Eni’s announcement of a gas discovery off the coast of Cyprus is positive, but it does not solve Italy’s energy problems in the short term: in order to transport this gas, the Eastmed gas pipeline must be built, which, according to the same manager of Eni, will not be completed in four years. Meanwhile, gas hyperinflation is raging and the risk of it not happening in Europe this autumn-winter is serious. As Alberto Clò recalls here, “the German government estimates that consumption should be reduced by at least 20%, well above the 15% reduction indicated by the Brussels Commission (to 7% for many countries”)”. One of the factors for the further price increase is “Germany’s frantic search for an alternative gas to Russia to cover consumption and increase inventories”.
There is much confusion and misinformation about the current energy shock. Among the clichés that prevent us from understanding what is happening to us, two are particularly misleading and anachronistic. The crisis is attributed to the war in Ukraine and sanctions. Another demonizes Western oil and gas multinationals. Let’s see why these prejudices need to be dispelled.
The war in Ukraine – followed by fairly limited Western sanctions on Russian oil and retaliation from Vladimir Putin for cutting off our gas supplies – is after the energy crisis. Gas prices had already gone insane over a year ago, well before the Russians invaded Ukraine. A coincidental cause was the wind energy debacle in the North Sea due to lack of wind: a brutal reminder of the reality of the limits of renewable energy. But that, too, was an indecisive “accident” as it aggravated an already existing crisis. As explained by British expert Helen Thompson (An energy reckoning looms for the west, Financial Times, August 20, 2022), China is the dominant driver behind the rise in fossil energy consumption and prices. To understand gas and oil hyperinflation, we must first look east. Unsurprisingly, crude oil prices have suffered some decline in recent weeks as the Chinese economy showed signs of slowing.
Beyond the short-term fluctuations, Thompson shows that we are in a 20-year cycle shaped by the boom in Chinese demand, the dominant event in understanding the planet’s energy situation since the turn of the millennium. In 2019, China’s energy consumption was more than five times that of 2000 and much higher than any other country in the world, including the United States. No other factor has such an influence. China’s so-called “energy footprint” is that of an unrivaled mastodon capable of upsetting all balances. We didn’t always notice it. For the past decade, beginning in 2010, the shocking boom in Chinese consumption has been eclipsed because it has been partially offset by a parallel boom in American production of shale oil and shale gas, oil and natural gas extracted from rock using the technique of fracking . . . American production doubled from 2010 to 2019, and this alone has allowed the world to avoid an energy shock that was already clearly visible in the price spikes of 2005-2007. But America’s production of shale oil and shale gas has met environmental headwinds: from Washington’s environmental regulations to Wall Street’s divestment, much has been done to discourage investment. And without investments, fossil energy production will decline. We didn’t immediately notice the problem because the pandemic closed Chinese factories in early 2020 and depressed demand. But as soon as Chinese production and thus the energy consumption of the “pachyderms” started up again, prices went crazy: The gas crisis has its roots precisely in the Chinese recovery of 2021, a year before the war in Ukraine.
This geopolitical scenario was well understood by the Russians. Long before Putin launched military aggression against Ukraine, Russian energy giant Rosneft had already initiated a “geopolitical turn” eastward. Under the leadership of Igor Sechin, since 2004, Rosneft began to consider China as a privileged partner. Since then, the alliance between Rosneft and Beijing’s main energy company, China National Petroleum Corporation (CNPC), has strengthened. As The Economist (Oil’s new east bloc, 16 July 2022) wrote: “Ample upfront payments and financing from China have enabled Rosneft to become one of the largest publicly traded oil companies in the world.” meeting between Putin and Xi Jinping on February 4 this year to open the Winter Games: three weeks before the invasion of Ukraine. After Western sanctions on Putin’s oil, crude oil exports from Moscow to Beijing have grown so much that Russia has overtaken Saudi Arabia as China’s top supplier.
Rosneft has also added an Indian strategy to its China strategy: to reduce its dependence on western markets, it has invested in an Indian oil refiner, Nayara Energy. Exports of Russian crude oil to India rose from almost zero to a million barrels a day at discounted prices. The new geopolitics of energy thus sees the emergence of an “Eastern bloc” with China and India as consumers and Russia as a supplier. Despite all the differences in interests between buyers and sellers, and despite the strategic conflicts between Delhi and Beijing, these three countries have a huge impact on the energy and environmental future of the planet. Their ruling classes have never believed in the possibility of a rapid and complete switch to renewable energy: however, this does not prevent China from establishing a semi-monopoly on green energy, nor does it prevent China and India from being at the forefront of construction. of nuclear power plants.
Even the most famous American investor, the multi-billionaire Warren Buffett, believes that fossil energies still have a future – in a long transition phase in which they have to accompany solar and wind power and compensate for their deficits. Despite being a staunch supporter of the climate emergency and a proponent of green investing, Buffett has asked stock market authorities for the green light to use his investment fund, Berkshire Hathaway, to buy up to 50% of oil company Occidental Petroleum, a major U.S. energy multinational. It’s a significant investment that seems to be bringing back the eerie glow of the ‘Seven Sisters’: but it’s an illusion, because the energy is elsewhere today.
The “seven sisters” was an image popularized by Enrico Mattei when he was at the helm of Eni: it alluded to the existence of some sort of cartel or objective collusion between Western oil multinationals. Five were American: Exxon, Mobil, Chevron, Texaco, Gulf Oil. Two were British: Shell and Bp. From the 1940s through the early 1970s they had effectively dominated the oil games. Matteis Eni, as well as the French team and Total, tried to cause trouble with forays into North Africa and the Middle East. But this system, dominated by Anglo-American private capitalism, faltered with the first oil shock in 1973, when the OPEC cartel of producing countries imposed an oil embargo on several Western countries to punish them for supporting Israel during the Yom Kippur War. Oil reserves have entered a phase of nationalization that has never ended and has even recently accelerated. Anyone who still describes western energy companies as power is talking about a world that no longer exists. The largest of the seven sisters, Exxon, was even banned from the Dow Jones index because of insufficient capitalization.
Today’s energy geopolitics are dominated by state-owned companies that are firmly controlled by emerging economies. The queen is Aramco, the Saudi Arabian public company that recently posted a 90% increase in earnings and has by far the highest market capitalization. Precisely because they own the world’s largest energy companies, the International Monetary Fund estimates that the countries of the Middle East will amass another $1.3 trillion in wealth over the next four years, a huge transfer of North-South resources. Among the beneficiaries are their sovereign wealth funds such as Saudi Arabia Public Investment Fund, Qatar Investment Authority, Abu Dhabi Investment Authority and Kuwait Investment Authority. We also observe this double trend in other parts of the world: on the one hand, an appreciation of fossil energies, whose role must be “accompanied” by the renewable ones (each solar power plant needs a traditional one that supports it at night). ); on the other hand, the growing concentration of energy power in the hands of the producing countries. The most recent example is Mexico, where President Andrés Manuel Lòpez Obrador (abbreviated to Amlo) — a populist socialist — decided to invest $6.2 billion in the construction of 15 fossil-fuel power plants, while also deciding to strengthen public scrutiny over energy sources the state monopoly Pemex. “We ignore the siren song – says Amlo – these are the voices that have prophesied the end of the oil age and the massive arrival of electric cars and renewable energies”. Across Latin America, a new generation of left-wing leaders is relaunching the nationalizations of everything that wasn’t public: and that includes rare earths and strategic minerals for renewable energy. The same applies to Africa and Asia. The role of the seven sisters has long since been supplanted by state giants reporting to the governments, the true centers of power that decide the future of energy.
Some of the emerging countries without raw materials have many more problems in this energy shortage than we westerners. Bankrupt Pakistan has failed to win a single tender to buy liquefied gas, replaced by a race to increase prices pitting Europeans against Asians as wealthy as China, Japan, Korea. Sri Lanka, another bankrupt country, has had to impose a 264% increase in electricity bills because it can no longer afford to subsidize small utilities from the public purse and has to pass the price increases on to consumers.
August 22, 2022, 7:45 p.m. – Change August 22, 2022 | 20:38
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