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Opinion

Energy in a Multipolar World

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Energy,Transition,Concept,Energy,Revolution,Efficiency,Sustainability

A multipolar world is starting to take shape, not just politically but economically — with New and Old Energy both playing key roles. It’s still too early to say with specificity what will arise to replace the unilateral, US-written rules-based order of the last 75 years. Neither a Chinese-led replication of unilateralism nor dueling blocs in the Cold War mold look to be strong contenders. What will likely be a defining feature in this global political and economic transition over the coming decades is yet another transition: from fossil fuels to renewable energy. Where countries stand today on these two great transitions provides no guarantee of how they will navigate such momentous shifts, but it does at least allow a more informed tracking of progress — or retreat.

Europe is in deep trouble. Politically, EU authority is hanging by a thread as Brussels stumbles through “emergency” attempts to deal with energy crises that were easily predictable from the moment Russia attacked Ukraine. Recent electoral victories in Italy and Sweden by a political right that is still EU-skeptical, even if it isn’t overtly advocating exit, underscores this weakness.

Europe is effectively in what will be a deep and difficult recession. It remains to be seen whether it can get through without political catastrophe, while relying on a centrist policy mix of energy conservation, rapid build-out of renewables, use of previously discarded coal and nuclear facilities, and LNG bought away from Asia at extremely high prices.

US Troubles

US troubles aren’t as evidently deep or immediate as Europe’s, but they’re there. First is the risk that this overgunned and underindustrialized country will not gracefully accept demotion from Top Guy to a mere Big Guy in a gang and will not easily learn to buy less and make more for itself. Especially as it, too, appears recession-bound.

And as in Brussels, policymakers in Washington seem not to have a clear understanding of its positioning in the energy transition. The US is well placed when it comes to fossil fuels: It produces as much as it needs at home — quality swaps aside — but it isn’t so dependent on exports that its economy is endangered by the pending move off fossil fuels. The problem is not the fact that its oil and gas producers aren’t avidly chasing long-term projects with high costs that can’t be recouped before oil and gas tumble into rapid decline, as some claim.

The big US energy problem is its overwhelming dependence on others for renewable generation equipment. Biden administration threats to slap prohibitive tariffs on Southeast Asian solar panels, subsequently put on hold while it tries to incentivize a build-out of domestic solar-equipment manufacturing, indicate acceptance that a problem exists. But that stumbling acceptance came at the unaffordable cost of a year or more of stunted growth in solar installations. Other new supports for electric vehicles (EVs), solar, wind and electricity storage contain similar time-consuming design flaws.

Both Europe and North America could be stronger at home five to 10 years hence as a result of efforts that now appear bumbling. But the chances are that, by then, they will face a world background in which “the West” is much less globally dominant than it has been since the early colonial era. The hand-slap the UK received from the International Monetary Fund for Thatcher-style tax cuts provides some flavor of the bitter taste this weakened position may convey.

China Troubles

The only alternative to their own rules-based order that many in the West can imagine is another unilateral order based on Chinese rules and money. However, it’s not clear China wants the job of global economic hegemon, given the constraints it would impose on domestic policy and Beijing’s apparent assessment of the drawbacks of such of a role based on the US experience.

China’s current economic problems — a massively overbuilt and undercapitalized property market and a dead-end Zero Covid-19 policy — underscore the point that it is not a substitute unilateral world power in the making. It has slashed its Belt and Road Initiative, focusing state attention more on building internal economic demand and strengthening state-owned enterprises.

China does look strong on the energy side, however. It has a huge worldwide lead in solar manufacturing and use, and is galloping ahead in offshore wind and batteries. Its EV sales are soaring, with EV manufacturers moving into export markets that Chinese carmakers once avoided. And in some ill-defined interim, it is likely to enjoy advantageously priced access to Russian fossil fuels to supplement domestic coal.

This will contribute mightily to making China a strong regional power, but not a global leader to replace the late 20th century US. The US ascendancy in oil, first at home and then from the Middle East, did much to help make it the world kingpin. Manufacturing solar panels won’t bring commensurate authority and wealth to China, which won’t control the sun, after all.

Bric Bunch  

The so-called Brics nations — Brazil, Russia, India, China and South Africa, with Argentina, Iran and recently Algeria petitioning to join — is an important group to watch, albeit more for its parts than for the whole. In both members’ mid-level economic development and their social and political diversity, this loosely organized group may prove a better guidepost for the 21st century than any imagined unilateral or bilateral system.

The Brics group encompasses and mutually tolerates multiparty democracies, one-party states, autocracies, and states that snarl and occasionally bite each other. Some members are prospering economically, others are stagnating or falling back. But all have indicated a willingness to bypass the constraints of the dollar-based Western trading system and its thicket of sanctions, occasionally or frequently.

When it comes to energy, their strengths and weaknesses are globally representative. Russia is second only to the US in fossil fuel production, making it powerful now but exposing it to a mighty future fall unless it finds a replacement for fossil fuel exports in its economy. The Ukraine war has shortened the time frame for finding this replacement.

China’s leadership in New Energy, with favorable access to Old Energy, gives it a uniquely strong platform for navigating the energy transition. The West has cause to be cautious of China’s power, even if Beijing isn’t as globally ambitious as sometimes imagined.

India is a confused and confusing hodge-podge. A question will be whether its national structural incoherence will, on balance, prove a weakness or give powerful rein to its diverse and inventive citizenry. Signs are its energy reliance is stabilizing around coal for now and solar soon, with little room for gas.

South Africa’s outlook, in energy and perhaps overall, may depend on whether it succeeds in a shift to heavily distributed renewables as a replacement for its badly broken coal-based power system.

Brazil’s outlook is hard to call just ahead of crucial presidential elections, but the country will be important energy-wise whatever the outcome: for growing oil flows, for renewable expansion should left-wing candidate Luiz Inacio Lula da Silva win, and because of the perceived importance of the Amazon to global warming.

The Point

The point isn’t that these five countries are uniquely positioned to dominate their neighbors or play power politics at a global level in decades to come. On the contrary: It’s that they are sailing into the unsettled waters of the geopolitical and energy transitions with wildly differing strengths, weaknesses and historic mindsets. But they have demonstrated a willingness and ability to talk and occasionally act together — perhaps portending a future less geopolitically centered and more energy diverse than the past.

Sarah Miller is former editor of Petroleum Intelligence Weekly, World Gas Intelligence and Energy Compass.

Topics:
Macroeconomics , Low-Carbon Policy
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