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21. Energy investment in a time of inflation

Author:
Charles Lichfield and Joseph Webster
Publication Date:
01-2023
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
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.
Topic:
Environment, Markets, Oil, Governance, Gas, Economy, Investment, Inflation, and Energy
Political Geography:
Global Focus

22. Small-scale LNG in the Euro-Mediterranean: A Contribution to the Decarbonisation of the Maritime Sector

Author:
Pier Paolo Raimondi
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
While governments have reaffirmed their commitment towards energy transition in light of the current energy crisis, the urgency to act implies to use all possible solutions to reduce CO2 emissions during the transitional period. Natural gas can play a role in the decarbonisation of certain sectors, such as the transport sector. In this sense, the small-scale LNG industry could contribute to the decarbonisation of the Mediterranean region. Regulatory and political incentives as well as socioeconomic and environmental benefits could represent critical drivers for the growing role of the small-scale liquefied natural gas (SSLNG), while it will need to overcome several challenges (e.g. political pressure, economic and infrastructure constraints).
Topic:
Climate Change, Natural Resources, European Union, Gas, Decarbonization, and Energy
Political Geography:
Europe and Mediterranean

23. Why Senegal Should Minimize Petroleum Operations Emissions

Author:
Papa Daouda Diene, Thomas Scurfield, and William Davis
Publication Date:
09-2023
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
Slowing climate change is not the only reason Senegal should reduce greenhouse gas emissions. Minimizing emissions, particularly of methane, from the country’s oil and gas operations will increase government revenues, support its ambitions to use gas to increase domestic energy access, and reduce harms to the health and environment of local communities. Senegal’s government is starting to act on minimizing emissions from oil and gas production, but officials should consider strengthening the regulatory framework to support emissions minimization. Greater transparency and accountability, including effective campaigning by civil society actors, is critical to ensure effective action by companies, investors and the government. Measures to reduce oil and gas methane emissions have been well-known and cost-effective for many years, but progress in most countries has been slow. Senegal’s government should at a minimum ensure that the existing regulatory framework is publicly accessible, while Senegal EITI should advocate for disclosure of actual emissions when oil and gas production starts.
Topic:
Gas, Fossil Fuels, Carbon Emissions, and Energy Transition
Political Geography:
Africa and Senegal

24. War and Energy Security: Lessons for The Future

Author:
Tomas Jermalavicius, Veli-Pekka Tynkkynen, Andrian Prokip, Christian Egenhofer, and Edoardo Righetti
Publication Date:
05-2023
Content Type:
Special Report
Institution:
International Centre for Defence and Security - ICDS
Abstract:
Russia’s war against Ukraine has produced multiple shifts in the geopolitical landscape of Europe. Various EU member states and EU institutions broke through entire decades of dogmatic principles and established practices in security and defence policies to respond to Russia’s aggression and protect the continent. The energy domain is at the forefront of this confrontation, as Russia used its dominant market position in European energy supply in the run-up to – as well as during – the war to weaken Europe’s responses, divide the EU, and deter it from increasing its support to Ukraine. The multifaceted and far-reaching impact of the war offers an opportunity for a deeper reflection on the lessons learned for energy security at the national, regional, and EU levels. It allows for an assessment of the prospects in the geopolitical landscape where Russia is comprehensively isolated; new energy and technology players grow in importance; a new global energy order emerges; and the effects of the climate crisis become more severe and evident. It is also a rare opportunity to assess how complex energy systems retain their resilience or degrade under the conditions of a high-intensity conventional war, which has collective defence implications to the ability of the frontline states, such as Estonia, to fulfil NATO’s baseline requirements for national resilience and thus Article 3 of the North Atlantic Treaty. The report seeks to provide analysis concerning these aspects of the war’s short-, medium-, and long-term impact on energy security in Europe, the Baltic region, and Estonia. Conclusions of the report stress the importance of regulatory, policy, and technological flexibility, as well as innovation, in responding to various forms of strategic coercion through the energy sector – especially when such coercion is applied against targets under the duress of a major war, in which economic disruption, market uncertainty, geopolitical turmoil, and societal anxieties are abundant. The conclusions caution though that the appetite for resilience-enhancing investments and transformative solutions might diminish in the cost-conscious economic environment of the future or that the EU and US will start a vicious cycle of protectionist measures in green energy development, which will undercut transatlantic cooperation in energy security.
Topic:
Security, NATO, Infrastructure, European Union, Gas, Crisis Management, Renewable Energy, Hybrid Threats, and Nuclear Energy
Political Geography:
Russia, Europe, Finland, Poland, Lithuania, Estonia, Sweden, and United States of America

25. Russia Is Down, But Not Out, in Central Asia

Author:
Maximilian Hess
Publication Date:
02-2023
Content Type:
Commentary and Analysis
Institution:
Foreign Policy Research Institute (FPRI)
Abstract:
Russia’s invasion of Ukraine has weakened its influence in Central Asia, especially in Kazakhstan. Russia is no longer a regional hegemon, which may increase regional instability. Tensions between Kyrgyzstan and Tajikistan are especially dangerous. Despite Moscow’s diminished influence in Central Asia, regional states cannot afford to completely ignore Russian interests. Western hopes for Central Asian gas resources to be pumped westwards and circumvent Russia remain unlikely to be fulfilled.
Topic:
Foreign Policy, Gas, Political stability, Regional Power, and Russia-Ukraine War
Political Geography:
Russia, Europe, Central Asia, Ukraine, and Kazakhstan

26. Russia Is Down, But Not Out, in Central Asia

Author:
Maximilian Hess
Publication Date:
02-2023
Content Type:
Commentary and Analysis
Institution:
Foreign Policy Research Institute (FPRI)
Abstract:
Russia’s invasion of Ukraine has weakened its influence in Central Asia, especially in Kazakhstan. Russia is no longer a regional hegemon, which may increase regional instability. Tensions between Kyrgyzstan and Tajikistan are especially dangerous. Despite Moscow’s diminished influence in Central Asia, regional states cannot afford to completely ignore Russian interests. Western hopes for Central Asian gas resources to be pumped westwards and circumvent Russia remain unlikely to be fulfilled.
Topic:
Foreign Policy, Gas, Regional Power, and Russia-Ukraine War
Political Geography:
Russia, Central Asia, Eurasia, Ukraine, and Kazakhstan

27. Keeping the lights on: The EU’s energy relationships since Russia’s invasion of Ukraine

Author:
Szymon Kardas
Publication Date:
05-2023
Content Type:
Policy Brief
Institution:
European Council on Foreign Relations (ECFR)
Abstract:
Since the start of Russia’s all-out invasion of Ukraine, the EU has sought to rapidly reduce its dependence on Russian gas and oil. Many alternative major suppliers to Europe stepped up as ‘friends in need’ in the first year of the war, helping the EU plug the gap. The EU’s climate goals direct it to encourage the development of renewable energy sources – meaning it must also cultivate ‘friends indeed,’ which can supply clean energy as well as gas and oil. The countries best able to fulfil both short-term needs and long-term ambitions are Norway and the US, which have stable supplies of gas and are making progress in clean energy. The EU and member states have the instruments and investment resources to advance the potential of other supplier countries as well – to help them too transform from ‘friends in need’ to ‘friends indeed.’
Topic:
Climate Change, Oil, European Union, Gas, Energy, and Russia-Ukraine War
Political Geography:
Russia, Europe, Eurasia, and Ukraine

28. The advantages and uncertainties of gas in Europe's energy transition

Author:
Clémence Pèlegrin
Publication Date:
12-2023
Content Type:
Working Paper
Institution:
Robert Schuman Foundation (RSF)
Abstract:
During the high-level conference organised in Paris in September, the International Energy Agency (IEA), the European Central Bank (ECB) and the European Investment Bank (EIB) hailed the speed with which the European Union has freed itself from its energy dependence on Russia. According to the three institutions, the task now will be to consolidate and perpetuate this autonomy, which was achieved so quickly and to the surprise of many observers. The IEA also recalled the staggering amounts of annual investment needed to implement the energy transition, and the budgetary efforts required by the European Union in this area, in reference to the commitment to devote at least 30% of its 2021-2027 budget to climate action. The Covid-19 pandemic had already disrupted European discourse on the energy transition, just a few months after Ursula von der Leyen's inaugural speech on the The European Green Deal in 2019 and the advent of a just transition in Europe. Despite the health context and strong political opposition in the Member States over the place to be given to the energy transition in regard to short-term economic recovery, the European Union has maintained the course of an ambitious energy transition and strengthened its intermediate objectives for 2030, (Fit for 55 - The EU's plan for a green transition - Consilium), with a 55% reduction in greenhouse gas emissions). In February 2022, the war in Ukraine sparked a new energy crisis: faced with the risk of disruption to gas supplies, the need to simultaneously decarbonise the economy and the energy mix, once again became a political imperative for the European Union. Energy efficiency and the promotion of energy-saving policies were identified as necessary and complementary ways of securing the continent's gas supplies. At the heart of long-standing political debates in Europe, the future of gas is inevitably being shaped by a downward trend: even in the scenario of complete substitution of fossil gas by green gas, the decarbonisation scenarios in Europe all point to a reduction in the use of the latter by 2050. Structural effects, such as global warming and the resulting tendency for milder winters, and cyclical effects, such as the energy crisis and the recent rise in prices experienced by households, are already pointing to a decline in the demand for gas, as a result of efforts to economise or consumers switching from gas. However, gas continues to provide services to the European energy system, in particular to satisfy heating requirements and energy for cooking by producing electricity during peaks in demand, or in the industrial sector where its complete substitution is not yet possible. This article provides a summary of three of the main issues surrounding the future of gas in the European Union: changing energy dependency; competition between gas and other energies in the European energy mix; and the development of green gas and its political future in a context of electrification.
Topic:
Climate Change, European Union, Gas, Crisis Management, and Energy Transition
Political Geography:
Europe

29. The Turkish Gas Hub Project: A Pivotal Putin and Erdogan Arrangement

Author:
Rahim Rahimov
Publication Date:
01-2023
Content Type:
Journal Article
Journal:
Baku Dialogues
Institution:
ADA University
Abstract:
Russian-Turkish relations have gone through a significant transformation under the leadership of Vladimir Putin and Recep Tayyip Erdogan. Initially characterized as a Putin-Erdogan partnership, now the bilateral relationship has evolved into a strategic partnership between the two states. Uniquely, NATO member state Türkiye has effectively and, so far, successfully dealt with Russia and Ukraine amidst the ongoing war between them. However, contemporary contradictions, imperial pasts, a legacy of conflict and wars, and related mutual distrust and suspicion continue to linger in the background and, one could say, just below the surface: characterizing the ties that bind Ankara and Moscow is, thus, hardly a straightforward endeavor. This essay looks not only to the historical record but also explores the perspectives of the TurkishRussian partnership within the framework of an increasingly important thread of the relationship in the time ahead: Putin’s Turkish gas hub proposal, which he made in late 2022 in response to broader developments in the conflict over Ukraine. A major conclusion is that Ankara and Moscow are set to take forward their bilateral relations despite their historical baggage and current geopolitical and geo-economic circumstances. In this context, the Turkish gas hub project represents a pivotal idea for the future trajectory of this important bilateral relationship.
Topic:
Foreign Policy, Bilateral Relations, Partnerships, Geopolitics, and Gas
Political Geography:
Russia, Eurasia, and Turkey

30. Corking Russian Gas: Global Economic and Political Ramifications

Author:
Scott Semet
Publication Date:
08-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Awarm winter in 2022–2023, a purposive decline in consumption that caused the economy to cool, and frantic efforts to attract supplies of liquefied natural gas (LNG) obscured Europe’s enduring reliance on cheap Russian gas for economic growth. European winters will not always be warm, and there is not enough LNG to replace Russian gas in the short term. Efforts to wean Europe from Russian gas permanently defy economic logic. Should policymakers choose to do so, it would carry costs not only for Europe but also for the United States and the rest of the world.
Topic:
Gas, Economic Growth, Imports, Energy, and Regional Politics
Political Geography:
Russia, Europe, and United States of America