The Reshaping of the Global Energy Order

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Last month’s Energy Intelligence Forum took place during extraordinary times, amid a reshaping of the global energy order. Eight months into the Ukraine crisis, we are witnessing an eruption of geopolitical tensions. Europe is moving away from Russian gas that once accounted for almost half its demand, and has announced a Russian oil embargo, coming into effect in December; there was an unexplained explosion in the Nord Stream gas pipeline; and the US passed a climate law that aims to onshore its battery supply chains. Over the course of three days, the Forum explored the question of whether geopolitics and energy could be separated. I was fortunate to have been part of the conference this year as one of eight Energy Leaders for Tomorrow, a highly selective program for outstanding graduates early in their energy careers.

Dealing With Transitions and Additions

The Forum started with a timely conversation with Amin Nasser, CEO of Saudi Aramco. It was a day before the discussion between Opec-plus leaders took place, where they agreed to cut their oil production by 2 million barrels per day starting in November. Nasser highlighted the danger of having a low spare oil production capacity, and raised a topic that continued throughout the conference — the chronic problem of underinvestment in the oil and gas sector. He said, “until plan B is ready — which is the alternatives, the renewables — we need to continue to invest in plan A, to make sure we don’t end up with a shortage of supply.”

On a similar note, Tellurian’s executive chairman, Charif Souki, argued that the word “transition” is being misused as we do not currently have a viable energy source we could transition to, from fossil fuels that are meeting almost 80% of the world’s energy demand. Souki may be correct in a sense, but the ship is definitely turning. According to the recently published International Energy Agency (IEA) World Energy Outlook, annual investment in clean energy amounted to $1.3 trillion last year, which accounted for more than half of the total investment that goes into the energy sector.

It is true, however, that the world has not seen a single full transition at a universal level — there have only been additions of energy sources. Coal, oil and gas were all added on top of biomass starting from the 1700s, but the world has still not fully transitioned from biomass to those sources. This shows the scale of the challenge we face. With a growing population, the world will be using more energy over time, all the while transitioning away from fossil fuels. This leaves clean energy with a big gap to fill that was originally met by fossil fuels, and at the same time adding even more energy to meet a growing demand.

Geopolitics and Energy Transition

One of the biggest takeaways for me from this year’s conference was how geopolitics and the energy transition are reshaping each other — it is not a one-way street. The prospect of the energy transition is reshaping geopolitics, and at the same time geopolitics is affecting the speed and scale of the energy transition.

Jason Bordoff, director of Columbia University’s Center on Global Energy Policy, commented that the energy transition is going to be messy and jagged. It will not be smooth or linear like the pretty graphs we see in different projections. In order to minimize this volatility, he said that more thought should be going into the “interim period” of the transition to ensure that energy can be secure, affordable and reliable.

How do we then address energy security in the shorter term, while not losing sight of clean energy transitions in the long term? How do we build a better energy system in the future that meets all three pillars of the energy trilemma — affordability, availability and sustainability? I wholeheartedly agreed when Bordoff talked about the difficulties in addressing both energy security and climate. One solution he suggested is to invest in “transition infrastructure” that could be repurposed at a later date for clean energy, or in infrastructure that has a shorter payback period so that it can be retired earlier.

On top of that, we should get people out of their echo chambers and create a platform where different stakeholders can engage in an honest conversation. We do not have any time to lose, and we need to bring everybody to the table.

Creating a Sustainable Industry

One of the questions that many people asked me at the Forum, was what the oil and gas industry could do to attract younger talent. Despite still being responsible for 80% of global energy demand, the industry is increasingly struggling to attract talent. My answer is clear: the oil and gas industry should continue to prove itself relevant. Oil and gas companies should be able to make a case for why they will still be relevant in 2040, and how the younger generation could play a role in issues that are important for us, be it climate change, gender equality or LGBTQ issues.

With more and more people demanding action to combat climate change, Big Oil should have its own answer sheet ready. For some, it will be through expanding their business and eventually pivoting to low-emission fuels or renewables, and for others it will be extending the social license of fossil fuels through addressing relatively low-hanging fruit, including methane emissions and carbon offsets. Oil and gas companies have a comparative advantage to other companies in the energy sector, since they have accumulated knowledge, and a successful track record of managing projects at scale. Those are the skills we need even in the zero-carbon future.

'Implementation COP' Ahead

October continued to be eventful after the conference. The IEA’s newest outlook projected a peak in all fossil fuels in all scenarios for the first time. On the other hand, a new report from the UN highlighted the big gap between ambitions and the reality. With the next UN climate summit about to start, it is time to think about priorities and how to move forward. Hosted by Egypt, COP27 is expected to give the developing world a bigger voice this year. Financing climate change loss and damage and bolstering adaptation projects will be one of the main themes. Although not discussed much at the Forum, the issue of a just transition and climate finance are important topics that require more attention too.

Looking back at the Forum and forward to COP27, it is certain that we still have many challenges ahead of us. The Energy Leaders for Tomorrow program offered me a unique opportunity to be in the room where “things happen” and to meet thought leaders from around the world. I was able to witness first-hand and learn how the leaders at the forefront of the energy sector think about, and agree and disagree with each other on how to chart realistic and sustainable paths for the future.

As one of the young generation aspiring to become leaders of the future, I hope that I can facilitate the difficult, yet important conversations that need to happen. I try to remind myself that we are living at an inflection point, where we have the opportunity to transition away from the past as much as we want, and shape the future as we want. The direction and speed are up to us.

Lilly Lee is a master of public administration candidate at Columbia University's School of International and Public Affairs, and a departmental research assistant at the Center on Global Energy Policy. She was an Energy Leaders for Tomorrow awardee at the Energy Intelligence Forum in 2022. The views expressed in this article are those of the author.

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