The changing geopolitics of energy
Oil and gas have played a key role in international geopolitics since 1912. The same year, Winston Churchill, First Lord of the Admiralty of the Royal Navy, decided to convert the fleet from coal to oil to keep pace with the faster German ships. He believed that the cruising speed of the new Queen Elizabeth frigates had to reach at least 25 knots to escape the enemy. A speed which would have been impossible to achieve with coal, which has a lower energy density. Furthermore, the logistics of coal made refueling at sea almost impossible. The conversion of the fleet made overseeing the complicated logistics chain of oil production, storage and distribution a national priority. In 1914 Churchill nationalized the Anglo-Iranian (ancestor of the current BP) guaranteeing the Royal Navy twenty years of supplies.
During the war Adolf Hitler did what he could to get his hands on Baku, Astrakhan and the oil reserves of the Caspian, advancing the Barbarossa operations and the battle of the Caucasus. In the summer of 1941, England and the Soviet Union invaded Iran, deposing the King of Persia, Reza Shah, accused of being close to Hitler.
Wars, colonialism, races to build regional and global spheres of influence have often had, as their ultimate goal, access to energy sources. The current “energy cold war” narrative sees the United States versus Russia and Iran and courting Saudi Arabia and other Persian Gulf states for energy interests. The recent increase in American domestic production due to the shale revolution has led to the United States’ energy independence and to a rapprochement between Saudis and Russians, historic producers who now find themselves dealing with a market flooded with shale oil and gas. In this regard, Russia has recently relaunched the idea of a “gas Opec” in order to adjust supply and balance the market.
A SECTOR UNDER MULTIPLE PRESSURE POINTS. What was once a flood has turned into a tsunami with the Covid-19 emergency, which reduced oil consumption by about a third and temporarily led to negative prices in the United States. The distress of American producers has shifted the balance, placing the United States on the same side of the table as traditional producers. In early April 2020, a historic event occurred: President Donald Trump made a telephone call to his Russian counterpart Vladimir Putin, asking him to find an agreement with Mohammed bin Salman’s Saudi Arabia to cut production and raise prices. The agreement was found and also involved a cut from American producers. America, for the first time after traditionally opposing OPEC, found itself cooperating with its historical adversaries. At the basis of the different approach to international politics undertaken by the US administration is the transition from its role as a major oil and gas importer to a major producer and exporter of hydrocarbons, after the success of the shale revolution.
Energy dependence has always been of great concern: no country likes to be tied to another for its essential resources. Energy dependence is often perceived as a game that gives producing countries a competitive advantage from which consumer countries should free themselves. An example is that of the initiatives implemented in recent years by the European Union to reduce dependence on Russian gas, which currently accounts for over a third of EU consumption. Security of supply is one of the top issues on the political agenda of the European Union and many of its member states.
The question today is whether renewable energies can ease these tensions. For many analysts, one of the reasons that make solar and wind interesting is precisely the possibility of producing them locally, guaranteeing self-sufficiency. This is partly destined to happen: the distribution of energy resources will certainly be less concentrated and in some cases, fairer.
THE LIMITS OF THE LOCAL LEVEL. However, moving from an integrated energy system to a completely local or national one is more complex than it seems.
First, renewable electricity cannot be produced locally everywhere in the necessary quantities. In many countries there is simply not enough space, and more and more often new infrastructure is opposed by those who do not want it close to their home. Furthermore, a heterogeneous set of local and national energy systems, each with its own specific characteristics, and with limited international commercialization capacity, would be sub-optimal (today, for example, solar energy is produced in the Black Forest) and harmful for competition and for the economies of scale that are essential to lower prices. In addition, the security of supply today is based on a principle of energy solidarity between countries in case problems should arise in one of these, especially in Europe. Pursuing energy self-sufficiency would therefore not free us from geopolitical problems. Furthermore, it also risks increasing tensions in some countries that today depend heavily on energy exports.
Producer countries such as Algeria, Libya, Egypt and, to a lesser extent, those of the Persian Gulf area, have a common problem: a demographic explosion, a multitude of young people with growing expectations. This puts pressure on national budgets, which have already been hit by the recent drop in the price of oil and gas.
What would happen if these countries saw the profits from hydrocarbon production fall further? The real risk is that their delicate internal balance could be strained, with negative repercussions on migratory flows and on security. It is a growing concern in the countries of the European Union, an area that has limited energy resources and which depends almost entirely on a small number of neighboring producing countries, mainly its North African partners and Russia.
The energy blanket is short. The United States wants Europe to become less dependent on Russia, to the extent that it has issued a bill that aims to reduce European energy dependence (which, paradoxically, has grown in recent years). The alternative is turning to the southern corridor, which has the undoubted merit of diversifying the sources of supply, in a context in which Turkey is becoming increasingly powerful as an essential transit country (especially given the non-development of the South Stream which would have connected Russia directly to Europe). In short, dependence on sources of supply or on those of transit is always dependence. Turkey, which is affirming, also through the use of military force, Admiral Gürdeniz’s concept of “Mavi Vatan” (the blue homeland) represents for Europe and many countries of the MENA area, including Israel and Egypt, a cause for concern. The geopolitical variable therefore weighs more and more in the oil & gas energy equation. And NATO, which highlights Russia, China, terrorism and cyber security as its areas of greatest attention, is also increasingly preparing to tackle energy issues.
In a nutshell, the substantial shutdown of upstream activities in Europe makes us increasingly dependent on a few suppliers and transit routes on our eastern borders; we have to accelerate the energy transition but we struggle to build new solar or wind farms at home; China produces three quarters of the solar panels, 70% of the batteries and almost half of the wind turbines installed in the world. So what to do in this scenario?
THE PROMISE OF HYDROGEN. Clean hydrogen (both green obtained from renewable sources through water electrolysis, and blue produced from methane with CO2 capture) is a solution that can combine the fight against climate change with regional cooperation and the lowering of geopolitical tensions. Thanks to hydrogen, energy produced from renewable sources in areas of the world endowed with much sun and wind but located far from the point of consumption can be developed and transported over long distances at a low cost. The IEA has calculated that it would be cheaper for Japan to import green hydrogen from the Australian desert or the Middle East than to produce it locally. Europe could import it from North Africa, Norway and Russia, the same trio that currently supplies it with fossil fuels. This could balance the gradual reduction of gas and oil imports and prevent possible tensions in producer countries.
The six countries of the Gulf Cooperation Council (Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates) have already launched some of the largest solar energy projects in the world, worth tens of gigawatts. When these initiatives will be combined with an equally ambitious hydrogen program, the Gulf countries will be able to maintain their energy leadership. The abundance of land for large photovoltaic systems, the strategic geographical position and the great industrial and intellectual skills from the oil and gas sector make this area a natural hydrogen hub. This could offset the reduction in revenues from gas and oil. It is estimated that if 20% of territory of the United Arab Emirates were used for solar plants for the production of green hydrogen for export, the same revenues currently guaranteed by gas and oil could be achieved1.
The gradual shift to a hydrogen economy would also provide local oil and gas companies with new business opportunities, allowing them to enter into agreements and partnerships with clean energy companies, and retain, if not increase, current employment. The existing infrastructure represents a key factor in accelerating the development of hydrogen and offers a competitive advantage to countries that currently export oil and gas. Of course, a global hydrogen market can only be developed through international cooperation, involving both producer and consumer countries, as well as international organizations such as OPEC, IEA and IRENA. The next COP26 and the G20 meeting in 2021, of which Italy will be co-hair and chair respectively, could be a precious opportunity to establish international coalitions for the development of hydrogen.
Much of the existing infrastructure for energy transport is already transnational by nature and therefore encourages cooperation, as the experience of importing natural gas from Russia and North Africa has shown. This system could even push the most reluctant countries to join the global effort against climate change.
And today we are granted a historic opportunity. The recent agreement, unthinkable until a few months ago, between Israel, the United Arab Emirates and Bahrain offers us the possibility of extending this international cooperation to countries that until now did not even recognize each other diplomatically. A few months ago I was in Abu Dhabi at the IRENA annual Assembly and I witness firsthand how hydrogen has become a priority issue for the Emirates. Today we have the opportunity to combine the vision of Abu Dhabi with the technological capacity of Israel. Saudi Arabia is building the city of the future at NEOM (a $ 500 billion project), with the ambition of producing hydrogen and transporting it to Europe through pipelines.
THE AFRICAN UNION AND THE ENHANCEMENT OF THE DESERTS. Estimates show that just over 1% of the Sahara could meet all of the world’s energy needs without emitting CO2. Of course, this is only a theoretical suggestion, because it would still be impractical to cover such a large area with solar panels, but it helps to give a sense of the potential that North Africa holds for the development of new renewables.
Indeed, one of the crucial issues in addressing climate change is reconciling the pro-environment fight with economic growth. The solution we will adopt must not only solve climate change but must also take into account another global challenge: that against inequality. As the European Commission and many countries (starting with Germany) now clearly state, a new partnership between Europe and Africa based on hydrogen is not only feasible but also desirable. It would become a “win-win” alliance, that could make the transition to zero CO2 less burdensome whilst ensuring social and economic development in both continents. In this context, Italy has significant advantages: it already acts as an infrastructural bridge between Europe and Africa, both with the gas pipelines arriving from Algeria (through Tunisia) and Libya and with the routes that can export hydrogen to Northern Europe, and it possess infrastructure and an energy supply chain (with small and large companies that are leaders in their sector) that are unique in Europe.
As already underlined, the import of green hydrogen would allow the European Union to get closer to achieving its targets for reducing emissions. As a recent analysis by Hydrogen Europe2 confirms, North Africa, and in particular the Maghreb area, offer an immense potential for this import. Solar energy resources are abundant in the region and the Sahara Desert has a vast generation capacity, from both solar and wind power. But what matters most is that we are already connected: the Maghreb exports natural gas from Algeria and Libya, with numerous pipeline connections to Spain and Italy. In addition, there are two electricity transport cables, each with a capacity of 0.7 gigawatts, between Morocco and Spain.
It would therefore be very interesting for Africa and Europe to unlock the export potential of renewable energy in North Africa if the Maghreb countries converted this electricity into hydrogen and transported the energy through the existing grid. As we have already highlighted, a part of the latter currently carrying natural gas could be converted to accommodate hydrogen, and it would be a cheaper option than building electric cables to transport renewable energy to Europe.
It’s not all. On the one hand, hydrogen can be the path that many of the countries that produce hydrocarbons can and must take to balance the decrease in the use of fossil fuels; on the other hand, several African countries that never benefited from the presence of oil deposits could begin to be part of the energy game. Let’s think of Eritrea, Ethiopia and Mali for example. And speaking of Mali, starting a production of this type could undoubtedly help the country to emerge from the spiral of violence and instability, which is not just a domestic problem but a concern for the entire international community. Not only in terms of security, but also and above all, as the flows of recent years have dramatically demonstrated, in terms of irregular immigration to the Old Continent.
Another example is that of the Congo, where according to recent reports, Germany would like to support a plan to build the largest dam in the world (twice the size of China’s Three Gorges) to produce and export large quantities of green hydrogen to Europe.
These considerations can help spark closer partnerships between Europeans and their African neighbors, a development that could foster the inclusion of an “African dimension” into the European Green New Deal. This would free the bottlenecks that have already established themselves in the electricity grid in Europe, and which risk hampering the ability to deliver more renewable energy into the system.
The executive vice president of the European Commission, Frans Timmermans, has already declared his dream of seeing Europe and Africa united in an energy collaboration to develop the enormous potential of renewables. Hydrogen is a fundamental tool to make it happen. In this geopolitics of hydrogen, Italy will also be able to play a leading role thanks to its geographical position, its entrepreneurial skills and the sensitivity of its institutions to the issue of climate change.
Footnotes:
1 Frank Wouters, “The new oil: green hydrogen from the Arabian Gulf”, Revolve, 19th April 2019.
2 Jorgo Chatzimarkakis, “Green gases from sun and wind are a new opportunity for North Africa”, New Europe, 14th February 2020.
