ukraine’s remarkable resistance during the first days of the Russian invasion convinced the democratic world to back the country but with Putin now preparing for a long war, continued Western resolve is vital writes Serhiy Prytula.

Civil Society Conflict

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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Good fortune helped Europe overcome Russia’s latest gas attack, with comparatively clement weather across the continent throughout the winter season. Careful preparation also contributed, with natural gas storage facilities already brimming at the start of the heating season last November. Crucially, there was no global competition for supplies during the winter months as China, one of the world’s largest buyers of liquefied natural gas, has been reeling in the aftermath of its extensive covid lockdown.

European countries also deserve credit for taking a number of effective measures in response to the energy crisis provoked by Russia and addressing some of their key vulnerabilities. The figures are impressive. In less than one year, the EU added eight new floating storage and re-gasification units, expanding its LNG importing terminals to 23. Thanks to these new terminals, Europe will be able to import 227 billion cubic meters of LNG in 2024, or nearly half of its total consumption in 2021. Overall, Europe increased its LNG imports by 68% in 2022 to compensate for falling Russian gas imports.

The measures adopted by Europe involved considerable costs. These included record gas prices, which took a heavy toll on industrial production. Nevertheless, thanks to falling demand, particularly in the industrial sector, gas prices were already at a 17-month low by the beginning of March 2023.

These positive trends create the strong impression that Russia’s energy offensive has failed. Far from obliging Europe to abandon Ukraine and accept the Kremlin’s terms, Putin’s increasingly overt weaponization of energy exports has deprived Russia of access to key European markets, forcing the country to find new outlets for its stranded gas production. However, the energy war is still far from over.

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Europe faces a number of energy sector-related risks in 2023. These include a rapid recovery in Chinese economic demand, which would bring the country back into the global market for LNG and increase competition for global cargoes. With LNG global production likely to remain limited throughout the current year and possibly into next year until new projects are commissioned, LNG supplies will be reduced.

The situation could be further compounded if another year of drought impacts hydro electricity production. There are also concerns over technical problems at France’s ageing nuclear power stations. If nuclear facilities are forced to undergo unplanned maintenance for an extensive period of time, Europe would be obliged to switch on its gas-fired generation, lifting demand for the fuel.

In early March, engineers discovered corrosion cracks at four French reactors. There are now fears that another 200 welding inspections at 56 reactors later this month could reveal even more problems. The news triggered a sharp increase in gas prices within a week. Announcements of more issues could further lift prices.

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Greater demand for electricity generation caused by a fall in nuclear or hydro capacity may force Europe to increase its gas imports at a time when global LNG supplies are limited. This, in turn, could open a window of opportunity for Russia to increase its flows to Europe.

The only other options would be for industrial and commercial consumers as well as households to reduce gas demand even more, and for investors to speed up the deployment of renewable capacity to compensate for falling nuclear or hydro generation. That may not be realistic. Between August 2022 and January 2023, Europe managed to save 42 bcm of gas. This dramatic reduction in demand would have to continue if Europe is serious about not increasing Russian imports.

Another risk lies in the fact that Turkey and Russia are now discussing the launch of a gas hub for supplies to Europe. Under this arrangement, Russia could sell gas to at least one Turkish buyer, which would then sell it further on to customers across southeastern Europe.

There are concerns regarding possible breaches of competition rules and even corrupt practices if whitewashed Russian gas enters Europe via Turkey, as there are no signs that Turkey and neighboring Bulgaria are preparing to provide transparent and verifiable information regarding the supplies. Europe cannot stop Turkey from selling gas to European customers, but the EU should insist that member states bordering the country provide transparent information on volumes entering their markets.

With Europe still facing relatively tight supplies in 2023, it will be difficult for policymakers to introduce a ban on remaining Russian pipeline gas and LNG imports, at least for the time being. In the current circumstances, the best way to discourage Russian gas imports is to continue reducing demand, ensure storage facilities meet fullness targets ahead of next winter, accelerate the deployment of renewable capacity, and send a clear message that buying Russian gas will bring strong reputational risks.

Dr. Aura Sabadus is a senior energy journalist who writes about Eastern Europe, Turkey, and Ukraine for Independent Commodity Intelligence Services (ICIS), a London-based global energy and petrochemicals news and market data provider. Her views are her own. You can follow her on Twitter @ASabadus.

Further reading

UkraineAlert Feb 20, 2023

‘You cannot outlast us’: Biden’s Kyiv visit sends strong message to Moscow

By Peter Dickinson

US President Joe Biden’s bold surprise visit to wartime Kyiv sent a strong message to Moscow that time is not on Putin’s side and Russia should not pin its hopes on a weakening of Western resolve to stand with Ukraine.

Conflict Freedom and Prosperity

UkraineAlert Jan 28, 2023

Poland is leading Europe’s response to the Russian invasion of Ukraine

By Diane Francis

Poland was the unsung hero of the recent landmark decision by Berlin and Washington to provide Ukraine with tanks as Polish leadership continues to shape the European response to Russia’s genocidal invasion.

Conflict Economic Sanctions

UkraineAlert Mar 8, 2023

Ukrainians will never surrender. How long can they count on the West?

By Serhiy Prytula

Ukraine’s remarkable resistance during the first days of the Russian invasion convinced the democratic world to back the country but with Putin now preparing for a long war, continued Western resolve is vital writes Serhiy Prytula.

Civil Society Conflict

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

Read more from UkraineAlert

UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

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Beijing has had a complicated history with its refiners: it attempted to shutter excess capacity at independent refiners (so-called “teapots”) in the 2000s and early 2010s, only to be largely thwarted by provincial and even county-level governments determined to retain the tax base and employment associated with the facilities. Beijing then acquiesced—to a degree—as it relaxed restrictions on import quotas for independent refineries while continuing to consolidate some of the smaller players. While the Chinese Communist Party (CCP) has not always achieved its objectives in China’s domestic oil market, it is nevertheless a very active manager, something Western policymakers should consider amid high volumes of Russian crude exports to China.

A brief history of contemporary Chinese refining markets

In 2022, China became the world’s largest refining market by capacity, at 18.8 million barrels per day (MMBPD) in 2022. This represents an astonishing increase from 2005, when capacity stood at only 8.5 MMBPD. And the surge is unlikely to stop any time soon, as capacity could grow to 20 MMBPD by 2025, although some analysts see a pullback in domestic refining capacity this year as several outdated facilities are phased out.

Chinese refinery throughput, or crude oil intake used to produce refined products such as gasoline, diesel, and jet fuel, and more, has expanded along with capacity. While Chinese refinery throughput still lagged the United States in 2021, China is very likely to become the world’s largest refining market within the next two to three years, if it is not already. Chinese refinery throughput stood at just under 6 MMBPD in 2005, but in 2021 reached 14.5 MMBPD, a level just shy of the US throughput of 15.1 MMBPD in the same year.

China appears well on its way to becoming the world’s largest and most important refining market, but its journey has been a bumpy one. China’s refineries have traditionally suffered from extremely low utilization rates and poor margins, especially among independent refiners. These refiners are often referred to as “teapot refiners,” due to their limited capacity and basic equipment, especially when compared to refineries run by Chinese national oil companies (NOCs).

These teapot refineries, which are generally privately owned and concentrated in central China’s Shandong province, have historically suffered from extremely low reported utilization rates—often as low as 35 to 40 percent. Extreme overcapacity ensured China historically suffered from ultra-low refinery utilization rates, especially when compared to its peers.

Dragged down by teapot refineries, from 2005-2014, Chinese refineries’ reported collective imputed capacity factors, or “run rates,” hovered at or around 65 percent, the threshold below which most individual US plants tend to shut down, at least temporarily, for economic and safety reasons. Since the entire Chinese refinery sector suffered from low refinery run rates for over a decade, the sector’s overcapacity issues were highly problematic.

Still, it is worth noting that Chinese refineries, especially the independents, are notorious for misclassifying production. There are also recent instances of refineries outright underreporting production to evade taxes. As with all Chinese economic data, one should take presented statistics with a grain of salt.

For much of the 2000s, Beijing struggled to reduce overcapacity. Erica Downs’ The Rise of China’s Independent Refineries traces how Beijing’s attempts to restrain or even constrict Chinese refineries often backfired. For example, in 2009, China’s National Development and Reform Commission (NDRC) ordered that all refineries with capacity under 40,000 barrels per day (bpd) be closed, merged, or upgraded, depending on their size. While the policy sought to shutter capacity, refineries, typically with the support of provincial or county-level governments dependent on their employment and revenue, responded by expanding capacity to avoid closure. Between 2005 and 2015, teapots’ refining capacity grew from 832,000 bpd to 4,175,000 bpd, according to Downs, suppressing China’s overall refinery utilization rates.

China’s refining overcapacity problems have abated in recent years due to stabilizing refinery capacity and, more importantly, greater crude imports. The Shandong-based teapots saw some closures and consolidations, including the September 2017 merger of the Shandong Refining Energy Group. Moreover, China allowed independent refiners to import more crude oil—and, typically, export refined products. While China’s four state-owned oil giants—Sinopec, PetroChina, CNOOC and Sinochem—have always enjoyed direct access to crude oil imports, other players, including the independents, are forced to secure import quotas from the central government. Luckily for the teapots (and China’s refinery utilization rates), Shandong’s crude import quotas nearly tripled from 2015 to 2019, while China’s overall crude imports rose from 6.7 MMBPD in 2015 to over 10 MMBPD in 2019. Despite a slight decline in domestic crude production and additional refinery capacity expansions, rising crude imports sent refinery utilization rates higher.

Chinese domestic politics and the oil sector

Chinese domestic also politics played an important role in the evolution of China’s refinery markets. Zhou Yongkang, a former member of the extremely-powerful Politburo Standing Committee, China’s former security czar, and former head of state-run China National Petroleum Company (CNPC, also the parent company of PetroChina), was purged in a Communist Party power struggle amidst the 18^th party congress in 2012. Immediately after ascending to General Secretary, Xi Jinping began consolidating power and eliminating rivals, such as Bo Xilai and Bo-affiliated figures, including Zhou Yongkang. The purges ultimately ensnared at least six senior CNPC executives linked to Zhou.

Interestingly, PetroChina’s refinery run rates continue to lag those of Beijing’s other state-run oil companies. Indeed, Shandong independents have occasionally outperformed PetroChina’s refinery utilization rates in recent years. The reasons for PetroChina’s lackluster performance are unclear. While PetroChina’s refining assets are concentrated in less-economically-dynamic north China, constraining its refining economics, the company’s association with Zhou Yongkang could also subject it to additional scrutiny and Beijing’s disfavor. Notably, PetroChina and three independent producers were penalized in early 2022 for “irregular trading.”

The CCP leadership follows oil markets closely

General Secretary Xi Jinping is not nearly as personally engaged with energy markets as his counterpart in Moscow, who has over two decades of experience interacting with Russia’s most important industry and (supposedly) wrote a doctoral thesis on Russia’s natural resources. Still, Beijing’s actions demonstrate is a highly active manager of its refining markets, as its recent decision to lift crude oil import quotas demonstrates. Moreover, Xi is familiar with the sector due to its economic centrality, as well as its role in the Zhou Yongkang affair. The CCP pays close attention to oil markets, something Western policymakers should keep in mind as they examine Sino-Russian energy ties.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

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One year ago, Russian troops streamed over the borders of Ukraine in the dead of night in an attempt to swiftly seize the country and topple its government. Instead they met with remarkable Ukrainian resistance and the rallying of Ukraine’s international allies to its defense, thwarting Russian President Vladimir Putin’s plans. It is hard to calculate the suffering, destruction, and global upheaval caused by the conflict, which has evolved into a brutal war of attrition with no end in sight. But there are some eye-opening numbers that help tell this story. To mark one year since Putin’s full-scale invasion, experts from across the Atlantic Council have identified the figures they believe best illustrate all the ways this war has shaken the world.

Many analysts see Russia’s failure to topple Kyiv as a sign of Russian weakness. They argue that Washington and Brussels need not worry about Russia’s threat to NATO because Russia’s military is weaker than we thought. These data tell a different story: Russia’s invasion of Ukraine shows that Moscow—which controls roughly 108,000 square kilometers of Ukrainian land, according to Institute for the Study of War data analyzed by the New York Times—is capable of seizing and occupying territory on its border the size of two Baltic states. Estonia’s total territory is about 45,000 square kilometers, while Latvia checks in at 64,000 and Lithuania at 65,000. The Russian military is potentially strong enough to cause World War III and break NATO. These are the data that keeps US European Command planners and vulnerable Eastern flank NATO allies up at night.

—Matthew Kroenig is the senior director of the Scowcroft Center for Strategy and Security.

Russian atrocities in Ukraine over the past year have caused untold disaster and spurred the largest humanitarian crisis in Europe in nearly eighty years. The Kremlin has launched unrelenting assaults on civilian infrastructure, culminating in the deaths of civilians and permanently damaging energy facilities. Meanwhile, over fifty thousand allegations of war crimes have emerged from recently liberated Ukrainian cities, including harrowing reports of mass graves, torture in detainment camps, and the utilization of sexual assault as a weapon of war.

As a result, Europe has opened its doors to more than eight million refugees fleeing from Ukraine for their safety. While the prevailing belief is that large, Western European countries have led Europe’s efforts to counter Russia’s aggression, Central and Eastern European countries bear the brunt of refugee waves coming from Ukraine—due to both their proximity and already established Ukrainian diaspora communities. Nearly one-third, or 2.5 million, of total refugees from Ukraine in Europe have settled in countries included in the United Nations’ Refugee Response Plan (Bulgaria, the Czech Republic, Hungary, Poland, Moldova, Romania, and Slovakia), while Poland has settled the greatest number of refugees at over 1.5 million and has seen over eight million refugees cross its border seeking safety since the start of the war (though six million have also returned to Ukraine).

Looking at the refugees taken in as a proportion of national population, Estonia, Montenegro, and the Czech Republic top the list, while some larger countries such as France and the United Kingdom fall toward the bottom. As Ukraine’s closest neighbors, Central and Eastern European countries have served on the front line of Europe’s greatest refugee crisis in generations and are likely to continue doing so as the war enters its second year.

—Kristen Taylor was a Young Global Professional at the Europe Center in the fall of 2022 and is a master’s student at American University. Akshat Dhankher and Emma Nix are program assistants at the Europe Center and lead the Ukraine Aid Tracker project.

Russia’s piped natural gas export volumes have shrunk from four hundred to five hundred million cubic meters (mcm) per day to around sixty mcm per day, one year after Putin unleashed his bloody war of choice on Ukraine and an energy assault on Europe, Moscow’s biggest energy consumer at the time. Neither is going as planned.

While oil and gas are vital for Russia’s state budget, Moscow leans heavier on oil exports for revenue and gas exports for geopolitical leverage, which Putin unleashed by abruptly stopping supplies to multiple nations in Europe in order to discourage support for Ukraine. But by cutting supplies, Moscow also cut itself out of the European market as nations adjusted to the massive curtailment—albeit at a hefty price. Much of the market share will be challenging or impossible to recover, regardless of the war’s outcome, as European buyers commit to long-term contracts with alternative suppliers and invest in new liquefied natural gas (LNG) infrastructure to bring gas to areas previously monopolized by Russian exports. 

However, a full decoupling from reliance on Russian gas is far from complete. New projects must come online to fill the supply gap in the long term, and the allure of discounted Russian exports could tempt some regions in Europe to take in gas from the Kremlin after the war. Additionally, Russian LNG exports to Europe increased in 2022—an important trend for European nations to observe as they work to unburden themselves from dependance on an unreliable producer.

Nevertheless, Putin accelerated Europe’s preexisting diversification efforts with his energy blackmail and, ironically, without Western sanctions on Russian methane. Moscow will never again supply 40 percent of Europe’s natural gas.

—Olga Khakova is the deputy director for European energy security at the Global Energy Center.

Moscow’s budget deficit in the month of January alone is more than half of its planned deficit for the entirety of 2023. Looking at the below graph, you’ll see a clear surge in Russia’s budget deficit in December. While December spending in Russia is usually high, January remained far into negative territory at a loss of 1.8 trillion rubles. Why the mismatch with Moscow’s predictions? 

It’s because the 2023 budget is calculated based on oil revenues coming in at sixty dollars per barrel—the same value that the Group of Seven (G7) nations set as its price cap on December 5—but prices have since dropped well below that mark. With income shrinking, and heavy costs of the war to bear, Russia’s budget deficit is likely to widen past its own 2023 estimate of 2.9 trillion rubles. 

—Sophia Busch is a program assistant at the GeoEconomics Center.

Prior to last February’s full-scale invasion of Ukraine, Russia was estimated to possess around 3,330 operational tanks. After one year of fighting, open-source intelligence has visually confirmed that Russia has lost over 1,700 tanks, or just over 50 percent of its pre-war total operational stocks. One estimate suggests that the total lost could be over 70 percent, given that not all losses are accessible to open-source intelligence. Russia is estimated to have around 17,000 additional tanks in storage, ranging from early Cold War-era T-55s, T-62s, and T-64s to more recent T-72s, T-80s, and T-90s, however the condition of these stored tanks is unclear.

—Jeffrey Cimmino is an associate director in the Scowcroft Strategy Initiative in the Scowcroft Center for Strategy and Security.

The response to Russia’s full-scale invasion of Ukraine—and the 68,321 crimes of aggression and war crimes registered by Ukraine—has included rapid international action to ensure accountability. Ukraine tops the list with domestic investigations and trials, advocacy to establish a Special Tribunal on the Crime of Aggression, and work to establish a claims commission. However, other countries have followed suit with domestic processes including criminal investigations, targeted sanctions designations, and asset seizures, as well as coordinated efforts through a joint investigative team and the Russian Elites, Proxies, and Oligarchs Task Force.

This is an atypical amount of legal action. This is partly due to practical reasons: Ukraine has an incentive to cooperate with other jurisdictions, and countries close to Ukraine are likely to have refugees who can provide evidence and perpetrators arriving on their territory. However, there are also known double standards in global access to justice—there is less clamor for international action when the perpetrators are from politically well-connected Western countries or part of intractable conflicts—which are considered likely to be a contributing factor to a reported lack of support for certain measures from the Global South. These accountability efforts will shape international legal precedent as they progress, but authorities should also ensure that they become the norm and serve to expand the options available to all atrocity victims.

—Celeste Kmiotek is a staff lawyer for the Atlantic Council’s Strategic Litigation Project.

On March 2, 2022, in an emergency special session following Russia’s illegal invasion of Ukraine, the United Nations General Assembly advanced resolution ES-11/1 demanding full withdrawal of Russian forces from Ukraine. A total of 141 countries voted in favor of the resolution, including many of the world’s democracies. Thirty-five countries, from China and India to Iran and South Africa, abstained. Five countries— Belarus, North Korea, Nicaragua, Russia, and Syria—voted against it.

Seven months later, the General Assembly voted again to condemn Russia’s invasion and not recognize Russia’s claims to Ukrainian territory. The votes remained largely unchanged, with only two additional countries voting in favor (a total of 143) of a weakened resolution, thirty-five abstentions, and the same five no’s. (Several countries missed the vote in both cases.)

Both votes show that the international community overwhelmingly stands together to rebuke Russia’s invasion. But such little movement in vote numbers and member groupings—after nearly a year of an increasingly brutal and illegal war, human-rights abuses and apparent war crimes, and massive disruptions to the global economy—suggests that the world is roughly divided into three blocs. The first is a collection of countries, encompassing many members of the free world, that stand together to defend international law and order when it is most under threat. The second is a new nonaligned movement of countries that, for varied political or strategic reasons, choose to hedge or stay out of the fray completely. The third is an “axis of autocracies” that act to disrupt or displace the rules-based order.

These groups are of course not exact or exhaustive. Many states who voted in favor of both resolutions are not free or democratic or may not be supportive of more punitive steps to punish Russia, such as sanctions. Still, how countries have voted on these resolutions displays a real fact of today’s global order: Countries are increasingly coalescing into democratic and autocratic blocs when responding to international issues, with some remaining non-aligned.

—Danielle Miller and Imran Bayoumi are assistant directors with the Scowcroft Strategy Initiative.

Despite the Kremlin’s bet that its war of aggression would isolate Ukraine from Europe, the European Union (EU) and its member states have responded with unity of purpose by sending immediate and continued aid to Ukraine.

An estimated 12 billion euros of this assistance was dispatched in the form of military aid, which accounts for both the 3.6 billion euros the EU has contributed via the European Peace Facility and bilateral donations from twenty-four EU member states. European partners not only sent a major wave of this military assistance immediately after Russia’s initial incursion but have also sustained donations throughout the year since—progressively sending heavier and longer-range weaponry—suggesting growing trust in Ukraine’s defensive capabilities and an increasing realization that Ukraine is the front line for the defense of Europe overall.

Meanwhile, an estimated 1.7 billion euros has taken the form of humanitarian aid, which has provided food, clothing, shelter, health care, and other basic needs to nearly fourteen million people in Ukraine. The European Commission has coordinated this unprecedented operation under the auspices of the EU Civil Protection Mechanism, standing up logistical hubs in Poland, Romania, and Slovakia to direct aid into the country. Lastly, as the challenge of Ukraine’s physical and institutional reconstruction looms ahead, the EU has provided 7.2 billion euros in macro-financial assistance—with an additional 18 billion euros of loans approved by the European Council in December 2022—and is sending other financial support through the European Investment Bank and the European Bank for Reconstruction and Development.

—Akshat Dhankher and Emma Nix are program assistants at the Europe Center and lead the Ukraine Aid Tracker project.

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Today, Zelenskyy is lauded as a national hero and brilliant wartime leader, Putin is increasingly isolated around the world, and Ukrainian troops have stymied the military of a supposed superpower, albeit at great cost in terms of the lives and livelihoods of Ukrainians.

The chief reason for this turnaround is the bravery of Ukraine’s people, followed by the massive military aid that the West has provided to help narrow Moscow’s advantages in military hardware.

But next down that list of factors are sanctions and export controls against Russia. This conflict will be won on the battlefield, not in financial hubs across the world. The West’s sanctions, however, have hampered Russia’s economy and degraded Russia’s military capabilities, and are a crucial component of the strategy to contain Putin and his aggressions beyond just this war.

Evaluating the impact of the 2022 sanctions

The initial spurt of sanctions imposed on Russia included the Group of Seven (G7)’s decision, mere days into the conflict, to restrict the foreign exchange reserves of the Russian Central Bank. This dramatic escalation of pressure had immediate impact on Russia’s financial system. Russians queued up to pull cash out, the Russian stock markets and currency crashed, and the Russian Central Bank quickly implemented harsh capital controls to arrest the slide. This drama, however, led to some over-optimism regarding the effects of sanctions, with US President Joe Biden famously claiming he intended to reduce the ruble to “rubble.”

That clever play on words hasn’t held true, nor was it a great measure of sanctions’ effectiveness. Russia largely was allowed to continue selling energy products to the world and the foreign exchange from those sales allowed it to stabilize the ruble’s value, which today is close to pre-war levels.

The focus on a narrow measure like the status of the ruble or the oft-used red herring “Putin is still in Ukraine,” however, makes for lazy criticism of Western sanctions on Russia. Russia’s economy has in fact been battered by those sanctions, and things are only going to get worse.

The West has used all of the tools of economic statecraft at its disposal to inhibit Russia’s economy, which by extension degrades the Kremlin’s military capabilities. The key areas targeted have been Russia’s financial system, with almost all of the country’s largest banks banned from Western-dominated financial markets; its energy sector, where Moscow faces reduced revenues due to a combination of Western prohibitions on investment and limits on the price of its energy sales through a price cap system; its technology sector, where enterprises critical to economic growth and military capacity have been cut off from Western technology; and important state-owned enterprises subject to blocking sanctions that freeze their assets and cut them off from Western technology and services.

The effects have been dramatic, even if the hit to the Russian gross domestic product (GDP) has been less severe than some predicted at the start of the conflict. Russia’s GDP contracted in 2022 between 2.2 percent and 3.9 percent, compared with World Bank predictions prior to the invasion of 2.4 percent growth for that year. The World Bank and Organization for Economic Cooperation and Development predict even larger contractions in 2023 of between 3.3 percent and 5.9 percent (although the International Monetary Fund predicts marginal 0.3 percent growth). Russian inflation has run at 14 percent year on year.

Russian oil revenues, the key driver of state income, fell dramatically in January 2023 following the European Union’s cessation of most oil imports from Russia and the imposition of the G7 price cap. In 2022, tax revenue not involving income from oil and gas came in 20 percent lower than expected. Indeed, amid plunging imports and the withdrawal of most major Western firms from the country, Russian consumers and the economy they support have suffered. Automobile sales, for example, were off more than 50 percent in 2022 compared with the prior year, and the cars Russians have available to buy include new Ladas without airbags or anti-lock braking systems (but still with high prices!) as the Kremlin scraps regulations left and right to cover up for its weakening economy.

To cope, the Russian government has spent money hand over fist in 2022 to prop up the economy and try to neutralize the worst impacts of Western sanctions. Even with a large financial buffer in the sovereign wealth fund to continue fiscal stimulus, the Russian economy has begun to look like a leaky ship. All hands are on deck bailing it out, but at some point, they won’t be able to keep up.

While sanctions and export controls should not be thought of as military tools to influence the battlefield, they clearly have impaired Russia’s ability to field a competent military force, especially given the country’s supposed superpower status. The Kremlin has been forced to cope with major supply chain shortages that have hampered Russia’s air force and tank production, and compelled to turn to Iran and North Korea for drones and other military equipment. Russia’s military has even been cannibalizing microchips from washing machines and breast pumps to repurpose them for military use given a lack of reliable domestic production or external sources of chips.

Forecasting what comes next

The anniversary of Russia’s invasion will reportedly bring with it a robust sanctions package across the G7 nations leading the sanctions charge. Expect such a package to cover the waterfront of sanctions that have been imposed over the last year and reinforce the measures already in place. The package will likely contain sanctions against banks, energy companies, oligarchs, military procurement, and, crucially, evasion efforts of those already sanctioned by the West. It beggars belief to imagine that the major Russian banks are not hiding transactions in non-sanctioned banks, and the United States in particular has already imposed several rounds of sanctions targeting Russian efforts to evade sanctions. Of particular interest will be whether additional export control restrictions are applied to companies outside of Russia assisting in procuring banned technologies.

The year ahead will likely bring more of the same in terms of sanctions, barring a significant escalation by Russia such as the use of a nuclear or chemical weapon. Russian sanctions evasion is a state-wide endeavor and will be a major focus for the West as it seeks to preserve the impact of the sanctions it has already imposed. US Treasury Department Deputy Secretary Wally Adeyemo made that clear in remarks delivered for the anniversary of the invasion, framing the choice for other countries as “us or them.” That stark framing, reminiscent of the sanctions push prior to the nuclear deal with Iran, was notable given reports that China is considering direct military support to Russia and the reluctance of much of the Global South to condemn Russia for its brutal assault in Ukraine. It will be important for Western policymakers to diplomatically engage the Global South in isolating Moscow while also cracking down on sanctions evasion.

The G7 nations may also seek to make sanctions across jurisdictions more consistent, since the differences can create unequal playing fields for Western companies and give bad Russian actors the opportunity to exploit the variations. Such an effort would include more sanctions on high-profile Russian oligarchs and, by extension, their companies, as oligarch sanctions is the area of greatest discrepancy across the United States, the European Union, the United Kingdom, and Canada.

The most high-profile sanctions of the last few months—the price caps on Russian crude oil and refined products—will garner much attention and handwringing. Whether or not the price cap mechanism “works” is a difficult thing to measure, but ultimately the success or failure of the policy may lie in oil markets themselves and not necessarily the mechanism. If crude spikes to $110 per barrel or higher, there will be enormous pressure on a very complex and questionably reliable attestation process for compliance with the price cap—a process that is crucial to the mechanism’s effective functioning. But if markets remain soft, then it seems likely that the dual goal of reducing Russian revenue and keeping Russian product on the market will more or less be met. It’s a cliché but in this case also a reality: Only time will tell.

Several other areas of Russia’s economy have yet to come under substantial sanctions, including the metals and mining and shipping and transportation sectors. And there are many Russian banks, energy firms, and military-related entities that could make good sanctions targets. Part of the playbook for implementing economic statecraft is the notion of broadening and deepening sanctions—the former involving targeting new sectors of an economy and the latter entailing imposing more sanctions on sectors already under sanctions. This broadening and deepening approach will likely guide Western sanctions over the course of 2023.

Assessing the strategic outlook

Sanctions will not achieve military victory for Ukraine. They are unlikely to cause regime change in Russia. But they nonetheless have important goals. Stronger enforcement of and compliance with sanctions, for example, can help continue to degrade Russia’s military capabilities since there is no substitute for Western technology; Adeyemo claimed that 40 percent of the microchips Russia imports from China are defective. Continued stress on the Russian economy also will reduce the amount of money for patronage (or corruption) that Putin has relied on to build and sustain his power base. The longer-term outlook for Russia under sanctions is akin to the terminal decline of the Soviet economy in the 1980s, a grim prospect for Moscow.

Moreover, sanctions on Russia are still, in our estimation, only about 70 percent of the scale of those imposed on Iran or North Korea; there is plenty of room to increase the pain inflicted on Russia’s economy. For Iran and North Korea, with isolated exceptions, all transactions involving the countries are banned. For Russia, by contrast, transactions with the country are not prohibited unless they have been specified as bad. This leaves the West with plenty of tools at its disposal to continue to hinder the Kremlin’s aggression and isolate Putin and his heinous worldview.

Brian O’Toole is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. He is a former senior adviser to the director of the Office of Foreign Assets Control at the US Department of the Treasury. Follow him on Twitter @brianoftoole.

Daniel Fried is the Weiser Family distinguished fellow at the Atlantic Council. He was the coordinator for sanctions policy during the Obama administration, assistant secretary of state for Europe and Eurasia during the Bush administration, and senior director at the National Security Council for the Clinton and Bush administrations. He also served as ambassador to Poland during the Clinton administration. Follow him on Twitter @AmbDanFried.

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“It’s a good incentive… to invest in all these green infrastructures,” Pouyanné said at an Atlantic Council Front Page event on Thursday.

Pouyanné agreed with many Europeans that the IRA is protectionist and undermines the transatlantic relationship, saying that this is part of a “trend” in which the United States, by creating its own rules, seems to be believing less and less in the multilateral trading system built on World Trade Organization agreements. But he also said that the law is a “clear political decision by the United States” made because “they want that green industries will take place on their territory.” For example, he noted, nearly 90 percent of solar panels are manufactured in China, creating “another problem of dependency” for both Europe and the United States in the future.

According to Pouyanné, the United States took advantage of an “opportunity” in the energy transition by passing the IRA, so “let’s do the same in Europe.” To avoid a future in which Europe relies heavily on imports, he said, the continent “must take decisions” to guarantee “that green industries [will] be located in Europe.”

Below are more highlights from the event, moderated by Atlantic Council President and CEO Frederick Kempe, where Pouyanné discussed the role of oil and gas in the energy transition and the energy impacts of Russia’s war in Ukraine.

“No way to escape” natural gas

• Pouyanné said that because this year’s United Nations Climate Change Conference of the Parties (COP28) in the United Arab Emirates is being hosted by a major oil-producing country, “it raises the bar for the whole oil and gas industry… [We have] to engage, as a lot of stakeholders are expecting us to do.”
• At COP26 in Glasgow, US President Joe Biden released a plan to tackle methane emissions from the oil and gas industry; Pouyanné said that TotalEnergies can lower methane emissions by 80 percent by 2030, while keeping an eye on lowering all other emissions from the production process. “If I can produce oil and gas with no emissions, I’ve done my job in production” to cut emissions, he argued.
• “Natural gas is a fundamental energy for the transition” because it emits half the methane that coal does, Pouyanné explained. Natural gas, he added, will also help provide a consistent source of energy to fill the gaps of intermittent wind and solar power while new infrastructure to support energy storage and transmission is brought up to scale.
• This year, with Russia’s war in Ukraine raising questions about the global energy supply, Pouyanné said that the world discovered how important energy reliability, affordability, and sustainability are—and how much reliability depends on gas. “On one side, the Biden administration [said] one year ago, ‘you need to diminish your emissions,’ and then we hear ‘you need to drill more.’” That, Pouyanné said, shows how the world will “need gas for very long.”

The global divide

• While TotalEnergies had invested fifteen billion dollars in Russia, it has begun withdrawing from its Russian investments. “We have impaired almost all of our Russian assets,” Pouyanné explained. “We have step-by-step progressively retracted from almost all of our business in Russia.”
• As Russia’s war in Ukraine continues, Pouyanné warned, the West must “be careful” to avoid believing that the rest of the world sees the conflict as a fight between democracy and autocracy. “It’s not the dominant [narrative] today in the Middle East, in Asia, [or] in Africa,” he said, explaining that leaders in the Global South are more focused on developing their economies than the war. He recalled how there have been mixed responses from countries to imposing sanctions on Russia and to voting on condemning Russia in the United Nations.
• Pouyanné noted that he sees a similar division between the West and the rest in the climate debate with each passing COP. “It should not be” so divided, he said, “Let’s avoid antagonism. Let’s keep humility. Let’s listen to these [Global South] leaders.”

Investing in renewables—and fossil fuels

• A day after TotalEnergies posted a record yearly net profit, Pouyanné talked about the French oil major’s plan to spend the increased profits. The company plans to invest sixteen to eighteen billion dollars of its capital, with around five billion going toward low-carbon energies and about twelve billion going toward hydrocarbons. “With twelve billion dollars,” Pouyanné explained, the “objective is to continue to maintain… stable production for this decade and continue to grow our liquefied natural gas business.”
• But, he noted, it will be “very important” to “continue to invest in oil and gas” to keep profits and investments high across the energy sector: “If I can invest five billion dollars in low-carbon energy in 2023, it is because I have made money from oil and gas,” he explained.
• Pouyanné said that the biggest investment opportunities lie in emerging economies such as Brazil, India, and African countries. TotalEnergies, he explained, has invested in new oil fields in Brazil and new projects, including a $3.5-billion pipeline, in Uganda.
• While people in the West “complain about the Chinese influence in Africa,” he said, that influence is growing because of China’s more long-term approach to investing in the continent—rather than exporting natural resources right away.
• The TotalEnergies head said the company will take some of the profits made in Uganda, Mozambique, and elsewhere to “invest in Africa.” That includes the electric grid. “When you don’t have electricity in the country, it is difficult to [improve] economic growth,” he said.
• Pouyanné explained that with technologies such as electric vehicles gaining in popularity, “the oil market at a certain point will begin to decline… this is why we invest in electricity, because this is a growing market.”

Katherine Walla is an associate director of editorial at the Atlantic Council.

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How does the Western price cap on oil work?

As the G7 and European Union implement their new restrictions on Russian oil and gas exports, Ben Judah spoke with Eddie Fishman, Senior Policy Scholar at the Center on Global Energy Policy at Columbia University and nonresident senior fellow at the Atlantic Council’s Eurasia Center, to discuss the price cap.

Has the price cap already had an impact on Russian oil exports at this early stage? Is the price cap a new tool of economic statecraft? And can the price cap be used in a way to accelerate ongoing efforts to improve renewable energy infrastructure?

You can watch #BritainDebrief on YouTube and as a podcast on Apple Podcasts and Spotify.

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Energy development and investment was one of the many important topics addressed in the Africa Leaders Summit, which took place in the context of the continuing war in Ukraine, high energy and commodity prices, and a serious debt problem in many countries of the region. As was the case in the first Africa Summit eight years ago, the US government emphasized renewable energy development and improved energy access, noting the over $1 billion provided thus far under the Biden Administration by the US Development Finance Corporation, US Agency for International Development, and other US government agencies for African projects in these areas.

Although African leaders are embracing the clean energy transition and the region has enormous, diverse renewable energy resources, they are also arguing that they must be able to develop their fossil energy resources to meet their economic development needs and provide access to modern energy for their populations. At COP27, the President of the African Development Bank supported the development of natural gas in the continent, noting that even a tripling of gas production would result in only a minimal addition to global CO₂ emissions. At the May 2022 Sustainable Energy for All forum in Kigali, Rwanda, ten Africa countries (Democratic Republic of Congo, Ghana, Kenya, Malawi, Morocco, Nigeria, Rwanda, Senegal, Uganda, and Zimbabwe) endorsed a statement calling for international support for “Africa in the deployment of gas as a transition fuel and the long-term displacement of gas by renewable energy and green hydrogen for industrial development, if financially and technically sustainable.”

The war in Ukraine and the high energy prices and tight supplies have encouraged international energy companies to consider oil and gas projects in Africa that did not appear viable a couple of years ago. There is a general expectation of continued tight global liquefied natural gas (LNG) supplies, reflected in analysis of the International Energy Agency, Bloomberg, and others, including the recent statement by Exxon Mobil CEO, Darren Woods, that the world will face a shortage of LNG until 2026. Europe’s efforts to replace Russia gas are the key driver, with EU LNG import requirements forecasted by Bloomberg to increase by 44 million metric tons by 2026.

Africa is a potential source of EU and world gas diversification and the May 2022 EU External Energy Engagement Strategy recognizes this potential. New Africa suppliers are emerging, with the first shipment of LNG from gas-rich Mozambique occurring in November 2022. According to the BP Statistical Review of World Energy 2022, Africa produced about 257 billion cubic meters (bcm) of natural gas in 2021 and exported 58.5 bcm of LNG (42 million tons), amounting to about 5.7 percent of global LNG exports. Some estimates see African LNG exports growing to 60 million tons in 2025 and 74 million by 2030. Major exports from the large gas reserves in East Africa, though, are not expected until 2026 in Mozambique and 2029-2030 in Tanzania. Bloomberg sees increases in LNG export capacity of 12.4 million tons during 2021-26 from Nigeria, Mauritania, Congo, Equatorial Guinea, and Mozambique. Africa could significantly increase its LNG exports if gas supply and other bottlenecks in using existing capacity can be overcome. According to Natural Gas World, Africa’s utilization of its 78 bcm liquefaction capacity was only 58 percent last year, with Algeria, Nigeria, and Egypt all operating below capacity.

Gas development potential exists in many other African countries, including Ghana, Senegal, and Côte d’Ivoire in West Africa. Ghana is one example with as much as 3 trillion cubic feet (tcf) of potential gas reserves, with 1.5 to 2 tcf possible in Tullow Oil’s offshore Jubilee and TEN fields. In Ghana, a long-time partner of the United States through its Power Africa program, domestic gas development has allowed it to increase gas use in the electricity sector, substituting for oil and complementing its hydro generation. The country, however, faces a serious debt situation, spurred in large part by the quasi-fiscal deficit in the power sector; and, on December 12, the IMF announced staff agreement for an Extended Credit Facility of about $3 billion. The government has committed in its nationally determined contribution (NDC) to reduce GHG emissions by 64 million tons by 2030 and has a renewable energy master plan that envisions adding 1390 megawatts of wind and solar by 2030. Renewable energy development, which is only at a very nascent state, can facilitate the diversification of Ghana’s electricity mix and with successful gas development achieve a position that would allow it to export gas for valuable foreign exchange.

African countries thus face the challenge of how to balance energy security, climate change, and sustainable development objectives. It is increasingly clear that Africa is critical to addressing global energy issues and should, as the President of South Africa has recently argued, have additional voices in the G20 and other international fora. It is increasingly clear that natural gas is a key means of quickly reducing global coal use, especially in the coal-intensive Asia-Pacific region, which accounted for half of global energy-related CO2 emissions in 2021. The expected higher prices from an LNG crunch may slow natural gas adoption, especially in Asian LNG importers (i.e., Bloomberg sees possible decreases in 2023 LNG import levels over 2021 planned imports in India, Pakistan, Bangladesh, Thailand, Vietnam, and the Philippines). Although renewable energy development is certainly desirable and economically viable in Africa as well as Asia, natural gas development in Africa can in the medium term help moderate LNG prices, assist Europe in replacing Russian gas, complement intermittent renewable energy supplies, and ensure both the continued transition from coal in Asia as well as critical revenues for economic growth in Africa.

Dr. Robert F. Ichord, Jr. is a nonresident senior fellow at the Atlantic Council Global Energy Center.

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In September 2022, I anticipated that Putin’s plan to cut gas supplies to Europe and leave consumers to freeze would fail. With the cold season now almost over, this prediction has so far turned out to be correct. Contrary to the Kremlin’s expectations, Western consumers not only stayed warm in their homes; many European companies have actually been turning to Ukraine to place surplus gas volumes in local storage facilities.

Admittedly, Europe has been lucky. Demand and supply have been balanced because consumption remained muted thanks to unseasonably mild temperatures and falling industrial demand. Meanwhile, there have been sufficient alternative deliveries of liquefied natural gas (LNG) from the global market amid a lack of competition from China, which has been struggling with the aftermath of the Covid pandemic.

Much was also due to the resilience of European markets, which responded promptly to Russia’s decision to cut gas supplies to a trickle in 2022, forcing gas prices to reach record levels. Far from breaking Europe’s resolve, Putin’s energy war against the EU has shocked the bloc into fast-tracking its energy transition, completing projects which had been long overdue or forgotten and seeking alternative supplies to plug the gaping Russian shortfall.

With Russia’s share of European imports plummeting from 40% to less than 10% towards the end of 2022, European companies turned to global LNG markets, sourcing 96.3 million tons in 2022, up from 56.3 million tons the year before. Thanks to a raft of policies mandating storage targets, most underground facilities reached 90% fullness or higher by the start of the heating season on October 1, overshooting the target by ten percentage points. This means that as winter comes to an end, storage facilities remain at some of their highest levels and gas prices have fallen to a 16-month low.

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There are still lingering risks. An unexpected cold snap later in February or the early weeks of spring, a steep recovery in Chinese demand, or the possibility of a major escalation in Ukraine could spook markets and lead to more volatility or price spikes. Despite these potential threats, European energy markets are now clearly better prepared to absorb potential shocks.

Europe has been working to expand its LNG importing capacity, which is set to increase by no less than 20% this year. Undoubtedly, much will also depend on the availability of LNG supplies globally. However, the fact that Germany managed to commission three LNG terminals within less than a year to replace lost Russian pipeline imports points to the extraordinary ability of European markets to respond in the face of formidable challenges.

Projects that have been long delayed or forgotten have not only been resurrected but also promptly completed. For example, after many years of hesitation, Bulgaria managed to bring an interconnector with Greece into commercial operation that allows the Bulgarians to tap alternative Caspian gas and LNG. Meanwhile, Germany and France established bidirectional gas flows, which will allow not only Germany to export gas to France, but also to import from this direction. Even Romania, which had long been averse to exporting domestically produced gas, has seen some volumes shipped physically to neighbouring Bulgaria.

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Putin’s energy war against Europe has served as a catalyst for renewable projects. With the permitting process fast-tracked across the EU, installations of solar panels and heat pumps had one of their best years to date. Solar capacity shot up by 41.4GW or 25% year-on-year to 208.9GW in 2022 and is set to grow even faster in 2023.

Russian imports of coal and oil were also hit by a raft of European sanctions as EU consumers stopped taking coal and seaborne oil in the second half of 2022. This meant that Russia’s share in EU imports of coal and oil dropped to less than 15% in 2022, compared to over 45% for coal and 25% for oil the previous year, according to the latest Eurostat figures.

There are now signs that Europe’s large economies may be staving off recession and indications that energy markets are regaining an even keel, but the same cannot be said about Russia’s own gas sector. Russia’s total gas output fell 12% in 2021 to the lowest level since 1990. The situation is even worse for state producer Gazprom, whose production fell year-on-year by 20% in 2022, the largest annual drop in the company’s history. Gazprom managed to increase gas exports to China by 5.4bcm but lost most of its 140bcm European market. It also took a hit on the domestic Russian market, losing market share to independent producers in 2022.

Gazprom may now be looking to partially revive its fortunes by using Turkey as a back door. It plans to sell gas to the Turkish gas incumbent BOTAS, which would then sell it on to Europe as whitewashed Turkish gas. This might allow Moscow to recover at least some of the losses incurred in 2022. At the same time, the fundamental nature of the shifts that have taken place over the past twelve months mean Russia now has little hope of returning to its formerly dominant position in Europe’s energy markets.

Dr. Aura Sabadus is a senior energy journalist who writes about Eastern Europe, Turkey, and Ukraine for Independent Commodity Intelligence Services (ICIS), a London-based global energy and petrochemicals news and market data provider. Her views are her own. You can follow her on Twitter @ASabadus.

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UkraineAlert Jan 17, 2023

How Europe can help Ukraine defeat Russia and win the peace in 2023

By Andreas Umland

Continued European support for Ukraine will be crucial in 2023 and must feature a combination of intensification and innovation if Vladimir Putin’s invasion is to be decisively defeated, writes Andreas Umland.

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UkraineAlert Dec 22, 2022

Russia’s defeat is the top global priority for 2023

By Oleksii Reznikov

Ensuring that the Russian invasion of Ukraine ends in defeat is vital for the international security system and must be the strategic priority for 2023, writes Ukrainian Defense Minister Oleksii Reznikov.

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The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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A welcome and necessary act of energy pragmatism

The Caribbean is suffering from the current energy crisis. Still dependent on heavy fuel oil and kerosene, high product prices translate to high electricity prices which undermine the competitiveness of Caribbean tourism and industry. One critical part of decarbonizing Caribbean energy and restoring energy security is enabling better access to natural gas, which helps provide cleaner electricity and cleaner fuels such as methanol and supports food security by producing ammonia for fertilizer. The Biden-Harris administration’s grant of a license to help Trinidad get access to Venezuelan gas, without a dime going to the Maduro regime, is a welcome and necessary act of energy pragmatism. Trinidad needs access to more gas as quickly as possible to produce liquefied natural gas (LNG) and clean fuels. Gas from new exploration could be seven to eight years in the future. The region needs a more secure supply of products now. And with Venezuela reviving the Petrocaribe agreement to again provide cheap loans for the sale of crude oil to its neighborhood, the United States needs to show it cares and can be relevant. Much more needs to be done to provide energy security to the Caribbean, but this license is a deft and critical first step.

—David Goldwyn is a nonresident senior fellow at the Atlantic Council’s Global Energy Center and co-chair of the Caribbean Energy Working Group at the Adrienne Arsht Latin America Center’s Caribbean Initiative. He is the president of Goldwyn Global Strategies, an international energy advisory consultancy.

A win for the Caribbean while continuing to isolate the Maduro regime

The US green light for Trinidad and Tobago (T&T) to begin development of a gas field in Venezuelan waters is a much-welcome step forward for Caribbean energy security. The Caribbean faces enormous short- and long-term energy challenges and needs this gas for its people and its economies. It has again become clear while I’ve been here in T&T this week that the country is well-positioned to process this gas for export to its neighbors and beyond. In an increasingly uncertain world, the stability of the United States’ Caribbean neighbors and a robust US partnership is increasingly critical for US security interests.

Importantly, the US license and the T&T authorities have stipulated that no cash payments will go to the Maduro administration as part of the Dragon gas field development. The Maduro administration must not financially benefit from any transaction while it continues to perpetuate its violations of human rights and its prohibition of personal liberties or of the free and fair democratic will of the Venezuelan people. This new US license is a win for the Caribbean while still keeping Maduro financially isolated.

—Jason Marczak is the senior director of the Adrienne Arsht Latin America Center.

What the agreement means for negotiations between Maduro and the opposition

There is no doubt that the new agreement will enhance the Caribbean’s energy-security policy, both the policy itself and the speed of its implementation, given other geopolitical factors including the recent announcements by the Maduro government to revive the PetroCaribe program with former Venezuelan Ambassador to Colombia Félix Plasencia appointed to lead the revival. However, Venezuelan experts and political representatives have been cautious about this new sanction exception given that crucial details from the negotiation between Trinidad and Tobago and the Biden administration, as well as the negotiations with the Venezuelan government, are still unknown.

Venezuelans are wary in reaction to this news due to the local context and the developments of the negotiation process between the Maduro government and the opposition. The first humanitarian agreement signed between the two parties last November requires a complex process to be implemented. And the Maduro government has used this obstacle as an excuse to try to reconfigure the terrain for the future of the negotiations, which should move to a second phase—but without further sanction relaxation, this is unlikely to happen. Without sanctions relief, the Venezuelan government’s economic adjustment program will be shipwrecked, a result that is already being seen in the return of hyperinflation, innumerable salary protests, and the end of last year’s optimism. Today, the government seems to be aggressively armoring its position ahead of future negotiations by threatening to intervene in the National Electoral Council and proposing a new law to further restrict nongovernmental organizations.

Therefore, the agreement coincides with an unclear political climate, which may influence the public’s perception that the sanctions relief is geared toward US interests rather than a solution that can be contributed to negotiations in Venezuela.

—Colette Capriles is a member of the Adrienne Arsht Latin America Center’s Venezuela Working Group and a professor and researcher in philosophy, politics, and social sciences at Simón Bolívar University.

The US delivers a major win for the Caribbean

US commitment to Caribbean energy security took a significant leap forward on Tuesday. Granting Trinidad and Tobago a license to develop the Dragon gas field is momentous for the country, and it creates endless opportunities across the region. In the short term, perhaps over the next half-decade, a portion of the gas will be used to service the energy needs of Jamaica and the Dominican Republic. Over a longer period, given the considerable oil and gas reserves Guyana and Suriname hold, the Caribbean is poised to become a globally competitive hydrocarbon player, potentially anchoring Caribbean energy security and meeting demand across the world. The license also opens the door to other gas fields bordering Dragon that Trinidad and Tobago can exploit over the next decade, which would provide the country and the region more time to facilitate its energy transition.  

For the United States, the timing is important. Granting the license finally brings a tangible deliverable to Caribbean nations after a year of promises and discussions. With the Caribbean Community (CARICOM) inter-sessional meeting just around the corner—where all Caribbean leaders will convene—the US-Caribbean energy cooperation will be front and center of the Community’s agenda.  

—Wazim Mowla is the associate director of the Caribbean Initiative at the Adrienne Arsht Latin America Center.

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Flagship Event Sat, January 14, 2023 • 12:01 am ET

2023 Global Energy Forum

The 2023 Forum will have a special focus on the challenge of managing energy security priorities and decarbonization efforts in tandem, including the continuing impact of the crisis in Ukraine on the energy transition. This two-day conference starts at 9:00 AM in Abu Dhabi and virtually at 12:00 AM ET (midnight).

Africa Americas Energy & Environment Energy Markets & Governance

Event transcript

Uncorrected transcript: Check against delivery

Speakers

H.E Arifin Tasrif
Minister of Energy and Mineral Resources, Republic of Indonesia

Introducer

Reed Blakemore
Deputy Director, Global Energy Center, Atlantic Council

REED BLAKEMORE: I think as we’ve seen throughout the past two days of our agenda, the energy trilemma is a key theme that we’re all working through, defining not just the energy space this year but will certainly define the energy space looking out to 2050 and likely beyond. The move to a minerals-intensive clean-energy system creates enormous demand for new resource capacity, new challenges for environmental stewardship, and of course more broadly a new paradigm for global energy security. It’s absolutely imperative that we address these emerging issues head-on and [that] we do so quickly.

So, to that end, we’re honored to be joined by a leader in this space, a key global actor in the critical mineral supply chain, to say a few words on this important topic. So please put your hands together and welcome the minister of energy and mineral resources of the Republic of Indonesia, His Excellency Arifin Tasrif.

MINISTER ARIFIN TASRIF: Good afternoon. I think this time is quite heavy time for us—after lunch, and I have to move from the previous place to this place. Thank you. Thank you for the opportunity.

Honorable Mr. Frederick Kempe, president and CEO of the Atlantic Council, thank you for inviting me to stand at this podium… Distinguished ladies and gentlemen: Critical minerals and their supply chains [have] become a bristling issue among economists. In this light, every country has various definitions and categorizations [for] critical minerals, including their criticalities, parameters, and analytical levels. Critical minerals are fairly limited and very much needed to support clean energy. Geographically, they are in several countries, and refineries [are] also in several countries. Therefore, global collaboration is needed to be able to produce the minerals [that are] needed to support [the] clean energy transition.

Indonesia has a policy to increase mineral-added value. Besides that, we have also to secure supply chains to fulfill our demand in order to reach our target [of] net-zero emissions by 2060. This policy is our noble intention so that our 207 million Indonesians could… benefit from mineral sources so that they may get much better living conditions than [before].

In the context of [the] global supply chain, Indonesia hopes not only to provide raw materials but to cooperate with other parties to develop large-scale downstream industries to create competitive outputs. We appreciate global players who have recently [invested] in Indonesia, such as… Freeport Indonesia [which invested] to build a copper smelter. So the smelting and the processing itself will be completed by—hopefully, within end of this year­. PT Vale, Whitford, and Huayou [are] to build an electric vehicle battery raw-materials factory; Eramet and BASF [are] to build an electric vehicle battery raw-material factory; [and] Contemporary Amperex Technology and LG [are] to build an electric vehicle battery raw material factory.

[Batteries are] very important for Indonesia, especially for transportation. We have about 140 million vehicles in land transportation, [and] 120 million of these are two-wheeled vehicles, [a number equal to] almost half of our population. So if we calculate one liter [of] consumption per motorcycle, [and] multiply by 120 million, it [equals] eight hundred thousand barrels [of] oil per day. So you can imagine how we burn. We subsidize the fuel but we are in the process to reduce, minimize, or even to be released from the subsidy. Besides that, we also have another advantage. Reduced [emissions] reduce the noise, which will also improve our health condition.

[It’s] not only in land transportation; we also consider marine transport. Indonesia is [an] archipelagic [country]. We have about sixteen thousand islands. So I make a joke that we—by the process, this island will be reduced automatically. If we don’t care about climate change, it will sink.

So [with] this significance, Indonesia forces several steps to enhance governance on clean energy. We implement policy on mineral exploration, especially critical minerals, through enhancing exploration, indexing rare-earth-elements inventories, [and supervising] mineral governance while maintaining environmental sustainability; and, second, [we] try to integrate [the] supply chain between mining and smelter facilities, as well as integrate the industrial users of mineral-processed products.

We would like to reiterate that Indonesia is ready to cooperate with partner countries to develop manufacturing facilities on critical minerals to support the energy transition. So [I] look forward to [cooperating] with you all.

Watch the full event

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Flagship Event Sat, January 14, 2023 • 12:01 am ET

2023 Global Energy Forum

The 2023 Forum will have a special focus on the challenge of managing energy security priorities and decarbonization efforts in tandem, including the continuing impact of the crisis in Ukraine on the energy transition. This two-day conference starts at 9:00 AM in Abu Dhabi and virtually at 12:00 AM ET (midnight).

Africa Americas Energy & Environment Energy Markets & Governance

Event transcript

Uncorrected transcript: Check against delivery

Speakers

Amos Hochstein
Special Presidential Coordinator for Global Infrastructure and Energy Security, US Department of State

Moderator

Helima Croft
Managing Director, Global Commodity Strategy, RBC Capital Markets

HELIMA CROFT: There’s been so much discussion at this conference about the challenges of critical minerals—how we need to source more supply, how we need—the unique security challenges of critical minerals. Walk us through, sort of level set for us, what’s the scale of the challenge as we think about meeting Paris climate goals?

AMOS HOCHSTEIN: First, it is always great to be back at the Energy Forum. Last year I tested positive in the airport on the way, so I ended up in a—

HELIMA CROFT: We didn’t tell anybody that, yes.

AMOS HOCHSTEIN: We did not say that at the time, but that’s really why I appeared on a screen from my hotel room in Brussels. But it’s great to be back here in person for many, many reasons.

Look, I actually believe that this is the greatest challenge not just for our ability to meet net-zero goals, but it’s actually one of those things that crosses over to being one of the most important challenges and national security risks overall—not just energy, but a national security risk for the United States and for large parts of the world. And the reason for that is because if we don’t—if we just continue as things are today, as they’ve been developing for the last ten years, we’ll be in a place where we have full control or significant control of critical minerals in the hands of very few and that’s a great challenge.

HELIMA CROFT: You know, Amos, how does this differ from the security challenges of traditional hydrocarbons? And you mentioned concentration risk, but there’s also this issue around China, which is it’s in the hydrocarbon challenge but it also seems to be very, very pronounced when it comes to critical minerals.

AMOS HOCHSTEIN: Well, my view is that if we’re—everybody always thinks about the hydrocarbon world of the twentieth century—

HELIMA CROFT: Yes.

AMOS HOCHSTEIN:—and that we’re now moving to this great new world of the green energy world, which is a better world in many ways, but that somehow that’s going to solve the geopolitical challenges of the energy world.

The way we’re going right now we’re actually creating a carbon copy of the twentieth century geopolitics of energy architecture and just putting it into the twenty-first century. Instead of having a small group of countries that control oil supply and, perhaps, refining, we’re now going to create a one or maybe a couple of countries that will control the entire supply chain for wind, solar, electric vehicles’ chips, and if we do that then the geopolitics of energy of the 1970s will be repeated in the 2030s and 2040s.

HELIMA CROFT: So, Amos, can you just walk us through? I mean, where does it rank? When you think of national security priorities for this administration, you know, where does it rank in terms of, you know, when you go in to see President Biden how concerned is he about critical minerals?

AMOS HOCHSTEIN: I think people don’t always believe me but he actually can talk more about critical minerals and the challenges of the critical minerals than almost—than many in our own government. He understands this challenge very personally. I have had many conversations with him about this.

It’s because if we want to create—and look, we’re at a place we talk about this all the time in this conference, right? Dr. Sultan talked about it yesterday. We have to accelerate the investment in clean energy technology and in renewable energy. That creates a challenge because as you accelerate something more rapidly than the market would normally have developed you have to make sure that you have the raw materials and the supply chain behind it. Right now, we may not.

So, to do that, suddenly there is a rush to buy and to acquire, from mining to processing and refining and assembly, and if you look at where that is right now it’s not in a good place for a diverse—well-diversified energy system.

HELIMA CROFT: Are there particular aspects of it that are especially acute? I think we’ve discussed graphite before as a particular challenge.

AMOS HOCHSTEIN: So if you look at what is the materials that are necessary for batteries or materials that are necessary for wind and you break it down and you look item by item, and suddenly you realize that graphite is mined in many different countries but it’s processed only in one country, and we’re going to have two new processing facilities in the United States likely over the next couple of years. But that will supply a very small percentage of what even just a small percentage of what the United States needs.

And then look at lithium and who’s owning the assets. Who owns the mining? Who owns the processing? Who owns cobalt? Who owns the mining? Where is it going? Nickel, copper. Copper we need not just for batteries. We need it across—if you want to electrify everything copper is really important.

So all of that is right now concentrated in one country: in China. China controls somewhere between 60 [percent] and 100 percent of all the items that I just mentioned. So we have to—as we talk about accelerating the investment, it’s not just about deployment of cells or of turbines and building the grid.

We actually have to accelerate the investment that the rest of the world—this is not just about US versus China. It’s about making sure that we have a diversified energy system and if—I’m not looking to have all the processing in the United States.

HELIMA CROFT: Right. Right.

AMOS HOCHSTEIN: The IRA is definitely intended to build up our own capacities. But we need that around the world.

HELIMA CROFT: So let’s dig into the IRA right now. Can we, basically—you know, we’ve had the IRA, this, you know, groundbreaking legislative, you know, success for the Biden administration. How do you think about the IRA sort of delivering on, you know, the development of this industry in the United States?

AMOS HOCHSTEIN: Well, you have—Piedmont is an American company that’s going to have lithium mining in South Carolina and processing in Tennessee. Same company has assets in Ghana to get—for the mining of lithium. We have multiple examples. Jervois from Australia is just—is going to just announce that they’re opening the first in many decades primary cobalt mine in the United States—not as big as [the Democratic Republic of the Congo (DRC)], but it is a mine. But what I don’t want is all of that cobalt’s right now destined to leave the country, so—because we don’t have processing. So what IRA is doing is creating—if you look at a carrot and a stick to get companies to do things, this is—IRA is all about the carrots. It’s about what are the tax incentives and the grants and other financial incentives for companies to build the capacity that we need.

But Helima, we can’t—

HELIMA CROFT: Right.

AMOS HOCHSTEIN: IRA is about the United States. This is a global issue. We want this to be built, whether it’s lithium in Serbia or projects in Chile, in Argentina, and in Australia. But it’s not enough that they’re built in those countries. Who owns them and where are they going? And you have to look at the next level of the—of the problem. If one country owns all the raw material and one country owns—or all the processed material, then eventually they get to decide where the battery’s going to be built.

HELIMA CROFT: OPEC—

AMOS HOCHSTEIN: And if they get to decide where the battery’s built, then they get to decide perhaps where the car is built. And all of a sudden you have a real challenge where the auto industry—and we know the auto industry moves where the costs are, right? That’s how the United States became a hub for—European and Asian car manufacturers make their cars in the United States when it became cheaper to make them in the United States for the US market. So that’s the real challenge that we’re facing.

HELIMA CROFT: Well, you’ve laid out an enormous challenge. What is the role of getting, you know, obviously, more financing? Like, how do you de-risk financing for this?

AMOS HOCHSTEIN: So that’s—so we launched, together with the—at the G7 we launched something called the Partnership for Global Infrastructure and Investment, which the idea behind it is how do we pool resources from the United States and the G7 members plus others and the MDBs to de-risk investment in these areas. And this is an extraordinarily difficult challenge because you have country risk, commodity risk, currency risk, and ESG risk, and that makes it very difficult.

We’re having initial successes now in—after several months of starting to be able to put together these kinds of packages that allow us to use the financial instruments that we have as governments, whether it’s Ex-Im and DFC in the United States or it’s KFW in Germany or in the United Kingdom, et cetera, the EU, and of course Japan with JBIC. So that—but how do you figure out how to blend where they’re used to de-risk it by taking the first loss or taking and putting that capital where it fits in the capital stack of the investment to make sure that we can incentivize the others? I’m not very optimistic that we’re going to have significant Western financing of mining projects in certain countries around the world where they’re not comfortable, but I think we’re starting to see a success where we can find buyers into the mining side and incentivize processing and refining of those products in a number of those countries, and Serbia is a very good example of that.

HELIMA CROFT: Do you have others you could talk about?

AMOS HOCHSTEIN: I have others that I will be able to talk about.

HELIMA CROFT: You’ll be able to talk about.

So we just attended the Future Minerals Forum in Riyadh, and one of the big issues that was brought up there was the challenge of getting financing in a rising rate environment. I mean, how much does that give you concern?

AMOS HOCHSTEIN: That’s what I lose sleep about every night: How do I solve that problem? And we’ve had conversations. We’ve, you know, spent some time—the US national security adviser and myself spent some time with some of the fund managers to understand their perspective of what does it take. We’ve traveled around to see how do we structure—what do we need to do—in other words, what can the US government or the G7 governments in combination do that would change the outlook of financial institutions, whether it’s banks or it’s private equity? What do we need to do that gets you over that hump?

I think we have a—we have more information today. We’re putting those deals together. We have some transactions that are in their final stages that will demonstrate that we can do this. But the challenge is enormous, and I think part of the challenge is that there’s not enough attention to this challenge.

So what I would say on the financial institutions, I think we have to find a different way to look at not just de-risk the investment, but we have to put in the risk to the final product. If I’m going to say I’m not going to invest in financing the mining or the processing but I will invest in the final product, well, you’re going to have to put a risk now on that final product because you’re going to have to ask them: How are you going to guarantee your supply chain? What if you don’t have it? And suddenly I think if you have that outlook, then perhaps you say, OK, if I’m going to secure my investment in the final product, whether it’s the car or the product itself—or other products—I have to now invest in the supply chain to make sure that it’s there. And I think that’s a mindset change that is slow, and I—because of the lack of understanding of the basic data of where the supply chain actually lives, everybody I give the numbers to always reacts with surprise even if they are people who are heavily invested in the sector.

HELIMA CROFT: So, Amos, I want to ask you, you recently took a trip to the DRC. When you think about, you know, you have been in the seat for energy security for how many decades? I mean, you were at the State Department under President Obama. You were head of the Bureau of Energy and National Resources. And sort of in your career, how much has the energy security portfolio that you’ve had, how much has it changed because of the critical minerals imperative? Like, does it change where you’re spending your time? Like, how does your day-to-day job change because of this?

AMOS HOCHSTEIN: I think, remarkably, it’s the same job with a different set of countries. And I started working on energy security in the 1990s. That ages me a little bit. I turned fifty last week. So in—when I was on the Foreign Affairs Committee actually working on completely other issues, and all of a sudden realizing that we in the United States didn’t talk about energy in foreign policy but every other country did, whether they were consumers and it affected their—how much they subsidized energy and therefore a percentage of their GDP or if they were the providers of energy and therefore it was a big portion of their income.

And today, I see it as exactly the same thing when—OK, so I’m in the DRC because they have 80 percent of cobalt in the world, they have significant copper resources, and they have really great lithium—very high-quality lithium there as well. So they said to me—some folks there without naming names said: We’re the Saudi Arabia of cobalt. That was the statement that was made to me by this individual. And I said: I wish you were, because the Saudi Arabia of cobalt or the Saudi Arabia of actual Saudi Arabia has that resource, and look at what it’s done for the country.

HELIMA CROFT: Right.

AMOS HOCHSTEIN: It’s been able to turn the country around, develop it into a—the major powerhouse, an economic powerhouse that it has—that it is today with institutions and roads and bridges and hospitals and everything else. You’ve had cobalt for all these years. It’s time to think about how do you manage these resources so that the more you put an effort on getting at—rooting out corruption, and putting an emphasis on who are the workers and what their rights are, and the taking care of the country and investing it back, that’s part of the opportunity that all of a sudden, after ten years, the world is really paying attention. We want these products for all these things that we want. This is the opportunity for a whole new set of countries if they—if they decide that they want to be part of this economy, they have an opportunity to become the Saudi Arabia of cobalt or of lithium or of copper, of nickel or graphite, whatever it is.

But if we keep a concentrated market where all these countries are essentially production facilities on a highway to one country, they won’t get that opportunity to develop and to expand their economies and to do what’s right for their people. And the rest of the world will end up with a single supplier for the products that we need the most in order to create this net-zero world that we’re trying to advance.

HELIMA CROFT: Amos, I want to drill a little bit deeper on this because, I mean, clearly the DRC has had, you know, enormous challenges. I mean, think about it was the world’s worst war at one time. Five million people reportedly died in that war. I mean, how do you solve for these enormous governance problems? I mean, the track record in terms of oil countries in sub-Saharan Africa, you know, wasn’t particularly great in the 1990s in early 2000s. You know, think about Nigeria. I mean, how does Congo sort of break the sort of resource curse?

AMOS HOCHSTEIN: So I don’t want to pick on Congo, but I—

HELIMA CROFT: No, no, I know, but it’s an enormous opportunity if they could—this resource. I mean—

AMOS HOCHSTEIN: Right. So I think it’s exactly what you just said: Don’t look at it as a challenge and a problem; look at it as an opportunity. And I think that as—look, we as a world, we want to have—we want to have a net-zero world. We want to all—many of us in this room want to have—drive electric vehicles. But we also want to know that it was built in a certain way and coming from a certain—that the supply chain into it was, first of all, clean so that we actually don’t defeat the purpose, and that worker rights were respected while building these cars and the materials in it. So this is not between—as we are suddenly paying attention to what we drive and what we’re going to consume and what kind of electricity we’re going to have, now we can come and say we want to make sure the countries that are producing it get their fair share, too. And so don’t allow companies that are going to come and bid in your—when you put out a tender that are not going to respect those basic principles.

And it’s remarkable. If you don’t—if you tell them you can’t hire children and you have to have an actual living wage and you have to do all the things that the successful oil and gas countries have done that have developed their economies in a sustainable way, if we take those lessons learned and say—you have the opportunity. You can look at it two ways. You could look at the resource curse countries who failed the resource curse test or the ones that succeeded. And that’s—and that’s what I—I’m sitting here in the UAE.

HELIMA CROFT: Right.

AMOS HOCHSTEIN: This is the example that you can draw from. But I think it’s incumbent upon us to say we’ll help you get there, but you have to want to. And the opportunity really is that while just a few years ago—three, four years ago Western companies were leaving the mining of lithium and copper and so on, and now they all want back in. So require them to live by those standards. And don’t feel like you have to take the one company that’s going to give you perhaps what sounds like a sweetheart deal at the beginning and that doesn’t allow for development of your own economy.

HELIMA CROFT: How much—I mean, China, you could say, has a—had a head start on the United States in sub-Saharan Africa, did not put the same emphasis on governance, labor rights, environmental rights. How do you see—I mean, you’ve brought up the whole issue of China on processing. You’ve talked about the OPEC of one. How do we think about China’s, you know, relationship with these key sources of supply?

AMOS HOCHSTEIN: I’ll say about China and this issue the same exact thing I said in Europe in 2013, 2014, 2015 about Russia and gas. We are not here to say Russia should not supply gas to Europe. It should play in a competitive, diversified market according to basic transparent rules of the game. If we had done that then, we probably would be in a different place today in Europe.

That’s the same message on China. We’re not saying China shouldn’t be part of this market. It should. It could. It is. And they’re not leading the United States; they’re leading the world. This is not an America versus China. It is not. This is about the rest of the world should not want to rely on one supplier. I don’t know a single business that ever wants to rely on one supplier for all its products. So I think this is not about who’s ahead, the United States or China; this is about saying to the Chinese: We want to do—we want what you want, which is to be in the business of accelerating investment into a renewable energy net-zero world. But nobody should end up wanting to dominate that market and to—to the exclusion of everybody else.

We will be in a healthier place if I—if there are multiple locations around the world that build batteries or that do the refining and the processing. Not every country should have a whole ecosystem in that country, but we should have centers that can do this. And to do that, that’s why the G7 took this initiative to pool our resources to do that through the [Partnership for Global Infrastructure and Investment (PGII)]. That’s what I think we’re going to try to mobilize as much as possible. But there has to be a buy in, and the buy in has to be governments that are not necessarily what I’ve just said now would still be like, yeah, we get it, but I have bigger challenges to think about. I actually think this is the clear and present danger, because if you don’t do something in the next twelve, twenty-four months the fate will be sealed for the next twenty years.

HELIMA CROFT: So we really have a very, very small window.

AMOS HOCHSTEIN: It’s a very small window.

HELIMA CROFT: You see the urgency. You said President Biden sees the urgency of this. So if we—when we meet back here at this time next year, how do you think our conversation’s going to look? I hope I get to do the interview, Fred, looking at you.

AMOS HOCHSTEIN: My hope is that the conversation that we have at this event next year, just as we come out of COP28, will be about reviewing the change in the direction of the supply chain. And I think we are going to be. I think we’re going to be in a place where we’re going to be able to discuss transactions that have taken place, both in the mining side and in the processing.

And I think people sometimes think only about the mining side. The mining side is less important. The processing and the assembly and so on are critical. And I think we’re going to be in a place to say we’ve made a dent and we’ve put ourselves in a trajectory—not that we’ve made a meaningful—if you took up our percentages and, you know, 80 percent went down to only 78 [percent]—Amos, we failed—but, rather, what’s the trajectory? What are we FIDing for these facilities? And I think that we’ll be in a much better place next year. That’s my hope and that’s my—I hate saying hope because hope is, like, well, I hope so.

HELIMA CROFT: Yeah. That’s the goal.

AMOS HOCHSTEIN: It’s the goal. That’s what we’re working towards.

HELIMA CROFT: We have one minute left, and you brought something up when I saw you at breakfast this morning I thought was such an important point in terms of talking about this issue of, like, just transition, equity, the sort of what happens with the digital development divide. I just think if you could sort of talk that through for us, because I was so struck by the sort of real issues around what could happen if you don’t close it.

AMOS HOCHSTEIN: So I think the digital—the critical minerals and the digital divide, to me, are two parallels. They are remarkably similar and the same challenge exists in both. If we don’t do something about the—about it on the energy side then we are going really fast on this—on electrification and moving everything so quickly that if we—how do—if all these companies are saying I’m not going to build a car that is an [internal combustion engine (ICE)] car past 2035, and you have large parts of the world that don’t have a sustainable grid for the baseload they have today, how do you end up with—how do you suddenly convert all the cars? You don’t, and all of a sudden you’re isolating countries out of the rest of the world’s economy.

So the divide between developed and developing suddenly widens significantly as a result of our own success. It goes back to what we talked about yesterday about how much money is going into clean energy implementation in developing countries—I think 27 percent today, declining—expected to decline to 22 percent.

The same thing is happening on the digital side. If you’re still in—today, we’re going from 3G to 4G and kind of skipping [4G] and going into 5G while already the research and development on to 6G, which will be [expected to deploy around 2027 to 2028].

But [3G to 4G] is different than [4G to 5G]. So 5G is a sea change of technological change. If we don’t—if we don’t upgrade systems across sub-Saharan Africa and Southeast Asia, South Asia, Central Asia, where we get to 5G quickly, we are going to condemn countries that are still in 3G. It’s no longer, OK, it’s a little bit slower. But, rather, you’re no longer able to connect to what the commercial world would look like and that—suddenly mobile banking and e-commerce becomes extremely difficult if you can’t actually connect into the rest of the world.

So we’re on a path, both on digital connectivity as well as on the critical minerals and investment in renewable energy that if we don’t start spending the dollars more equally it’s not only that it’s not fair to people with—who are born into countries that are lower income but we’re actually going to create a divide that is no longer bridgeable.

And that’s why we’re starting to look at investments and there I can tell you we’ve done some significant investments on 5G through Africell in DFC and Ex-Im Bank have done this, and we’re working with our European counterparts so that, again, we don’t have just one supplier.

So it’s not just one Huawei ZTE but, rather, we have all the—we have a healthy ecosystem that can invest in to upgrade these systems from 3G to 5G and then making sure that those are reliable vendors that provide not only fast connectivity but secure connectivity as well.

HELIMA CROFT: Amos, the time’s up. I want to thank you for another extraordinary conversation. What I always like when we have these conversations is, I mean, you have been incredibly prescient. You’ve told us we’ve got a twelve- to fourteen-month window. I think we should take that incredibly seriously. Your track record on warning about Europe’s dependence on Russian gas—I remember in September of 2020, right, you were the one, basically, I almost felt like, a lone voice out there talking about the need to get as much gas as possible into Europe.

We should have taken you more seriously then. I think—I hope everyone—this sort of twelve- to fourteen-month window I hope we all understand the urgency of the challenge you’ve laid out.

So thank you so much, Amos.

AMOS HOCHSTEIN: Thank you, Helima.

Watch the full event

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Flagship Event Sat, January 14, 2023 • 12:01 am ET

2023 Global Energy Forum

The 2023 Forum will have a special focus on the challenge of managing energy security priorities and decarbonization efforts in tandem, including the continuing impact of the crisis in Ukraine on the energy transition. This two-day conference starts at 9:00 AM in Abu Dhabi and virtually at 12:00 AM ET (midnight).

Africa Americas Energy & Environment Energy Markets & Governance

Event transcript

Uncorrected transcript: Check against delivery

Speakers

Yasmine Fouad
Minister of Environment and Ministerial Coordinator and Climate Envoy for COP27, Arab Republic of Egypt

Mahmoud Mohieldin
Climate Change High-Level Champion for COP27, Egypt; Special Envoy on Financing 2030 Agenda for Sustainable Development, United Nations

Damilola Ogunbiyi
Special Representative of the UN Secretary-General; CEO, Sustainable Energy for All

Moderator

Dan Murphy
Anchor and Correspondent, CNBC

DAN MURPHY: Thank you so much for being here today and thank you to the Atlantic Council for hosting us. Minister, thank you so much for the opening remarks as well. And thank you to the director-general for also setting the scene for our next conversation.

And as we take the stage, I’d like to introduce our panel for our first conversation today. Of course, Dr. Yasmine, minister in Egypt, is joining us. But we also have Mahmoud Mohieldin, the climate change high-level champion for COP27 in Egypt, joining us; and Damilola Ogunbiyi, the CEO of Sustainable Energy for All and also a special representative to the UN secretary-general. So please make our panel feel welcome on this Sunday morning, and thank you again for being here. [Applause.]

Minister, just to begin, I think the best way to summarize the overall sentiment at the conference so far was from Dr. Sultan Al Jaber in his opening remarks at the conference. And he said: The world is still way off when it comes to achieving the goals of the 2015 Paris climate agreement. So, in your view, how can COP in the Emirates address some of those challenges and build on the progress that was made in Egypt?

YASMINE FOUAD: Thank you very much for that question.

First of all, you know that the COPs were designed that one build upon one another, so it’s not in isolation of the multilateralism process.

Secondly, I think that there are three parts that I’ve just mentioned in the opening remarks quickly that would be very sectional.

First of all, that if we don’t want to be far away from the Paris agreement in 2015, we have a good opportunity to seize, which is the Paris rulebook, the Sharm El Sheikh plan of implementation but much more, which is the global goal on adaptation that should be adopted in COP28. And that’s very important to look at because the world is looking at that part very importantly, and there are million and trillions of finance that would go for adaptation just if the target is being set.

Secondly, the global stock-take is also one important part that we can seize in order to put further implementation to the Paris agreement.

Last but not least, the loss and damage, also the fund that was dedicated in COP27 and the governance of that fund, on how can we further look into the implementation and the actual disbursement of that fund.

These are three important issues because they have to work parallel with the mitigation actions, with the NDCs. And looking further on how countries are implementing NDCs because the first reporting will take place in 2024, so we have a very good opportunity in COP28 in November to see how countries will be able to finalize and report back on their updated NDCs. Thank you.

DAN MURPHY: And achieving progress is particularly challenging at the moment because what we’ve seen coming into COP28 and all through COP27 is this chorus of criticism being leveled towards the oil and gas industry, and I want your reaction to this as well. What do you say to those critics who claim that the COP process is basically a bloated expedition of oil and gas executives, photoshoots for politicians, and all being run by special interests and lobbies? How do you react to that?

YASMINE FOUAD: I react simply that they are—oil and gas is part of the problem, like any other industry, and they have to be present in that part in order to present what they can do into that. If we are always saying that the COPs should be inclusive because the crisis affects us all then everyone has to be around the table.

Let me give you a good example aside from the oil and gas. The heavy industries, the cement industry, or the fertilizers industry—why they shouldn’t also be criticized that they are around the table.

In Egypt, there was a day for the decarbonization and that was the first time that we have that day. We know that there were some—and a lot of criticism on why are we including that in the discussion. They should be part of that discussion in order to be faced with the reality that you, as emitter, as part of the pollution, you need to come up and step in and say whether you’re credible, whether you will be able to be committed, and how you’re going to do that and how you’re going to make that transition.

Starting that dialogue in COP27 it was really essential not to exclude but to include and face the fact that what you’re going to do in that part and how you’re going, really, to make a difference if you are going to make a difference and the world will be watching and will be evaluating and assessing that.

DAN MURPHY: And just one more question before I open it up to the panel.

But do you—do you also think that there is a public perception gap here? Because I also get the sense that it’s quite hard for the general public to square the fact that you can have a major fossil fuel producer like the UAE also being a global leader in climate. How do you address that public perception gap and sell this to the general public, who may not understand that those two things can be directly correlated?

YASMINE FOUAD: I think that the only way that you can do that is to present an actual commitment and plans that you would be able to fulfill.

Sustainability is—cannot be divided. Sustainability would mean a one-fledged package that you are looking at the environmental and the economic and add the social aspects. Once that—that’s even away from the climate—once that is being very clear and you’re committed to do that and, yet, also you need to look at how best will you be able to make that transition.

The transition is not only for a country rather than the other. The transition would mean a just transition, that those who need the transition should be availed the time, the technology, and the finance, and those who have the finance should be availed the time and showed the targets and respect those targets on making that kind of the transition because the fact says for sustainability the regular oil and gas and the regular fossil fuel cannot live longer and will not be able to ensure the demands of our future generation.

So the shift to the renewables is a must and, in fact, is not an option.

DAN MURPHY: Mmm hmm. Thank you, Minister.

Mahmoud, I’ll take it over to you now, and through the COP27 process we did see great progress on mitigation, adaption, things like loss and damage and financing, in particular. How do you think the UAE can build on the COP27 agenda and what would you be focusing on here?

MAHMOUD MOHIELDIN: Right. Thank you so much. It’s great to be in Abu Dhabi and it’s great as well to start the year with an event with the Atlantic Council, as I ended last year with an event with the Atlantic Council. It was different. It was an insurance and adaptation. They were focusing more on energy.

But we take that all from a holistic perspective. That’s why I liked the introductory remarks by Francesco and, of course, by Her Excellency, the minister.

So on this issue of process and accumulation over time, and it was from the very beginning when Egypt and the UAE were announced in Glasgow to host COP27 and COP28, it was very much an understanding that the outcomes and the conclusions of COP27 are going to pave the way for a successful COP in the United Arab Emirates.

And I would really—you put them nicely in the order of the Paris agreement. I think Sharm El Sheikh managed to protect the Paris agreement and protect the ambitions of Glasgow, including the 1.5 degrees. It made, really, a breakthrough when it comes to the adaptation agenda with very practical suggestions in partnership with the private sector in areas related to the work and the adaptation from water management to agriculture to coastal areas to food security and other areas of work. And then, the great achievement, and that is really—quoting the secretary-general of the UN—he said that this was a huge political achievement, you know, the loss and damage, because those who are experts—and many of them are in this room—days before reaching the agreement they were really in doubt that this was ever going to happen, but I think the great work conceptions, the great leadership of the Egyptian diplomacy, the great work by Germany, Chile, and everybody on the parties and non-parties alike had realized that we cannot really escape from the loss and damage and dilute it under different notions including adaptation.

What’s common between the three? It’s all of the elephant in the room: it’s finance. Without finance you cannot really have any progress in mitigation. Adaptation will be an interesting academic notion, and loss and damage is all about finance. So how can we deal with that is basically going to be the discussion that we’ll be having here in Abu Dhabi today and during the sustainability week as well.

It’s easy to talk about the one hundred billion [dollars], but we know now it’s a drop in the ocean when it comes to the requirements of finance. It’s no more than 3 percent of the requirements of total finance for when it comes to developing economies and emerging market even if you put advanced economies and China aside. So we need really to have serious money.

How is this money going to be coming from? There are some suggestions here. One, this could be coming out of generosity, and this could be very much a call of optimism in this regard. Others say, well, it could be out of fairness. Those who have been polluting the world for almost two hundred years may realize today it’s about time to contribute. The third aspect could be—which is more relevant—could be about efficiency gains; the mutual benefits of investments in mitigation and adaptation, but in a new way to make adaptation with reward to those who are investing in it, including from the private sector.

And then if you are not really going to be convinced of any of the three arguments, there are the fear factor, and it’s either fear about the planet or fear about your livelihoods; that it’s a very serious argument that if we are not going to get our act together—not just about the impact of global warming and what will happen in 2030, 2050 and beyond, but immediately we see the threats of forced migration. Immediately we see the fear of new phenomena with climate refugees.

And there is an interesting book on this by a good author. It’s called The Nomad Century, with a heat map that we know now that it happened that low-income countries, poorer countries are in warmer areas of the planet. They will be forced to leave their villages and towns, and there will be nothing to stop them unless there is something that we can do today to prevent that from happening. So the loss and damage, the kind of—the prevention act that this definitely will be costly, but the cost of it will be much less than if we wait and wait for the outcomes of doing nothing.

DAN MURPHY: It’s a perfect setup for my question to Damilola, as well, and good morning to you, Damilola, because what we also know is that equity and inclusivity are critical tenets here, too, and of course the concept of a just transition was also principal in the Paris Climate Accords.

So explain to us a bit more about your role and why this concept of a just transition is also critical in this climate conversation.

DAMILOLA OGUNBIYI: Well, good morning to you, and thank you for having me here at the Atlantic Council.

Why the notion of a just transition is so important is because when we’re talking about transitioning, we forget that a lot of people don’t even have sufficient energy. So when we talk about the developing world and my continent, Africa, we’re talking—the just transition to them is getting enough energy to survive, getting enough energy to live a dignified life. We’re starting at a scenario where the, you know, per capita the average African with the installed capacity has barely 404 kilowatt hours in Sub-Saharan Africa. That is kind of twenty times less than the average American.

So the just is really important. For the first time in history, we actually truly have the chance for when people are getting energy, it to be clean, it to be renewable. But you can’t forget the fact that a lot of economies, they want to industrialize. There’s a lot of things people want to do with energy. So we shouldn’t just look at, you know, one side of the world and forget another side. There’s no way in our climate promises where you can—you can go ahead and hit net zero and leave a billion people in energy poverty. It just doesn’t happen that way.

So as we’re talking about the just, as we’re talking about equity, as we’re talking about just the right thing to do, we also have to talk about the reality that this will mean more energy for a certain region in the world, and it means that the developed world had to use less. Energy efficiency is the best fuel source to try and, you know, mitigate. You have to use less to make sure other people have more and they—and they can come up again.

So in our work at Sustainable Energy for All, we really, really focus on that. And we have different partners, and some are here today—Global Energy Alliance for People and Planet—to say what is the best way of making sure people are truly not left behind. And it’s not about, you know—no offense to people in the solar systems space, but it’s not about giving a solar lantern and ticking a box that you’ve electrified somebody. It’s giving enough energy for people to live dignified lives.

DAN MURPHY: Damilola went viral just recently. Was it—was it a Vox documentary that landed on Netflix?

DAMILOLA OGUNBIYI: Yeah.

DAN MURPHY: You were speaking inside this documentary—which is incredible, by the way, and you can find it on the internet and watch it. It’s very, very good. But within the documentary it was revealed that by 2030 climate change is expected to push an additional 132 million people into extreme poverty, and many of them are going to be women, girls, and marginalized communities. So, Damilola, just how serious is that challenge and the issue that policymakers are facing today in addressing it?

DAMILOLA OGUNBIYI: I think sometimes when we are in these forums or we are in countries like this we sometimes forget that the people that we are really trying to help, at least in my role, are people who it’s the difference between life and death. So, for example, a woman cutting down trees, using fuel wood could die prematurely because of this. It does happen. About a million women, you know, already die because they’re using fuel every day—fuel wood, sorry, every day instead of using other, cleaner sources of energy.

For me, it’s quite upsetting because that’s not seen as an emergency. And everything has to be seen as an emergency. Apart from the deforestation it causes, it’s actually affecting human life. Before we talk about all the insurgencies or all the refugees that are actually leaving because of climate, there are key emergencies happening now. And these are solvable problems, right? We always talk about technology breakthroughs, which are so important, but everything we need to provide power to the people who don’t have it—electricity and clean cooking—exists today. What doesn’t exist, which Mahmoud was talking about, is the financing to do it.

And even the political will exists. In my continent, I never thought I would see presidents coming and saying: We want to do the energy transition. Tell us how to do it. So we’re sitting down with them. We’re planning with them. But honestly, we don’t know how it’s going to be financed, which isn’t a good place to be.

So that’s why we’re looking for different, innovative ways of financing. And one is what we’re also presenting at the Abu Dhabi Sustainability Week, which is the African Carbon Market[s] Initiative. How do we massively scale up the use of high-integrity carbon markets that people can buy from Africa as a way to fund the transition, of which energy access and provision of energy is at the heart of it?

DAN MURPHY: Minister, this is an issue that you know all too well in Egypt and across the continent. How did COP27 move the needle on inclusion and equity, if at all?

YASMINE FOUAD: OK. Thank you very much. Egypt was actually very keen since we started the process of preparation to make sure that it is an inclusive COP.

So, first of all, when we—every year we have what’s called the World Youth Forum, and that took place in January and we made different sessions to include the youth. We worked even together with the UAE in the last year Sustainability Week in order to engage a group of the Arab youth working for climate. That was one part.

Another part is that we worked together with the Secretariat to include a number of African NGOs that were not usually part of the UNFCCC process because we wanted to make sure that they were represented.

And our famous story of the green zone. The green zone is a part that usually it’s the responsibility of the hosting government to do it to present its cases and so forth. Our president was very keen that our green zone would be walking distance from the blue zone, that’s number one. Number two, that it does not only include the national—[inaudible]—so it’s not telling the story of Egypt but it included parts where we invited different international organizations such as universities from the academic and international NGOs, and even indigenous people and local communities from around the world, to present their cases if they are not allowed through the regular UNFCCC process. And last but not least, as we designed the blue zone on different thematic days, the same thematic days were taking place in the green zone to ensure that their voices are discussing the same issues that we would like to discuss as part of the presidency program. So all that was efforts that were done over eleven months to ensure that an inclusive COP is meaningful, is implementable, and comes out with tangible results.

DAN MURPHY: Mahmoud, can you add to that as well?

MAHMOUD MOHIELDIN: Right. In terms of the actionable measures and the levels of action that you want all of that to be translated in—how to get finance, investment into the right direction—these are with three levels.

First, I would say the local level. And there have been a great deal of localization of efforts of climate action, not just to raise awareness but there are opportunities. And the final impact will be where people live—in their townships, in their cities, in their urban areas or rural areas. And we had a very good initiative called the Green Smart Projects in which we managed to mobilize the interests of the private sector and all of the businesses, from the microenterprises to the megaprojects, with two notions, green and smart, as the main transformation for the future. And that is basically an area of work that’s going to be a permanent feature of the work, and Egypt with an idea as well through the partnership with the UN that we want to scale that up as well.

At the regional level, I’m happy I see my good friend the director for the Africa region of the—of the champions, Bogolo, here—that we had five regions of the UN, including Africa. And in partnership with GFANZ, with consultancy firms, we have a pipeline of projects because that was always a big question by investors. We have the money. You remember the GFANZ promise of asset-backed entities ready to direct funding, but they say, well, we have the money but we don’t have the pipeline of projects. So we worked hard for, like, five, six months in order to have pipeline of projects, and they are available in compendium on the UNFCCC and on the five regions of the UN And you’ll—you will see good mix of projects. Many of them, as you may expect, could be more on the mitigation front than energy, including renewables. But we saw growing interest with better packaging and incentives in areas related to adaptation as well.

On the work on the regions, I’m happy as well to see debt-reduction mechanism being tested, including investments that are required to link—to be linked to debt reduction and get the investments into nature and into climate. Good examples came from Seychelles, from Belize. A fantastic project as well from Barbados, which is basically having KPIs linked to the NDCs of, in the case of Barbados, that could be really replicated elsewhere. And here we can really see the beauty of partnerships between governments, private sector, and credit enhancers.

Then the big—the big work, which was basically about the global level. Here, of course, we’ll talk about the future of financing the one hundred billion dollars. The COP26 with COP27 have produced this piece about a good costing exercise for what’s required. What we need as a minimum is one trillion dollars from now until the end of 2025. This figure will be no less than $2.4 trillion after 2025 until 2030. And here, the idea of getting more efficient long-term finance with improved terms of funding, I’m arguing for no more than 1 percent to be spent on climate-related activities. Maturities shouldn’t be—no less than ten years, grace period ten years, and maturity for no less than twenty years. And there are some models in different multilateral development banks that already have something similar to that like IDA, like the IMF with the Resilience and Sustainability Trust Fund, and of course the good example of the carbon-credit market.

This is a very big area of work that requires global standards with good capturing of the value, good regulations. And I’m happy that Egypt just a couple of days ago issued the regulations for the carbon-credit market. And again, with the initiative on Africa and capturing the value, we have something similar with GFANZ Africa.

So I see the movements at the three levels—the local, the regional, and the global. But basically, what we need, quoting a prominent economist, Esther Duflo, she says, well, the solutions are not very different from what the minister and my good friend Damilola just mentioned. It’s about finance, technology as you mentioned. But there is something missing, which is leadership. It’s not just the political leadership; leadership in sectors, leadership in the civil society. And we hope through this process and the world that we’ll be seeing in the road to COP28 we can really get this kind of leadership more and more materialized into action, because without that we wouldn’t have got some of the main achievement[s] that we had during the previous COPs.

DAN MURPHY: Just on this issue of financing, clearly a major challenge. And to go back to what Dr. Sultan was saying, in his speech he said, and I quote: “To achieve the Paris goal, global emissions must fall 43 percent by 2030 at a time of continued economic uncertainty, heightened geopolitical tensions, and increasing pressure on energy security, that so-called energy trilemma.” So certainly not an easy backdrop. How do you de-risk this for investors? And how do you incentivize governments to be moving money in the right direction here?

MAHMOUD MOHIELDIN: I was very pleased to see in the conclusion of this survey conducted by the Atlantic Council that there is a great interest in investing in renewables. As we know, roughly speaking between 2021 and 2022 the investments were ranging between [$]365 billion to $400 billion in the renewables. This figure needs to be multiplied. The factors are between six to seven. The good thing is that the reward for such investments are realized.

The issue of risk mitigation is the main issue of concern. And here, the multilateral development banks—the like of the African Development Bank; the World Bank, my former employer—and many others, including for the private sector, can do a great job in this area. But for that to work, I’m worried about a drift in terms of action. That holistic approach that was emphasized by Francesco, by the minister, by Damilola. You cannot really say: Well, we are going to be taking only energy and renewables and leave the rest of the story. In this time of crises—multiple crises—you need to have inclusive growth for jobs to deal with the poverty reduction. Now we are at levels much worse than what we started with the SDGs in 2015. It’s not the expected 130 million added that Damilola mentioned because of problems related to energy. We already had lost almost a decade of work in that front.

So the private-sector work is very much realized in mitigation. What we need, some sort of nudging help and some sort of packaging of the projects, especially in the frontier markets.

When it comes to adaptation, here I would really argue that the very able and competent ministers from developing economies should ask for more funding for adaptation and give the way to the private sector and don’t crowd out the private sector because the private sector need just to be leveraged in that front. And then we’ll see in the coming weeks through the replenishment of the Green Climate Fund, through the work of the loss and damage fund how the good ideas floating around the importance of finance and technology are going to be materialized in the world. That would be a great test by the time we are here again in the UAE in November to discuss these issues.

DAN MURPHY: And Damilola, I think to tie all of this together, the ultimate question that we’re trying to answer here is: How is this move away from fossil fuels ultimately going to impact socioeconomic development? And how do we ensure that that move away doesn’t cause a backsliding in socioeconomic development? Your view?

DAMILOLA OGUNBIYI: I mean, it’s important to understand the energy needs and what the energy is used for. That is very fundamental. So just from my engineering background, it’s really important to understand how energy systems work—what it means for baseload, what types of energy you need—and then to understand how people want to develop. There’s no scenario where you can actually achieve without having energy development and climate together.

And that’s what we’ve been trying to do in saying that, you know, when you’re telling countries—because this is a whole shift of an economic change in countries. You have to go and say: What exactly is your energy-transition pathway?

So if we take my country, Nigeria, Nigeria made it very clear we needed to uplift one hundred million people out of poverty and we needed to uplift our industrial base. And if you can do it clean, that’s your problem but figure it out.

So we need to take in consideration what the country wants. What we do a lot of time is take these regional approaches to a very localized problem. There’s a vast difference from the energy transition plan in Nigeria to our neighbors in Ghana, to Kenya. You know, but you say, oh, Africa as a whole. Africa is full of different countries and different nuances. Even in my country what happens in northern Nigeria is different from what happens in southern Nigeria.

So you have to understand that. That’s the just and the energy part of it. And you also understand this takes a long time. The Nigerian president at COP26 announced they will get to net zero at 2060, not 2050, because when you looked at the transport sector, the industrial sector, the oil and gas sector, it was—it just wasn’t possible. So being realistic about what a country has to do is important.

And, lastly, I have to touch on the finance again because for a country like Nigeria to get to net zero with perfect policies, perfect political stability, between now and 2060 will cost in the region of $1.9 trillion.

So we need to really be realistic when we talk about the numbers of what you’re asking countries that are easily spending 80 percent of their revenue on debt servicing—on interest-only debt servicing—how exactly they’re going to do it.

So I don’t know the solutions but I’m excited to find how we’re going to crack this. But this financing issue is really at the heart of the entire energy transition.

DAN MURPHY: We have about ten minutes left on stage here. But if anyone has a question for the minister or our other panelists, please raise your hand and we can get a microphone over to you.

It’s also your opportunity to ask some questions as well. So, by all means, if you do have a question, please raise your hand.

But to continue the conversation, I think we can also look at this other issue of just energy access as well. Eight hundred million people around the world still don’t have access to energy. As I understand it, the global population will probably reach around 9.7 billion, ten billion, people by 2050. We’re going to need 30 percent more energy than what we currently have today.

So what would be your view, Damilola first, on the biggest transition risk right now? What do you see it as?

DAMILOLA OGUNBIYI: I mean, like I said, it’s eight hundred million without access but it’s actually one billion people in energy poverty, because because you have electricity doesn’t mean you have it constantly, and what those figures don’t talk about is the 2.4 billion people that don’t have access to clean cooking as well. So when we talk about energy we have to talk about both.

I mean, the greatest risk is leaving those people behind. It’s continuing with growing demands of energy elsewhere and leaving those people behind, and that’s why energy efficiency is just so important.

And we’ve seen it around Europe. When people got high energy bills they started using less, and that’s the thinking. You know, in developing countries there’s hardly any waste because people don’t have enough to use in the first place.

So we really need to come together and look at what is the social return on investment. By giving power to these people affects GDP, affects jobs. It creates whole industries if we do focus as well with our effort for places that don’t have it.

It’s also important because if those people get electricity the way the rest of the world has, using very dirty fuels, we’re going to go back in about two decades again saying we want to transition again, and we don’t have to do that.

DAN MURPHY: Mahmoud, can you speak to that?

MAHMOUD MOHIELDIN: If I can build on that. There are two things, one at the global level. If we’re not going to be dealing with the problem that is very much upon us, it is going to derail all efforts related to finance and investment because what we see on the recession, fears of stagflation, low growth in developing economies and advanced economies, investments prospects in ’23 and ’24 are, on average, less than where they were in 2020 by 5 percent to 8 percent.

So, here, we need to see what kind of investment effort that we need to push in order to deal with the problems related to climate action as it is part of sustainable development, not an isolated one.

The second thing, that we have more than 60 percent of developing economies and emerging markets are in some form of debt distress. If you are a developing economy you are either at a debt challenge or a debt crisis or a debt catastrophe, and that cannot really be left for time to be solved. And there could be some relaxed folks around there because they say, well, advanced economies and their financial systems are protected. It’s not the global financial crisis.

Now, but that may have triggering effect as part of the supply chain and if we are going to be seeing these scattered fires that will catch the rest of the economy. So we need to have through G7, G20, it is good that both Egypt and India and the United Arab Emirates are invited as guests for the G20. So, hopefully, the issues related to priorities for climate action are going to be reflected in the discussion in India.

And then at the project level what made the news in Glasgow, what made the news when it comes to projects in Sharm El Sheikh, are the projects related to what’s called JET P projects—just energy transition initiatives—and South Africa was first. Then we heard about Indonesia. Then another project in Vietnam. And all of these projects are ranging between eight billion dollars to more than fifteen billion dollars.

What we need to see is some serious actions in these country platforms that are going to be transformational. The way that they are designed are fantastic—phasing out from fossil, investing in renewables, dealing with the impact on community. This is really nice when it comes to design.

What is missing so far is, basically, the kind of action that we need to see not just in these three countries but in the rest of the countries, including in Africa, Latin America, and Asia.

DAN MURPHY: Minister, would you like to add to that as well and, perhaps, offer a view on what you see is the biggest transition risk from here?

YASMINE FOUAD: Thank you.

I think the transition risk is that not only as Dr. Mahmoud has mentioned on the part related to the finance or the projects but also one important part on the transition risk is very much related to the culture and the mindset.

Even when you started earlier discussing the public perception, the just transition—as we need to invest in technology, we need to invest in finance, and we need to invest on plans and time and give countries that part. We need to invest in changing the mindset of the public of how can that be done.

For example, Egypt, as a country, has been facing for quite a long time the waste—the municipal solid waste—and every time we started engaging in that discussion we fail on that part on different fronts—on tackling the informal sector, on putting the laws in place, in including the private sector, in even collecting and doing more infrastructure work.

Part of the change that we have been trying to do is investing in the way people looking at the garbage and how that can be dealt with. The first part that we have done beside the law is the way we have been addressing the young people and school children in order to change the mindset and how can that be done.

Two things that we have been trying to do, first, working on what kind of green jobs could be done within the waste sector, what are they offering, and how can that be included. Secondly, working with the youth and the young children. Even we have in Egypt a very famous group of young people who clean up the Nile and they are called the VeryNile, and the moment we went down with them everyone—by the way, and that’s part of the public perception—was getting ironic and sarcastic, saying, why are you cleaning the Nile when your streets are still full of garbage. But that is taking a lot of courage and being bold to do that kind of work.

So one thing that I would recommend for a just transition is to invest in the human resources, changing the mindset and the culture, and doing that kind of and alternative jobs that could be provided and how could those jobs come at the very local level, and here I talk about the rural areas.

For an example, part of what we’ve been facing is the burning of the rice straw that comes up with the methane and with the increase in greenhouse gases and air pollution, and all Cairo would be a black cloud over two and a half month[s].

Part of what we’ve been providing is a job opportunity of the recycle of the rice straw, getting compost, getting fertilizer, but including also the women in the rural area for providing clean energy.

So that’s, I think, is very important and key because finance and technology will not solve if we keep the same mindset within the same reach.

DAN MURPHY: It’s a very good point and very important to add. Thank you, Minister.

And we have a few minutes left. Does anyone in the room have a question for the minister or any of our other panelists? I thought I’d open the floor, give you the opportunity to have your say.

All right. I think we’re OK. Oh, in the front. Sir? We’ll try and get a microphone over to you if we can.

[Pause.]

Thank you.

Q: Thank you. I would like to ask Dr. Mahmoud, how does he see the energy transition contributing to economic diversification in the MENA Region?

MAHMOUD MOHIELDIN: Well, this is a very good question that has been raised before the time of COVID and before the war in the Ukraine. And there was a very important piece that came out from the IMF about where the demand for fossil fuel in the GCC will be reaching its peak. There was some similar work as well that was conducted for Norway. And here the discussions were basically about the peak will be some year like 2027 or 2029, based on different models. And then we got this piece by Daniel Yergin on The New Map. And then, of course, the idea there is not a factor of time; it’s a factor of technology.

We are where we are today in energy and diversification of the sources of energy because the huge investments in invention in countries like the US and Europe, and development—research and development at scale in China. That’s why you see some projects, including here in Masdar, in Egypt in Benban, in Ouarzazate in Morocco with a fraction of their cost only nine or ten years ago.

But diversification here is not just about diversifying the sources of energy, but being in Abu Dhabi I’d just like to emphasize this point, that this country have been prepared for that. When Masdar was established in 2006, I listened carefully to His Excellency Sheikh Mohamed bin Zayed when he said that the day that the UAE will be exporting the last barrel of oil will be a day of celebration because we are going to be prepared for it. We are going to be with diversified sources of energy and diversified economy that’s not going to be mourning the day that we lost this source of energy. So it’s good to have this kind of mid-term, long-term planning.

The first part of the investments that are required for the GCC countries have been all those—the investments in skills. When the discussions, especially with the—we have talks about the fourth industrial revolution, about the investments in the fourth industrial revolution-related kind of investments, skilling up the population, and how to do the digitalization better, this was a source of interest here.

And then investments in areas related to the services sector and manufacturing that could be with high value-added component. There are many good examples that we can get from countries especially, from Latin America that were very much dependent on commodities and they were hit by the ups and downs of the cycles.

So it’s all, I think, there is a great deal of learning by doing in this region, and we have seen the prices of oil in the one hundreds-plus, and we saw the in the negatives during the—in the futures market in COVID, so I think it’s basically about how to diversify better. I’m not worried about the areas related to investments in fiscal and on the finance, but more are needed definitely on matters related to the skills and the human—the human capital.

But I would borrow from my good friend, Damilola, here—is basically when you talk about the region at large, there could be these kind of generic kind of suggestions. But what could be good for Bahrain may not be necessarily good for the UAE or Qatar or Saudi Arabia. So some sort of granularity on the design as we see it. In the vision for 2030, for instance, in the UAE and Saudi Arabia, the first and last line in those reports were basically starting with diversification and the last point was basically gaining the momentum from the diversification investments.

So it’s in the mind of the policymakers, and we’ll see some sort of a good pace in that direction. But that needs to be done in a faster pace and not to be misled by sudden prices in fossil fuel because we know that they don’t last forever.

DAN MURPHY: Excellent question. Does anyone else in the room—over here, sir. We’ll try and get a microphone to you. There it is over there.

Q: Hi, good morning. Thank you very much.

I’d like to ask a question to Damilola with reference to the point you astutely made that it’s very easy to talk about the urgency of things like the refugee crisis, but there is an urgency obviously that’s preexisting and is, as indicated by you, to do with how many people are living currently, whether or not they are moving across into different countries.

What would you like to see—what would you think would be an impactful way to approach this year’s COP in order to land that understanding so that action could be more effective?

DAMILOLA OGUNBIYI: Thank you. I think I’ve mentioned it a few times. It’s all about money right now. You know, there has to be a concerted effort on funding the transition in developing countries knowing that energy access is at the heart of that transition and, you know, developing industry and jobs. People don’t like to live where they are—leave where they are because they just want to. They leave because they don’t feel that they can get, you know, what they need from their locality.

And we see that, you know, the climate issue has caused lots of conflicts—of course, lakes drying up. There’s a lot of things happening, you know, on continent in developing countries that can be avoided if there was just this effort. And this effort isn’t just going to come from the private sector. It’s hard for the private sector sometimes to even fund emerging economies, not to talk about developing countries. So sometimes a public-private partnership is an understanding that you do have to fund government. And developed countries that have caused a lot of these problems do have to put money on the table because there is a social return on investment which will keep people hopefully in their localities and bring the economic growth that we want for everybody.

DAN MURPHY: Fantastic. Is there—perhaps time for one more question. Yes, sir, in the front here.

Q: Just in relation to finance, should we not be talking about the value created—so, you know, that’s a huge opportunity—rather than how much it’s going to cost.

The other aspect is—to put it to the panel—you know, we also might need to make the link between energy and health care because, from an air pollution, that’s a huge cost. And also our health system—you know, we’ve seen from COVID huge pressure. So there’s a huge opportunity to make a link between global energy and health care. So I put that to the panel. How do we deal with that?

YASMINE FOUAD: Thank you. Let me touch base on that because one part that we have been doing in COP27, two parallel global initiatives: one that was talking about the nutritions—and the nutrition and what kind of food that you need to change in the practices of the sustainable food, and what kind of emissions that are related to that; and another part on the gender as we are very much—not only interested, but believing also on the parts related to the woman is the energy, water, and food nexus. One part related to that is the more you are using your energy in making that just transition, even at the local level and at the level of the small and medium household, and using that renewable energy for irrigation and for food systems, that would make a very good package. It’s a package that will be at the heart of the human development process, but it’s a package that would strengthen the resilience of the woman, provide the food you are using the renewable energy, you are making access to water, you are working on the nutrition and the food practices. The whole package that I’m talking about is making us more resilient to the diseases. We’re making us more strength and more power. And we are making the kind of a shift in the energy transition and using it properly in a circular way.

MAHMOUD MOHIELDIN: If I can, in just a couple of seconds, the issues related to health, the impact on nature are not adequately factored in the decision making. So you—[inaudible]—the cost, but when we do the counting of—the accounting for the returns, we do only the accounting for the financial returns of the projects. If we are putting into consideration the cost to the health system, as you mentioned, to the nature at large, and many—very few even OCD countries are doing that in their natural accounting. That needs to change. The regulatory structure and the incentives need to be changed. And that would be the way in order to provide the proper incentives in addition to the nexus up road the minister mentioned, but there is an issue related to regulations.

And one very final thing: the issues about—I don’t like to leave it in a worrying part, but the issues related to forced migrants because of climate, issues related to refugees are not an issues of far distant kind of a problem. These are imminent problems. If we check what happened in this region in Yemen and Syria before the developments that we all know in 2011, it had something to do with the climate. And I refer you to the Ian Bremmer book on the—on the crises. And while I wouldn’t—[inaudible]—to the estimates of 1.2 billion refugees in 2050 by Zurich and others, but basically look now and how many millions in Pakistan, for instance, are displaced within their country, and how many of them are looking for opportunities outside Pakistan because of what they are in today.

So it’s basically we have the solutions, finance, technology. What is missing? Leadership. And basically, hopefully, through COP28 we can get some better solutions into that action.

DAMILOLA OGUNBIYI: So just very quickly, totally agree on health care. We actually launched a Powering Healthcare guide yesterday with IRENA, which is looking at how to provide power to ten thousand health facilities across the African and part of Asia as well. These are easy, deployable, renewable solutions that can be used to actually treat people, because it is estimated about a billion-point-two people, I believe, go to health-care centers and have no access to electricity, so they have no access to health care. Thanks.

DAN MURPHY: Well, this has been a fantastic conversation. I want you to thank my panelists.

MAHMOUD MOHIELDIN: Oh, thank you.

DAMILOLA OGUNBIYI: Thank you.

DAN MURPHY: Minister, Mahmoud, and Damilola, thank you so much.

MAHMOUD MOHIELDIN: Yeah. Thank you.

DAN MURPHY: Appreciate it.

MAHMOUD MOHIELDIN: Thank you. [Applause.]

DAN MURPHY: Thank you for listening. Enjoy the rest of your Sunday. And thanks again to the Atlantic Council.

Joining us up onstage next is going to be the Atlantic Council CEO, Fred Kempe, alongside John Kerry, Elizabeth Yee, and Andrew Steer. Please make them feel welcome. Ladies and gentlemen, thanks again and good morning. [Applause.]

The post The lessons of COP27 and how they can apply to COP28 appeared first on Atlantic Council.

Flagship Event Sat, January 14, 2023 • 12:01 am ET

2023 Global Energy Forum

The 2023 Forum will have a special focus on the challenge of managing energy security priorities and decarbonization efforts in tandem, including the continuing impact of the crisis in Ukraine on the energy transition. This two-day conference starts at 9:00 AM in Abu Dhabi and virtually at 12:00 AM ET (midnight).

Africa Americas Energy & Environment Energy Markets & Governance

Event transcript

Uncorrected transcript: Check against delivery

Speakers

John Kerry
Special Presidential Envoy for Climate, US Department of State

Andrew Steer
President and CEO, Bezos Earth Fund

Elizabeth Yee
Executive Vice President of Programs, The Rockefeller Foundation

Moderator

Frederick Kempe
President and CEO, Atlantic Council

FREDERICK KEMPE: So during the UN climate conference in Egypt this past November, COP27, your three organizations—so the US government, Rockefeller Foundation, Bezos Earth Fund—announced the establishment of a new tool in the global effort to keep [the] 1.5 [degree limit] alive, the Energy Transition Accelerator. Now, there’s no doubt about the scale of the challenge to limit global warming to 1.5 degrees. There’s no doubt that that challenge is immense. And as we’ve witnessed the effects of climate change permeating, a constant drumbeat of other challenges elbows out this with—when world leaders have to give more attention to the coronavirus pandemic, Putin’s criminal war in Ukraine, you know, recession, inflation.

Inaction, however, is not an option. That’s what makes the launch of the Energy Transition Accelerator at COP27 so exciting. That’s the reason we wanted to have a panel dedicated to that here at our seventh Atlantic Council Global Energy Forum. This new policy platform—which was announced as a collaboration among the US government, Rockefeller Foundation, and Bezos Earth Fund—aims to overcome one of the largest, if not THE largest, inhibitors to meeting global net-zero targets, and that’s access to finance and particularly in emerging markets.

So at the Atlantic Council, we pride ourselves on having tough, but necessary conversations—you heard that yesterday, as well—which enable us to resolve the globe’s most fundamental challenges. And the question of how to unlock that funding certainly ranks among them. So for that reason, I hope our conversation today with these distinguished individuals will illuminate a path forward and provide us with their vision for removing the barriers.

So I’ve known Secretary Kerry as Senator Kerry, now Special Envoy Kerry, but you’ll be Secretary Kerry because I—this will—this is the title that I like to connect with you most. You’ve been such a leader in all three of those realms. Everything you touch you take enormously seriously, and that’s the kickoff for this question.

When you and your partners introduced the idea of the Energy Transition Accelerator at COP27—and it might even be interesting to know how it came about—you said your aim was to put the carbon market to work to deploy capital to speed the transition from dirty to clean power. So how did this come about? Why do you feel—why did you feel that such an initiative like this one is so vital? And then maybe you can put it a little bit into the context of the COP28 we have coming at us. You heard Dr. Sultan tomorrow morning—yesterday morning. By the way, thank you for being there, Mr. Secretary. So let me turn to you to kick off this discussion.

JOHN KERRY: Well, Fred, thank you very, very much. And thanks for the Atlantic Council’s leadership and your leadership personally for a long period of time. You and I have known each other for many, many years now. And I’m delighted to be here with Elizabeth and with Andrew, and I thank them—both of them and Raj Shah in absentia—for the Rockefeller Foundation and Bezos Earth Fund daring and willingness to push the curve here, which is what we need to do.

You’re all leaders of either a business or a nongovernmental organization or some interest in this issue, and in that capacity there isn’t one of you who doesn’t have the skillset of standing back and looking at a problem when you see it and say, OK, how are we going to solve this. We are—we are here because we are problem-solvers and people who want to get things done. And I am particularly disposed to avoid situations where you’re just spinning wheels and pretending, and there’s an awful lot of pretense around this particular issue in many quarters.

We have to be more than deadly serious. I think all of you know that. This is life and death. It is existential. We have folks around the world, some of whom think they can be indifferent to it. But we’re seeing the consequences of that indifference. And if you’re content in your business or otherwise to spend literally billions of dollars, hundreds of billions of dollars to clean up after storms or to, you know, build a dike after the flood has come or whatever it is, you’re on the wrong side of this issue if that’s where you are.

You know, we have a lot of challenges around the world right now. The world is surprisingly discordant and at odds with itself in too many places, and that’s a tragedy. But it’s human-induced and it is human-solvable, and what we need to do is be more focused on the ways in which we’re going to address these kinds of issues, and none more so than on the climate crisis.

So this really came about because of reality. I was traveling last year around the world and having many, many different meetings to try to gin up ambition, which we did, by the way. We succeeded in ginning up ambition significantly in Glasgow, building on what we did in Paris, and we are now—and we have built up some ambition out of Sharm El Sheikh and now we need to meet the reality that this is the year of a stock take in which everybody’s going to be looked at pretty carefully and it is the year also during which we have coming at us the question of loss and damage and how do you begin to manage that more effectively, and so there’s a lot at stake.

So what I found in my travels everywhere, [universally], around the planet, is not enough money is being put on the table to solve this problem. We’re either not trying to do it or we’re trying to do it on the cheap, and the result is that we’re not doing it. We’ve never had the full measure of the one hundred billion [dollars] that was promised in Paris and I—you know, I’m sorry that our political process is such that that hasn’t been possible.

But we’ve put a lot of money on the table. We put $94 billion last year out of the Pittsburgh energy meeting—$94 billion mobilized within three weeks put on the table as real money to go to less developed country initiatives. We don’t get credit for that, no credit in our system which says you’ve got to put a hundred billion [dollars]. So we have 94 billion [dollars] but it doesn’t count towards a hundred [billion dollars.]

So what I’m trying to say is, folks, the system is broken in terms of how we’re trying to fix this and we need to respond more effectively. When I met with Macky Sall, the president of Senegal, or I met with Tshishekedi, the president of DRC, and I met with President Buhari in Nigeria, to a person they said, you know, we’d love to be able to not have to exploit our gas. We understand the challenge. But I’ve got people who don’t have electricity. I need to be able to grow my economy. I need to be able to have my country share in what the rest of the world has and to build out community and to build out capacity. And that was to a person, and they would say, you know, can you help us with the build-out of our renewable energy structure or new grid or whatever it is.

The answer is no, we can’t, because we don’t have the money. Very few people—no government in the world has enough money to deal with what everybody is telling us we must do in order to deal with this crisis. What is that?

Well, the UN finance report, the other individual finance reports, all say that to have this transition effected adequately to meet the challenge of keeping 1.5 degrees as the limit of warming on the planet we’re going to have to invest a minimum of about four trillion dollars a year for the next thirty years in order to build out the grids, deploy the renewables, transition from gas turbine, whatever it is, and be virtuous in the way we are providing power to our businesses and homes, in the way that we are propelling our vehicles, et cetera.

Energy. Energy is the single, you know, summary of how you cure this problem. Why? What is the problem? The problem is emissions—methane emissions, [carbon dioxide] emissions, the other greenhouse gas emissions. Emissions. Emissions is pollution, and for some reason we’ve kind of turned our backs on the responsibility that we fought for in the 1970s and 1960s to hold people accountable for pollution.

So the science is clear on this. There’s no debate. I don’t care where you come from in the political spectrum. There is no debate that emissions that come from the way we power our societies and propel our societies, those emissions are damaging and we do not cure this problem if we do not meet what the scientists have said, which is reduce the emissions at a rate that allows us to minimize the damage.

And the science said that—in 2018, the scientists said to us not that we could eliminate the crisis but that by moving to hold 1.5 degrees we can avoid the worst consequences of the crisis. Read it carefully. The worst consequences, not the crisis completely.

So how do we do that? Well, if we don’t have money, we’re not willing to invest, we don’t do it. It’s that simple.

So the money part we’ve been working on with Rockefeller and Bezos Fund to figure out how could we de-risk the deals that are out there to provide energy, to deploy renewables, to do this transition. But how do we de-risk it and create bankable deals? Because the trillions that are in the background waiting to be invested by the largest financial institutions—in fact, all financial institutions in the world—would love to be able to invest. But there are hurdles—political hurdles, currency hurdles, various natural disaster hurdles, and risks. We have to eliminate those.

So what we did was sit there and say, OK, how are we going to get the cash to be able to grease the skids to make the bankable deal come together so we can get a [[power purchase agreement (PPA)]. That’s a twenty-five-, thirty-year PPA, and you can actually go to the market and finance what you’re trying to do. That’s the key.

And what I landed on with the encouragement of a number of people, one of them, many of you know, is Anne Finucane, who wrote about this two or three years ago, talking about how there is a distinction between some of the exploited credits or offsets that have existed versus virtuous ones.

And what we’ve done is sit down and put together a set of guiding principles, which we’re releasing today, and we’re pulling together a group of people, some of which are announced today but it’s not a complete list—there are more people that are going to be added to that—to have a broad cross-section of input so that we are putting together, according to our principles, a mechanism that can attract some cash that will be used for limited purposes, and I will come to that in a moment.

But what this is trying to do is make sure that we do this in the near term, we do it in an inclusive way, which is, you know, high—that we’re delivering on the broader sustainable development goals, that we’re including people who are affected, sometimes left behind in this process, that we’re protecting their interests, that it’s comprehensive, that we are supporting ambitious power sector-wide transition, that it has high integrity.

Some offsets and some credits were not high integrity and they’ve given a bad name to the idea that there might be a way in which you can attract some capital and still reduce emissions and avoid the worst of, you know, some avaricious practices out there.

And we also want this to be supplemental. This is not in place of any obligation to put public money or fulfill the commitments that we have asked for, and it is to be transitional, meaning it’s not forever. It’s not a fifteen-, twenty-year bonanza that somebody’s going to say, well, I can buy a credit and then I don’t have to do X, Y, and Z. No. Sorry, that’s not the way it is.

Everybody is going to be responsible for living up to net zero and meeting the measurements. But we believe you can have high integrity, accountable transparent credit, which will help us to be able to put some money on the table and the money is used in the following way.

When we put together the deal with Indonesia, which we negotiated for a year and a half or so, we had to figure out how do we close some coal plants, how do we now accelerate the transition to the renewables that we want deployed, and how do we do this in a way that’s transparent and virtuous and so forth.

Well, we found that way and we made an agreement with X amount of renewables that are going to be deployed with the pace of closing of coal and transitioning, and not just closing excess capacity but really getting at the problem of emissions.

And that’s our goal here, folks, and I’m convinced for the following reason. It is accountable to the naked eye. There are only two purposes for which we will allow someone to be able to buy a credit: one, to be closing down or transitioning existing fossil fuel facility that is providing power, and two, for the actual deployment of renewables that will replace current dirty sourcing.

That’s it. So you can see it built. You can see it coming online. You can measure what is happening here. And if you do this correctly, which we are determined to do, we can get a certain amount of cash now because some companies have tried hard—not enough yet—to begin to implement their programs for net zero by 2050, correct? And so you may have a company—a large tech company or somebody—that has gotten to 80 percent of their scope-one reductions, but then they get stuck. Why are they stuck? Not their fault; they’re stuck because there aren’t enough electric vehicles to be able to buy to get your fleet to be electric so you’re reducing emissions and living up to your goal, or because they’re—you know, there isn’t a grid, you don’t have a smart grid and you can’t tap into the smart grid, therefore you don’t have a physical way of using your power the way that meets the standard.

So we have to be smart. We can’t sit there and say, well, tough, you know we’re going to hold you accountable anyway. Nobody is living by a law to reduce—to hit 2050 net zero. There’s no law. People are doing it because they’re exercising a sense of public responsibility. And if we turn around and say to them we’re not going to listen to your problem or we’re not going to try to address your problem or we’re not going to give you an opportunity to be able to get where you’re trying to go, they’re going to say: Well, the hell with you. Why the hell do I try to do this? It’s easier for me to avoid the crisis of an NGO criticizing me because they say what I’m doing is violative of green principles when I’m trying to be a good citizen. I might as well opt out, and I don’t get my board of directors all wound up in what’s going on.

So, long story short here, folks—sorry about this—but we need to find a virtuous way of getting money into the system so that we can transition faster. That is exactly what this is for. And if we can get—and here’s why. In Egypt, we cut a deal with the Egyptians called—it’s the NWFE program, where they are going to shut down five gigawatts of gas-provided power, transition that gas to Europe to help them in the context of Ukraine and the problem they have, but they’re going to shut down eleven gas turbines that are polluting and deploy ten gigawatts of renewables. Wow, fifteen net transition of power and emissions. And the way we made it happen was we put up money. We did find some concessionary funding. Very hard. It was very hard, but we got about 500 million total in the end. We put thirty-five million in cash, some lending. The EBRD put in some money from a trust fund. We got money from Germany. Germany really stepped up—thank you, Germany—and put major funding on the line in terms of a very concessional loan. And so, in the end, that money facilitated the de-risking and allowed us to be able to get the deal, which is a ten-billion-dollar expenditure to be able to deploy new energy.

Now, we can’t take a year and a half to do this one by one by one. So what we want is to create a means by which we’re attracting capital to the table which will be concessionary. They’re buying the credit. They get a certain period of time where that credit is going to help them meet their goal, but it helps us meet our goal. It actually results in a reduction of emissions. And I don’t see how anybody can be critical of real reductions in emissions because that is our challenge right now. That’s how we win this battle.

So as I say, it’s temporary. We don’t know yet this consultative group which is going to be coming together, and some were announced today. More will be announced in the next days. But it’s going to be broad-based, jurisdictional, and help us to be able to put this together in a way that has true environmental integrity but works. So SBTi, VCMI, these different players will be at the table, but so will business. So will other people who need to make it work.

So thank you. I know I went on a little long, but I—

FREDERICK KEMPE: Mr. Secretary, I’m just so glad this audience got to hear that. Ladies and gentlemen, excellencies, you just heard one of the most powerful advocates and executors for creating a better world. So thank you so much for that opening statement laying out this really, really exciting plan.

Let me—and you know, four-trillion-dollar need next thirty years. Question of how to de-risk, how to create bankable deals. You laid out some of the guiding principles. We’re going to be looking forward to seeing the rest and the people who are engaged.

Let me turn to Liz. So, as all things, these things become acronyms, so it’s already become ETA, so the Energy Transition Accelerator. How can it be designed to promote a just transition from fossil fuels to clean energy? And so that’s, ultimately, the goal. And then so that fossil fuel workers and vulnerable communities are protected.

Also, just listening to Secretary Kerry, you know, Sharm El Sheikh wasn’t that long ago. You know, it seems like you’ve made quite a bit of progress. Can you talk about the progress you’ve made since then and the progress you want to make, like, going up to COP28 as well? Yeah.

JOHN KERRY: Liz, why don’t you talk about it a bit and then I’ll add.

FREDERICK KEMPE: Yeah. Yeah. Yeah.

ELIZABETH YEE: So I think, you know, what—and thank you for those inspiring and good, excellent framing comments. I mean, I think from a foundation perspective we draw a lot of inspiration and leadership from your vision, and are very, very supportive of it because—you know, I mentioned this yesterday in my remarks—I think for the foundation one of the things that we care so much about is making sure that we put humanity at the center of all of our efforts. That is the core business that we are in. And this, to me, when we were looking at this opportunity with you, enabled us to do that because it enabled us to solve the challenge that we saw around project development, a critical need on decommissioning and reducing emissions, as well as putting people at the center of what we need to do.

And as we work on this together, I think we really want to make sure that the ETA does three things. And I just wanted to share that.

So, first, the first order of work is really around how we actually do these country-driven energy-transition strategies and making sure that we do it in a very high-integrity, jurisdictional way. And I mentioned those critical words because I think that is also a key differentiator in what other frameworks have been out there. And so, for us, what we’re trying to do is just make sure that we design a really good high-integrity process and make sure that we actually put the guardrails in place to make sure that workers, in particular, are front and center in the design of it.

And we can do a lot by looking at existing projects and programs that have done this. You know, one of the things that I know we’ve been working on with the Global Energy Alliance for People and Planet, which includes Andrew and the IKEA Foundation—and Joseph is here, as well, today—is working on the Komati power plant in South Africa. And one of the things that GEAPP and the foundations and we have done is work with them—the local electric utility, the local university there—to provide training and upscaling of existing workers that are at that plant, but also communities so that we’re building capacity around new green jobs for those communities. And that is a critical part. I think Her Excellency and Damilola and several people on the prior panel mentioned that, and that is a key part of the energy transition and it will be a key part of the ETA.

I’d say second is just making sure that we allocate a certain percentage of the carbon credit towards adaptation purposes. Not enough money goes to adaptation. That is a critical area that we know needs to happen. And we’ve seen that as an effective mechanism in other similar programs.

And then the last—and to your point, Secretary Kerry—is that we have a process that’s transparent and, most importantly, inclusive. And so that is why I think—and if you’d like to speak about it more, perhaps we can talk about the high-level group that we’ve pulled together to make sure that we’re getting a cross-section of people from around the planet—the best minds private sector, government, public sector—to help us develop and design this in a way that has the integrity that we are seeking to be able to deliver.

FREDERICK KEMPE: So let me come back to you in a minute, Secretary Kerry, on that question of how much has been achieved and what should be achieved. Let me go to Andrew first for the point of view from the Earth Fund—the Bezos Earth Fund.

You know, this is an interesting three groups to come together. So why did you decide to join this initiative? Why do you see it as vital? And how do you actually make sure that the ETA delivers the high-quality emission reductions, and that they contribute rather than distract companies from genuine climate action if that’s a danger at all?

ANDREW STEER: Well, look, first, Fred, thank you so much for this event. I think the Atlantic Council’s Global Energy Forum each year has become a really central driving, agenda-setting place to come. So thank you very much.

Why did we join? Well, when Secretary Kerry gives you a call and says, for heaven’s sake let’s get on with it, you don’t say, well, let me think about it. You say, absolutely we are going to jump right in.

We’ve all seen the—and thank you for your inspiring words, Secretary Kerry. I can be brief because I think you’ve said it so much better than we would.

We’ve all seen the numbers: 4.2 trillion per year has to be spent on the future of energy, so to speak. That’s a tripling of what we need. We’re incredibly excited when we see coal-powered electricity-generating plants closing, aren’t we, because that’s going to be necessary. We need to see 925 closing every single year. So when you hear, oh, here’s one, yeah, now you’ve got another 924 to do each year between now and 2030.

Now, some people would say: Well, why do you need—why do you need carbon credits? I mean, isn’t it attractive already to invest in renewable energy? Well, yes, it is. Plain fact of the matter is it’s not happening at anywhere near the pace that’s required. And if you’re a country that’s really willing to show leadership—as South Africa has, Indonesia has, Vietnam is, various other ones—you actually need some help. And Secretary Kerry and other political leaders have played an amazing role with the leaders of these countries actually taking bold measures. Now we need to, if you like, empower those bold measures. And so you do need carbon markets.

Now, why [are] carbon credit markets not working at the moment for energy? Because there’s something puzzling going on because there’s been far more work done on the nature side of carbon markets with regard to developing/emerging countries than energy. And actually, energy is more intuitive, isn’t it, because actually doing forest protection and restoration is actually more complicated. But far more work has been done on that. Far more money is flowing on that than to energy. So we’ve got to address that, and that’s what this is all about.

Why are private companies not investing at the moment? It’s because it’s too complicated and they say: Look, there are so many pitfalls. Quite frankly, we put some money in, someone’s going to grumble there’s leakage or it’s low quality. What’s the point? We’ll be accused of greenwashing. And what we’re trying to do is say: Actually, there is a sensible path forward. There is that sweet spot between, you know, on the one hand, you know, making sure you get the standards right; on the other hand, making sure you get the volumes of money right.

And so what we’re trying to do is, I think, terribly exciting. This is not just us working on our own; this is bringing in the entire global architecture, if you like.

At the moment, as you know, greenhouse-gas protocol; that’s how you measure greenhouse gases. Then there is CDP; that’s where you register what your greenhouse gases are. Then there’s SBTi, Science Based Targets Initiative; that’s how you set your targets. Then there are various standards-setting—like, you mentioned it yourself, Secretary Kerry—VCMI. That’s looking at the demand side. That basically says: If you’re a private company and you want to get credit, you’ve got to be already on a good downward path. You’ve got to be signed up to science-based targets.

Then there’s something called ICVCM. I hope you’re keeping up with all of this. That’s on the supply side. And that basically says: Look, if you’re going to invest in an investment that’s going to actually have some credibility, it better be high quality. And Liz mentioned the issue of what’s called the jurisdictional approach, which is very big on the—on the nature side. That means you can’t just do a little project here because someone might cut down the forest there; you’ve got to look at the whole jurisdiction. Same thing applies [to] energy. No point decommissioning one coal plant and investing in renewable energy if someone else builds another coal plant over here. So governments need to be part of it. We need a jurisdictional approach.

So what we’re going to do, every single one of those alphabet soups I just mentioned, every single one of them is on the advisory council, the consultative group, together with many more—the sort of Brian Moynihans, head of Bank of America; Catherine McKenna, who wrote the report, you know, for the secretary-general; many leaders from the developing world are on that. At 9:15 this morning our time, a press release came out with some of those names already. Do look at it.

It’s great to see Fred Krupp in the audience here because he’s the president of EDF, the Environmental Defense Fund. They, together with the Center for Energy—Center for Climate and Energy Solutions, will be providing, if you like, the intellectual driving force and managing this.

So this is an incredibly exciting venture. We would urge you to sort of join with us. Particularly if you’re on the investment side; particularly if you’re a company that’s thinking, my goodness me, I wouldn’t—I would really like to get engaged in this; we’d love to talk to you.

So we’re going to be very tough on the—if you like, the standards side. We’ve got best nongovernmental organizations in the world, best developing-country leaders that are demanding all of the kinds of safeguards that Liz talked about. But at the same time, we need ambitious providers of funding that are not going to be providing the funding through this as an alternative to doing what they need to do in their own scope one, two, and three, but as a complement to that. Because even if you’re on that wonderful trajectory coming down to net zero in your own company, you’re still emitting in the meantime some carbon, and this can actually help compensate for that.

FREDERICK KEMPE: Thank you for that, Andrew.

And, Mr. Secretary, what’s very exciting about this, obviously, is what you’ve underscored, which is the measurable results side of it. So let me go back to the question that I posed to Liz about it’s been a short time since Sharm, what have you achieved? It’s not that long of a time before COP28. What do you want to achieve by then?

And I guess there’s a third question within that, which is this is a really promising strategy to scale climate finance, but 4.2 trillion, how much of it do you want to do there? So in other words, what are the—how does this fit into other promising strategies?

JOHN KERRY: Well, it’s an integral part of it, Fred. And let me describe part of the challenge here, folks, because it’s not simple.

We’ve been wrestling with development, I mean, for as long as all of us have been alive, and there are special challenges in development. I mean, when you go to an African country where only 17 percent of the nation has power, you don’t have a particularly large pool of paying customers to be able to support a long-term PPA at market rates. I mean, it just doesn’t work because you don’t have enough—in some places, they don’t even collect revenue for the electricity that’s being used. And so you have to build structure in certain places.

Now, that’s not our central problem. That’s a moral and political challenge in the sense that, you know, you can’t be asking these countries to defer their future completely. They want to [be] able to develop. They have a right to be able to develop. We need them to develop. It’s important [for] stability on the planet, relationships, and so forth. But we’re going to have to be able to provide a concessionary structure for a period of time so that you can then get enough of a revenue stream that you’re able to support something in the marketplace. That’s one grouping.

Fortunately, that is not the grouping that is most important to the solving of the climate crisis. Why? Because they are an infinitesimal amount of the problem currently. What we want to do is avoid them becoming more of a part of the problem, because if you add up all the developing world and it goes crazy on gas, for instance, in the next ten years, we’re in trouble. We’re just negating everything else we’re doing out there.

So the way we’re looking at it is—and I’ve said this many times; many of you may get tired of me saying it, but to me, it’s the fundamental organizational principle. It’s the reality around which we have to organize ourselves, as I said earlier. That is, twenty countries, twenty economies, equal 80 percent of all the emissions. If those twenty countries will get their act together, we win the battle. We can win the battle. And that’s why we focused on Indonesia, because it’s one of those twenty. That’s why we’re focusing on Brazil, one of the twenty. That’s why we—Vietnam’s not yet one of the twenty, but it’s in the next ten, so we’re focused on Vietnam because there’s too much coal and we’ve got to begin to transition them.

And in each of those cases—and we focused on Mexico, which is in those twenty. And President AMLO, thanks to, I think, the good meetings we had over the last year and a half, has really changed and come around and said we’re going to deploy renewables. It wasn’t in their lexicon a year-and-a-half ago, and now they’re talking about thirty gigawatts of renewables deployed, increased hydro, and for the first time really beginning to try to exploit their geothermal—which, by the way, they have active volcanoes. This is a place that has extraordinary capacity in geothermal. So there’s money on the—you know, being left off the table here—left on the table—that people could make if you would begin to get all of that moving in the right direction.

So that’s what we’re trying to do now, is get the larger economies in a place where they are actually reducing emissions. And as I said earlier, folks, this is not a forever program. This is not a sort of you can buy your way out for the long term. This is sort of a delay—ten years, wherever we land. This is the kind of decision that this consultative group has to help us make. Is it—is it till 2030 or is it till 2035 or something? But you’re still going to have to be responsible to meet net zero by 2050, and that’s going to require every company to still do scope one, scope two, scope three, et cetera. So what we’re trying to do is get as far as we can, Fred, in the next few months so that, hopefully, we could have a few pilot efforts that are actually out there working—we’ve arrived at pricing and at the mechanism and so forth—and we could come to the UAE at COP28 and have an implementable program that goes forward.

Now, this is not the only thing we’re doing. Of high priority for President Biden is MDB reform, multilateral development bank reform. We must find the way to be interpreting the charters correctly so that we could have a significant amount of additional money that is available for concessionary lending, which would make an enormous difference. And both of you—your foundations, the Rockefeller and the Bezos, are invested and interested in helping to get that kind of reform. And then whatever else we can find as a way of getting into the trillions that need to be deployed.

But those twenty countries do have the ability to provide revenue for these transactions and they can get market-based deals going. I mean, we’re looking at PPAs that can be struck with Indonesia that will help in this transition. And I think that the market is really critical to this, which is why we’re looking at a market-based component of how you’re going to solve this problem.

The trillions of dollars that were assembled—you know, Mark Carney did a lot of really hard work assembling the GFANZ and so forth, but that money is investment money. It’s not giveaway money. And investment money means you’re going to have to be able to get a return on that investment because you’re accountable to clients. You have fiduciary responsibilities and you can’t just ignore them. So we have to harness the combined efforts of the regulatory structures which look at disclosure, for instance. I mean, it’s very hard for me to understand how anybody could be fulfilling their fiduciary responsibility by ignoring [the] climate crisis and allowing your supply chain and your entire business to be disrupted by damage and by future interventions of mother nature. That doesn’t fit, in my judgment.

So I think we’re due for a real reckoning here with how the marketplace is looking at these challenges and this reality. We can’t solve the climate crisis without—and I want to—don’t ever edit me at that word, “we can’t solve the climate crisis”— without being able to marshal these sums of money, and we can marshal them. This is the largest market the world has ever known, folks, the clean-energy market, the transitional market. The building out of smart grids, new transmission lines, putting in place the infrastructure to support electric vehicles, building out the hydrogen network, I mean, all of this is money-making. It’s how we built our nations. It’s how we have employed millions of people. We’re just transitioning again as we transitioned, frankly, in the original industrial revolution.

And we have to be excited about this because it is millions of jobs. Fastest-growing job in the United States of America two years ago, three years ago for several years was wind turbine technician. Second-fastest-growing job was, unfortunately, nurse practitioner because of COVID. Third-fastest-growing job was solar panel installer. There are extraordinary opportunities here if we will get our act together. And many, many, many companies have now come to that conclusion and recognize that, you know, you can marry the future here. You can do this in a way that provides a planet that is cleaner, healthier, and safer.

FREDERICK KEMPE: Thank you, Mr. Secretary.

So, Liz, I’ve got a signal—I’ll get a signal from somebody whether we’re wrapping up. We have some time. But I think I’d like to be able to ask you a quick question and Andrew a quick question, then close out.

But I want to go back to what Secretary Kerry talked about at the very beginning about how to de-risk it and how to create bankable deals. That’s the world you come from Liz. You can share with the audience a little bit what your job was before taking on what you’re doing now because it fits perfectly with this. So how do you design an ETA to ensure de-risking capital flows upfront for the most urgent fossil fuel transition projects in emerging markets, from the banker’s perspective?

ELIZABETH YEE: Thanks, Fred, and just to come clean on that, I think, in my old life before I got a chance to work in philanthropy, I spent about twenty years as a public power infrastructure banker at a firm called Lehman Brothers, which some of you may have known.

But I think one of the—I think that’s what’s really interesting to me in this regard because there is a lot that needs to be done in terms of developing the financial structure, and that is why, as Andrew said, we need people like Anne, like Brian—all of the bright financial minds we’ve got—Chris Leeds on our team, as well—helping us think about how do we actually marry the forces of banking and markets together since that will be such a critical element of the design.

And, you know, I think there is—I’ll just say a couple of things. One is I want to acknowledge that there are a number of other existing structures that people are working on in the market today, so Asian Development Bank has its energy transition mechanism; you know, the Climate Investment Funds has its own fund. So I think we want to learn from what other people have already done and have started doing so that we can build on top of that.

I think we also need to take a look at some of the interesting ways that we can securitize and use that market to be able to look at the forward opportunities there, to basically think about how then we can take those revenues that might come later or those opportunities and financial gains that come later and put them forward because, as the secretary said, we need the resources upfront to developing countries today to be able to both decommission and create the infrastructure asset on the other side that allows them to continue building and growing their economies.

So we’ve got a lot of financial structuring work to do. That is why it’s a critical work stream of the ETA and the path that we are going to take going forward.

So stay tuned, but I think, as Andrew said, you know, this is a whole-of-planet effort. We need your engagement, and we would encourage and welcome it as part of the work going forward, so thanks.

FREDERICK KEMPE: Terrific. Please.

JOHN KERRY: One thing just very quickly. The IRA is going to make an enormous difference in this challenge, and I know some people are reacting, oh, my gosh, there are some provisions in the IRA that are kind of protectionist and maybe get in the way. And I think we’ll be able to resolve and work through those. I really do.

But the bottom line is by putting literally hundreds of billions of dollars on the table for further R&D and development, and deployment of initial startup initiatives, we’re going to help develop supply chains where they don’t exist. And we’re going to help accelerate—I mean, that’s an enormous amount of concessionary funding that is going into—right now in the Department of Energy we have billions of dollars that are going into companies, into projects. It’s going to help close the gap here in terms of what is fundable and financially—you know, can work.

And I think it’s going to change things. We’re going to have—it will help with the deployment of green, or blue, or, you know, turquoise hydrogen and so forth. I think that exciting things are going to be happening.

And rather than having some other entities complain and say, well, you guys have now changed the market and you’re going to shift things, everybody should join and do the same thing. That’s how we accelerate to the four trillion dollars, folks. We shouldn’t be sitting there saying, oh, my god, let’s go backward. Everybody should join up and do the same thing. Put your money into this development. Put your money on the line in terms of research and development, and that’s how we’re going to win this battle, I’m convinced.

ANDREW STEER: Amen.

FREDERICK KEMPE: Thank you, Mr. Secretary, and the Inflation Reduction Act—I got a good briefing just yesterday on what it does alone for hydrogen, and so that’s pretty exciting.

So finally, Andrew, I think this—we’ll wrap up with this question. When this platform was launched, you stated there were very knotty—meaning K-N-O-T-T—questions that the group would have to grapple with.

What are the knottiest, and how are you—and are you grappling with them?

ANDREW STEER: Well, first, who wants to solve easy problems? These are difficult problems. And that’s why we’re sort of stuck, we’re sort of constipated at the moment. I mean, there is plenty of money out there, but it’s not going to the right place—plenty [of] money in the world, and it’s not going in the right place.

So what are they? There are on the both supply and the demand sides, standards that are honorable, including human standards, environmental, ecological standards, and so on. On the demand side, that’s—you know, a company has to honor its own scope one, two, three emissions. Those are difficult problems.

But there are other difficult problems which we’re going to be grappling with, which is going to be really exciting, you know. How do you set the price? Where does the money go? And this is your point, Liz, about de-risking it—which also Secretary Kerry mentioned. The great thing about voluntary carbon markets is they work for you twice. You put a hundred million dollars into this. That buys renewable energy in and of itself. But in addition to that, it changes the entire calculus for a deal, as Secretary Kerry says. That hundred million dollars can unlock two hundred—several billion dollars if you do it right. But you have to then actually make sure the money is injected in the right way.

So those are some of the knotty problems, but they’re exciting. And, you know, someone—I had the privilege of running one of the best environmental think tanks in the world, the World Resource Institute, and we were leaders in standards. Environment NGOs have done us a huge favor setting high standards, but sometimes in this very, very high-stress, high-pressure, need-for-action-today world, sometimes almost too thoughtful, and sometimes we slow things down too much.

So what we’re trying to do is unlock that, get the standards that are just as high, but actually then unleash, you know, a flow of funds that can make a huge difference.

JOHN KERRY: As a result of Andrew’s alliterative description, we now understand that the ETA is the Colace or Senekot of a movement, right?

FREDERICK KEMPE: That does seem to be a really good place to end this.

So Mr. Secretary, Liz, Andrew—what a wonderful conversation. This could go on a lot longer. I’m sure people in the audience who would like to contribute to this in one way or another will catch you and provide you ideas. And we can help connect you all, as well, with the ETA and with this group.

But thank you so much for being here. Thank you for what you are doing—

JOHN KERRY: Ten seconds?

FREDERICK KEMPE: Please.

JOHN KERRY: Everybody here, your organizations, your countries—whoever can speak out—Alexei Navalny’s family has made it clear he is very ill and being held in prison without medical care that he needs. So anybody who could speak out and make it clear that the world believes that even prisoners should be given the medical care that they need—and hopefully we can make a difference.

FREDERICK KEMPE: Thank you for that, thank you for being here.

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The post US climate envoy John Kerry outlines new principles for accelerating private capital needed for the energy transition appeared first on Atlantic Council.

If the world gets lucky, this could be the year fossil fuel producers and climate activists bury their hatchets and join hands to reduce emissions and ensure our planet’s future.

If that sounds hopelessly utopian, take that up with the leaders of this resource-rich, renewables-generating Middle Eastern monarchy. The United Arab Emirates is determined to inject specificity, urgency, and pragmatism into a process that often has lacked all three: the twenty-eighth convening of the United Nations Climate Change Conference, known as COP28, from November 30 to December 12.

To kick off 2023, the oil and gas and climate communities gathered this weekend for the Atlantic Council Global Energy Forum, launching the annual Abu Dhabi Sustainability Week. After decades of mutual mistrust, there is a growing recognition that they can’t live without each other.

Thank Russian President Vladimir Putin’s criminal war in Ukraine, and his ongoing weaponization of energy, for injecting a new dose of hard-headed reality into climate conversations. It’s seldom been so clear that energy security and cleaner energy are indivisible. The guiding principle is “the energy sustainability trilemma,” defined as the need to balance energy reliability, affordability, and sustainability.

What’s contributing to this new pragmatism is a recognition by much of the climate community that the energy transition to renewables can’t be achieved without fossil fuels, so they must be made cleaner. They have come to accept that natural gas, in particular liquified natural gas (LNG), with half the emissions footprint of coal, provides a powerful bridging fuel.

Once derided by green activists, nuclear power is also winning over new fans—particularly when it comes to the small, modular plants where there are fewer concerns over safety and weapons proliferation.

For their part, almost all major oil and gas producers, who once viewed climate activists with disdain, now embrace the reality of climate science and are investing billions of dollars in renewables and efforts to make their fossil fuels cleaner.

“Every serious hydrocarbon producer knows the future, in a world of declining use of fossil fuels, is to be low cost, low risk, and low carbon,” said David Goldwyn, the former State Department special envoy for energy. “The only way to ensure we do this is to have industry at the table.”

Nowhere is this shift among climate activists more evident than in Germany, where Vice Chancellor Robert Habeck, the Green Party leader, is serving as the pragmatist-in-chief.

Habeck, who serves as federal minister for economic affairs and climate action, has been the driving force behind extending the life of the country’s three nuclear plants through April and in launching Germany’s first LNG import terminal in December, with as many as five more to follow.

“I am ultimately responsible for the security of the German energy system,” Habeck told Financial Times reporter Guy Chazan in a sweeping profile of the German politician. “So, the buck stops with me. … I became minister to make tough decisions, not to be Germany’s most popular politician.”

Some climate activists were aghast this Thursday when the UAE named Sultan Al Jaber, the CEO of the Abu Dhabi National Oil Company (ADNOC), as president of this year’s COP28.

“This appointment goes beyond putting the fox in charge of the henhouse,” said Teresa Anderson of ActionAid, a development charity. “Like last year’s summit, we’re increasingly seeing fossil fuel interests taking control of the process and shaping it to meet their own needs.”

What that overlooks is that Al Jaber’s rich background in both renewables and fossil fuels makes him an ideal choice at a time when efforts to address climate change have been far too slow, lacking the inclusivity to produce more transformative results.

Full disclosure: Al Jaber’s companies ADNOC and the clean-energy innovator Masdar (where he was founding CEO in 2005 and is now chairman) are sponsors of the annual Atlantic Council Global Energy Forum in Abu Dhabi, a fact that has given me a close-up look at his years-long commitment to reducing emissions and promoting renewables.

Al Jaber also represents a country that despite its resource riches has become a major nuclear power producer, was the first Middle East country to join the Paris Climate Agreement, and was the first Middle East country to set out a roadmap to net-zero emissions by 2050.

Over the past fifteen years, the UAE has invested forty billion dollars in renewable energy and clean tech globally. In November it signed a partnership with the United States to invest an additional one hundred billion dollars in clean energy. Some 70 percent of the UAE economy is generated outside the oil and gas sector, making it an exception among major producing countries in its diversification.

Sheikh Mohamed bin Zayed al Nahyan, president of the United Arab Emirates, has explained his country’s approach this way: “There will be a time, fifty years from now, when we load the last barrel of oil aboard the ship. The question is… are we going to feel sad? If our investment today is right, I think—dear brothers and sisters—we will celebrate that moment.”

Al Jaber, speaking to the Global Energy Forum, captured his ambition to drive faster and more transformative results at COP28.

“We are way off track,” said Al Jaber.

“The world is playing catch-up when it comes to the key Paris goal of holding global temperatures down to 1.5 degrees,” he said. “And the hard reality is that in order to achieve this goal, global emissions must fall 43 percent by 2030. To add to that challenge, we must decrease emissions at a time of continued economic uncertainty, heightened geopolitical tensions, and increasing pressure on energy.”

He called for “transformational progress… through game-changing partnerships, solutions, and outcomes.” He said the world must triple renewable energy generation from eight terawatt hours to twenty-three and more than double low-carbon hydrogen production to 180 million tons for industrial sectors, which have the hardest carbon footprint to abate.

“We will work with the energy industry on accelerating the decarbonization, reducing methane, and expanding hydrogen,” said Al Jaber. “Let’s keep our focus on holding back emissions, not progress.”

If that sounds utopian, let’s have more of it.

This article originally appeared on CNBC.com.

Frederick Kempe is president and chief executive officer of the Atlantic Council. You can follow him on Twitter @FredKempe.

THE WEEK’S TOP READS

#1 A new world energy order is taking shape
Rana Foroohar | FINANCIAL TIMES

In this smart piece, the FT’s Rana Foroohar warns of a China-led energy order and how that could shift the global balance of power.

“What does that mean in practice?” Foroohar asks. “For starters, a lot more oil trade will be done in renminbi. [Chinese leader] Xi [Jinping] announced that, over the next three to five years, China would not only dramatically increase imports from [Gulf] countries, but work towards all-dimensional energy co-operation.”

“This could potentially involve joint exploration and production in places such as the South China Sea, as well as investments in refineries, chemicals, and plastics. Beijing’s hope is that all of it will be paid for in renminbi, on the Shanghai Petroleum and Natural Gas Exchange, as early as 2025.” 

This is something any serious thinker on energy should bear in mind. Read more →

#2 Ships going dark: Russia’s grain smuggling in the Black Sea
ECONOMIST

In this thought-provoking narrative, the Economist highlights the growing economic potential of the North Sea, particularly as a producer of wind power.

While the Economist acknowledges significant hurdles, from the vagaries of weather to the threat of cheaper competition in Southern Europe, it also writes that if “these problems can be overcome, the new North Sea economy’s impact on the continent will be momentous.

“As Europe’s economic epicentre moves north, so will its political one, predicts Frank Peter of Agora Energiewende, a German think-tank. Coastal Bremen, one of Germany’s poorest states, could gain clout at the expense of rich but landlocked Bavaria. At the European level, France and Germany, whose industrial might underpinned the European Coal and Steel Community, the EU’s forebear, may lose some influence to a new bloc led by Denmark, the Netherlands and, outside the EU, Britain and Norway.”  Read more →

#3 Time is not on Ukraine’s side
Condoleezza Rice and Robert Gates | WASHINGTON POST

Former Secretary of State Condoleezza Rice and former Secretary of Defense Robert Gates, two of the most perceptive international strategists out there, deliver a compelling argument for how President Joe Biden’s administration should do more for Ukraine now.

The only way to avoid Russian domination of Ukraine, they write, “is for the United States and its allies to urgently provide Ukraine with a dramatic increase in military supplies and capability — sufficient to deter a renewed Russian offensive and to enable Ukraine to push back Russian forces in the east and south. Congress has provided enough money to pay for such reinforcement; what is needed now are decisions by the United States and its allies to provide the Ukrainians the additional military equipment they need — above all, mobile armor.”

“Because there are serious logistical challenges associated with sending American Abrams heavy tanks, Germany and other allies should fill this need,” they write. “NATO members also should provide the Ukrainians with longer-range missiles, advanced drones, significant ammunition stocks (including artillery shells), more reconnaissance and surveillance capability, and other equipment. These capabilities are needed in weeks, not months.”

One hopes Biden is reading. Read more →

#4 Robert Habeck was Germany’s most popular politician. Then he took office
Guy Chazan | FINANCIAL TIMEs

Don’t miss Guy Chazan’s brilliant, sweeping profile of German Vice Chancellor Robert Habeck, who oversees his country’s energy and economic policies, and his struggle as a Green politician to diversify resources away from Russia.

“As the energy crisis continued, traits that distinguished Habeck from other politicians came to the fore,” Chazan writes, reporting on Habeck’s willingness to make tough decisions. “On the day of the invasion last February, amid rounds of emergency meetings, he found time to visit Andrij Melnyk, Ukraine’s ambassador to Berlin. ‘That was the most important meeting I had since the war began,’ Melnyk told Der Spiegel, ‘because he offered real human sympathy.’ Habeck also spoke openly about the uncertainties the government faced.”

Read this for a profile of the type of leader who, understanding the importance of compromise and pragmatism, will be vital in making the energy transition a success. Read more →

#5 American Democracy is Still In Danger
Erin Baggot Carter, Brett L. Carter, and Larry Diamond | FOREIGN AFFAIRS

This week’s must-read is a clarion call on the importance of US democracy and the dangers it faces, from Erin Baggot Carter, Brett L. Carter, and Larry Diamond.

“The health of American democracy,” they write, “is both a domestic and a national security concern. China and Russia—the United States’ principal authoritarian adversaries—have been using (and exacerbating) America’s democratic divisions and travails to gain advantage in the competition for global leadership. To regain the advantage, the United States must both repair its own democracy and reinvigorate its voice for democracy in the global arena. Democracy must go on the offensive.”

To do this, they argue, “Washington must rejoin the battle for global soft power, in a manner that reflects American values. It must transmit the truth, and in ways that engage and persuade global audiences. The goal must be not only to counter disinformation persuasively with the truth but to promote democratic values, ideas, and movements. In order to counter disinformation and report the truth that autocracies suppress, multiple credible streams of information are needed. Furthermore, they must be independent; while the US government may provide material support, these outlets must operate free of editorial control. That way, they will be seen to be independent because they are.” Read more →

Atlantic Council top reads

Global Energy Forum Jan 14, 2023

COP28 president-designate: With the world ‘way off track’ on Paris goals, ‘transformational progress’ is needed

By Daniel Malloy

In his first remarks since being named the incoming president of COP28, Sultan Al Jaber spoke on Saturday morning at the Atlantic Council’s Global Energy Forum in Abu Dhabi.

Climate Change & Climate Action Energy & Environment

Fast Thinking Jan 9, 2023

How Brazil can respond to its democracy stress test

By Atlantic Council

Now that authorities have cleared the protests and launched an investigation into security failures, our experts break down what’s to come.

Brazil Democratic Transitions

New Atlanticist Jan 13, 2023

Russian War Report: Russian hacker wanted by the FBI reportedly wins Wagner hackathon prize 

By Digital Forensic Research Lab

In December 2022, Wagner Group organized a hackathon that was won by a man wanted by the FBI for his connection to computer malware.

Conflict Cybersecurity

The post Dispatch from Abu Dhabi: How to reduce carbon emissions without blocking progress appeared first on Atlantic Council.

But that’s only spurred the world’s most influential energy experts and policymakers to take another look at the needs of the energy system and devise new policies, practices, and standards to fill those needs. And from January 14 to 15, many of them gathered at the Atlantic Council’s Global Energy Forum to lay out their solutions and call for urgent collaboration on improving energy security and accelerating progress toward climate goals.

Below are highlights from the event, hosted by the Global Energy Center in partnership with the United Arab Emirates Ministry of Energy and Infrastructure as part of Abu Dhabi Sustainability Week, and featuring leaders such as COP28 President-Designate Sultan Al Jaber and US Special Presidential Envoy for Climate John Kerry.

Editor’s note: This article was updated on January 18 to note sponsors of the Atlantic Council’s Global Energy Forum.

Explore the full event

Jan 14, 2023

2023 GEF: Day 1

The 2023 Forum has a special focus on the challenge of managing energy security priorities and decarbonization efforts in tandem, including the continuing impact of the crisis in Ukraine on the energy transition.

Jan 15, 2023

2023 GEF: Day 2

The 2023 Forum will enable world leaders to be at the front end of empowering an inclusive energy transition at a moment where the nexus of energy security and climate action has come into acute focus.

The latest from Abu Dhabi

• European energy commissioner: Stronger green targets are coming amid gas supply challenges
• Tackling the biggest challenges for critical minerals supply chains—capacity, resiliency, and sustainability
• The next steps to harnessing hydrogen’s potential
• Achieving net-zero will require rethinking supply chains. Here’s how to make it happen.
• Nuclear energy is ready for a breakout moment—if it can find the fuel
• Biden administration official raises critical questions around critical minerals
• How will the global climate effort change after the Inflation Reduction Act?
• Overcoming the biggest challenges that stand in the way of a net-zero developing world
• John Kerry on the carbon offset initiative that aims to bring renewable-energy investment to developing countries
• COP28 leaders: Here’s how to spark a just energy transition that includes everyone
• Read coverage from day one

European energy commissioner: Stronger green targets are coming amid gas supply challenges

By Andrea Clabough

“Both our presidents are willing to invest a lot to keep [the] transatlantic relationship,” said Kadri Simson, the European Commission’s commissioner for energy, as she brought a message of unity and optimism to close out the Atlantic Council 2023 Global Energy Forum. 

Speaking with Richard Morningstar, founding chairman of the Council’s Global Energy Center and former US ambassador to the European Union (EU), Simson addressed how the past year has endangered the bloc’s energy and economic security in ways unseen in decades because of Russia’s war of aggression in Ukraine. Simson explained that the EU’s rapid action to reduce its natural gas consumption, efforts to grow renewable power capacity wherever possible, and support of diverse suppliers of liquefied natural gas (particularly the United States) enabled the bloc to pull through this winter. Though she acknowledged that the winter ahead could be even more challenging, she noted that “2022 was an extraordinary year for our renewable production… and targets for next year are even higher.” Renewable energy expansion via the REPowerEU strategy surpassed all expectations. 

She thus rejected the notion that the EU has abandoned the “Green Deal” and countered that the bloc is negotiating even stronger green targets right now. She also rejected the idea that the price cap on Russian seaborne oil, coordinated with the Group of Seven (G7) nations, was ineffectual at sixty dollars per barrel, saying the evidence suggests that Russia is selling oil at discounts well below this number. She added that she hopes to never have to trigger the newly developed natural gas pricing mechanism. 

Simson was cooler, however, on the issue of the US Inflation Reduction Act—a source of mounting tensions throughout late 2022 over its perceived nationalistic provisions. She reasserted that the transatlantic relationship remains robust to the benefit of both sides and that any issues around unfair competition in the law can be solved through the existing EU-US working group on this issue. Her remarks suggested that, whatever 2023 may bring, Europe is fully prepared to weather the storm—and will do so alongside its friends and allies. 

Tackling the biggest challenges for critical minerals supply chains—capacity, resiliency, and sustainability

As clean energy technologies proliferate, demand is soaring for critical minerals—but there is a two trillion dollar investment gap over the next fifteen years to finance supply chains for minerals needed to keep global warming below 2 degrees Celsius. Panelists including Indonesia’s energy minister took on the best ways to resolve these questions on Sunday at the Global Energy Forum.

Read more

Global Energy Forum

Jan 15, 2023

‘Global collaboration is needed’ on critical minerals to support the energy transition, says Indonesian energy minister

By Atlantic Council

Energy minister Arifin Tasrif told fellow policy leaders at the Global Energy Forum that Indonesia is ready to cooperate with partner countries to develop the infrastructure needed to ramp up critical-mineral production.

Energy & Environment Energy Markets & Governance

Dive into the research

Report

Mar 27, 2022

The United States, Canada, and the minerals challenge

By Reed Blakemore, Paddy Ryan, Randolph Bell

An energy mix enabled by clean technologies will be far more mineral-intensive than its hydrocarbon-based predecessor. Demand for minerals like lithium, nickel, and cobalt is projected to skyrocket over the coming years, with supply chains largely unprepared to scale up accordingly. And procurement of these minerals has been plagued by concerns over environmental impact, human […]

Americas Energy & Environment

The next steps to harnessing hydrogen’s potential

By Andrea Clabough

Is hydrogen the Swiss Army Knife of low-carbon energy? It may be too early to tell, but there are plenty of potential end uses for the fuel that point to the fuel’s role in the long term, said a panel of private-sector hydrogen experts at the Global Energy Forum on Sunday.

Both Meg Gentle, executive director of High Impact Fuels, and Shuayb Ismail, associate partner and head of partnerships at Xynteo, agreed that hydrogen and e-fuels are not future visions; rather, these are usable fuels right available now with vast decarbonization potential in the right conditions. Gentle discussed her company’s work in Chile producing “drop-in” e-fuels suitable for a variety of vehicles, both land and seaborne. High Impact Fuels’ facility in Chile is powered entirely by wind energy resources available in the region and produces methanol. Ismail explained how his company assisted an Indian steel producer switch to green hydrogen to decarbonize its production methods, resulting in a 10 to 20 percent cost reduction. He emphasized that at Xynteo, “we truly believe that industry has to be the driver for the energy transition.”

But there remain significant barriers to widespread hydrogen adoption. Joe Webster, Atlantic Council senior fellow, noted that there are a number of policy issues around hydrogen—especially around hourly matching, which would require hydrogen facilities to limit their use of electricity to an amount equivalent to the renewable energy they use in a given hour. Hussein Fouad El Ghazzawy, senior energy and industry consultant at LYNX, spoke from Egyptian and African perspectives. He cited that a recent European Investment Bank report showed that African clean-hydrogen production potential could reach fifty million tons per year by 2035. However, Africa remains tightly constrained by limited or insufficient infrastructure of all kinds. For global hydrogen economies of scale, further investments in Africa are needed, he said.

The panelists broadly agreed that the price of renewable energy is continuing to pose a challenge, as it plays a major role in high hydrogen costs. This is among the key areas where policymakers could potentially do more to support scaling of global hydrogen production.

Editor’s note: Xynteo is a sponsor of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

Achieving net-zero will require rethinking supply chains. Here’s how to make it happen.

By Andrea Clabough

Value and supply chains are one of the hottest topics in the energy space ever since the onset of the COVID-19 pandemic. After realizing the energy system’s vulnerability to disruptions amid a pandemic, is it possible to reconfigure global value chains toward a net-zero emissions future? 

A group of private-sector and think-tank experts, as well as US government officials, considered what decarbonized value chains of 2030, 2050, and beyond might entail for sustainability at the Global Energy Forum on Sunday. Andrew Herscowitz, chief development officer of the US International Development Finance Corporation (DFC), asserted that “it’s absolutely critical that all of us are playing a role in diversifying the supply chain.”

The path there will require considering diverse energy systems and unique regional and country pathways to net-zero. Fahad Alajlan, president of the King Abdullah Petroleum Studies and Research Center, noted how dramatically the conversation around fuels such as natural gas and nuclear has shifted since the war in Ukraine began. He argued that the world cannot deploy a whiplash approach to how it perceives energy and energy supply chains every time a new crisis emerges. Lorenzo Simonelli, chairman, president, and CEO of Baker Hughes, and Christian Bruch, president and CEO of Siemens Energy AG, supported Alajlan’s perspective. Simonelli reiterated that the key challenges are emissions—not a particular type of fuel—and thus there is no benefit for the public or private sector to be overwhelmed by arguments over certain energy sources. Herscowitz added that “[DFC] will finance gas projects… It’s one of the reasons I’m here, to see what we can do.”

Another key area of agreement was the need for energy efficiency throughout value chains, as well as thoughtful management of existing equipment. Bruch noted the risk of stranded assets—when a piece of energy infrastructure is not used for its full lifespan and thus becomes a financial loss—if the energy community fails to plan ahead and utilize what it has already. 

The challenges to successfully transition supply chains to a net-zero world are thus substantial, but perhaps not insurmountable. Marisa Drew, chief sustainability officer at Standard Chartered Bank, described the need for unity and a frank discussion among all stakeholders on these very problems at the next United Nations Climate Change Conference, known as COP28, to unlock long-term, sustainable, and investable solutions.

Editor’s note: Baker Hughes is a sponsor of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

Nuclear energy is ready for a breakout moment—if it can find the fuel

By Andrea Clabough

Is nuclear energy’s guiding mantra “no fuel, no fun”? Daniel Poneman, president and CEO of Centrus Energy Corp. and former deputy US secretary of energy, suggested as much in a special session of the Global Energy Forum on Sunday afternoon. He and expert panelists representing the Polish, Romanian, and Canadian nuclear energy industries delved into what opportunities and challenges lie ahead for nuclear power of all stripes in a decarbonizing world. 

The panelists firmly agreed that, without nuclear power, achieving net-zero emissions is impossible for the global community; indeed, the world must grow its nuclear fleet and pursue innovative, emerging nuclear technologies such as small modular reactors and microreactors, which show tremendous potential as flexible reactor options. Ana Birchall, special envoy for strategic and international affairs at Nuclearelectrica, spoke from the Romanian perspective and emphasized the importance of nuclear now regaining its status as a clean, affordable, reliable fuel in the wake of Russia’s invasion of Ukraine. Indeed, she projected that Romania could, with its imminent unit additions, become an exporter of nuclear-generated zero-carbon power to its neighbors. Adam Guibourgé-Czetwertyński, undersecretary of state for the Polish Ministry of Climate and Environment, lauded nuclear energy in Poland as a source of energy independence and stable industrial supply. 

That said, the panelists acknowledged that a buildout of nuclear power in a net-zero world faces some challenges. Most important, as Poneman explained, is the scarcity of supply (and suppliers) for High-Assay Low Enriched Uranium (HALEU) fuel, which was produced in Russia but is now limited to just a few remaining suppliers. He recommended that the US government consider making a US-based plant a global supplier of HALEU, reducing the proliferation risks but enabling the necessary export of this crucial input. 

Joseph McBrearty, president and CEO of Canadian Nuclear Laboratories, delved into the permitting and stakeholder relationship challenges associated with nuclear energy construction and waste management. He noted that indigenous relationships are especially foundational to nuclear power companies—because nuclear facilities are often on or near indigenous-owned land—and that these and other relationships must be nurtured early on. Guibourgé-Czetwertyński and Birchall agreed that robust public support for nuclear energy is a lynchpin to a successful nuclear policy and noted that public support for nuclear energy is very high in both Poland and Romania thanks to their industries’ sterling safety records. Broadly, the panelists expressed optimism for advanced nuclear technologies to be a major component of the decarbonization puzzle and for the ability of industry to scale these technologies safely while maintaining public confidence.

Nuclear Energy Policy Initiative

The Atlantic Council’s dedicated home for the exploration of nuclear energy’s future.

Biden administration official raises critical questions around critical minerals

Amos Hochstein has a warning. The special presidential coordinator for global infrastructure and energy security at the US State Department said Sunday at the Global Energy Forum that securing minerals such as cobalt and copper, which are critical to clean energy technologies, is becoming a crucial challenge for the energy transition—and one that will look familiar to those who lived through the 1970s.

“The way we’re going right now, we’re actually creating a carbon copy of the twentieth century geopolitics of energy architecture and just putting it in the twenty-first century,” Hochstein said. “Instead of having a small group of countries that control oil supply and perhaps refining, we’re now going to create one or maybe a couple of countries that will control the entire supply chain for wind, solar, electric vehicles, and chips.”

Read the full transcript

Global Energy Forum

Jan 15, 2023

Amos Hochstein on how critical minerals impact net-zero progress—and US national security

By Atlantic Council

The special presidential coordinator for global infrastructure and energy security warned that twentieth-century energy geopolitics are being copied over into the twenty-first century.

Energy & Environment Energy Markets & Governance

How will the global climate effort change after the Inflation Reduction Act?

By Andrea Clabough

The Inflation Reduction Act (IRA): A zero-sum game, or transatlantic win-win? Brad Crabtree, assistant secretary of the Office of Fossil Energy and Carbon Management at the US Department of Energy, says the latter. At a Global Energy Forum panel discussion, Crabtree argued that the IRA, despite concerns that some of its provisions may be nationalistic, is in many respects how the United States is paying it forward on achieving major global emissions reductions. “We, the United States as a country, have already benefited from the investments that others have made,” he said, later adding, “[t]he way we look at it, we’re all in this together.”

But he acknowledged some of the lingering concerns around the IRA, which has been criticized by European allies for subsidizing domestic industry at the expense of European companies, noting that officials “are working really hard now” on some of those concerns; he also said that the Biden administration will sincerely address these issues to the fullest extent possible. Other panelists argued that Europe should consider a similar approach to that of the United States. Lee Beck, senior director at the Clean Air Task Force noted that “climate is a political-economy outcome” and Europe could benefit greatly from an incentives-based approach that can commercialize technologies. Ben Backwell, chief executive officer of the Global Wind Energy Council, added, “It’s not about taking investment from one place and going somewhere else… we should not see this as a competitive thing at all.” He recommended designing “an IRA for Europe.” 

Tim Holt, member of the executive board and labor director at Siemens Energy, and Julian Mylchreest, executive vice chairman of Global Corporate & Investment Banking for Bank of America, emphasized that there need not be a competition for money, attention, or other resources among the transatlantic allies. Both private-sector representatives agreed that there is sufficient capital for rapid decarbonization in the United States and the European Union. They argue the IRA is especially well-positioned to catalyze that money and drive transformational change at scale in key sectoral investments such as hydrogen and carbon capture, utilization, and storage. 

The panelists all cautioned that more challenges to IRA implementation remain; Crabtree pointed out that the US government remains understaffed and under-resourced in managing the regulatory and permitting side of the IRA, particularly with the wave of applications for new infrastructure (such as carbon storage wells) that is expected to come. The panelists’ discussion conveyed that while the IRA represents a crucial and impactful step forward, realizing its full potential—for both the United States and the world at large—will be an ongoing process with numerous hurdles still ahead.

Editor’s note: Bank of America is a sponsor of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

Overcoming the biggest challenges that stand in the way of a net-zero developing world

By Andrea Clabough

According to Isabel Munilla, deputy assistant secretary of energy for market development, climate, and multilateral engagement at the US Department of Energy (DOE), “innovation anywhere supports progress everywhere.” Speaking at a Global Energy Forum panel about supporting developing countries in their net-zero goals, Munilla described a number of innovative programs at the DOE that may help, including the Net Zero World Initiative, which aims to mature, then scale, promising decarbonization technologies, as well as the Clean Energy Solutions Center, through which the Department offers technical assistance. She said that the DOE believes driving down costs for key technologies in the United States (such as with the DOE’s “cost targets for hydrogen and long-duration battery storage) will help set the developing world on a pathway to success.

But other panelists cited extant challenges. Otmane Benamar, GE Gas Power’s chief technology officer for Europe, Middle East, and Africa, warned that especially in the developing world, “a lot of grids cannot handle the intermittency of renewable fuel,” upping the urgency to improve and harden grid infrastructures. Daniel Schroth, director of the African Development Bank’s Renewable Energy and Energy Efficiency Department, agreed with Benamar, adding that focus should also be placed on improving legal and regulatory frameworks for power systems in developing countries. Mary Burce Warlick, deputy executive director at the International Energy Agency, pointed to the extremely high costs of capital—in some cases seven times that of developed regions—as a key limiting factor in moving money to the regions that need climate finance the most. She argued that governments providing concessional finance can help ignite the private sector, which can then begin to move money at a meaningful scale. 

The panelists’ discussion conveyed that there are numerous and complex problems in scaling up climate development finance, and they are unlikely to be resolved with any silver-bullet solution; however, the panelists largely agreed that there is potential for transformative change.

Editor’s note: GE is a sponsor of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

John Kerry on the carbon offset initiative that aims to bring renewable-energy investment to developing countries

By Andrea Clabough

“We have to be more than deadly serious,” about climate change, said US Special Presidential Envoy for Climate John Kerry at the Global Energy Forum. “This is life and death.” 

Kerry spoke on a panel that included representatives of each of the partners behind the Energy Transition Accelerator, a joint initiative introduced at COP27 last year that is intended to catalyze billions of dollars in much-needed private-sector investment to phase out fossil fuels and accelerate renewable energy. 

Kerry said that the Accelerator is one important way to move trillions of dollars of annual climate financing (foundational to limiting global warming to 1.5 degrees Celsius) to where it is needed most: developing countries and the energy sector. He explained that “energy is the single summary of how you cure this problem… [because] the problem is emissions.” The partners behind the Accelerator, he explained, are figuring out how to “de-risk the deals that are out there… and create valuable deals” that will make investment in the energy transition a viable opportunity for the global private sector.

At the Forum, the partners announced new guiding principles for the Accelerator, a list that calls the project to be inclusive, comprehensive, and high-integrity; it also calls on the project to promote near-term efforts to reduce greenhouse gas emissions and to incentivize new private-sector climate finance that is supplemental to, rather than a substitute for, other sources of finance.

Kerry was joined by Accelerator co-founders Andrew Steer, president and chief executive officer of the Bezos Earth Fund, and Elizabeth Yee, executive vice president of programs at The Rockefeller Foundation. Yee and Steer both emphasized the importance of a “highly credible” and transparent initiative, resilient to claims of “greenwashing.” Yee noted that the system created by the initiative must accelerate job growth in developing countries to build robust coalitions behind clean-energy acceleration. She also said that the Accelerator will need to ensure that it allocates a certain percentage of funds from carbon-credit sales toward adaptation purposes. Steer said that carbon credits are necessary because, without this clear incentive structure, cleaning up the global energy sector (through investment in renewable energy) is “not happening at anywhere near the pace that is required.” He added that the governance element of this mechanism, such as ensuring that emissions reductions in one locality are not neutralized by emissions increases elsewhere, is crucial to ensuring credibility and success.

Read more

Global Energy Forum

Jan 15, 2023

US climate envoy John Kerry outlines new principles for accelerating private capital needed for the energy transition

By Atlantic Council

US special presidential envoy for climate John Kerry joined with partners behind the Energy Transition Accelerator to announce the next steps for the initiative at the Global Energy Forum.

Energy & Environment Energy Markets & Governance

COP28 leaders: Here’s how to spark a just energy transition that includes everyone

By Andrea Clabough

What does equity really mean in the context of the upcoming COP28? Panelists at the Global Energy Forum discussed how to ensure the entire global community is brought into the transition. 

Yasmine Fouad, the Egyptian minister of environment and ministerial coordinator, played a key role in Egypt’s execution of COP27 in 2022 as the country’s climate envoy for the summit; she argued that each COP must build upon the other and that, going forward, COP28 must be defined not by exclusion but rather by inclusion. This inclusion should highlight groups such as the Global South, the world’s least developed countries, and women—but it should also embrace industries that have felt unwelcome in the COP process. Pointing to the oil and gas industry, Fouad said that “the crisis affects us all, so everyone has to be around the table.” She suggested that all industries and all sectors of the economy must be prepared to put forth credible transition strategies. 

Mahmoud Mohieldin, the United Nations (UN) special envoy on financing 2030 agenda for sustainable development, focused on the need for localized solutions to ensure that no one gets left behind in the energy transition. He emphasized the financing challenge for debt-stressed developing economies and the progress made by innovative financing models at local, regional, and global levels that are directing money toward the most vulnerable countries and regions. He argued that because the climate crisis has arrived, “ministers from developing economies should ask for more funding for adaptation” immediately. 

Damilola Ogunbiyi, special representative of the UN secretary-general and chief executive officer of Sustainable Energy for All, concurred with Mohieldin on the need for immediate, innovative financing models. She cited her organization’s African Carbon Market Initiative as a key example but also encouraged further action: “You cannot hit net zero and leave a billion people in energy poverty,” she said. She added that close partnership with recipient countries, bearing their unique resources and potential decarbonization pathways in mind, must underpin these efforts, explaining that “being realistic about what a country has to do is important.” 

The panelists’ remarks underscored the enormous challenge ahead for the UAE during its COP28 presidency as it seeks to integrate a wide range of sectors and stakeholders, particularly those long shut out from the COP processes; pave the way for an implementation plan for the loss and damage fund; and mobilize climate finance for the developing world.

Read more

Global Energy Forum

Jan 15, 2023

The lessons of COP27 and how they can apply to COP28

By Atlantic Council

Speaking at the Atlantic Council’s Global Energy Forum, leaders from COP27 in Egypt give a debrief on lessons learned that could be applied to COP28 in the United Arab Emirates.

Energy & Environment Energy Markets & Governance

Day one coverage

• How the UAE could tackle the tricky business of climate diplomacy
• The role of natural gas vs. renewables sparks debate
• Europe has taken major strides to reduce its dependence on Russian energy. How can it work for the long haul?
• What will it take to solve the energy trilemma?
• Powering forward—and paying for—the energy transition
• UK official: Cooperation on a low-carbon, secure energy future “makes us all more prosperous”
• Gas is here to stay—until renewables are ready, say ministers
• COP28 president-designate: With the world “way off track” on Paris goals, “transformational progress” is needed
• The 2023 Global Energy Agenda

How the UAE could tackle the tricky business of climate diplomacy

By Andrea Clabough

As climate change rapidly accelerates, geopolitics seems to be pushing the key players who could resolve it further apart. But according to an expert panel of diplomatic and private-sector experts who gathered Saturday at the Global Energy Forum, that direction need not be destiny, and creative approaches may yet help the global community fill the gaps. 

Charles Hendry, former minister of state for energy for the United Kingdom, opened the discussion with the view that the United Arab Emirates, host of the upcoming United Nations Climate Change Conference of the Parties (COP28) is ideally suited to help bridge the serious and growing differences among key stakeholders such as the United States and China, but also many developing countries skeptical of Western leadership on climate. Neil Brown, managing director at KKR Global Institute, concurred that the UAE brings “credibility” on climate negotiations where the United States and Europe often lack it. He emphasized the importance of what happens not at COP28 but afterwards—especially for the private sector. “Will [COP28] bring private capital off the sidelines?” Brown asked.

Paula Dobriansky, senior fellow at the Harvard Kennedy School of Government and vice chair of the Atlantic Council’s Scowcroft Center for Strategy and Security, reiterated that great-power competition could still dangerously undermine collective, targeted action at COP28 regardless of who hosts the conference. She highlighted China and Russia as problematic examples of countries that remain largely aloof from the COP process and deeply suspicious of US leadership. Ana Palacio, former Spanish minister of foreign affairs and a member of the Atlantic Council’s board of directors, added that China is among those intent on undermining a rules-based international order. In this context, she argued that the US Inflation Reduction Act is a sorely needed example of leadership that has intrinsic value for Europe. 

The panelists agreed that geopolitical competition is as tense now as anytime in recent memory—but this competition cannot be allowed to circumvent meaningful collaboration wherever possible on addressing climate issues. Trust and mutual agreement must be pursued wherever possible, and the UAE at COP28 may be best positioned to make up the trust deficit.

The role of natural gas vs. renewables sparks debate

By Andrea Clabough

Are expanded investments in natural gas fundamentally in conflict with renewable energy as the world ponders the reliability challenge of the coming decades? This was a central debate among panelists on Saturday at the Global Energy Forum. 

Paddy Padmanathan, vice-chairman and CEO of ACWA Power, which has a wide-ranging portfolio of projects in several developing countries, argued that the focus should be on the potential of renewable and emerging energies to power the future. He suggested that Europe can rapidly replace Russian energy resources with expanded renewable power and that it is already doing so. Likewise, many developing countries are starting from the ground floor on energy access altogether; renewable energy can be deployed quickly and effectively at scale, compared to conventional fuels projects which could take a decade or longer to become operational. 

But the other panelists had different views. Helima Croft, managing director and head of global commodity strategy of RBC Capital Markets, cautioned that the worst of the global energy supply uncertainties may be yet to come—for example, if China reopens and dramatically increases its oil and gas demand later this year. She expressed concern that Europe and the world writ large may be forced to rely on the Organization of the Petroleum Exporting Countries (OPEC)—which has the only real spare capacity in the world—and traditional energy diplomacy in such a circumstance. 

Osama Mobarez, secretary general of the East Mediterranean Gas Forum, emphasized that a strategy like REPowerEU, which may prove viable in Europe, may not be so in many developing countries. He warned that no one solution (such as renewable energy alone) can satisfy the energy needs of the world and that oil and gas will remain integral to the global energy system for years to come—themes echoed by speakers throughout the Forum. Carlos Pascual, senior vice president for global energy at S&P Global Commodity Insights, concurred that multiple energy sources are essential in a world where billions of people still lack access to reliable power and clean cooking resources. He added that high capital costs for many developing countries, which are not typically a barrier to renewable energies with high up-front costs in the United States and the European Union, are a major challenge that could potentially shut these economies out of major growth opportunities due to poor energy access.

This debate suggests that equity and justice considerations around clean energy, the Just Transition, and energy poverty remain fundamental challenges despite the rapid, and ongoing, progress in lowering barriers to zero-carbon energy sources. 

Editor’s note: RBC Capital Markets is a sponsor of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

Europe has taken major strides to reduce its dependence on Russian energy. How can it work for the long haul?

By Andrea Clabough

Europe has just faced one of the most dangerous, fraught years in its recent history—with energy security at the heart of the challenges presented by Russia’s invasion of Ukraine. At the Global Energy Forum on Saturday, Ditte Juul Jørgensen, the European Commission’s director-general for energy, joined officials and business leaders to discuss how Europe weathered the storm (so far) and what the European Union (EU) can do in concert with its allies and private-sector leaders to remain resilient against Russia’s ongoing weaponization of energy. 

Jørgensen’s keynote remarks highlighted how the EU’s energy security strategy, RePowerEU, was initially received with skepticism at its launch in May 2022—with critics asking: “Can Europe reduce its dependence on Russian energy supplies as much as they say they want to?” she recalled. “Yes is the answer after this year, and it has been done swifter than what anyone had in mind.” 

She argued that by setting clear and binding targets, and matching action with ambition, Europe was able to withstand Russia’s attempts to starve the continent of energy. She concurred with Maksym Timchenko, CEO of Ukraine’s DTEK, who argued during the panel discussion that Ukraine can, and will, rebuild its energy infrastructure and become a reliable supplier of natural gas, nuclear, and renewable energy to its European neighbors. “Putin will not plunge Ukraine into darkness,” he said. “The country will not be frozen. And we will be stronger after this winter season.”

Geoffrey Pyatt, assistant US secretary of state for energy resources, said that the Russian invasion has demonstrated the strength and endurance of the US-EU alliance and that the United States remains firmly committed to seeing Europe through the upcoming winter and beyond. US liquefied natural gas (LNG) exports and the shared commitment to energy transition, Pyatt said, are central to this partnership. He framed the Inflation Reduction Act, currently a source of transatlantic tension given its tax credits for electric vehicles made in the United States, as an opportunity for Europeans to invest in the United States and ultimately accelerate the energy transition on both sides of the Atlantic. 

Panelists representing European energy companies offered their own suggestions on how Europe might move forward. Anatol Feygin, executive vice president and chief commercial officer of Cheniere Energy, suggested that his company has pioneered the very model of market flexibility that enabled Europe to resist Russia’s manipulation of energy markets. Even so, he argued that it is critical for suppliers of natural gas to continuously improve the lifecycle emissions profiles of their products. Luis Cabra, deputy CEO of Repsol, noted that while Europe has made vast strides in reducing emissions, renewables alone cannot solve the complex, multi-faceted problem of economy-wide transition.

Ben Wilson, chief strategy and external affairs officer of National Grid, suggested that the powerful combination of hydrogen and renewable energy is a compelling long-term solution for Europe and that investment in transmission must accompany the anticipated enormous expenditure in new renewable energy capacity. Amid these varying perspectives on what to do next, one thing is clear: Europe has a great deal of work ahead to fully disentangle itself from Russian energy over the long term.

Editor’s note: DTEK, Cheniere Energy, and Repsol are sponsors of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

European energy security commentary & analysis

Working with a wide-ranging community of experts and stakeholders, the European Energy Security project provides timely commentary and analysis on the geopolitical, sustainability, and economic implications of transatlantic energy security developments

What will it take to solve the energy trilemma?

By Andrea Clabough

Panelists discussed the challenges in solving the energy trilemma—affordability, reliability, sustainability—at the Global Energy Forum on Saturday, soon after the Atlantic Council’s Global Energy Center launched the 2023 “Global Energy Agenda.” The panel featured Albanian minister of infrastructure and energy Belinda Balluku and experts representing private-sector energy companies including Crescent Petroleum, General Electric, and Excelerate Energy. 

Balluku opened the discussion with a frank assessment of the energy security situation in Southern Europe. She pointed out that there’s a need for not only a range of energy solutions to address the current crisis fueled by the Russian war in Ukraine, but also for long-term resiliency and economic growth in the region. She highlighted the importance of rapidly expanding Albania’s renewable energy resources (an expansion that has been accelerated all over Europe by Russia’s recent invasion). But she also noted the importance of Albania’s strategy around Floating Storage Regasification Units (FSRU)—a strategy supported by the United States—which has since 2020 become a cornerstone project supplying imported liquid natural gas to Albania’s neighbors. Diversification of energy supplies and suppliers, she concluded, is thus crucial to Albania’s and Europe’s energy security. Steven Kobos, president and chief executive officer of Excelerate Energy, concurred with Balluku and pointed to his company’s rapid response FSRUs in Finland and elsewhere. He warned, however, that a real supply crisis for natural gas could be in the making as demand outside Europe could grow in the coming months and new supply in the near term will be sharply limited as new production infrastructure is still years out from operations. 

The other panelists offered similarly nuanced views of the role of gas in the energy transition—particularly when considering the unique needs of many developing countries. Neeraj Agrawal, chief financial officer of Crescent Petroleum, described his company’s work harnessing natural gas to shift Iraqi electricity generation away from diesel fuel, which is more polluting. He argued that natural gas will be a lynchpin resource for many developing economies in Africa and Asia that are decarbonizing while providing a reliable power supply to more than one billion people worldwide who lack it. Roger Martella, chief sustainability officer at General Electric, agreed with the imperative to expand global electrification but steered the conversation toward the importance of resiliency. He argued that amid accelerating cyber attacks and intensifying climate change, the world must harden electrical grids. He also acknowledged the need to address the “ecosystem” of challenges in building energy infrastructure in many parts of the world which, he said, policy alone cannot solve on its own.

Editor’s note: Crescent Petroleum, General Electric, and Excelerate Energy are sponsors of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

Read the report

Global Energy Agenda

Jan 13, 2023

The 2023 Global Energy Agenda

By Landon Derentz, Christine Suh, Ameya Hadap, Paul Kielstra (Editors)

The third edition of the Global Energy Agenda provides context for the year that has passed. It features a survey of thought leaders in the energy sector, as well as a series of essays by the leading figures in energy, to set the energy agenda for 2023.

Energy & Environment Geopolitics & Energy Security

Powering forward—and paying for—the energy transition

The energy transition will require unlocking tremendous amounts of capital; but energy investments aren’t keeping up as much as is needed, warned a panel of experts at the Global Energy Forum on Saturday.

Read more

Global Energy Forum

Jan 14, 2023

How to finance a sustainable and just energy transition

By Atlantic Council

At the Global Energy Forum, experts plotted out ways countries can incentivize investments that can support a stable energy supply and finance a sustainable and just energy transition.

Energy & Environment Energy Markets & Governance

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UK official: Cooperation on a low-carbon, secure energy future “makes us all more prosperous”

By Andrea Clabough

According to Grant Shapps—the UK secretary of state for business, energy, and industrial strategy—energy matters more than it ever has before.

Shapps’s message was part of keynote remarks he delivered at the Global Energy Forum, where he emphasized both what has and has not changed in the energy sector over the last year. He pointed to hard energy-usage choices that the world has faced as prices for fuels have skyrocketed and the world’s low-income economies have been forced to make difficult decisions. In addition, the worrisome acceleration of climate change has presented a constant threat as heat waves have scorched Europe, bomb cyclones have devasted the United States, and flooding has led to thousands of fatalities in Pakistan. 

But Shapps expressed his confidence in the future, arguing that “we will succeed as humanity” in fighting the existential challenge of climate change. He noted the growing number of entrepreneurs and innovators worldwide pushing ahead with crucial technological innovations, such as the recent nuclear fusion success at the United States’ Lawrence Livermore National Laboratory. He lauded Britain’s rapid strides in building some of the largest wind farms in the world in the North Sea, which provide 86 percent of the United Kingdom’s electricity needs. These developments, he concluded, should give us all hope for the future. 

He cautioned, however, that “a fairer future is worth fighting for” and emphasized the need for expanding just transition initiatives, such as those in South Africa and Indonesia, to provide both climate and economic security (as well as needed job growth) to developing countries. Despite the world facing what he deemed a challenge no other generation has faced before, he said there are many reasons to be hopeful—and much work to be done.

Shapps’s remarks took place a day after the United Kingdom and United Arab Emirates signed a Clean Energy Memorandum of Understanding to increase investment and cooperation between the two countries on energy security. “When it comes to climate change… none of us should have to settle for less. So working together really matters.”

Gas is here to stay—until renewables are ready, say ministers

After gas prices spiked this year, some energy users are beginning to regain a sense of equilibrium with steadier prices. But that may not be the case in the long term, said two energy ministers speaking at the Global Energy Forum.

“There isn’t much gas coming into the market until 2025,” said Saad Sherida Al-Kaabi, the Qatari minister of state for energy affairs and president and chief executive officer of QatarEnergy. “So I think it’s going to be a volatile situation for some time to come.”

“Gas has to be available, and it has to be affordable,” to help support renewable energy, clean up the environment, and assist countries in reaching their climate goals, said Suhail bin Mohammed Al Mazrouei, UAE minister of energy and infrastructure.

“More renewable energies will be installed,” Al Mazrouei added, “but we need a baseload; and for a baseload, we need more investments in gas.”

Editor’s note: The UAE ministry of energy and infrastructure is a partner of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

H.E. Eng. Suhail bin Mohammed Al Mazrouei and H.E. Saad Sherida Al-Kaabi speak with Frederick Kempe at the Atlantic Council’s Global Energy Forum on January 14, 2023. Photo via the Atlantic Council.

H.E. Eng. Suhail bin Mohammed Al Mazrouei and H.E. Saad Sherida Al-Kaabi speak with Frederick Kempe at the Atlantic Council’s Global Energy Forum on January 14, 2023. Photo via the Atlantic Council.

H.E. Eng. Suhail bin Mohammed Al Mazrouei and H.E. Saad Sherida Al-Kaabi speak with Frederick Kempe at the Atlantic Council’s Global Energy Forum on January 14, 2023. Photo via the Atlantic Council.

H.E. Eng. Suhail bin Mohammed Al Mazrouei and H.E. Saad Sherida Al-Kaabi speak with Frederick Kempe at the Atlantic Council’s Global Energy Forum on January 14, 2023. Photo via the Atlantic Council.

H.E. Eng. Suhail bin Mohammed Al Mazrouei and H.E. Saad Sherida Al-Kaabi speak with Frederick Kempe at the Atlantic Council’s Global Energy Forum on January 14, 2023. Photo via the Atlantic Council.

H.E. Eng. Suhail bin Mohammed Al Mazrouei and H.E. Saad Sherida Al-Kaabi speak with Frederick Kempe at the Atlantic Council’s Global Energy Forum on January 14, 2023. Photo via the Atlantic Council.

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Global Energy Forum

Jan 14, 2023

Why accessible and affordable gas plays a role in helping countries reach climate goals and expand renewable energy

By Atlantic Council

Energy ministers from the United Arab Emirates and Qatar discussed the role gas plays in the energy transition at the Atlantic Council’s Global Energy Forum.

Energy & Environment Energy Markets & Governance

COP28 president-designate: With the world “way off track” on Paris goals, “transformational progress” is needed

By Daniel Malloy

With a pivotal United Nations climate change summit set to take place in the United Arab Emirates at the end of this year, “the world is playing catch-up” to implement emissions-reduction goals, said UAE Minister of Industry and Advanced Technology Sultan Al Jaber, the newly designated president of the summit. But, he added, there’s ample opportunity to accelerate new technologies and refashion old ones to reach net-zero emissions, a milestone that would represent “the greatest economic and human promise since the first Industrial Revolution.” 

In his first remarks since being named the incoming president of the twenty-eighth UN Climate Change Conference of the Parties (COP28), Al Jaber spoke on Saturday morning at the Atlantic Council’s Global Energy Forum in Abu Dhabi, a two-day gathering of policymakers, government officials, and business leaders that sets the energy agenda for the coming year.

Al Jaber acknowledged that the world is “way off track” in hitting the goals of the 2015 Paris climate accords, intended to limit global warming to 1.5 degrees Celsius. 

But in his first opportunity to set out the vision for the landmark conference—which he said will be a COP of “solidarity” and “action” as it engages in the first “global stocktake” progress report—Al Jaber offered a roadmap to the “transformational progress” he envisions.

Editor’s note: Al Jaber is CEO of the Abu Dhabi National Oil Company and chairman of Masdar, both of which are sponsors of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

Read more

Global Energy Forum

Jan 14, 2023

COP28 president-designate: With the world ‘way off track’ on Paris goals, ‘transformational progress’ is needed

By Daniel Malloy

In his first remarks since being named the incoming president of COP28, Sultan Al Jaber spoke on Saturday morning at the Atlantic Council’s Global Energy Forum in Abu Dhabi.

Climate Change & Climate Action Energy & Environment

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The 2023 Global Energy Agenda

By Landon Derentz, Christine Suh, Ameya Hadap, Paul Kielstra (Editors)

In 2022, Russia’s invasion of Ukraine undermined the global energy system’s return to pre-COVID normalcy, injecting turmoil and uncertainty into the sector. Russia’s gas cuts led Europe to compensate for the loss of energy supply by reverting to coal and oil, leading the global community to confront deepening tensions between national security, energy security, and climate action.

However, the crisis in Europe, despite causing an upsurge in carbon-intensive power, provided the world with fresh impetus to change the trajectory of the energy transition. In response, policymakers worldwide are hastening efforts to decouple their economies from foreign hydrocarbons and to decarbonize energy systems. Ultimately, the war may accelerate longer-term energy trends toward a more sustainable and secure system.

Against this backdrop, energy leaders head into 2023 with a greatly revised outlook from 2022, as revealed in the Atlantic Council’s third edition of the Global Energy Agenda. The publication includes an analysis based on our survey of energy stakeholders, representing a wide variety of professions across the sector from more than fifty countries. Complementing our survey analysis, a diverse group of experts, corporate leaders, and policymakers contributed essays that provide deeper insights on the tumult of 2022 and its implications for reshaping energy systems for the future.

Despite a year defined by complications to the energy transition, there is reason to be optimistic as the global energy community doubles down on in-tandem efforts to achieve climate goals and longer-term energy security for all.

Read the agenda

Global Energy Agenda

Jan 13, 2023

The 2023 Global Energy Agenda

By Landon Derentz, Christine Suh, Ameya Hadap, Paul Kielstra (Editors)

The third edition of the Global Energy Agenda provides context for the year that has passed. It features a survey of thought leaders in the energy sector, as well as a series of essays by the leading figures in energy, to set the energy agenda for 2023.

Energy & Environment Geopolitics & Energy Security

The post Highlights from Abu Dhabi as policy leaders gathered for the Global Energy Forum appeared first on Atlantic Council.

Flagship Event Sat, January 14, 2023 • 12:01 am ET

2023 Global Energy Forum

The 2023 Forum will have a special focus on the challenge of managing energy security priorities and decarbonization efforts in tandem, including the continuing impact of the crisis in Ukraine on the energy transition. This two-day conference starts at 9:00 AM in Abu Dhabi and virtually at 12:00 AM ET (midnight).

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Event transcript

Uncorrected transcript: Check against delivery

Speakers

Amos Hochstein
Special Presidential Coordinator for Global Infrastructure and Energy Security, US Department of State

Claudio Descalzi
Chief Executive Officer, Eni

Bernard Mensah
President of International, Bank of America

Elizabeth Yee
Executive Vice President of Programs, The Rockefeller Foundation

Moderator

Hadley Gamble
Anchor, CNBC

Introduction

Landon Derentz
Senior Director, Global Energy Center, Atlantic Council

LANDON DERENTZ: I’m Landon Derentz. I’m the senior director of the Atlantic Council Global Energy Center and I’m really excited to welcome each of you back to the seventh annual Global Energy Forum as we build on what was, really, a remarkable and incredible morning featuring Their Excellencies—His Excellency Dr. Sultan Al Jaber, Minister Suhail Mazrouei, Minister Saad al-Kaabi, and, of course, Minister Grant Shapps.

When I joined the Atlantic Council last year and we began to build towards this forum, I gravitated towards one issue: How do we incorporate a conversation about financing all aspects of the energy transition, both conventional and clean?

We heard this morning the world is short energy today, and without investing trillions of dollars into the zero-emissions technologies and infrastructure we need we’ll be short energy tomorrow. As we shift to the next segment of the program, I’m really excited because we’re lucky to have the experts that can help us start to break down the financial barriers to accelerate the energy transition.

Before we have a panel discussion hosted by Hadley Gamble, to kick off this discussion I’m thrilled to invite to the stage one of the strongest voices in global energy policy in Washington, DC, maybe even globally, and bring to the forum his deep policy, diplomatic, and industry expertise.

So please join me in welcoming Amos Hochstein, special presidential coordinator for global infrastructure and energy security. Welcome, Amos.

AMOS HOCHSTEIN: Morning, and thank you, Landon. It’s good to be back in a place where I can be working with you and in your new role in the Atlantic Council. Really, congratulations both to you and to the Atlantic Council, and, really, congratulations to the Atlantic Council for convening again because when the Atlantic Council has this gathering, as I think, Dr. Sultan says, it’s setting the agenda for the year, for 2023, and as we look at setting the agenda, I think before we can set that agenda we have to look, I think, in review of 2022 and to see what kind of lessons we need to learn and what we’ve learned.

Now, 2022 is packed with a lot of things that happened. So I want to focus on the many lessons that we need to learn on—within the energy sector.

This is a year where the energy markets were upended, not by market fundamentals but, rather, by missiles, tanks, and bullets as a horrific assault of one country on its neighbor, invasion, the aggressor being a major energy supplier, which then impacts the markets and really changed—as we sort of talked about a little bit earlier, changing the flows of energy in a way that we never thought would ever happen but also we probably would think was never possible.

How could Europe possibly survive not one but two winters without flows from Russia? And, yet, that’s exactly what has been unfolding and we’re still in that process of trying to figure out how do you redirect energy around the world, both in gas, oil, and upon us on February 5 is the EU ban on oil products, and that is a change that we saw fundamentally in 2022, [and] we have to think about what does that mean.

And one of the things that that means as we focus on the energy transition is we have to do so while ensuring that we have adequate supplies in the market, and how do we do two things at the very same time? How do we make sure that commodities are priced—first of all, commodities are available and are priced in a way that support economic growth, especially as the world is facing increased inflation concerns and, potentially, a recession and trying to battle against that?

How do we make sure that we focus on that transition, but we do have enough investment in increased production that supports the years of the energy transition to make sure we have those commodities and priced appropriately?

And while we do that, we have to invest in accelerating the energy transition and that means increasing investment in [the] deployment of renewable energy and advancing clean technology. In 2022, the US Congress passed the largest investment in energy, climate, and energy transition that we’ve ever seen in the United States. And while we’re seeing that, we know that that investment is coming, and we’re going to look at 2023 as the year of implementation. And we know that to do that, we have to think about the last two years were about getting the tools—in the United States at least, getting the tools from Congress, getting the funding that we needed in this investment.

But as we go forward, now it’s all about implementation. It’s all about making sure that we can have the resources to invest. And we’re already seeing that ahead of 2023 taking shape in the United States. We’ve seen record investments in solar, wind, electric vehicle, battery supply chains, materials, and products from mining to processing—opening the first mining sector in the United States that we’ve seen in many, many decades; the first cobalt mine opening in Idaho this year. These are things we haven’t seen in the United States in a very long time. And what that means is that we can ensure a diversified energy security for the future.

So as we’ve talked about for the last twenty years energy diversification, and we talked about oil and gas, we now have to have the exact same conversation for energy diversification in the energy of the future. And as we do that, that is the agreement that we signed with PACE that was mentioned before between the United States and the United Arab Emirates, a Partnership to Accelerate Clean Energy, to invest together one hundred billion in these technologies.

But here is the thing that was blocking us. Here is what’s not working. As we hear financial institutions and the private sector and governments around the world talking about hundreds of billions of dollars into trillions of dollars of commitments and pledges to invest in the energy transition, we have to talk more about where are those dollars being deployed. They’re being deployed increasingly only in OECD and developed countries, and not in developing countries and middle-income countries. And that’s because there’s a barrier to finance. And that barrier to finance is risk—whether it’s commodity risk or it’s currency risk or ESG risk or—well, the E of ESG or the G of ESG—and reputational risks. And therefore, the easier dollar is always going to be spent somewhere in the United States or in Germany or in Australia, or in Chile, and that’s as far down as we go when it comes to the developing and middle-income countries.

And that’s the—that’s the kind of discussion we need to have, is how do we come together to de-risk. What is the role of government? What is the role of banks? What is the role of private equity? What are the roles of multilateral development institutions and financial institutions [in de-risking] these projects? What are the kinds of steps that can be taken so that we don’t just have examples of a project here and there, but actually have a de-risking of these projects so that they are not just investment opportunities or charity or development, but they are bankable projects? And I think that’s the challenge that we’re going to face as we go into the future if we really want to have an equitable energy transition. And if you want to fight climate change, it can’t be done in one group of countries and not in another.

So I’m looking forward to this panel. I’m looking forward to the next couple of days as we look at how we manage this energy transition…

HADLEY GAMBLE: Good morning, everybody, once again, and welcome to the Atlantic Council’s Global Energy Forum. I’m here to join you to talk about something that is very close to all of our hearts and minds, and at a time when energy security has never equaled national security in quite the same way.

We’re going to be talking about financing a sustainable and inclusive energy transition. Amos you know. I want to introduce the rest of my panel. Liz Yee. She is the executive vice president at the Rockefeller Foundation. I’m also speaking to Claudio Descalzi, of course, the CEO of Eni; and Bernie Mensah, the president of international at Bank of America. Panelists, welcome and thank you so much for joining us.

I want to kick it off, actually, with Amos. Just to sort of follow on to the situation that we find ourselves in today, it’s no secret that the oil and gas community in the United States had high hopes, if you will, of the fact that the Republicans would be taking the House and what that could potentially mean for their agenda in the United States. But given what we saw over the last couple of weeks and their seeming inability to elect a speaker, do you think those hopes are misfounded?

AMOS HOCHSTEIN: Speaking of energy finance…

HADLEY GAMBLE: You know me so well.

AMOS HOCHSTEIN: Well, first, I think there were high hopes for the Republicans, for winning the House and the Senate. I think they’re willing to look at the House or maybe now they’re happy they only won the House.

Look, I think it’s not about politics on this issue. It’s—

HADLEY GAMBLE: Of course it is.

AMOS HOCHSTEIN: Politics govern so much of what we do in order [to] be able to get things done.

But what I said before is what I really mean. We’ve gotten a lot of tools from Congress. Congress has passed enormous amounts of funding for energy, for [the] energy transition. So I think where we need to be now is working with the oil and gas sector.

And you know, the Biden administration is clearly going to have continued disagreements on many issues with the oil and gas sector in the United States. It is no secret. I don’t need to say it another way. We’re going to have disagreements. But I think we can also come together in dialogue to understand that we are living through an extraordinary time—a time of a war in Europe that is affecting the energy market… that we are coming out of COVID, the demand is rising, and we’re all battling together to make sure we don’t have an inflationary pressure. So I think the dialogue that we need to have with the oil and gas sector in the United States is how do we have an increase in production, how do we take extraordinary profits and invest them right back into America, into additional production.

I think that’s not going to be about Congress. We’re going to hear a lot of investigations and hearings, and Congress will do what Congress does. But I think we have to keep our eye on the ball, and that is to make sure we have enough production in the United States and around the world while we do everything else to invest in the energy transition. We know we need it, and we know that we have a horizon that is long enough to justify those investments.

HADLEY GAMBLE: It’s tough to engage with the American oil and gas community when you’re telling them that they’re acting in an un-American way by giving profits back to their shareholders. Isn’t that capitalism? And capitalism, doesn’t that pay for our ability to be a democracy and project our values?

AMOS HOCHSTEIN: So, Hadley, as you and I have discussed before, in prior discussions, what I mean about when I say un-American, there’s no accusation of companies’ motivations and companies how they’re working. But when you’re in a place where as a result of this extraordinary year, the two best quarters in 150 years are both in the same year, and you compare the profit level of companies with the historic arc of translating profits on a sustained basis within investment in [capital expenditure (CAPEX)], we’re a little bit of a mismatch of—based or in a correlation to historic trends. And therefore, if you are going to have those [kinds] of profits—and these are not revenues; these are profits—on a sustained basis and not invest, that is not what [the] American business community has done for the last hundred-plus years. And we want to go back to the way it normally is, that when there is an extraordinary event, when there are large profits, when there’s justification for additional capital expenditures, the companies do that.

And to be fair, that’s exactly what’s happened over the last couple of months and weeks. We have heard more American companies announce that they are increasing CAPEX for 2023. Their projection for increased production in 2023 is going up as well. We’re having those conversations not just with American companies, but with companies both public, private, and state-owned to have the same exact conversation across the board.

HADLEY GAMBLE: Is a windfall tax still on the cards for 2023?

AMOS HOCHSTEIN: I’m going to leave that conversation for—if that’s a tool that we need, then we can talk about it. It is not on the table at the moment.

HADLEY GAMBLE: Bernie, I want to bring you in and talk a little bit more about the finance side of things. When you look at what’s happening in the United States today, obviously when it comes to governing, a divided house is not necessarily what you want from a policy perspective, but from a markets perspective, from a finance perspective, from a banking perspective, tied-up House and Senate actually means markets can look forward to a bit of status quo.

How difficult, in your mind, is 2023 going to be for the financing of projects that we’re talking about today?

BERNARD MENSAH: Thanks, Hadley. Thanks for having me here, and great to be here this week.

I think for us in finance the big issue is what the central banks are doing, and I think that’s what’s driving global flows. The deposits taken by the largest banks—and we all announced our results yesterday through the pandemic—increased a lot. I think our balance sheet at Bank of America went up from something like 2.3, 2.4 trillion dollars to about 3 trillion dollars, some of that because of all the stimulus money that came in.

But I think one of the most important macro issues that we’re all facing is that for ten years, central banks have expanded their balance sheets enormously, by trillions of dollars. I think cumulatively Japan, Europe, United Kingdom, and the United States, maybe ten trillion, something like that. They’ve all said, we’re shrinking our balance sheets back down, and we’re feeling that ripple effect. And I think after ten years of expansion, it’s going to take more than a quarter or two for that to feed through. And we’ll all have to adjust from zero rates, negative rates. I’m not sure if it’s a headwind, but it will be a reallocation of all of those excess savings in the marketplace, and we’ll deal with that, and we’re very well set up and able to deal with that.

And everybody is watching what happens to just, you know, overall savings rates, et cetera. Within that there’s a huge amount of capacity to lend and to drive changes, and I’m sure we’ll touch on this later. And I absolutely sympathize with what Amos has been saying, which is getting the capital and the balance sheet to the right place. There is a huge amount of excess savings in the world—in this region, in Japan, in Northern Europe, in the United States, and our job in finance is—that’s what we do. We take money from the savers and give it to those that want to invest it, and we’ve done it very well in the standard model of the oil and gas sector. As we move into this new sector, that’s the challenge. And that’s why I’m here; that’s why we’re all super engaged.

HADLEY GAMBLE: So less the politics and more the central bank policy.

BERNARD MENSAH: Yeah, the central bank policy is an important—this is in oil and gas. I don’t want to turn it into a finance piece, but it’s something that we—not that we grapple with, but I think in finance we’re cognizant of the fact that that expansion of central bank balance sheets was massive. It drove massive underlying flows, and when it stops and it’s starting to shrink, it will have impacts definitely.

HADLEY GAMBLE: No doubt. No doubt.

Claudio, I want to bring you in on this just a little bit more broadly. Earlier we had the chance to hear from two of our, frankly, experts in the field: His Excellency, Suhail Al Mazrouei, the UAE’s energy minister, as well as Saad Al Kaabi, the energy minister from Qatar, two gentlemen that I have interviewed on multiple occasions. And we heard some comments about 2023 and what that should look like. And one of the comments was that we should forgive Russia. How difficult is that to hear?

CLAUDIO DESCALZI: We have to forget Russia or—

HADLEY GAMBLE: Forgive.

CLAUDIO DESCALZI: Ah, forgive. (Laughter).

No, I don’t know. I think that the war is still there, and it’s not easy to forgive anybody when you kill people, or innocent people, or women and children, and bomb hospitals…(audio breaks).

HADLEY GAMBLE: Bernie, in terms of those financial instruments, what does this look like to you?

BERNARD MENSAH: It has solutions for this. I think it looks like a lot of—I think it looks like a lot of just engagement… across different parts of the capital structure. So… just have a different risk appetite although they’ll have different, you know, return metrics that they might want, which is different to what shareholders of Eni might want or what just my bank, others. We’ve got a structure financing that’s been growing… then you call somebody that Amos might know and he might come in, or she, and figure out how to make that work. The Indonesian just energy structure was interesting. It started off in South Africa.

Perhaps my specific piece is trying to make sure that we do it at scale as quickly as possible. At the moment, my sense is [there are] lots of smaller things. There’s an element of, oh, isn’t this cool, we’ve done this innovative thing for this piece here. But it hasn’t really lit a fire, as I might say. But practically, those things are—those things are happening.

HADLEY GAMBLE: Yeah.

One of the comments that we heard earlier from Mr. Mazrouei, he was, essentially, saying the challenges, the things that he’s worried about, and he said another year of high price fluctuation. Amos, in your mind, is the United States prepared for prices at a hundred dollars? Because when we spoke yesterday on CNBC, there have been suggestions that we could see prices at a hundred, $110 a barrel, and you told me, I just don’t know if prices will get there.

AMOS HOCHSTEIN: And since yesterday, I still don’t know. But I think that there’s a—look, it’s not for us to—we have to prepare for different scenarios and what we’ve done over the last eighteen months in hyperdrive has been to work with consumers and suppliers around the clock.

I mean, I’ve—before the war started, I was making calls to Claudio to ask him, in different scenarios what happens? How do you surge capacity in different markets? And I called others to do the same thing—how do we figure out what that is?

I can’t control what the price is going to be. What I can control is what our reactions are and we had a weird market wherein gas—global prices were rising but it was because of an event. We were taking a product off. A producer took its product off the market all of a sudden in natural gas. We now have—the EU passed a ban on crude and a ban on products. We have a price cap on crude. We may have a price cap on products that would come into play in a few weeks from now. We have to see. We’re all in discussions on that.

So we are—this is a—this is not a regular market where there’s just price fluctuation based on supply and demand. There are real geopolitical events that are affecting that. So I think we do have to be prepared for higher prices and what our responses are. We will be prepared for that. We are looking at those scenarios. We have to be prepared for the reverse and what happens if prices decline and go to a lower level, and how are we opportunistic in the market there in order to continue to ensure our future.

So this is going to be a really fluid dynamic. I don’t know what’s—I think Claudio is right in one fundamental way, and I think His Excellency Minister Mazrouei, as you just quoted, that this year is going to be about the war, and what happens in the war, if it escalates or if it dissipates, will determine where the price and what the price environment that we’re all in. And we’re going to have to all get together and have this conversation. And that’s going to go towards the financial sector in the United States and around the world, the oil and gas sector, and the governments to figure out how do we prepare for it.

HADLEY GAMBLE: Yeah. You’ve used the Strategic Petroleum Reserve repeatedly to address price fluctuation. Some people would say successfully, others would say you got lucky or it was a blip. What else is on the table?

AMOS HOCHSTEIN: Look, let me just correct you. We didn’t use the Strategic Petroleum Reserve because of price fluctuations. We’ve had plenty of price fluctuations in the past. We had years of prices above a hundred dollars and we didn’t use the Strategic Petroleum Reserve. We used the SPR as the result of a crisis that was causing price fluctuations, and there’s a big difference. The previous time we used the SPR was during the Libya war when nearly two million barrels came off the market overnight. It’s not the fluctuation that you’re addressing; it’s the fact that there’s an underlying security crisis that is an emergency. And that’s what the SPR is. We’ve used it, as you said, in extraordinary [circumstances].

If you remember, in June we were at over $120 a barrel. Today, we’re at eighty dollars or so. So if those who argue that adding a million barrels a day doesn’t matter, then it shouldn’t matter in any event. So I think that’s a bit hard to argue.

We’ve used—we have more that we can use in the future. I think that we worked together with Congress and canceled the mandated releases 2024 through 2027. That’s a significant amount of oil that the market was expecting that would be released from the SPR. Well, we canceled it. In this price environment, that doesn’t make a lot of sense. And we will at the same time continue to use that if a crisis emerges or one that will affect consumers in the United States and around the world. And I think the alternative of going into a recession as a result of exceeding energy prices is probably not advantageous.

HADLEY GAMBLE: Yeah.

Claudio, how difficult is the price environment for you today in Europe? Because we’re talking about recession. We’re talking about the worries about central bank policy. And frankly, in the United Kingdom, they are already there.

CLAUDIO DESCALZI: So the price is not really the main problem because after eight years of very low prices other companies, our company immediately reacted so—because we cannot control the price, we had to control, ourselves, the cost. And we reduced what we call the cash neutrality, so the total breakeven. We can imagine that in 2012, 2013 the average cash neutrality for a company was $110, $100 per barrel. Now it is about less than forty dollars per barrel. It means that with a price at forty dollars a barrel, you can survive. Maybe you break even, but you can go ahead. So there [is] a lot of efficiency that we can create.

The issue outside is that—so outside our company—what you said before. We have a situation over a gap between demand and supply. And the supply is low because we didn’t invest. And after COVID and after the war, we realized that the hydrocarbon demand with coal we can say is inelastic. Ten, twenty years ago we thought that now the gas demand in Europe was 50 percent less; the same. And in China, it’s seven or eight times more. So there is a big increase of gas demand, and that was good because coal went down. Now coal is ramping again. So we have this issue that we have to invest.

And investing now is not easy. You must have the right key performance indicator to go to bank and ask for money because what we are doing still is link our bond or our financing process to sustainability link bonds. We have been the first last year to have a framework that we presented, and then after one month we issued bond. Sustainability bond means that you have to set a path out to 2050 where you must be net zero. You must have intermediate targets, so 2026, 2030, 2035, 2040, 2045, 2050. And you have to demonstrate in term of renewables, [carbon dioxide], greenhouse gas emissions, methane emissions, scope one, two, and three. So is a—is a matrix over a lot of elements, certified. You go to the bank and say: I need this because I have this. And if you’re not able to be compliant, you pay a penalty in term of cost of money. So it’s quite complex. A big company can do that. Small companies, much, much more difficult, so they cannot get money to invest in the upstream. So the process is this for the investment.

Then—and we talked before—the supply chain, there is a big disruption. So now there is hub. There is onshoring, nearshoring. And after COVID, we have a regional hub that try to be self-sufficient because they realize that if they need something it was not like before that you buy also if the product is built—is manufactured in somewhere else. No. Now the main and critical issue to survive must be in your country. So that means a big separation. That is true for renewables, because there is now a long-distance connection. It’s true for everything. So energy. From energy you have health, food. Food is—we never talk about food, but the disruption that we have with food because of the war and because of the, I think, lack of investment especially in Africa—Africa is buying everything—is creating a very dangerous underbalance.

So I’m not worried about the price—the price I can cure the price with our internal stuff—but the rest. So if we have to increase the production to reduce the price it’s almost impossible now, first of all because upstream take six, seven years to get through with some production—maybe more if it’s a green field—and then we have this discrepancy and gap between the supply that we made in the last three years. Talk about green hydrogen, where we work, or renewable in term of continuity of energy deliver. And we are not there.

HADLEY GAMBLE: Yeah.

CLAUDIO DESCALZI: So we have to be, I think—you know, the issue is that, it’s not for the United States, but generally speaking, that the world never talk about energy security. Never, because energy is there, Russia. And we never talk, like for the virus, we never talked about COVID. But overnight, everybody became expert. So everybody talk about COVID. Now everybody talk about energy. And that create a big mess.

HADLEY GAMBLE: (Laughs.) Are we talking about the politicians or just the—

CLAUDIO DESCALZI: No, no, I talk about—I talk about everybody.

HADLEY GAMBLE: The armchair politicians.

CLAUDIO DESCALZI: It’s a big mess because, you know, you must be competent to talk about something. You can jeopardize and kill somebody, kill—in term that you can arm somebody, because if you select the wrong solution that is much worse than the problem itself.

HADLEY GAMBLE: Do you ever believe there will be accountability for those who made decisions that actually imperiled Europe’s security with regards to Nord Stream 2, with regards to Nord Stream and to the relationship with Russia? And I’m talking about Angela Merkel and others.

CLAUDIO DESCALZI: I think that if there is no energy security plan, you know, what you can do. If there is an energy security plan, the first one is diversification of regional—of the sources, diversification—diversification of technologies, and experts permanent ready to face the issues. So that is organization and processes. If you don’t have that—and it’s not easy. You grab what you have every day and you live day by day, but that is not in an organized and rich society.

HADLEY GAMBLE: Yeah.

Bernie, when you think about how difficult it is for you to make decisions long term, obviously, His Excellency the Qatari energy minister was talking about governance and the worry of having a four-to-eight-year time horizon on what you can do, and the security of your investment as a result of that. Now we’re seeing activist investors pushing back. We’re seeing, for example, the Florida—the state of Florida, in terms of their pension fund, they don’t agree with the ESG methods in investments, for example, of Larry Fink, and so they’ve decided to pull their money. We saw that during the Trump administration as well. To your mind, how difficult does that make your decisions? Because if you can’t—if you don’t have a long-term horizon and you’ve got to worry about, as we say, the politics—and perhaps those may or may not actually understand the energy market—it’s kind of tough to be one of the top investors.

BERNARD MENSAH: We would love a roadmap set by the politicians that says here’s the transition path, here are the transition energy sources, here’s what’s going to happen. And then that way we can, you know, figure out, you know, what the investment horizons might be, et cetera. And actually, we’re one of those highly regulated industries, so we don’t want to become a tool for that policy mix. A decision by governments—our regulators telling us what our balance sheet should look like or stressing it in this way or that or adding capital or liquidity buffers given how—what our lending book looks like. So we’re very keen to be told what the path is and then—and then to get it.

If a government says no more hydrocarbon cars in ten years or—

CLAUDIO DESCALZI: No more Claudio. (Laughter.)

BERNARD MENSAH: No more—(laughs).

CLAUDIO DESCALZI: You drop—you drop me.

BERNARD MENSAH: Then it makes a difference. So we have to manage through that. And we have huge competing interests that call on us and ask us what we’re doing with our lending, absolutely. In the United States, there are some states that have subpoenaed us—it’s public knowledge—with respect to what our lending policies are, and we have others that are the other way. I occasionally attend our annual general meeting when it’s in person, which it hasn’t been, and we have a lot of activists that are pretty aggressive about what we’re doing. So we have to navigate that, which is fine. That’s what we do. And I think that’s what we choose to do. But I think we are engaged, as is the rest of the industry, in really trying to keep that balance and to manage through.

And then the other thing I would say is, touching a little bit on where Claudio went, there is a lot of underlying infrastructure and finance as well that isn’t as visible—really boring stuff like accounting policies and disclosure policies. And we do a lot of work with middle-market companies that are in the supply chain because for Eni, for the big companies, they know what’s coming and they’ve got the resources to set themselves up for that. And we worry about a lot of people that we lend a million dollars to, two million dollars to, smaller companies that will wake up one day and find that they can’t sell their product on Amazon because Amazon says is it green or not, and they’re like, what are you talking about. So there’s a lot of nitty-gritty work. But some of the things around accounting disclosures are really dull—I could send everybody to sleep in the room—but really important, like, I think, in the energy space grids, for example, where I’m absolutely not an expert but in the last six to eight months I’ve realized how critically important it is. And I’m getting my credit investment committees to make sure that we’ve got, you know, the capital to back acquisitions, mergers, restructurings in a bunch of large, you know, grid spaces around Europe.

HADLEY GAMBLE: Yeah.

Elizabeth, just in terms of the job situation, particularly in the United States, obviously, with the transition, depending on which side of the fence you fall, this could be a boon for US job growth, and at the same time we are hearing so much pushback from politicians who say that this is bad for business. In your research, what have you seen?

ELIZABETH YEE: I’m so glad you brought that up because I think, listening to the conversation, I want to make sure that we put people at the core of what we do. One of the things we talk about is being in the humanity business, and I do think, you know, there are, with the [Inflation Reduction Act (IRA)], with the Infrastructure and Jobs Act, there are a lot of opportunities to create jobs. You know, the transition’s going to be hard, but we can’t lose sight of the fact that from that there is a lot of opportunity to be created.

And I see my colleague Joseph Nganga in the front row. I mean, that is why, for example, at the Glasgow COP we launched the billion-and-a-half-dollar philanthropic and [nongovernmental-organization] alliance called the Global Energy Alliance for People and Planet, which is focused on energy access for the eight hundred million to a billion people who don’t have reliable energy and want to be part of the modern economy and need to be part of the modern economy. But in so doing, it’s not just the carbon. It’s really thinking about how do we actually create the millions and millions of jobs that need to happen. How do we make sure—Hadley, we were talking about, too—women, half the planet, we need access to jobs.

And we have seen when we actually put women at the center of what we do—and we’ve been working in India, I think just to your point, Bernard, one of the things that the Global Energy Alliance does is it supports small developers to be able to deploy mini-grids to places that don’t have access to energy so that we have clean energy in communities that don’t currently have that opportunity. If we do that, we create jobs in the community so that they understand and they have a chance to be part of the green economy. We electrify communities. We’ve seen household incomes rise by 30 percent. So I think if we can continue to do that, both in emerging markets but also, Amos, in our home country, I think there is a lot of things that we can tap into to create the jobs of the future that we need for the transition.

HADLEY GAMBLE: Amos, the Inflation Reduction Act, a major win for the Biden administration, landmark legislation, but has ruffled feathers, as you know, in Europe. And apparently, they’re even considering a Buy European Act to counter what they see as unfair practices. There was even the suggestion that we could see in the coming weeks a move to file a complaint against the United States at the World Trade Organization over this. When you take a step back and think about this a bit more broadly, how dangerous is it that in the moves to the energy transition, because they are coming from very different governments and very different situations, we could undermine the strategic alliance of the West?

AMOS HOCHSTEIN: Well, first, I think it would be difficult to say that the Biden administration is undermining the alliance. I think the—really the last eighteen months have been all about strengthening the alliance. And I, in twenty-seven years in working in Washington in both energy and foreign policy, have never seen the alliance stronger, in fact. And I think one of the things that Putin underestimated the most and was surprised the most was the strength of the alliance, both the transatlantic one—NATO—but then beyond that into global alliances from Middle East to Asia and around the world. So I think the alliance is strong.

I think you saw President Macron’s visit in Washington a few weeks ago where President Biden addressed this issue directly and said that we’re going to be working with the EU. We have a task force that’s working between the Commission and the United States. We’re working also with other countries that affect.

The IRA is an enormous success. I mean, it is a remarkable investment in clean energy that nobody ever expected the United States to do. In fact, most people inside the United States who spend a lot of money trying to figure out what’s about to happen in America did not know that this legislation would pass, and it did. And it has some things, as when you do large pieces of legislation like this that are transforming the economy into the future, there are going to be some things that we got to fix and we have to address. And we’re working with our allies to be able to address them.

But I think that that should not be the distraction towards what we are achieving. One, unemployment is at the lowest rate it has been in a very, very, very long time in the United States—talking, Elizabeth, to your point about putting people at the center of this. The IRA is driving investment from around the world and inside the United States in a sector that—what have we been all saying since Paris? That we want to drive investment and incentivize investment in an energy transition. That’s what the IRA was supposed to do, and that’s what it—I’ve never seen something translate so quickly, and we’re already seeing those investments in the United States in this sector. We’re doing things we haven’t done in a long time. We are diversifying a global economic engine of renewable energy from one single-source supplier, which is where we are heading, into a much more diversified sector. So I think the IRA is incredibly important.

And I think we’re going to be fine with the—in the alliance, but I think it’s important for countries to follow suit, not in the way you described, but in creating these incentives across the board. We need more of that. And if you think about some of the things that we are depending on—so just on the critical minerals, and I know we’ll talk about it during this conference—some of the processing facilities that don’t exist yet that we are going to be building now, if they are built on time and in the broadest term—sort of expectation of what they hope the size will be, it will still only supply us, in the near term, 15 percent, 20 percent of what the United States’ demand is.

So we need these kinds of incentives across the board and around the world for countries to incentivize investment, and that’s what Claudio was talking about when he says that a carbon tax—what does a carbon tax do in Europe? It incentivized him to invest in [the current cost of supplies].

And what Bernie is talking about—if you have these kinds of incentives, then he is going to unlock in his investment committee the dollars that need to go to this. That’s what the IRA does; it’s not about isolating the United States from the rest of the world; it’s about sending a message that’s a clear message across the world we need to incentivize investment because on its own, it’s not going to happen. We have this mantra of the market will fix it, the market will address it. The market will not fix it, the market will not address it. And investments into transforming the global energy system is not going to happen. We need to build a lot more across the whole spectrum.

Look at nuclear. We need to have a lot more nuclear if we want to reach any of these goals, whether it’s traditional nuclear, or it’s SMRs, or future fusion investment that we need to do. But to do that, the market on its own is not going to do it. We have to create government spending and signal sending to the market that if we’re willing to make the small dollar investment, that will leverage the larger dollar investment.

And so I think that all of these things are not signs of weakness in the alliance; on the contrary, I think they are signals of strength of the alliance. We’ll get past it; I assure you we’re going to be fine.

HADLEY GAMBLE: More time in Brussels for me.

Gentlemen—Claudio, you had a point?

CLAUDIO DESCALZI: Do I finish, or? No, I just want one comment on what Amos said about the need to give incentive or—not subsidy, incentive through the investment. It’s true, and it’s not—a gap between the United States and Europe is a general gap also inside Europe because you can do that also if you have the fiscal space.

HADLEY GAMBLE: Yeah, and I—

ELIZABETH YEE: Hadley, can I just add on to that for one sec? I think one of the things that I just want to make sure—I mean, it—emerging markets only have 27 percent of the flows they need to actually do the energy transition. I just don’t want to lose sight of that because I think it’s really critical to your point, Amos. And I think one of the things that I—you know, to the point of trying to create, bring together critical actors to change…

We need to fix the global financial architecture in a way that it doesn’t—that is not impeding investment from the private sector, that encourages additional investment from government. And so I think, you know, working together as a planet to achieve these goals, with all the different people coming together…

HADLEY GAMBLE: Thank you guys so much for joining.

Watch the full event

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Flagship Event Sat, January 14, 2023 • 12:01 am ET

2023 Global Energy Forum

The 2023 Forum will have a special focus on the challenge of managing energy security priorities and decarbonization efforts in tandem, including the continuing impact of the crisis in Ukraine on the energy transition. This two-day conference starts at 9:00 AM in Abu Dhabi and virtually at 12:00 AM ET (midnight).

Africa Americas Energy & Environment Energy Markets & Governance

Event transcript

Uncorrected transcript: Check against delivery

Speakers

H.E. Eng. Suhail bin Mohammed Al Mazrouei
Minister of Energy and Infrastructure, United Arab Emirates

H.E. Saad Sherida Al-Kaabi
Minister of State for Energy Affairs, State of Qatar; President and CEO, QatarEnergy

Moderator

Frederick Kempe
President and CEO, Atlantic Council

FREDERICK KEMPE: It’s an honor to be with the two of you today, and thank you for helping us kick this off. Concerns around energy security and improving energy access in the developing world have been at the top of the agenda this year, with natural gas being a major area of attention given Europe’s efforts to rapidly diversify its natural gas imports.

So I actually have two questions. One of them is that we had a quite extraordinary 2022 in the energy world, and a little bit of reflection on that but what you expect for 2023. But then, on world natural gas questions, prices spiked this year but seem to be returning back to earth. And then, within 2023, in your eyes does it reflect an equilibrium of supply and demand balance for gas, or do you foresee in 2023 further imbalances on the horizon in the short term but—or through this year? So a look at the year ahead, a reflection on the year past, with a specific look at what you expect for natural gas. Minister.

MINISTER SAAD SHERIDA AL-KAABI: Well, first I’d like to thank you for hosting me and thank my very good friend His Excellency Suhail for inviting me to this event. It is a pleasure to be back in the UAE with such a distinguished audience.

I think if you, you know, look at the gas supply/demand and what happened last year, it started actually before the [war in] Ukraine, where a lack of investment in the oil and gas sector caused really a shortage in gas. And ahead of the [war in] Ukraine, the oil and gas prices, obviously, were clearly going higher due to lack of supply. And that lack of investment was driven by many factors, including, you know, the bigger push for the green without having a real plan for how the transition is going to happen. So there was a scarcity of investment over about five, six years. And then, when the Ukraine situation happened, you know, a big volume was taken out of the market, and obviously, that would take it even further up.

I think—and you know, 2022, the spike is very obvious why, but 2023, I think it has come down as everybody has witnessed. But you know, the mild winter, I think, in Europe is the biggest cause. And there is storage—I mean, ample storage—but luckily, they haven’t had a very high demand for gas due to the warmer weather. The issue is what’s going to happen when they want to replenish their storages in this coming year and the next year. There isn’t much gas coming into the market until 2025, 2026, 2027. So I think it’s going to be a volatile situation for some time to come.

FREDERICK KEMPE: And prices will be volatile with it, it’ll be going up and down, but—

MINISTER SAAD SHERIDA AL-KAABI: Yeah, prices are a factor of supply/demand. I think some people think that we are very happy for high oil prices and so on. The biggest worry that we would have, I think, as an oil and gas producer is demand destruction, and you can see that there is demand destruction with—whether it’s gas or oil. And, unfortunately, and I think of the wonderful speech that we heard from His Excellency Sultan, [he] talks about what we’re going to do, going forward, and we’re all for what he mentioned.

But you can’t have coal at record highs and say that we are going to achieve our targets. You know, 30 percent of the power in the world thus far uses coal, and all the countries that were calling for coal to be stopped are using it at record levels today.

So I think I we need to take very serious action and I think coal is the biggest emitter by far and I see a lot of [attacks] on oil and gas companies and demonizing oil and gas companies. I don’t see the same attack on the biggest polluter on the planet.

FREDERICK KEMPE: I’m really looking forward to coming back to you about the communication question.

Mr. Minister, you have lived through so much change and so much history since you took over as the minister, everything from OPEC+ to what we experienced last year, rolling off the war in Ukraine.

How do you look at 2022? What do you expect for 2023? And the same question, particularly with a particular focus on natural gas?

MIN. SUHAIL BIN MOHAMMED AL MAZROUEI: Well, first of all, it’s glad to see this crowd. I think probably this is the biggest Atlantic Council energy that we have ever since we started, and I’m grateful for His Excellency and for all of Your Excellencies for coming.

Actually, the—I would build on what His Excellency Saad mentioned. We’ve been talking about the lack of investments and the lack of interest from the financial institutions to finance fossil or oil and gas projects, and part of that is also the lack of understanding [of] what is the future for many countries when it comes to energy strategy, what contributions or what percentages they would have of gas or even the pace of reducing their coal.

It’s not clear. I mean, there are plans but those plans are not concrete and then that unclear long-term strategy by many countries put them in a situation where it’s very difficult for them to commit [to] long-term gas contracts, which has in return made the companies or those who are developing the gas at a very difficult position with their financiers because they would like to see long-term contracts and those long-term contracts are not there.

Everyone [wants] to buy, but they want to buy in a two-year or three-year span, and that is not enough for someone to develop gas. Gas is available and there are huge discoveries in recent history. But the development pace is not there, and the investment is not there.

So that is one of the problems or one of the issues that is causing the problem today. Of course, Russia is a major producer of gas and LNG, and when you shift from one location to another, trying to adjust, that takes time and that’s what happened in 2022 where some of that gas has been relocated to another market and other gas from other markets is [coming] to Europe, especially from the US.

But is that sustainable in the longer run? I think you’d need more collaboration between the European nations on agreeing on the optimization of the [Floating Storage Regasification Units (FSRUs)] that are also limited and also agree on some pipelines. I think one of the things that [contribute] to energy security is pipeline gas, and together with Qatar and with Oman we have established the first regional Middle East pipeline that is secured and made energy security affordable and available for the three countries, and I think in the future—if you ask me about the future, I think we need to do more of these projects.

There are countries [that] require gas and we cannot do everything as LNG. I think [the] state of Qatar and His Excellency personally is involved in some of the largest expansions of LNG. Dr. Sultan as well and ADNOC, they are also increasing their capacity of exporting. But even with that, with those investments, it’s not enough.

Gas has to be available, and it has to be affordable to secure and to become a base load that helps the renewable energy and helps [clean] up the environment and [reach] the COP goals.

And we are committed. We will do the investments. But I think the whole world needs to think about the resources and needs to think about how we enable the companies and the [international oil companies and national oil companies] to produce more gas to make it available and affordable.

FREDERICK KEMPE: Thank you for that answer.

Minister al-Kaabi, I want to come back to your comment about demonization. This is a country that’s one of the—I guess, OPEC’s third largest producer of energy. It’s also a country that’s been a pioneer. Dr. Sultan talked about Masdar in the renewable space at the same time.

In the COP process in the past, the climate community and the fossil fuel providers were rarely in the same room. Are you seeing a change?

The climate community seems to be more open now to, particularly, natural gas as a bridging fuel, more open to nuclear power as well, other solutions in decarbonizing carbon, and the fossil-fuel community is investing billions in new technologies and renewables, et cetera.

Dr. Sultan was talking about a paradigm shift. Is that too utopian to think that that’s where we’re going? Talk a little bit about how you think these two communities can come together and actually accelerate the reduction of emissions, not slow it down.

MINISTER SAAD SHERIDA AL-KAABI: If I can just be a little bit blunt, maybe, about this is the community that was driving the green was living in a dream that they realized they can’t achieve, OK, and, basically, if you want to achieve what we all want to achieve, I think—we’re the hottest place in the world, probably. So climate change affects us more than most. So, for us, it’s very important that we head in that direction. It’s very important that we achieve these goals.

But we need to be realistic about what we can and cannot achieve and we can’t be driven by just political agendas of people wanting to be elected. OK. It should be based on reality, based on what can be achieved. I’m an engineer. You tell me, I want to achieve an objective, I’ll tell you, OK, can I do it per the plan, what’s the budget, and [can] we achieve it at this timeline.

But just to talk about achieving net zero and the majority of the countries that you talk to they talk about net zero and you say how you are going to achieve it, they say we achieve 60 percent, 70 percent of it by 2040 by doing this, this, and that, and the rest is technology improvement.

So that—I’m not a native English speaker but that doesn’t mean we will achieve net zero. It means we will strive to, we’ll try, we’ll see what we can do to achieve it. OK.

So, to me, I think the realization of the need for gas because wind doesn’t blow all the time, solar is not available all day, and technology improvements in storage and so on is going to improve and there are a lot of things that will improve and, hopefully, help us in that scale.

But I think there are two sources that will be needed for the very long time for people that don’t have hydro and other, you know, renewable energies. You need nuclear for those that can afford it and are capable of building it and have the technology. And you need gas. And these two will have to be the baseload for countries for a very long time.

And I don’t agree that gas is a transition fuel. I think it’s a destination fuel until we have a realistic solution that can do away with gas. It’s a destination fuel that you will need for a very long time. And when we say we need more investment in gas—and as His Excellency mentioned, you know, they’re expanding in LNG. We’re building 65 million tons. We’re producing 77 million tons today. We’re building 65 million tons of LNG that has already been [through a flame ionization detector] OK? Now, so almost double. I mean, 48 million tons coming from Qatar and our investment in the U.S. is another, you know, 16 to 18 million tons. So we’re bringing, really, a lot of gas to the market, but it’s not enough.

And you can’t achieve what we need as humanity and the number of people that are going to grow. As His Excellency Dr. Sultan mentioned, we need growth. One billion people today are deprived of basic electricity that we all enjoy. So we need to be fair.

And I think one point I’d like to just add to that on the investment side; it’s very, very, very unfair of some in the West to say that African countries should not invest in oil and gas and they should, you know, remain green or whatever you want to call it while this is a God-given wealth that they can create for their national growth and for their prosperity. And it is oil and gas that is needed for the world. And we should not forget the oil and the petrochemicals and what you need there. People love kayaks. They love the coolers that they take for picnics. There is no renewable that can manufacture that. It’s oil-based solutions that get you there, OK? So it’s plastics and so on that are needed. I know we need to do a lot of work there, but let’s not forget reality of what we need. A lot of stuff that you have around you here, and the decoration and the flooring and all that, is oil and gas. We’re wearing, OK? So let’s be realistic while achieving the goals that we want.

FREDERICK KEMPE: Minister Suhail, I’d love you to build upon what you’ve just heard from your colleague with the question of: The climate community perhaps dreamt dreams that were inachievable, but also from the fossil fuel provider standpoint is enough being done?

MIN. SUHAIL BIN MOHAMMED AL MAZROUEI: No, I don’t think we are doing enough. But there is—there is a wave of new thinking. And I see it more in the IOCs, in the NOCs. Typically, the technology and all of that comes from you, Descalzi, and the others who are here.

But I am really glad to see companies now thinking of reducing their carbon intensity, to see state-owned companies seeking the highest technologies to reduce methane emissions. And that is a kind of a change in the industry that we haven’t seen. We need to remember that the cleanest hydrocarbon is probably produced here in the Gulf. If we compare the carbon intensity of what we produce as a barrel here and you compare it with barrels elsewhere, probably we have the cleanest barrels or the greenest barrels you can find. And that comes at an investment. It doesn’t come free. I mean, us and Qatar and—and same with gas. You could produce gas, but you could produce gas also with the intention in mind to reduce the carbon intensity. And that’s, I’m sure, what QP is doing and Qatargas and what ADNOC is doing.

The fact that we here… Abu Dhabi [walks] the talk and [says] that the only electricity we will use in the field to produce oil is going to come from renewable or clean sources, that’s by itself, it’s a commitment. It doesn’t come free. It comes, I’m sure, at a cost. But that’s the cost that we are willing to do our part. And I’m sure we will see more of these actions.

So we will do our part, but realistically, you need a base load. Until we reach a price for the base load to complement the hundred-percent renewable energy, whether it’s a battery or other technologies, we will need a base-load contributor. And I agree [with] what His Excellency said, for a very long time, gas will be there. Percentage-wise, it may reduce—and it will reduce, but in obsolete numbers, it will increase and it will increase significantly. What is the worry? The worry: with that increase in demand, we will not have enough supply. And gas and oil are finite resources; they are not going to stay there forever. We have seen countries going steeply in decline only—I mean, talking about oil, and gas is like oil—only within the twenty-three countries with OPEC+.

Since 2000, the reduction and the ability to produce is more than 3.7 million barrels. What does that tell you? That tells you that we are in a decline. Many countries, they are in the decline mode. Same with gas I am sure. So not every country has the resources that Qatar has, or [the] UAE has, or Saudi Arabia, or other countries. Many countries have started earlier, and they are [on] the decline more. Same with the United States. How many—how many years? And are we going to have enough batteries or technologies to assume that we will have it, and it’s going to be uniform everywhere? I think that’s a big assumption.

But at the same time, we need to do what Sultan has said, and we are committed to do it as a country. We can afford to do it, and many countries we do. But can we enable and be a platform for inclusiveness, so everyone is enabled to do it? How many companies like Masdar [do] we need? And how many alliances like the one with the United States [do] we need with the one hundred gigawatt?

India will need to install probably five hundred gigawatt in the next twenty to thirty years, and more in China, and many other countries. That’s I think where we are. More renewable energies will be installed, but we need a baseload, and for a base load, we need more investments in gas.

FREDERICK KEMPE: Thank you for that, Minister Suhail.

So Minister Al-Kaabi, I racked my brain last night about how to think about a question that linked the global energy market to the World Cup, and I couldn’t come up with it. And Lionel Messi just couldn’t get into any of my questions. But congratulations anyway on the World Cup.

MINISTER SAAD SHERIDA AL-KAABI: Thank you.

FREDERICK KEMPE: Give us your view of what you foresee in the global gas market that might be preventing the market from reaching equilibrium. Is it the resources? Is it the investment? You know, so much is being demanded of gas right now, so much is being demanded of LNG. If you had told me, you know, two years ago that suddenly Germany would have, within six months, three new import terminals brought into the market by the vice chancellor of Germany, who is the leader of the Green Party—it would have sounded preposterous.

So how do you see the future of equilibrium in the market? And what are the problems in getting there?

MINISTER SAAD SHERIDA AL-KAABI: Yeah, on the German side, we were negotiating with the Germans for about ten years, and suddenly they came to us and said, we want to build terminals. So, you know, the world changes.

I think, you know, the equilibrium will be achieved by hopefully some kind of a mediation or truce or some kind of a political solution where Russia and Europe get things, I think, sorted out, if you will, politically hopefully, and the sooner the better. I don’t think that—this war and this situation will not last forever. And I understand that the Europeans today are saying there is no way we’re going back to Russian gas. We’re all blessed to be able to forget and to forgive. And I think things get mended with time.

And I don’t think some of the countries that were depending 100 percent or, you know, a very large percentage on Russia will not go back to 100 percent or 80 percent or maybe 50 percent. They will diversify and they’ll learn from that situation, and probably have a much bigger diversity. But the Russian gas is going to come back, in my view, to Europe. It is next year? Is it in five years? I don’t know. But once the situation is sorted out. And that, I think, will be a big relief to the whole gas sector and to the whole market in Europe, and will stabilize prices. And again… on a big scale, our project from the United States is going to bring about eighteen million tons starting at the end of 2024 and then really peaking in 2025. And then QatarEnergy’s investment in our, you know, expansions in Qatar, 48 million tons are going to come. The rest are smaller projects that will come a little bit later. But other than that, that’s the volume that’s coming. And if governments and legislators do not promote additional gas investments, as His Excellency Suhail said, if I am being very selfish that’s good for us, but that’s not good for the development.

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High rates of inflation across the world are forcing central banks to reluctantly tighten monetary policy despite accompanying recession risks. Moreover, restricted credit access could jeopardize energy investments, particularly for capital-intensive clean energy projects, potentially rendering the world more vulnera­ble energy to price shocks, which are a significant contributor to the current crisis. 

This paper briefly considers the macroeconomic drivers of inflation in late 2022, including Russia’s war in Ukraine and uncertainties around energy supply, supply-chain resets, and lingering COVID-19 disruptions, before examining the persistent energy underinvestment of the past decade and how this has left markets exposed to varying degrees. As such, this paper also considers how private capital can accelerate cleaner energy adoption, suited to different markets’ unique conditions and needs. Bor­rowing costs will rise, but this doesn’t have to bring the transition to a standstill. With the Great Moderation of low volatility, interest rates, and inflation perhaps a relic of the past, assets offering inflation protection, such as infrastructure, may become increas­ingly attractive to investors.

There is a fear that global inflation will sharply curtail energy investment into emerging markets. The fear is justified. Higher interest rates in developed markets mean higher rates of return which will lure emerging markets investors back to the US and Europe.

Still, it’s not all bad news for emerging markets. Quasi-state actors like Pension and Sovereign Welfare funds are interested in very long term, high-yield projects—two criteria to which emerging market energy infrastructure correspond. Disruptions to interest rates and inflation, triggered in part by energy underinvestment, will cause disparate impacts in different markets.  

Inflation is not, perhaps, everywhere and always a mone­tary phenomenon. Energy investment faltered from 2014 to 2020, despite low interest rates. Meanwhile, aggre­gate supply shocks—first due to COVID, then from Putin’s invasion of Ukraine—have pressured energy production and prices, raising inflation and necessitating interest rate hikes. The consequences of persistent energy underinvest­ment are now becoming apparent. 

The need for new energy infrastructure cannot be met without private investment. This was the case when infla­tion was lower; it is even more important now.

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Charles Lichfield

Deputy Director and C. Boyden Gray Senior Fellow

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Joseph Webster

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With a pivotal United Nations climate change summit set to take place in the United Arab Emirates at the end of this year, “the world is playing catch-up” to implement emissions-reduction goals, said UAE Minister of Industry and Advanced Technology and COP28 President-Delegate Sultan Al Jaber. But, he added, there’s ample opportunity to accelerate new technologies and refashion old ones to reach net-zero emissions, a milestone that would represent “the greatest economic and human promise since the first Industrial Revolution.” 

In his first remarks since being named the incoming president of the twenty-eighth UN Climate Change Conference of the Parties (COP28), Al Jaber spoke on Saturday morning at the Atlantic Council’s Global Energy Forum in Abu Dhabi, a two-day gathering of policymakers, government officials, and business leaders that sets the energy agenda for the coming year.

Al Jaber acknowledged that the world is “way off track” in hitting the goals of the 2015 Paris climate accords, intended to limit global warming to 1.5 degrees Celsius. 

But in his first opportunity to set out the vision for the landmark conference—which he said will be a COP of “solidarity” and “action” as it engages in the first “global stocktake” progress report—Al Jaber offered a roadmap to the “transformational progress” he envisions.

Al Jaber called for tripling renewable energy generation by 2030, more than doubling low-carbon hydrogen production, and supercharging investment in agriculture technology and smart water use. “And we need to do all this in an accelerated time frame against a fast-approaching deadline,” he said.

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The 2023 Forum will have a special focus on the challenge of managing energy security priorities and decarbonization efforts in tandem, including the continuing impact of the crisis in Ukraine on the energy transition. This two-day conference starts at 9:00 AM in Abu Dhabi and virtually at 12:00 AM ET (midnight).

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Though the UAE is one of the world’s top oil producers and a member of the OPEC cartel, it has also made a fifty-billion-dollar investment in renewables and clean technology. Al Jaber, who also serves as group CEO of the Abu Dhabi National Oil Company, which is a sponsor of the Global Energy Forum, pointedly noted that 70 percent of the country’s economy is outside the oil and gas sector.

But the world still has an enormous thirst for hydrocarbons, a fact proven once again over the past year with the disruptions caused by Russia’s war in Ukraine. So, Al Jaber said, climate mitigation must include the fossil-fuel industry working to reduce carbon and methane emissions.

This kind of work requires the “breaking of silos” said Frederick Kempe, the CEO of the Atlantic Council, as he opened the Global Energy Forum. “I’m confident that Dr. Sultan is more than capable of rising to the opportunity of a new energy pragmatism which brings the climate and energy communities together in the name of shared action,” Kempe added.

After leaders at COP27 in Egypt agreed to the first-ever loss and damage fund to support countries of the Global South that are the most affected by climate change, Al Jaber said financing for this fund must double to forty billion dollars a year by 2025—with each taxpayer dollar matched by two or three from private capital. That will require, he said, “inclusive reform of the multilateral development banks and international financial institutions.”

Al Jaber will be at the forefront of climate diplomacy as the Persian Gulf state of ten million people assumes its place under a global spotlight this year, with the future of the planet on the line.

“The UAE approaches this task with humility, a clear sense of responsibility, and a great sense of urgency,” he said. 

Daniel Malloy is the deputy managing editor at the Atlantic Council.

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In 2022, Russia’s invasion of Ukraine undermined the global energy system’s return to pre-COVID-19 normalcy, injecting turmoil and uncertainty into the sector. Russia’s gas cuts led Europe to compensate for the loss of energy supply by reverting to coal and oil, leading the global community to confront deepening tensions between national security, energy security, and climate action.

However, the crisis in Europe, despite causing an upsurge in carbon-intensive power, provided the world with fresh impetus to change the trajectory of the energy transition. In response, policymakers worldwide are hastening efforts to decouple their economies from foreign hydrocarbons and to decarbonize energy systems. Ultimately, the war may accelerate longer-term energy trends toward a more sustainable and secure system.

Against this backdrop, energy leaders head into 2023 with a greatly revised outlook from 2022, as revealed in the Atlantic Council’s third edition of the Global Energy Agenda. The publication includes an analysis based on our survey of energy stakeholders, representing a wide variety of professions across the sector from more than fifty countries. Complementing our survey analysis, a diverse group of experts, corporate leaders, and policymakers contributed essays that provide deeper insights on the tumult of 2022 and its implications for reshaping energy systems for the future.

Despite a year defined by complications to the energy transition, there is reason to be optimistic as the global energy community doubles down on in-tandem efforts to achieve climate goals and longer-term energy security for all.

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Russian President Vladimir Putin’s recent remarks on the establishment of a gas hub in Turkey have sparked a big public debate both in Turkey and in Europe about the essence of the proposal. Putin had made a similar statement during the construction of the TurkStream pipeline back in 2018, a second string of the project designed as a transit line to bypass Turkey, in addition to the fact that purchasers with offtake agreements from the first string had no right to re-export the gas. The main parameters of a developed gas hub are liquidity, gas-on-gas competition, and the import and export of gas molecules without any barriers. Since TurkStream did not meet these parameters, the project did not contribute much to Turkey’s goal of becoming a hub.

Even as Turkey balances its relations with the West and Ukraine on the one hand and Russia on the other, it would do well to remember that ultimately, the most important factors that determine the reliability and depth of hubs are liberal market principles and not interventions from politicians.

Natural gas should be freely imported, traded, or exported by dozens of companies. That kind of trading structure can generate a reference price without any government intervention and turn a country into a hub. Henry Hub in Louisiana, National Balance Point (NBP) in the United Kingdom, and Title Transfer Facility (TTF) in the Netherlands are good examples of this.

Turkey’s hub dream

In Turkey the gas hub concept is a rare issue that state institutions and the private sector agree on, at least in principle. Negative impacts of the pandemic on energy markets, followed by skyrocketing gas prices due to Russia’s war in Ukraine as well as a lack of investments in upstream activities, caused the hub concept to lose its former popularity in the country. However, after Turkish President Recep Tayyip Erdogan’s warm welcome of Putin’s statements, Energy Minister Fatih Dönmez stated that the proposal should be studied. A few weeks later Dönmez said that a gas hub roadmap would be completed by the end of the year and that an international conference will be held in Turkey early next year, bringing all stakeholders together.

In fact, the idea of a hub is one that has been talked about and studied for a long time by the stakeholders of the Turkish natural gas market. When I was the general secretary of PETFORM, which is one of the largest energy NGOs in Turkey, we carried out in-depth studies on the establishment of a gas hub in Turkey compared to developed Western hubs such as NBP, TTF, and Henry Hub. Between 2013 and 2020, PETFORM prepared detailed proposals and presented those to decisionmakers. Some of these proposals have been realized, and some are waiting to be realized. They can be summarized under four key themes.

1. Infrastructure

Infrastructure investments are the first and the most important issue. In 2013, Turkish daily send-out capacities of liquefied natural gas (LNG) terminals was 36 million cubic meters (mcm) per day, and its overall gas injection capacity to grid was 185 mcm/day, not allowing for the coverage of peak demand in winter. This changed dramatically after a Turkish Air Force plane downed a Russian fighter jet in November 2015. Back then, Russia was supplying almost 55 percent of Turkey’s gas demand, and Russia’s share was reaching as much as 65 percent during wintertime peaks. But the fighter jet incident led to strained political relations, and thus increased supply security concerns among Turkish decisionmakers, who started investing in diversification and flexibility—and LNG emerged as the fastest and most appropriate solution. Since then, Turkey’s LNG re-gas capacity has reached 131 mcm/day, and soon it will rise to 156 mcm/day after a new floating gas terminal in the Gulf of Saros is commissioned.

With ongoing underground storage investments (Tuz Gölü and Silivri), Turkey’s total withdrawal capacity will increase by around 150 mcm/day in 2023. In the meantime 10 mcm/day will start flowing in from the Sakarya Gas Field in March 2023, a volume that is expected to reach 40 mcm/day in 2025-2026. When we also count pipelines in, Turkey’s gas import capacity will exceed 500 mcm/day soon—unmatched by any other country in Southeastern Europe.

Considering all these investments, as of 2023, Turkey will have enough flexibility to supply gas to Southeastern European countries—even in the coldest days of the winter—where a lack of infrastructure is the main problem. For this, signing interconnection agreements with neighboring countries and opening key infrastructure such as LNG terminals and underground storage to third parties and enabling their use based on liberal market principles may boost cross-border gas trade and empower Turkey’s role as a gas hub.   

2. Regulations

Turkey’s Energy Market Regulatory Authority has been proactive in completing the legislative processes that could help the country emerge as a gas hub. These include measures ranging from spot imports to the establishment of continuous gas trading platforms, and from simplifying import licensing processes to the establishment of spot and futures markets. Further steps might be taken to decrease the market share of BOTAS in imports and domestic sales based on the gas market law as well as the implementation of regulations on opening LNG terminals to third parties. These measures will attract more traders to sell their gas as well as consumers to manage their risk via various contracts and financial tools, eventually increasing the depth and liquidity of a Turkish gas hub.  

3. Independence

The fact that BOTAS is not only the largest importer and wholesaler of gas in Turkey, but also is the sole transmission system operator, is problematic. Just like developed hubs, Turkey needs the transmission system operator to be an independent company. Ownership unbundling would be the most appropriate structure, serving all parties under the commercial confidentiality conditions. Thus, the transmission system operator needs to be separated from the existing structure of BOTAS and become independent.

4. Commercial woes

Although the natural gas market law that came into force in 2001 sets clear targets for the liberalization of the market, very few of them have been achieved so far. More than 90 percent of the imports and domestic sales of Turkey are carried out by BOTAS.

Mass subsidization—which is carried out from time to time for various purposes such as supporting exports, lowering electricity prices, or protecting residential consumers—completely disrupts the price formation in the market. The de-facto closure of LNG terminals to third parties, the closure of Greece and Bulgaria interconnections for exports, and BOTAS’s dominant role restrict liquidity.

This in turn reduces transactions and prevents the formation of a reference price—the biggest obstacle to Turkey becoming a hub. Once trade barriers are eliminated, a long-term gas reference price could be formed and Turkey would rapidly move on its way to becoming a hub.

Putin’s proposal

Putin said Russia would consider building another gas pipeline and “creating a gas hub in Turkey for sales to third countries, especially, of course, the European ones, if they are interested in this.” I don’t think that he meant a gas hub similar to TTF, NBP, or Henry Hub where gas-on-gas competition and the free import and export of gas are ensured.

It is highly probable that after the South Stream project—meant to take Russian gas to Bulgaria and Serbia through the Black Sea—was canceled in 2014 due to pressure from the European Commission, the TurkStream Project came to the fore. TurkStream was built as a pipeline that bypassed Turkey and directly sold Gazprom’s gas to European consumers. Turkey would do well to remember that Putin’s motivations might once again lie in revitalizing the legacy of the South Stream project—and not in developing Turkey into a hub.

In other words, while Turkish decisionmakers aim to establish a fully fledged hub, Russians might just be looking for a new route to Europe. Yet even if Russia’s perspective aligned with Turkey’s, challenges tied to accessing the needed material, technology, and financial resources could limit the supply of Russian gas to a Turkish gas hub in the short term.

Still, that pales in comparison to the biggest consideration that Turkish policymakers must keep in mind: They need to remember that liquid and reliable energy hubs are established by the market. The role of politicians here is simply to level the playing field.

Eser Özdil is a nonresident fellow with the Atlantic Council IN TURKEY. He is the founder of GLOCAL Group Consulting, Investment, and Trade, where he advises energy companies on issues that include public policy, government relations, and commercial diplomacy. Follow him on Twitter @eserozdil.

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The key issues are: timings for Europe’s requirement for additional imports (now); the requirements for infrastructure to carry these imports (now); and the timings for potential increases in Azerbaijani supplies (unclear). Then there are the terms under which Turkmenistan might consider exports across the Caspian; Turkey’s role as a potential market; and whether deliveries to the European Union should focus on the Balkans, rather than Italy.

Gas market fundamentals in Europe and Azerbaijan

The underlying market context is how countries are managing their gas balances. The table below examines how Europe has rebalanced while losing around 80 billion cubic meters (bcm) of Russian supply:

Additionally, storage has been rebuilt, which in effect means parking current supply for tomorrow’s demand. On the other side of the rebalancing sheet, the principal components are falling demand and liquefied natural gas (LNG) imports. Pipeline imports increased only marginally. Interestingly, the 74 bcm demand fall is very close to the 15 percent reduction targeted by the EU Commission, and achieved through reaction to high prices, not government decree.

Europe has been lucky. Asia has taken less LNG and November was warm. EU total storage capacity in November was 95 percent full; by the end of November it had hardly moved, down to 94 percent. In effect, Mother Nature gave Europe a whole storage month.

Next year will be harder. There will be a full year of reduced (possibly zeroed-out) Russian gas, Asian LNG demand might return, storage will need to be rebuilt, and it might get cold in Q1 2023.

The Commission has spent considerable effort touring pipeline-exporting countries, like Norway, Algeria, and Azerbaijan, in search of more supply. In July, Commission President Ursula von der Leyen and Energy Commissioner Kadri Simson were in Baku and came back with a memorandum of understanding (MOU) on expansion of the Southern Gas Corridor for more gas—from 12 billion cubic meters per year (bcma) to 20 bcma by 2027.

The other part of the equation is Azerbaijan. The table below sets the scene:

With Shah Deniz nearing full production now, Azerbaijani output will be up 5-6 percent in 2022. Exports will be up too, roughly unchanged to Turkey but up for Trans Adriatic Pipeline (TAP) markets Italy, Greece, and Bulgaria. Energy Minister Shahbazov recently talked about 11.5 bcm to Europe, and this looks realistic. Note, TAP volumes recently have been at 12 bcma.

With reasonable expectations of a small rise in domestic demand and unchanged underground storage levels, Azerbaijan needs imports to balance.

In January 2022, a scheme involving Turkmenistan’s gas exports to Azerbaijan via an Iran 1-2 bcma swap started. Then in November came disclosure that Russia would supply Azerbaijan with 1 bcm between November and March. Exact volumes flowing have not been reported, but the balance above suggests at least 1.2 bcm is needed in 2022. A cynical view would be that Azerbaijan has successfully maneuvered to buy in gas at one price and sell it spot at high European prices.

Meanwhile, Azerbaijani gas exports to Turkey remain down from the 2020 level of 11.5 bcm as a result of only a partial renewal of the Shah Deniz Stage 1 contract, with Azerbaijan preferring to retain some volumes for export flexibility. While commercially this makes sense, it may not politically. In an election year in 2023, Turkish President Recep Tayyip Erdogan will want to ensure maximum gas flows this winter, and Ankara is pressing Baku for an extra 10 bcm.

Erdogan is scheduled to hold tripartite talks with Turkmenistan’s President Berdimukhammedov and Azerbaijani President Ilham Aliyev on December 14. According to a Bloomberg report on December 9, senior Turkish officials have said Erdogan would revive the idea of shipping Turkmen natural gas to Azerbaijan for subsequent insertion to the SGC. Almost certainly, the Turkish idea is based on using compressed natural gas (CNG) for the shipments, which would require construction of compression facilities and either specialized tankers or specialized storage cylinders for loading onto barges. In 2010, the International Energy Agency estimated it would likely cost around $1.40 to $2.00 per MBtu to ship 5 bcma of CNG across the Caspian, compared to costs of around $0.70 to $0.80 for/MBtu for gas transported by pipeline. Commercial sources in Ashgabat told one of the authors at that time they considered CNG transport would be roughly four times as expensive as pipeline gas. The authors regard a CNG Trans-Caspian value chain as being a non-starter.

Azerbaijan is therefore in a curious position. As a major gas producer, it has signed an MOU to carry more gas from Baku to Europe but lacks a clear path to providing all or most of the necessary input itself. Meanwhile, it has to import gas from Turkmenistan via Iran and Russia to help it meet its domestic and export commitments. And while Apsheron Stage 1 should come on-stream in 2023, its 1.5 bcma output is already earmarked for the domestic market.

The key issues

a.) Infrastructure and production requirements

Some sections of the Southern Gas Corridor (SGC) can currently handle a little more gas. There is perhaps 4-5 bcma of spare capacity on the sections from Azerbaijan to Turkey, but precious little thereafter. The EU-Azerbaijan MOU of July 2022 to take exports from the current 12 bcma to 20 bcma will require investment in compressors and, perhaps, some parallel pipelining (looping). The costs remain unknown but can be reckoned in billions of dollars or euros. TAP has already announced market test plans for 2023 to see whether suppliers are prepared to commit volumes for throughput that would justify the expansion costs.

On production, Azerbaijan has a long list of potential offshore gas developments: Apsheron, ACG Deep, Shah Deniz Stage 3, Shafag Asiman, and Socar’s Umid/Babek. At present, the only ones actually proceeding are Socar’s own Umid block, which is already producing at around 1-2 bcma, and the 1.5 bcma Apsheron Stage 1, although Socar sources say that discussions with Apsheron’s operator, France’s Total, for full field agreement are very close to completion and that an agreement could be concluded early in 2023. If so, this should add 3 bcma to Azerbaijani export-focused output in or around 2026.

All the others require either further exploration or a development plan and project commitment—in other words, a final investment decision (FID). Eventually—there is no clear timeframe—Socar hopes to produce up to 5 bcma from its Babek field while Socar sources say discussions on ACG Deep are “on track” and that the field, considered capable of producing up to 5 bcma, could start to come on stream in 2027-28. bp, the operator, is engaged in discussions with Socar on enhancing production at Shah Deniz, but there is no indication concerning either the volumes or timeframe for any increase in output.

b.) Timeframe

Getting a project ready for FID requires planning, engineering, project finance, commercial gas sale agreements, and contracts for platform construction and local infrastructure as well as for SGC pipeline expansion. Unless this process is already well under way, there is no hope for any additional export-oriented production from Azerbaijan for the next 4-5 years.

c.) Turkmenistan

Turkmenistan does have gas available. It can supply gas both to help Europe meet its urgent requirements for gas in 2023-24 and to cover any shortfall in Azerbaijani gas supply for an expanded SGC. Although the current swap via Iran demonstrates that gas from Turkmenistan can already reach Azerbaijan by pipeline, either directly or indirectly, lack of transparency and a 3 bcma limit to Iranian pipeline capacity render it almost irrelevant in the context of European supply.

That places the focus on a trans-Caspian pipeline, a subject raised by Baku in countless talks with Ashgabat. The problem is the near-total mismatch between European requirements and Turkmenistan’s aspirations. Europe wants gas now. In technical terms, this could be accomplished in relatively short order, such as through the Trans Caspian Connector project. This would link Turkmenistan’s and Azerbaijan’s offshore facilities with a 78-km pipeline, and could be put in place at an estimated cost of around $400-600 million within a few months of securing the necessary approvals of both countries and the necessary financing.

However, Turkmenistan has informed US diplomats that it is not interested in the Connector project and is signaling that it won’t get out of bed for anything less than the decades-old idea of a 30 bcma pipeline. Building such a line, and more importantly arranging the onward transportation and sales in Turkey and EU, would be far more complicated than a simple connector. A new 30 bcma system from Turkmenistan to Italy, roughly twice the size of the SGC, would cost vastly more than the $20 billion required for the SGC’s initial pipeline components.

Moreover, Turkmenistan would probably demand a long-term contract structure which the EU itself cannot provide, and which European companies might be reluctant to sign. Overall, nothing could be completed before 2030, by which time the EU should have resolved its current supply crisis and be far along the path to a renewables-based energy future.

d.) The role of Turkey

Turkey’s gas demand is soaring, amounting to 46.2 bcm in 2020, 57.3 bcm in 2021, and roughly the same in 2022. It wants more Azerbaijani gas and would also like gas from Turkmenistan in its supply portfolio. But Turkey is already a highly competitive market with multiple pipeline supply options from Russia (Blue Stream, Turk Stream), Iran, and Azerbaijan, while LNG routinely accounts for around 25-30 percent of all imports.

Moreover, while imports currently account for 99 percent of supply, it is developing its giant Sakarya field in the Black Sea, discovered in 2020, with first gas expected in March 2023, well in time for both the presidential election next June and for the centenary of the Republic next October. The build-up to planned 15-bcma plateau production in 2027 appears quite realistic. So the landscape for a Caspian producer looking at Turkey is becoming ever more competitive.

e.) The Balkans and the Trans Balkan Pipeline

Expansion of the SGC may well involve more than simply expanding the SGC, notably the addition of substantial new capacity to carry gas to demand centers in Northern Italy. When the SGC FIDs were signed in late 2013, Italy was importing around 7 bcma from Algeria and there was spare capacity for the system to accept gas from TAP. But Italian imports from Algeria are now running at around 21 bcma. Azerbaijan clearly worries that any expansion of SGC’s TAP section needs to be accompanied by several hundred kilometers of expensive new pipeline infrastructure within Italy.

There are alternatives. All the Russian gas which once flowed down the Trans Balkan pipeline system through Romania or Bulgaria and then to Greece, North Macedonia, and Turkey has, since January 2020, been diverted into Russia’s Turk Stream pipeline. So the 20-25 bcma Trans Balkan System is now only partially used. For instance, it currently carries around 2 bcma of Russian gas in reverse-flow mode from Turk Stream via Bulgaria to Romania. Using it as an alternative or complementary route to TAP is possible, although this would involve new marketing arrangements if substantial amounts of Caspian gas, for example the 8 bcm noted in the EU-Azerbaijan MOU talks in July, were involved.

Conclusion

Azerbaijan has no production projects that can deliver extra gas to Europe right now, and its strictly limited output prospects mean that if wants to inject as much as 8 bcma into an expanded SGC by 2027, then work, not talk, needs to start today.

Turkmenistan constitutes the only immediate source for new Caspian gas supplies in 2023. But while this could be inserted into a small but straightforward connector, and is backed by Azerbaijan, such an approach is rejected by Turkmenistan, which is waiting for Europe to come along with money and a long-term contract for 30 bcma. That simply will not happen.

On November 25, Azerbaijan’s President Ilham Aliev delivered the most pertinent summary of the current impasse. Asked by one of the writers of this piece about the status of discussions on a trans-Caspian Pipeline, Aliyev said it was up to Turkmenistan: “They have to make a decision. They want us to do it. They will have to take some action. We will not initiate action.”

John Roberts is a nonresident senior fellow at the Atlantic Council Global Energy Center and a member of the UN Economic Commission for Europe’s Group of Experts on Gas.

Julian Bowden is a former economist with BP specializing in gas markets in SE Europe and the Caspian, and is a Senior Visiting Research Fellow with the Oxford Institute for Energy Studies OIES.

The authors acknowledge that they are on the advisory board of a project to lay a 78-kilometer connector pipeline between the Petronas-operated Magtymguly field in Turkmenistan and gas-gathering facilities operated by BP in the Azerbaijan’s Azeri-Chirag-Gunashli oilfield.

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The warm visit contrasts with US President Joe Biden’s muted get-together with Saudi Crown Prince Mohammed bin Salman (MBS) this summer, which was followed by Saudi Arabia’s decision to cut oil production to Biden’s chagrin. It also presents an opportunity for Xi to get away from home amid rising concern around his zero-COVID policies, which the government is trying to delicately unwind amid street protests and dismal economic numbers.

We reached out to our experts on China and the Middle East to answer our burning questions about this visit and what’s coming next. This post will be updated as contributions roll in.

1. What does this summit mean for Saudi Arabia and China? Why are they engaging? 

It’s natural to look at Xi’s trip to Saudi Arabia as a counterpoint to Biden’s trip there in July, but that misses the bigger and far more interesting picture. This is the fifth time a Chinese president has been to the Kingdom. With each trip—starting with Jiang Zemin in 1999—the bilateral relationship has gotten deeper and broader. The two countries have a wide range of interests in engaging with each other and that is more significant than a perceived slight to Washington. If it were simply a matter of the Saudis signaling their displeasure with the United States, then Washington could eventually get the relationship back on track and Riyadh would drop Beijing. That’s not going to happen.   

China usually gets around 18 percent of its oil from the Kingdom. Trade between the two was worth over $80 billion in 2021, and Chinese companies have made more than $36 billion in contracting in Saudi Arabia since 2005. And Saudi Arabia’s role in global Islam makes it an important partner for China given the Chinese government’s many problems with its Muslim minority groups. From the Saudi side, China is the Kingdom’s number one trade partner, a major tech supplier, a long-term energy customer, and a comprehensive strategic partner with a permanent seat on the United Nations Security Council. The two countries have been intensifying their relationship throughout the last century, and this visit builds on that. It’s more than a reaction to perceived US missteps.   

—Jonathan Fulton is a nonresident senior fellow at the Atlantic Council’s Middle East Programs and Scowcroft Middle East Security Initiative.

Xi’s visit to Saudi Arabia is significant, but also reflects the natural progression of the Sino-Saudi relationship. Saudi Arabia and China’s economic ties have been growing for many years, though they have largely been confined to the oil and petrochemicals sphere. Saudi Arabia had its eye on China since 1989, when Ali al-Naimi was the chief executive officer of Aramco. He believed that China would one day be a major market for Saudi crude oil. When he visited China to scout potential markets in 1989, however, he was unimpressed with its industrial development and decided to wait until he saw more cars on the road. In 1992, Aramco signed its first marketing agreement with China and started negotiations to open an oil refinery in China. It was not until 2003 that Saudi Arabia became China’s largest oil supplier, though in recent years that title has shifted between Russia and Saudi Arabia. 

—Ellen R. Wald is a nonresident senior fellow with the Atlantic Council’s Global Energy Center and the author of Saudi, Inc.: The Arabian Kingdom’s Pursuit of Profit and Power.

2. Will this trip mark a change in the two countries’ economic relationship? What are the most important deliverables they are coming away with?  

Chinese and Saudi companies signed thirty-four agreements covering green energy, information technology, infrastructure, and more—an expansion [of the deliverables] after earlier reports said the two countries would sign an initial twenty agreements worth $29 billion. 

It is clear that energy is the spine of Sino-Saudi relations. Xi’s visit comes as China seeks to ensure its energy security amid the ongoing restructuring of global oil and gas markets due to Russia’s invasion of Ukraine and the Group of Seven price cap on Russian seaborne oil supply. Saudi Arabia is currently the number one oil supplier to China. Not only does maintaining this position multiply Saudi Arabia’s importance to China, but it also provides China with great bargaining power to keep the prices of its Russian oil imports at low levels. It is also not surprising to see that the two sides this week signed a memorandum of understanding on hydrogen, among numerous other agreements, as Beijing pushes to earn a reputation in the Middle East as a superpower in clean and sustainable energy technology. 

This cooperation has geostrategic advantages for China too. The Saudi crown prince’s resistance to pressure from the Biden administration to increase crude output was music to China’s ears. Chinese leaders want to see more of that. The more influence China can exert on the Gulf Cooperation Council (GCC)’s energy sector, the more power it will have to blunt US hegemony in the Middle East.       

The fact that China lends great importance to “harmonizing” the Belt and Road Initiative (BRI) and Saudi Vision 2030—a fact demonstrated by an agreement signed Thursday—undermines the theory that the BRI is less important in Beijing’s thinking. This does not mean the Sino-Saudi relationship is trouble-free. For example, the absence of China-GCC trade from discussions was telling. It reveals that, despite the mutual high trade volume, pageantry, and extensive public relations, the GCC countries are still hesitant regarding some aspects of their partnership with China.  

—Ahmed Aboudouh is a nonresident fellow with the Atlantic Council’s Middle East Programs.

3. What are China’s interests in the Middle East right now? How were they advanced by this trip?

While GCC countries are hesitant about China, it would be wrong to conflate this tentativeness with any long-term trajectory in the China-GCC relationship. Many in Washington like to think that the relationship isn’t strategic in nature, but rather somewhat transactional. This rationale tends to deliberately underestimate the importance of cooperation between China and the GCC in economic, technological, and diplomatic fields—and how both sides may view that cooperation fifty years from now.  

China is obsessed with geostrategic stability and security since they are levers of Beijing’s economic interests. This makes the Middle East one of the very few regions in the world where the interests and preferences of China and the United States converge. As far as China’s interests are concerned, there is only one insurance policy: the current US-led regional security system. China is interested not in challenging the status quo, but rather in investing in it. This makes China keen on free-riding on this system for as long as possible. But this could be a great source of vulnerability for China too. GCC oil exports to China are the very epitome of this peculiar bind. For example, China can control the oil shipments it purchases from the GCC. But it can’t guarantee that the shipments will safely reach Chinese ports in times of conflict, as Beijing has no control over the maritime shipping lanes in the Gulf and Indian Ocean, which are dominated by the US military.

—Ahmed Aboudouh is a nonresident fellow with the Atlantic Council’s Middle East Programs.

4. How will Xi’s visit affect the US relationship with Saudi Arabia given what has transpired since Biden’s trip over the summer?

Most Gulf countries recognize that their peace and security are dependent on their relationship with the United States, and they are fully cognizant that China is either unable or unwilling to take the United States’ place in the foreseeable future. At the same time, they are concerned about the White House’s lackluster response to a series of terror attacks by Iran’s proxies on critical energy infrastructure and civilian and financial centers. Tehran is now closer than ever to obtaining nuclear weapons, but the Biden administration is concerned with problems like political freedom and human rights. And, while many Gulf countries are immersed in their respective visions for a post-fossil-fuel future, such as Saudi Vision 2030, Washington is trying to limit their options with China and force them to pick a side in a fight that is not theirs.

Nonetheless, Xi’s visit this week demonstrated that Saudi Arabia and the region’s other countries are not without options, and they will continue to leverage their increased strategic importance for global stakeholders to gain the best of both worlds. As Saudi Foreign Minister Prince Faisal said this week, “we do not believe in polarization or choosing between one partner and another… The Kingdom’s economy is rapidly growing, and we need all partners.” Even in terms of security, while there is no absolute substitute for the United States’ integrated deterrence, China is already offering alternatives in advanced weapons systems at competitive prices. 

Going forward, the United States must pay closer attention to the interests of countries in the region and must not become complacent in the face of China’s attempts to undermine regional alliances with Chinese solutions and Chinese wisdom.

—Tuvia Gering is a nonresident fellow in the Atlantic Council’s Global China Hub.

The post What Xi Jinping’s Saudi Arabia visit means for the Middle East appeared first on Atlantic Council.

The Kremlin’s weaponization of natural gas exports to Europe as winter approaches has shattered any illusions that Russia could be a reliable supplier. Europe urgently needs to import gas from other suppliers to heat its homes and power its industry. In doing so, Europe can build a more secure and sustainable energy system while cutting off funds for Moscow’s war machine.

Painfully high energy prices are already having a serious impact on quality of life and economic development in Europe. New natural gas supplies and expanded interconnections to bring them to market will drive down the costs of energy and reduce the likelihood of social unrest over energy poverty.

The surest means to end Russia’s energy leverage over Europe include accelerating the green transformation, curtailing gas demand, and boosting energy efficiency. However, the continent cannot implement these changes overnight. Gas remains instrumental in Europe’s transition from dirtier fossil fuels, electrification of power-hungry sectors, and integration of large-scale intermittent renewables. Natural gas will likely remain a critical part of Europe’s power baseload for at least the medium term.

Procuring an adequate supply of gas in the short to midterm is not at odds with the energy transition. Europe must cultivate alternative suppliers, build non-Russian-oriented import infrastructure, and accelerate decarbonization in tandem to boost energy security and affordability. Sourcing gas from non-Russian suppliers will sustain longer-term decarbonization efforts and prevent regression back to dirtier fuels amid the energy crunch.

To diversify their energy systems, European states must determine how much Russian gas can be replaced and from where, as well as what new infrastructure will be necessary to enable new imports. The European Union (EU) needs to clearly articulate the anticipated natural gas supply gap to identify investment opportunities for the relevant market players.

This issue brief examines potential sources of alternative gas supplies, the infrastructure required to bring new supplies to European consumers, and the financial and regulatory mechanisms needed to support diversification efforts. It offers recommendations for measures that European countries decoupling their energy supplies from Russia should take to give themselves the best chances of succeeding.

Hear more from the authors as they discuss how Europe can combat Russia’s weaponization of natural gas with The Washington Post’s climate correspondent, Tim Puko.

Authors

Staff

Richard L. Morningstar

Founding Chairman, Global Energy Center

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András Simonyi

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Olga Khakova

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Assistant Director, European Energy Security

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In a recent interview, Turkish Energy Minister Fatih Dönmez doubled down on Ankara’s ambition, stating that it would “lay out a road map by the end of this year” when it “may hold a conference for suppliers and buyers.”

Turkey’s desire to play a major role in regional energy infrastructure is not only geopolitically driven but also economically and technically feasible. The country’s location at the intersection of multiple hydrocarbon pipelines as well as its gas storage capacity can indeed help it shape the energy landscape for the region. However, for it to suceeed as an energy hub, Russian gas can’t be a key part of the plan.

The core philosophy of any “energy hub” is based on several pillars: diversification of existing routes and suppliers, independence in decisionmaking through an independent institution, market demand and supply that determine prices, and political will of potential partners to get involved in the projects. The Russian proposal ticks none of these boxes.

On the contrary, Putin’s idea of making Turkey a Russian gas hub could increase Ankara’s reliance on Russian fossil fuels, deepen its strategic dependence on Moscow in areas far from energy, and further damage Turkey’s already complex relations with the West.

Cheap gas at a high political cost

Turkey has made progress in reducing its gas purchases from Russia in recent years, due to the increased share of liquified natural gas (LNG) imports, as well as diversifying its energy mix by incorporating more renewables. However, it still remains heavily dependent on Russian energy supplies: Gazprom provided 44.9 percent of Turkish domestic gas demand in 2021. Turkey also imports between 10 percent and a third of its crude oil from Russia each year. Turkish imports of Russian oil have grown significantly since the February invasion of Ukraine, doubling in August. According to a new report by the Ukrainian Black Sea Institute for Strategic Studies, Turkey became the leading Russian crude oil importer in October, followed by Italy and Greece.       

Meanwhile, Rosatom is building the Akkuyu nuclear power plant on a build-own-operate model in the Mediterranean province of Mersin. There are reasonable fears that this strategic facility—which is constructed and owned by the Russian state enterprise, will be run by Russian operators in a NATO-member country, and is located close to Turkey’s Incirlik Air Base and the Russian military build-up in Tartus, Syria—may become the next bargaining chip in Moscow’s nuclear blackmail. At the same time, talks on a possible new deal to build a four-reactor plant in Sinop on the Black Sea coast, just across from Ukraine’s Russian-occupied Crimean peninsula are also raising eyebrows.

Experts are warning that this mounting dependence on Russian oil, nuclear technologies, and gas leaves Turkey vulnerable to energy blackmail of the kind Europe has experienced through Russian gas cuts.

In fact, Turkey is familiar with Moscow weaponizing gas. By building TurkStream—a gas pipeline that connects Russia to Turkey, bypassing Ukraine—as a geopolitical rather than an economic project, Gazprom deepened Ankara’s reliance on Moscow and caused tensions in Turkey’s relations with Ukraine.

Earlier this year, Russia declared a ten-day maintenance shutdown of the Blue Stream pipeline, which carries around 60 percent of Turkey’s Russian gas imports, with just a two-day notice. Experts say that occasional maintenance shutdowns of TurkStream, which delivers the rest of the Russian gas to Turkey, as well as Putin’s unjustified allegations about expected terror acts on the TurkStream pipeline, may signal trying times for Ankara ahead of this winter, and parliamentary and presidential elections planned for 2023.

Finally, growing energy collaboration between Turkey and Russia exposes Ankara to more pressure from the EU and United States over increasing concerns that Russia could use this collaboration to circumvent sanctions. Just a week after Turkish President Recep Tayyip Erdogan and Putin discussed the “energy hub” idea and Turkey’s Treasury and Finance Minister Nureddin Nebati reiterated his request for a discount on Russian gas and deferral of payments for its supplies, a US Treasury delegation led by Elizabeth Rosenberg, assistant secretary for terrorist financing and financial crimes, visited Turkey. According to the US Treasury, the topics covered during the meetings with her counterparts in the Turkish government as well as the business community included “the sanctions and export controls imposed on Russia… energy security, anti-money laundering policy, and countering the financing of terrorism.”

Can Turkey become a Russian gas hub?

There are also technical questions, which make realization of the deal with Russia problematic. Despite the promising rhetoric of both country’s leaders, it is difficult for Turkey to import much more Russian gas.

Firstly, the existing capacity of BlueStream—16 billion cubic meters (bcm)—is used to pump gas to cover Turkey’s own domestic demands. Another gas pipeline connecting Turkey to Russia, TurkStream, has a total capacity of 31.5 bcm. The first line, with a capacity of 15.75 bcm, is designated for supplies to Turkey’s domestic customers, while the second line, with the same capacity, carries Russian gas further to Europe through Bulgaria.

These capacities cannot come close to replacing the 110 bcm of the two Nord Streams. Besides, this route can—even in theory—only feed the small Southern European market of Greece, North Macedonia, Serbia, and Hungary, whereas the major consumers of Russian gas, such as Germany, remain in the north.

Secondly, construction of new pipelines in the Black Sea, currently a war zone, demands physical safety and security, significant investments, advanced deep-water offshore construction technologies, and pipelaying vessels—all potential targets for new EU sanctions. Russia can’t guarantee the security of such projects, and Western companies will be reluctant to provide investments, technology, and insurance. Another big question: How does one bring additional volumes of gas from the deposits to the Russian Black Sea coast?

Thirdly, the EU, which is now undergoing a major decarbonization transition and is disillusioned with Moscow as a credible partner, has little appetite for more Russian gas, whoever the seller might be. Since the beginning of the Russian war on Ukraine, the EU has reduced Russia’s share of its gas imports to 7.5 percent from 43.5 percent in 2021, according to European Commission President Ursula von der Leyen. During her July visit to Baku where she signed a deal to double gas imports from Azerbaijan, she noted that “the European Union has decided to diversify away from Russia and to turn toward more reliable, trustworthy partners.” There is little likelihood that any new pipeline carrying Russian gas to EU borders will get a green light from Brussels. Instead, it would be doomed to the fate of the South Stream pipeline, which was to transport gas from Russia to several European nations via Bulgaria but had to be canceled following EU objections.

Can Turkey still become an energy hub without Russia?

Turkey can still take on the role of a major energy player in the region and offer Europe alternative fossil fuels to fill the Russian gas gap.

However, for that, Ankara will have to make a political decision to decouple itself from Moscow and turn to alternative suppliers. Turkey could look to enhance capacities of the Trans-Anatolian Natural Gas Pipeline (TANAP) and Southern Gas Corridor to pump in more Azerbaijani and, potentially, Turkmen gas. The current transmission capacity of TANAP is 16 bcm, with 10 bcm allocated for Europe and 6 bcm staying for Turkey’s domestic market. A recent deal signed between the European Commission and Azerbaijan will allow this number to double to 32-33 bcm in the next five years. If Turkmenistan steps in to join the project, further diversification of gas supplies will benefit both Turkey’s own energy security and its relations with Europe, decreasing countries’ dependence on Russia. The upcoming Turkey-Azerbaijan-Turkmenistan summit in Awaza may bring new positive developments in this direction.

Besides, Turkey could tap into Eastern Mediterranean gas resources by accelerating efforts to reach a deal with Israel; revive the idea of a Trans-Balkan corridor with Ukraine; explore opportunities to bring Kurdish gas from Northern Iraq; and increase cooperation on LNG with the United States, Qatar, and Algeria. These would diversify its energy supplies, bolster Turkey’s position against Russia and help mend ties with the West. Despite the legal, political, and technical challenges—which accompany any such project—these options might be well worth trying.

The exploration of Turkey’s own Sakarya gas field in the Black Sea can potentially supply up to 25 percent of domestic demand after it becomes operational in 2023, with an estimated ten million cubic meters per day. Finally, developing national energy infrastructure—from building new LNG terminals and regasification facilities to further enhancing underground gas storage capacities—will significantly bolster Turkey’s own energy security and its stance vis-à-vis an increasingly unpredictable Russia.   

To achieve these targets, Turkey will need to obtain capital investments from international financial institutions, technical assistance from Western companies, and political support from NATO and the EU. The European sanctions for increased cooperation with Russia are unlikely to work if not complemented with viable and attractive alternatives. The economic and political benefits of being part of the European energy market should be made clear to Turkey by its Western partners. Keeping Ankara engaged within the EU’s regional energy projects and providing investment opportunities for developing its energy infrastructure, based on clear conditionality, could make Russia’s “hub” proposals less attractive. 

On its part, Turkey should wake up to the new realities. Both commercial logic and political wisdom dictate that Europe will no longer be a major market for Russian gas. Exploring phantom opportunities of energy cooperation with Russia at the expense of real risks of getting exposed to US and EU sanctions will not transform Turkey into an energy hub. Quite the opposite, it would spell the end of this dream.

Yevgeniya Gaber is a nonresident senior fellow at the Atlantic Council IN TURKEY and at the Center in Modern Turkish Studies, Carleton University. She was previously a foreign-policy adviser to the prime minister of Ukraine. Follow her on Twitter @GaberYevgeniya.

The post Turkey can become an energy hub—but not by going all-in on Russian gas appeared first on Atlantic Council.

Since gaining independence in 1992, Moldova has been almost completely reliant on electricity generated from Russian gas. Moldova generated about 10% of its electricity needs domestically, while 20% was imported from Ukraine and the remaining 70% was produced by the MGRES Cuciurgan Power Plant in Transnistria, the unrecognized breakaway region of Moldova that has been controlled by Russia since the 1990s.

The Kremlin has used its stranglehold on Moldova’s gas supply to pressure the Moldovan authorities into political concessions. The most notable recent example of this trend was Moscow’s 2021 demand to adjust Moldova’s Deep and Comprehensive Free Trade Area (DCFTA) with the European Union in exchange for a new gas contract on more favorable terms.

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Moldova’s current energy crisis began in October 2022, when Gazprom cut gas imports to Moldova by 30% in an attempt to squeeze the country’s pro-EU government. The resulting electricity shortage led the Transnistrian authorities to cut power deliveries from the Cuciurgan Power Plant to Moldova by 73%. The effect was immediate. A draft document presented to Western leaders in November showed Moldova experiencing a 200% increase in electricity prices and 34% inflation, forcing the average Moldovan to spend up to 75% of their income on energy utilities.

After Russian missiles began targeting Ukraine’s energy infrastructure on October 10, Ukraine was forced to suspend all electricity exports to Moldova. Romania quickly responded by allowing Moldova to import electricity at a capped price, while Romania itself subsidized the difference between the Romanian spot price. At present, 90% of Moldova’s domestic electricity demand is being met by Romania.

While electricity imports from Romania continue to keep Moldova afloat, the chief vulnerability to Moldova’s electrical system remains connectivity. Moldova possesses one singular high-voltage 400kV line, which runs from the Romanian border town of Isaccea through Transnistria. Any energy imported from Romania must be routed through the separatist region. Local energy experts believe Moldova’s reliance on a singular high-voltage line presents significant risks. Any accident or act of sabotage would leave Moldova exposed to long-term blackouts.

Transnistria itself is not immune to the escalating energy crisis. After Ukraine suspended electricity imports to Moldova, Transnistrian leaders announced their November gas deficit would hit 40%. Two of Transnistria’s largest gas consumers, the Rybnitsa Cement Plant and nearby Metallurgical Plant, were forced to cease operations.

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Moldova has an immediate short-term need for direct financial support from the EU to offset rising energy costs. The European Union recently pledged 250 million euros during European Commission President Ursula von der Leyen’s visit to Chisinau. This financial support will be broken down into 40% grants, 40% loans, and 20% budgetary support.

Such financial backing is welcome, but more is needed. French President Emmanuel Macron’s pledge of 100 million euros announced at November’s Moldova Support Platform in Paris was another positive step, but Moldova will need sustained funding in order to continuously purchase electricity on the European spot market.

While the immediate focus is on addressing the current energy crisis, European policymakers can and should also invest in Moldova’s longer term energy security. This support should include backing for the expedited construction of the 400kV Vulcanesti-Chisinau power line, which would allow electricity imports from Romania to bypass the Cuciurgan Power Plant entirely.

This is now possible due to the synchronization of Ukrainian and Moldovan electrical networks with the Continental European Grid, a step taken earlier this year in an effort to move away from the Soviet-legacy Russian Unified National Electrical Grid. Without power grid synchronization, Moldova would have been forced to construct expensive “back-to-back” electrical transformers to convert imported electricity from the European Union to meet the parameters of the CIS electrical grid.

In the long term, policymakers should prioritize the construction of a high-voltage power line running from the Suceava substation in Romania to Balti in northern Moldova. Former Moldovan President Igor Dodon earlier proposed the project together with the European Bank for Reconstruction and Development, Moldova’s Moldelectrica, and Romania’s Transelectrica, but the initiative has largely stalled. Reviving the Suceava-Balti power line project would indicate the EU’s interest in supporting Moldova’s long-term energy security.

The effects of Russia’s invasion of Ukraine can already be felt beyond Ukraine’s borders. Every missile that falls on Ukraine exacerbates Moldova’s energy crisis and pushes the country closer to the brink. Europe must do everything in its power to help Moldova keep the power on this winter, and should also seek ways to move toward a more resilient state of energy security in the years to come.

Alexander St. Leger is an analyst at the Center for Advanced Defense Studies. He was previously a US Fulbright Program grantee in Moldova and Romania. You can follow him on Twitter @AlexStLeger.

Further reading

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